Aviva awarded security of costs in case launched by auto warranty seller

Ontario’s Superior Court has awarded Aviva Canada security of costs of $85,000 in a case in which the insurer has been named in a $5-million lawsuit launched by a warranty provider that has gone out of business.

Umbrella Warranty’s claim, which has not been proven in court, is that Aviva Warranty Services Inc. (AWSI) and AWSI’s parent companies, Aviva Canada and Aviva Insurance Company of Canada, refused to permit Umbrella to market a vehicle mechanical breakdown insurance product to independent automobile repair shops.

It further alleges AWSI terminated its prime contract with Umbrella over the dispute, which is a main reason why Umbrella went out of business.

AWSI has filed a statement of defence denying these claims. (Aviva Canada and Aviva Insurance Company of Canada were not parties to the contracts between AWSI and Umbrella.)

Aviva asked the court for $150,000 in security of costs, relying on an admission by Umbrella CEO Darren Fox that Umbrella has ceased carrying on business and no longer has any assets. A motion of security for costs is often done when there is, as the court put it, “good reason to believe…the plaintiff has insufficient assets in Ontario to pay the [legal] costs of the defendant.”

Aviva denies Umbrella lacks the funds to pay Aviva’s legal costs. The court agreed, noting, for example, that the company CEO’s parents, also company shareholders, had not been asked to contribute financially to Umbrella’s lawsuit. In addition, Aviva argued, Umbrella’s claim did not have any greater chance of success than Aviva’s defences, to which the court agreed in a decision released Oct. 5.

“Umbrella argues that Aviva is a large insurance company that does not require protection for a costs award, which Umbrella submits in this case would amount to a miniscule fraction of its annual revenues,” Ontario Superior Court Associate Justice Todd Robinson wrote in the court decision. “I do not accept that argument…..

“I fail to see why a plaintiff with nominal or no assets should be able to avoid security for costs simply because it has sued a large or financially stable defendant. In my view, finding that such a defendant is somehow less deserving of security for costs than another defendant in the same litigation position with less financial wherewithal would itself be unjust.”

However, the court found Aviva’s billable hours for the legal counsel involved in the case, based on their experience, was on the high side. It trimmed Aviva’s claim for $150,000 down to $85,000, to be paid installments.

In determining whether or not security of costs is warranted, the court must consider whether Umbrella has a substantial chance of success in court (meaning it would not likely have to pay Aviva’s legal bills). In this case, the court said it did not have enough evidence to say Umbrella stood an excellent chance of success.

When heard at trial, the case will turn on the interpretations by each party of emails exchanged between Umbrella and AWSI’s assistant vice president of specialty warranty. At issue is whether AWSI’s rep gave a blanket “no” to Umbrella regarding the sale of its auto mechanical breakdown insurance product to independent auto repair shops, or whether he allowed the warranty sales to some but not other repair shops, on a “one-by-one” basis.

Aviva also denies Umbrella’s claim that termination of the main agreement was a primary cause of going out of business. The court noted in its decision that Umbrella may well be able to prove termination of the contract was the main factor, but the chances of success were not high enough to throw out Aviva’s motion for security of costs.

“Notably, Umbrella’s financial statements for 2015-2019 support that its annual expenses exceeded its annual revenue long before AWSI is alleged to have interfered in Umbrella’s marketing to independent repair shops and before the agreements were terminated,” the court noted in its October decision on Aviva’s motion for costs.

That is something a trial court would have to consider, the court added.

Feature photo courtesy of iStock.com/Ridofranz