Court finds party can recover fees for expert reports, whether expert called to give evidence or not

A party can recover reasonable fees for expert reports reasonably necessary for the conduct of a proceeding regardless of whether the expert was called to give evidence, the Court of Appeal for Ontario said in a recent insurance case.

In MDS Inc. v. Factory Mutual Insurance Company, 2021 ONCA 837, the underlying dispute concerned whether the appellant insurer should provide insurance coverage pursuant to an all-risk insurance policy issued to the respondents, a global health science company and its Canadian subsidiary. The respondents had agreed to buy radioisotopes produced at a nuclear reactor in Chalk River, Ontario. The reactor had an unplanned shutdown in 2009, which caused business losses for the respondents.

The appeal addressed the insurance policy’s interpretation and the standard of review applicable to it. The issues included whether the term “corrosion” in the policy’s exclusions was ambiguous, whether “corrosion” should be interpreted as “the anticipated and predictable process of corroding,” whether the exception to the exclusion for “physical damage” was ambiguous and whether “physical damage” should be interpreted to include loss of use.

The court allowed the insurer’s appeal and denied coverage. The court held that the policy did not cover the respondents’ losses because the corrosion exclusion applied, and that “physical damage” did not apply to economic losses arising from the inability to use the equipment during the shutdown.

The parties could not agree on the quantum of trial costs. The trial judge awarded the respondents costs of $1,266,105.48. The insurer sought an award of costs amounting to approximately 25 per cent of the costs awarded to the respondents.

The Court of Appeal awarded the insurer the amount of $561,103.95 for its partial indemnity costs and disbursements, including fees of $241,284 plus harmonized sales tax (HST) and disbursements of $255,268.17 plus HST.

The appellate court noted that not all issues analyzed at trial were raised on appeal, but found that the insurer was entirely successful on its appeal and was thus entitled to its reasonable costs of the trial. The appellate court considered the factors to determine the amount of costs under r. 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

First, the appellate court ruled that the issues pursued at trial and on appeal were complex and important, involving $56 million at stake, several expert witnesses and an interpretation which had precedential value because it dealt with a standard form policy used by insurers in the insurance industry across North America.

Second, the appellate court held that the hourly rates of the insurer’s counsel were reasonable, and that the fees requested by the insurer reflected a partial indemnity rate.

Third, the appellate court allowed the insurer to recover the disbursements for expert advice, regardless of whether the expert reports were introduced at trial or relied on by the trial judge.

The appellate court found that the amounts paid to the insurer’s expert accounting firm were reasonably incurred to respond to the issues that the respondents raised, even though the expert report was not introduced at trial. The accounting firm had offered expert advice regarding the quantification of loss from the date of the shutdown for the duration of the outage and the quantification of prejudgment interest.