Thoughts and Opinions On Today's Important Issues

Monday, July 12, 2010

Tip Of The City's Litigation Iceberg

It is starting to get ugly and expensive as I have warned before. There are consequences to actions.

It is obviously the start of massive litigation against the City of Windsor. The Bridge Company has sued the City for bad faith in passing the Interim Control by-law and the Anti-Demolition by-law and is seeking monetary damages.

The effect on Windsor taxpayers can be quite substantial down the road. Let me explain.

One of the Councillors should ask tonight whether this lawsuit, the legal fees and damages, are covered by the City’s insurance policy. If they are, frankly it is no big deal depending on what the deductible is and the maximum amount of the Insurance Policy. Assuming that the deductible is low and the coverage is very high, then taxpayers do not have all that much to be worried about, especially if the maximum claim is only $250,000.

I thought that the City had increased its deductible to $250,000. If that is the case, then, depending on the wording of the policy, there may be no insurance coverage for this particular claim at all and all of the legal costs may have to be borne by the City. Those could be quite substantial, perhaps running in the hundreds of thousands of dollars especially if the City loses. Nevertheless, the City could bear that risk.

However, remember that the Bridge Company has an outstanding claim for over $3 billion in its NAFTA claim. What if a lawsuit down the road goes after the City for that amount for bad faith. I would strongly doubt that there is a policy in existence that would cover the extent of a claim that large although I may be wrong since I have no idea what the City’s insurance policy says. Accordingly, taxpayers would be responsible for any excess over the insurance limits. (Technically, the City would be responsible and taxpayers would have to make up the amount through property taxes. I wonder what the tax increase would be for a billion-dollar damages judgment).

But what if there is no insurance at all that covers a “bad faith” claim. Again, I have no idea what the City’s policy covers but in a normal case, errors and omissions and liability policies do not cover bad faith which is a deliberate act. That type of action is not normally what insurance policies cover.

In this case, if this is the first of many “bad faith” claims, then we as taxpayers have a lot to be concerned about. Legal costs would be horrific… just remember the millions our legal weapon of mass destruction cost us for his border legal fees. However, these amounts would be miniscule in a major claim for damages and probably punitive damages if the Bridge Company was successful in a bad faith claim against the City. The amounts could be in the hundreds of millions of dollars or even higher… perhaps in the billions. Just remember that Minister Baird said that traffic volumes would triple. That sets a nice price for losses. Don't forget delays in moving forward eg interest costs alone on a billion dollar project..

Who pays for this other than taxpayers?

Here’s where it gets really interesting. Depending on the wording of the insurance policy or lack thereof, I would have thought that the City should be considering suing those members of Council who are responsible for the bad faith claim. What should be done I would have thought at this stage is to Third Party those members and in effect seek indemnification from them.

That would be a fascinating turn of events as well. We would have one Member of Council going after another Member. That puts the Member's personal assets at risk. Presumably now, they ought to be seeking their own independent legal advice.

But what if Council decided to do nothing, to not seek an indemnity from those responsible on Council. Frankly, I'm not sure what happens next other than perhaps an action by a taxpayer against Council seeking that Indemnity.

You may think that this is a tempest in a teapot because after all a Member of Council would seek indemnification from the City for any damages in any event. I'm not so certain that that would be allowed even if the City wanted to do so. Here's what the Municipal Act says:
  • "Immmunity

    448. (1) No proceeding for damages or otherwise shall be commenced against a member of council or an officer, employee or agent of a municipality or a person acting under the instructions of the officer, employee or agent for any act done in good faith in the performance or intended performance of a duty or authority under this Act or a by-law passed under it or for any alleged neglect or default in the performance in good faith of the duty or authority."

It would not seem therefore that the City would be prohibited from seeking indemnification from someone who did not act in good faith.

While not exactly on point, the Municipal Conflict of Interest Act says

  • "Insurance

    14. (1) Despite section 279 of the Municipal Act, 2001 or section 218 of the City of Toronto Act, 2006, as the case may be, the council of every municipality may at any time pass by-laws,

    (a) for contracting for insurance;

    (b) despite the Insurance Act, to enable the municipality to act as an insurer; and

    (c) for exchanging with other municipalities in Ontario reciprocal contracts of indemnity or inter-insurance in accordance with Part XIII of the Insurance Act,

    to protect a member of the council or of any local board thereof who has been found not to have contravened section 5, against any costs or expenses incurred by the member as a result of a proceeding brought under this Act, and for paying on behalf of or reimbursing the member for any such costs or expenses."

Section 5 deals with acting properly in the event of a conflict of interest. In other words the Member must have acted by complying with the section of the Act to get the benefit of any insurance indemnity.

Anyway you look at it, the City and its taxpayers are in trouble. It really doesn't matter if there is insurance or not. If the Bridge Company is successful in its bad faith claims against the City the amount of the damages could well exceed any insurance coverage that the City has.

Another fine border mess for which taxpayers may have to be responsible.