Executive Summary: Key Legal and Evidentiary Issues

• Whether judgment creditors proceeding under s 534 of the Insurance Act are entitled to full-indemnity (solicitor-client) costs when they successfully establish coverage against the insured’s liability insurers
• Distinction between duty-to-defend case law (such as M(E) v Reed) and a duty-to-indemnify proceeding, and whether duty-to-defend cost principles apply in this context
• Appropriateness of awarding solicitor-client costs versus Schedule C or lump-sum “reasonable indemnity” costs where insurers’ conduct in the coverage litigation was cooperative and efficient
• Proper forum and mechanism for recovering “thrown-away” judgment-enforcement costs against the contractor, including whether they can be claimed in a later s 534 proceeding against insurers
• Characterization of post-judgment interest on the underlying judgment as a costs issue versus a potential head of loss to be addressed as an insurance coverage question in further submissions
• Determination that a lump-sum all-inclusive costs award of $38,000 is reasonable, instead of the $93,223.83 in solicitor-client coverage-action costs and $44,028.83 in enforcement costs claimed by the plaintiffs

Facts of the case

The plaintiffs, David Alexander Tragger and Hypocrite Productions Inc., hired a company described as “the contractor” to supply and install stone siding on two buildings. The contractor supplied the siding and hired a subcontractor to install it. The siding was installed in 2007. In 2014, material portions of the siding began to delaminate, which forced the plaintiffs to remove and replace all of it. The plaintiffs sued both the contractor and the subcontractor in summary judgment proceedings. Associate Justice Summers found faulty workmanship amounting to negligence by the subcontractor and a breach of contract by the contractor. He awarded a judgment for approximately $310,000, with prejudgment interest and costs, against the contractor and subcontractor, jointly and severally. The plaintiffs were unable to collect any amount on that judgment.

Proceedings against the insurers under s 534 of the Insurance Act

The contractor notified its two insurers, Intact Insurance Company and Royal & Sun Alliance Insurance Company of Canada, of the plaintiffs’ claim. Both insurers advised that, in their view, the claim fell outside the scope of the insurance coverage. The contractor apparently did not dispute the insurers’ denials or assert a duty to defend. As a result, the contractor and subcontractor defended themselves in the summary judgment proceeding. After the plaintiffs failed to collect on the judgment, they invoked s 534 of the Insurance Act, titled “Execution against insured unsatisfied,” seeking recovery from the contractor’s commercial general liability insurers. In the coverage action, an Agreed Statement of Facts was prepared to avoid re-litigating issues decided in the first lawsuit. The agreed materials included, among other things, the main judgment, a follow-up costs order, and a writ of enforcement. The Agreed Statement of Facts recorded a follow-up order dated March 1, 2022, in which Associate Justice Summers awarded the plaintiffs “costs of the action” against the contractor in the amount of $40,133.70 and prejudgment interest of $15,282.68. It also recorded a writ of enforcement filed against the contractor for “original judgment” amount of $311,718.38, representing the base judgment amount of $256,322, the $40,133.70 costs, the $15,282.68 prejudgment interest, and $276.99 in post-judgment interest from September 30, 2021 to April 11, 2022.

Main judgment on coverage and nature of the insurers’ obligations

In the main judgment, Tragger v Intact Insurance Company, 2025 ABKB 678, Justice Lema found that the plaintiffs’ losses were covered under some of the policies issued by the contractor’s two insurers, thereby obliging the insurers to cover those losses. The present endorsement explains that this proceeding concerns the duty to indemnify, not the duty to defend. Justice Lema referred to Professor Barbara Billingsley’s General Principles of Canadian Insurance Law, which describes liability insurance as typically imposing two separate but related contractual duties on an insurer: a duty to defend, requiring the insurer to pay for and instruct legal counsel to defend the insured against a third-party claim, and a duty to indemnify, requiring the insurer to pay any judgment or settlement up to the policy limits. Both duties arise as a matter of contract and their scope depends on the policy wording. In this case, the contractor had defended the liability action itself, and the plaintiffs, as judgment creditors, later used s 534 to seek payment directly from the insurers. Justice Lema stated that the plaintiffs here were not seeking to enforce the insurers’ duty to defend and that “we are past that stage.” The focus was on the duty to indemnify, and the Court had already determined in the main judgment that the insurers were obliged to cover the plaintiffs’ losses under certain policies.

Plaintiffs’ claim for solicitor-client (full-indemnity) costs

After the coverage ruling, the plaintiffs sought solicitor-client (full-indemnity) costs. They relied on the principle in M(E) v Reed, arguing that full indemnification followed from the explicit duty-to-defend terms in the insurance contracts, specifically “Supplementary Payments” language set out in the Agreed Statement of Facts, and from the Alberta Rules of Court, including Rule 1.2 and Rule 10.33. They contended that, under s 534, they stand “in the shoes of the insured,” and that the costs claimed were those that would have been incurred by the insured in forcing the insurers to admit liability under the policy. The plaintiffs submitted that, if the insurers had correctly interpreted coverage in 2015, the second lawsuit would not have been necessary. They further argued that enforcement costs against the contractor were “thrown away,” as those steps would not have been necessary if coverage had been acknowledged earlier, and that these enforcement costs should either be treated as costs in this action or at least demonstrate exceptional financial prejudice supporting full indemnification for the second action. The plaintiffs claimed a total of $137,252.66 in costs: $93,223.83 for the coverage action itself, supported by schedules and invoices (Schedule A), and $44,028.83 for “thrown-away costs” incurred in attempting to enforce the judgment of Associate Justice Summers (Schedule B). In the alternative, they provided a Schedule C calculation for comparison, reflecting Schedule-C-level fees of $13,625.00, taxable disbursements of $198.72, non-taxable disbursements of $897.00, and GST of $691.19, for a total of $15,411.91, which they argued would be inadequate in light of McAllister v Calgary (City), 2021 ABCA 25.

Court’s rejection of solicitor-client costs and reliance on West Van Holdings

Justice Lema rejected the request for solicitor-client costs. He held that the plaintiffs’ reliance on duty-to-defend cases such as M(E) v Reed was misplaced because this case did not involve enforcement of a duty to defend. The plaintiffs did not point to any duty-to-indemnify authorities that would support full-indemnity costs merely because indemnity was initially denied. Justice Lema further stated that, even if this matter had been a duty-to-defend case or if duty-to-defend principles were considered relevant, he would follow the approach in West Van Holdings Ltd v Economical Mutual Insurance Co, 2019 BCCA 110. The endorsement reproduces passages from West Van explaining that insurance policies are often silent regarding the cost of enforcing coverage, that the contractual promise to pay defence costs cannot be extended to legal fees incurred in suing the insurer, and that there is no custom in the insurance industry requiring insurers to pay full-indemnity costs to insureds who successfully enforce coverage. West Van also notes that party-party costs are designed only to partially indemnify litigants and that special costs are primarily to deter misconduct. Justice Lema accepted this reasoning, concluding that there was “no principled reason to award costs in a duty to defend case in a manner different than other litigation,” and therefore no basis to treat this duty-to-indemnify proceeding differently from other contractual disputes.

Assessment of insurers’ conduct and rejection of enhanced costs

The Court also considered the insurers’ litigation conduct in the coverage action. Justice Lema accepted Royal & Sun Alliance’s overview that, once it was served with the Statement of Claim in the coverage lawsuit, all parties and counsel worked collaboratively to resolve the coverage issue efficiently. By agreement, they decided not to re-litigate issues already determined in the first lawsuit and instead proceeded by way of a lengthy Agreed Statement of Facts and a one-day trial of an issue. Royal & Sun Alliance submitted that it was brought back into the matter in 2023, long after initially declining coverage in 2015, and that it proceeded from that point forward in an expeditious manner to resolve the matter. Justice Lema similarly accepted Intact’s submission that it cooperated to have the action heard in the most efficient and timely manner, including agreeing to proceed via an Agreed Statement of Facts and a streamlined trial, and that it could not have provided a more expedient path to a trial decision. The plaintiffs did not argue otherwise. On this record, Justice Lema found no misconduct and no basis to award solicitor-client-level or otherwise enhanced costs.

Determination of lump-sum costs for the coverage action

On the quantum of costs for the coverage action, the plaintiffs had prepared a for-comparison bill of costs under Schedule C. Intact submitted that the appropriate costs guide was Schedule C, Division 2, Column 3. It pointed out that the plaintiffs’ Schedule C bill of $15,411.91 did not include item 12 (Written Argument) in the amount of $4,050, which Intact argued should properly be included. Intact also submitted that, although the Agreed Statement of Facts did not neatly fit into item 4 (Expedition or better definition of the case), it was similar to a Notice to Admit Facts and should attract costs of $1,080. On that basis, Intact calculated total Schedule-C-style costs (including disbursements) as $20,541.91. It then suggested that, because the action had been conducted more like a Special Application than a trial, a lump-sum award under Rule 10.31(1)(b)(ii) of $30,000—approximately double the plaintiffs’ Schedule C bill—would be fair and reasonable. Royal & Sun Alliance argued that costs should be set at Schedule-C-level but did not offer itemized comments or a specific lump-sum alternative. The plaintiffs, for their part, did not provide detailed submissions on Schedule C, beyond asserting that base-level Schedule-C costs “would be inadequate” given McAllister. Justice Lema noted that the plaintiffs claimed $93,233.83 in solicitor-client costs for the coverage action, and that Royal & Sun Alliance argued that this amount was not reasonable and would have to be taxed. Referring to McAllister, which suggests a benchmark of 40 to 50 per cent of reasonable solicitor-client costs for party-party costs, Justice Lema determined that a lump-sum all-inclusive costs award of $38,000 in favour of the plaintiffs was appropriate for the coverage action. He observed that this amount represented 40.7 per cent of the plaintiffs’ claimed solicitor-client fees if those fees were accepted as reasonable, or 50 per cent of their fees if adjusted to $76,000, which would reflect an approximate 20 per cent reduction for excessiveness.

Treatment of judgment-enforcement costs and post-judgment interest

The plaintiffs also claimed $44,028.83 in “thrown-away costs” incurred in attempting to enforce the judgment of Associate Justice Summers. Their materials included a schedule outlining the enforcement steps and the associated legal costs. These steps included registering the writ of enforcement and applications related to questioning in aid of execution and “set aside, removal, and sale.” Justice Lema concluded that these enforcement costs fell outside the scope of the current costs proceedings. He noted that many of the described steps were related to court applications that would presumably have had their own costs consequences, and the plaintiffs had not shown that those costs had been deferred to this proceeding. He further held that, as reflected in Schedule C items 13–17 (“Post-judgment”), post-judgment enforcement steps are properly addressed in the proceeding giving rise to the judgment, by way of a supplementary bill of costs in the plaintiffs’ action against the contractor and subcontractor, rather than in this spill-over proceeding against the insurers. The plaintiffs also asked the Court to ensure that interest on the underlying judgment was included, stating that the reasons for judgment did not mention such interest, which they said was explicit in the policy, and they tabulated post-judgment interest of $42,424.87, calculated using Judgment Interest Act rates for 2021–2025. Intact argued that this claim sought indemnification for what it characterized as contractual interest that had not been pleaded or argued, and that interest should not be awarded under the guise of costs. Justice Lema agreed that this was not a costs-related claim and therefore beyond the scope of the present exercise. He stated that, if the plaintiffs believed this post-judgment interest formed part of the loss covered by the insurance and the insurers disagreed, he would decide the point after receiving further letter-form submissions, limited to two pages from each side, on specified dates.

Overall outcome and amount ordered in favour of the successful party

In this costs endorsement, Justice Lema held that full-indemnity (solicitor-client) costs were not warranted and that the appropriate lump-sum all-inclusive costs for the coverage action were $38,000. The plaintiffs’ further claims for $44,028.83 in judgment-enforcement costs and for immediate inclusion of $42,424.87 in post-judgment interest as “costs” were held to fall outside the scope of this costs proceeding, and the interest issue was left for possible determination as a coverage matter upon further submissions. The plaintiffs, as judgment creditors who had already succeeded on the coverage issue in the main judgment, were therefore the successful party in this costs decision, and the total monetary amount ordered in their favour in this endorsement is $38,000 in lump-sum, all-inclusive costs; based solely on this document, the exact total of all monetary awards and costs granted across both decisions cannot be determined.