Executive Summary: Key Legal and Evidentiary Issues

• Judgment creditors sought full-indemnity (solicitor-client) costs after successfully establishing insurance coverage under s 534 of the Insurance Act against the insured's commercial general liability insurers.

• Plaintiffs argued they stood in the shoes of the insured and relied on duty-to-defend jurisprudence, particularly M(E) v Reed, to claim total costs of $137,252.66 including thrown-away enforcement costs.

• The Court distinguished duty-to-defend principles from the duty-to-indemnify at issue, finding the Reed line of cases inapplicable to the present proceeding.

• Adopting the reasoning in West Van Holdings Ltd v Economical Mutual Insurance Co, 2019 BCCA 110, the Court held there is no principled basis for awarding enhanced costs in insurance coverage disputes absent misconduct by the insurer.

• Judgment-enforcement costs of $44,028.83 and post-judgment interest of $42,424.87 were found to fall outside the scope of the costs endorsement, with interest subject to potential follow-up submissions.

• A lump-sum all-inclusive costs award of $38,000 was determined to be appropriate, representing approximately 40.7% of the plaintiffs' claimed solicitor-client fees.

The underlying dispute and original judgment

David Alexander Tragger and Hypocrite Productions Inc. hired a 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. By 2014, material portions of the siding began to delaminate, forcing the plaintiffs to remove and replace all of it. The plaintiffs sued both companies in summary judgment proceedings. AJ 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 companies jointly and severally.

Failed collection and the insurance coverage action

The plaintiffs were unable to collect any amount on the judgment. They then invoked s 534 of the Insurance Act, seeking recovery from the contractor's commercial general liability insurers. The contractor had notified its two insurers — Intact Insurance Company and Royal & Sun Alliance Insurance Company of Canada — of the plaintiffs' claim. Both advised that, in their view, the claim fell outside the scope of the insurance coverage. The contractor apparently did not dispute that view or otherwise assert a duty to defend by the insurers. As a result, the contractor (and the subcontractor) defended themselves in the summary judgment proceeding. In the coverage action (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 insured's two insurers, obliging them to cover those losses.

The costs dispute

Following the coverage judgment, Justice Lema ruled that the plaintiffs were entitled to costs, with the scale to be addressed by written submissions. The plaintiffs claimed total costs of $137,252.66, comprising $93,223.83 for the coverage action and $44,028.83 for thrown-away costs to attempt to enforce the judgment of AJ Summers. In the alternative, the plaintiffs prepared a Schedule C draft bill of costs 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, but argued that amount would be inadequate given McAllister. The plaintiffs also sought inclusion of post-judgment interest totalling $42,424.87, which they said was explicit in the policy but had not been mentioned in the reasons for judgment.

The plaintiffs' argument for full-indemnity costs

The plaintiffs relied primarily on the principle in M(E) v Reed (2003 CanLII 52150) that full indemnification follows from the explicit terms of the insurance contract of a duty to defend at no expense to the insured. They argued it also follows from the Alberta Rules of Court discouraging duplicity of actions and efficient access to justice, and from McAllister (v Calgary (City), 2021 ABCA 25) because reasonable indemnity is full indemnity on the remedial principle that insured should not have to sacrifice a material portion of their recovery to establish coverage. Under s 534, the plaintiffs contended they were in the shoes of the insured. They further argued that the costs of enforcing against the contractor are "thrown away" and would not have been necessary if the defendants had responded to coverage during the first lawsuit, and that had the Defendants correctly interpreted coverage in 2015, this lawsuit would not have been necessary.

The Court's rejection of solicitor-client costs

Justice Lema found that the present case was not about the duty to defend. Such duty was a matter between the contractor, on the one hand, and its two insurers, on the other. The plaintiffs were not seeking to enforce the insurers' duty to defend; the focus was the duty to indemnify. With the duty to defend not at issue, the cases cited by the plaintiffs, turning on the "unique nature of the insurance contract which entails a duty to defend at no expense to the insured" per Reed, were distinguishable. The plaintiffs did not point to any duty-to-indemnify cases calling for full-indemnity costs simply on the basis of a failure (at first instance) to indemnify.

Even if this had been a duty-to-defend case, or if the principles from those cases were relevant, Justice Lema stated he would decline to award full-indemnity costs, adopting the reasoning of the British Columbia Court of Appeal in West Van Holdings Ltd v Economical Mutual Insurance Co, 2019 BCCA 110. The BCCA held that the insurance contract is silent in regard to the cost of enforcing coverage and that the language in the policy cannot be extended to cover legal fees and expenses the insured may incur in attempting to enforce its contractual right to coverage. The BCCA further stated that there is no custom in the insurance industry by which insurers are expected to pay the full indemnity costs of a claimant enforcing coverage, that an implied term is not necessary to give business efficacy to the contract, and that the special nature of insurance contracts however does not justify the creation of a different costs regime governing all insurance claimants. The BCCA also reasoned that there is no principled reason why a different scale of costs should apply to insureds who successfully enforce a contractual obligation than any other litigant who is forced to bring an action in order to obtain relief. Justice Lema also accepted the insurers' arguments that their conduct of the litigation was unobjectionable — in fact, commendable — with all parties working collaboratively through an Agreed Statement of Facts and a streamlined trial. The plaintiffs did not argue otherwise.

Determination of appropriate costs

The plaintiffs prepared a Schedule C draft bill of costs showing fees of $13,625 and associated amounts, for a total of $15,411.91. Intact noted that the plaintiffs did not claim item 12 (Written Argument) in the amount of $4,050 and submitted that costs for the Agreed Statement of Facts, similar to a Notice to Admit Facts, should be awarded in the amount of $1,080, bringing total costs (including disbursements) to $20,541.91. Intact further submitted that a lump-sum award of $30,000.00, which is double the plaintiffs' bill of costs, would be a fair and reasonable amount. Royal & Sun Alliance argued for costs to be set at Schedule-C-level, without offering comments on additional items or the lump-sum figure. Recognizing that the plaintiffs claimed solicitor-client costs of $93,233.83 for the coverage action, that RSA asserted the plaintiffs' solicitor-client costs "must be taxed as … the amount of fees billed was not reasonable," that McAllister suggests a benchmark of 40 to 50 per cent of reasonable solicitor-client costs, and noting Intact's suggestion of $30,000 all-inclusive (which translates to approximately $28,000 in basic fees), Justice Lema found $38,000 to be the appropriate amount in lump-sum costs. That amount represents 40.7 per cent of the plaintiffs' claimed solicitor-client fees (assuming the reasonableness of those fees) or 50 per cent of their fees if adjusted to $76,000, i.e. an approximately 20 per cent reduction if it were found for some reason that the plaintiffs' fees were excessive to that degree.

Judgment-enforcement costs and interest

The plaintiffs' claim for $44,028.83 in thrown-away enforcement costs was found to fall outside the scope of the current costs proceedings. Many of the described steps were on, in, or in respect of court applications which would presumably have had their own costs consequences, and the plaintiffs did not show that the costs of any of those applications were deferred to be addressed in the current proceeding. Additionally, post-judgment enforcement steps are properly addressed in the proceeding giving rise to the judgment, i.e. in the plaintiffs' action against the contractor (and subcontractor), not in this spill-over proceeding against the insurers. As for the $42,424.87 in claimed post-judgment interest, the Court accepted Intact's position that this constituted pre-litigation damage that was not pled, not argued, and thus Intact had no opportunity to address, and that interest should not be awarded under the guise of costs. However, Justice Lema left the door open: if the plaintiffs believe that this post-judgment interest forms part of the loss covered by the insurance in question, and if the insurers do not agree, he would decide the point after receiving further letter-form submissions (maximum two pages), with the plaintiffs' letter due by 4:30 pm on February 27, 2026 and the insurers' by 4:30 pm on March 6, 2026.

Outcome

The Court awarded the plaintiffs, David Alexander Tragger and Hypocrite Productions Inc., lump-sum all-inclusive costs of $38,000 against the defendant insurers, Intact Insurance Company and Royal & Sun Alliance Insurance Company of Canada, for the coverage action. The plaintiffs' claims for solicitor-client costs and thrown-away judgment-enforcement costs were denied, while the post-judgment interest question was deferred to follow-up submissions. The exact total amount ultimately recoverable by the plaintiffs from the insurers under the policies cannot be determined from this costs endorsement alone, as the interest question remains outstanding.