Neutral Citation: 1999 ONFSCDRS 68

FSCO A-005623

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

BARBARA J. PICKERING

Applicant

and

LIBERTY MUTUAL FIRE INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before:

Janice Mackintosh

Heard:

By way of written submissions listed in the Appendix

Appearances:

Ms. Pickering on her own behalf

George O. Frank for Liberty Mutual Fire Insurance Company

Michael J. Henry on his own behalf

Issue: Was there a binding settlement of the issue of Ms. Pickering's expenses of the arbitration?

The Applicant, Barbara J. Pickering, was injured in a motor vehicle accident on November 2, 1990. She received statutory accident benefits from Liberty Mutual Fire Insurance Company ("Liberty Mutual"), payable under the Schedule.¹ Liberty Mutual terminated benefits on January 15, 1993, on the basis that Ms. Pickering's continuing difficulties did not result from the motor vehicle accident. The parties were unable to resolve their disputes through mediation, and Ms. Pickering applied for arbitration at the Financial Services Commission of Ontario,² (the "Commission"), under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The arbitration decision³ was issued on May 24, 1996. Ms. Pickering was denied further statutory accident benefits after January 15, 1993, however she was granted the expenses of the hearing under the provisions of subsection 282(11) of the Insurance Act in accordance with the prescribed amounts as set out in Schedule 1 of the Dispute Resolution Practice Code and in Ontario Regulation 664, R.R.O. 1990, Schedule 1- Dispute Resolution Expenses ("Expenses Schedule").

The parties were unable to agree on the amount of expenses and a date for an assessment of expenses hearing was scheduled. Shortly before the assessment date, Mr. Michael Henry, counsel of record for Ms. Pickering, advised that the expenses issue was resolved. After the Commission cancelled the assessment hearing, Ms. Pickering challenged the settlement reached between Mr. Henry and the Insurer on the grounds that the settlement was entered into without her knowledge or authorization and did not comply with the provisions of section 9.1 of Regulation 664, R.R.O. 1990, as amended by Ontario Regulation 780/93, (the "Settlement Regulation").

The Insurer objected to Ms. Pickering's purported rescission of the agreement reached by Mr. Henry with respect to expenses, and claimed that it negotiated with Mr. Henry in good faith on the understanding that he was Ms. Pickering's lawyer and authorized to represent her in respect of the issue of expenses. The Insurer maintained that the settlement was final and binding upon Ms. Pickering and precluded any further claim for expenses against the Insurer. The Insurer also questioned the application of section 9.1 of the Settlement Regulation to the settlement of an award of expenses. However, Liberty Mutual indicated that should the settlement be rescinded, it seeks a return of the $12,500 settlement funds paid to Mr. Henry in good faith, and will renew its claim for a set off against any amount of expenses found payable.

Result:

1. The full and final settlement of arbitration expenses negotiated with Liberty Mutual by Mr. Michael Henry is binding upon Ms. Pickering. Ms. Pickering is precluded from claiming additional expenses from the Insurer.

EVIDENCE AND ANALYSIS:

Parties usually resolve the amount of expenses to be paid pursuant to an arbitration award between themselves, without further assistance from the Commission. However, where parties cannot agree, the Dispute Resolution Practice Code (the "Code") provides a procedure whereby parties may request an assessment of their expenses by an arbitrator.⁴

By letter dated June 12, 1997 (received July 2, 1997), Ms. Pickering informed the Commission that despite my order of May 24, 1996, awarding her the expenses of her hearing, expenses had not been paid. She also noted that the account of Dr. Mason, her family doctor, rendered in connection with the hearing, remained outstanding. By letter dated July 10, 1997, the Commission sent counsel of record for the Insurer, Mr. Khalid Bakish, and counsel of record for Ms. Pickering, Mr. Michael J. Henry, a copy of Ms. Pickering's letter and provided them with a copy of the relevant rule from the Code, setting out the procedure for an assessment of expenses. As is customary, this letter was copied to the parties. By further letter, dated July 10, 1997, Ms. Pickering was informed that the Commission had contacted both counsel of record with respect to the issue of the outstanding expenses. The letter also informed her that in the event that neither counsel brought forward an application for an assessment of expenses in accordance with the Code, she could bring an application forward on her own behalf by serving both counsel and the Commission with the material required under the rules from the Code.

By notice, dated October 20, 1997, the Commission confirmed November 18, 1997 as the date for the assessment of expenses hearing. As is customary, the notice was provided to counsel of record and both parties. In addition, the Commission sent a notice to Dr. Mason.

By letter, dated October 24, 1997 (copied to counsel for the Insurer, Ms. Pickering and Dr. Mason), Mr. Henry notified the Commission that the issue of expenses was settled, that Dr. Mason's account would be paid in full, and that the parties no longer required the hearing date. By letter dated October 28, 1997, the Case Administrator confirmed the cancellation of the November 18, 1997 hearing date and the closing of the Commission's file in the matter.

Ms. Pickering contacted me directly by telephone on November 5, 1997. I confirmed the content of our telephone conversation by letter dated November 14, 1997, which was copied to counsel for both parties as well as Dr. Mason. I confirmed that the Commission had cancelled the November 18, 1997 date for the assessment of expenses hearing and had closed its file in this matter upon the written direction and advice of her counsel, Mr. Henry, that the matter was settled. In our telephone conversation, Ms. Pickering expressed dissatisfaction with the settlement of the expense issue and the subsequent cancellation of the assessment of expenses hearing. I advised Ms. Pickering to raise these matters directly with her counsel. I informed her of the Commission's policy not to review a settlement made in accordance with the provisions of section 9.1 of the Settlement Regulation, without comment on the applicability of the Settlement Regulation to her specific circumstances. A copy of the Settlement Regulation was enclosed with my letter.

By notice dated November 20, 1997, Ms. Pickering informed Mr. Henry, the Insurer, counsel for the Insurer and the Commission, of her intention to rescind the settlement of her expenses pursuant to section 9.1 of the Settlement Regulation. By notice dated November 21, 1997, addressed to Mr. Henry, Ms. Pickering informed the Insurer, counsel for the Insurer and the Commission that Mr. Henry no longer represented her in connection with this case. By letter dated November 27, 1997, addressed to Ms. Pickering, Mr. George Franks notified Ms. Pickering and the Commission that he had assumed carriage of this matter on behalf of the Insurer.

On December 22, 1997, Ms. Pickering left a telephone message with the case administrator at the Commission wherein she stated:

a) that she had formally rescinded the agreement reached on her behalf by her counsel with respect to her expenses of the hearing, pursuant to the Settlement Regulation.

b) that she wished to obtain a new date for an assessment of her expenses pursuant to the Code.

By letter dated December 22, 1997 (copies of which were sent to the Insurer and its counsel), the case administrator confirmed Ms. Pickering's telephone message and reminded her of the requirements of the Code in connection with her request for a new date for an assessment of expenses.

On February 14, 1998, Ms. Pickering served and filed her request for a new date for an assessment of expenses along with her supporting material. Her expense claim totalled $4,388.36, inclusive of interest calculated from the date of the decision to February 1998. In that amount, Ms. Pickering included $72 for parking, $111 for transportation, $96 for food, $1,200 for a nursing attendant, $60 for miscellaneous photocopying, faxing and courier, and $849.36 in interest. As part of that amount, Ms. Pickering sought the return of the $2,000 retainer she had paid to her lawyer at the commencement of her arbitration. Ms. Pickering made no other claim for the legal fees charged by Mr. Henry in connection with the complex, six-day arbitration hearing, although his legal fees and disbursements totalled over $33,000.⁵

In a letter dated March 16, 1998, Ms. Pickering set out several reasons for her dissatisfaction with the $12,500 settlement negotiated by Mr. Henry on October 23, 1997. Ms. Pickering submits that her family doctor should have been paid at the maximum rate of $1,600 per day of expert testimony set out in paragraph 5(3) of the Expenses Schedule rather than the rate of $750 per day actually charged by Dr. Mason.

Ms. Pickering maintains that any money paid by the Insurer in respect of her expenses belongs to her and should have been paid directly to her. She maintains that once her doctor's remaining accounts totalling $4,350 were paid, Mr. Henry ought to have refunded Ms. Pickering's original $2,000 retainer and paid her other miscellaneous expenses noted above, in preference to applying the remaining $8,150 settlement funds in satisfaction of his outstanding legal account.

The issue of whether the award of expenses and a payment in respect of expenses belongs to the applicant or his or her counsel and whether any amounts found to be owing by the insurer are payable directly to the applicant, has come before the Commission in previous cases. The provisions of subsection 282(11) of the Insurance Act clearly state that expenses are awarded "to the insured person," not to his or her representative. Arbitrator Draper also expressed this view in his Supplementary Decision in Boodhai and Allstate Insurance Company of Canada,⁶ and was specifically upheld on this point on appeal in the decision of Director's Delegate Naylor.⁷

The specific issue of expenses paid in respect of legal fees and disbursements previously came before me in the expense decision Worku and Co-operators General Insurance Company⁸ In that case, I concluded that legal expenses payable under the Insurance Act and the Expenses Schedule are payable by the Insurer to the Applicant, and are intended to facilitate access to justice by indemnifying an applicant against some of the reasonable costs incurred in pursuing a claim against an insurer. Expenses are not, however, intended to be a full payment of the actual legal fees and disbursements incurred between the client and his or her own lawyer nor are they directly payable from the insurer to the other party's lawyer without the agreement of the client.⁹

Ms. Pickering expects that the Insurer should be responsible for payment of every dollar of her legal expenses, disbursements and other expenses and consequently she can see no reason why Mr. Henry should not be required to return her $2,000 retainer. Ms. Pickering does not appear to appreciate that under my expense order, the Insurer is obligated to pay only a portion of her total legal fees at the legal aid rate (limited by the Expenses Schedule), and that she remains liable to her counsel for payment of any shortfall.¹⁰

Nor does Ms. Pickering acknowledge that as part of the $12,500 settlement, Mr. Henry negotiated a compromise of Liberty Mutual's claim for set off against any expenses payable. Liberty Mutual made significant payments of medical and rehabilitation benefits on behalf of Ms. Pickering on a "pay now, dispute later" basis during the course of the arbitration process. My decision of May 24, 1996 concluded that Ms. Pickering was not entitled to payment of these benefits, thereby giving rise to the Insurer's claim for set off.

It is unfortunate that communications broke down between Ms. Pickering and Mr. Henry over the issue of her expense claim. It appears that Ms. Pickering was excluded from the negotiation process and does not fully understand the limits of her entitlement to expenses under the Expenses Schedule, nor the subtleties of the agreement negotiated. These factors undoubtedly contributed to Ms. Pickering's dissatisfaction with the settlement.

During a pre-hearing discussion chaired by Arbitrator Sampliner on February 17, 1998, the parties agreed to proceed, by way of written submissions, on the narrow issue of whether there was a binding settlement of Ms. Pickering's expenses.

Is Ms. Pickering bound by the settlement negotiated by Mr. Henry with Liberty Mutual?

I find that Ms. Pickering pressed Mr. Henry to obtain payment of her family doctor's outstanding account, rendered in connection with the arbitration hearing. In a letter dated January 21, 1998, Mr. Henry refers to Ms. Pickering's "pressure to have Dr. Mason paid in full and forthwith." Ms. Pickering was content to have Mr. Henry approach the Insurer in connection with this aspect of the expenses. She was also content to allow Mr. Henry to represent her interests at the original assessment of expenses hearing scheduled for November 18, 1997. She neither served nor filed materials on her own behalf, although in a letter dated July 10, 1997, the Commission advised her of her opportunity to do so and supplied her with the relevant excerpt from the Code.

It was not until November 5, 1997 that Ms. Pickering notified the Commission of her dissatisfaction with Mr. Henry's settlement of the issue of expenses. On November 20 and 21, 1997, Ms. Pickering notified the Commission and the Insurer of her intention to rescind the settlement and stated that Mr. Henry no longer represented her. However, these steps were taken only after Mr. Henry had paid Dr. Mason's outstanding account (on October 24, 1997) on the basis of the settlement reached with Liberty Mutual. On December 22, 1997, Ms. Pickering requested a new date for an assessment of expenses and on February 14, 1998 she served and filed her materials in accordance with the requirements of the Code.

On these facts, I conclude that having allowed Mr. Henry to represent her in connection with the issue of expenses up to the time of the settlement and payment of Dr. Mason's account, Ms. Pickering cannot now deny Mr. Henry's authority to bind her to a final agreement on expenses with the Insurer who negotiated with Mr. Henry in good faith.¹¹

Ms. Pickering alleges that she did not instruct Mr. Henry to negotiate a full and final settlement of her expenses and did not know of the amount and distribution of the settlement until after the fact. In letters dated January 21, 1998 and March 24, 1998, Mr. Henry acknowledged that "Ms. Pickering's costs were resolved as between counsel. Ms. Pickering did not have any involvement in this process..." He also notes that "I did not have Ms. Pickering's specific instructions to settle the legal expense issue as I did." While it appears that Mr. Henry received specific instructions to obtain payment of the outstanding accounts of Dr. Mason, there is some question whether he was given the authority to negotiate a full and final settlement, receive the whole of the settlement funds paid on behalf of Ms. Pickering, and apply them to his outstanding account in the manner that he did. While these facts may give rise to rights and remedies between Ms. Pickering and Mr. Henry, they do not affect the Insurer's position.¹² The Insurer is entitled to rely on Mr. Henry's apparent authority as Ms. Pickering's counsel to bind her to a final settlement¹³ subject to the impact, if any, of the provisions of the Settlement Regulation.

Does section 9.1 of the Settlement Regulation apply to a settlement of expenses?

I have concluded that Mr. Henry negotiated a final and binding settlement of the award of expenses granted to Ms. Pickering at the conclusion of her hearing. However, Ms. Pickering submits that this settlement is subject to the requirements of section 9.1 of the Settlement Regulation. Ms. Pickering provided the Insurer with written notice of rescission in accordance with subsection (4) on November 20, 1997. She points out that the Insurer did not comply with the disclosure and information requirements of subsection (2) thereby enabling her to rescind the agreement as against the Insurer, in accordance with subsection (4) despite the passage of more than two business days.

Section 9.1 (1) of the Settlement Regulation provides:

In this section, "settlement" means an agreement between an insurer and an insured person that finally disposes of a claim or dispute in respect of the insured person's entitlement to one or more benefits under the Statutory Accident Benefits Schedule.

An award of expenses may be made under subsection 282(11) of the Insurance Act, which provides as follows:

The arbitrator may award to the insured person such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations to the maximum set out in the regulations.

An award of expenses is a discretionary exercise of an arbitrator's power under subsection 282(11) of the Insurance Act and is not a benefit under the Statutory Accident Benefits Schedule. As such, I conclude that the requirements of section 9.1 of the Settlement Regulation do not apply to the settlement of an award of expenses. Therefore, Ms. Pickering cannot rely upon the disclosure requirements nor the right of rescission contained under section 9.1 of the Settlement Regulation to resile from the settlement of her expenses reached with Liberty Mutual.

As this matter arises out of and is directly related to an assessment of expenses, no further arbitration expenses are awarded to either party.

April 27, 1999

Janice Mackintosh Arbitrator

Date

APPENDIX

Chronological Schedule of Documents:

May 24, 1996 Decision of the Arbitrator

June 12, 1997 Handwritten letter from B. Pickering to the Commission, received July 02, 1997

July 10, 1997 Letter from Case Administrator to counsel of record and both parties

July 10, 1997 Letter from Case Administrator to B. Pickering

October 15, 1997 Fax Confirmation and Letter from Case Administrator to counsel of record and both parties

October 20, 1997 Notice of Assessment of Expenses Hearing and distribution page to counsel of record, both parties and Dr. Mason

October 24, 1997 Letter from M. Henry to Case Administrator, copied to counsel of record, B. Pickering and Dr. Mason

November 14, 1997 Letter from Senior Arbitrator to B. Pickering, copied to counsel of record and Dr. Mason

November 20, 1997 Handwritten Notice to the Commission from B. Pickering, copied to all parties.

November 21, 1997 Handwritten Notice to M. Henry from B. Pickering, copied to the Commission and all parties

November 27, 1997 Letter from G. Frank to B. Pickering, copy to the Commission

December 22, 1997 Letter from Case Administrator to B. Pickering, copy to Insurer and Insurer's counsel of record

January 9, 1998 Letter from G. Frank to the Commission

January 21, 1998 Letter from M. Henry to Case Administrator and G. Frank, copy to B. Pickering

February 14, 1998 Handwritten request from B. Pickering to the Commission, for a new date for an Assessment of Expenses and supporting material, copy to counsel for Insurer, and Insurer

February 18, 1998 Letter from G. Frank to B. Pickering and the Commission, copy to Insurer and M. Henry

February 19, 1998 Pre-hearing Letter from Pre-hearing Arbitrator Sampliner to B. Pickering and G. Frank, copy to Insurer and M. Henry.

February 25, 1998 Fax covering sheet and faxed letter from M. Henry to Pre-hearing Arbitrator Sampliner, with attachments

March 10, 1998 Letter from M. Henry to B. Pickering, copy to Pre-Hearing Arbitrator Sampliner and Insurer's counsel

March 12, 1998 Letter and Written Submissions of the Insurer, to the Commission and B. Pickering, copy to M. Henry and Insurer.

March 16, 1998 Handwritten submissions from B. Pickering to Arbitrator Mackintosh, copy to counsel for Insurer, and the Insurer

March 24, 1998 Letter from M. Henry to Pre-hearing Arbitrator Sampliner, copy to B. Pickering and counsel for Insurer

March 31, 1998 Letter from G. Frank to the Commission, copy to B. Pickering, M. Henry and Insurer

April 1, 1998 Letter from B. Pickering to the Commission

April 2, 1998 Letter from G. Frank to the Commission and B. Pickering, copy to M. Henry and the Insurer

April 6, 1998 Handwritten Reply from B. Pickering to the Commission, copy to counsel for the Insurer

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents On or Between June 22, 1990 and December 31, 1993, Regulation 672 of R.R.O. 1990, as amended by Ontario Regulations 660/93 and 779/93.
2. 2Effective July 1, 1998, the Ontario Insurance Commission was changed to the Financial Services Commission of Ontario (FSCO), pursuant to the Financial Services Commission of Ontario Act, S.O. 1997, c.28.
3. 3Pickering and Liberty Mutual Fire Insurance Company (OIC A-005623, May 24, 1996)
4. 4The assessment of expenses provision was originally introduced into the Code at Rule 71. The Code was subsequently amended as at April 15, 1997 and expense provisions are currently found at Rules 76 and 77 of the Code.
5. 5By letter dated March 24, 1998, Mr. Henry summarized his account as follows: $20,000 solicitor/client account; $11,000 disbursements; GST $2,000).
6. 6(OIC A-004002, June 14, 1995)
7. 7(OIC P-004002, September 18, 1996)
8. 8(FSCO A-002172, September 2, 1998)
9. 9Similarly, an award of party and party costs given by the courts to the successful litigant are wholly the monies of the client, and not of his or her legal representative, even though they may be recovered under the name of fees paid to counsel. Orkin , Mark M., The Law of Costs (2nd edition), Aurora: Canada Law Book, 1995, at page 204).
10. 10In a letter dated March 24, 1998, Mr. Henry notes that after applying the remaining settlement funds to his account, he reduced the outstanding amount to nil).
11. 11The Law of Agency, 6th Edition, G.H.L. Fridman, Butterworths, 1990, pages 98 to 100 (Tab 1, paragraph 3, 14 and 16, and Tab 12 of Insurer's Brief dated March 12, 1998.)
12. 12Tab 1, paragraphs 12, 13, 14 of Insurer's Brief, March 12, 1998
13. 13Tab 1, paragraphs 16, 17, 18 and 19 of Insurer's brief, March 12, 1998