Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 220

FSCO A05-001520

BETWEEN:

UMBALA THIYAGARAJAH

Applicant

and

ING INSURANCE COMPANY OF CANADA

Insurer

DECISION ON EXPENSES

Before: Arbitrator Lawrence Blackman

Heard: Written submissions were received by September 5, 2007. Hearing by telephone conference call was held on September 12, 2007.

Appearances: Mr. David S. Wilson for Mr. Thiyagarajah

Mr. William M. Sproull for ING Insurance Company of Canada

Issues:

The Applicant, Mr. Umbala Thiyagarajah, was injured in a motor vehicle accident on March 6, 2004. In decisions dated October 26, 2006 and May 31, 2007, in addressing the Applicant’s claims for statutory accident benefits under the Schedule,¹ I made the following orders, while reserving on the issue of expenses:

ING Insurance Company of Canada shall pay Mr. Thiyagarajah a weekly income replacement benefit of $353.14 from June 2, 2005 to March 5, 2006.
Mr. Thiyagarajah is entitled to payment of pre-judgment interest at the rate of 2 per cent per month compounded monthly, on the weekly income replacement benefits of $353.14 from June 2, 2005 to March 5, 2006, from 14 days after each weekly installment to the date of payment, less any amounts paid by ING in respect of such interest; and,
Mr. Thiyagarajah is entitled to a special award of $625.

The issue in this further hearing is:

Is Mr. Thiyagarajah entitled to his legal expenses incurred in respect of this arbitration proceeding, and if so, what is the amount of such expenses?

Result:

Mr. Thiyagarajah is entitled to his legal expenses in respect of this arbitration proceeding, fixed in the amount of $32,044.84.

EVIDENCE AND ANALYSIS

Entitlement to Legal Expenses

The arbitration hearing in this matter took place over six days in the summer of 2006. In dispute were the Applicant’s entitlement to income replacement benefits (“IRBs”) ongoing from June 2, 2005 (the quantum thereof being agreed), interest on any overdue benefits, a special award and both parties’ entitlement to legal expenses.

My initial October 26, 2006 decision awarded the Applicant additional IRBs, but only to the two-year mark, the disability definition changing at that point from the “own occupation” to the “any occupation” test. In that decision, I sought further submissions regarding pre-judgment interest as well as the issue of a special award. My May 31, 2007 decision awarded the Applicant pre-judgment interest as set out above, as well as a special award of $625.

Mr. Thiyagarajah now seeks his legal expenses of this proceeding of 150.35 hours; 147.55 for his counsel Mr. Wilson (including 1.75 hours for preparation for and attendance at this expense hearing), and 2.8 hours for Mr. Isaacs of Mr. Wilson’s office. At $150 an hour for both, the total counsel fee is $24,131.18, including the 7% GST claimed. An additional $10,256.37 is sought for disbursements (including Dr. Kirwin’s $1,325 account for his attendance at the arbitration hearing), for a total Bill of Costs of $34,387.55.

ING Insurance Company of Canada (“ING”) submits that both parties should bear their own expenses of this arbitration proceeding as there was divided success and the Insurer served an Offer to Settle in accordance with the Dispute Resolution Practice Code (Fourth Edition, Updated – October 2003) (the “Code”) only slightly lower than the award ultimately obtained by the Applicant.

ING relies on a number of cases. It first cites the appeal decision in Pembridge Insurance Company (Pafco Ins. Co.) and Howden (FSCO P02-00031, May 17, 2004), wherein the Director stated that the new expense criteria, introduced October 1, 2003, continued a movement towards a more results-based approach to expenses. In Pembridge, based on the mixed results on appeal, the Director held that both sides were to bear their own appeal expenses.

In Msuya and Belair Insurance Company Inc. (FSCO A04-000115, August 29, 2005) and Urgiles and Allstate Insurance Company of Canada (FSCO A04-001424, November 16, 2006), Arbitrator Muzzi held that each party was to bear its own arbitration expenses as each party was successful in part. In Msuya, the Insurer had served an Offer to Settle in exchange for a Full and Final Release, which Arbitrator Muzzi found of little relevance. In Urgiles, the Insurer had submitted that the Applicant was successful on only one tenth of the amount claimed.

In Toth and Personal Insurance Company (FSCO A04-001975, February 15, 2007), the parties had settled the issues in dispute, other than expenses. Arbitrator Kominar, in determining that each party should bear their own expenses, stated that “[b]ased on this matter being settled the only reasonable assumption I can make is that compromise was made and each party achieved something they wanted,” and that there was mixed success for both parties.

In Ritorto and Allstate Insurance Company of Canada (FSCO A04-001395, May 18, 2007), Arbitrator Sampliner ordered that both sides should bear their own expenses. He found that

Ms. Ritorto should not have to pay Allstate’s expenses notwithstanding she failed on the central motivating issue in that proceeding, being the cost of dynamic motion imaging. On the other hand, the Arbitrator found that Ms. Ritorto should not recover her legal expenses as her recovery approximated Allstate’s $5,000 settlement offer. No details were provided in the decision as to when the Offer to Settle was served.

ING submits that in the case before me, the Applicant was only able to establish IRB entitlement to the 104-week mark, failing to establish entitlement under the “any occupation” test, and that regarding the special award claim, only $625 was awarded, and that was in relation to only one of the three IRB payment periods advanced as a basis for a special award.

Regarding its Offer to Settle, ING submits that the Applicant’s total award was $18,573.56, consisting of $13,974.28 for IRBs, $3,974.28 for pre-judgment interest and $625 for the special award. By letter dated June 20, 2006, ING served an Offer to Settle (withdrawn one minute after the commencement of the arbitration hearing) of $17,000, plus expenses to the date of the Offer, to be agreed or assessed. The Offer was in exchange for a dismissal of all issues to be addressed at the arbitration hearing, including waiving ING’s repayment claim of $3,087.83 (which was ultimately not pursued) and additional accrued interest.

ING states that while its Offer was $1,573.56 less than the Applicant’s ultimate award, much of the difference consisted of accrued interest from the date of the Offer to the date of the arbitration decision.

The Insurer further submits that while the issue of the scope of a possible special award (on which the Applicant was successful) pertaining to payment of income replacement benefits was novel, the actual award was minimal, in part due to the Applicant’s failure to provide a certificate confirming ongoing disability, as requested by ING.

The Applicant responds that in the expense decision of Mulhall and Wawanesa Mutual Insurance Company (FSCO A04-000384, June 16, 2006), Wawanesa conceded its insured’s expenses up to the date of the Offer to Settle. In this case, Mr. Thiyagarajah argues that it required some $9,000 in disbursements and hours of counsel time to persuade ING to make its Offer to Settle, and that there is no logic in denying his expenses up to that point. The Applicant further submits that the short time between the date of the Offer and the start of the hearing is recoverable as a reasonable period for him to consider the Offer.

The Applicant further submits that he was successful in beating the Offer to Settle at the hearing, although he concedes that the Offer is not “a line in the sand,” as under the Rules of Civil Procedure. The Applicant further notes his significant degree of success, the novelty of the special award issue in this case and the overall efficiency of the hearing.

Regarding the cases submitted by the Insurer, the Applicant submits that there was very little success obtained by the applicants in Msuya and Urgiles, and that Toth represented a different factual situation, where all issues had been settled other than that of legal expenses.

(a) Result

(i) up to the start of the arbitration hearing

The Code sets five criteria to be considered in awarding expenses (although the present Expense Regulation, from R.R.O. 1990 Regulation 664, sets out a sixth, pertaining to insurer medical examinations, which is not relevant here). I find that neither party conducted themselves in a manner which tended to prolong, obstruct or hinder the proceeding, nor do I find that any aspect of the proceeding itself was improper, vexatious or unnecessary. The more contentious considerations are each party’s degree of success in the outcome of the proceeding, the Insurer’s written Offer to Settle dated June 20, 2006 and the novelty of the special award issue.

In McLellan and Aviva Canada Inc. (FSCO A06-001263, February 12, 2007), Aviva argued that each side should bear its own legal expenses, submitting that Mr. McLellan was largely unsuccessful in his claim. Regarding the expense criteria of “each party’s degree of success,” I said:

Meaning must be given to the words “degree of success.” Meaning must also be given to all of the other expense criteria, including offers to settle.

The purpose of the expense criteria is to encourage parties to endeavour to resolve their disputes on a fair and reasonable basis, and if the matter does proceed to a hearing, to conduct themselves in a fair and reasonable manner.

To follow the Insurer’s argument, an applicant would be entitled to full legal fees (within the limits set by the Code) only if one was entirely successful. If an applicant received half of the claim sought, both sides would simply bear their own costs. This would significantly lessen the need for an insurer to serve a meaningful binding offer to settle and greatly enhance the pressure for an insured to settle, even improvidently. This, in my view, would militate against both the fair and reasonable resolution of cases and the fair and reasonable advancement of proceedings.

In McLellan, neither party served an Offer to Settle in accordance with the Code. I found that it was a reasonable decision by Mr. McLellan to proceed to a three-day arbitration hearing in order to obtain his approximately $15,000 award. I further found that the hearing was conducted in a fair and reasonable manner. I concluded that:

To use the vernacular, I find the Expense Regulation, in this type of situation, necessitates seeing the container as half-full, rather than half-empty.

Mr. McClellan has had a significant degree of success. It would, in the absence of persuasive reasons, be an odd result if that significant degree of success was subsequently penalized in requiring one to bear one’s entire legal costs, or being further penalized in having to pay part of the other side’s legal costs.

Mr. Thiyagarajah was successful at the arbitration hearing in obtaining IRBs up to the two-year mark. He was further successful in persuading ING, on the last day allowed by Rule 76 of the Code for giving special consideration to an Offer to Settle, to serve an Offer which recognized the strength of his claim. I am persuaded that this result was made possible only by the Applicant advancing this proceeding. It would, in my view, be a perverse result that an applicant is successful, on the eve of the hearing, in persuading an insurer of the merits of a claim, yet must bear one’s own costs in the endeavour.

I am further persuaded by Arbitrator Rogers’ decision in Mulhall that a party should have a reasonable period to consider an Offer to Settle. Where, as in this case, the Offer is served virtually on the eve of the arbitration hearing, I find that it is reasonable for this Applicant to have his reasonable legal expenses up to the day before the start of the hearing, which is essentially an extra three business days. I note that the Settlement Regulation, which is included in R.R.O. 1990, Reg. 664, as amended by O. Reg. 275/03, allows two business days as a reasonable period for an insured to rescind a settlement.

(ii) the arbitration hearing

In Mulhall, Wawanesa had served an Offer to Settle six days (or three business days) prior to the date of the hearing (similar to the Offer in this case). In his earlier entitlement decision, Arbitrator Rogers had ordered non-earner benefits (the only issue in dispute) of approximately three weeks less than what was offered. Wawanesa conceded Mr. Mulhall’s entitlement to his legal expenses up to the date of the Offer, but sought its legal expenses thereafter.

Arbitrator Rogers noted that the Code required him to consider the Offer, but did not indicate “what weight should be given or what factors are to be considered in assigning weight.” One factor to be considered was that parties “should be rewarded for conduct that would have avoided a hearing and penalized for conduct that unreasonably caused the other party to incur the expense of a hearing.”

Arbitrator Rogers gave the Offer to Settle no weight, as it was delivered so close to the start of the hearing that it gave Mr. Mulhall “very little opportunity to discuss the matter with his solicitor and make a dispassionate decision.” Arbitrator Rogers continued:

Having engaged in the dispute for years and having invested almost everything required to proceed with a complicated hearing, Mr. Mulhall was given just a few days to contemplate the possibility of partial success, an unusual result in a claim for a non-earner benefit.

Because of the mixed result, Arbitrator Rogers found it appropriate that each party should bear their own expenses of the arbitration hearing.

The Offer to Settle in the case before me complied with the Code. However, unlike in Mulhall, the Applicant did succeed in doing better than the Offer, albeit approximately $1,600 better.

I agree with Arbitrator Rogers that the Code does not indicate “what weight should be given or what factors are to be considered in assigning weight.” The question then, is what is the appropriate consequence in the factual circumstances of this specific case, of a meaningful, binding Offer to Settle where the ultimate award is in the range of the Offer to Settle?

Mr. Thiyagarajah did better than the Offer to Settle. The Code states that particular consideration is to be given to offers served up to five days before the commencement of the hearing, and in this regard, the Offer to Settle herein was, as in Mulhall, served essentially at the last possible moment.

Although the bulk of the hearing pertained to IRB entitlement (where the Applicant had significant success), an important component of the hearing was ING’s adjusting of this file. As confirmed by the Supreme Court of Canada in Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, “one of the main objectives of insurance law is consumer protection, particularly in the field of automobile insurance." At the hearing ING’s representative conceded that regarding the initial IRB payment, it had “dropped the ball” and had no excuse for delay, and that regarding the second IRB payment that after a time, requiring a statutory declaration from the Applicant was probably wrong.

Further, there was a novel issue regarding the scope of a possible special award, and the Applicant was successful on that issue. I find that in considering each party’s degree of success, a specifically important consideration is the deterrent effect of a special award, notwithstanding the relative modesty of the ultimate monetary award which may be allowed. The Offer to Settle served in this proceeding did not appear to provide for any amount for a special award, or if it did, then it did not then allow for full IRBs up to the two-year mark, as were awarded.

The expense provisions of Code require that I consider only the criteria listed. However, the criteria do not exist in a vacuum. Rather, they exist within a broader legislative context. Pertinent in this regard are the Supreme Court of Canada’s declaration in Smith noted above, the dictates of the Access to Justice Act, 2006, S.O. 2006, c. 21 that “[a]n Act shall be interpreted as being remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects” and the comments of Laskin J. in Bapoo v. Co-Operators General Insurance Company, 1997 CanLII 6320 (ON CA), 36 O.R. (3d) 616, that “[a]voiding unjust or unacceptable results is an essential part of the court’s task in interpreting statutory language.” I find that the latter consideration applies equally in the exercise of arbitral discretion.

In these specific circumstances, including the fair and reasonable conduct of the arbitration hearing itself, I find it appropriate to award the Applicant 80% of his reasonable expenses for the arbitration hearing itself.

(iii) post arbitration hearing

The post hearing submissions and expenses largely addressed the claim for a special award and legal expenses. The Applicant was successful on both matters, albeit not fully successful. In order to obtain the awards granted, the Applicant was required to pursue his legal remedies. I find the Applicant entitled to his reasonable legal expenses for this period.

The Quantum of Legal Expenses

(a) Legal Fees

The arbitration hearing herein took six days, roughly equating to 42 hours. The Applicant claims 150.35 hours in total. Deducting the said 42 hours, plus the additional 11.7 post-hearing hours, leaves 96.65 for preparation prior to and during the hearing. This represents a ratio of roughly 2.3 (preparation time) to 1.0 (hearing time). ING did not argue that this ratio was unreasonable. I am persuaded the ratio is reasonable, being well within the usual acceptable range of 4:1 to 1:1 preparation time to hearing time. I allow the Applicant his hours as claimed.

(i) up to the start of the arbitration hearing

I find that 81.15 hours of preparation were conducted prior to the start of the arbitration hearing, in which I include the claim for correspondence, the vast majority of which would pertain to this period. 2.8 hours are claimed for Mr. Isaacs’ preparation for and attendance at the pre-hearing discussion, leaving 78.35 hours of preparation for Mr. Wilson. I allow Mr. Wilson $150 an hour.

At one time I would have awarded Mr. Isaacs, whose year of call is 1996, less than the maximum $150 hourly rate, the latter rate having been in effect since the Dispute Resolution Practice Code (Third Edition, April 15, 1997). However, the expense provisions of the Code have not kept up with the financial realities of litigation as evidenced, by amongst other things, the Report of the Costs Subcommittee of the Civil Rules Committee, which sets out a maximum rate of $300 per hour for lawyers with an experience factor of between 10 and 20 years.

I, therefore, allow 81.15 hours of preparation, at $150 an hour for both counsel, which amounts to $12,902.85, including 6% GST.

(ii) the arbitration hearing

As set out above, I allow the Applicant 80% percent of the 57.5 hours incurred during the course of the hearing, at $150 an hour, plus GST of 6%. This totals $7,314.00.

(iii) post arbitration hearing

I allow the Applicant, for the reasons set out above, 11.7 hours for this time period, at $150 an hour, plus GST of 6%. This totals $1,860.30.

Accordingly, the total counsel fee allowed for the above three periods is $22,077.15.

(b) Disbursements

The Applicant claims $10,256.37 in legal disbursements.

The Insurer’s concerns regarding GST were resolved at the expense hearing. No other concerns were noted by ING regarding the specific disbursements claimed. However, the Insurer maintained its arguments regarding the mixed results of the hearing.

I am satisfied that the amounts claimed for disbursements are reasonable.

$8,812.97 of the disbursements were incurred prior to the start of the hearing. I find, for the reasons set out above, that the Applicant is entitled in full to these expenses.

Dr. Kirwin’s account of $1,325 plus $118.40 for transportation expenses were incurred subsequent to the start of the hearing. For the reasons also set out above, I allow 80% of those expenses, which amount to $1,154.72. Added to the $8,812.97, the total is $9,967.69.

Result

I find that the Applicant is entitled to his legal costs fixed at $22,077.15 and to his disbursements, fixed at $9,967.69, for a total of $32,044.84.

November 9, 2007

Lawrence Blackman Arbitrator

Date