Neutral Citation: 2009 ONFSCDRS 116 FSCO A04-001815

BETWEEN:

MR. C. Applicant

and

KINGSWAY GENERAL INSURANCE COMPANY Insurer

DECISION ON EXPENSES

*Minor errors on pgs. 2, 6, 8 and Order corrected on October 5, 2009 in accordance with the Dispute Resolution Practice Code and section 21.1 of the Statutory Powers Procedure Act.

Before: David Leitch Heard: July 31, 2009 at the offices of the Financial Services Commission of Ontario in Toronto

Appearances: John S. Lockhart for Mr. C. Darrell March for Kingsway General Insurance Company

Issues:

On June 27, 2008, I issued a decision in relation to the Applicant’s claim for income replacement benefits (“IRBs”) under the Schedule.¹ I decided that Mr. C. was not entitled to IRBs after October 6, 2002, the date they were terminated by the Insurer. As a result, there was no basis for a special award, though one had been claimed. In view of this result, the Applicant concedes, correctly in my view, that the Insurer is entitled to recover expenses. The remaining issue is:

What is the amount of the expense award to which the Insurer is entitled?

Result:

The Insurer is entitled to legal fees in the amount of $15,750 inclusive of GST and to disbursements in the amount $7,440.21 plus GST and, in the event the parties cannot agree, I will remain seized of the issue of the amount of GST owing on disbursements for 30 days from the date of this decision.

The relevant provisions governing expenses

Sections 282(11) of the Insurance Act states:

Expenses

(11) The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

The criteria to be applied in accordance with section 282(11) of the Insurance Act are set out in section 12 of Ontario Regulation 664, as amended. This Regulation, commonly known as the Expense Regulation, then incorporates by reference a Schedule of recoverable expenses which in turn incorporates the section of the Dispute Resolution Practice Code specifying the rate at which legal fees can be recovered.

Section 12(2) of the Expense Regulation reads as follows:

(2) An arbitrator shall, under subsection 282 (11) of the Act, consider only the following criteria for the purposes of awarding all or part of the expenses incurred in respect of an arbitration proceeding:

Each party’s degree of success in the outcome of the proceeding.

Any written offers to settle made in accordance with subsection (3).

Whether novel issues are raised in the proceeding.

The conduct of a party or a party’s representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders.

Whether any aspect of the proceeding was improper, vexatious or unnecessary.

Whether the insured person refused or failed to submit to an examination as required under section 42 of Ontario Regulation 403/96 (Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996) made under the Act or refused or failed to provide any material required to be provided by subsection 42 (10) of that regulation.

Sections 3 to 5 of the Schedule to the Expense Regulation and the relevant parts of the Dispute Resolution Practice Code read as follows:

SCHEDULE, DISPUTE RESOLUTION EXPENSES (SUBSECTION 282 (11) OF THE ACT)

(1) The legal fees payable by the insured person or the insurer for the following matters may be awarded:

For all services performed before an arbitration, appeal, variation or revocation hearing.

For the preparation for an arbitration, appeal, variation or revocation hearing.

For attendance at an arbitration, appeal, variation or revocation hearing.

For services subsequent to an arbitration, appeal, variation or revocation hearing.

(2) The number of hours for which legal fees may be awarded shall be determined by the arbitrator, having regard to the criteria set out in subsection 12 (2) of this Regulation.

(3) The maximum amount that may be awarded for legal fees is the amount calculated using the hourly rates set out in the Dispute Resolution Practice Code published by the Ontario Insurance Commission or Financial Services Commission of Ontario, as it may be amended from time to time.

[Section 78.1 of the Dispute Resolution Practice Code — Fourth Edition stipulates:

78.1 The maximum amount that may be awarded to an insured person or an insurer for legal fees, is an amount calculated using:

(a) the hourly rates established under the Legal Aid Services Act, 1998 for professional services in civil matters before the Ontario Superior Court of Justice; or

(b) the hourly rate referred to in Rule 78.1(a) adjusted to include, where appropriate, the experience allowance established under the Legal Aid Services Act, 1998;

Where an adjudicator is satisfied that a higher amount for legal fees to an insured person is justified, an hourly rate of up to $150 may be awarded.]

The amount of the following disbursements made by or on behalf of the insured person or the insurer may be awarded:

For long distance telephone, facsimile and other telecommunication charges.

For typing, printing and reproducing copies of documents.

For the delivery, by mail or courier, of items relating to the arbitration, appeal, variation or revocation hearing.

For other out-of-pocket expenses incurred in furtherance of the arbitration, appeal, variation or revocation hearing.

Any applicable taxes paid in respect of the expenses referred to in this section.

(1) The amount of the following witness fees paid by or on behalf of the insured person or the insurer may be awarded:

For the attendance of witnesses, in accordance with subsection (2).

For the attendance of an expert witness who gives opinion evidence at the arbitration or hearing or whose attendance is necessary, in accordance with subsection (3).

For a report prepared by an expert, provided to the other parties to the arbitration or hearing and necessary for the conduct of the arbitration or hearing, in accordance with subsection (4).

(2) The maximum amount that may be awarded for the attendance of a witness is the amount of the attendance allowance for the witness that may be allowed under Rule 58.05 of the rules of court as a disbursement.

(3) The maximum amount that may be awarded for the attendance of an expert witness is $200 per hour of attendance, up to a maximum of $1,600 per day.

(4) The amount of the expenses paid by or on behalf of the insured person or the insurer to an expert witness for preparation for a hearing at which the witness testifies may be awarded, to a maximum of $500.

(5) The amount of the expenses paid by or on behalf of the insured person or the insurer to an expert for the preparation of a report may be awarded, to a maximum of $1,500.

I note that pursuant to section 3(2) of the Schedule, the criteria itemized in section 12(2) of the Expense Regulation remains relevant for the assessment of legal fees even after they have been used to determine entitlement to expenses or, as here, entitlement to expenses is agreed upon.

Each side made submissions in relation to one of those criteria. Relying on the fifth criterion, the Insurer maintained that the Applicant’s claims were “frivolous in the face of the medical evidence”. Relying on the fourth criterion, the Applicant maintained that the Insurer unreasonably refused to agree to a joint book of documents and engaged in conduct which necessitated an adjournment.

I reject both parties’ submissions. I may have dismissed Mr. C.’s claims but not before analysing a good deal of conflicting medical evidence. I may have adjourned the hearing at one point but I did so for reasons which clearly implicated the conduct of both parties. A joint book of documents may have been beneficial but it was not required and its absence did not seriously obstruct or hinder the progress of the proceeding. I note also that Insurer’s counsel did respond to Applicant’s counsel’s request to prepare a joint book of documents, offering to provide a copy of the Insurer’s already-compiled Arbitration Brief.

I turn next to the Insurer’s Bill of Costs. It seeks to recover professional fees in the amount of $26,154.05 based on the following services:

224.3 hours worth of lawyer’s time including 192.8 hours for Mr. March (called 1990, rate claimed $92.34), 4 hours for Mr. Aldo Picchetti (called 1995, rate claimed $92.34) and 27.5 hours for Mr. Alexander J. D. Curry (called 2006, rate claimed $73.87);
16.1 hours worth of student-at-law time, rate claimed $46.00 per hour; and
226.4 hours worth of law clerk’s time, rate claimed $23.00 per hour.

My analysis of the Insurer’s entitlement to professional fees produces a lower award.

The Insurer did not dispute the Applicant’s estimate that the hearing took 39.5 hours to complete. However, relying on the fourth criterion itemized in section 12(2) of the Expense Regulation, I reduce that total by one hour to eliminate the time spent cross-examining Dr. Cowman. Dr. Cowman acknowledged that she did not have enough information to diagnose Bipolar Disorder and that she had only identified that condition as a possible differential diagnosis. In my view, Insurer’s counsel should have ascertained this prior to the hearing and dropped his ill-founded argument in relation to Bipolar Disorder. The conduct of Insurer’s counsel left Applicant’s counsel with little choice but to cross-examine Dr. Cowman.

This was a hard-fought proceeding and, as already noted, the medical evidence was conflicting. Still, the issues themselves were not particularly complex and I do not accept the Insurer’s submission that the appropriate ratio of preparation time to hearing time was 4 to 1. In my view, the appropriate ratio is 2.5 to 1. Applying the agreed-upon rate for Mr. March’s services of $92.34,² this ratio generates legal fees in the amount of $12,577.57. I round this figure up to a subtotal of $15,000 to cover time spent by law clerks and add a further 5% for GST, for a total of $15,750.

The Insurer’s Bill of Costs also seeks to recover disbursements. While there were no invoices submitted with the Bill, only two items were the subject of objection at the expense hearing:

The Applicant objected to “Official Examiner Fees” in the total amount of $6,624.78. I agree. These kinds of expenses are not recoverable under section 4 of the Schedule as explained by Director’s Delegate Evans in Kingway General Insurance Company and Pereira:

Kingsway also seeks to recover the cost of the transcript. Rule 74.2 of the Dispute Resolution Practice Code specifically provides that a party hiring a recording service must directly pay the person or agency providing the reporting service, and Rule 74.3 provides that, where a party orders all or a portion of the transcript of a proceeding, the party must directly pay the person or agency providing the transcript. There is no provision in the Schedule to the Expense Regulation allowing for the recovery of the cost of transcripts similar to that allowing for the recovery of the filing fees paid by an insured when applying for arbitration (Schedule, s. 1) or the filing fees paid by an insured or an insurer when appealing an order (s. 2). There is also no provision similar to the Schedule’s specific allowance for witness expenses and for the cost of expert reports (s. 5). The closest to a “basket clause” where the transcript expense might fit is in s. 4.4, which provides for the payment of “other out-of-pocket expenses incurred in furtherance of the arbitration, appeal, variation or revocation hearing.” However, the other items listed in s. 4 are telecommunication charges (4.1), typing, printing and reproducing copies of documents (4.2), mail or courier delivery (4.3), and taxes on these expenses (4.5). I find the costs of transcripts (or the cost of a court reporter, for that matter) do not fit into that context and that the phrase “other out-of-pocket expenses” more likely refers to the relatively small expenses referred to in the rest of that section. In that regard, I have sympathy for the conclusion of the arbitrator in Singh and Wawanesa Mutual Insurance Company, (FSCO A02-001401, May 18, 2004), who found that the cost of a reporting service was not recoverable as an expense after accepting this submission:

Mr. Gillen argued that since court reporter's fees can be significant, it could not have been the legislature's intention to include them as “other out-of-pocket expenses” when it specifically placed a cap on less costly disbursements such as preparation of an expert witness for a hearing.

It is the option of a party to request the attendance of a court reporter at a hearing, as is the option to obtain and file the transcript, and it is only in very limited circumstances that parties have ever been required to order and produce a transcript.³ Other expenses that might be described as optional – in that parties have a great deal of discretion in preparing their cases – are subject to caps, such as the amounts allowed for preparing a witness (s. 5(4)), calling a witness (s. 5(3)), or for preparing a report (s. 5(5)). However, no caps are placed on expenses for court reporters or transcripts, although they may add up to thousands of dollars. This suggests that transcripts are not meant to be recoverable as expenses.⁴

I agree with, and in any event am bound by, these observations. I would only add that if these kinds of expenses were recoverable, one would expect them to be specifically mentioned in Schedule to the Expense Regulation as they are in Schedule 6 of the Legal Aid Tariff. I, therefore, disallow these disbursements.

The Applicant objected to Dr. Cowman’s fee of $2,500 for testifying. I agree, for the reasons already given. I allow nothing for Dr. Cowman’s preparation or attendance at the hearing.

In the absence of invoices, it is not clear whether or not GST was already added to the amount entered for each of the other disbursements. If it was, it should not be added again. If the parties cannot agree, I will remain seized of this issue for 30 days from the date of this decision.

Accordingly, the Insurer is entitled to legal fees in the amount of $15,750 inclusive of GST and to disbursements in the amount $7,440.21 plus GST and, in the event the parties cannot agree, I will remain seized of the issue of the amount of GST on owing on disbursements for 30 days from the date of this decision.

August 27, 2009

David Leitch Arbitrator

Date

Financial Services Commission of Ontario