Neutral Citation: 2009 ONFSCDRS 77

FSCO A04-002030

BETWEEN:

N. I. Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA Insurer

DECISION ON EXPENSES

Before: David Leitch Heard: June 5, 2009 at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Alexander Voudouris for Mr. I. Grant R. Dow for Allstate Insurance Company of Canada

Issues:

The Applicant was injured in a motor vehicle accident on April 8, 2002. In a decision dated June 26, 2007, I ruled on his entitlement to certain statutory accident benefits¹ but reserved on the issue of expenses. My decision determined the following:

Mr. I is entitled to non-earner benefits from October 8, 2002 to December 5, 2002, plus interest thereon from November 6, 2002.
Mr. I is not entitled to a special award by reason of Allstate's refusal to pay Mr. I non-earner benefits.
Mr. I is entitled to additional housekeeping expenses in the amount of $1,297 but no interest thereon.
Mr. I is not entitled to a special award by reason of Allstate's refusal to pay Mr. I additional housekeeping benefits.

The remaining issues are whether either party is entitled to his/its expenses and, if so, the amount owing.

Result:

Each party will bear his or its own expenses.

The provisions governing expenses

Section 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. (my emphasis)

The criteria to be applied are then set out in sections 12 of Ontario Regulation 664, as amended. This Regulation, commonly known as the Expense Regulation, then incorporates by reference both a Schedule of recoverable expenses and the section of the Dispute Resolution Practice Code specifying the rate at which legal fees can be recovered. All provisions are set out below.

12(1) The expenses set out in the Schedule are prescribed for the purpose of subsection 282 (11) of the Act. (the Schedule is set out below)

(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: (my emphasis)

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.

(3) Upon the request of the insurer or the insured person, the arbitrator shall, for the purposes of awarding expenses, take into account all written offers to settle, if any,

(a) that were made after the conclusion of mediation and before the conclusion of the arbitration; and (b) that were made in accordance with the rules of practice and procedure applicable to the proceeding.

(4) If the arbitrator is requested to take into account a written offer under subsection (3), the arbitrator shall have regard to the terms of the offer, the timing of the offer, the response to the offer and the result of the proceeding.

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

The filing fees paid by the insured person when applying for arbitration may be awarded to the insured person.

The filing fees paid by the insured person or the insurer when appealing the order of an arbitrator or applying to vary or revoke an order may be awarded.

(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. 3.1(1) The agent’s fees payable by the insured person or the insurer for the following matters may be awarded:

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 maximum amount that may be awarded for agent’s 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.

The Code currently stipulates the following:

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.

78.2 The maximum amount that may be awarded to an insured person or an insurer for agent’s fees is an amount calculated using the hourly rates established under the Legal Aid Services Act, 1998 for law clerks, articling students and investigators.

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.

(1) The amount of the following expenses paid by or on behalf of the insured person, the insured person’s lawyer or agent, the insured person’s attendant, if one is required, or the insurer’s lawyer or agent may be awarded:

For travelling expenses, in accordance with subsection (2).

For overnight accommodation and meals, in accordance with subsection (3). (2) The maximum amount of travelling expenses that may be awarded for a person, (a) for an arbitration or a hearing that takes place in the municipality in which the person resides is the amount incurred by the person for each day of his or her necessary attendance at the arbitration or hearing; (b) for an arbitration or a hearing that takes place outside the municipality in which the person resides and within 300 kilometres of his or her residence is the lesser of, (i) 30 cents per kilometre for one return trip between the person’s residence and the place in which the arbitration or hearing takes place, or (ii) the amount incurred by the person; (c) for an arbitration or a hearing that takes place 300 or more kilometres from the person’s residence is the lesser of, (i) the amount of the return economy airfare for the person plus 30 cents per kilometre for one return trip between his or her residence and the airport and for one return trip between the airport and the place of the arbitration or hearing, or (ii) the amount incurred by the person. (3) The maximum amount that may be awarded for overnight expenses and meals is $150 per night for each overnight stay required for the person.

There may be awarded to an insurer the total of all amounts in respect of a claim by an insured person that are included under section 4 of Ontario Regulation 11/01 (Assessment of Expenses and Expenditures) made under the Financial Services Commission of Ontario Act, 1997 in determining the amount of the insurer’s total assessment for arbitrations under section 282 of the Act, total assessment for appeals under section 283 of the Act or total assessment for applications under section 284 of the Act, if the insured person, on or after March 1, 2006, (a) refused or failed to submit to an examination relating to the claim under section 42 of Ontario Regulation 403/96 (Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996) made under the Act; or (b) refused or failed to provide any material relating to the claim that was required to be provided by subsection 42 (10) of that regulation. (my emphasis)

Arguments

Mr. Voudouris advanced several arguments in support of the submission that the Applicant is entitled to recover his expenses. His submissions addressed the first three criteria mentioned in subsection 12(2) of the Expense Regulation; the last three were not, in his view, relevant in the present case.

To begin with, Mr. Voudouris urged me to interpret the Expense Regulation in a way which will promote the objectives of consumer protection and access to justice. He argued that any interpretation which places too much weight on the first criterion, “Each party’s degree of success in the outcome of the proceeding”, would discourage applicants from exercising their right to challenge insurers’ denials of benefits. Applicants with legitimate and arguable claims should not, he maintained, be intimidated or penalized by an overly rigid “results-based” approach to expenses. In addition, Mr. Voudouris characterized the results obtained by the Applicant in this case as “substantial successes relative to what he was seeking”. By this, I understood Mr. Voudouris to mean that the Applicant was successful in establishing his entitlement to at least some of both of the disability benefits he claimed.

Turning to the second criterion, offers to settle, Mr. Voudouris stated the Insurer did not make any offer. This, he argued, reflected the “imbalance of power” between the two parties. The Insurer effectively forced the Applicant to either drop his claims or proceed to a hearing. At the same time, Mr. Voudouris acknowledged that the neither side made any written offers to settle.

As to the third criterion, whether novel issues were raised, Mr. Voudouris submitted that non-earner benefits had been the subject of little arbitral or judicial comment at the time of the hearing. To the extent that I rejected the Applicant’s claim for this benefit, he argued, I was dealing with a novel issue and this constituted another reason to avoid an overly rigid “results-based” approach to expenses.

For the Insurer, Mr. Dow had a very different view of the Applicant’s degree of success “relative to what he was seeking”. He pointed out that on the date the hearing commenced, the Applicant’s claim to non-earner benefits was potentially worth over $40,000 while his housekeeping claim was worth over $5,000. Moreover, he noted that while the Applicant’s claim to housekeeping expenses could not exceed the limits imposed by section 22 (because he was not catastrophically impaired as a result of the accident), his claim to non-earner benefits could have been ongoing long after the hearing. Comparing the actual result of the hearing with the potential result, Mr. Dow submitted that the Insurer achieved a much greater degree of success than the Applicant. For him, an order requiring each party to bear his/its own expenses would be the “worst result for the Insurer” that I could contemplate. A fairer award, he maintained, would reflect the Insurer’s significantly greater degree of success.

Mr. Dow did not agree that the second and the third criteria were relevant in this case. He noted that the Expense Regulation only refers to written offers of which they were none by either party. He denied that the hearing raised any novel issues. On the other hand, he submitted that the fourth criterion was relevant. While not attempting to exaggerate the amount of time lost, Mr. Dow submitted that Mr. Wilson, the lawyer who represented the Applicant at the hearing, prolonged the hearing by suggesting that a particular doctor had been evasive in answering a written question, a suggestion which I ultimately rejected.

Both counsel referred to the decisions of other arbitrators and commented on each other’s Bills of Costs. I have considered all of the decisions cited but, as a result of my analysis and conclusion, I do not find it necessary to examine either party’s Bill of Costs.

Analysis and Conclusion

I agree that the Supreme Court of Canada’s decision in Smith v. Co-operators General Insurance Co.² establishes that consumer protection is one of the main objectives of automobile insurance law. However, as I stated in Lin and Liu and ING Insurance Company of Canada:

… Smith did not impose upon insurers a common law duty of general application. On the contrary, the Court's decision was based on section 71 of SABS-1994, the “right to dispute” provision of that Schedule, which reads as follows:

If an insurer refuses to pay a benefit that a person has applied for under this Regulation or reduces the amount of a benefit that a person received under this Regulation, the insurer shall inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act.

In other words, as I read Smith, the Supreme Court drew a link between consumer protection and consumer access to a dispute resolution mechanism because the legislation itself drew that link, or at least, could be so interpreted. Justice Gonthier reasoned as follows at paragraph 11:

There is no dispute that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance. The Court of Appeal was unanimous on this point and the respondent does not contest it. In Insurance Law in Canada (loose-leaf ed.), Professor Craig Brown observed, “In one way or another, much of insurance law has as an objective the protection of customers” (p. 1-5). I note in this vein s. 279(2) of the Insurance Act which provides that any restriction on a party's right to mediate, arbitrate, litigate, or appeal is void, except as provided in the regulations. True to that purpose of consumer protection, no refusal under s. 71 of the SABS can be said to have been given by an insurer if there has not been adequate compliance with that section. (my emphasis)

It follows, in my view, that if I am to draw a link between consumer protection and access to justice, on the one hand, and expense awards, on the other, I must find some language in the provisions governing expenses which can be interpreted as establishing this link.

I regretfully conclude that no such language can be found. In fact, the Expense Regulation has, over the years, been steadily stripped of the kind of language which could have arguably been interpreted to establish this link. Arbitrator Feldman described the evolution of the law on expenses in Borissenko and RBC General Insurance Company.³ He wrote:

Prior to November 1996, arbitration expenses could be awarded to applicants only and were often granted even to unsuccessful applicants. In December 1996, the Expense Regulation was amended to permit arbitrators to award expenses to insurers, based upon criteria fairly similar to those that are still in place. There was, however, one criterion that granted to arbitrators considerable latitude in the exercise of their discretion. An arbitrator could consider “any other matter related to the proceeding” that he or she considered “relevant to the issue of whether an award of expenses is justified”. Relying on this broad discretionary power (and notwithstanding the change in the regulation that permitted insurers to be awarded expenses), some arbitrators continued to award expenses to applicants who were only marginally successful and to decline to order applicants to pay the expenses of successful insurers.

Effective October 1, 2003, however, that broad criterion was removed from the Expense Regulation. As Director Draper stated in Pembridge Insurance Company and Howden [P02-00031, May 17, 2004], the new criteria (i.e., the removal of the broad, “any other matter” criterion) continued the “move toward a more results-based approach to expenses”.

However, Arbitrator Feldman went on to observe that, despite this “move toward a more results-based approach”, the current Expense Regulation still reflects a concern for consumer protection. He wrote:

There are many aspects of the current Expense Regulation that serve to protect applicants. Even an unsuccessful applicant is protected from having to pay expenses where he or she raises a novel issue or where the insurer has rejected a reasonable formal offer from the applicant or where the conduct (in relation to the arbitration proceeding) of the insurer or its counsel has otherwise been unreasonable. The potential liability of an applicant to legal fees is limited to the much-reduced Legal Aid rates (while an applicant’s counsel can be compensated at a higher rate). The exposure of an applicant to disbursements incurred by the insurer is also limited by the Expense Regulation in both type and quantum. Thus, there are many aspects of the Expense Regulation that reflect the “consumer protection” nature of this legislative scheme.

I am reluctant to accept this view. It is true that the current Expense Regulation still places limits on the potential exposure of each party to expenses incurred by the other party and that, in any given case, these limits may be more important to the insured person than to the insurer. But can these limits be properly described as “consumer protection” if they also protect insurers? There appears to be only one provision of the current Expense Regulation which protects insured persons any more than it protects insurers, namely, the provision in relation to potential liability for legal fees. In all other respects, the Expense Regulation either subjects both parties to the same rules or subjects one party to rules which would not, in any event, apply to the other. In my view, the difference in potential liability for legal fees cannot be interpreted, by itself, to establish a more generalized link between consumer protection and access to justice, on the one hand, and expense awards, on the other. For this reason, I think Arbitrator Feldman stated the law more accurately a few pages later in his decision when he wrote:

I do not agree with the proposition that the consumer protection nature of the Insurance Act permits me to ignore the clear and unambiguous wording of the only criteria that I am permitted by regulation to consider. For this same reason, I do not accept the submission that “imbalance of power” is a factor to be considered. The Expense Regulation specifically states that the listed criteria are the only ones to be considered. It specifically requires consideration of “[E]ach party's degree of success”, not just that of the Applicant. As stated by Arbitrator Rogers recently in Waheed and RBC General Insurance Company [FSCO A06-000761 and A06-000856, February 28, 2008], “‘Imbalance of power’ cannot be imported to negate recognition of the Insurer's degree of success.”

Turning to the present case, I find that the “each party’s degree of success” is the only relevant criterion. The Expense Regulation is clear that offers to settle can only be relevant if they are in writing. By referring to many other decisions on the test for non-earner benefits, my decision demonstrated that this was not a novel issue at the time of the hearing. While I rejected Mr. Wilson’s suggestion that the doctor had been evasive in answering a written question, dealing with that issue did not prolong the hearing enough to justify any adverse expense consequence.

This is a case in which both parties succeeded and both parties failed. The Applicant succeeded in obtaining orders recognizing his entitlement to the only two disability benefits he claimed but failed to establish these entitlements over the periods claimed. The Applicant also failed to obtain a special award in relation to either benefit and failed to obtain interest in relation to housekeeping expenses. The Insurer’s failures and successes are obviously the opposite of the Applicant’s successes and failures. To put it succinctly, there was no winner or loser in this case; each party achieved or suffered a roughly equivalent degree of success or failure.

In these circumstances, I find that each party should bear his or its own expenses of the hearing.

June 18, 2009

David Leitch Arbitrator

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

Each party will bear his or its own expenses of the hearing.