Neutral Citation: 2010 ONFSCDRS 81 FSCO A05-002263

BETWEEN:

APRIL PICHE (Now known as April Loyst) Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA Insurer

DECISION ON EXPENSES

Before: Arbitrator David Leitch Heard: March 18, 2010 by telephone conference Appearances: Andrew Kerr for Ms. Loyst Ian D. Kirby for Allstate Insurance Company of Canada

Issues:

The Applicant, April Loyst, was injured in a motor vehicle accident on November 14, 2003 and received statutory accident benefits from Allstate Insurance Company of Canada (“Allstate”) payable under the Schedule.¹ In a Preliminary Issue decision dated August 3, 2007, I rejected Allstate’s submission that Ms. Loyst and her then husband had misrepresented which of them was driving the vehicle at the time of the accident. As a result, I did not need to consider how such a misrepresentation might have affected either Ms. Loyst’s entitlement to additional benefits or her obligation to repay benefits she had already received. Then, in a decision dated March 6, 2008, I rejected Ms. Loyst’s claims for additional benefits on their merits and ordered her to reimburse Allstate $4,487.11, plus interest, in respect of the income replacement benefits she received after returning to work in June 2005.

This issue in this hearing is:

Is Ms. Loyst or is Allstate entitled to recover her/its expenses in respect of this arbitration hearing?

Result:

Neither Ms. Loyst nor Allstate is entitled to recover expenses in respect of this arbitration hearing.

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, commonly known as the Expense Regulation. Sections 12(2) to 12(4) of the Expense Regulation read 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.

In the event either party is entitled to expenses, those expenses must be assessed in accordance with the Schedule to the Expense Regulation. For present purposes, I need only refer to the amounts allowed under section 5 of the Schedule for expert witnesses:

(1) ...

(2) ...

(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.

Analysis and Conclusion

I regard this case as being governed exclusively by the first criterion specified in section 12(2) of the Expense Regulation: “Each party’s degree of success in the outcome of the proceeding.” I acknowledge Mr. Kerr’s attempt to characterize some of the issues in the second decision as “novel”, thus allowing his client to invoke the third criterion. However, in my view, an issue should not be regarded as novel merely because it arises out of a particular set of facts. By that definition, most cases would have to be considered novel. In the present case, my findings were ultimately based on the particular facts of the case, not on any new interpretation or application of the law to those facts.

For Allstate, Mr. Kirby submitted that my final decision leaves no room for doubt about “each party’s degree of success in the outcome of the proceeding.” In addition to dismissing all of the Applicant’s claims, I ordered the Applicant to reimburse Allstate $4,487.11, plus interest. In short, Ms. Loyst recovered none of the benefits she claimed and was required to repay some of the benefits she had previously received. Mr. Kirby further noted that while my Preliminary Issue Decision may have rejected Allstate’s allegation of misrepresentation about who was driving, it nonetheless contained a number of negative comments about the Applicant’s credibility, comments which later helped Allstate to achieve its ultimate success.

For Ms. Loyst, Mr. Kerr observed that section 282(11) of the Insurance Act allows an arbitrator to award “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.” This language, he maintained, does not require or mandate a “winner-take-all” approach to expenses. In any event, he denied that Allstate was the only successful party as it failed to prove its allegation of misrepresentation pursuant to section 30(2)(a) of the Schedule. He further noted that had Allstate succeeded in proving such a misrepresentation, it would have then been entitled, pursuant to section 47(1)(b) of the Schedule, to claim repayment of all of the income replacement and housekeeping benefits it paid to Ms. Loyst. Ms. Loyst was, therefore, effectively forced to deal with a new issue raised by Allstate and did so successfully.

In my view, the “degree of success” analysis should begin by considering the issues or disputes the arbitrator was actually required to decide. I agree with the Arbitrator who stated in D. F. and Wawanesa Mutual Insurance Company:² “It seems to me that if a dispute goes all the way to a full hearing on the merits and the arbitrator finds that one side or the other was largely wrong about the positions on the issues which they adopted, then expenses are a reasonable response in the context.”

Moreover, in my view, a purposeful application of the Expense Regulation requires that the issues or disputes be defined in a way that considers the expense implications of litigating them. I do not, therefore, agree that the issues or disputes can always be defined in terms of ultimate entitlement. That may be fair in many cases, but it will be unfair in cases such as the present one where the preliminary issue was raised by the Insurer, the Applicant was able to respond to it successfully, but was then unable to establish entitlement. It will also be unfair in cases such as Tendenilla and Allstate Insurance Company of Canada³ where the preliminary issue was raised by the Insurer, the Applicant was unable to respond to it successfully, but was able to establish entitlement. To avoid the unfairness in that case, the Arbitrator held:

With respect to the first criterion, I find that Mr. Tendenilla was substantially successful in the arbitration. As Arbitrator Blackman noted in McLellan and Aviva Canada Inc., an applicant does not need to be entirely successful to be entitled to full expenses. Such a scheme would lessen the need for an insurer to serve a meaningful offer to settle and enhance the pressure for an insured to settle, even improvidently.

Allstate was, however, wholly successful at the preliminary issue hearing. At that hearing, Allstate maintained that Mr. Tendenilla was not entitled to benefits for the period during which he refused to comply with a request that he attend an examination under oath. The hearing arbitrator agreed. The preliminary issue hearing significantly narrowed the issues. Allstate had raised the preliminary issue on February 26, 2007, at the pre-hearing in this case. I find that Allstate is entitled to its expenses for having to prepare for and attend at the preliminary issue hearing.

The unfairness that would result by defining the issues or disputes solely in terms of ultimate entitlement was again demonstrated, and again avoided, in the case of Sarpong and Owusu and TD Home and Auto Insurance Company.⁴ In that case, the Arbitrator dismissed all of the Applicants’ claims but also dismissed the Insurer’s allegation that the Applicants participated in a conspiracy to defraud the insurer. When dealing with expenses, the Arbitrator wrote:

What then of the three to four days taken up with the conspiracy theory of TD Home? I agree with the Applicants that the failure of TD Home to prove these allegations must have consequences and all that is left at this point is its claim to expenses.

For these reasons, I find that TD Home is not entitled to its expenses for the three to four days of hearing devoted entirely to the attempt to prove the conspiracy theory.

Nonetheless, I acknowledge that care must be taken to distinguish between issues or disputes, on the one hand, and the arguments or procedural points that might be made or raised in relation to those issues or disputes, on the other. In Bhada and Security National Insurance Co./Monnex Insurance Mgmt. Inc.⁵, I made the following observation about the degree of success criterion:

In my view, the primary focus should be on the results obtained, not on the arguments made. I acknowledge that on any given issue, a party might make unsuccessful, perhaps even meritless, arguments and yet still achieve ultimate success on that issue. As I see it, any time wasted dealing with ill-founded arguments is best sanctioned under the criterion dealing with conduct that tends to prolong the proceeding, not under the “degree of success” criterion.

Similarly, in Rooz and Certas Direct Insurance Company and Zapisnoy⁶, a Director’s Delegate observed:

The preliminary issue was whether Mr. Rooz had to serve Mr. Zapisnoy with the Notices of Appeal and of Variation/Revocation, in case he would be exposed to expenses. Certas took the position that if Mr. Rooz did not have to pay the expenses it had been awarded in the arbitration decision, then Mr. Zapisnoy should be held liable for them. However, Delegate Makepeace accepted the submission of Mr. Rooz that, if the appeal or variation/revocation application succeeded, a further hearing would have to be held to decide whether Mr. Zapisnoy should be ordered to pay the insurer’s expenses. Mr. Rooz submits that in light of his success on this point, he should be entitled to expenses at $150 an hour to offset those of Certas.

I am not persuaded that the criterion in Rule 75.1(a), “each party’s degree of success in the outcome of the proceeding,” should be parsed so finely as to consider every procedural step along the way, no matter how narrow or relatively minor. Excessive procedural steps can be dealt with under Rule 75.1(d), conduct prolonging, obstructing, or hindering a proceeding. In this case, I find that Certas raised an entirely legitimate question. There was also no determination of the issue, only its deferral pending the appeal, which Mr. Rooz lost. Therefore, I do not consider that Mr. Rooz is entitled to any offsetting expenses in the circumstances of this case.

Turning to time spent in this case, the Preliminary Issue Hearing took two days of hearing during which Ms. Loyst and her then husband testified as well as each party’s accident reconstruction expert. Written submissions then followed. The main hearing took two and a half days during which Ms. Loyst, her parents, an occupational therapist and the family doctor testified. Oral submissions took about a half a day to complete.

As for the Bills of Costs, the Insurer’s Bill totals $18,962.91 and the Applicant’s Bill totals $25,045.55. The Insurer’s Bill does not indicate the amount of lawyer’s time spent dealing with the Preliminary Issue Hearing as opposed to the main hearing. The Applicant’s Bill attributes $16,348.99 to the “initial hearing” and $8,697.50 to the “Hearing regarding specific claims.”

The Insurer’s total Bill is thus lower than the Applicant’s total Bill despite the fact that both lawyers charged the same hourly rate: $92.34. However, I note that the Insurer’s Bill mentions only the amount spent for the expert’s attendance at the Preliminary Issue Hearing; it says nothing about the cost of his report or his time spent preparing to testify. The Applicant’s Bill of Costs, on the other hand, appears to simply indicate the amount charged by the expert, $4,408.40, even though that amount could not be recovered under the Schedule. I expect the real cost of the Insurer’s expert report was greater given his greater experience. In other words, if the real cost of the Insurer’s expert report were added to the Insurer’s Bill, the Bills would probably be roughly equivalent.

I, therefore, find that while the Preliminary Issue Hearing took slightly less time than the main hearing to complete, it involved higher disbursements due to the involvement of the accident reconstruction experts. I conclude that the parties probably incurred roughly the same expenses for both parts of the hearing. Since the Applicant was successful in the Preliminary Issue Hearing and the Insurer was successful in the main hearing, I conclude that each party should bear her/its own expenses.

June 24, 2010

David Leitch Arbitrator

Date

Financial Services Commission of Ontario