State Farm Mutual Automobile Insurance Company v. Subashini Yogesvaran, 2011 ONFSCDRS 10

Financial Services Commission of Ontario

Neutral Citation: 2011 ONFSCDRS 10 Appeal: P09-00042

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Appellant

and

SUBASHINI YOGESVARAN Respondent

BEFORE: Delegate Lawrence Blackman

REPRESENTATIVES: Mr. Robert S. Franklin and Ms. Joanna Cox for the Appellant, State Farm Mutual Automobile Insurance Company Mr. David Wilson and Mr. Alexander M. Voudouris for the Respondent, Ms. Subashini Yogesvaran

HEARING DATE: January 14, 2011

APPEAL EXPENSES ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Each party shall bear its own legal expenses of this appeal.

January 20, 2011

Lawrence Blackman Director's Delegate

REASONS FOR DECISION

I. BACKGROUND

The Respondent, Ms. Subashini Yogesvaran, was injured in a May 13, 2007 motor vehicle. The November 26, 2009 decision of Arbitrator Miller (the "Arbitrator") held that the Appellant, State Farm Mutual Automobile Insurance Company, had failed to properly terminate the Respondent's benefits, the consequence of which was that the benefits remained owing until the Appellant complied with section 37 of the Schedule.¹

My January 19, 2010 letter decision accepted this appeal from a preliminary order, exercising my discretion under Rule 50.2 of the Dispute Resolution Practice Code (Fourth Edition, Updated – October 2003) (the "Code"), in part on the basis the appeal addressed a novel and important issue. My October 28, 2010 decision varied the Arbitrator's decision by making her orders interim, with the matter to proceed to an arbitration hearing to determine the Respondent's final entitlement to the interim award.

Following the Ontario Court of Appeal decision in Stranges v. Allstate Insurance Company of Canada, 2010 ONCA 457, I found that the Respondent was required to prove her entitlement to the disputed benefits according to the legislated criteria of eligibility. I was not persuaded, however, that the Arbitrator had erred to the extent that I found that her orders were a proper exercise of discretion to award interim benefits, subject to a final hearing.

I further held that if the parties were unable to agree on the legal expenses of this appeal proceeding, an expense hearing should be requested pursuant to Rule 79.2 of the Code. Both parties seek their legal expenses of this appeal.

My decision regarding entitlement to and the quantum of appeal legal expenses follows.

II. ENTITLEMENT TO LEGAL EXPENSES

The Relevant Legislation

Subsection 282(11) of the Insurance Act, R.S.O. 1990, c. I.8 provides that:

(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.

Under subsection 283(7) of the Insurance Act, subsection 282(11) applies, with necessary modifications, to appeals before the Director. The Director has appointed me under subsection 6(4) of the Insurance Act to hold this appeal and exercise the related powers and duties.

Subsection 12(2) of R.R.O. 1990, Reg. 664 (the "Expense Regulation") provides that:

(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:

1. Each party's degree of success in the outcome of the proceeding.
2. Any written offers to settle made in accordance with subsection (3).
3. Whether novel issues are raised in the proceeding.
4. 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.
5. Whether any aspect of the proceeding was improper, vexatious or unnecessary.
6. 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.
7. Whether the insured person refused or failed to submit to an examination as required under section 44 of Ontario Regulation 34/10 (Statutory Accident Benefits Schedule — Effective September 1, 2010), made under the Act, or refused or failed to provide any material required to be provided under subsection 44 (9) of that regulation.

The Appellant's Claim for Appeal Legal Expenses

The Appellant submits that having been successful on appeal, it is entitled to its legal expenses. It argues that this appeal from a novel and complex preliminary issue decision dealt expediently with the issues in dispute. The Appellant submits that an interim order award of benefits had not been sought as relief by either party.

The Appellant argues that its revised Bill of Costs of $7,202.62 reasonably reflects the work necessary to present its appellate arguments efficiently and persuasively. The Bill of Costs includes 76.4 hours, at varying legal aid hourly rates in accordance with Rule 78 of the Code, as well as disbursements of $195.25. The Appellant seeks a further 0.4 hours for the oral expense hearing.

The Appellant states that pursuant to the Arbitrator's order, it paid the Respondent $11,530.17 in interest under section 46 of the Schedule, in addition to paying $41,871.18 in statutory benefits. As an alternative argument, the Appellant submits that any legal expenses to which the Respondent might be entitled would be encompassed in the aforementioned interest award.

The Respondent's Claim for Appeal Legal Expenses

The Respondent submits that she is entitled to her appeal expenses, arguing that she had the greatest level of success on appeal. The Respondent argues that the Appellant's submission that there was no consequence or remedy for its established breach of section 37 was rejected and that the Arbitrator's decision was upheld to the extent that an interim order of benefits was allowed.

The Respondent further argues that, in any event, she is entitled to her appeal legal expenses because of the novelty of the legal issue addressed in this appeal. The Respondent also submits that wherever an insurer appeals an arbitration decision, the insured person should be able to respond without any adverse cost consequences.

The Respondent submits a Bill of Costs of $4,843.68, representing 27.9 hours at $150 an hour, plus disbursements of $114.63. The Respondent seeks a further 5.7 hours, similar to the Appellant's Bill of Costs, for preparing her Bill of Costs and written expense submissions.

Result

I found counsel for both sides professional and helpful throughout in arguing and expediting this matter. I am not advised of any offers to settle to be considered. Neither items 6 or 7 noted in the Expense Regulation above are relevant.

Far from being in any manner improper, vexatious or unnecessary, this appeal addressed broadly important issues consequent to the Ontario Court of Appeal decision in Stranges, released after the Arbitrator's decision. The Arbitrator, in her November 26, 2009 decision, had stated that the "issue for this arbitration is a novel issue. There are no cases on this specific issue."

The Respondent argues that an insured should never have any adverse cost consequences in responding to an insurer's appeal. I find this inconsistent with the Expense Regulation. Nor do I accept the Appellant's argument that any part of the interim benefits award should be considered as payment in lieu of appeal legal expenses.

The essence of this appeal, as set out in my October 28, 2010 decision, was whether the Arbitrator had erred in finding that the Appellant had not complied with clause 37(1)(a) of the Schedule and, if not, what was the potential penalty for such non-compliance, if anything.

My decision upheld the Arbitrator's finding that the Appellant had not complied with subsection 37(1). On the other hand, I did not accept the Respondent' argument that the Court of Appeal decision in Stranges was incorrect, not binding and should not be followed. However, I also did not accept the Appellant's submission that an insurer's failure to comply or properly terminate does not warrant any sanction.

In oral submissions in the main appeal hearing, the Appellant argued, in the alternative, that Stranges, at its strongest, says "bring on the hearing and in the interim, the benefits are payable." While such a remedy is not necessarily applicable in all cases, I found such a result both available and, in this case, appropriate.

This matter is now proceeding to a hearing on the merits with an interim order of benefits that may or may not, in whole or in part, be subject to a possible repayment order. Given the mixed success on appeal, the novelty of the legal issue, the importance and technicality of the question on appeal and that the Arbitrator did not have the advantage of the subsequent Court of Appeal decision in Stranges when she rendered her decision, I find it appropriate that each party bear its own legal expenses of this appeal.

III. QUANTUM OF LEGAL EXPENSES

If the quantum of legal expenses were required to be determined, I would find the respective (for the Appellant, revised) hourly legal rates claimed as being reasonable, especially considering the technical complexity of the issue on appeal and the assistance provided by counsel. I also find the disbursements claimed by both parties reasonable.

Regarding the number of hours claimed, I find the Respondent's 33.6 hours, including the additional hours for the expense hearing, reasonable and proportional. The Appellant claims more than twice as many hours. An appellant may be reasonably entitled to somewhat greater hours than a responding party, having the onus on appeal. I am not, however, persuaded that in this case, the more than twice as many hours claimed are reasonable or proportional.

While the Appellant submits that the number of hours claimed reflects a more cogent and developed argument, I find that the significantly greater number of hours reflect the concurrent involvement of two counsel. I am not persuaded that this was necessary in this appeal.

Accordingly, I would have restricted the Appellant's claim to its senior counsel's 39.4 hours.

January 20, 2011

Lawrence Blackman Director's Delegate

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.