Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2011 ONFSCDRS 17

Appeal P10-00005

OFFICE OF THE DIRECTOR OF ARBITRATIONS

Mrs. S

Appellant

and

ECONOMICAL MUTUAL INSURANCE COMPANY

Respondent

BEFORE:

Delegate Lawrence Blackman

REPRESENTATIVES:

Mr. Michael Rubin for the Appellant, Mrs. S

Mr. Nicholaus de Koning for the Respondent, Economical Mutual Insurance Company

HEARING DATE:

February 7, 2011

APPEAL EXPENSES ORDER

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

The Appellant shall pay the Respondent its legal expenses of this appeal fixed in the amount of $1,683.19, inclusive of GST and HST, as applicable.

February 15, 2011

Lawrence Blackman Director’s Delegate

Date

REASONS FOR DECISION

I. BACKGROUND

The Appellant, Mrs. S, was injured in a November 22, 2006 motor vehicle accident. In his February 12, 2010 decision, Arbitrator Renahan (“the Arbitrator”) dismissed the Appellant’s claims for statutory accident benefits under the Schedule.¹ The Arbitrator’s May 31, 2010 decision found the Respondent, Economical Mutual Insurance Company, entitled to its arbitration legal expenses as agreed or assessed; his December 14, 2010 decision set those expenses at $8,184.54, inclusive of GST.

My November 17, 2010 decision confirmed the Arbitrator's February 12, 2010 decision, leaving the question of appeal legal expenses to be addressed.

The Respondent requested an appeal expense hearing as the parties were unable to agree on legal expenses. The Respondent claims 18.7 hours at the legal aid rate of $87.26 an hour, for a total of $1,786.63 in counsel time, including applicable GST and HST. The Respondent further seeks $281.11 in disbursements for a total account of $2,067.74.

II. THE RELEVANT LEGISLATION

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

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, who 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 only the following criteria shall be considered for the purposes of awarding all or part of incurred legal expenses:

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.
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.

III. THE PARTIES’ EXPENSE SUBMISSIONS

The Respondent submits that it is entitled to its legal expenses of this appeal as it was completely successful and, further, the appeal had no merit and was unnecessary.

The Respondent submits that the appeal did address two somewhat novel issues, whether the Appellant’s employment income was required to be reported and whether the Respondent’s failure to meet a statutory time line resulted in automatic benefit entitlement.

The Respondent maintains that the first issue, however, was moot and the second, as a general proposition, had been canvassed and rejected in other decisions. The Respondent submits that the remaining criteria in the Expense Regulation are not applicable.

The Respondent argues that its account is reasonable and should be allowed. The account includes 3.9 hours travel time from Kitchener-Waterloo to the Toronto hearing. The Respondent submits that its travel time is reasonable as its head office is in Kitchener-Waterloo, it has a long relationship with its counsel’s firm in the same area and the travel distance is not unreasonable.

The Appellant argues that legal expenses should not be awarded as her appeal was not totally without merit. Rather, the question of whether the Respondent’s technical breach automatically entitled her to payment of interest, while not necessarily the benefit itself, was an important and entirely novel issue.

The Appellant submits that, in any event, the Bill of Costs should be reduced by the 3.9 hours travel time, relying on Seyed and Federation Insurance Company of Canada, (FSCO A07-002110, November 23, 2009) that such expense is not recoverable.

IV. RESULT

The Arbitrator found the Appellant's evidence at the arbitration hearing implausible, not believable, nonsensical, inconsistent and lacking any believable detail. The Appellant, however, argued that the Respondent’s failure to comply with the time lines of subsection 35(3) of the Schedule, no matter how innocent the breach or how weak her application, automatically resulted in the payment of at least the interest component of her claim.

My April 12, 2010 letter decision denied the Appellant’s request that the determination of arbitration legal expenses be stayed. My November 17, 2010 decision found that the legislative remedy for an insurer’s non-compliance with the provision in question was not automatic entitlement but rather mandatory interest and a discretionary special award where entitlement was established. I further found the Appellant’s argued remedy in this case inconsistent with Stranges v. Allstate Insurance Company of Canada, 2010 ONCA 457.

Given the aforementioned, my November 17, 2010 decision found the Appellant’s argument regarding the tax reporting obligations of subsection 64.1(1) of the Schedule moot.

The Respondent was thus entirely successful in this appeal. While the Appellant’s arguments were creative and both counsel were professional throughout, I am not persuaded that in this appeal these considerations are sufficient to merit both parties bearing their own legal costs. Rather, I find that the Respondent is entitled to its reasonable appeal expenses.

Regarding the quantum of the Respondent’s account, the only item in dispute is travel time.

Subsection 3(1) of the Schedule to the Expense Regulation provides that:

(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.

In Athanasiadis and Zurich Insurance Company, (FSCO A97-001239, December 23, 1999), Arbitrator Miller held that while legal fees under the Expense Schedule are payable for preparation and attendance as well as services performed before and after a hearing, there is no provision for travel time to and from a hearing, nor can travel time be read into any of the above four categories. The Arbitrator thus concluded that a party is not entitled to travel time.

Arbitrator Wacyk, in Cisneros and State Farm Mutual Automobile Insurance Company, (FSCO A02-000630, January 8, 2003), held that “I am not aware of any provision, in either the Expense Regulation or the Code, which provides for a claim of travelling time to the arbitration by either party.”

In Lee and Certas Direct Insurance Company, (FSCO A03-000041, July 20, 2007), Arbitrator Alves held, while allowing waiting time for expert witness, as “the Expense Schedule does not contemplate the payment of travel time for experts, I have disallowed the claim for travel time.” In Seyed, noted above, Arbitrator Feldman held that:

…I see no reason why an applicant (even an unsuccessful one) should have to pay a greater amount because the insurer has chosen to retain counsel who lives outside the area where the proceedings are being held. While the Expense Regulation permits an insurer to claim for its counsel's travel expenses (i.e., disbursements for mileage and other out-of-pocket expenses) … there is no similar provision with respect to legal fees during travel and Federation has filed no cases in support of this part of its claim.

Likewise, Arbitrator Sone, in Abdala-Amin et al. and Guarantee Company of North America, (FSCO A03-000395, A03-000396 and A03-000397, May 25, 2005), found counsel’s claimed hours travelling from London, Ontario (where counsel was based) to Toronto not reasonable as the insurer could have retained Toronto counsel.

In Mohamed and Yusuf and Guarantee Company of North America, (FSCO A04-000020 and FSCO A04-000006, September 7, 2005), Arbitrator Sampliner denied counsel’s four hours travel time because the insurer had not “put forward any reasonable justification for retaining London counsel to handle a case in Toronto.” In Cook and Pilot Insurance Company, (FSCO A03-001085, March 17, 2006), Arbitrator Kominar did not allow an overnight accommodation disbursement because the insurer chose to retain out-of-town counsel rather than a local lawyer.

In his December 14, 2010 arbitration expense decision herein,² Arbitrator Renahan held that he did not take Seyed as authority for the proposition that disbursements for out-of-town counsel are recoverable. Arbitrator Renahan noted that section 6 of the Schedule to the Expense Regulation lists the expenses that “may be awarded” to a party or party's lawyer, including travel expenses. Finding the operative words allowing such expenses to be permissive, not mandatory, he held that if an expense for travel time is not recoverable where no reasonable justification is advanced for retaining out-of-town counsel, then additional disbursements associated with retaining out-of-town counsel are also not recoverable in the absence of reasonable justification.

In Khawaja and ING Insurance Company of Canada, (FSCO A03-000974, June 24, 2004), Arbitrator Renahan found that travel time under the Legal Aid Services Act,1998 was not included in the legal fees that may be awarded by an adjudicator under Rule 78 of the Dispute Resolution Practice Code (Fourth Edition – Updated September 2010). The latter sets as the maximum award for legal fees the hourly rates established under the Legal Aid Services Act, 1998 for professional services in civil matters before the Ontario Superior Court of Justice. Item 23.1 of Schedule 2, Part IV, of Ontario Regulation 107/99 allows, with the approval of the area director of legal aid, travel time at $43 per hour.

Arbitrator Renahan was not satisfied that Rule 78 of the Code incorporated the legal aid rate for travel time set out in Ontario Regulation 107/99. He specifically noted the different wording in the Regulation regarding civil hourly rates (using similar wording to the Code) versus its description of travel time. As well, he noted that travel time was at the area director’s discretion.

Conversely, Arbitrator Bujold, in West and Aviva Canada Inc., (FSCO A08-000170, March 15, 2010), allowed some five hours of travel time for attendance at a preliminary issue hearing in Toronto. He found the insurer’s choice of outside counsel was not the reason for the travel time, as the insured and both counsel resided outside Toronto and the substantive arbitration hearing would have proceeded in that other location. Arbitrator Bujold, however, allowed only the lower rate of $48.38 per hour for travel time.

In Worku and Co-operators General Insurance Company, (FSCO A-002172, September 2, 1998), the insured retained her counsel when his law practice was in Toronto, but continued to retain him after her counsel moved to Trenton, Ontario. Following a seven-day arbitration hearing, the insured claimed her counsel’s mileage expenses and twenty hours of travel time.

The insurer in Worku argued it should not be responsible for travel time or related travel expenses for a lawyer located out of town when the insured continued to reside in Toronto where the hearing was conducted. Having not hired a new Toronto lawyer, it argued that the insured should be held responsible for the expenses associated with her choice of keeping the same lawyer.

Arbitrator Miller found the insurer’s position had merit, that an insurer should not be expected to underwrite the choice of out-of-town counsel, particularly if the insured resided in a location where retaining alternative counsel would not be difficult. Such an expense was out of the ordinary and could be viewed as unnecessary. However, in the case before her, Arbitrator Miller found special circumstances, including counsel initially being in Toronto and the insured having developed a working rapport with her counsel notwithstanding her emotional and psychological challenges.

Arbitrator Miller thus found the insured’s continued retaining of counsel reasonable. She noted the Schedule to the Expense Regulation allowed reimbursement of counsel’s incurred travel disbursements. By implication, she found that the Expense Regulation contemplated that counsel may be required to travel to a hearing as part of representing an insured. Thus, counsel was entitled to payment not only of incurred disbursements but also the time associated with that travel, under subsection 3(1) of the Schedule to the Expense Regulation, namely payment of legal fees for all services performed before a hearing and for attendance at a hearing.

In Lunn and State Farm Mutual Automobile Insurance Company, (OIC A-013960, March 15, 1996), Arbitrator Kirsch held that a line-by-line assessment of the expenses claimed was not appropriate. Rather, the arbitrator should make a global assessment of reasonable expenses. Arbitrator Makepeace, in Henri and Allstate Insurance Company of Canada, (OIC A-007954, August 8, 1997), confirmed that the main consideration in determining legal expenses is reasonableness. She further held that a ratio of preparation time to hearing time served as a rough approximation of the reasonableness of the submitted account.

In Rooz and Certas Direct Insurance Company and Zapisnoy, (FSCO P07-00017, November 18, 2009), Delegate Evans agreed with Mr. C and Kingsway General Insurance Company, (FSCO P08-00025, September 18, 2009) “that ratios in appeals are of limited assistance, given that the bulk of work done in appeals goes to preparing written submissions for relatively short oral submissions and that brevity may in fact reflect a considerable amount of work.” Thus, in appeals, one returns to the general guideline of endeavouring to determine what legal expenses are reasonable for the other party to bear, within the limits set by the Legislature.

The above case law provides, generally, either that the Expense Regulation does not encompass compensation for counsel’s travel time, or that reasonable justification must be advanced for allowing such travel expense.

The Code does not provide full compensation of all incurred legal expenses. Section 6 of the Expense Regulation, encompassed with the Code, explicitly provides limited compensation for travel disbursements for representatives. Subsection 3(1), set out above, however, does not explicitly provide for travel time. I find that the words “all services performed before” a hearing in subsection 3(1) to mean reasonable professional legal services.

The Respondent refers me to Gatta Homes Inc. v. the Corporation of the City of St. Catharines, 2010 ONSC 6721, where Taliano J. held:

…although travel time which is necessary to the performance of counsel’s duties should be compensable, the rate of compensation should be reduced to reflect the fact that the litigator’s skills are not generally engaged during travel time.

Gatta Homes referenced Mallory v. Mallory, 1998 CanLII 29653 (ON CTGD), [1998] O.J. No. 41, where Quinn J. held that travel time should not only be permitted, but should be allowed at counsel’s full chargeable rate. Quinn J. stated that counsel in the case before him:

… was representing his client to the exclusion of his other clients and their needs. To discount his hourly rate smacks of a dilettantish approach that ignores the harsh realities of the business of law. As long as the travel was reasonably necessary in the light of the exigencies of the case, it should be allowed without suffering a discount.

This January 6, 1998 decision also found an hourly counsel rate of $275 inadequate and that the Practice Direction did not reflect appropriate compensation. I note that Rule 78 of the Code presently provides a maximum hourly counsel rate, in 2011, of $150 for insured persons, an hourly maximum that has existed since April 15, 1997.

I am not persuaded, however, as a general principle in the context of this alternative dispute resolution system and the applicable legislation, that travel time by itself is a professional legal service wherein the litigator’s skills are being engaged such that it is reasonable for the other party to bear that cost. Nor am I persuaded that Rule 78 of the Code that addresses the hourly rates under the Legal Aid Service Act, 1998 brings travel time in through the back door.

Rather, I agree with Arbitrator Makepeace in Henri, that “[i]n the absence of express language, I am not satisfied that the Legal Aid Tariff, which governs payments out of the Legal Aid Fund, applies to the assessment of costs between applicants and insurers in arbitration [or, by implication, in appeal] proceedings.”

There may, however, be compelling circumstances, such as access to justice where, due to location or other reasons, a party may not be otherwise able to retain proper representation. In such cases, some measure of travel time by itself, devoted to the specific party, perhaps at a lower hourly rate, may be deemed to be a reasonable professional legal service.

In this case, the Respondent submits that the convenience and corporate comfort level of retaining counsel where its head office is located justifies the associated extra travel expense. This is especially so, it argues in oral submissions, as this will become more commonplace as the Respondent’s business in the Toronto area, where this hearing was held, expands.

I am not persuaded that this constitutes the compelling circumstances for considering travel time to be a professional legal service reasonable for the Appellant to bear. Rather, I find the underlying premise for such argued travel time as a recoverable expense inconsistent with the Commission’s prime purpose, as enunciated in Rule 1.1 of the Code, to produce the most just, quickest and least expensive resolution of the dispute.

Accordingly, the 3.9 hours of travel time is deducted from the Respondent’s Bill of Costs. At $87.26 per hour, plus the 13% HST claimed, the reduction is $384.55. Accordingly, I assess the Respondent’s appeal legal expenses at $1,683.19.