Sanmuganathan Elaiathamby v. State Farm Mutual Automobile Insurance Company, 2011 ONFSCDRS 36

Financial Services Commission of Ontario

Neutral Citation: 2011 ONFSCDRS 36

Appeal P08-00035

OFFICE OF THE DIRECTOR OF ARBITRATIONS

SANMUGANATHAN ELAIATHAMBY Appellant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Respondent

BEFORE: David Evans

REPRESENTATIVES: David S. Wilson for Mr. Elaiathamby John P. Desjardins for State Farm Mutual Automobile Insurance Company

HEARING DATE: October 27, 2010

APPEAL ORDER

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

1. The appeal of the Arbitrator’s order dated December 11, 2009 is allowed. Paragraph 1 of the Arbitrator’s order is revoked, and the following substituted:
   1. Mr. Elaiathamby is entitled to $32,217.06 for his expenses of this arbitration.
2. An appeal legal expense hearing shall be requested within thirty days of the date of this decision, accompanied by a Bill of Costs and written submissions, as set out below.

April 7, 2011

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Elaiathamby appeals the Arbitrator’s award of $30,001.31 in arbitration expenses.

II. BACKGROUND

State Farm Mutual Automobile Insurance Company (State Farm) had agreed to pay Mr. Elaiathamby various accident benefits if he had been in an accident as defined in the SABS‑1996.¹ In his decision dated October 21, 2008, the Arbitrator found in Mr. Elaiathamby’s favour.² He then sought arbitration expenses of $42,072.59 but was awarded only $30,001.31. Mr. Elaiathamby appeals a number of the rulings in that December 11, 2009 expense decision.

Regarding legal fees, the Arbitrator applied a ratio of two preparation hours for every hearing hour and awarded 84 hours for hearing preparation. He allowed .1 hour per item for 123 items of correspondence, or 12.3 hours. With respect to legal research and drafting of Mr. Elaiathamby’s final written submissions and responses to State Farm’s submissions, the Arbitrator allowed only seven hours because he was “not convinced that 30 hours were necessary.” In the result, he awarded $23,711.63 in legal fees inclusive of GST at $150 per hour rather than $30,625.88.

With respect to a functional abilities report and all of Mr. Elaiathamby’s other expert health care reports, the Arbitrator accepted State Farm’s submission that they should be reimbursed at fifty percent to account for their use in ongoing tort proceedings respecting this accident. He awarded $6,289.68 for these reports and other disbursements rather than $8,505.43.

III. ANALYSIS

With respect to preparation for the hearing, Mr. Elaiathamby submits that the Arbitrator provided no reason for the low 2 to 1 ratio of preparation to hearing time and did not follow other case law at the Commission that allowed .2 hours as bulk billing for correspondence. However, the Arbitrator overstated the hearing time and allowed separate entries for the pre-hearing and correspondence. In the leading case of Henri and Allstate Insurance Company of Canada, (OIC A‑007954, August 8, 1997), the ratio of 4 to 1 was applied for the entire period from the completion of mediation through to the completion of the hearing including oral submissions and the time for the expense hearing; additional expenses for items such as the pre-hearing or correspondence were not also allowed, which is what happened here. Looked at correctly, the Arbitrator actually applied a generous ratio. Furthermore, the difference between the total claimed and that allowed simply reflects the discretion available to the Arbitrator. First, I will set out the hours claimed and allowed, based on the table in Mr. Elaiathamby’s appeal submissions:

Item	Hours Claimed by Appellant	Hours Allowed by Arbitrator
Pre-Hearing	3.25	3.25
Preparation for Hearing	102.50	84.00
Correspondence	24.60	12.30
Arbitration	31.00	42.00
Preparation of written submissions and reply	32.65	7.00
Review of arbitral decision	.20	0.00
Expense hearing	2.00	2.00
Total Hours	196.20	150.55
Actual hearing time	33.00

Mr. Elaiathamby submits that he had accepted the figure of 31 hours for the hearing time, but the Arbitrator allowed 42 hours. Mr. Elaiathamby is “taking no issue with that disposition, since, in doing so, the arbitrator appeared to include certain of the insured’s preparation time.” That means, however, that the Arbitrator in effect applied a higher ratio than 2 to 1 to the 31 hours of actual hearing time. Furthermore, as can be seen from the chart, the Arbitrator allowed an additional 3.25 hours for the pre-hearing, whereas the pre-hearing time should have been considered as part of the overall preparation time. He also awarded additional time for the correspondence. As was pointed out in Arunasalam and State Farm Mutual Automobile Insurance Company, (FSCO A07-002068, December 11, 2009), “Preparation time includes correspondence. No separate award is warranted for the … hours claimed for sending and receiving letters.” I fully agree with that statement that is entirely consistent with Henri. I note that Mr. Elaiathamby also submits that correspondence “would ordinarily be included in preparation time.” The total actual hearing time came to 33 hours (31 hours for the hearing and 2 hours for the expense hearing). Subtracting those 33 hours from the total of 150.55 hours allowed leaves 117.55 hours. The ratio of preparation time allowed in relation to the actual hearing hours is thus 117.55 divided by 33, or more than 3.5 to 1.³

Accordingly, while the Arbitrator should have provided a reason for the apparently low ratio, especially because he also found that counsel’s experience, diligence and effectiveness directly resulted in success, the actual ratio of more than 3.5 to 1 is not at all low and falls above the mid-range of ratios applied at the Commission. Furthermore, on a global basis the insured claimed 196.2 hours and the arbitrator allowed 150.55 hours. Considering that the Arbitrator in fact applied a generous ratio and that, as was said in Henri and in the many cases that have followed it, an assessment of expenses need not be done on a line by line basis, that difference between the claim and the award hardly qualifies as an exercise of discretion amounting to an error of law. Furthermore, in light of the above, I see no merit in Mr. Elaiathamby’s argument that the Arbitrator allowed insufficient time for the written submissions.

To reiterate, if a ratio is going to be applied, it should be based first on the entire hearing time including oral argument if it occurs and the time for the expense hearing itself. Unlike what happened in this case, there should not then be a separate accounting on top of that allowing additional time for the pre-hearing, correspondence, or other such items that are already included in the calculation of preparation time.

The appeal is thus rejected on this point.

With respect to the expert reports and disbursements, the actual amount claimed by Mr. Elaiathamby at the expense hearing was $8,505.43, but the Arbitrator awarded only $6,289.68, a difference of $2,215.75. This difference was arrived at by his allowing only one half of the cost of the reports of Atila Balaban, Dr. Joseph Wong, David Antflick, and Dr. W. Chan (as well as omitting the GST of $18.50 on the interpreting charges of Milroy Anandraj). He allowed only half because these reports were also being used in the tort case.

However, the Arbitrator reached this conclusion without any reference to case law or legislation. Subsection 282(11) of the Insurance Act provides that all or part of the expenses incurred in respect of an arbitration proceeding may be awarded based on certain prescribed criteria. These criteria in turn are set out in s. 12(2) of Reg. 664, R.R.O. 1990, the expense regulation, which begins by stating that “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.” Those criteria do not include whether a party may potentially be entitled to recover a portion of his or her expenses in another proceeding.

State Farm submits that cases such as Henri stand for the proposition that arbitrators should fix a reasonable ballpark figure rather than conduct a line by line calculation. While that is generally true, it is incorrect to reduce expenses on a basis that is not supported in the legislation. State Farm also submits that an allowance of half of the amount of the disbursements will prevent double recovery in the event that the disbursements are recovered in the tort action. However, arbitration and appeal decisions are public, so there is no reason to assume there would be double recovery, even aside from the assumption that counsel will act honourably. Finally, while the automobile insurer is the insurer of last resort, that does not apply to legal expenses incurred in arbitration.

The appeal is therefore allowed on this point, and Mr. Elaiathamby is entitled to the full amount claimed for expert reports and disbursements of $8,505.43, inclusive of GST (the HST had not come into force at the time of the hearing). That figure includes an adjustment to add the GST to the $370 charge for the interpreting charges of Milroy Anandraj, since there was an arithmetical error on the Arbitrator’s part in omitting the GST.

In the result, $2,215.75 is added to the Arbitrator’s order of $30,001.31 for total arbitration expenses, for a final figure of $32,217.06 inclusive of GST.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an appeal legal expense hearing shall be requested within 30 days of the date of this decision in accordance with Rule 79 of the Dispute Resolution Practice Code (Fourth Edition, Updated – September 2010).

The request shall be accompanied by a Bill of Costs describing the expenses claimed, the services received and the costs, as well as submissions regarding entitlement to and/or the quantum of such expenses.

April 7, 2011

David Evans Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2However, the Arbitrator did not find that Mr. Elaiathamby was entitled to a special award. This issue was appealed and ultimately remitted for a further hearing: Elaiathamby and State Farm Mutual Automobile Insurance Company, (FSCO P08‑00035, October 1, 2010).
3. 3I note that, even using the Arbitrator’s own figure of 42 hours for the hearing, the ratio of preparation time to hearing time still works out to about 2.6 to 1.