Eniko Rakosi v. State Farm Mutual Automobile Insurance Company, 2012 ONFSCDRS 123

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2012 ONFSCDRS 123

Appeal P11-00027

Appellant

and

Respondent

BEFORE:

Delegate Lawrence Blackman

Ms. Dimple Verma for the Appellant, Ms. Eniko Rakosi

Ms. Joanna Cox for the Respondent, State Farm Mutual Automobile Insurance Company

By written submissions due July 16, 2012

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

The parties shall each bear their own legal expenses of this appeal.

August 10, 2012

Lawrence Blackman Director’s Delegate

Date

I. BACKGROUND AND THE PARTIES’ EXPENSE SUBMISSIONS

This appeal was from an October 24, 2011 arbitration pre-hearing decision ordering the Appellant to produce, for the specified period May 5, 2008 to May 5, 2010, photographs from her Facebook profile including any limited access or private portion.

My December 20, 2011 order exercised my discretion under Rule 50.2 of the Dispute Resolution Practice Code (Fourth Edition, Updated – August 2011) (the “Code”) to accept this appeal from a preliminary arbitration decision. My May 11, 2012 decision dismissed the appeal and confirmed the Arbitrator’s October 24, 2011 production order, but based on relevancy and reasonable necessity rather than the “semblance of relevance” test applied by the Arbitrator.

Both parties now seek their legal expenses of this appeal.

The Appellant’s account is $5,681.55, representing 44.3 hours at $106.07 an hour, plus HST and $382.44 in disbursements, including a $250 filing fee. The Respondent’s account is $3,016.95, consisting of 29.1 hours, largely at $94.27 an hour for one counsel, HST and $21.47 in disbursements.

The Appellant submits that she is entitled to her legal appeal expenses because:

The Arbitrator was found to have erred in law in the production test applied. This finding is of broader importance than the specific result in this case.
The appeal raised an important, novel legal issue requiring clear direction given the few, conflicting decisions at arbitration.
The Appellant had genuine privacy concerns.
Not awarding the Appellant her costs or awarding costs against her would deter insured persons who may wish to appeal an important or novel issue.

The Respondent submits it is entitled to its legal appeal expenses for the following reasons:

It was successful in the outcome of the appeal.
Facebook production is a relatively novel issue at the Commission, but production disputes are not.
Extra time and expense was incurred by the Respondent due to (1) the Appellant’s lack of particulars in her initial Notice of Appeal, and (2) her failure to comply with the December 20, 2011 appellate order that she copy and preserve the pages from her Facebook account ordered produced by the Arbitrator.

Both parties object to the other side’s claimed hours.

II. ENTITLEMENT TO LEGAL EXPENSES

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

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.

As set out in subsection 283(7) of the Insurance Act, subsection 282(11) applies to appeals. Subsection 12(2) of R.R.O. 1990, Reg. 664 (the “Expense Regulation”) sets out the criteria that shall be considered for the purpose of awarding all or part of incurred legal expenses. In this case, the following criteria are pertinent:

Each party’s degree of success in the outcome of the proceeding.
Whether novel issues were raised.
The conduct of a party or a representative that tended to prolong, obstruct or hinder the proceeding, including failure to comply with undertakings and orders.

In Reid and ING Insurance Company of Canada, (FSCO A05-002870, May 22, 2008), Arbitrator Killoran held:

A lack of success by an applicant at arbitration does not automatically result in making the applicant responsible for the insurer’s expenses. The relationship between insurer and insured is a contractual one. The insured is entitled to access the dispute resolution process at FSCO as a result of that contract. The Insurance Act and its regulations must be interpreted in such a way as to uphold the protective and remedial nature of the legislation from which it flows. While changes to the Expense Regulation have moved towards a more results-based approach to expenses, the approach cannot be entirely results-based or the legislative purpose of the Insurance Act could be undermined. [emphasis in the original]

I agree. Arbitrator Killoran further held:

While I am required to apply the criteria enumerated in the Expense Regulation, I have the discretion to weigh each criterion appropriately taking into account the particular facts and circumstances of each case.

I also agree.

I find that in this particular appeal proceeding, the most significant expense criterion is the relatively novel issue of Facebook production at the Commission, its entire novelty at the appeal level and the increasing importance of production issues regarding documents in electronic form on social networking websites. These were significant considerations in my initial exercise of discretion under Rule 51.2(c) of the Code not to reject this appeal from a preliminary arbitration order.

Of further significance is the finding that the test for documentary production is not a “semblance of relevancy.” Rather, a two-stage analysis is required. First, the requested documents must be relevant. Second, notwithstanding relevance having been established, the requested documents must be reasonably necessary, which requires weighing, on a case-by-case basis, the degree of relevance against other pertinent considerations, including the sensitivity of the information, the practicalities of compliance and the timing of the production request.

The broader importance of the determination of the proper production test over its application in the circumstances of this case would have favoured awarding the Appellant her legal expenses, at least in the cause. However, there are further considerations in this case.

My December 20, 2011 decision deferred the question of the Appellant’s requested stay of the Arbitrator’s production order pending confirmation by the Appellant whether, since the Arbitrator's August 23, 2011 letter decision, there had been any deletions or alterations of photographs posted on her Facebook account during the period ordered produced. In the interim, the Appellant was to copy and preserve every page from her Facebook account for that period.

The Appellant did not comply with this order. The Appellant states that this was an oversight quickly remedied at the beginning of the appeal hearing. The deleted pictures have been restored and full production of the Facebook site has been made.

Although the Appellant’s lack of compliance with an appeal order endeavouring to preserve the status quo pending determination of the appeal is mitigated by her later actions, I am of the view that her initial failure is still of relevance. However, I am not persuaded that the request for further initial particulars from the Appellant as to why this appeal should be presently received is a relevant factor. That request was quickly addressed. There was no failure to comply with any order. There was minimum, if any, inconvenience or additional expense to the Respondent.

Of significance was that although the Appellant cited privacy concerns as motivating this appeal, my May 11, 2012 decision noted that the Appellant had not provided any evidence of the sensitivity or specific prejudice of the photographs in the restricted or private areas of her Facebook profile.

On the other hand, pictures from the Appellant’s Hi5 account previously accessed by the Respondent included the Appellant being attached to a zip line. That activity, which can involve some significant measure of physical action or precaution, provided a cogent evidential basis for both the relevance and the reasonable necessity of the requested production order in a proceeding where income replacement benefits and attendant care benefits were in dispute.

In J.S. and Guarantee Company of North America, (FSCO P10-00016, February 16, 2012), Delegate Evans found that as “the relative merits of success and novelty balance each other, the parties shall bear their own legal expenses of this appeal.” Weighing the pertinent criteria in this case, I find that a similar result is appropriate.

III. QUANTUM OF LEGAL EXPENSES

For completeness, I will address the quantum of legal expenses requested.

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 necessary. Arbitrator Makepeace, in Henri and Allstate Insurance Company of Canada, (OIC A-007954, August 8, 1997), agreed that the overriding consideration in fixing legal expenses is reasonableness.

I find the Respondent’s account of $3,016.95, consisting of 29.1 hours and disbursements of $21.47, to be reasonable.

The Appellant’s account is higher, in part because of a higher applicable hourly rate and the $250 filing fee, and in part because greater hours are claimed. An appellant, having the onus of establishing an error in law at arbitration, may be expected to have somewhat greater hours than a responding party. Fifty per cent greater hours is more questionable when the Appellant submits that the Respondent’s hours claimed are excessive.

In the circumstances of this case, I would reduce the Appellant’s legal expenses from $5,681.55 to $4,750.00 as being reasonable, accepting the hourly legal rate and the disbursements claimed, but reducing to approximately 36.5 the hours allowed.

August 10, 2012

Lawrence Blackman Director’s Delegate

Date