Coachman Insurance Company v. Mr. C., 2012 ONFSCDRS 166

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2012 ONFSCDRS 166

Appeal P11-00029

OFFICE OF THE DIRECTOR OF ARBITRATIONS

COACHMAN INSURANCE COMPANY

Appellant

and

MR. C.

Respondent

BEFORE:

Delegate Lawrence Blackman

REPRESENTATIVES:

Ms. Kerri P. Knudsen for the Appellant, Coachman Insurance Company

Ms. Renee Vinett for the Respondent, Mr. C.

HEARING DATE:

By written submissions received by December 3, 2012

APPEAL ORDER

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

1. Pursuant to Rule 70.3 of the Dispute Resolution Practice Code, (Fourth Edition, Updated August 2011), the Appellant’s request to withdraw this appeal is permitted.

2. A term of the withdrawal is that the Appellant pay the Respondent his legal expenses of this appeal, fixed in the amount of $6,250, inclusive of HST and disbursements.

December 21, 2012

Lawrence Blackman Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

As a result of his injuries sustained in a December 1, 2006 motor vehicle accident, the Respondent, Mr. C., sought statutory accident benefits under the Schedule¹ from his first-party automobile insurer, the Appellant, Coachman Insurance Company.

The parties sought resolution at arbitration of their disputes under the Schedule. In her July 23, 2010 motion decision, Arbitrator Miller (the “Arbitrator”) declined to grant a third-party production order against the Children’s Aid Society of Toronto (“CAS”). In her subsequent October 21, 2011 preliminary issue decision, the Arbitrator found the Respondent catastrophically impaired under clause 2(1.2)(g) of the Schedule.

Both decisions were appealed.

Two preliminary issues arose on appeal. The first was whether this appeal should be rejected under Rule 51.2(c) of the Dispute Resolution Practice Code, (Fourth Edition, Updated August 2011) (the “Code”), on the basis that the appeal was from preliminary or interim orders that did not finally decide the issues in dispute.

The second preliminary appeal issue was the Appellant’s request for a stay. Subsection 283(6) of the Insurance Act, R.S.O. 1990, c. I.8, provides that an appeal does not stay the order of an arbitrator, unless decided otherwise. The parties provided written submissions on both preliminary appeal issues.

My January 24, 2012 letter decision, applying the criteria in Guardian Insurance Company of Canada and Armstrong, (FSCO P00-00037, July 20, 2000), declined to grant a stay regardless of whether this appeal should be presently accepted.

The Appellant was not seeking simply a stay of the Arbitrator’s October 21, 2011 order, but a stay of the arbitration. The Arbitrator had not made an order as to any further steps in the arbitration proceeding and I did not see what jurisdiction I had to stay the arbitration.

I also found pertinent the position taken by the parties at arbitration. The transcript of the first day of the arbitration hearing indicates both parties evidently content to proceed with all of the substantive issues at the same time as the catastrophic impairment issue. It was apparently on the Arbitrator’s initiative that the hearing was bifurcated, with the issue of catastrophic impairment proceeding first. It was unclear how the Appellant, which had been prepared to proceed in July 2010 with the substantive issues, including non-catastrophic impairment benefit entitlement, was now prejudiced by having those same issues proceed a year and a half later.

The relative hardship to the Respondent if a stay were granted was also pertinent. The Commission received the Application for Arbitration in this case on January 22, 2009. The September 17, 2009 pre-hearing letter set out the substantive issues in dispute as including housekeeping benefits ongoing from May 2007 and attendant care benefits ongoing from January 2007.

The Respondent submitted that $35,192.23 in benefits were in dispute that did not depend on a finding of catastrophic impairment, that his non-catastrophic medical/rehabilitation benefit monetary limits had been exhausted and that he had been without funding for over a year. The Respondent stated that he had been unable to obtain treatment other than psychotherapy (albeit at a reduced frequency) and then only on his counsel’s undertaking that the account would be paid out of any first or third-party claims.

Regarding whether to accept this appeal, applying the established criteria,² I did not see the apparent strength of the CAS records appeal. Rule 67.7 of the Code provides that before making a production order against a third party the adjudicator shall be satisfied, in part, that the third party has had a reasonable opportunity to respond. This is similar to Rule 30.10 of the Rules of Civil Procedure that a motion for an order of production for inspection of a document that is in the possession, control or power of a non-party, must be served on the non-party.

The Arbitrator held that it was “not only fair that a third party be given notice that a third-party production order hearing is being held, the third party must also be given an opportunity to be heard, and to respond to this request.” The Arbitrator found that the Appellant had “failed to provide any evidence that CAS was aware that this motion hearing was going on July 15, 2010 without its participation. Nor did [the Appellant] provide any evidence that it had given CAS an opportunity to respond to its third party production request.”

I found it difficult to see how the Arbitrator had erred in law in declining to provide a third-party production order behind the back of a third party, regardless of what agreement the parties to the arbitration are alleged to have made between themselves.

The essence of the appeal of the Arbitrator’s decision on catastrophic impairment was that after submissions had been received in February 2011, the Arbitrator had developed a new theory of the case, following the subsequent May 13, 2011 Divisional Court decision in Aviva Canada Inc. v. Pastore, 2011 ONSC 2164, making findings in three of the four areas of functioning on page 14/301 of the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4^th Edition (the “Guides”), higher than that argued by the Respondent, himself.

The appeal from the Divisional Court decision in Pastore was heard January 19, 2012. The Court of Appeal reserved its decision. My January 24, 2012 letter stated that as the Court of Appeal decision might significantly impact on the heart of this appeal it was practical, pending that decision, to reserve for a reasonable period on whether to accept this present appeal.

Under Rule 57 of the Code, I arranged a telephone preliminary conference on September 10, 2012 with the parties. Both parties were of the view that the least expensive and most expeditious means of proceeding was to continue to await the Court of Appeal decision. Counsel noted that the Court decision had the potential of making this appeal largely moot and the Arbitrator’s findings in three areas of functioning, in practical terms, without legal significance. I agreed to hold down my decision whether to presently accept this appeal.

On September 27, 2012, the Court of Appeal, in Pastore v. Aviva Canada Inc. et al., 2012 ONCA 642, set aside the Divisional Court decision and reinstated the order in Aviva Canada Inc. and Pastore, (FSCO P09-00008, December 22, 2009). The latter held that the arbitrator in that case had not erred in law in finding that the Respondent required a class 4, marked impairment, in only one of the areas of functioning set out on page 14/301 of the Guides.

My October 5, 2012 letter stated, in part, that in light of the Court of Appeal decision in Pastore, it was appropriate to have a further, brief telephone conference call with both counsel to receive any final thoughts or submissions on whether this appeal should be accepted at this time.

On consent, the telephone conference call proceeded the morning of October 17, 2012. Upon discussion, it was adjourned to the afternoon. In the short interim period, the Appellant’s counsel wrote that in light of the Court of Appeal’s decision in Pastore, she had obtained instructions to abandon this appeal.

My October 17, 2012 letter confirmed the discussion with both parties the afternoon of October 17^th that Rule 70.2 of the Code provides that an adjudicator may permit a party to withdraw all or part of a dispute where all parties agree. The Appellant confirmed it was proceeding under Rule 70 to withdraw its appeal. Rule 70.3 states that where a party does not agree to the withdrawal, an adjudicator may permit the withdrawal on such terms and conditions as he or she considers just. Specifically, an adjudicator may award expenses to either party as permitted by Rule 75 and following.

The Respondent seeks, as a term of the Appellant’s withdrawal of this appeal, his appeal legal expenses. The Appellant submits that there should be no expense order as a term of the withdrawal.

Both parties agreed that the sole remaining issues, whether legal expenses should be a condition of the withdrawal of this appeal and the quantum of and such expenses, should be decided on the basis of written submissions, allowed under Rule 56.5 of the Code. The parties agreed that oral submissions, in addition to these written submissions, were not reasonably necessary.

II. THE PARTIES’ SUBMISSIONS

The Respondent submits an account of $8,044.55. The account consists of 45.7 hours (37.6 for the most senior counsel) at $150 an hour, except for 0.90 hours for a law clerk, plus disbursements of $423.87.

The Respondent argues that he is entitled to his legal expenses as a term of the withdrawal because (1) he was successful in resisting the stay request, and (2) the Appellant’s ultimate withdrawal of the appeal following the Court of Appeal’s decision in Pastore was evidence that this appeal was brought prematurely.

The Respondent submits that no novel issues were raised in this appeal and that the Appellant’s counsel acted in a manner that tended to unnecessarily prolong the appeal process. The Respondent argues that he has incurred unnecessary legal expenses.

Regarding legal expenses as a term of its withdrawal, the Appellant submits:

1. The Respondent had never previously suggested that this appeal was premature.
2. Notwithstanding a stay being refused, the Respondent did not proceed with the arbitration until November 2, 2012, after the Court of Appeal decision in Pastore was released. Thus, the Respondent in fact agreed that waiting for the Pastore decision was the most cost effective and expeditious way to proceed.
3. The appeal proceeded in the most cost effective and expeditious manner. Once the Court of Appeal rendered its decision, the Appellant made the decision to withdraw its appeal within fourteen business days.
4. Had the Respondent not reneged on his consent to a third-party order against CAS, the Arbitrator would not have required a motion for third-party production.

The Respondent replies that he never agreed to (1) the relevance of the CAS records, (2) obtain the CAS records, (3) a consent order for production of the CAS records, or (4) that the CAS representative under summons need not attend the arbitration hearing.

Regarding the quantum of the Bill of Costs, the Appellant submits:

1. The claim is excessive. The Appellant provided specified objections to entries such as 0.2 hours allotted to each of (1) reading a letter (2) leaving a voice mail and (3) diarizing.
2. The two junior lawyers (with a combined 7.2 hours) do not warrant an hourly rate of $150.
3. The 0.90 hours for a law clerk is not compensable as the work should have been done by an assistant.
4. Scanning expenses of $60 are not compensable.
5. The $43.56 sought for delivery services and messengers is not properly documented.
6. Invoices are not provided for the $14 claimed for facsimiles and $89 for photocopies, “thereby denying the Insurer the right to evaluate the reasonableness of the expense, and therefore, the expenses should not be compensable.”

The Respondent argues that due to what he submits were inaccuracies in the Appellant’s prior submissions, he was required to painstakingly review the Notice of Appeal and the voluminous transcripts to provide “a thorough response.” He assures the Commission that all the time docketed in this matter was spent on his Response to the Notice of Appeal. The Respondent does not disagree that the junior lawyers may not be entitled to the $150 an hour rate.

III. ANALYSIS

Rules 70.2 and 70.3 of the Code provide:

70.2 An adjudicator may permit a party to withdraw all or part of a dispute where all parties agree.

70.3 Where a party does not agree to the withdrawal, an adjudicator may:

(a) permit the withdrawal on such terms and conditions as he or she considers just;

(b) award expenses to either party as permitted by Rule 75 and following.

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.

Subsection 283(7) of the Insurance Act provides that 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 determining whether legal costs should be a term of the requested withdrawal, I find most pertinent the criterion of each party’s degree of success in the outcome of this appeal.

The Respondent clearly stated, in its December 12, 2011 Response to Appeal, its opposition to this appeal from a preliminary or interim arbitration order being accepted:

This is a proper case for the Director’s Delegate to exercise his discretion and deny Coachman’s request for leave to appeal, as well as its request for a stay of the arbitration, and Order that the Hearing of all outstanding issues proceed at this time.

The Respondent was successful in opposing the requested stay. I am persuaded that the Respondent incurred legal expenses in this regard. I am persuaded that such expenses as are reasonable, proportionate and appropriate should be recognized, notwithstanding the assertion that the decision denying the stay was not acted upon.

My January 24, 2012 letter decision found no apparent strength in the CAS records appeal. Notwithstanding my letter decision, citing with approval the Arbitrator’s decision on this point, the Appellant continues to vigorously maintain the correctness in this case of making a third- party order behind the back of a third party. I continue to see no apparent strength in this argument. I am persuaded that the Respondent incurred legal expenses in this regard and that such expenses as are reasonable, proportionate and appropriate should be recognized.

In order to save both parties possibly unnecessary additional legal expense, I reserved on whether to accept the appeal on the issue of catastrophic impairment. As a result of the Court of Appeal decision in Pastore, the Appellant decided to withdraw this appeal. However, in opposing this appeal being accepted, I am persuaded that the Respondent incurred legal expenses and that such expenses as are reasonable, proportionate and appropriate in this regard should be recognized.

Accordingly, pursuant to Rule 70.3 of the Code, I am persuaded that it is just and appropriate that a term of this withdrawal be an award of legal expenses under Rule 75 and following.

I, therefore, turn to the quantum of the expense award.

In Henri and Allstate Insurance Company of Canada, (OIC A-007954, August 8, 1997), Arbitrator Makepeace held that the overriding consideration in fixing expenses is reasonableness and that a line-by-line assessment of the expenses claimed was not appropriate. Rather, a global assessment of reasonable expenses should be made.

In Bains and RBC General Insurance Company, (FSCO P09-00005, September 8, 2010), I stated that while reasonableness, fairness, proportionality and justice were explicitly absent from the Expense Regulation (reproduced at Rule 75.2 of the Code), it was questionable that the Legislature had barred these concepts from any consideration in the award of legal expenses.

The Appellant claims that the expense award sought is excessive. However, it provides no guidance as to what is reasonable on a global basis. Specifically, it does not cite, by example, its own legal hours incurred in this appeal.

In Bains, I reviewed twenty appeal expense awards. The average award was $3,389.11. An average of $4,733.58 was awarded where expenses were awarded to insured persons, reflecting a higher allowed hourly rate of $150. An average of $2,812.91 was awarded where legal expenses were awarded to insurers.

In this case, an oral appeal hearing was not held. However, Director’s Delegate Evans stated in Rooz and Certas Direct Insurance Company and Zapisnoy, (FSCO P07-00017, November 18, 2009), “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.”

Nonetheless, the written arguments received in this appeal were not the full written submissions provided for under Rule 54 of the Code in advance of an oral hearing. Rather, they were expected to be preliminary submissions, focused at that point in time, on the preliminary appeal issues of whether this appeal should be presently accepted and, if so, whether a stay should be granted.

I accept that this appeal arose from (compared to the norm of more expedited hearings) a very lengthy, fifteen-day hearing. Four banker’s boxes of materials are included in the arbitration file. I accept that some significant measure of review was reasonable. However, the Respondent submits that 40.8 hours (32.7 by the most senior counsel) were expended, up to my January 24, 2012 letter decision, drafting the Response to Appeal and resisting this appeal being accepted. I find the hours claimed to be disproportionate, even if part of the work related to subsequent Rule 54 written submissions that would have been required had the appeal been accepted.

The Appellant does not object to the $150 hourly rate for the most senior counsel. I find the $150 rate justified for that counsel, agreeing with Arbitrator Palmer in Tustin and Canadian General Insurance Group, (FSCO A97-001209, February 21, 2000):

… the $150 hourly rate can be awarded equally in circumstances where the claim is complex and requires superior skills of representation or in circumstances where an experienced advocate has attended on a hearing, leaving a sizeable gap between his or her fees per hour and the hourly rates accorded under the Legal Aid Act. This provision facilitates access to justice for all applicants and their access to experienced counsel.

The parties agree that a lesser hourly rate is appropriate for the other two counsel. Neither party, however, provided any guidance as to the appropriate hourly rate. Rule 78.1 of the Code provides that, subject to the maximum hourly rate of $150 allowed for legal fees for an insured person where justified, the maximum hourly rate is that established under the Legal Aid Services Act, 1998, as adjusted by the experience allowance. It would appear that Tier 1 applies to the two junior counsel, or $94.28 an hour.

In this case there is a further applicable criterion regarding the conduct of a party or a representative that tended to prolong, obstruct or hinder the proceeding.

In Sarpong and Owusu and TD Home and Auto Insurance Company, (FSCO P08-00003 and FSCO P08-00004, June 19, 2009), I stated that legal costs are an important regulator of litigation within the context of fair and reasonable access to justice. I did not see that the legislation views legal costs as red lights impeding meritorious claims or defenses raised in good faith. Nor did I see the legislation viewing legal costs as a green light to claims or defenses of dubious merit, bad faith or poor choice. I concluded that:

Legal costs, in this first party dispute resolution system, are an aid to the advancement of justice and a caution against abuse or excesses.

The Appellant’s ultimate withdrawal of its appeal has saved both parties further, unnecessary legal expense. Nonetheless, legal expense has been incurred.

My January 24, 2012 letter noted at that early date that the CAS records part of this appeal was of dubious merit. Nonetheless, the Appellant remains fixated on the arbitration production decision, culminating in its submissions the morning of October 17, 2012, that the Respondent addresses in his expense submissions. I find the Appellant’s submissions the morning of October 17, 2012, both in tone and content, inappropriate and beyond what might be considered strong advocacy. Counsel did phone later that day apologizing to the Commission. I am not aware, however, of any similar apology to the Respondent’s counsel.

The Divisional Court, in recent judgments in applications for judicial review from decisions of this Commission, provided a global expense award in Tharmabaskaran v. Security National Ins. Co., 2012 ONSC 2293, of $5,000.00 to the insurer and $10,000.00 in Economical Mutual Insurance Company v. Whipple, 2012 ONSC 2612, to the insured.

Taking into account reasonableness, proportionality and the regulation of litigation within the context of fair and reasonable access to justice, applying Rules 75 and following of the Code, I find appropriate that a term of the Appellant’s withdrawal be that the Appellant pay the Respondent his expenses of this appeal, fixed in the amount of $6,250, inclusive of any additional hours for expense submissions, as well as inclusive of HST and all disbursements.

December 21, 2012

Lawrence Blackman 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. 2See Allstate Insurance Company of Canada and Torok, (FSCO P01-00021, May 29, 2001), Allstate Insurance Company of Canada and Tesfay, (FSCO P99-00023, June 21, 1999), and Allstate Insurance Company of Canada and Al-Obaidi, (FSCO P99-00009, May 2, 2000).