Neutral Citation: 2013 ONFSCDRS 156

FSCO A10-002727

BETWEEN:

DEVI GAYATHRI Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Insurer

DECISION ON EXPENSES

Before: Alan Mervin, Arbitrator

Heard: Hearing held on July 26, 2013 by teleconference. Written submissions received by March 11, 2013.

Appearances: Sharon Sodhi for Mrs. Gayathri Cary N. Schneider for State Farm Mutual Automobile Insurance Company

Introduction:

The Applicant, Devi Gayathri, was injured in a motor vehicle accident on June 23, 2007. In a decision dated January 25, 2013, Arbitrator Kominar dealt with her claims for statutory accident benefits under the Schedule.¹ Arbitrator Kominar made the following order:

Mrs. Gayathri’s claims for housekeeping and caregiving, interest and expenses are dismissed.

Arbitrator Kominar stated in his decision that, “If the parties cannot agree on expenses of this arbitration proceeding, they may request an expense hearing through the case administrator.”

State Farm has since requested that it be awarded its expenses of the hearing, and as the Applicant has disputed the amount claimed by State Farm, it has requested an expense hearing to determine the matter.

The expense hearing was held by teleconference on July 26, 2013. Prior to the hearing, I received written submissions from the Applicant dated February 20, 2013 and from the Insurer dated March 7, 2013.

Issues:

The issues in this expense hearing are:

Is State Farm entitled to its expenses incurred in respect of this arbitration hearing?
What is the amount of expenses to which State Farm is entitled?

Result:

State Farm is entitled to its expenses in this arbitration hearing, in the amount of $8,555.86, inclusive of HST.

STATUTORY FRAMEWORK REGARDING EXPENSE ENTITLEMENT:

Rule 79.1 of the Dispute Resolution Practice Code – Fourth Edition (“Code”) states that where an adjudicator has determined all issues in dispute except expenses, and the parties cannot agree on entitlement or amount of expenses, either party may request, in writing, an expense hearing within 30 days from the date the decision on all other issues in dispute was issued.

My jurisdiction to decide this issue is set out in subsection 282(11) of the Insurance Act which states:

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.

Rule 75.2 of the Code sets out the criteria that an Arbitrator must consider in awarding all or part of the expenses incurred in respect of arbitration. They are the following:

Each party's degree of success in the outcome of the proceeding.
Any written offers to settle made in accordance with subsection Rule 76.
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.

DISCUSSION REGARDING ENTITLEMENT TO EXPENSES:

The Insurer argues that, with respect to the first criteria for consideration, it was completely successful with respect to the preliminary issues argued, and the eventual result obtained, which was the dismissal of all of the Applicant’s claims.

With respect to the second criteria, the Insurer submitted two written offers to settle in advance of the hearing. The Insurer did not accept either offer.

Had either of these offers been accepted, the Applicant would have ultimately been in a better position than she now finds herself, and the hearing would have been rendered unnecessary.

With respect to the third and fourth criteria, State Farm also submitted that, although no novel issues were raised, the preparation and hearing time were prolonged and hindered by the Applicant’s failure to comply with the Code’s disclosure requirements.

The issues at the hearing, which on their face were reasonably straightforward, were complicated by the Applicant’s lack of supporting evidence at the hearing.

The Insurer submitted that the Applicant’s failed arguments with respect to introduction of an expert report by Dr. Esmail, (who was not produced as a witness by the Applicant, and whose report was ultimately excluded by Arbitrator Kominar for non-compliance with the Code), wasted time and unnecessarily prolonged the hearing.

With respect to the fifth criteria, the Insurer submitted that Arbitrator Kominar noted the various inconsistencies in the Applicant’s case. For example, the Applicant submitted conflicting Applications for Accident Benefits, provided a disability certificate which failed to acknowledge a disability, and admittedly deceived health care providers in an attempt to obtain insurance funds.

Arbitrator Kominar noted that, “Once Mrs. Gayathri learned that she may still be entitled to Ontario accident benefits, she began to advise her health care providers about the accident details. However it is notable that she also contemporaneously stopped advising doctors about the yoga incident or problems which she started to experience after lifting heavy boxes while moving”. He further noted that, “she clearly admitted that she told medical professionals only what she believed would benefit her and that she gave inconsistent histories to numerous providers.”

I agree with the Insurer’s submissions because, while Arbitrator Kominar did not expressly state that the Applicant’s claims were frivolous or vexatious, the Insurer submitted that these harsh comments regarding the Applicant’s credibility, taken together with the Applicant’s complete lack of success at the hearing, suggest that this proceeding was improper, vexatious or unnecessary.

AMOUNT OF EXPENSES;

Statutory Framework:

The amount of expenses which I may award is set out in section 3 of the Schedule to Ontario Regulation 664 which states:

3 (1) The legal fees payable by the insured person or the insurer for the following matters may be awarded:

i. For all services performed before an arbitration, appeal, variation or revocation hearing.

ii. For the preparation for an arbitration, appeal, variation or revocation hearing.

iii. For attendance at an arbitration, appeal, variation or revocation hearing.

iv. For services subsequent to an arbitration, appeal, variation or revocation hearing.

(2) The number of hours for which legal fees may be awarded shall be determined by the arbitrator, having regard to the criteria set out in subsection 12(2) of this Regulation.

Insurer’s Claim for Expenses:

The Insurer claimed expenses in the amount of $9,426.62 for fees, and an additional $3,430.00 for disbursements, and HST of $1,671.36, for a total of $14,527.98. The breakdown of the fees claimed are as follows:

Cary Schneider, barrister and solicitor, called to the bar in 2001 57.7 hours @ $150.00/hr. $8,655.00

Chryss Lostoridis, law clerk 9.5 hours @ $27.96/hr. $265.62

Debbie Simunic, law clerk 3.5 hours @ $27.96/hr. $97.86

Stacey Leimonis, articling student 7.3 hours @ $55.91/hr. $408.14

Findings:

The overriding consideration in fixing arbitration expenses for legal fees is reasonableness.

The Applicant submitted that the Insurer’s costs were excessive, and, should I decide to award expenses to State Farm, that they be considerably reduced. She also submitted the following:

One hour of preparation for each hour of hearing time (which the Applicant submitted was 6.5 hours in total), was appropriate.
The expenses should be reduced as the Applicant could not afford to pay.
Costs and disbursements were claimed without documentary support or proof that they were incurred.
The hourly counsel rate of $150.00 requested by the Insurer was excessive.
Any costs associated with attendance and preparation for mediation were improper

In Henri and Allstate Insurance Company of Canada, (OIC A-007954, August 8, 1997), Arbitrator Makepeace confirmed that “a line-by-line assessment of the expenses claimed is not appropriate. Rather, the Arbitrator should make a global assessment of reasonable expenses.”

With respect to the Applicant’s submission that I ought to allow one hearing day of 6.5 hours, I disagree. I find that a hearing day, in actuality, is in excess of 6.5 hours, and that set up time before and after the hearing ought to be taken into account. I find that billing for an 8 hour hearing day is reasonable under the circumstances.

Further, under the circumstances of this case, I take into account the additional preparation time required to address immigration issues, which were argued before Arbitrator Feldman.

Arbitrator Feldman, in his letter of March 30, 2012 dealing with the adjournment request of the Applicant, stated that, “It should be noted that the Arbitrator who ultimately hears this matter may consider this adjournment request in the context of any award of expenses made ….”

I accept the Insurer’s submission that extra preparation time was required to address multiple preliminary matters. These included evidentiary challenges at the hearing. I am prepared to award expenses on the basis that preparation was necessary for what was expected to be a two day hearing. Counsel should not be penalized because his arguments were successful, resulting in a substantially shortened hearing.

I do not accept the Applicant’s submission that the expenses awarded, if any, should be reduced because the Applicant cannot afford to pay. I find that the Applicant’s ability to pay is not something that I must take into account in awarding costs. There is no authority that I am aware of that requires me to consider reducing the expense award based on the ability of the Applicant to pay.

I do not accept the Applicant’s submission that I ought not to allow the Insurer’s disbursements because no invoices were submitted, However, the disbursements submitted by the Insurer consist of a claim for repayment of the Commission Assessment fee of $3,000.00 and a court reporter fee of $340.00. I find that it is not reasonable to require the Applicant to pay for these items.

Prior decisions have frequently used the ratio of hours of preparation to hearing time as a method of calculating what is reasonable preparation time. However, the ratio approach is a crude measure, in essence, a rule of thumb. It does not always take into account that, in many cases, additional time spent in preparation is reflected in decreased time spent in a formal arbitration hearing. Efficient use of the Commission’s time for hearings should be encouraged, not discouraged by setting inflexible ratios for preparation to hearing time.

I do not accept the Applicant’s submission that I should allow I hour preparation time for each hour of hearing time, which she submits is 6.5 hours. Although this was neither a particularly complex or lengthy case, I find that 6.5 hours of total preparation time, which is the amount that is suggested by the Applicant, is totally inadequate, given the evidentiary and other issues that had to be addressed.

The Insurer’s submission that the hours claimed are closer to a 4 to 1 ratio. Calculated using an 8 hours per hearing day, this would amount to 64 hours of preparation time on the basis of a two day hearing.

Preparation time of Mr. Schneider falls within that range and I find the hours submitted by the Insurer to be reasonable. I further find that the additional time billed for his support staff is reasonable, and in essence reduced the time that Mr. Schneider might otherwise have spent.

I accept the Applicant’s submission that $150.00 per hour billed by Mr. Schneider is in excess of what is allowed. Rule 78.1 provides that “Where an adjudicator is satisfied that a higher amount for legal fees to an insured person is justified, an hourly rate of up to $150.00 may be awarded.” Thus, the $150.00 rate is not available for legal fees to an insurer

The top tier for experienced counsel according to the Legal Aid Tariff, (tier 3) is $117.85 per hour, which I find to be the correct rate, and I am therefore reducing the hourly rate claimed by Mr. Schneider to that amount.

Having regard to the criteria set out in Ontario Regulation 664, as well as the principles of fairness, proportionality and justice, I find that the amount of the Insurer’s claim for expenses, subject to the reduction in Mr. Schneider’s hourly rate, and the deduction of claimed disbursements, is reasonable under the circumstances of this case.

I have therefore allowed the fees for the Arbitration proceeding as follows:

Cary Schneider, barrister and solicitor, 57.7 hours @ $117.85/hr. $6,799.94

Chryss Lostoridis, law clerk 9.5 hours @ $27.96/hr. $265.62

Debbie Simunic, law clerk 3.5 hours @ $27.96/hr. $97.86

Stacey Leimonis, articling student 7.3 hours @ $55.91/hr. $408.14

Total +13% HST Total Fees allowed

$7,571.56 984.30

$8,555.86

As there is no award for disbursements, in the result, I have ordered the Applicant to pay State Farm $8,555.86, inclusive of HST, for State Farm’s expenses of the hearing

December 3, 2013

Alan Mervin Arbitrator

Date

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

Mrs. Gayathri shall pay State Farm’s expenses of the arbitration in the amount of $8,855.86, inclusive of HST.