Helen Tesfagiorgis v. State Farm Mutual Automobile Insurance Company, 2017 ONFSCDRS 121

Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2017 ONFSCDRS 121

FSCO A14-003779

BETWEEN:

HELEN TESFAGIORGIS

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before:

Arbitrator Thérèse Reilly

Heard:

By written submissions completed on March 3, 2017

Appearances:

Mr. Jasper McDonald for Ms. Helen Tesfagiorgis

Ms. Meredith Harper for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Ms. Helen Tesfagiorgis, was injured in a motor vehicle accident on July 10, 2012 and sought accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm” or “the Insurer”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and the Applicant, through her representative, applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8.

The issue in this Expense Hearing is:

Is the Applicant liable for the expenses of State Farm and if so, in what amount?

Result:

The Applicant is liable for the expenses of State Farm in the amount of $12,901.40, inclusive of HST.

EVIDENCE AND ANALYSIS:

The benefits being claimed by the Applicant at the Hearing included: 1) an income replacement benefit at $400.00 per week from October 11, 2013 to date and ongoing (quantum was in issue) and 2) medical benefits for chiropractic treatment, dated September 11, 2013, for $892.04 and September 12, 2012 for $1,541.60. A claim for a special award was added at the Hearing.

The Hearing was scheduled for two days which was completed on February 11 and 12, 2016. A third day was added by agreement of the parties and completed on April 12, 2016. Only one witness was called on April 12, 2016, being the Applicant’s spouse. The Applicant’s representative provided oral closing submissions on April 12, 2016. State Farm requested that its closing submissions be completed in writing. The Applicant and the family doctor, Dr. Hahn, were called as witnesses on February 11 and 12, 2016. State Farm called no witnesses at the Hearing. A schedule was set for written submissions on the issue of a special award and the closing submissions of the Insurer. Both parties provided written submissions. The parties at the Hearing relied on the written documents including medical reports of their expert witnesses. I issued my decision on December 5, 2016. None of the claims advanced by the Applicant were successful.

In my decision dated December 5, 2016, I made the following Order as to expenses:

If the parties are unable to agree on the entitlement to, or quantum of, the expenses of this matter, the parties may request an appointment with me for determination of same in accordance with Rules 75 to 79 of the Dispute Resolution Practice Code.

The parties were unable to agree on the issue of expenses. An Expense Hearing was requested. State Farm submitted a Bill of Costs and requests an Order that the Applicant be liable for its expenses in the amount of $33,653.57, comprised of $23,653.57 for fees and $9,679.86 for disbursements, both inclusive of HST.

State Farm in its submissions² advises that the hourly rates in State Farm’s Bill of Costs follow the hourly rates established under the Legal Aid Services Act, 1998 for professional services in civil matters before the Ontario Superior Court of Justice, pursuant to Rule 78 of the Dispute Resolution Practice Code (“the DRPC”). As Ms. Harper’s year of call increased during the Arbitration proceeding, her hourly rate increased over the life of the file. Further, the Insurer states the Tariff structure explicitly dictates billing rates of law clerks and students-at-law, which are set out in the Bill of Costs. The rates for the law clerks are at the rate calculated in the Legal Aid Services Act, 1998. The Applicant questions the variation in the Legal Aid Tariff rate claimed by the Insurer’s representative.

Applicant’s Submissions on Expenses

The Applicant maintains that the Insurer’s Bill of Costs is “replete with inaccuracies”.³ The Applicant maintains the Insurer prolonged the proceedings by unsuccessfully bringing Motions at the outset of the Hearing. The Applicant submits that the Insurer introduced an unwarranted Motion seeking an adjournment citing as reason the lack of a WSIB file from the Applicant. The Applicant submits that this information had already been sent to the Insurer.

The Applicant submits the time claimed by counsel in the Bill of Costs to prepare Motion materials should not be allowed as it was the decision of the Insurer to bring a Motion.

The Insurer also was unable to produce two witnesses and did not inform the Applicant of this before the Hearing. The Applicant had made a request regarding Dr. Giles which was turned down resulting in Dr. Giles not giving evidence.

The Applicant states further that the Insurer failed contrary to Rule 74.3 of the DRPC to provide Transcripts that it ordered. State Farm requested Transcripts of the Hearing but failed to inform the Applicant of such nor did it provide a copy of the Transcripts to the Applicant although it had a copy on the final day of the Hearing. State Farm in its reply submissions⁴ states that the short delay in producing Transcripts of the Hearing was simply an administrative error and resulted in no delay of the proceeding, no prejudice to the Applicant and is not relevant to the issue of costs.

The Applicant makes repeated assertions in its submissions that the fees in the Insurer’s Bill of Costs are repetitive and excessive.⁵ As an example, the claim for 9.4 hours for review of the file by a law clerk is repetitive and excessive. The claim for a review of the file and preparation of closing submissions by counsel for 15.1 hours and 22 hours are repetitive and excessive. Moreover, the expenses for 28.3 hours for a student should be disallowed as Rule 78.2 does not allow expenses for students.

Entitlement to Expenses

In considering a request for an award of expenses, an Arbitrator must consider the criteria set out in Rule 75.2 of the DRPC and the provisions of subsection 12(2) of Ontario Regulation 664⁶ (“the Expense Regulation”),⁷ which provide as follows:

An arbitrator shall, under subsection 282 (11) of the Insurance Act, consider only the following criteria for the purposes of awarding 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.

Section 75 of the DRPC provides:

75.1 An adjudicator may award expenses to a party if the adjudicator is satisfied that the award is justified having regard to the criteria set out in Rule 75.2. The items and amounts which may be awarded are found in Rule 78 and the Schedule to the Expense Regulation found in Section F of the Code. 75.2 The adjudicator will consider only the criteria referred to in the Expense Regulation found in Section F of the Code. These criteria are:

(a) each party's degree of success in the outcome of the proceeding; (b) any written offers to settle made in accordance with Rule 76; (c) whether novel issues are raised in the proceeding; (d) 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; (e) whether any aspect of the proceeding was improper, vexatious or unnecessary. (f) [omitted]

(g) 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.

I have considered the relevant criteria as set out below.

Criteria 1: Each party’s degree of success in the outcome of the proceeding

State Farm was entirely successful in this proceeding. State Farm was successful on all issues in dispute at the Hearing. There is no reason given to vary from the standard practice that the expenses should follow the success in these proceedings. The quantum of expenses that may be ordered must be reasonable.

Criteria 2: Any written offers to settle that were made in accordance with the rules of practice and procedure applicable to the proceeding after the conclusion of Mediation and before the conclusion of the Arbitration

State Farm made an initial offer to the Applicant on January 5, 2016 for the amount of $10,000.00. The offer was not accepted. A formal Offer to Settle (the “Offer”) was communicated to the Applicant on February 9, 2016 for $21,606.44. The Offer was communicated in a Settlement Disclosure Notice and it included a statement that it was open for acceptance until the expiry of the conclusion of the Hearing. The Insurer submits this meant the Offer was open for acceptance until December 4, 2016. The Applicant did not accept the Offer. I find the Offer did meet the requirements of Rule 76.1(a)(ii) of the DRPC and thus it can be given weight in determining the expenses to be awarded.

On December 15, 2016, the Insurer communicated an offer to settle legal costs and expenses for $21,506.65, being 50% of State Farm’s legal fees (at the Legal Aid Tariff rates) of $11,826.79; and, 100% of State Farm’s disbursements and expenses of $9,679.86. This offer was not accepted.

The Insurer maintains the Applicant could have accepted State Farm’s offer after the second day of the Hearing, after Dr. Hahn provided evidence that he thought the Applicant could go back to work at a sedentary job. In the Insurer’s view, Dr. Hahn’s evidence on cross-examination significantly diminished the Applicant’s chances of succeeding on the issue of income replacement benefits.

The Insurer submits that from February 9, 2016 until March 1, 2017,⁸ State Farm has incurred total legal fees in the amount of $25,444.50. Had the Applicant accepted one of its Offers to Settle, State Farm would not have incurred those costs.

Criteria 3: Whether any novel issues are raised in the proceeding

No novel issues were raised in the proceeding.

Criteria 4: The conduct of a party or a party’s representative that tended to prolong, obstruct or hinder the proceeding, including the failure to comply with undertakings and orders

State Farm alleges that the Applicant’s choice to serve numerous relevant documents on the eve of the Arbitration proceeding forced it to incur additional legal fees to bring a procedural Motion at the outset of the Hearing regarding the Applicant’s late service of her Arbitration Brief and documents.

The Insurer submits the Applicant’s choice to add the issue of the special award late in the proceeding, added to its costs and unnecessarily lengthened the Arbitration proceeding. It also incurred additional costs to review additional case law as well as prepare oral and written submissions.

The Applicant, by letter dated February 3, 2017,⁹ reiterated its request to add a claim for a special award at the beginning of the Hearing. I allowed the Applicant’s request and provided a schedule in which the parties could make submissions on the special award claim including adding it as an issue at the Hearing. I noted to the parties at the Hearing that it is not uncommon to allow a claim for a special award at the Hearing stage. Notwithstanding this, the Insurer continued with its objection of adding a special award.

The Insurer maintains its decision to not call Expert Witnesses streamlined the Arbitration process and cut down on costs by eliminating the need for examination-in-chief for all of State Farm’s Insurer Examiners. It maintains that the additional date for the continuation of the Arbitration Hearing of April 12, 2016 was a date required for the Applicant to complete the examination-in-chief of the Applicant’s spouse.

State Farm maintains its costs are not unreasonable or excessive in that the file took more than two years to conclude. There were numerous issues in dispute, including: the quantum of income replacement benefits, the medical merits of the Applicant’s income replacement benefits claim, and a special award which the Applicant chose to add.

The parties disagreed if Dr. Hahn was the “Applicant’s witness”. The Applicant objected to State Farm communicating with Dr. Hahn. The Applicant stated that on January 11, 2016, State Farm acted unreasonably by advising Dr. Hahn that his presence would not be required at the Hearing on the 11th of February until further notice. The Applicant states that State Farm had previously been notified that Dr. Hahn would be called as a witness for the Applicant and that he was to be in attendance for two days.

State Farm ultimately paid Dr. Hahn’s witness conduct fees and his account although the Applicant claimed the doctor was called as a witness to support the Applicant’s case. As such, the Applicant should be wholly responsible for his witness conduct fees and account.

The Applicant in its submissions admits it invited Dr. Hahn as a witness. Nonetheless, the Applicant claims the expenses sought for Dr. Hahn are excessive and should be restricted to $200.00 per hour of attendance, up to a maximum of $1,600.00 per day.

The Insurer maintains the Applicant failed to comply with sections 7 and 33 of the Schedule. State Farm made seven requests, over a period of eight months, seeking relevant income, employment and medical documentation. The Applicant’s failure to comply with her disclosure obligations resulted in an abuse of the accident benefits claims process. The Applicant chose to proceed to Arbitration to dispute the quantum of her income replacement benefit entitlement without ever providing State Farm with enough information to calculate her income replacement benefit entitlement.

Criteria 5: Whether any aspect of the proceeding was improper, vexatious or unnecessary

State Farm describes the claims as “frivolous in the face of the medical evidence” and submits that the Applicant knew or ought to have known that she would not be successful. I find that a conclusion that a claim is “frivolous” must be supported by much more than a lack of success at a Hearing. There is evidence that the Applicant did not disclose in evidence that she had continued working at numerous jobs after the accident. There is some evidence that the income replacement benefit claim was not well founded but I do not find that the Applicant’s claims were frivolous in these circumstances.

Issue 1 - Is the Applicant liable for the expenses of State Farm and if so, in what amount?

State Farm was successful in this Arbitration and therefore is entitled to an award of expenses. The issue is the quantum that is appropriate in these circumstances.

In determining the appropriate quantum of expenses, the objective is to fix an amount that is fair and reasonable given the number of issues, their complexity and the amounts in dispute. In so doing, a pragmatic, broad-stroke approach (rather than a line-by-line assessment) is frequently favoured. In Reid and ING Insurance Company of Canada,¹⁰ Arbitrator Killoran held, with respect to Arbitration legal expenses, that:

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 of which it follows.

The Bill of Costs is for $33,333.43, comprised of $23,653.57 for fees ($20,932.36 plus HST of $2,721.21) and disbursements for $9,679.86. The fees are calculated for the Insurer’s counsel at the Legal Aid Tariff rate of $103.94 for the Pre-Hearing stage and at $122.78 per hour thereafter, starting June 5, 2015 and covering the stages as follows:

Preparation for the Pre-Hearing, attendance, drafting report by counsel – 32.2 hours

Preparation for the Arbitration Hearing by counsel – 40.8 hours

Preparation for the Arbitration Hearing by law clerks, etc. – 26.7 hours (at $32.37 an hour)

Attendance at the Arbitration Hearing (February 11 & 12, 2016) – 20.5 hours

Preparation for the Continuation of the Hearing – 4.5 hours

Attendance at the continuation of the Arbitration Hearing (April 12, 2016) – 5.8 hours

Summer student drafting submissions on special award – 28.3 hours (at $64.74 an hour)

Drafting closing submissions and reviewing reply submissions – 46.3 hours

Student at law drafting Bill of Costs – 4.2 hours (at $64.74 an hour)

The Bill of Costs identified the individuals who worked on the file. The hours claimed by Ms. Harper are approximately 117.9 hours in total, with a further 1.9 hours for a tier 3 lawyer. The hours include 7.3 hours to prepare Motion materials for the Hearing. A total of five law clerks, a summer student and a student-at-law worked on the file with hours totalling 57.2 hours.

The claim for fees for time spent on the preparation for and attendance at the Pre-Hearing appears to be excessive, as do the hours spent in preparation time for the Hearing and closing submissions.

In this case, the preparation time claimed for the Hearing, not including attendance, is 45.3 hours for counsel and a further 26.7 hours for the law clerks’ time. Two days had been scheduled initially for the Hearing time which would amount to about 13 hours, noting that half of the first day dealt with Motions and a brief adjournment. A third day was scheduled and lasted about a half a day of Hearing (4 hours). In total, there would be about 17 hours of Hearing time. Preparation time is thus 4 times the Hearing time. The written submissions time equals 46.3 hours, plus an additional 28.3 hours for the time spent by the summer student, and this is excessive.

I find this matter was not complex and dealt with the issues of entitlement and quantum of the income replacement benefit, two treatment plans and a special award. The Hearing was relatively simple with the Applicant, her spouse and family doctor called to testify.

As to the written submissions, both parties agreed to written submissions and the Applicant cannot avoid the inclusion of additional time over and above the Hearing and preparation time to account for some portion of the 46.3 hours claimed by counsel. However, I find it is unreasonable to require the Applicant to bear the whole of State Farm’s substantial costs in this process, even though her representative agreed to written submissions.

I find the Offer from State Farm was an Offer to Settle under Rule 76 and I do give it some weight. However, the Offer was not sufficient as perceived by the Applicant to enable the Applicant to accept the Offer. The Applicant maintains the Offer did not deal with the outstanding income replacement benefit claim. I disagree based on the wording of the Settlement Disclosure Notice as it allocated some settlement funds for the income replacement benefit claim.

Respecting the legal fees claimed, the Legal Aid Tariff rates claimed are accurate. However, I find that having numerous law clerks and both a summer student and a student-at-law spend an additional 57.2 hours is also excessive and unreasonable. I agree with the Applicant’s representative that some of the amounts claimed for review of the file by counsel and the law clerks are repetitive. It would appear that having five different law clerks assigned to a file will mean there will be repetition based on the fact that five different people were assigned to the file at different times and reviewed the file. I agree with the Applicant that the 28.3 hours for the student should not be allowed. No explanation was provided why the rate of $64.74 per hour was billed for that time.

On considering all these factors to arrive at a reasonable award of legal fees in this matter, I find that the Applicant is liable for $9,500.00, inclusive of HST, which represents roughly about half the amount of fees being claimed.

Disbursements

The onus is on State Farm to prove its claim for disbursements. State Farm claims $9,679.86, including HST, for disbursements. I accept that State Farm incurred some disbursements that should be charged to the Applicant.

State Farm’s summary of these disbursements is as follows:

Conduct money for Dr. Hahn - $210.40

Professional Court Reporting fees - $1,552.62 (actual invoice is $1,035.08)

Transcripts - $2,997.84 (actual invoice is $2,225.20)

Dr. Ernest Hahn invoice for attendance at Hearing - $4,928.00 (actual invoice is $4,250.00)

The amounts set out in the invoices submitted in support of the claims do not support the amounts stated above. State Farm has not provided the specifics as to the difference between the amount claimed and the actual invoice. The two invoices for the Court Reporting fees are each for $517.54, including HST of $59.54. The invoice for transcripts shows a cost of $2,225.20, including HST of $256.00.

I note that although $9,679.86 is claimed for disbursements, the invoices submitted do not add up to this amount.

The invoice for attendance at the Hearing by Dr. Hahn is for two days’ attendance, for a total of 17 hours at a rate of $250.00 per hour, for a total of $4,250.00. No explanation is provided for allocating $250.00 an hour for attendance by Dr. Hahn. The amount claimed at $4,928.00 is excessive and not supported by the invoice. The Insurer also communicated with Dr. Hahn and ultimately paid his account. I note that Dr. Hahn’s evidence was important for both parties. The evidence was used by the Applicant to support her claim for entitlement to the income replacement benefit. The evidence from the same witness was relied upon by the Insurer to support its position that the claim for the income replacement benefit was not supported. In essence, Dr. Hahn was seen as a critical witness for both parties and was the only medical witness called to testify in person.

The Insurer claims Dr. Hahn was not an Expert Witness as he is the Applicant’s treating, family physician. His account, therefore, is not limited subject to the Expense Regulation. The Applicant maintains the opposite. I find the parties treated Dr. Hahn as an expert and the amount for attendance by Dr. Hahn should be limited to the rate set out in the Expense Regulation to $1,600.00 per day. I therefore allow $3,200.00 for his attendance and the $210.40 for conduct money.

The Court Reporting Services (totalling $1,552.62) are not recoverable expenses. The cost for the Transcripts is also not recoverable. The elimination of the reporting services immediately lowers the claim by $1,552.62 and a further $2,225.20 for the Transcripts.

Arbitrator Sampliner in D.F. and Wawanesa Mutual Insurance Company¹¹ did not allow Court Reporter’s fees, holding that these fees do not fall within the specific items in the Expense Regulation and are not a reasonably necessary expense to fairly conduct a Hearing.

EXPENSES:

In conclusion, I find the disbursements allowed are $3,410.40. No submissions were provided on whether the doctor’s attendance fee of $1,600.00 a day includes HST.

In conclusion, the Applicant is liable for the expenses of State Farm in this matter in the amount of $12,910.40, inclusive of HST.

April 24, 2017

Thérèse Reilly Arbitrator

Date