Neutral Citation: 2018 ONFSCDRS 60

FSCO A09-001753

BETWEEN:

JOHN BIRO Applicant

and

UNICA INSURANCE INC. Insurer

DECISION ON EXPENSES

Before: Arbitrator Alan G. Smith

Heard: By written submissions due March 19, 2018

Appearances: Mr. Steven Sieger participated for Mr. John Biro Mr. Jamie R. Pollack and Ms. Nicole A. Dowling participated for Unica Insurance Inc.

BACKGROUND:

The Applicant, Mr. John Biro, was injured in a motor vehicle accident on March 11, 2007, and sought accident benefits from Unica Insurance Inc. ("Unica"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Biro, through his representative, applied for arbitration at the Financial Services Commission of Ontario ("FSCO") under the Insurance Act, R.S.O. 1990, c. I.8, as amended.

Motions by both parties were heard on August 12, 2013, by Arbitrator Feldman (the "Motions"). The Motion brought before Arbitrator Feldman by the Applicant requested the revival of a claim for a Special Award. The request was based on information contained in a group of privileged documents that had been inadvertently disclosed by the Insurer to Applicant's Counsel at Himelfarb, Proszanski. The Insurer's Cross-Motion requested the removal of applicant's counsel due to their knowledge of the contents of the privileged documents.

Arbitrator Feldman issued his Decision with reasons on August 15, 2013. The Arbitrator removed Himelfarb, Proszanski as counsel for the Applicant and denied the Applicant's request for the revival of a Special Award claim. The Decision also contained a provision that the issue of the expenses of the motion hearing be left to the hearing arbitrator.

After hearing the Application on its merits, Arbitrator Muzzi issued a Decision with reasons on June 8, 2017. That Decision contained a provision that the expenses of the August 2013 Motions Hearing could subsequently be decided by FSCO after written submissions from the parties. The parties subsequently requested that a determination of expenses be made, and I requested written submissions from the parties. Submissions were received from the Applicant and Insurer.

ISSUES:

The issues in this expense hearing are:

Is Mr. Biro entitled to his expenses of the Motions?
Is Unica entitled to its expenses of the Motions?

Result:

Mr. Biro is not entitled to his expenses of the Motions.
Unica is entitled to its reasonable expenses of the Motions fixed in the amount of $3,684.76, including H.S.T.

ENTITLEMENT TO EXPENSES

The Parties' Positions

The Insurer is claiming expenses in the total amount of $17,966.56 for legal fees. The Insurer also submits that Applicant's counsel at the Motions hearing should be made personally liable for the Insurer's expenses. The Applicant submits that each party should bear its own expenses of the hearing, or that the Insurer should be awarded only a "minimal" amount.

The Law

Rule 79.1 of the Dispute Resolution Practice Code ("DRPC") provides that where an Arbitrator 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 of the decision on all other issues in dispute. My jurisdiction to conduct an expense hearing is set out in section 282(11) of the Insurance Act.²

Pursuant to Rule 75.2 of the DRPC, an arbitrator is to consider only the following six criteria for the purposes of awarding all or part of the expenses incurred in respect of an Arbitration proceeding:

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; and
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.

In this present expense hearing, it appears that two of the above criteria are relevant: the degree of success in the outcome, and whether the conduct of a party or a party's representative tended to prolong, obstruct or hinder the proceeding.

ANALYSIS

Degree of Success in the Outcome of the Proceeding

In its written submissions the Insurer notes that it was, "wholly and completely successful on the two relevant motions". I agree, and find that the Insurer has established at least one of the DRPC criteria in favour of having the Applicant made liable for the Insurer's expenses.

Did the conduct of a party or a party's representative tend to prolong, obstruct or hinder the proceeding?

In its written submissions the Insurer argues:

The Insurer respectfully submits that full recovery for its expenses is warranted given the egregious conduct of the Applicant's former counsel which gave rise to the extraordinary decision by Arbitrator Feldman to order the removal of the Applicant's counsel…

The language of Arbitrator Feldman's decision indicated that he was highly critical of conduct of former counsel, for example noting… that "there was quite a detailed review of the contents of [the privileged] documents" by Mr. Himelfarb and Mr. Sieger and that their motion to add the special award and call new witnesses dated August 7, 2013 (five days prior to the commencement of the hearing) "demonstrated a manifest intention" "to use this information against the Insurer".

Applicant's former counsel opines that:

Ultimately, the activities of the insurer and/or its counsel, as revealed in the privileged material, show extreme bad faith in the claims handling of the Applicant's file. It cannot and should not be overlooked - hence the original need for the Applicant's motion to add a claim for bad faith and to call an adjuster as a witness.

In his decision Arbitrator Feldman noted:

What remedy is appropriate in this situation? Courts have recognized that removal of a party's legal representative of choice is a drastic remedy and an infringement upon the usual right of a person to choose their own representative. Courts have also recognized that such an order can result in some prejudice to the party who has to search for new representation, including delay of the proceedings. [Emphasis added]

Ultimately the Arbitrator found that:

…the factors that tend to favour removal of Applicant's counsel far outweigh those that favour permitting them to remain on the record. Public confidence in solicitor-client privilege must be maintained. The Insurer is also entitled to have reasonable confidence that information that it shared with its lawyers and advice it received from its lawyers and that was inadvertently disclosed will not be used against it during the course of this arbitration proceeding, consciously or otherwise. In this case, nothing short of removal of the Applicant's counsel will suffice.

In my view, the fact that the removal of a party's legal representative of choice is considered a drastic remedy, to be used only as a last resort, legitimized Applicant's counsel contesting the Insurer's Cross-Motion. In other words, it was not plain and obvious that Applicant's counsel would be removed as counsel of record. Thus, it cannot be said that the Applicant or his counsel prolonged, obstructed or hindered the proceeding by contesting the Insurer's Cross-Motion.

In the result, I find that DRPC Rule 75.2 criteria 4 is of no relevance to this expense hearing.

Should Applicant's Counsel be made liable to pay the Expense Award?

The Insurer submits that:

…the expenses sought with respect to the 2013 motions heard by Arbitrator Feldman should be payable by the Applicant's former counsel as it was their conduct while counsel of record that necessitated the motion for removal and the costs which were incurred in the pursuit of same….

… section 282 (11.2) (c) of the Insurance Act in force at the time of the hearing, …empowers an Arbitrator to make an order requiring a representative to personally pay all or part of any expenses awarded against a party if the Arbitrator is satisfied that the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or conduct….

I was not provided with any jurisprudence by the parties to assist me in deciding who should be made liable to pay the Insurer's expenses in the present situation. In any case, having found that Applicant's counsel was justified in disputing the Insurer's Cross-Motion, supra, I similarly find that the criteria necessary for an award to be made pursuant to section 282 (11.2) (c) of the Insurance Act has not been established.

In the result, the Applicant, not former counsel, will be responsible for the expense award.

QUANTUM OF EXPENSES

Applicant's former counsel argues:

…the number of hours spent by the insurer's counsel appears wildly inflated based on the Applicant's former counsel's time and expense. The motion hearing itself was held on one day (August 12, 2013), and was no more than four to five hours at most. Preparation of motion materials should not normally take more than twice that time, and does not require two senior counsel, one junior lawyer and an articling student….

The hours suggested by insurer's counsel appear to be akin to the time spent on a three of four day Arbitration hearing, and not a short, simple Motion.

The Insurer responds that:

There were, in fact, two motions dealt with by Arbitrator Feldman, the first brought by former counsel to add a special award and examine a representative of the Insurer and the cross-motion for the removal of counsel. Two sets of materials were prepared by counsel for the Insurer, including two Affidavits (totalling 30 pages) and a factum (of 31 pages). In addition, detailed case law review as to the circumstances surrounding professional responsibilities in dealing with inadvertent production of privileged documents and the criteria under which the removal of counsel had to be undertaken by counsel for the Insurer, which was a significant undertaking given the last-minute nature of the motions (which were brought almost immediately prior to the scheduled hearing)…. [Emphasis in original]

The Insurer therefore submits that the time spent was reasonable given both the breadth of the undertaking and the circumstances of motions, which were not at all "simple" as asserted in the responding submissions.

The Insurer's Bill-of-Costs states the following hours were incurred in preparing and conducting the Motions hearing:

Jamie Pollack (Senior Counsel) 18.5 hours;
Kerri Knudsen (Co-counsel) 34 hours;
Jonathan Heeney (Co-Counsel) 33.4 hours;
Nicole Dowling (Articling Student) 87 hours;
Diana Vallis (Law Clerk) 5.7 hours.

Rather than a line-by-line analysis of dockets, arbitrators have preferred a "global" approach to assessing expenses, expressed through the somewhat approximate method of assigning a ratio of preparation time to hearing time, expressed either in terms of hours or days.³ The general rule of thumb is the amount of time awarded for preparation is calculated by multiplying the amount of time required for attendance by a factor of 2 – 3. Arbitrators have found reasonable ratios to range from 1:1 to 4:1 of preparation time to hearing time.⁴

It is common ground that the Motions hearing was conducted in one day. I will therefore assume the time required for attendance at the hearing was 5 hours. Using a 4:1 ratio, I will allow 20 hours of preparation time, for a total of 25 hours at the top Legal Aid Ontario counsel rate of $123.74 per hour. In addition, the hours claimed for the law clerk's work will be paid at the Legal Aid rate of $29.36 per hour. Although not specifically claimed by the Insurer, I will also add H.S.T.

CONCLUSION

After considering the criteria contained in DRPC Rule 75.2, and the Insurer Counsels' Bill-of-Costs, I find it appropriate that the Applicant pay $3,684.76 forthwith to the Insurer for the expenses of the Motions hearing.

March 23, 2018

Alan G. Smith Arbitrator

Date

Financial Services Commission of Ontario