Erickson & Partners v. Her Majesty the Queen in right of Ontario (Ministry of Health and Long-Term Care)

[Indexed as: Erickson & Partners v. Ontario (Ministry of Health and Long-Term Care)]

Ontario Reports

Court of Appeal for Ontario,

Feldman, Benotto and D. Brown JJ.A.

April 27, 2015

125 O.R. (3d) 762 | 2015 ONCA 285

Case Summary

Insurance — Subrogation — "Total recovery of the insured person" in s. 39(6) of General Regulation under Ontario Health Insurance Act including amount recovered on behalf of Ontario Health Insurance Plan under plan's subrogated claim — Costs recovered by insured person accounted for by first applying them to final solicitor's bill and then using s. 39(6) to allocate plan's responsibility for its proportional share of net costs — R.R.O. 1990, Reg. 552 (Health Insurance Act), s. 39(6).

Under the Ontario Health Insurance Act, R.S.O. 1990, c. H.6, any person who commences an action to recover damages arising out of the negligence or other wrongful act of a third party must include a claim on behalf of the Ontario Health Insurance Plan for the cost of any insured medical services provided to the insured person in respect of the injury or disability suffered. Section 39(6) of the General Regulation made under the Act prescribes the portion of the costs of the insured person's action which the plan must bear. A dispute arose between the applicant law firm and the plan about how to calculate the plan's share of costs payable by the insured person under s. 39(6). The applicant applied a declaration regarding how the plan's share of costs should be calculated, specifically the meaning of the phrase "the total recovery of the insured person" found in s. 39(6) of the Regulation. The application judge interpreted s. 39(6) in a manner which accepted only part of the applicant's submissions. The applicant appealed. [page763]

Held, the appeal should be dismissed.

"The total recovery of the insured person" in s. 39(6) of the Regulation includes any amount recovered on behalf of the plan under the plan's subrogated claim.

Where an insured person recovers costs as part of a judgment or settlement, those costs should be deducted from the total costs in order to determine "the taxable costs otherwise payable by the insured person" to their lawyer. Once the net costs due to the lawyer are ascertained, one can then proceed to calculate the plan's proportionate share of those net costs by using the formula found in s. 39(6) of the Regulation.

Cases referred to

Amaratunga v. Northwest Atlantic Fisheries Organization, [2013] 3 S.C.R. 866, [2013] S.C.J. No. 66, 2013 SCC 66, 338 N.S.R. (2d) 360, 451 N.R. 1, 2013EXP-3797, 2013EXPT-2240, J.E. 2013-2062, EYB 2013-229877, 365 D.L.R. (4th) 511, 11 C.C.E.L. (4th) 277, 47 C.P.C. (7th) 227, 235 A.C.W.S. (3d) 513; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, 2002 SCC 42, 212 D.L.R. (4th) 1, 287 N.R. 248, [2002] 5 W.W.R. 1, J.E. 2002-775, 166 B.C.A.C. 1, 100 B.C.L.R. (3d) 1, 18 C.P.R. (4th) 289, 93 C.R.R. (2d) 189, REJB 2002-30904, 113 A.C.W.S. (3d) 52; Holder (Litigation guardian of) v. Greater Niagara General Hospital, [1998] O.J. No. 1523, 66 O.T.C. 157 (Gen. Div.); Laudon v. Roberts, [2010] O.J. No. 315, 2010 ONSC 433 (S.C.J.); Marchand (Litigation guardian) v. Public General Hospital of Chatham (1997), 1997 CanLII 12142 (ON SC), 33 O.R. (3d) 570, [1997] O.J. No. 1990, 49 O.T.C. 152, 12 C.P.C. (4th) 373 (Gen. Div.); Mason (Litigation guardian of) v. Ontario (Ministry of Community and Social Services) (1998), 1998 CanLII 1316 (ON CA), 39 O.R. (3d) 225, [1998] O.J. No. 1866, 158 D.L.R. (4th) 604, 110 O.A.C. 44, 6 Admin. L.R. (3d) 157, 79 A.C.W.S. (3d) 521 (C.A.); Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 CanLII 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, 154 D.L.R. (4th) 193, 221 N.R. 241, J.E. 98-201, 106 O.A.C. 1, 50 C.B.R. (3d) 163, 33 C.C.E.L. (2d) 173, 98 CLLC Â210-006, D.T.E. 98T-154, 76 A.C.W.S. (3d) 894; Walford (Litigation guardian of) v. Jacuzzi Canada Ltd., 2005 CanLII 49203 (ON SC), [2005] O.J. No. 5676, 144 A.C.W.S. (3d) 993 (S.C.J.)

Statutes referred to

Health Insurance Act, R.S.O. 1990, c. H.6, ss. 10, 11(1), 11.2 [as am.], 30, (1), (2), 31(1), (2) [as am.], 33, 45(1)(s)(iv)

Solicitors Act, R.S.O. 1990, c. S.15

Rules and regulations referred to

R.R.O. 1990, Reg. 552 (Health Insurance Act), s. 39(6), (7)

APPEAL from the judgment of J. Wright J. dated July 21, 2014, together with an erratum dated October 20, 2014, [2014] O.J. No. 3634, 2014 ONSC 4339 (S.C.J.).

Brian A. Babcock, for appellant.

Rita V. Bambers and Sonal Gandhi, for respondent.

The judgment of the court was delivered by

D. BROWN J.A.: — [page764]

I. Overview

[1] Under the Ontario Health Insurance Act (the "Act"),[^1] any person who commences an action to recover damages arising out of the negligence or other wrongful act of a third party must include a claim on behalf of the Ontario Health Insurance Plan (the "plan") for the cost of any insured medical services provided to the insured person in respect of the injury or disability suffered. Section 39(6) of the General Regulation made under the Act[^2] (the "Regulation") prescribes the portion of the costs of the insured person's action which the plan must bear. At issue on this appeal is the proper interpretation of that section.

[2] The appellant, Erickson & Partners, is a Thunder Bay law firm (the "law firm"). One of its partners, Mr. Robert Somerleigh, practices in the areas of personal injury and medical malpractice litigation. Many of the actions he commences on behalf of clients include subrogated claims for insured services on behalf of the plan.

[3] A dispute arose between the law firm and the plan (represented in this appeal by the respondent, Her Majesty the Queen in Right of Ontario), about the validity of certain clauses in the firm's contingency fee agreements with clients and about how to calculate the plan's share of costs payable by the insured person under s. 39(6) of the Regulation.

[4] The law firm commenced two applications, one seeking approval of its contingency fee agreements, and the other seeking a declaration regarding how the plan's share of costs should be calculated, specifically the meaning of the phrase "the total recovery of the insured person" found in s. 39(6) of the Regulation.

[5] By judgment dated July 21, 2014, and amended October 20, 2014 (the "judgment"), the application judge declared that the law firm's contingency fee agreements did not comply with the Solicitors Act[^3] and, as will be described below, he interpreted s. 39(6) of the Regulation in a manner which accepted only part of the law firm's submissions.

[6] The law firm appeals from the judgment only in respect of the interpretation of s. 39(6) of the regulation. The respondent plan submits that although the judgment in large part was correct, the application judge unduly complicated the calculation [page765] required by s. 39(6) of the Regulation and this court should simplify it.

[7] For the reasons set out below, I would dismiss the appeal. The application judge correctly interpreted s. 39(6) of the Regulation to include the "recovery made on behalf of the Plan" in "the total recovery of the insured person in the action". However, I agree with the plan that in his reasons the application judge unduly complicated the treatment of costs recovered by an insured person through a judgment or settlement. In these reasons, I clarify that any such costs are first deducted from the total costs payable to the lawyer for the insured person.

II. The Statutory Framework

[8] Under the Act, the plan provides insurance against the costs of insured medical services, which include hospital services, medically necessary services rendered by physicians, and certain other healthcare services.[^4] Every person who is a resident of Ontario is entitled to become an insured person under the plan.[^5]

[9] Where an insured person suffers personal injuries for which he or she receives insured services under the Act, and those injuries resulted from the negligence or other wrongful act or omission of another person, the plan enjoys statutory subrogation rights allowing it to recover the costs of those insured services. Specifically, s. 30(1) of the Act states:

30(1) Where, as the result of the negligence or other wrongful act or omission of another, an insured person suffers personal injuries for which he or she receives insured services under this Act, the Plan is subrogated to any right of the insured person to recover the cost incurred for past insured services and the cost that will probably be incurred for future insured services, and the General Manager may bring action in the name of the Plan or in the name of that person for the recovery of such costs.

[10] The Act requires a plaintiff to include, in any action to recover damages arising out of the negligence or wrongful act of another, a claim on behalf of the plan for the cost of insured services. Sections 31(1) and 31(2) state:

31(1) Any person who commences an action to recover for loss or damages arising out of the negligence or other wrongful act of a third party, to which the injury or disability in respect of which insured services have been provided is related shall, unless otherwise advised in writing by the General Manager, include a claim on behalf of the Plan for the cost of the insured services. [page766]

(2) Where a person recovers a sum in respect of the cost of insured services, the person shall forthwith pay the sum recovered to the Minister of Finance.

[11] The Act also addresses the issue of the plan's responsibility for a portion of the insured person's legal costs when that person includes a subrogated claim on behalf of the plan in his or her action. It authorizes the making of regulations prescribing procedures for the enforcement of and recovery under rights to which the plan is subrogated, including "prescribing the portion of the costs of an insured person incurred in an action for the recovery of such rights that shall be borne by the Plan".[^6]

[12] Sections 39(6) and 39(7) of the Regulation address the plan's responsibility for a portion of the insured person's costs. They state:

39(6) Subject to subsection (8), where an insured person obtains a final judgment in an action in which he or she includes a claim on behalf of the Plan, the Plan shall bear the same proportion of the taxable costs otherwise payable by the insured person, whether on a party and party basis or on a solicitor and client basis, as the recovery made on behalf of the Plan bears to the total recovery of the insured person in the action or, where no recovery is made, as the assessed claim of the Plan bears to the total damages of the insured person assessed by the court.

(7) Where a claim is settled, the Plan shall bear the same proportion of the taxable costs otherwise payable by the insured person as is set out in subsection (6) in respect of a recovery made.

[13] As can be seen, s. 39(6) establishes formulae for cost-sharing between the insured person and the plan in two scenarios: (i) where the insured person makes a recovery in the action; and (ii) where the insured person does not make any recovery.

III. Issues and Decision Below

[14] This appeal concerns the proper calculation of the plan's portion of costs under the scenario where the insured person makes a recovery in the action. Section 39(6) of the Regulation states that "the Plan shall bear the same proportion of the taxable costs otherwise payable by the insured person . . . as the recovery made on behalf of the Plan bears to the total recovery of the insured person in the action". The regulatory language can be represented as a formula, so that the plan's proportion of costs equals:

Taxable costs otherwise payable by insured person x (recovery made on behalf of the Plan / total recovery of the insured person) [page767]

A. "Total recovery of the insured person"

[15] Two aspects of this formula are in issue on this appeal. The first concerns the correct interpretation of the phrase "the total recovery of the insured person" used in the denominator of the formula. The law firm submits that the "total recovery of the insured person" does not include any amount recovered on behalf of the plan, whereas the plan contends that it does. If the recovery made on behalf of the plan is included, the size of the denominator in the formula would increase, thereby reducing the share of the insured person's costs for which the plan would bear responsibility.

[16] The application judge accepted the interpretation advanced by the plan. He wrote [at paras. 54 and 55]:

While I had no mathematical evidence before me, my understanding of the calculation of proportions involves taking each individual claim and apportioning it according to the total of claims outstanding. Similar situations occur not only in personal injury litigation affecting OHIP but in the apportioning of child support expenses under s.7 of the Child Support Guidelines and the distribution of bankrupt estates amongst creditors.

This is done by multiplying the recovery made on behalf of the plan (which, as we have seen includes a proportion of the fees recovered), by the amount of the fees owing divided by the sum of the total recovery by the plan and the injured party.

(Emphasis added)

B. Treatment of recovered costs

[17] The second aspect of the formula in issue involves the treatment of costs recovered by an insured person from a defendant, either by way of judgment or as part of a settlement. The law firm submits that one must first determine the proportion of an overall costs recovery attributable to the plan and then add the plan's share of the cost recovery to the "recovery made on behalf of the Plan" which forms the numerator of the formula. For its part, the plan submits that any such cost recovery first should be deducted from the total costs payable by the insured person, with the result that the regulatory formula is applied to the net taxable costs otherwise payable by the insured person. By way of illustration, if the insured person incurred legal costs of $100,000 and received a costs payment from the defendant of $25,000, the law firm's approach would apply a cost-sharing formula against the $100,000, whereas the plan's approach would first deduct the costs received of $25,000 and then apply the regulatory formula against the remaining $75,000 in costs. [page768]

[18] The application judge accepted the interpretation advanced by the law firm. He concluded that the phrase "costs otherwise payable by the insured person" in s. 39(6) of the Regulation referred to the costs payable by the injured party but for the subrogation provision found in s. 30 of the Act and s. 39(6) of the Regulation.

IV. Analysis

A. First issue: The interpretation of "the total recovery of the insured person in the action"

[19] Neither the Act nor the Regulation defines the phrase "the total recovery of the insured person in the action" used in s. 39(6) of the Regulation. Also, as the law firm accurately observed in its factum, courts of first instance have not applied a consistent approach when apportioning costs to the plan under s. 39(6). Although in the majority of reported cases placed before us the courts included the recovery made on behalf of the plan in the "total recovery of the insured person in the action" (as well as in the "total damages of the insured person assessed by the court" where the insured person made no recovery), in none of those cases was the court asked to resolve disputed interpretations about the s. 39(6) apportionment methodology.[^7]

[20] Starting, then, from first principles, the interpretation of s. 39(6) of the Regulation requires the court to read the words of the Act and the Regulation "in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament."[^8] As well, when interpreting a regulation, a court must [page769] consider the words granting the authority to make the regulation in question, in addition to the other interpretive factors.[^9]

[21] The law firm's main submission is that the phrase "the total recovery of the insured person in the action" is limited to the amount of the personal damages recovered by the insured person, such as general damages and loss of income, and should not include the amount recovered under the plan's subrogated claim.

[22] I disagree. Section 39(6) must be understood within the Act's framework of paying the costs of insured medical services and subrogating the plan to any right of the insured person to recover such costs. A person injured by the negligent or wrongful act of another may well require medical treatment for the injuries suffered. Should the injured person start a lawsuit to recover damages, he or she would seek compensation for any amounts spent for medical services to treat the injury caused by the negligent act. As a result of the insurance provided to Ontario residents under the Act, the plan pays the costs of insured medical services needed by the injured person to treat his or her injuries.

[23] The Act subrogates the plan to any "right of the insured person to recover the cost incurred for past insured services and the cost that will probably be incurred for future insured services", and requires an insured person to include in an action to recover damages for the injury "a claim on behalf of the Plan for the cost of the insured services".[^10] The Act also clarifies that the payment by the plan for insured services is not to be construed to affect the right of the insured person to recover the amounts paid "in the same manner as if such amounts are paid . . . by the insured person".[^11]

[24] As this court explained in Mason (Litigation guardian of) v. Ontario (Ministry of Community and Social Services),[^12] "where an insurer is subrogated to the claim of its insured, the claim nonetheless remains that of the insured in whose name and with whose rights the claim must be advanced" [emphasis added]. This court continued, at para. 23, by stating: [page770]

OHIP's subrogated claim operates in the same way. OHIP does not have an independent cause of action. The cause of action remains that of the insured person[.]

[25] Since the cause of action for the recovery of the costs of medical services incurred as a result of the injury remains that of the injured person, it follows that "the total recovery of the insured person in the action" would include the amounts recovered in respect of the subrogated claim advanced on behalf of the plan for the cost of insured medical services. So, too, where no recovery is made by the insured person, the "total damages of the insured person assessed by the court" would include "the assessed claim of the Plan".

[26] That conclusion finds support in s. 33 of the Act, which states:

33. The judge at trial shall, if the evidence permits, apportion the elements of the injured person's loss and damages so as to clearly designate the amount of the Plan's recovery for the past cost of insured services and separate it from the amount of the Plan's recovery of future cost of insured services, if any.

(Emphasis added)

That section treats the plan's recovery for the cost of past and future insured services as "elements of the injured person's loss and damages". As such, the plan's costs of insured services would form part of "the total recovery of the insured person". As well, in the case of no recovery by the insured person, the plan's costs of insured services would form part of "the total damages of the insured person assessed by the court".

[27] I conclude that the application judge correctly included in the "total recovery of the insured person in the action" the "recovery made on behalf of the Plan".

B. Second issue: The treatment of costs recovered by judgment or settlement

[28] A judgment or settlement in favour of an insured person may include an amount for his or her legal costs. Before the application judge, the parties disagreed over how such a cost recovery should be treated under s. 39(6) of the Regulation when determining the "proportion of taxable costs otherwise payable by the insured person" which the plan should bear. The positions of the parties and the conclusion of the application judge were set out in the following portion of his reasons [at paras. 37 and 38]:

The plan submits that costs (not including disbursements) are accounted for by first applying them to the final solicitors' bill and then using s. 39(6) to allocate the plan's responsibility for its proportionate share of the net fees [page771] owing. (I.e. net fees equal total taxable fees owing minus fees recovered. Plan pays its proportion of the net fees based upon damages and interest ascribed to damages only.) At first I was attracted by the simplicity of this approach and the memory (perhaps faulty) that this was the practice in years gone by.

Having mulled over this issue for far too long I find that I am led to accept the solicitors' approach to the application of costs received. A proportion of the costs received should be attributed to the plan for the purposes of determining the "proportion of the taxable costs otherwise payable by the insured person . . . as the recovery made on behalf of the plan bears to the total recovery of the insured person in the action".

[29] That led the application judge to conclude that when calculating the portion of costs the plan should bear, one should first ascertain the amount of the taxable costs, or solicitor's fees, owing, and then ascertain the plan's share of the costs recoverable before determining the ratio of the "recovery made on behalf of the Plan" to the "total recovery of the insured person in the action". The application judge created a four-step approach [at para. 61]:

In determining OHIP's obligation to pay a proportion of the taxable costs owing:

a) Ascertain the amount of the taxable costs owing, (the solicitor's fees) (A). The taxable amount of the solicitor's fees (A) should be ascertained by agreement of all parties, including OHIP or assessment. Where s. 28.1(8) dictates that an application be made to a judge for approval to include in the fee an amount arising as a result of an award of costs etc. notice of that application must be served upon OHIP as an interested party. Where notice is given of the assessment of such fees natural justice demands that OHIP be served as well.

b) Ascertain OHIP's share the amount of costs recoverable (B). The amount of the costs recovered (B) attributable to OHIP (C) should be ascertained by multiplying OHIP's share of the damages and interest (D) by the amount of costs recovered (B) and dividing by the amount of damages and interest personally recovered by the insured party (E).

c) Ascertain the amount of the recovery made on behalf of the plan (F): Having determined C, the amount of the recovery made on behalf of the plan is the total of OHIP'S share of the damages and interest plus its share of the costs receivable. (F= (D + C))

d) Ascertain OHIP's proportion of the taxable costs: The amount of fees OHIP should pay is ascertained by multiplying the amount of the recovery made on behalf of the plan (F) by the amount of the taxable costs (A) and dividing by the total amount recovered in the action (D + E + B)

[30] The plan submits that the approach of the application judge is not consistent with the language of s. 39(6) of the Regulation and unnecessarily complicates the calculation exercise.

[31] I agree. The approach proposed by the application judge is inconsistent with s. 39(6) of the Regulation in two ways. First, [page772] it would require ascertaining the plan's share of costs twice -- once in respect of the amount of costs recoverable and then in respect of the taxable costs -- whereas s. 39(6) contemplates only one calculation of the plan's share of costs. Second, the approach uses inconsistent denominators: step (b) uses only the personal recovery of the insured person, whereas step (d) uses the total recovery of the insured person, including the plan's subrogated claim.

[32] In my view, where an insured person recovers costs as part of a judgment or settlement, those costs should be deducted from the total costs in order to determine "the taxable costs otherwise payable by the insured person" to their lawyer. Once the net costs due to the lawyer are ascertained, one then can proceed to calculate the plan's proportionate share of those net costs by using the formula found in s. 39(6) of the Regulation.

V. Summary

[33] In conclusion, I would dismiss the appeal. Where an insured person makes a recovery, the amount of costs obtained by judgment or settlement should be deducted from the total costs of the insured person's lawyer, and the plan's proportionate share of the taxable costs otherwise payable by the insured person should be calculated as follows:

Costs x [recovery made on behalf of the plan (plan's damages + pre-judgment interest) / total recovery of the insured person (including plan's damages + all pre-judgment interest)]

[34] The respondent sought costs of the appeal in the amount of $20,580.85. The law firm submitted that there should be no costs because it was bringing the appeal in the public interest. Alternatively, the law firm submitted that any award of costs to the respondent should be in the range of $4,000 to $5,000.

[35] This was not public interest litigation. The respondent, as the successful party, is entitled to some costs. I would award the respondent costs of the appeal in the amount of $7,500, inclusive of all disbursements and taxes.

Appeal dismissed.

Notes

[^1]: R.S.O. 1990, c. H.6.

[^2]: R.R.O. 1990, Reg. 552.

[^3]: R.S.O. 1990, c. S.15.

[^4]: Health Insurance Act, ss. 10, 11.2.

[^5]: Ibid., s. 11(1).

[^6]: Ibid., s. 45(1)(s)(iv).

[^7]: The recovery made on behalf of the plan was included in "the total recovery of the insured person in the action" in Laudon v. Roberts, [2010] O.J. No. 315, 2010 ONSC 433 (S.C.J.), at paras. 85 and 86, and in the "total damages of the insured person assessed by the court" in two cases in which the plaintiff made no recovery, Marchand (Litigation guardian) v. Public General Hospital of Chatham (1997), 1997 CanLII 12142 (ON SC), 33 O.R. (3d) 570, [1997] O.J. No. 1990 (Gen. Div.), at para. 7, and Walford (Litigation guardian of) v. Jacuzzi Canada Ltd., 2005 CanLII 49203 (ON SC), [2005] O.J. No. 5676, 144 A.C.W.S. (3d) 993 (S.C.J.), at para. 10. An opposite approach was taken in Holder (Litigation guardian of) v. Greater Niagara General Hospital, [1998] O.J. No. 1523, 66 O.T.C. 157 (Gen. Div.), at paras. 6, 12, a case in which the plaintiff made a recovery.

[^8]: Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, 2002 SCC 42, at para. 26; Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 CanLII 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, at para. 21.

[^9]: Amaratunga v. Northwest Atlantic Fisheries Organization, [2013] 3 S.C.R. 866, [2013] S.C.J. No. 66, 2013 SCC 66, at para. 36.

[^10]: Act, ss. 30(1) and 31(1).

[^11]: Ibid., s. 30(2).

[^12]: (1998), 1998 CanLII 1316 (ON CA), 39 O.R. (3d) 225, [1998] O.J. No. 1866 (C.A.), at para. 22.