Court File and Parties

CITATION: Leclerc v. Economical Mutual Insurance Company, 2016 ONSC 7987

COURT FILE NO.: 16- 68334

DATE: 2016/12/21

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Patrick LeClerc, by his Litigation Guardian, Lise Leclerc, Applicant v. Economical Mutual Insurance Company, Respondent

COUNSEL: Éliane Lachaîne, for the Applicant

HEARD: In writing

ENDORSEMENT

[1] This is an application to approve the proposed settlement of the applicant’s claim pursuant to the Statutory Accident Benefits Schedule, O. Reg. 34/10. The applicant’s claim arises from a head-on motor vehicle collision that occurred on February 18, 2007 in Alberta. The applicant was at fault for the accident and his claim is solely for statutory accident benefits.

[2] The applicant sustained serious injuries in the accident, including fractures to his right femur, left ulna, finger and nose, an L1 wedge fracture, bilateral pulmonary contusions, and depression. His most serious injury was a traumatic diffuse axonal head injury.

[3] The applicant was born on January 20, 1985 and is almost 32 years old. The applicant’s litigation guardian is his mother. At the time of the accident, the applicant was employed with Terroco Drilling in Alberta and was earning approximately $550 per week (gross). Although he has enjoyed remarkable recovery from his injuries, the applicant has been unable to return to work since the accident.

[4] The proposed settlement was reached in September 2015. As at that date, the applicant had returned to live with his mother in an apartment. He continues to do so. With some of the settlement monies, the applicant plans to purchase a mobile or motor home in which he and his mother will live. She has been providing him with support and care.

[5] This application was brought in April 2016 and put before Justice Hugh R. McLean. Justice McLean requested that the Public Guardian and Trustee (“PGT”) review the application. Nicholas Hedley, Deputy PGT and Deputy Director of Legal Services, wrote to Justice McLean by letter of July 22, 2016. As a result of that letter, the applicant submitted a Supplementary Application Record, which includes the affidavit of Éliane Lachaîne sworn August 15, 2016. Ms. Lachaîne is counsel for the applicant.

[6] The supplementary application record includes a copy of the executed Settlement Disclosure Notice dated September 25, 2015. The supplementary application record confirms that there were no minutes of settlement as the settlement was confirmed in writing via email dated September 2, 2015. Finally, the supplementary application record explains the breakdown of the overall settlement amount of $900,000.

[7] By letter dated November 10, 2016 the PGT responded to the materials included in the supplementary application record. The PGT raised the following issues:

(a) The minutes of settlement consist of an email from insurance counsel and do not strictly comply with Rule 7.08 (4)(d), which requires the applicant to serve and file proposed minutes of settlement. It is within the discretion of the Court to determine whether the email satisfies the requirement under that Rule;

(b) The proposed settlement will result in a gap in monthly income for the applicant between the age of approximately 61 years and the age of 65 years, at which time he will be entitled to apply for Old Age Security. To bridge that gap, the applicant proposes to apply at age 61 for Ontario Disability Support Program benefits;

(c) The proposed settlement contemplates a minimum guarantee period for the structure payments of 30 years. There is a cost associated with purchasing the guarantee and, as the applicant does not currently have dependents, it may not be in his best interests to pay for the guarantee if omitting the guarantee would extend the payments beyond 30 years.

[8] In his letter of November 10, 2016 Nicholas Hedley concluded that the supplementary materials effectively responded to the issues raised by the PGT, subject to any further questions from the Court.

[9] This application for approval came before me because I had determined a companion application to appoint Lise Leclerc as Guardian of Property of the applicant. I determined that, as Lise Leclerc held a power of attorney for property for the applicant, it was not appropriate or necessary to appoint her as the applicant’s Guardian of Property.

[10] I had some questions regarding the approval application. The first question related to the concern raised by the PGT regarding the cost of the 30-year guarantee period. The second question related to the amount of legal fees it was proposed would be paid from the overall settlement amount.

[11] I met with counsel for the applicant in chambers and discussed my questions. With respect to the guarantee period, counsel for the applicant advised that this aspect of the proposed structure is important to her client. He is a relatively young man and may in future have a spouse or children. He wishes to be able to provide for them.

[12] Counsel for the applicant agreed to obtain alternate quotes from McKellar Structured Settlements (“McKellar’s”); one with a guarantee period of 30 years and one without any guarantee period.

[13] With respect to the legal fees, counsel offered to provide a bill of costs that lists the hours spent, the hourly rates used, and the disbursements.

Second Supplementary Application Record

[14] In follow up to my meeting with counsel for the applicant, a second supplementary application record was filed on December 9, 2016. That record includes the December 2016 affidavit of Éliane Lachaîne.

a) Global Settlement Amount

[15] Based on the materials filed, including the second supplementary application record, I am satisfied that the overall settlement amount of $900,000 is reasonable and in the best interests of the applicant. I originally had concerns about the portion of the settlement allocated for income replacement benefits (“IRB’s”). The amount so apportioned was lower than the figure recommended by the applicant’s lawyer for that category of accident benefits. I am now satisfied that the overall settlement, including the apportionment of the funds by benefits category, is fair and reasonable. I approve the global settlement amount of $900,000.

b) The Guarantee Period

[16] As requested, counsel for the applicant obtained alternate quotes from McKellar’s. These quotes are attached as exhibits to the December 2016 affidavit of Éliane Lachaîne.

[17] By way of preliminary comment, I note that the structured settlement now proposed contemplates a funding amount of $645,000. That amount is less than the $660,000 figure proposed in the original application record. The explanation for the reduced funding of the structured portion of the settlement is explained below.

[18] The settlement was reached in September 2015. It was contemplated that the weekly IRB’s of $400 would continue to be paid pending approval of the settlement and that the total of the IRB’s paid in the interim would be deducted from the $900,000 lump sum agreed upon. As at December 31, 2016, that deduction will total $29,200 (73 weeks x $400 per week).

[19] The structure proposed in the second supplementary application record (with a funding amount of $645,000) provides for a monthly payment of $2,000 commencing January 2017; indexation at two per cent per year (i.e. compounded); a 30-year guarantee period; and the final payment to be made on December 1, 2046. By comparison, the structure now proposed (also with a funding amount of $645,000) provides for payments of $2,000 per month, indexed at two per cent per year (i.e. compounded), and the final payment to be made on June 1, 2047.

[20] In summary, the benefit to the applicant if the 30-year guarantee is not purchased is the extension by six months of the monthly payments. As of January 1, 2047 the monthly payments would be in the amount of $3,622.72. Therefore, the applicant would receive an additional $21,736.32 in 2047 if the 30-year guarantee is not purchased (6 months x $3,622.72 per month).

[21] Notwithstanding the concerns expressed by the PGT, I am satisfied that the additional payments that would be gained by eliminating the guarantee period does not outweigh the potential benefits to the applicant’s surviving children or dependants, if any, for whom he has expressed concern. I recognize that estate planning is a consideration for individuals, such as the applicant, when a portion of a settlement is structured. Whether the monthly payments end in December 2046 or in June 2047, the applicant will need to bridge the gap between the end of the structured payments and when he turns 65.

[22] Accordingly, I approve the inclusion of a 30-year guarantee period in the structured portion of the settlement.

c) The Payment Schedule

[23] However, for the reasons set out below, I am unable to approve the Payment Schedule currently proposed. Further materials are required given the additional $65,000 (approximate) available to the applicant from the global settlement amount.

Legal Fees

[24] Included in the second supplementary application record are the original retainer agreement signed by the applicant, personally, in 2007 and a retainer agreement signed by him in January 2014. These documents are included as exhibits to the December 2016 Lachaîne affidavit. The record before me does not include a retainer agreement signed by the applicant’s litigation guardian.

[25] In the second supplementary application record, counsel for the applicant includes as an exhibit to her affidavit, a bill of costs that sets out the time spent and the potential fees based on two scenarios: a) historical hourly rates as they increased over time ($56,966 for total fees); and b) current hourly rates only ($66,345.41 for total fees). I pause to note that each of these amounts includes the fees charged by the accident benefits consultant ($4,810 under both scenarios).

[26] The fees charged by the accident benefits consultant are identified in paragraph 19 of counsel’s December 2016 affidavit as $4,810 (with HST to be added to that amount). That amount is based on an hourly rate of $185 for the accident benefits consultant. That fixed rate is used in both the historical and current hourly rate calculations. Therefore, to identify the solicitor client fees for the timekeepers at the firm(s), $4,810 must be subtracted from the fee amounts. When that calculation is made, the solicitor-client fees are are $52,156 (based on historical hourly rates) and $61,535.41 (based on current hourly rates). It is against those amounts that I compare the proposed fees of $130,144.61 (see below).

[27] Also with respect to the accident benefits consultant, I note that the retainer agreements specifically state that “we will charge you the hourly rate for the accident benefits clerk (which is considered a disbursement and not legal fees), plus H.S.T.” Counsel for the applicant does not explain why the bill of costs now includes the fees charged by the accident benefits clerk as part of the firm’s fees, as opposed to as a disbursement as stipulated in the retainer agreements.

[28] The solicitor-client account for which approval is sought is in the total amount of $154,439.77. That amount is broken down as follows:

Fees $ 130,144.61 HST on fees $ 16,918.80 Fees for consultant $ 4,810.00 HST on consultant’s fees $ 625.30 Disbursements (incl. HST) $ 1,941.06 Total $ 154,439.77

[29] In her affidavit, Ms. Lachaîne expresses the view that the legal fees proposed are reasonable. In support of her opinion in that regard, Ms. Lachaîne relies on the following factors:

(a) She has been representing the applicant for almost 10 years;

(b) The applicant and the litigation guardian are bilingual; counsel was able to communicate with them in English and French;

(c) The law firms with which counsel has been associated over time (the original and the current firm) funded the disbursements incurred on behalf of the applicant for almost 10 years. Counsel acknowledges that the disbursements are not significant ($1973.83[^1] for miscellaneous disbursements and $4,810, plus HST, for the accident benefits consultant’s time). Counsel highlights that because the firm(s) funded the disbursements, the applicant did not have to be concerned with funding same personally;

(d) The legal services included monitoring of the accident benefits file, reporting to the applicant, communicating regularly with the rehabilitation team and accident benefits adjuster, and assessing the value of the applicant’s claim for future accident benefits;

(e) The applicant suffered very serious injuries and significant time was spent reviewing reports, corresponding with treatment providers, etc.;

(f) Although there was no ‘liability issue’, there was no obligation on the part of the applicant or the respondent to settle the accident benefits file. As a result there was no guarantee that the legal fees and disbursements would ever be paid. The respondent insurer could have decided to keep the applicant’s file open for the applicant’s lifetime;

(g) A good result was negotiated for the applicant; and

(h) In addition to representing the applicant, Ms. Lachaîne assisted his mother personally with her application for income replacement benefits to which she was entitled by reason of her inability to work while was caring for the applicant.

[30] For the following reasons, I do not approve the proposed solicitor-client account in the amount of $154,439.77:

(i) It is not clear whether the fees for the work done on behalf of the applicant’s (the IRB claim and the unsuccessful guardianship application) are included in the proposed solicitor-client account and are therefore being paid by the applicant from the settlement funds. I note that that a disbursement of $181 to issue the guardianship application is included in the disbursements particularized in the bill of costs;

(ii) The retainer agreements included in the second supplementary application record are signed by the applicant personally (not by his litigation guardian). In any event, because the applicant is a party under disability, any retainer agreement signed by him (assuming the document was signed when he was not under a disability), or on his behalf, is subject to the approval of the Court;

(iii) The 2007 retainer agreement does not include a paragraph confirming that the applicant and/or his litigation guardian were advised that it was open to them to consult with another lawyer with respect to the retainer agreement before executing same;

(iv) It is unclear whether either retainer agreement meets the requirements for a contingency fee retainer agreement pursuant to the Solicitors Act, R.S.O. 1990, c. S.15. For example, both retainer agreements provide that counsel “will charge [the applicant] the greater of 15% of the settlement of the hourly rates for the lawyers and staff.” Even if either or both of the retainer agreements satisfy the requirements of the Solicitors’ Act, this Court retains jurisdiction to determine the proper fees to be paid by a party under disability;

(v) Although counsel for the applicant carried this matter for a number of years, the disbursements were very modest;

(vi) Although it is possible that no settlement could have been reached, given the nature of the claim, there was relatively minimal risk to the applicant’s lawyers that they would not be paid for their work. I distinguish the risk assumed by counsel for the applicant from the risk with respect to a tort claim in which liability is an issue and there is the potential for limited or no recovery on the part of the client; and

(vii) If the fees proposed were approved, the applicant would be paying more than double the fees incurred on an hourly rate basis whether at historical or current rates.

[31] Notwithstanding the concerns outlined above, I recognize that counsel for the applicant carried the file for many years before reaching a settlement. For that reason, I approve a solicitor-client account as follows:

Fees $ 73,850.00[^2] HST on fees $ 9,600.50 Fees for consultant $ 4,810.00 HST on consultant’s fees $ 625.30 Disbursements (incl. HST) $ 1,941.06 Total $ 90,826.86

[32] Using the above figures, the settlement funds are allocated as follows:

Settlement Amount $ 900,000.00 Less Payment of credit cards ( 11,360.00) Purchase of motorhome ( 60,000.00) Credit for IRB to Dec. 31/16 ( 29,200.00) Solicitor-client account ( 90,826.86) Balance Remaining $ 708,613.14

Additional Information Required

[33] Based on the solicitor-client account approved, the balance available for the applicant is approximately $63,000 greater than addressed in the materials filed to date. As a result, additional materials are to be filed with respect to the following matters:

• The amount which it is now proposed be utilised to fund the structured portion of the settlement - $645,000 or more; and

• How the additional non-structured portion of the funds, if any, will be managed for the benefit of the applicant.

[34] If the structure funding will exceed $645,000 a revised Payment Schedule is required.

[35] With the passage of time from the end of December 2016 until the additional materials in support of the approval of the settlement are filed on behalf of the applicant and considered by the Court, there is the potential for the respondent insurer to continue to pay to the applicant the sum of $400 per week for IRB’s. I recognize that if that practice continues the $708,613.14 figure calculated above will be reduced and the applicant will be required to reimburse the respondent insurer for an amount in excess of $29,200. Either the practice of the respondent insurer continuing to pay $400 per week ceases at the end of December 2016, as originally anticipated, or the additional materials filed must address the increase from $29,200 of the amount that the applicant is required to reimburse the accident benefits insurer.

[36] The record before me does not include a copy of the release that the litigation guardian for the applicant is being asked to sign on the applicant’s behalf. I also note that there is no evidence before me that the wording of either the release or the draft order have been submitted to and reviewed by McKellar’s to confirm compliance with Canada Revenue Agency (“CRA”). Given the amount approved for the solicitor-client account, both a revised release and a revised draft order are required. The additional materials to be filed shall include evidence which confirms that the revised release and the revised draft order have each been reviewed by McKellar’s. Evidence is also required from McKellar’s, directly or by way of information and belief set out in a further affidavit from counsel for the applicant, that the revised release and revised draft order are CRA compliant, maintaining the tax-free status of the proposed structure payments.

[37] To avoid the continuing erosion of the funds that remain available for the applicant, additional materials shall be filed in as timely a manner as is possible. I am hopeful that following my review of the additional materials to be filed there will be minimal, if any, issues that remain to be addressed. I understand the importance for the applicant in particular of bringing this matter to a conclusion. The applicant needs to be able to move forward with his life.

L. Sheard, J

Release date: December 21, 2016

[^1]: I note that in paragraph 19 of her December 2016 affidavit, counsel identifies the total disbursements in the amount of $1,941.06 (including HST). I have not attempted to reconcile the difference between that amount and the amount to which counsel otherwise refers ($1,973.83).

[^2]: This amount includes fees for additional work required pursuant to this endorsement. I have taken that additional work into consideration.