Raises 'serious concerns' over billing rates claimed by insurer
An Ontario Superior Court of Justice judge has discounted the billing rates claimed by an insurer’s in-house counsel by half in determining costs in a personal injury case. He ruled he has “serious concerns” that allowing the proposed rates would turn cost awards into a profit centre.
Judge Markus Koehnen wrote in a decision released in mid-May that he would adjust the defendant’s costs downward as “a result of two issues arising out of the fact that the defendant was represented by internal counsel at her insurer, Aviva.
“The first adjustment arises because Aviva internal counsel did not record their time but only estimated it after the fact. The second adjustment ensures that the cost award indemnifies Aviva for its actual costs and does not turn cost awards into a source of profit for them.”
In Dorah v Dyal, the costs endorsement application came after a four-week jury trial earlier this year, at the end of which the plaintiffs received an award totalling $652,521. When statutory deductibles were applied, the net award of damages plus prejudgment interest came to $191,228.65.
The plaintiffs had also claimed costs and disbursements of $461,284.66. The defendant claimed costs of $178,803.71, including disbursements of $36,889.39, with tax.
In this case, the question in determining costs was whether the defendant’s settlement offer of $250,000 plus costs and disbursements, made about a month before the January 12, 2023, trial date, fell under the “Rule 49.”
This rule provides that “where an offer to settle is made by a defendant at least seven days before the commencement of the hearing, is not withdrawn and does not expire before the commencement of the hearing, and is not accepted by the plaintiff, and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served. The defendant is entitled to partial indemnity costs from that date forward unless the court orders otherwise.”
The defendant sought partial indemnity costs from the trial date to the last day of the trial on March 3, 2023, of $178,803.71, including disbursements and tax.
The plaintiff denied that Rule 49 applied, but Judge Koehnen ruled it did.
“In my view, the defendant is entitled to the favourable cost consequences under Rule 49. It made an offer more than seven days before the trial. The offer remained open until trial.
“The defendant clearly obtained a result at trial that was superior to the result the plaintiffs obtained at trial. . . . To deprive the defendant of cost consequences under Rule 49 in those circumstances would undermine the policy objectives behind the Rule and would discourage defendants from making reasonable offers to settle.”
In the end, Judge Koehnen awarded the plaintiffs’ costs of $97,211.53 and the defendant’s costs of $75,288.36 for a net payment of $21,923.17 from the defendant to the plaintiff.
In determining the defendant’s costs, the judge noted that Aviva’s in-house lawyers’ group does not maintain time dockets. The number of hours they claim is based on estimates of time spent at each phase of the litigation. The defendant’s lawyers estimated they spent 224 hours between the date of an offer to settle and the end of the trial, “very similar to plaintiffs’ counsel time of 228 hours.”
Aviva then calculates an hourly rate for their lawyers by taking the highest hourly rates established in 2005 under the Rules’ Cost Grid ($350 for one lawyer and $225 for the second) and adjusting those rates for inflation, and adding 13 percent HST to arrive at a total of $141,914.32.
However, the plaintiffs raised issues about the estimated number of hours and the hourly rates Aviva notionally charges to come up with that figure. While the plaintiffs had 17 witnesses to examine in chief and to prepare for cross-examination, the defendant had four witnesses.
“Moreover, the defendant’s cross-examinations of the plaintiffs’ witnesses were rather perfunctory,” Judge Koehnen wrote, “often eliciting little more than the fact that a particular physician was a paid expert rather than a treating physician or that an expert was a psychologist rather than a medical doctor.”
The judge reduced the defendant’s claimed fees by one-third to $93,663.24. He then discounted that fee by 50 percent to come up with a figure of $46,831.62 with HST and then added allowed disbursement costs of $28,456.74 for a total of $75,288.36. He disallowed some allowed disbursement costs claimed - $3,999.07 for surveillance, $3,004.22 for partial trial transcripts, and $1,429.36 for meal expenses - on the basis that “these are not fair and reasonable expenses to be charged.”
Judge Koehnen admitted that ascribing an hourly rate to internal counsel “creates certain challenges.” On the one hand, he wrote, the Solicitors Act says costs “shall not be disallowed or reduced on assessment merely because they relate to counsel who is a salaried employee of the party.”
On the other hand, the principle behind cost awards “is to indemnify, not to create a windfall.” He wrote It would be “an unjust result if insurers could use internal counsel and turn cost awards into a profit centre for the insurer.”
The judge noted that the combined billing rates for Aviva’s in-house lawyers would cost the insurer more than $1.6 million in salary and overhead annually at the rates claimed ($583 and $375 per hour for seven hours a day and 48 weeks a year.) While he did not receive any cost information from Avivia, Judge Koehnen said he would “be surprised” if their salary and overhead came to that much.
“I have serious concerns that allowing the billing rates that Aviva claims would not indemnify Aviva for its costs but would turn cost awards into a source of profit.”
Judge Koehnen also significantly reduced the fees and disbursements claimed by the plaintiffs - fees of $334,172.10, HST of $43,442.37 and disbursements of $83,670.19 (with HST). That is because the offer to settle was not accepted by the plaintiff, resulting in a trial.
Of plaintiff fees claimed, “the amount of $56,622 plus HST of $7,360.86 for a total of $63,982.86 were incurred before the date of the defendant’s offer to settle,” the judge wrote. The disbursements the plaintiff incurred before the defendant’s settlement offer came to approximately $33,000, resulting in a total of $97,211.53. However, Judge Koehnen wrote he would consider adjusting that figure to cover disbursements that occurred before the offer to settle date but were not yet submitted.
The defendant argued that the hourly rates for the plaintiffs’ senior counsel were too high - between $850 and $1,100 but reduced to partial indemnity rates of $520 and $660. Actual hourly rates for associates ranged between $350 and $500 but were reduced to $210 and $300.
“It is well established that the exercise of fixing costs is not a mathematical exercise of multiplying hourly rates by the amount of time spent,” Judge Koehnen said. “Rather, it is an exercise of fixing a fee that is fair and reasonable.
“It strikes me that a fee of $56,622 plus HST is reasonable for the work required up to January 12, 2023. The action was commenced in 2017.
It involved complex medical issues involving chronic pain syndrome, psychologists, psychiatrists, physiotherapists, orthopedic specialists, and long-term care issues over the course of six years.” He noted that senior counsel would expect to bill at the top of the range.
