August 15, 2023, Kitchener, Ontario
Posted by: Robert Deutschmann, Personal Injury Lawyer
In a landmark decision, an Ontario Superior Court of Justice judge has made a significant ruling in a personal injury case, reducing the billing rates of an insurer's in-house counsel by half. The judge expressed concerns that allowing the proposed rates would transform cost awards into a "profit center." This decision raises important questions about the use of in-house counsel and the principles behind cost awards in legal proceedings.
The case in question, Dorah v Dyal, involved a four-week jury trial resulting in the plaintiffs receiving an award of $652,521 for damages. The defendant, represented by in-house counsel from Aviva, made a settlement offer of $250,000 plus costs and disbursements before the trial. The plaintiffs claimed costs and disbursements amounting to $461,284.66, while the defendant sought costs of $178,803.71.
The Rule 49 Controversy:
The key issue in determining costs was whether the defendant's pre-trial settlement offer fell under Rule 49. This rule stipulates that if a defendant offers to settle at least seven days before the trial, and the plaintiff rejects the offer but obtains a judgment that is not more favorable, the plaintiff is entitled to partial indemnity costs until the date of the offer. The defendant is then entitled to partial indemnity costs from that date onwards, unless the court orders otherwise.
Judge Koehnen's Decision:
Judge Koehnen ruled in favor of the defendant, finding that Rule 49 applied in this case. He concluded that the defendant was entitled to favorable cost consequences because they had made a reasonable offer to settle well in advance of the trial. As a result, the plaintiffs were awarded costs of $97,211.53, and the defendant's costs were set at $75,288.36.
Challenges with In-House Counsel Billing:
One of the primary concerns raised by the judge was related to Aviva's in-house counsel's billing practices. He noted that they did not maintain time records but estimated their hours after the fact. Additionally, the hourly rates they charged were based on 2005 cost grid rates adjusted for inflation, leading to a figure of $141,914.32. However, the plaintiffs argued that this amount was inflated, given the limited number of witnesses and perfunctory cross-examinations conducted by the defendant.
Judge Koehnen's Verdict on In-House Counsel Fees:
Considering the challenges of ascribing an hourly rate to internal counsel, Judge Koehnen reduced the defendant's claimed fees by one-third to $93,663.24. He further discounted the fee by 50%, arriving at a total of $46,831.62 with HST. Certain disbursement costs claimed by the defendant were disallowed as they were deemed unfair and unreasonable expenses to charge.
Implications and Conclusion:
Judge Koehnen's decision sets a precedent for how in-house counsel fees should be handled in cost awards. The ruling highlights the importance of ensuring cost awards serve as indemnification rather than a means for profit. The case also underscores the complexities and challenges of determining fair and reasonable fees in legal proceedings.
Going forward, this decision may prompt insurers and companies to review their in-house counsel billing practices and evaluate how such fees align with the principles behind cost awards. As legal landscapes continue to evolve, ensuring transparency and fairness in cost assessments remains crucial for maintaining trust and integrity in the legal system.