In Adler v. State Farm Automobile Insurance Company, Madam Justice Nancy Spies dealt with an application by the law firm of Aylesworth LLP for court approval of lawyer-client fees and disbursements, to be paid out of the proceeds of the settlement of an accident benefits claim. Her decision wasn’t particularly good news for the plaintiffs’ bar (although she did approve payment of a premium on legal fees). She said that litigating accident benefits claims does not entail much financial risk to law firms. Insurance companies (and probably plaintiffs’ lawyers) will be surprised to hear that she based this conclusion on the proposition that insurers are obliged to negotiate lump sum settlements of accident benefits claims in catastrophic cases. So far as we’re aware, no such obligation exists in the contract, the statute or the caselaw. If that is so, does accident benefit litigation actually involve financial risk to the law firm that should be recognized in costs premiums? On what principles should cost premiums in such cases be approved?
Here, the claim had been prosecuted against State Farm Automobile Insurance Company on behalf of a catastrophically-injured young man. The lawyers had negotiated a lump sum settlement of the accident benefits claim, in the amount of $1.25 million. They had a contingency fee agreement with the plaintiff which provided for a fee of 30% of of all amounts recovered for damages, accident benefits and interest.
There have been several previous decisions regarding costs in this case. They can be found here, here and here. Those rulings were all made by Mr. Justice John Wilkins and they too dealt with the fees of the plaintiff’s lawyers. Justice Spies ended up dealing with the matter because the relationship between Justice Wilkins and counsel had become so strained that Justice Wilkins recuse himself.
In one of his rulings, Justice Wilkins observed that “[g]enerally speaking, there is not a great deal of legal work required to process and collect all of the benefits to which an injured person is honestly entitled”. He contrasted the litigation of accident benefits cases with tort actions. The latter, he said, “frequently involve issues of liability and they have the requirement of proof on the balance of probabilities” while an AB claim “is very different in nature, particularly when the demonstrable injuries are catastrophic, the needs of the claimant are patent and the wording of the Act, the regulations and the policy are applicable”.
Justice Wilkins also observed that, prior to Aylesworth having become involved, the insurer had offered $1 million in settlement, so he felt that the law firm’s efforts had really only gotten an additional $250,000 for its client. The fee that it was seeking ($179,000) was 71.6% of the additional $250,000 and the firm had docketed time of only $3,972.50.
So, Justice Wilkins decided that allowing 20 times the docketed time (which he said was “purely arbitrary”) for legal fees was “fair and reasonble under all the circumstances” and fixed the fees at $79,450.
There followed a series of further submissions and supplementary reasons, culminating in the law firm asking for the opportunity to make viva voce arguments with a reporter present. At that point, Justice Wilkins recused himself and that is what led to Justice Spies re-hearing the matter.
Before Spies J., the law firm again sought fees of $179,000. The fees on an hourly rate basis, for Aylesworths and two predecessor firms, totalled $74,726.44. As Justice Spies observed, this amounted to “more than double the fees of all three firms on a time/hourly rate basis and represents 14.32% of the settlement”. The Public Guardian and Trustee did not oppose the fees sought although Justice Spies went on to say that she did not place much weight on the absence of objection by the Trustee.
Justice Spies was not prepared to approve the contingency fee agreement. Rather, she approached the issue of costs by considering a list of criteria that she had previously used in Giusti v. Scarborough Hospital. The factors are:
a) The time spent by the solicitor,
b) The difficulty and complexity of the case,
c) The responsibility assumed by the solicitor,
d) The amount in issue,
e) The importance of the case to the client,
f) The degree of skill and competence demonstrated by the solicitor,
g) The results achieved,
h) The client’s ability to pay,
i) The client’s expectation of the amount of the fee (which would take into account a contingency agreement entered into), and
j) The financial risk assumed by the solicitor of pursuing the action, including the risk of non-payment, the likelihood of success and the amount of expected recovery.
Her Honour applied these factors to the Aylesworths claim and we have not summarized all of her conclusions on each factor. One which we think is noteworthy is on the issue of financial risk to the law firm. Counsel for the firm had argued that his client had faced “substantial risk” in prosecuting the AB claim because “there was no obligation on the part of the insurer to resolve the matter by way of a lump sum settlement and that it would have been within their rights to continue to pay the Applicant the amounts owed in the Statutory Accident Benefits Schedule and Aylesworth LLP would not have been entitled to any form of fee”.
Justice Spies rejected that argument with the following startling observation: “once it was known that the Applicant’s injuries were catastrophic and that he required care for the rest of his life, the insurer had a good faith obligation to negotiate a reasonable lump sum settlement instead of simply letting the payments run their course.”
This will come as news to insurance companies. Neither the Act nor the policy wording contains any requirement to negotiate lump sum settlements of accident benefit claims and Justice Spies cited no authority for her statement. Nevertheless, Justice Spies’ rejection of the argument that the law firm had run a financial risk by taking on the AB claim was largely based on her apparent belief that insurers are required to negotiate lump sum settlements of benefit claims, at least in catastrophic cases.
Having applied the various criteria that she had outlined in Giusti, Justice Spies came to the conclusion that some premium should be awarded to the law firm, however she rejected the submission that she should approve fees of just under 15% of the settlement. (Counsel for the law firm had urged her to apply the reasoning in Symington v. Adams and Zigomanis v. ING, two unreported cases in which costs of about that amount were approved. However, Justice Spies said that “with great respect, I conclude that when approving fees for an AB settlement, with a party under a disability, at least in these circumstances, a substantial premium is not appropriate. Although I appreciate that approving the fees claimed in this case which represents just under 15% of the settlement would be in line with these two cases, I find that I can not endorse such an approach and to that extent I differ from the views of my learned colleagues in those decisions.”)
In the result, Her Honour approved a premium of $50,000, which meant that legal fees overall (including those of the two predecessor firms) totalled $125,000.
It is not entirely clear on what basis any premium was given. Of the eleven factors that Justice Spies said she was taking into consideration, the only one that might be argued to have favoured the law firm was her conclusion that the lawyers had obtained “an excellent and important result” for the plaintiff. But in the same paragraph of her reasons, Her Honour said that “[g]iven the experience and expertise of the counsel at the Firm I would not consider this AB claim to be particularly difficult or complex for them.” (As noted above though, Spies J. thought that the retainer involved little financial risk because, in her view, insurance companies are obliged to negotiate lump sum settlements in catastrophic cases. We think she was wrong about that and if that is so, then it follows that there was more risk for the law firm than the judge thought.)
So, in this case, we have two judges who think that AB litigation involves little risk. One would have given no premium, the other gave what she thought was a modest premium, but the basis for the award is not very clear. The underpinnings of the notion that AB litigation is low risk are also open to question though, with the result that it will continue to be difficult to predict the outcome of approval motions in AB cases.