



COURT OF APPEAL FOR ONTARIO

CITATION: Erickson & Partners v. Ontario (Health and
    Long-Term Care), 2015 ONCA 285

DATE: 20150427

DOCKET: C59228

Feldman, Benotto and Brown JJ.A.

BETWEEN

Erickson & Partners

Applicant (Appellant)

and

Her Majesty the Queen in right of Ontario
    (Ministry of Health

and Long-Term Care)

Respondent (Respondent)

Brian A. Babcock, for the appellant

Rita V. Bambers and Sonal Gandhi, for the respondent

Heard: April 1, 2015

On appeal from the judgment of Justice John dePencier
    Wright of the Superior Court of Justice, dated July, 21, 2014, together with an
    erratum dated October 20, 2014, with reasons reported at 2014 ONSC 4339.

Brown J.A.:

I.

Overview

[1]

Under the
Ontario Health Insurance 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 persons
    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 firms contingency fee agreements with
    clients and about how to calculate the Plans 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
    Plans 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 Firms 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 Firms 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 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.

(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 Plans responsibility for a portion of the
    insured persons 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 Plans responsibility for a
    portion of the insured persons 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 Plans 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 personas 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
    Plans 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



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 persons costs for which
    the Plan would bear responsibility.

[16]

The
    application judge accepted the interpretation advanced by the Plan. He wrote:

[54] 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.

[55] 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 Plans 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 Firms approach would apply a
    cost-sharing formula against the $100,000, whereas the Plans approach would
    first deduct the costs received of $25,000 and then apply the regulatory formula
    against the remaining $75,000 in costs.

[18]

The
    application judge accepted the interpretation advanced by the Law Firm. He
    concluded that the phrase costs otherwise payable by the insured party 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 consider the words
    granting the authority to make the regulation in question, in addition to the
    other interpretive factors.
[9]

[21]

The
    Law Firms 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 Plans subrogated claim.

[22]

I
    disagree. Section 39(6) must be understood within the Acts 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 paidby 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:

OHIPs 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 persons loss and damages so as to
    clearly designate the amount of the Plans recovery for the past cost of
    insured services
and separate it from the amount of the Plans recovery of
    future cost of insured services, if any. [Emphasis added.]

That section treats the Plans recovery for the cost
    of past and future insured services as elements of the injured persons loss
    and damages. As such, the Plans 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 Plans 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:

[37] 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 plans responsibility for its proportionate
    share of the net fees 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.

[38] 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 solicitors fees, owing, and then ascertain the Plans 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:

[61] In determining OHIPs obligation to pay a proportion of
    the taxable costs owing:

a)
Ascertain the amount of the taxable costs
    owing, (the solicitors fees) (A).
The taxable amount of the
    solicitors 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 OHIPs share the amount of costs
    recoverable (B).
The amount of the costs recovered (B) attributable to
    OHIP (C) should be ascertained by multiplying OHIPs 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 OHIPS share of the damages
    and interest plus its share of the costs receivable. (F= (D + C))

d)
Ascertain OHIPs 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, it would require ascertaining the
    Plans 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 Plans 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 Plans 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 Plans 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 persons lawyer, and the Plans 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 (Plans damages + pre-judgment interest)


total recovery of the insured person
          (including Plans 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.

Released: April 27, 2015 (K.F.)

David
    Brown J.A.

I
    agree K. Feldman J.A.

I
    agree M.L. Benotto J.A.





[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 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), 33
    O.R. (3d) 570 (Gen. Div.), at para. 7, and
Walford (Litigation Guardian) v. Jacuzzi Canada
    Ltd.
, [2005] O.J. No. 5676 (S.C.J.), at para. 10. An opposite approach
    was taken in
Holder (Litigation Guardian)
    v. Greater Niagara General Hospital
, [1998] O.J. No. 1523 (Gen. Div.), at
    paras. 6, 12, a case in which the plaintiff made a recovery.



[8]

Bell ExpressVu Limited Partnership v. Rex
, 2002 SCC 42, [2002] 2 S.C.R.
    559, at para. 26;
Re Rizzo & Rizzo Shoes Ltd
., [1998] 1 S.C.R. 27,
    at para. 21.



[9]

Amaratunga v. Northwest Atlantic Fisheries Organization
, 2013 SCC 66,
    [2013] 3 S.C.R. 866, at para. 36.



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



[11]

Ibid
., s. 30(2).



[12]
[1998] O.J. No. 1866 (C.A.), at para. 22.


