Small portion of fees claimed is awarded to insureds as the only issue in dispute was the reasonableness of fees

The insurers were ordered to pay the insureds’ legal fees after acknowledging a duty to defend despite the fact that the fees incurred were almost double what the insurers stated was reasonable. However, the insureds were only awarded a small portion of the fees claimed after the insurers acknowledged the duty to defend as the only issue in dispute was the reasonableness of the fees.

Doucet v. State Farm Fire and Casualty Co., [2017] O.J. No. 882, 2017 ONSC 1222, Ontario Superior Court of Justice, February 23, 2017, A. Mullins J.

The insureds brought an application for a declaration that the insurers had a duty to defend them in a personal injury action, indemnity for costs incurred to date in defending the action and contesting coverage, and for punitive damages. The insureds were homeowners and business owners who hosted a company Christmas party at their home. The plaintiff in the action alleged that he was injured by one of the insureds’ employees/business partners during an altercation at the party. The insureds claimed a defence under both their homeowner and CGL policies.

The insurers initially denied coverage in 2014. In early 2015, the insureds engaged counsel to defend them and to pursue coverage under either policy. In July 2016, the insurers acknowledged that either or both of them had a duty to defend. The insurers also agreed to pay reasonable legal fees to date. In September 2016, the insureds submitted their account for legal fees to date for $19,719.73 related to the defence of the action, and $22,812.50 for the coverage dispute. The insurers took the position that these costs were unreasonable. In particular, they took issue with the insureds’ counsel having spent 56.9 hours on documentary and oral discovery, and 9.2 hours to have prepared for and attended a relatively brief examination for discovery. The insurers submitted that the reasonable costs for both issues were $21,709.88.

The application was heard in February 2017. As of the date of the application, the insureds’ counsel fees had grown to $20,510.32 for defence and $51,445.06 for coverage. The insureds sought to recoup all their costs as well as punitive damages due to the insurers’ failure to pay what they had agreed were reasonable to date. The court noted that the nature of the allegations and the coverage questions engaged were somewhat complex. The court also agreed with the insureds’ counsel’s submission that the reasonableness of his account was not fairly judged by the insurers’ submissions as to the time it would have taken them to perform the same work.

Without providing any other analysis, the court found that the costs incurred to September 2016 were reasonable and held that the insurers were jointly and severally liable for them, without prejudice to their rights to have them allocated between them. However, the court found that only $4,500 was reasonable from October 2016 given that the insurers had agreed to provide a defence and the remaining dispute only concerned fees. With respect to the issue of punitive damages, the court concluded that the facts fell well short of meeting the test. Despite what the court described as the insurers lackadaisical approach to their duty to defend, there was no evidence that the insurers had acted deliberately or evidence that the insureds had suffered other than having to pay counsel fees.

This case was digested by Michael J. Robinson and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at mrobinson@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.