Canadian Underwriter

Opposition calls for 33% cap on Ontario lawyers’ contingency fees

September 15, 2016   by Canadian Underwriter

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A proposal to require Ontario lawyers and paralegals to disclose how they calculate fees is supported by The Co-operators Group Ltd.

Close up business man signing contractBill 12 – An Act to amend the Law Society Act, the Insurance Act and the Solicitors Act with respect to referral fees, contingency fees and awards for personal injury involving the use of an automobile – was tabled Wednesday by Tim Hudak, the Progressive Conservative finance critic, former party leader and Member of Provincial Parliament for Niagara West – Glanbrook.

If passed into law, it would change the Solicitors Act such that an agreement with a lawyer or paralegal, on a fee arrangement, “must disclose how the fee is calculated. The disclosure must be consumer-friendly, namely in a clear, comprehensible and prominent manner.”

The Co-operators supports Hudak’s “proposal to bring greater transparency to fees charged by lawyers in these situations,” company spokesman Leonard Sharman wrote in an e-mail to Canadian Underwriter. “Claimants who seek legal representation have every right to fully understand the agreements they’re entering into, and these should be subject to consumer-friendly disclosure requirements.”

If passed into law, Bill 12 would also “cap contingency fees at a fair 33% as a consumer protection measure,” Hudak told fellow MPPs Wednesday at Queen’s Park in Toronto.

Contingency fees help clients get access to justice because both the clients and lawyers “share both the risks and benefits of advancing claims,” the Ontario Trial Lawyers Association states in its standard of conduct for excellence.

Related: Ontario consumers “likely overpaid” $702 million for auto insurance, concludes study

But Insurance Bureau of Canada’s vice president, Ontario, called last year for more government oversight of lawyers’ contingency fees.

“Shouldn’t lawyers be required to submit to the Superintendent of Insurance all information about their fees – including contingency fee arrangements, disbursements, court-awarded and settled costs, and referral arrangements?” Ralph Palumbo stated in an IBC press release April 10, 2015. “Wouldn’t this be in the best interest of injured victims?”

In that release, IBC was commenting on a study released that day, titled Returns on Equity for Automobile Insurance Companies in Ontario. The study, commissioned by OTLA, concluded that Ontario consumers “may have overpaid” $3 to $4 billion for auto insurance between 2001 and 2013.

It was written by Fred Lazar and Eli Prisman, economics professor and finance professor respectively, at the Schulich School of Business at York University in Toronto.

Related: Study claiming Ontarians overpay for auto insurance excludes carriers with negative return on equity

In the study, Lazar and Prisman took issue with a 6% return on premium benchmark, implemented in 2014 by the Financial Services Commission of Ontario for the purpose of approving auto insurance rates. They argued that FSCO should use a 5.7% return on equity benchmark and that the 6% return on premium benchmark translates into a return on equity of at least 12%.

But when calculating the industry-wide ROE for Ontario auto insurers, Lazar and Prisman omitted the insurers with negative ROE.

In its release reacting to Lazar and Prisman’s study, IBC argued that lawyers’ fees have a “significant impact” on the cost of auto insurance.

Hudak said Wednesday that Bill 12 proposes change the Law Society Act to “prohibit lawyers in auto insurance cases from receiving referral fees, except upon the successful completion of a claim.”

Commenting in general on referral fees, The Co-operators’ Sharman wrote that “there are actors in the system now who charge referral fees, but who add little or nothing of value to the system.”

Bill 12 also proposes to change the Insurance Act to bar personal injury lawsuits, arising from auto collisions, against any person for “any portion of the costs of any assessment, examination, test or report of a regulated health professional that exceeds $2,000 or such other amount that is prescribed by the regulation.”

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2 Comments » for Opposition calls for 33% cap on Ontario lawyers’ contingency fees
  1. Brian says:

    33% is too high. Does this include costs – or not? And what about those out-of-control referral fees? This says nothing about that problem. Will lawyers still be grabbing self-awarded special premiums for winning the case? What’s up with that self-serving cash grab.

  2. Ginette Pilon says:

    — Lawyers do not deserve 33% as most of the time ( I would say 90% of the time), there is an Out of Court Settlement. So the main lawyer who might be paid $300/hour is not doing the job, it’s the junior attorney that contacts the insurance companies, the secretary that schedules the medical appointments, etc. — people that are not paid $300/hour!!!. ).
    — Working for a possible gain of $2 million or $10 million is basically the same thing.
    — Was a legal secretary in my previous life… I know what I’m talking about.
    — If the FSCO made it mandatory for insurance companies to deal with the insured (with a protocol and forms and rules, etc…), it would save a lot of money to insurance companies and our premiums would not increase to the roof! Why do the FSCO accept such outrageous fees? Why do we have to resort to lawyers to get the indemnities that are due to us? Don’t we pay premiums to get those indemnities?

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