The Insurance Bureau of Canada says it would like to see regulatory oversight of how personal injury lawyers structure their contingency fees due to what it calls a major gap in transparency in the auto insurance system.
“We need to at least review this issue. Why aren’t we talking about this?” says Ralph Palumbo, Ontario vice president for the Insurance Bureau of Canada.
All key players in the auto insurance system, including insurance companies and rehabilitation providers, must adhere to regulations around their fee structures, says Palumbo, who notes additional players like tow-truck drivers are now subject to regulation thanks to changes under Bill 15.
“It appears that the only major stakeholders in the system that really [aren’t] regulated are personal injury lawyers,” he says.
Palumbo says trial lawyers should file their fee arrangements with the office of the superintendent of insurance or another body that will review the financial impact these fees may or may not have on insurance costs and premiums.
“There is a sense that often providers, whether they’re lawyers or rehab providers, push claims to a higher level so that the awards are higher. That’s the sort of thing that we need to guard against,” says Palumbo.
“No one is saying the claimant shouldn’t get what is reasonable in the circumstances, but we want to make sure there aren’t outside financial pressures that will drive up those costs.”
Barbara Taylor, director of policy at Insurance Bureau of Canada, says the change will protect consumers while allowing the government to track the impact of lawyers’ fees on the auto insurance system.
“First off, we’re asking for a consumer-friendly fee disclosure statement,” she says.
“So that’s something where we want to make sure the consumer has clear transparency on that arrangement that they have with the lawyer. Then we’re asking that that information also be shared with someone like the [Financial Services Commission of Ontario] superintendent, who can then use that information to assess the impact on auto insurance as well as perhaps issue an annual report.”
Ontario Trial Lawyers Association president Steve Rastin says the Insurance Bureau of Canada is suggesting lawyers work harder in order to maximize the value of the case if they have a stake in it.
“You know what, that’s an insult to lawyers,” says Rastin.
“It implies that I won’t do my utmost for my client unless I have a piece in the action. You know what, I think lawyers everywhere should be insulted by the allegation that we’ll work harder for our clients when we have a stake in it.”
He adds: “I work to the best of my ability for every client whether I’m doing the file on a pro bono basis or an hourly rate or contingency rate. To argue that I work harder for somebody because I have a contingency fee, it would be a fundamental violation of the professional code of conduct, our ethical obligations, and I think there are right-thinking lawyers everywhere who put their best effort in for the client no matter how they’re going to be paid.”
Rastin also says there are already sufficient oversight mechanisms in place to guard against improper conduct by lawyers. He calls the Insurance Bureau of Canada’s call for more regulation “a smokescreen” to mask the hefty profits earned by insurance companies.
“I can tell you that what I bill my clients is absolutely transparent,” says Rastin.
“My client knows in the beginning what I’m going to bill them and at the end. For people that are under disability, minors or people in vulnerable situations, we have to get court approval for our accounts. There is already an oversight body in place.
There are lawyers [who] are disciplined for not billing according to proper practices. I don’t want the insurance industry, which meddles in every private area of our lives already, I don’t want them meddling in my personal relationship with my clients.”
Contingency-fee arrangements between lawyers and their clients aren’t to blame for insurance companies’ costs, he adds, noting there are caps in place for the damages plaintiffs can collect for several types of injuries.
Plaintiffs often opt to settle for fear of cost orders that would mean losing their life savings, Rastin adds.
To Rastin, the noise around the issue is a distraction from what he calls “way more serious” concerns with the auto insurance system. “For instance, why are there government-mandated returns on capital for the insurance industry that are something like 11 per cent?” he asks.
Palumbo, however, says it’s only “natural” that lawyers are resistant to regulatory oversight around their fees.
“It’s pretty natural. They have a vested interest in making sure there is no regulatory oversight on their pricing schemes,” he says.
“We don’t think that’s appropriate,” he adds.
Part of the issue, he says, is transparency. “At the end of the day, if the government decides not to impose a cap [on contingency fees], that’s fair enough. But why is this a problem to talk about transparency? I don’t quite understand that.”
The issue isn’t contingency fees themselves, according to Palumbo, but whether those arrangements are always appropriate. “We’re not suggesting for a moment that any of this shouldn’t happen; we’re not against contingency fees. All we’re saying is that the last piece of the [transparency] puzzle is personal injury lawyers, really. No one is reviewing that aspect of the auto insurance system.”
For related content, see "Red flags raised over insurer financial data."