A.B. Claims: Paralegal Probe

The presence of paralegals in Ontario accident benefits (AB) claim administration has steadily increased, with an estimated 1,000 legal representatives operating in the province. They now play an important role representing motor vehicle accident victims, particularly in the dispute resolution process at the Financial Services Commission of Ontario (FSCO).

Adequate legal representation is critical to accident benefits claimants. They need access to effective and affordable legal services. And one of the goals of insurance regulation should be to ensure that claim adjudication protects the public.

But, the question today is: are all accident benefits consultants playing on a level field? Many members of the Ontario insurance community strongly suspect the answer is “no”. The primary concern involves independent paralegals who set up shop as accident benefits claims consultants without accountability to a governing body. While many paralegal-turned-consultants operate within industry regulations, it is clear that some do not. And, insurers want something done about it.

SYSTEM NEEDED

There is agreement among many in the insurance industry that the activities of paralegals must be subject to regulation. The protection of the public and the proper functioning of the dispute resolution and claim adjudication process urgently require the establishment of a system of licensing and regulating paralegals who represent accident victims.

Fortunately, there is movement on the regulatory front. In April, a tentative deal was reached between the Law Society of Upper Canada, the Professional Paralegal Association of Ontario, and other legal groups that would see paralegals accredited, licensed and disciplined by the law society. Paralegals who refuse to cooperate or fail competency tests would be barred from working in any court or tribunal, according to the plan (which is not official as yet).

This cannot come soon enough for insurers, who have witnessed paralegals and accident claim consultants contributing significant costs to the auto insurance marketplace. As one claims manager recently put it: “They [paralegals] aren’t responsible to the Law Society or anyone else – who do I complain to?”

GROWING ROLE OF PARAS

As industry members worry about questionable practices among some accident benefits consultants, they point to cases where paralegals deposit large settlement cheques into their own bank accounts. There are also documented cases of paralegals accepting payments from adjusters to close a file – often with no regard for the injuries suffered by the claimant.

There are the costly mediations and arbitrations, where the deck seems stacked against insurers that contest claims or amounts. This is just the tip of the iceberg. Several paralegals have been involved in staged accident fraud rings, such as a major operation taken down by Toronto police in June, 2000.

The problem of unregulated paralegals acting as accident benefits consultants is not a new one. Since Ontario moved to a no-fault (or blended) system of auto insurance in 1990, the traditional role of lawyers has become more limited. Paralegals, however, have evolved throughout the changing auto regimes (OMPP, Bill-164, Bill-59) to take a prominent place in accident benefits claims.

The issue prompted the government to commission a major report by the honourable Peter Cory – “A Framework For Regulating Paralegal Practice In Ontario (2000)”. Justice Cory noted that there are incompetent and irresponsible individuals claiming to be paralegals. He stated that their misconduct is disgraceful and their actions mislead the public and disrupt the proceedings of courts, boards and tribunals. However, he also noted there are conscientious and efficient paralegals who provide a needed service to the public in a number of areas.

He recommended that all paralegals should attain a minimum level of education and successfully complete standardized examinations. In particular, he made the following recommendations:

“Licensed paralegals duly qualified, whether by passing a special examination or by holding a secondary licence, should be authorized to both assist injured parties in preparing their accident claim forms and to participate in the mediation and arbitration work of the Dispute Resolution Group of FSCO.”

” Licensed paralegals duly qualified, whether by passing a special examination or by holding a secondary licence, should be authorized to appear on an appeal before the Director of the Dispute Resolution Group of FSCO.”

“Section 398 of the Insurance Act should be amended to permit authorized licensed paralegals to appear before the Dispute Resolution Group of FSCO.”

WHAT HAS CHANGED?

So, what have regulators and the insurance industry done since these recommendations were made two years ago?

In Ontario, FSCO’s position as a regulator seems to be “business-as-usual”, the commission has not received any written complaints about paralegals. Yet arbitrators at FSCO have ruled that some representatives are not competent to appear before that tribunal. However, they continue to appear, often adding costs to the process. Has the funding formula changed?…No way!

If anything, FSCO has shown little regard for issues identified by external stakeholders. The regulator has, in fact, introduced an assessment fee for “Applications for Mediation”. For accident benefits consultants, this allows them to “apply the screws” to insurers. They apply for mediation and FSCO processes the application one at a time, with each carrying a $500 assessment.

Mediators tell me they follow the rules of management. If there is an application, there is a fee – a rule not applied by another arm (arbitration) at FSCO. With this encouragement, unscrupulous representatives have infested the accident benefits claims adjudication process.

In a FSCO compliance SABS audit, I found that 56% of the files involved claimant representatives who are not lawyers or members of the Professional Paralegal Society of Ontario representing claimants. These representatives often are not familiar with the very complex “Statutory Accident Benefits Schedule”. Some simply recycle the housekeeping and attendant care worksheets. In many instances, a treatment plan is received before the application for accident benefits. Often, the only motivation is a cash settlement. They will use the threat of expensive section 24 assessments, the $500 mediation assessment fee, and the $3,000 arbitration assessment fee to obtain a lump sum cash settlement. This conduct adds to claim management costs.

INSURERS TAKE NOTE

Even if FSCO seems to be doing little, arbitrators and judges are taking notice. In a recent case, Piotto & Kingsway General Insurance Co., arbitrator John Wilson found that an “agent”‘ operating without valid legal authority, could be found personally liable for cost. In Smith v. Co-operators General Insurance Co., a recent decision of the Supreme Court of Canada, Justice Gonthier stated: “There is no dispute that one of the main objectives of insurance law is consumer protection, particularly in the field of auto and home insurance. Yet, many of those who represent these consumers are not subject to any regulation.”

The Insurance Bureau of Canada (IBC) has not taken an official stand on the paralegal issue, referring the matter to a national claims committee. But, many individual insurers are quite vocal about paralegals. Kingsway Financial Services president Bill Star presented his ultimatum to FSCO last May, giving the board either 30 days to implement a 15% base rate increase in auto premiums or his company would stop writing business in the province. He is equally concerned about paralegals and fraud.

Star says it is up to the government to take a look at the bigger picture and revamp claims policies to combat fraudulent claims. “I would like to see others do it too [demand an increase], to force this government to look seriously at the amount of fraud we’re seeing. I refer to the present program as one of legalized extortion where paralegals go to insurers and demand large sums of money. If you don’t pay, they force you through the mediation and arbitration hearings.”

With well-documented increases in accident benefits claims costs, and intense pressure on the auto insurance product in Ontario, there is a sense of urgency to the issue. Regulators must set priorities, address key policy issues and make decisions. There are consequences, in terms of fraud and rising claims in not taking action.

The industry needs to set a benchmark. Accident benefits claims consultants should have the same level of training and understanding of legislation to provide clients with a vital service. We have to strike a balance between giving claimants appropriate legal representation and ensuring that well-qualified persons are administering these services.