COURT FILE NO.: 429/07

DATE: 20090825

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

SWINTON, LOW AND BRYANT JJ.

B E T W E E N:

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Applicant

• and -

KULAVEERASINGAM RAMALINGAM and FINANCIAL SERVICES COMMISSION OF ONTARIO

Respondents

Todd J. McCarthy, for the Applicant

David S. Wilson, for the Respondent Ramalingam

Joe Nemet, for the Respondent Financial Services Commission of Ontario

HEARD at Toronto: June 8, 2009

SWINTON J.:

Overview

1This is an application for judicial review of an appeal decision of Director’s Delegate Makepeace of the Financial Services Commission of Ontario (“the Commission”) dated August 13, 2007. The application arises from the refusal of the Director’s Delegate to interfere with the decisions of two arbitrators who refused to order independent medical examinations (“IEs”) sought by State Farm Insurance (“the applicant”).

Background

2The respondent Kulaveerasingam Ramalingam (“the claimant”) was in receipt of statutory accident benefits (“SABS”) paid by State Farm as a result of a motor vehicle accident. Weekly income replacement benefits were paid from January 18, 2002 to July 27, 2002. They were terminated by State Farm as a result of orthopaedic and psychological evaluations, as well as a functional abilities evaluation, which had taken place during June 2002.

3The claimant applied for arbitration at the Commission under the Insurance Act, R.S.O. 1990, c. I.18, as amended (the Act”). That Act provides a comprehensive set of rules dealing with the mediation, arbitration and appeal of claims for SABS. An insured who has a dispute with his insurer concerning his entitlement to SABS must first seek mediation at the Commission (Act, s. 281(2)). If mediation fails, the insured may bring a proceeding in a court of competent jurisdiction, may refer the issues to an arbitrator appointed by the Director or, with the agreement of the insurer, may submit the dispute for arbitration under the Arbitration Act, 1991(Act, s. 281(1)).

4Once an insured chooses arbitration at the Commission, the arbitrator and the Director or his delegate have exclusive jurisdiction to exercise the powers conferred on them by the Act and to determine all questions of fact and law that arise in any proceeding before them (s. 20(2)).

5By consent of the parties to this application, an arbitration hearing was scheduled to proceed on September 15, 2003. The applicant brought a motion to stay the arbitration proceedings pending the claimant’s attendance at three IEs. Section 42(1) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, O. Reg. 403/96 as amended (the “Schedule”) provides that the insurer may require examinations by a health professional or those with expertise in vocational rehabilitation “[f]or the purpose of determining whether an insured person is entitled to a benefit for which an application is made”. Pursuant to s. 42(3), the insurer may require IEs “as often as is reasonably necessary”.

6The motion was heard July 18, 2003 by Arbitrator Kominar, but his decision was not released until November 12, 2003. As a result, the September arbitration hearing had to be adjourned.

7In the interim, Arbitrator Alves granted the claimant’s motion for interim income replacement and home maintenance benefits in a decision dated September 5, 2003. In the course of that motion, the claimant had produced to the applicant a number of medical records and reports from several doctors.

8Arbitrator Kominar, in his November 12, 2003 decision, dismissed State Farm’s motion for a stay and for an order prohibiting the claimant from receiving weekly income replacement benefits pending attendance at independent neurology, physiatry and psychology examinations. While he found that State Farm’s requests were not patently unreasonable, he found that the IEs were not necessary at that point in time to fulfill the purposes they were meant to serve in the Schedule (Reasons, p. 8).

9The arbitrator found that the claimant’s neurological issues had been disclosed to State Farm in the original disability certificate. As well, State Farm had notice of a neurological report in January 2003. Therefore, he refused to order this type of report.

10He found that there was no need for a psychological examination, as both parties had psychological reports, and there was no evidence that anything had changed (at p. 11). He also found that there was no need for the physiatry examination; State Farm had an orthopaedic examination, and there was no evidence of any need for the physiatry examination at that point.

11He went on to conclude that State Farm’s motive for obtaining the reports was not to evaluate the claimant’s entitlement to benefits, but to bolster its position in arbitration (Reasons, p. 12).

12There is a limited right of appeal from an order of an arbitrator: a party may appeal to the Director only on a question of law (Act, s. 283(1)). While the applicant sought to appeal Arbitrator Kominar’s decision, the appeal was rejected as premature pursuant to Rule 51.2 of the Dispute Resolution Practice Code.

13In January 2004, the claimant reached the 104 week point in his receipt of benefits. At 104 weeks, the test for eligibility for an insured’s income replacement benefits changes from an inability to perform the essential tasks of the insured’s previous employment to an inability to engage in any employment for which the insured is reasonably suited.

14In a decision dated June 8, 2004, Arbitrator Alves ordered that her September 5, 2003 order terminated January 9, 2004. She also ordered the applicant to continue paying the claimant interim income replacement benefits from January 10, 2004.

15On June 17, 2004, the applicant brought a second motion seeking a stay of the arbitration hearing scheduled to commence July 26, 2004 and prohibiting the claimant from receiving income replacement benefits until he attended IEs. It had earlier sought to have the arbitration adjourned to allow the IEs to occur.

16In a decision dated June 17, 2004, the pre-hearing arbitrator refused to grant an adjournment of the arbitration and rejected the applicant’s proposed motion date of June 22, 2004. The applicant was told to raise the issues in dispute at the upcoming July arbitration.

17The arbitration commenced before Arbitrator Rogers on July 26, 2004, and continued for four days. At the outset of the hearing, the applicant unsuccessfully sought an adjournment so that the stay motion could be heard. The arbitrator denied the request for an adjournment on the basis that the applicant had not pursued its right to request further examinations at the earliest opportunity.

18At the end of the four days scheduled for the arbitration, the hearing was not completed. Cross-examination of the claimant, the first witness, was still in progress. The arbitration was therefore adjourned and was scheduled to resume the following year on June 27, 2005. The applicant then renewed its motion for IEs in the areas of neurology, psychology, physiatry, orthopaedics and urology.

19Arbitrator Rogers heard submissions on the applicant’s motion for IEs in October and November, 2004, and he released his decision dismissing the motion on December 17, 2004. He held that he was bound by the findings made by Arbitrator Kominar, and that the applicant must therefore show changed circumstances to justify the medical examinations sought.

20He held that new medical reports from the claimant supporting his claim did not raise new issues of diagnosis or disability. In his view, the “crystallization of a claim for post-104 week income replacement benefits is not a change that, on its own, justifies further investigation of the claim” (p. 6). He was not satisfied that there were changed circumstances.

21The arbitrator then went on to consider the applicant’s argument that it was entitled to the examinations as a matter of fairness. He held that s. 42 of the Schedule determined whether an insurer could require medical examinations. He found that there was no evidence that the applicant required the examinations in order to determine entitlement to a benefit, as provided in s. 42(1), and that since the only reason for the request was to obtain evidence for the arbitration hearing, the claimant was not required to attend the proposed IEs (p. 11).

22The arbitrators also found that if there is an entitlement to examinations to ensure fairness at the hearing, fairness did not require the claimant here to attend for the IEs. He concluded that the applicant had delayed scheduling the examinations until the eve of the hearing, making it likely that the hearing would be delayed. He also refused to order examinations during the course of the hearing, when the claimant was in the midst of cross-examination.

23The applicant sought to appeal the Kominar and Rogers orders, but the appeals were rejected on the grounds of prematurity on February 1, 2005 as the arbitration hearing had not been completed.

24When the arbitration hearing resumed in June, 2005, counsel for the applicant indicated that while he was not consenting to an order, entitlement to income benefits was no longer in dispute. He stated,

Mr. Arbitrator, if I could just state for the record, the reason that I’m not opposing or not calling any evidence is because the only evidence I have is when he was assessed was, we assessed the applicant three years ago and I’ve not been able to obtain any further assessments or updated assessments on the post 104 week – in light of that, I’m not opposed.

25Arbitrator Rogers determined the merits of the claimant’s appeal on August 29, 2005, ordering a weekly income replacement benefit of $388.42 plus special awards with respect to various time periods arising from the applicant’s earlier conduct in unreasonably withholding or delaying payment to the claimant. In an order dated April 25, 2006, he determined the amounts payable to the claimant.

The Appeal to the Director’s Delegate

26The applicant appealed to the Director’s Delegate with respect to the Kominar order of November 12, 2003 and the Rogers orders of December 17, 2004, August 29, 2005 and April 25, 2006. Subsection 238(1) of the Insurance Act permits an appeal of an order of an arbitrator only on a question of law.

27On August 3, 2006, the Director’s Delegate dismissed a motion by the claimant to dismiss the appeals on the basis that the applicant had waived its right to appeal the stay decisions and to proceed would be an abuse of process.

28In her decision on the merits dated August 13, 2007, the Director’s Delegate dismissed the appeals. In her reasons, she set out the correct interpretation of s. 42(1) of the Schedule, and rejected the interpretation of the two arbitrators. She stated that “nothing in the SABS requires an insurer to prove an ongoing arbitration proceeding is irrelevant to its request for an insurer examination” (Reasons, p. 11).

29She also explained that the prevailing arbitral authority requires an arbitrator to focus on a number of objective factors, such as the timing of the request, the timeliness of disclosure by the claimant, whether the insurer made its request as soon as it reasonably determined the need for the examination, what other information was available to the insurer, and whether there was a new diagnosis or a change in the claimant’s medical condition. She also observed that arbitrators have broad implicit powers to control their process to ensure a fair hearing.

30As to the approach on appeal, she noted that the decision to grant an adjournment is a matter of discretion. She stated that the discretionary ruling should not be interfered with on appeal unless it was clearly wrong or there is substantial reason for doing so (Reasons, p. 13).

31With respect to the Kominar decision, the Director’s Delegate stated that “the insurer presented a good case for at least one insurer examination in the summer of 2003” (Reasons, p. 15). However, she rejected the appeal, finding that the decision was a reasonable exercise of discretion. She stated (at pp. 15-16):

Two factors supported the arbitrator’s decision. First, at the time of the motion in July 2003, it had only been a year since the insurer obtained the set of three insurer examinations on which it based its decision to terminate benefits. The critical factor for the arbitrator was that the insurer had not found it necessary to request another IE until after the hearing of the interim benefits motion. Looking behind the doctrinal differences in the arbitral case-law, there is a strong consensus that insurer examinations should be requested as early as reasonably possible and that motions brought after the pre-hearing will receive close scrutiny. I expect the outcome in this case might have been different had the insurer brought its IE motion before or at the pre-hearing, or, at the latest, immediately upon receiving Mr. Ramalingam’s interim benefits motion.

The insurer could also have moved that its insurer examination motion be heard at the same time and before the same arbitrator as the interim benefits motion. Presumably, an arbitrator hearing both these motions together would have considered the insurer’s IE requests when considering the apparent strength of the claimant’s case, and would have considered the implications of an interim benefits order when considering the reasonableness of the insurer’s IE request.

Combining the motion hearings would have encouraged both parties to take reasonable positions aimed at early resolution or a hearing on the merits rather than procedural disputes. To no one’s credit, that is not what happened.

32With respect to the Rogers decision, she was of the view that “the insurer presented a good case for at least one new insurer examination in the summer of 2004” (Reasons, p. 18). She noted that the record suggested that the applicant requested new IEs within weeks of the post-104 week test taking effect, and they were refused. However, she went on to conclude that there was no basis to overturn the decision:

I find that Arbitrator Rogers took an unduly narrow approach to the insurer’s motion and gave insufficient weight to some important contextual factors, especially the change in the entitlement test and the interim benefits order. However, the insurer’s delay was again the critical factor. Rather than bringing an insurer examination motion before or at the April 2004 variation and interim benefits hearing before Arbitrator Alves, the insurer did not bring its motion until after the post-104 week interim benefits order was released on June 8, 2004, just six weeks before the start of the hearing. There can be no doubt that an insurer examination brought in the course of a hearing deserves the most rigorous scrutiny, and a motion in the midst of the claimant’s cross-examination is unlikely to succeed. I conclude that the arbitrator acted well within his adjudicative discretion in dismissing the motion. For these reasons, the order denying the requested insurer examinations will be upheld. (Reasons, p. 19)

The Issues in this Application for Judicial Review

33The applicant does not set out the issues in its factum. However, it is apparent that there are three issues arising in this application:

1. What is the appropriate standard of review?

2. Was the decision of the Director’s Delegate unreasonable?

3. If so, what is the appropriate remedy?

Analysis

Issue No. 1: What is the appropriate standard of review?

34The applicant argues that the entire process leading to the ultimate arbitration order was unfair, resulting in a denial of natural justice.

35Normally, in an application for judicial review, where the applicant alleges a denial of natural justice or procedural fairness, it is not necessary to engage in a standard of review analysis. Rather, the task for the court is to determine whether there has been compliance with the applicable principles of natural justice or procedural fairness.

36In the present case, however, the issue is not the application of the rules of natural justice; rather, it is the scope of the insurer’s right to obtain independent medical examinations. That right is governed by s. 42 of the Schedule, which provides, in s. 42(3), that the insurer may require examinations as often as is “reasonably necessary”. There is no absolute right to an independent examination, and the determination by an adjudicator that the insurer is not, in the particular circumstances, entitled to such an examination can not be equated to a denial of natural justice.

37In my view, the decision of the Director’s Delegate respecting insurer’s medical examinations is reviewable on a standard of reasonableness. Past case law has held that decisions of the Director, acting within jurisdiction, were reviewable on a standard of patent unreasonableness (Liberty Mutual Insurance Co. v. Young, [2006] O.J. No. 952 (Div. Ct.)). Since Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] S.C.J. No. 9, the standard has been held to be reasonableness (see TTC Insurance Company v. Watson, [2008] O.J. No. 3820 (Div. Ct.)).

38Moreover, a standard of review analysis based on the factors in Dunsmuir leads to the conclusion that the standard is reasonableness. There is no right of appeal from a decision of the Director or his Delegate, and their decisions are protected by a full privative clause in s. 20(2) of the Act.

39The decision under review was also made within the context of a specialized adjudicative regime for resolving disputes between claimants and insurance companies with respect to SABS. An appeal to the Director from the decision of an arbitrator lies only on a question of law. The question before the Director’s Delegate involved the interpretation of s. 42 of the Schedule, as well as the propriety of the arbitrators’ exercise of discretion refusing to adjourn the arbitration hearing in order to permit further IEs. Therefore, deference should be given to the Director’s Delegate’s decision.

40In the circumstances, the decision is reviewable on a standard of reasonableness.

Issue No. 2: Was the decision of the Director’s Delegate unreasonable?

41The applicant argues that there is a fundamental issue of law: whether s. 42 applies only when the insurer adjusts claims, or whether it can also be applied for the broader purpose of serving the ends of fairness.

42The task of this Court on judicial review is to determine the reasonableness of the decision of the Director’s Delegate. She made it clear that the two arbitrators had interpreted s. 42 too narrowly when they held that s. 42 only applies when the insurer adjusts claims. Her decision in that regard is a reasonable one.

43The Director’s Delegate also stated that the decision to order an IE is a discretionary one, and that she should not interfere unless the arbitrator’s decision was clearly wrong or there was a substantial reason for intervening.

44In my view, she reasonably concluded that she should not interfere with the decision of Arbitrator Kominar refusing to order a stay of the arbitration. Given the facts of the case, the arbitrator had a valid concern about delay of the process, and he was satisfied that the applicant had assessed the claimant’s psychological and physical concerns. As well, he found that the applicant had had ample notice that there were neurological issues and had chosen not to follow up with respect to the claimant’s neurological problems.

45Given the evidence and his findings of fact, he made no error in law in concluding that the IEs were not reasonably necessary. A finding that an IE was not reasonably necessary and refusal to order one does not engage a question of natural justice.

46The more difficult question is the reasonableness of the decision of the Director’s Delegate to uphold the Rogers decision to refuse a stay. The applicant submits that Arbitrator Rogers should have ordered that one or more of the IEs were reasonable, having regard to the ends of fairness in the post-104 week claim context. Indeed, the Director’s Delegate observed that there was a “good case” for at least one new insurer IE after 104 weeks of benefits.

47The arbitrator had a discretion to grant the motion or not, and again, the Director’s Delegate concluded that there were reasonable grounds for the arbitrator to exercise the discretion not to grant the motion. The key consideration for the arbitrator was the delay in seeking the IEs.

48Practice Note 9 of the Commission states that adjournments of hearings will normally be refused where parties have not made early arrangements for further medical examinations. Arbitrator Rogers was concerned that the applicant waited until June, 2004 to properly serve requests for medical examinations, when it could have requested those examinations sometime between January and April of 2004 (Transcript, p. 93).

49It is not clear from the record whether the formal notices requiring attendance at the medical examinations were served in late May or early June 2004. In either case, they were served very close to the date of the scheduled arbitration hearing. It was a reasonable exercise of discretion for the arbitrator, in the interests of fairness to both parties, to refuse first, the request for adjournment and second, the motion for a stay in the midst of the cross-examination.

50The applicant argues that it was denied natural justice because it could not properly present its case. I am not satisfied that the applicant was denied natural justice. I note that the Director’s Delegate observed that had she decided that the arbitrators had erred in denying the IEs, she would have had no basis for determining whether the refusal to make those orders resulted in an unfair hearing. She made this comment in light of the applicant’s decision not to oppose the claim for benefits, stating (Reasons, pp. 20-21):

If I had decided that Arbitrators Kominar and Rogers erred in refusing the insurer examination motions, I would have had no basis for determining whether this made for an unfair hearing. Had the insurer taken a different tack, it might well have succeeded in resisting the claim by, for example, completing the cross-examination of Mr. Ramilingam and any other lay witnesses, cross-examining some of the medical experts Mr. Ramilingam relied on, calling its own experts to challenge them based on their review of the record, and asking the arbitrator to draw an adverse inference based on the late disclosures and the insurer examination results.

51In my view, the decision of the Director’s Delegate fell within a range of reasonable outcomes. Given that conclusion, I need not deal with the issue of remedy nor the claimant’s arguments that the application should be dismissed as an abuse of process and that the notices pursuant to s. 42 were defective.

Conclusion

52For these reasons, the application for judicial review is dismissed. The Commission does not seek costs, and none are awarded. Costs to the respondent claimant are fixed at $7,500.00 inclusive of GST and disbursements payable by the applicant.

Swinton J.

Low J.

Bryant J.