Neutral Citation: 1992 ONICDRG 26
File No. A-000560
ONTARIO INSURANCE COMMISSION
BETWEEN:
LARRY ERICKSON
Applicant
and
THE GUARANTEE COMPANY OF NORTH AMERICA
Insurer
DECISION ON SPECIAL AWARD
Issue:
The Applicant, Larry Erickson, was injured in a motor vehicle accident on November 4, 1990. He applied for and received accident benefits payable under Regulation 273/90, under the Ontario Insurance Act, R.S.O. 1990, c. 1-8, (the "No-Fault Benefits Schedule"). The Applicant's weekly income benefits were suspended effective May 27, 1991, based on an independent medical report dated March 11, 1991.
An arbitration hearing was held on January 22, 1992, to determine whether the Applicant's benefits had been properly suspended, and also to determine whether, in the circumstances, the Applicant was entitled to a special award. In a decision rendered on June 2, 1992, I found that the Applicant's benefits had been unreasonably withheld by the Insurer, and that the Applicant was therefore entitled to a special award under section 282(10) of the Insurance Act.
Because this is the first case where a special award has been ordered, I deferred my decision and order on the quantum of the award, to allow the parties to make submissions on this issue. I have now received the submissions of the parties.
Case Authorities and Texts:
Maschke et al. v. Gleeson et al., (1986) 1986 CanLII 2627 (ON HCJ), 54 O.R. (2nd) 753
S.M. Waddams, The Law of Damages, 2nd edition, Canada Law Book Inc.
Canadian Encyclopedia Digest, Title 42, Damages
Submissions of Applicant:
The Applicant submitted that, in this case, the Insurer had breached its customary duty to act with utmost good faith (uberrima fides) in dealings with its own insured person. Counsel cited the case of Maschke et al. v. Gleeson et al, (supra) as a classic statement of that duty.
The Applicant submitted that a special award is analogous to an award for punitive or exemplary damages at common law, and should be utilized, like exemplary damages, to teach wrongdoers that "tort does not pay". The Applicant also submitted that the Insurer's conduct requires deterrence, in order that, in future, no-fault benefits be delivered to insured persons in a prompt and efficient manner. The special award should have that deterrent effect.
Finally, the Applicant submitted that his full costs of the arbitration hearing are not recoverable, since costs are awarded on the legal aid scale. Therefore the special award should, in part, indemnify the Applicant for his full legal costs where benefits have been unreasonably withheld and the Applicant has been compelled to resort to arbitration to enforce his rights.
The Applicant submitted that he was owed approximately $36,000 in arrears for weekly income benefits, for the period between May 27, 1991 (when benefits were suspended) and January 22, 1992 (the date of the hearing).
Submissions of the Insurer:
The Insurer's submissions, in large part, referred to evidence which had not been presented at the hearing of January 22, 1992.
On the basis of this additional evidence, the Insurer submitted that I should reconsider my decision that the Insurer had acted unreasonably. In the alternative, the Insurer submitted that any special award ordered should be for a nominal amount.
Findings:
The dispute resolution process for no-fault insurance benefits is set out in the Insurance Act. Section 282 governs the arbitration process. Where a party is unsatisfied with an arbitral decision, that party may either appeal the decision, pursuant to section 283 of the Act, or apply for variation or revocation, pursuant to section 284 of the Act.
In this case, the Insurer has attempted to introduce new evidence, by way of submissions, in order to persuade me to reconsider my original decision in this case.
I cannot properly admit this evidence, since it was not presented through a witness at the hearing, where it would have been subject to testing through cross-examination. Moreover, the arbitration hearing has now been concluded, and a decision on the merits on the issue of unreasonableness has been issued. I have no authority to re-open or reconsider this matter after having issued a decision.
Section 284 of the Insurance Act allows for revocation or variation in specific circumstances. That section provides, in part:
(1) Either the insured person or the insurer may apply to the Director to vary or revoke an order made by an arbitrator or the Director.
(2) If an application is made to vary or revoke an arbitrator's order, the Director may decide the matter or he or she may appoint the same arbitrator or some other arbitrator to determine it.
(3) If the arbitrator or Director is satisfied that there has been a material change in the circumstances of the insured or that evidence not available on the arbitration or appeal has become available or that there is an error in the order, the arbitrator or Director may vary or revoke the order and may make a new order if he or she considers it advisable.
I am aware of no formal application for variation or revocation which has been made to the Director, or referred to me, in this case. Therefore, I have no jurisdiction to vary or revoke my original order in this matter.
Accordingly, I am assessing the special award based on the submissions received. Section 282(10) of the Insurance Act provides as follows:
(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the No-Fault Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.
I do not agree that a special award is comparable to an award of exemplary or punitive damages. Exemplary or punitive damages are awarded in addition to the usual damages in tort cases, which provide compensation or restitution to an individual who is injured or harmed by the actions of another. Exemplary or punitive damages are awarded by the court where is shown that the wrongdoer has wilfully behaved in a way that is arrogant or high-handed, or shows a callous disregard for the rights of the victim.
Exemplary damages are generally not awarded in contract cases unless the court is of the view that the conduct complained of is extreme and deserving of full condemnation. In the case of Maschke et al v. Gleeson et al (supra) cited by counsel for the Applicant, the court found that the plaintiffs were entitled to assert a claim for punitive damages against the defendant insurer because of an alleged failure to act in good faith. Montgomery J. held as follows:
A contract of insurance is one of uberrima fides, the utmost of good faith. This is not a situation where an insurer is indemnifying its assured and paying a third party. This is a case where the insurer is being asked to pay its own insured. The duty to act promptly and in good faith arises the day the insurer receives the claim. To find otherwise is to fail to understand the realities of the market-place.
To summarize, punitive or exemplary damages are awarded in the case of wrongdoing or breach of contract, where an individual has acted deliberately or in bad faith, so as to injure another. In contrast, a special award under the Insurance Act is payable when an arbitrator finds that an insurer has acted unreasonably in withholding or delaying the payment of a benefit.
I find that the criteria for punitive damages, that is wilful and deliberate misconduct or bad faith, goes considerably beyond the Insurance Act standard of simple unreasonableness. It is clear that conduct may be unreasonable, but still not deliberately or wilfully injurious, or motivated by bad faith. I find that wilful or deliberate misconduct or bad faith are additional factors in the conduct of the Insurer, beyond unreasonableness, which should be taken into consideration when assessing the quantum of a special award.
In this case, I do not find that the Insurer acted deliberately and in bad faith to deprive the Applicant of benefits. Furthermore, in this case, the Insurer did concede, after hearing the evidence, that the Applicant was entitled to further weekly income benefits. The arbitrator was spared the necessity of issuing a decision on the merits of the Applicant's claim, and the Applicant's benefits were promptly reinstated. I find that this conduct of the Insurer mitigated the effect of the original unreasonableness.
Nevertheless, I am persuaded that a special award, if ordered, must be substantial enough to have a deterrent effect. It should be more than a nominal amount, which could be viewed as a licence to act unreasonably.
Therefore, in ordering a special award, I must take into account the total dollar amount of benefits and interest owed, before determining the percentage of the lump sum.
I agree that the special award should take into consideration the time and resources expended by the insured person in asserting and securing his or her rights. Nevertheless, a special award is not an award of damages or costs, and cannot be expected to fully reimburse or compensate an individual for his expenses or losses. The no-fault benefits system has been established to replace the tort system of damages with a statutorily enacted scheme of benefits. Those benefits cannot be expected to be exactly equivalent to the benefits or damages formerly available under the tort system.
Finally, I note again that this case is the first case in which a special award has been ordered. We are operating in the context of a statutory scheme which is new to all the participants. Neither party in this case was familiar with the legislation, or clearly understood their rights and obligations under the legislation. Neither party had knowledge of the standards of conduct which might be expected or required.
The legislation provides that I shall award a lump sum of up to 50% of the amount to which the Applicant was entitled where I find that the Insurer has acted unreasonably. Bearing in mind all the factors outlined above, I have determined that a special award of 15% is appropriate in this case.
Order.
The Applicant is entitled to a special award of 15% of the amount to which he was entitled on January 22, 1992, together with interest on all amounts then owing (including unpaid interest) at the rate of 2% per month, compounded monthly, from May 27, 1991.
The Applicant is entitled to the expenses that he has incurred in respect of this arbitration hearing, in accordance with Schedule 1 of Regulation 275/90.
July 16, 1992
Frederika M. Rotter
Senior Arbitrator
Date