Neutral Citation: 1992 ONICDRG 42

File No. A-001139

ONTARIO INSURANCE COMMISSION

BETWEEN:

LEON ALBERT BAILEY

Applicant

and

CAA INSURANCE COMPANY (ONTARIO)

Insurer

DECISION ON PRELIMINARY ISSUE

Issues:

The Applicant, Leon Albert Bailey, was injured in a motor vehicle accident on May 23, 1991. He applied for and received accident benefits payable under section 12, Weekly Income Benefits, of Regulation 273/90 (the "No-Fault Benefits Schedule") under the Insurance Act, R.S.O. 1990, c. I.8 (the "Insurance Act"). Every motor vehicle policy in Ontario provides for the no-fault benefits set out in the No-Fault Benefits Schedule.

The Applicant received benefits under the policy until December 19, 1991, at which time the Insurer stopped making payments on the basis that the Applicant was no longer disabled under section 12 of the No-Fault Benefits Schedule.

The Applicant applied to the Ontario Insurance Commission (the "Commission") for mediation of his dispute with the Insurer. At the conclusion of mediation, a Report of Mediator was issued. The Report recorded that the issues of Weekly Income Benefits, Supplementary Medical and Rehabilitation Benefits, and Interest were settled.

The Applicant did not view these issues as settled. He therefore applied to the Commission for the appointment of an arbitrator. The Insurer raised a preliminary objection to the Applicant's right to refer the matter to an arbitrator, on the basis of section 281 of the Insurance Act, which provides that the insured person may refer a matter to arbitration, if mediation has failed.

The single issue to be determined by way of this preliminary motion is whether the Applicant may present evidence of the discussions held during mediation, in respect of the preliminary objection raised by the Insurer or at a subsequent hearing.

Result:

The decision is:

1. Neither party may present evidence of the discussions which took place between the parties and the mediator during the dates mediation was conducted.

Hearing:

A preliminary motion was held on the single issue of the admissibility of certain evidence, at North York, Ontario, on September 3, 1992, before me, Janice Mackintosh, Arbitrator.

Present at the hearing were:

Applicant: Leon Albert Bailey

Applicant's Representative: Rebecca Nelson Barrister and Solicitor

Insurer's Representative: Lee Samis Barrister and Solicitor

Witnesses: The Applicant was sworn.

Documents before the Arbitrator:

The following documents were before the arbitrator, but not marked as exhibits:

• An Application for Arbitration in Form 4 dated May 27, 1992;

• A Response by Insurer in Form 5, dated June 12, 1992, with Schedule "A" attached;

• Letter dated July 29, 1992, from arbitrator Julaine Palmer, confirming pre-hearing discussions;

Exhibits:

The following documents were marked as Exhibits to the hearing:

Exhibit 1 Letter dated August 26, 1992 from Lee Samis to Donald Scott, Commissioner, Ontario Insurance Commission

Exhibit 2 Letter dated August 28, 1992 from B.F.Webber, for Donald Scott, to Lee Samis

Exhibit 3 Certificate dated September 2, 1992, with annexed true copy of Report of Mediator dated April 18, 1992

Statutes and Authorities considered:

Insurance Act, R.S.O. 1990, c. I.8

Sopinka, John and Sidney N. Lederman, The Law of Evidence in Civil Cases, Butterworth & Co. (Canada) Ltd., 1974

Statutory Powers Procedures Act, R.S.O. 1990

The Facts:

There was no dispute regarding the following facts:

Mediator Sidney Steinman was appointed by the Ontario Insurance Commission to enquire into the issues in dispute between the parties and to attempt to effect a settlement of as many issues as possible, pursuant to the provisions of section 280 of the Insurance Act.

The mediation was conducted by means of a series of telephone calls between the mediator and each of the parties separately. The Report of Mediator sets out the period during which mediation took place as January 3, 1992 to April 16, 1992. The Applicant participated in mediation without counsel, and the Insurer was represented by one of its employees, a Claims Manager. The disputing parties did not meet at a face-to-face mediation session.

At the conclusion of the mediation period, the mediator prepared a Report of Mediator, a certified true copy of which was marked Exhibit 3. Item number 6 of this report records the issues of Weekly Income Benefits, Supplementary Medical and Rehabilitation Benefits and Interest as settled. The report sets out details of settlement under each of these headings.

In accordance with the practice of the Commission, a copy of the Report of Mediator was sent to each of the parties, along with the standard Confirmation of Settlement Form. A Confirmation of Settlement form dated April 24, 1992 was executed on behalf of the Insurer, and returned to the Commission, however, one was not received from the Applicant.

The Applicant denies that settlement occurred at mediation, and claims that mediation failed. In contrast, the Insurer maintains that the issues referred to in the Report of Mediator were settled and mediation did not fail.

In the hopes of supporting its version of the facts, counsel for the Insurer sought to obtain the consent of the Commissioner pursuant to the provisions of section 11 (3) of the Insurance Act, allowing the Mediator to testify whether, in his opinion, mediation succeeded or failed. The Insurer's request was marked Exhibit 1. The Commissioner informed the Insurer that he was "not prepared to grant the consent required under section 11 (3) of the Insurance Act which would allow Mr. Steinman to testify." The Commissioner's response was marked Exhibit 2.

Submissions of Counsel:

Counsel for the Insurer:

Counsel for the Insurer failed to obtain the consent of the Commissioner to allow the mediator to testify concerning discussions held during mediation. He then urged me to exclude all testimony of the parties, concerning such discussions. Counsel referred to section 3.3 of the Dispute Resolution Practice Code (the "Practice Code") and other evidentiary rules to support the exclusion.

Counsel for the Insurer submitted that reopening settled mediations will slow down and undermine the efficiency of the Dispute Resolution process. Counsel stressed the importance of maintaining the integrity of the mediation process, even at the expense of the trier of fact hearing all evidence which could logically be classified as relevant to the matters in issue.

Counsel for the Applicant:

Counsel for the Applicant urged me to admit the Applicant's evidence concerning discussions held during mediation, despite the provisions of section 3.3 of the Practice Code and other evidentiary and procedural rules.

To the Applicant's solicitor, the paramount interest of the arbitrator must be to hear all available evidence on the issue to be decided. In the absence of the mediator's testimony, the next most relevant and probative evidence available to the arbitrator is that of the parties themselves. In counsel's submissions, the requirement to hear all relevant evidence supersedes the need to preserve the confidentiality of mediation.

Counsel for both parties urged me to preserve the informal and expeditious nature of the dispute resolution process at the Ontario Insurance Commission, but each advanced very different means for achieving this end.

Findings:

The sole issue before me in this case is whether the Applicant is entitled to adduce evidence concerning discussions held during mediation. In determining the admissibility or exclusion of this evidence, I have been asked by both counsel to weigh the importance of three sometimes competing interests:

1. promoting the expeditious, informal nature of the Dispute Resolution process at the Ontario Insurance Commission.

2. promoting the effective use of mediation to encourage settlement;

3. avoiding loss of evidence in the determination of issues;

Is the Report of Mediator conclusive on the issue of whether settlement has been achieved?

As a first position, counsel for the Insurer submitted that where the Mediator has made a determination of settlement or failure, that determination should be final. Counsel suggested that allowing the Applicant to look behind the Report of Mediator and reopen a case which is reported to be "settled" will destroy the efficiency and ultimately the effectiveness of the whole dispute resolution process.

Pursuant to the provisions of subsections (6), and (7) of section 280 of the Insurance Act, the mediator is required to give notice to the parties where mediation has failed. Subsections (6) and (7) of Section 280 of the Insurance Act provide:

Section 280

(6) If at any time before a settlement is effected the mediator is of the opinion that mediation will fail, he or she shall forthwith notify the parties.

(7) Mediation has failed when the mediator has given notice to the parties that in his or her opinion mediation will fail, or when the prescribed or agreed time for mediation has expired and no settlement has been reached.

Section 6 of the Practice Code states:

Report of Mediator

(1) If all or any of the issues in dispute are resolved,

(a) the mediator shall record in the Report of Mediator the issues that have been settled, and the amounts that have been agreed upon, including any applicable interest; and

(b) the parties shall confirm all settlements and agreements set out in the Report.

A straightforward reading of the Insurance Act verifies that the determination of the success or failure of mediation contained in the Report of the Mediator is no more or less than the recorded "opinion" of the Mediator.

Counsel for the Applicant suggested in argument, that there will be times when the opinion of the Mediator is simply wrong. Counsel for the Applicant proposed that the legally unsophisticated Applicant must be permitted to challenge the accuracy of the mediator's Report in a simple, direct and procedurally uncomplicated way.

I accept the argument of counsel for the Applicant. Either party to a mediation must retain the right to challenge the conclusions reached in the Report of Mediator. This is especially so when participation in mediation is mandated.

The mediation process at the Ontario Insurance Commission is mandatory to the extent that, any person who wishes to resolve disputes with their insurer through either litigation or arbitration, must first engage in mediation at the Commission. Section 281(2) Insurance Act states:

Section 281

(2) No person may bring a proceeding in any court or refer a matter to arbitration unless mediation has first been sought and has failed.

In a mandated mediation system, each party must retain the right to forego settlement. The power to reject a proposed settlement provides the primary protection for the fairness of the process. In addition, the freely obtained consent of the parties makes it more likely their interests will be served and settlements will be voluntarily complied with. Accordingly, the question of whether a settlement was actually achieved in mediation must always be investigated when raised. I therefore find that the Report of Mediator is not conclusive of the issue of whether settlement was achieved at mediation. The Applicant is entitled to inquire into this issue.

Should the evidence concerning discussions held during mediation be excluded on grounds of natural justice?

Counsel for the Insurer then argued that the scope of the inquiry into whether settlement was achieved should be limited. He suggested that all testimony of the parties concerning discussions which occurred in mediation should be excluded. He provided several grounds to support the exclusion of this evidence. He argued that the Applicant seeks to offer evidence about his discussions during mediation, to contradict the mediator's opinion that settlement was reached. Counsel suggested that the rules of natural justice and due process require that the mediator must be given the opportunity to respond to such evidence. In the absence of the mediator's testimony, the Applicant should not be permitted to give his testimony.

I do not accept counsel for the Insurer's submission. The testimony of the mediator is not available. I see no violation to the rules of natural justice and due process, in permitting each of the disputing parties to give their version of events which occurred during mediation. The trier of fact, confronted by directly conflicting testimony from adverse sources, may resolve the dispute by making a credibility determination. This function is routinely entrusted to triers of fact in an administrative setting.

Should the evidence be excluded on the basis of hearsay?

Counsel for the Insurer then submitted that, as the parties did not communicate directly to each other, the mediator is in the best position to know what each of the parties were told. Without the crucial testimony of the mediator, the evidence of the parties concerning their discussions with him is one sided, unreliable and should therefore be excluded.

I recognize that the evidence given by each of the parties, about statements made by the mediator, is in the nature of hearsay evidence.

Sopinka and Lederman at pages 39 to 40 of their reference text entitled The Law of Evidence in Civil Cases state that the Hearsay Rule is invoked by courts to exclude evidence considered to be unreliable because the author of the statement is not under oath, and his perception, memory and credibility cannot be tested by cross examination.

However, arbitration proceedings under the Insurance Act are governed by the provisions of The Statutory Powers Procedures Act, Revised Stats. Ont. 1990, (the "S.P.P.A."). Section 15 (1) of the S.P.P.A. permits an arbitrator not only to admit hearsay evidence, but to act upon it as well. Section 15(1) of the S.P.P.A. states:

(1) Subject to subsections (2) and (3), a tribunal may admit as evidence at a hearing, whether or not given or proven under oath of affirmation or admissible as evidence in a court,

(a) any oral testimony; and

(b) any document or other thing,

relevant to the subject-matter of the proceeding and may act on such evidence, but the tribunal may exclude anything unduly repetitious.

An arbitrator may find that hearsay evidence is admissible; the weight to be attributed to it is a matter for the arbitrator to decide. If the evidence is unreliable because of its hearsay nature, then presumably its probative value will be diminished.

Should the evidence be excluded on the basis of the parole evidence rule?

I do not have to consider the application of the parole evidence rule, in determining the admissibility of the verbal evidence of what passed between the parties during mediation, leading up to the preparation of the Report of Mediator. Counsel for the Insurer conceded in argument that the Report of Mediator was not a comprehensive, written contract and did not reflect the full agreement between the parties. Both counsel suggested that the Report was not itself the agreement, but rather constituted evidence that an agreement had been reached between the parties.

Should the evidence be excluded on the basis of privilege?

It was further submitted by counsel for the Insurer that section 3.3 of the Practice Code essentially confers the status of privileged communications to all of the discussions occurring during mediation.

The text of section 3.3 of the Practice Code states:

3.3 Subject to Section 6.1, all statements made during mediation are made without prejudice to any position the parties may wish to take subsequently in any court proceeding or the arbitration process.

The single exception referred to, is section 6.1 of the Practice Code. This section permits the mediator to record the issues that have been settled in the Report of Mediator. Section 6.1 of the Practice Code states:

6.1 If all or any of the issues in dispute are resolved,

(a) the mediator shall record in the Report of Mediator the issues that have been settled, and the amounts that have been agreed upon, including any applicable interest; and

(b) the parties shall confirm all settlements and agreements set out in the Report.

A distinction must be drawn between evidence such as hearsay, which may be excluded because of its inherent unreliability and lack of probative worth; and evidence which is excluded because of privilege. Sopinka and Lederman in The Law of Evidence in Civil Cases (supra), state at page 157:

The exclusionary rule of privilege, however, rests upon a different foundation. It is based upon social values, external to the trial process. Although such evidence is relevant, probative and trustworthy, and would thus advance the just resolution of disputes, it is excluded because of overriding social interests. Thus in recognizing the exclusionary rule of privilege, the courts have been prepared to sacrifice, in some measure, their ability to inquire into all the material facts, in order to preserve a social interest in non-disclosure.

At pages 156 to 157 of their reference text, Sopinka and Lederman quote from the text Wigmore on Evidence, s. 2285 as follows:

Wigmore propounded that four fundamental conditions must be met before privilege extends to communications:

"(1) The communications must originate in a confidence that they will not be disclosed.

(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.

(3) The relation must be one which in the opinion of the community ought to be sedulously fostered.

(4) The injury that would inure to the relation by the disclosure of the communication must be greater than the benefit thereby gained for the correct disposal of litigation."

Section 15(2) of the S.P.P.A. specifically preserves the inadmissibility of privileged evidence in an arbitration. Section 15(2) of the S.P.P.A. states:

(2) Nothing is admissible in evidence at a hearing,

(a) that would be inadmissible in a court by reason of any privilege under the law of evidence; or

(b) that is inadmissible by the statute under which the proceeding arises or any other statute.

Counsel for the Insurer suggested in argument that the practice has evolved at the Ontario Insurance Commission of treating the discussions in mediation as "off the record". Counsel stated this promise of confidentiality promotes the frank discussion necessary to achieve settlement.

Counsel for the Insurer submitted that opening mediation discussions to public scrutiny threatens to turn mediation into a much more formal and lengthy proceeding. Careful notes and records will have to be maintained concerning the discussions which take place. It will encourage parties to use the mediation process as a form of discovery. Parties will be hesitant to participate fully in mediation, and will require lawyers present to protect their rights.

In the arbitration decision Richard Plows and Jevco Insurance Company, Ontario Insurance File Nos. A-000175 and A-000588, issued January 16, 1992, upheld on appeal to the Director of Arbitrations, Arbitrator Rotter recognized the confidentiality of the mediation process at the Ontario Insurance Commission. She states at page 54:

I have no knowledge of what occurred during mediation, since that process is confidential. I do not regard the narrative and comments in the Mediator's report as either reliable or admissible evidence about that process, since it constitutes hearsay testimony about a confidential transaction.

I accept counsel for the Insurer's submissions on the issue of confidentiality. I find that mediation at the Ontario Insurance Commission is offered to the participants as a confidential process. I further find that such confidentiality is essential to the effectiveness of both the mediator and the whole dispute resolution system at the Ontario Insurance Commission.

The very structure of the Dispute Resolution Group is designed to preserve and promote the confidentiality of mediation. Great care has been taken to ensure that the Director of Arbitrations and the arbitrators are completely isolated from mediation activities. The only exchange of information between the mediation and arbitration units, concerning specific disputes, is contained in the Report of Mediator as contemplated by section 6.1 of the Practice Code.

This separation of activities preserves the non-prejudicial nature of mediation, while ensuring the independence and integrity of the decision-making process. It would be counter-productive to go against this deliberate and purposeful separation of the arbitration and mediation functions, upon the simple motion of one, or even both, of the parties to a dispute.

The courts have long recognized that parties should be encouraged to resolve their disputes without recourse to litigation. In furthering this objective, the courts have protected from disclosure communications made with a view to reconciliation or settlement. At page 197 of their reference text, Sopinka and Lederman quote from the early Ontario case Pirie v. Wyld, (1886), 11O. R. 422, which sets out the following rule:

"The authorities seem, though not very numerous, to be clear upon the first point, that letters written or communications made without prejudice, or offers made for the sake of buying peace, or to effect a compromise, are inadmissible in evidence. It seemingly being considered against public policy as having a tendency to promote litigation, and to prevent amicable settlements."

[emphasis added]

It is not an absolute rule that communications made "bona fide" to induce settlement are never to be disclosed. Sopinka and Lederman note several instances where the need for the evidence outweighs the public policy reasons for extending the privilege. Such instances include cases where threats were made against one of the parties, or where fraud is in issue. No such circumstances exist in the case before me.

In argument, counsel for the Applicant proposed to limit the Applicant's testimony to statements relating solely to the issue of whether a settlement was reached. The Applicant's testimony would not touch on every aspect of the mediated discussions. The Applicant would not outline offers of settlement or compromises made during the course of mediation.

I am not prepared to accept this proposal from Applicant's counsel. In this case, the negotiations, which may or may not have resulted in a settlement, did not take place directly between the parties. Rather, the negotiations were conducted exclusively through the mediator. Without the testimony of the mediator, little would be achieved by the second-hand recounting of what each of the parties thought the mediator had communicated to them, by way of offer and acceptance. In this case, the nature of the evidence, which the Applicant seeks to introduce, does not outweigh the public policy reasons for its exclusion.

The emphasis placed upon mediation, and settlement in the provisions of the Practice Code, and the creation by the legislators of the mediation provisions in the Insurance Act, reflect public policy and a social interest in the encouragement of settlement negotiations. I find the social interest in fostering conditions conducive to effective mediation and settlement, overrides the interest in disclosing the evidence requested by the Applicant.

Furthermore the wording of section 3.3 of the Practice Code (previously set out at page 12 of this decision) extends the protection of "without prejudice" status to "all statements made during mediation".

In the arbitration decision Mehmet Tuzin and Allstate Insurance Company of Canada, Commission File No. A-000596, dated May 28, 1992, Arbitrator Palmer concluded at pages 6 and 7:

The mediation process at the Ontario Insurance Commission is a confidential process. In the ordinary case, the arbitrator will not receive evidence about discussions at a mediation conference. However, the privilege of confidentiality which attaches to mediation, in my view, belongs to the parties.

Arbitrator Palmer then heard testimony by the Applicant concerning confidential discussions which occurred in mediation.

I have taken a different approach than that of my colleague, Arbitrator Palmer.

The case before me differs from the common law situation where there are two opposing parties to the negotiations. The mediation process at the Ontario Insurance Commission involves the introduction of a neutral third party into the negotiations between disputants. The mediator is a pivotal participant in the settlement negotiations. At common law, the privilege extended to communications in furtherance of settlement belongs to both parties, not to each of them. One party to the negotiations cannot unilaterally waive the privilege extended to settlement discussions between two parties.

In this case, the Applicant seeks to waive the privilege. The Insurer may be said to have impliedly waived the privilege, when it sought permission from the Commissioner to allow the mediator to testify concerning discussions which occurred during mediation. However, the Commissioner did not grant the consent required to enable the mediator to testify.

Section 11 (3) of the Insurance Act reads as follows:

(3) Except with the consent of the Commissioner, no person mentioned in subsection (1), other than the Commissioner, shall be required to testify in a civil proceeding, in a proceeding before the Commissioner or in a proceeding before any other tribunal respecting information obtained in the discharge of his or her duties under this Act or any Act listed in the Schedule to subsection (1).

When the protection of section 11 (3) is asserted, it is even broader than the evidentiary exclusion applied to communications in furtherance of settlement. It blocks all testimony by the mediator. This protection resides in the Commission and may be exercised by the Commissioner on behalf of the mediator.

The combined effect of section 11(3) of the Insurance Act and section 3.3 of the Practice Code removes both the creation of the privilege and its waiver from the hands of the disputing parties alone. The privilege cannot be waived by the actions of two out of the three participants to the negotiations. Without the consent of the Commissioner on behalf of the mediator, the evidence of confidential mediation discussions remains protected from disclosure.

In summary, I find that the Applicant can inquire into the issue of whether a settlement was reached at mediation, but in doing so, the Applicant cannot lift the protection of privilege accorded to all statements made during mediation.

Order:

1. Neither party may present evidence of the discussions which took place between the parties and the mediator during the dates mediation was conducted. The Report of Mediator sets out the dates mediation was conducted as January 3, 1992 until April 16, 1992.

2. Either party may provide evidence of communications, whether oral or written, that led up to, or followed after, the mediation period.

3. Either party may present evidence of written documents filed in connection with the mediation, setting out or defining the issues submitted to mediation, such as the Application for Appointment of Mediator, or the Assessment of Claim by Insurer Form.

October 29, 1992

Janice Mackintosh Arbitrator

Date