Neutral Citation: 1993 ONICDRG 34

File No. A-001139(no.2)

ONTARIO INSURANCE COMMISSION

BETWEEN:

LEON ALBERT BAILEY

Applicant

and

CAA INSURANCE COMPANY (ONTARIO)

Insurer

DECISION ON PRELIMINARY ISSUE NO. 2

This is the second decision on a preliminary issue involving these parties. The Applicant, Leon Albert Bailey, was injured in a motor vehicle accident on May 23, 1991. He received accident benefits from the Insurer payable under Ontario Regulation 672 (the "No-Fault Benefits Schedule"), enacted under the Insurance Act, R.S.O. 1990, c. I.8. Benefits under the No-Fault Benefits Schedule were ultimately terminated by the Insurer on December 19, 1991.

The Applicant disputed the Insurer's termination of benefits and applied to the Ontario Insurance Commission (the "Commission") for mediation of the dispute. 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, arising out of the motor vehicle accident of May 23, 1991 were settled.

The Applicant did not view these issues as settled. He therefore applied to the Commission for arbitration of the same issues. The Insurer raised a preliminary objection to the right of the Applicant to refer these issues to arbitration, 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 Insurer contends that mediation between the parties did not fail, but resulted in a binding agreement which settled the issues in dispute, as set out in the Report of Mediator.

In my first decision on a preliminary issue in this case, Leon Albert Bailey and CAA Insurance Company (Ontario) issued on October 29, 1992, I concluded that the mediator's opinion as to whether a dispute has settled, reflected in the Report of Mediator, is not conclusive of the issue of whether settlement was in fact achieved at mediation. I decided that the Applicant is entitled to challenge the Report of Mediator and inquire into the issue of whether or not settlement was reached at mediation. However, I did not allow the parties to lift the protection of privilege accorded to all statements made during mediation and I decided to exclude evidence pertaining to discussions which took place during mediation.

Issues:

1. Does an arbitrator, appointed under the provisions of the Insurance Act, have jurisdiction to determine whether mediation has failed?

2. Did the parties enter into a binding agreement which finally settled the issues in dispute, set out in the Report of Mediator?

The Applicant also claims his expenses incurred in respect of this second hearing on a preliminary issue.

Result:

1. An arbitrator, appointed under the provisions of the Insurance Act, has jurisdiction to determine whether a binding settlement was reached between the disputing parties and, consequently, whether mediation has succeeded or failed.

2. The parties did not enter into a binding agreement which finally settled the issues in dispute, as set out in the Report of Mediator. The Applicant is therefore entitled to refer the claims for weekly income benefits, supplementary medical and rehabilitation benefits, and interest, arising from an automobile accident of May 23, 1991, to arbitration under section 281(1) of the Insurance Act.

3. The Applicant is entitled to his expenses incurred in respect of this second hearing on a preliminary issue under section 282(11) of the Insurance Act.

Hearing:

This second hearing on a preliminary issue was heard in North York, Ontario, on Monday, February 22, 1993, before me, Janice Mackintosh, arbitrator.

Present at the Hearing:

Applicant:

Leon Albert Bailey

Applicant's

Representative:

Rebecca Nelson

Barrister and solicitor

Insurer's

Representative:

Lee Samis

Barrister & Solicitor

Insurer:

Ken Dusenbury, Claims Manager

CAA Insurance Company (Ontario)

Witnesses:

Leon Albert Bailey, and Ken Dusenbury testified under oath at the hearing.

Documents and exhibits before the Arbitrator:

These documents are listed in Appendix A

Statutes and authorities considered:

These items are listed in Appendix A

Evidence and Findings:

Section 279 of the Insurance Act requires disputes about no-fault benefits to be resolved in accordance with the process set out in the legislation. To facilitate settlement, disputes must first be submitted to mediation conducted through the Commission.

The Applicant filed his Application for Appointment of Mediator in January 1992. On January 3, 1992, Mediator Sydney Steinman was appointed. The mediation was conducted by a series of telephone calls between the mediator and each of the parties separately. The Applicant participated in mediation without counsel and the Insurer was represented by its claims manager, Mr. Ken Dusenbury. The disputing parties did not meet at a face-to-face mediation session nor speak to each other directly during mediation.

Under section 280(4) of the Insurance Act and Ontario Regulation 385/90 of that Act, the mediator is required to attempt to effect a settlement of the dispute within 60 days after the date on which the application for the appointment of mediator is filed. Section 280(5) of the Insurance Act contemplates an extension of this time limit by agreement of the parties. If the dispute is not resolved within 60 days or within the time as extended by agreement of the parties, the mediator is required, by statute, to prepare a report setting out the remaining unresolved issues.

It is the practice of the Commission also to issue a report when issues have been settled. In both cases, the report is known as the Report of Mediator. A copy of the report is sent to each of the parties at the conclusion of mediation.

Mediation between these parties ended Thursday, April 16, 1992. The mediator prepared a report dated Saturday, April 18, 1992, concluding that all issues in dispute were settled.

Jurisdiction of the Arbitrator:

At this hearing, counsel for the Insurer argued that the Insurance Act and its subsidiary enactments, do not provide express authority to the arbitrator to determine whether settlement was achieved and, consequently, whether mediation succeeded or failed. Counsel submitted that the authority of an arbitrator appointed under the Insurance Act is both defined and limited by the legislation.

The authority of an arbitrator appointed under the Insurance Act is set out in a number of legislative provisions including: sections 279(1), 279(4), 281(1), 281(2), and 282(3) of the Insurance Act, as well as section 28(b) of the Interpretation Act, which provide respectively as follows:

Insurance Act:

Section 279

(1) Disputes in respect of any insured person's entitlement to no-fault benefits or in respect of the amount of no-fault benefits to which an insured person is entitled shall be resolved in accordance with sections 280 to 283 and the No-Fault Benefits Schedule.

(4) The Director and every arbitrator shall determine issues before them by order and may make an order subject to such conditions as are set out in the order.

Section 281

(1) If mediation fails, the insured person may bring a proceeding in a court of competent jurisdiction or may refer the matter to an arbitrator.

(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.

Section 282

(3) The arbitrator shall determine all issues in dispute and such other issues as the parties may agree.

Interpretation Act:

Section 28

In every Act, unless the contrary intention appears,

(b) where power is given to a person, officer or functionary to do or to enforce the doing of an act or thing, all such powers shall be understood to be also given as are necessary to enable the person, officer or functionary to do or enforce the doing of the act or thing;

In the present case, the Insurer disputes the Applicant's entitlement to further payment of no-fault benefits on several grounds, including the ground that the Applicant entered into a binding settlement of these issues at mediation.

The Applicant's ability to access the arbitration system and to receive the benefits claimed depends on a determination about whether a binding settlement exists. The dispute resolution scheme of the Insurance Act specifically contemplates that disputes in respect of any insured person's entitlement to no-fault benefits shall be resolved in accordance with its provisions. The provisions noted above implicitly grant an arbitrator, appointed under the Insurance Act, the jurisdiction to determine whether there was a binding settlement of the issues between the parties and by extension, to determine whether mediation succeeded or failed.

These issues have been raised in other arbitration cases before the Commission.

In the case of Nikolaos Mouriopoulos and the Citadel General Assurance Company (Decision on a Preliminary Issue), Commission File No. A-001531, dated March 23, 1993, Arbitrator Susan Naylor assumed jurisdiction to determine whether mediation had failed in a situation where the Report of Mediator recorded the opinion that settlement had been achieved. In their respective cases Mehmet Tuzin and Allstate Insurance Company of Canada, Commission File No. A-000596, issued May 28, 1992 and Randy A. Saunders and Canadian General Insurance Company, Commission File No. A-001531, issued April 8, 1993, Arbitrators Julaine Palmer and David Draper assumed jurisdiction to determine the existence of settlements alleged to have occurred between parties, following unsuccessful mediations, and to determine whether the terms of such agreements disposed of the applicants' claims for further benefits under the No-Fault Benefits Schedule.

The question of the jurisdiction of the arbitrator to determine such issues was not specifically raised in any of these cases. However, it is significant that three different arbitrators unhesitatingly assumed jurisdiction over these issues.

Existence of settlement:

The essence of settlement is agreement. Different approaches may be used by the finder of fact to determine the existence or non-existence of agreement. G.H.L. Fridman describes these different approaches in his standard reference text The Law of Contract, Carswell, second edition, 1986, at page 4:

The difference is between a subjective and an objective view. What emerges from the cases, and the judicial statements therein, is the attitude that agreement or lack of agreement is to be adjudged, at common law at any rate, by the standards of the reasonable observer, the person on the outside, as it were, of the transaction. Whether parties are in agreement does not depend upon what they themselves knew or understood, rather upon whether in the eyes of the onlooker they appeared to have reached agreement. In this sense, therefore, to the law there may be agreement when, in fact, there is none. The subjective view, however, expresses the attitude that there can only be agreement when the parties actually are in agreement, that is, when each individual party is in accord with the other. Thus a party who labours under a mistake, which is the reason why he contracted, will not be in agreement under the subjective view. The objective view may result in there being a contract as a matter of law, when there is none in fact. This suggests that, in such circumstances, a contract may come about against the volition of one party or both. Equity seems to have taken a more subjective approach to mistake and agreement...

It may also be the case that, in modern times, the common law is becoming less attached to the objective view. If this is correct, then the modern law of contract is paying more attention to the actualities of the phenomenon of agreement than to its technicalities.

In my view, the subjective intent of the parties should be considered when determining whether an agreement exists. This is particularly so in the context of mandatory mediation where the parties did not communicate directly. I cannot, however, peer into the minds of the parties. I can only infer their intention from the objective examination of what they have said, or written or done.

The Report of Mediator sets out the following details of settlement: (Note that the Report of Mediator is a pre-printed form. The inserts of the mediator are placed in quotation marks.)

6. ISSUES SETTLED

The following issue(s) have been settled:

Weekly Income Benefits:

Amount: "$11,597.75"

Details:"The insurer has paid [sic] insured an additional five weeks of benefits at $463.91 covering the period from December 20, 1991 until January 27, 1992 for a total of $2,319.55. The insurer shall pay an additional 20 weeks of benefits at $463.91 for a total of $9,278.20 in reimbursement of sick day credits that the insured used up through the urging of the insurer's representative, when he was not legally obliged to do so. Both these payments are inclusive of interest."

Supp. Med. & Rehab. Benefits:

Amount: "$5,070.01"

Details:"The insurer has paid Bellamy Chiropractic Services this amount which includes their services up to March 06, 1992, although they questioned the fact that these services were given every day, which is most unusual."

Interest:

Amount:

Details:"Interest was inclusive with the settlement of weekly benefits and supplementary also."

Other:

7. ISSUES REMAINING IN DISPUTE

I have concluded that the following issue(s) remain in dispute:

"NONE APPLICABLE"

The Applicant testified that he received the Report of Mediator by mail, toward the end of April 1992. Along with the Report of Mediator, the Applicant received a letter from the mediator, two copies of the Confirmation of Settlement form, and a cheque from the Insurer payable to the Applicant, in the approximate amount of $2,300.

It is customary for the Commission to enclose a standard Confirmation of Settlement form, for execution by each of the parties, when the Report of Mediator records that one, some, or all of the issues in dispute are settled.

In addition to the letter and enclosures received from the mediator, the Applicant received a letter directly from the Insurer, stating that the Insurer would pay for medical treatments up to March 6, 1992, but would not entertain further claims for medical benefits beyond that date, in accordance with the agreement reached at mediation. The Applicant did not retain a copy of this letter, nor did the Insurer seek to introduce it as an exhibit to these proceedings.

The Applicant testified that his first reaction to the Report of Mediator, the cheque, and the letter from the Insurer was disagreement. He immediately called the mediator and informed the mediator of his dissatisfaction. He informed the mediator that he would not sign the Confirmation of Settlement form and that he wished to continue discussions with the Insurer. The mediator informed the Applicant that the mediation file was closed and that he could do nothing further for the Applicant. The Applicant recalled the mediator's suggestion that it wouldn't hurt the Applicant to call the Insurer's representative, Mr. Dusenbury.

Soon after, the Applicant called Mr. Dusenbury. It was their first and only direct conversation. The Applicant expressed his disagreement and dissatisfaction with the cheque in the amount of $2,319.55, the contents of the mediator's report and the cut-off date for rehabilitation benefits set out in the Insurer's letter. According to the Applicant, Mr. Dusenbury responded that he was sorry, but this was as far as he could go. The Applicant testified that Mr. Dusenbury asked him whether the Applicant expected an open-ended package. The evidence of the Applicant concerning this conversation was uncontroverted by Mr. Dusenbury.

In his own evidence, Mr. Dusenbury added that the telephone conversation with the Applicant was his first notice of any problem with the settlement. Mr. Dusenbury testified that he fulfilled the terms of the settlement as he understood them. Prior to April 18, 1992 (the date of the Report of Mediator), Mr. Dusenbury had provided the mediator with a first cheque payable to the Applicant, in the amount of $2,319.55. At the conclusion of mediation, Mr. Dusenbury sent a second cheque in the amount of $9,278.20 directly to the Applicant. Mr. Dusenbury did not explain why two cheques were issued in respect of the settlement of the single issue of weekly income benefits, nor why the timing and method of delivery of these cheques were different. Mr. Dusenbury signed the Confirmation of Settlement on April 24, 1992 and returned it to the Commission.

It is clear from the terms of the letter sent by the Insurer setting out the March 6 cut-off date for rehabilitation benefits and the single conversation between the Applicant and Mr. Dusenbury, that the Insurer was not interested in an open-ended arrangement with the Applicant for weekly income or supplementary medical and rehabilitation benefits. No-fault benefits provided under the Schedule are periodic in nature and continue for so long as the Applicant can establish his entitlement. The Report of Mediator reflects the Insurer's agreement to pay certain benefits and other amounts retroactively, for a period of 25 weeks. There is no indication that such payments were final and relieved the Insurer of any further obligation to make payments to the Applicant in the future. I find that the Insurer intended to limit its future liability to the Applicant, in exchange for certain payments. However, this intention is not reflected in the Report of Mediator.

Following his conversation with Mr. Dusenbury, the Applicant mailed everything that had come from the mediator, including the Insurer's cheque in the amount of $2,319.55, back to the Commission. During this period, the Applicant received a second cheque directly from the Insurer in the amount of $9,278.00, which the Report of Mediator identified as "the reimbursement of sick day credits that the insured used up through the urging of the insurer's representative, when he was not legally obliged to do so." The reimbursement of employee sick day credits mistakenly used by the Applicant during a period of disability is not a category of benefit nor a remedy that is expressly stated in the No-Fault Benefit Schedule.

In his testimony, the Applicant expressed a different attitude toward this second amount. He described it as money owed to him by the Insurer; a reimbursement of sick day credits used by the Applicant through his employer, Canada Post, during a twenty-week period from June 1991 to October 1991. The Applicant viewed this amount as separate from his claim for ongoing weekly income benefits. He described the money as belonging to him. The Applicant did not disagree with either the amount, or the time period covered by this cheque.

I find that the Applicant intended to enter into an agreement with the Insurer concerning the reimbursement of his sick day credits, apart from any arrangement concerning the status of his ongoing benefits under the No-Fault Benefits Schedule.

Upon receipt of the second cheque in the amount of $9,278.20, the Applicant once again contacted the mediator. The Applicant recalled asking the mediator if he should return the second cheque, and the mediator responding that the Applicant could do so at his own risk and peril. The Applicant filed for arbitration on May 28, 1992. In his application, the Applicant wrote "Some parts of mediator's report are okay, some [sic] not".

By letter dated June 2, 1992 (marked as Exhibit 1), the mediator returned the first cheque in the amount of $2,319.55, along with several other items, back to the Applicant. The letter reiterates the mediator's opinion, as initially set out in the Report of Mediator, that the mediation did not fail. The letter concludes "If you wish to return monies, I would suggest you do so to the Insurer, but this will be at your own risk and peril." The Applicant did not return the two cheques to the Insurer. Instead, he held onto them pending the outcome of his application for arbitration.

I find that the Applicant and the Insurer were never in agreement concerning the terms of their purported settlement. In the case of Nikolaos Mouriopoulos and The Citadel General Assurance Company, Commission File No. A-002166, issued March 23, 1993, Arbitrator Naylor concluded at page 8:

In my view, the absence of agreement in this case appears to be the result of nothing more than a misunderstanding. Inevitably, in the course of the process - as in any process - misunderstandings may occur as to the intent of the parties. In this case, the Applicant took immediate steps to clarify the misunderstanding.

This conclusion is equally applicable to the facts of this case. In my view, the Applicant took immediate and reasonable steps to inform both the mediator and the Insurer of his disagreement with the terms of the purported settlement.

Estoppel:

The Applicant testified that he did not cash the two cheques for some time following mediation because he did not wish to do anything wrong, or appear to agree with the purported settlement. However, after three or four months had passed, the Applicant cashed the cheques, claiming that he needed the money. Counsel for the Insurer led evidence (Exhibits 2 and 3) to establish that the Applicant was receiving income from other sources and was not short of money at the time. The Applicant did not deny receiving income from other sources, but explained that several of his credit cards were overdue. Counsel for the Insurer argued that by cashing the two cheques, the Applicant belatedly accepted the terms of the purported settlement reached at mediation. In addition, counsel for the Insurer suggested that the Applicant is now estopped from denying the existence of the settlement, having availed himself of payments made by the Insurer in furtherance of that settlement.

Does the Applicant's act of cashing the two cheques cancel out his earlier conduct denying the existence of a settlement? I am troubled by the Applicant's decision to use approximately $11,597.75 of the Insurer's funds, particularly in light of the evidence adduced on behalf of the Insurer, that the Applicant was not in dire financial circumstances. However, I am not convinced that this single act negates the series of steps initially taken by the Applicant to refute the existence of the agreement.

In his testimony, Mr. Dusenbury acknowledged that, prior to the hearing, the Insurer did not know whether or not the Applicant had cashed the Insurer's cheques. The Insurer did not rely upon the Applicant's conduct in cashing the cheques, to its detriment. The Applicant put the Insurer on notice that he disputed the existence of the settlement, during the telephone conversation with Mr. Dusenbury. He also raised the issue in his Application for Arbitration which was promptly filed and served upon the Insurer. I therefore conclude that the Applicant's conduct in cashing the cheques does not amount to the acceptance of the terms of the purported settlement. Nor is the Applicant estopped, in this case, from contesting the alleged settlement by the act of cashing the cheques.

The Insurer has now expended $11,597.75, plus a further $5,070.01 which it paid to Bellamy Chiropractic Services on behalf of the Applicant, on the mistaken assumption that it had entered into a binding agreement with the Applicant. I find that the mistake arose as the result of a misunderstanding between the parties and is the fault of neither the Applicant nor the Insurer. The Applicant cannot retain the fruits of a settlement that never existed. The Applicant is therefore required to repay these amounts, plus interest from the date of this decision, to the Insurer in accordance with the provisions of section 27(1) and (4) of the No-Fault Benefits Schedule which state:

Section 27

(1) A person must repay to the insurer any benefit received under this Schedule that is paid to the person through error or fraud.

(4) The insurer may charge interest from the day the amount owing to the insurer under this section is determined at the bank rate on that day.

The Applicant's claims for weekly income benefits, supplementary medical and rehabilitation benefits, and interest, arising from an automobile accident of May 23, 1991, may be determined in arbitration, under section 281(1) of the Insurance Act. The Applicant will be obliged to prove his entitlement to the benefits claimed, for the entire period that would otherwise have been covered by the provisions of the purported agreement set out in the Report of Mediator. To the extent that the Applicant establishes his entitlement to benefits, the value of such benefits may be offset against the amounts now owing by the Applicant to the Insurer.

Expenses:

The Applicant seeks an award of the expenses he has incurred in this arbitration. An award for expenses may be made under section 282(11) of the Insurance Act, which provides as follows:

The arbitrator may award to the insured person such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations to the maximum set out in the regulations.

The prescribed expenses and amounts are set out in Schedule 1 of the Dispute Resolution Practice Code and in Ontario Regulation 664 (R.R.O. 1990), Dispute Resolution Expenses.

In the Ralph McCormick and Economical Mutual Insurance Company case (O.I.C. File No. A-000139, dated October 2, 1991), arbitrator Susan Naylor made the following comments about expenses, with which I agree:

The discretion to award expenses should be exercised, having regard to the intent and purpose of the legislative scheme. The arbitration process has been established under the Insurance Act, as amended, in order to facilitate applicants' access to relatively inexpensive, speedy and informal adjudication of disputes regarding no-fault benefits. The discretion to award expenses should be exercised in accordance with this objective, having regard to the individual circumstances of each case.

Accordingly, it is appropriate to award an applicant his or her expenses, unless, in the circumstances of the particular case, it is determined that the application for appointment of an arbitrator was manifestly frivolous or vexatious, or that the applicant's conduct unreasonably prolonged the proceedings.

The Director of Arbitrations approved this statement of the principles guiding an award of expenses in the appeal decision in Vito Luigi Calogero v. The Co-Operators General Insurance Company (O.I.C. File No. P-000251, issued February 13, 1992).

This is an appropriate case in which to award the Applicant his expenses of this arbitration. The Applicant's claim is valid and the conduct of the Applicant was reasonable. In the event that the parties are unable to agree on the amount of expenses, I remain seized of this matter and either party may apply for assessment of the expenses before me.

Order:

1. An arbitrator, appointed under the provisions of the Insurance Act, has jurisdiction to determine whether mediation has succeeded or failed.

2. The parties did not enter into a binding agreement which finally settled the issues in dispute, as set out in the Report of Mediator. The Applicant is therefore entitled to refer the claims for weekly income benefits, supplementary medical and rehabilitation benefits, and interest, arising from an automobile accident of May 23, 1991, to arbitration under section 281(1) of the Insurance Act.

3. The Applicant is entitled to offset any amounts found to be owing by the Insurer to the Applicant in respect of benefits under the No-Fault Benefits Schedule, against the settlement funds mistakenly paid to the Applicant by the Insurer.

4. The Insurer is entitled to repayment by the Applicant of settlement funds mistakenly paid by the Insurer in the amount of $16,667.76 plus interest, calculated at the bank rate on the date of this decision, in accordance with the provisions of section 27 of the No-Fault Benefits Schedule, provided that any amounts remain owing to the Insurer following the outcome of the arbitration proceeding referred to in paragraph 2 above.

5. The Applicant is entitled to his expenses incurred in respect of this second hearing on a preliminary issue under section 282(11) of the Insurance Act.

June 11, 1993

Janice Mackintosh

Arbitrator

Date

APPENDIX "A"

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

• Report of Mediator, dated April 18, 1992.

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

• 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:

Exhibit 1 Letter dated June 2, 1992 from Sydney Steinman to Mr. Bailey

Exhibit 2 Letter dated January 7, 1993 from Sun Life of Canada to Ms. Rebecca Nelson

Exhibit 3 Statement of earnings issued by Canada Post Corporation for the pay period 13/05/91 to 26/05/91

Statutes and authorities considered:

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

Interpretation Act, R.S.O. 1990, c.

Fridman, G.H.L., The Law of Contract in Canada, Carswell, second edition, 1986