Neutral Citation: 1993 ONICDRG 50

File No. A-003996

ONTARIO INSURANCE COMMISSION

BETWEEN:

JOHN GOULIAEFF

Applicant

and

COMMERCIAL UNION ASSURANCE COMPANY OF CANADA

Insurer

DECISION ON PRELIMINARY ISSUE

Issue:

On April 21, 1993, the Applicant, John Gouliaeff, applied for the appointment of an arbitrator, according to section 281 of the Insurance Act. The Insurer, the Commercial Union Assurance Company of Canada (Commercial Union), takes the position that Mr. Gouliaeff has elected to bring a proceeding in court and, therefore, is not entitled to an arbitration hearing.

The preliminary issue is:

Is Mr. Gouliaeff precluded from referring his dispute with Commercial Union about no-fault benefits to an arbitrator?

Result:

Mr. Gouliaeff may proceed with the arbitration, provided he withdraws his related court action forthwith.

Hearing:

The preliminary issue was dealt with by way of written submissions. The following documents were before the arbitrator:

1. Report of Mediator, dated April 14, 1993

2. Application for Appointment of an Arbitrator, dated April 21, 1993.

3. Response by Insurer, dated May 21, 1993.

4. Letter, dated June 28, 1993, confirming the pre-hearing discussion that took place on June 24, 1993.

5. Insurer's Memorandum on Preliminary Issue, submitted by Ms. Ruth A. Henneberry, of Paul Lee, Barristers and Solicitors, representing Commercial Union.

6. Insured's Response to Insurer's Memorandum of Preliminary Issues, submitted by Mr. Nicholas P. Palios, of Paletta, Palios & Venn, Barristers and Solicitors, representing Mr. Gouliaeff.

7. Insurer's Response on Preliminary Issue, submitted by Ms. Henneberry.

Reasons for Decision:

On August 17, 1990, Mr. Gouliaeff was struck by a van while riding his bicycle. Some months later, he submitted an unsigned and undated Application for Accident Benefits form to Commercial Union, the insurer of the van. The form indicates that Mr. Gouliaeff was unemployed at the time of the accident, but also provides some information about his previous employment.

Commercial Union paid weekly income benefits of $185, although the parties disagree about whether the benefits were paid promptly. Various disputes developed between Mr. Gouliaeff and Commercial Union and, at some point, Mr. Gouliaeff retained a lawyer, Mr. J. David Helson.

Because Mr. Gouliaeff's accident occurred after June 21, 1990, he is covered by Ontario's new "no-fault" system. Under the no-fault system, every Ontario automobile insurance policy must include standard no-fault provisions. Access to the courts for personal injury claims, however, is restricted to cases in which the person's injuries meet the "threshold" test set out in section 266 of the Insurance Act.

The no-fault system includes a dispute resolution process. The Insurance Act makes it clear that disputes about no-fault benefits must first proceed through mediation:

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 section 280 to 283 and the No-Fault Benefits Schedule.

282 (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.

On June 9, 1992, Mr. Helson issued a Statement of Claim in the Ontario Court (General Division), on behalf of Mr. Gouliaeff, claiming:

a) Damages for the Defendant's failure to pay accident benefits pursuant to Part B of an Ontario Automobile Policy in Form 1, pursuant to the Insurance Act and regulations made pursuant thereto;

b) A declaration that the Plaintiff is entitled to recover from the Defendant weekly loss of income benefits pursuant to the said Section B coverage from the 17th day of August, 1990 to the present;

c) A declaration that the Plaintiff is entitled to recover from the Defendant supplementary medical, rehabilitation and care benefits pursuant to Part B of the coverage;

d) Pre-judgment and post-judgment interest pursuant to the Courts of Justice Act;

e) His costs of this action;

This action did not proceed until Mr. Gouliaeff retained a new lawyer, Mr. Palios, who served the Statement of Claim on Commercial Union on September 3, 1992. Commercial Union delivered its Notice of Intent to Defend and Jury Notice, both dated October 16, 1992. On the same date, the lawyer for Commercial Union, Ms. Henneberry, wrote to Mr. Palios stating that, in her view, the court action was premature because the issues had not been mediated. The letter also states:

Please discontinue your action immediately. Otherwise we will be forced to bring a motion, asking for full costs on a solicitor and client basis.

Until this preliminary matter is resolved, we will not provide our Statement of Defence unless you insist.

In my opinion, it is clear that most, if not all, of Mr. Gouliaeff’s court action was premature. It might be argued that he could proceed with the action for damages, but because arbitrators are given authority in section 282(10) of the Insurance Act to require an insurer to pay a special award if it has unreasonably withheld or delayed the payment of benefits, there is a good argument that this issue also had to be mediated. In my opinion, therefore, Commercial Union was in a strong position to obtain an order dismissing, or at least staying, Mr. Gouliaeff’s court action.

Apparently, Mr. Palios did not respond in writing to Ms. Henneberry. However, in a letter dated December 21, 1992, Mr. Palios wrote to the senior claims examiner at Commercial Union. In this letter, Mr. Palios expresses frustration with his dealings with Commercial Union and indicates that Mr. Gouliaeff needs housekeeping and gardening services, an orthopaedic mattress and compensation for taxis. He states:

I wish to confirm further that when we last spoke on the telephone on December 1, 1992, I advised you at that time that I would be prepared to waive the necessity of providing a Defence at this time. Please be advised that my instructions from Mr. Gouliaeff are to demand a Statement of Defence from your solicitors on this matter at your earliest convenience and thereafter to proceed to examinations for discovery. I am therefore prepared to provide you until December 31, 1992, to serve me with your Statement of Defence.

When we also spoke on the telephone you advised the writer that you are only dealing with the bodily injury portion of Mr. Gouliaeff's claim but you would attend to any other concerns regarding the second claim brought against your company since we have not had a response from Mr. Enright or anyone else from your company. I am therefore requesting on behalf of Mr. Gouliaeff that this matter be forwarded to mediation to determine Mr. Gouliaeff's wage loss from the date of the accident to the present. We would therefore kindly request your assistance if this information can be passed to the proper person or persons in your company and if they could thereafter immediately contact the writer confirming that the matter will be set down for mediation.

In response to this letter, Commercial Union delivered its Statement of Defence, dated December 30, 1992. In its Statement of Defence, Commercial Union specifically pleads that the action should not proceed because it has not been referred to mediation, as required by section 281(2) of the Insurance Act.

Commercial Union did not bring a motion to have the court action dismissed, because Mr. Gouliaeff applied for mediation. Mediation commenced on February 16, 1993, with Mr. Palios and Ms. Henneberry participating.

The parties disagree about the status of Mr. Gouliaeff's court action during the mediation process. The Insurer's Memorandum on Preliminary Issue states that, "Mr. Palios prior to mediation maintained that the litigation would proceed as soon as the mediation was completed (assuming that no settlement was reached)." The Insured's Response states:

At no time did Mr. Palios indicate to Ms. Henneberry or anyone else that litigation would be proceeding once mediation was completed. What was indicated to Ms. Henneberry was that Mr. Palios would be seeking instructions from Mr. Gouliaeff as to which course of action he wished to proceed with.

The mediator issued a report, dated April 14, 1993, indicating that the parties were able to resolve their disputes about prescription medication, the cost of taxis and an orthopaedic mattress. No agreement was reached, however, with respect to housekeeping services and the proper amount of Mr. Gouliaeff’s weekly income benefits.

Section 281(1) of the Insurance Act provides:

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.

On April 21, 1993, one week after the date of the mediator's report, Mr. Gouliaeff applied for the appointment of an arbitrator. Ms. Henneberry wrote to Mr. Palios on May 14, 1993, confirming a telephone conversation in which she told him that since he was proceeding by way of arbitration, he should immediately discontinue the court action. Ms. Henneberry advised that if the court action was not voluntarily discontinued shortly, she would be forced to bring a motion for summary judgment, seeking costs on a solicitor and client basis.

Commercial Union did not bring a motion to have the court action dismissed, but filed a Response in the arbitration proceeding, dated May 21, 1993. At the pre-hearing discussion that took place on June 24, 1993, Ms. Henneberry, on behalf of Commercial Union, submitted that the arbitration could not proceed because Mr. Gouliaeff had elected to proceed in court. It was agreed that this issue would be dealt with by way of written submissions.

Following the pre-hearing discussion, Commercial Union recalculated Mr. Gouliaeff's entitlement, based on the arbitration decision in Scavuzzo and Canadian Home Assurance Company [OIC File No. A-000626 (March 18, 1992), affirmed on appeal, OIC File No. P-000626 (June 19, 1992)]. In July 1993, Mr. Gouliaeff was paid $25,862.40, representing the difference between the weekly income benefits of $185 he received and $330.40, his entitlement, as recalculated. This payment did not resolve the issue, because Mr. Gouliaeff's position is that he is entitled to $600 a week under section 12(2) 1 .iii of the No-Fault Benefits Schedule, because he had a job offer at the time of the accident.

The preliminary issue is whether Mr. Gouliaeff is precluded from proceeding with the arbitration. According to section 281(1) of the Insurance Act, the insured person is allowed to decide between court and arbitration after mediation has failed. Following the mediation in this case, Mr. Gouliaeff promptly applied for the appointment of an arbitrator. In my opinion, this was an election to proceed by way of arbitration, rather than in court.

Commercial Union is asking me to treat Mr. Gouliaeff’s failure to withdraw his court action as a prior and binding election to proceed in court, rather than by way of arbitration. Based on the material submitted, however, I find that the court action was commenced because Mr. Gouliaeff and his lawyers were uncertain about the no-fault system and the relevant limitation periods. There is no indication that it was used to gain a tactical advantage in the arbitration. Mr. Gouliaeff has stated through his lawyer that he is prepared to withdraw his court action as soon as it is clear that he is able to proceed with the arbitration.

It was also submitted that prior to mediation, Mr. Palios made it clear that Mr. Gouliaeff had elected to proceed in court if the mediation failed. This is disputed by Mr. Palios. In the absence of clear evidence, I am not prepared to conclude that a binding election was made prior to the mediation.

Commercial Union's frustration in this case is understandable. It took approximately one year to convince Mr. Gouliaeff and his lawyer that the Insurance Act requires that his disputes first be mediated. However, Commercial Union had options. It could have brought a motion to have the court action dismissed or stayed, or it could have applied itself for mediation to have the no-fault issues resolved.

I also note that the insured person's choice of forum, provided in section 281 of the Insurance Act, does not preclude the insurer from pursuing its rights in court. In cases in which the two parties want to proceed in different forums, the appropriate forum will need to be determined (e.g. The Citadel General Assurance Company v. Gogna and Gogna, unreported decision of the Ontario Court (General Division), dated September 16, 1992). In this case, however, Commercial Union has not applied to court, or asserted any claim that would be thwarted if the matter is dealt with through arbitration, rather than in court.

I conclude, therefore, that as long as Mr. Gouliaeff withdraws his court action [Ontario Court (General Division), Court File No. 36717/92], forthwith, he can proceed with the arbitration.

The issue of expenses was not addressed by either party and, therefore, will not be decided at this time. This issue may be addressed in the arbitration hearing.

Order:

Mr. Gouliaeff may proceed with the arbitration, provided he withdraws his related court action forthwith.

August 26, 1993

David R. Draper Arbitrator

Date