John Leitgeb and Aloisea Leitgeb v. Allstate Insurance Company of Canada, 1995 ONICDRG 166

OFFICE OF THE DIRECTOR OF ARBITRATIONS

Neutral Citation: 1995 ONICDRG 166

P-012407

BETWEEN:

JOHN LEITGEB and ALOISEA LEITGEB

Applicants (Respondents on appeal)

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer (Appellants on appeal)

Before:

David R. Draper, Director's Delegate

Counsel:

David F. Smye (for the Applicants)

George S. Gage (for the Insurer)

APPEAL DECISION

I. REASONS FOR DECISION

Allstate appeals the pre-hearing arbitrator's order that it produce any internal memoranda relating to this matter for the period May 25, 1991 to August 26, 1994.

The Dispute Resolution Practice Code now precludes appeals from a preliminary or interim order, unless the order finally determines the rights of the parties. However, this appeal was received before the effective date of the revisions.

Mr. and Mrs. Leitgeb were both injured in an automobile accident on May 25, 1991. At the time of the accident, Mr. Leitgeb was employed, but Mrs. Leitgeb was not. Allstate paid Mr. Leitgeb weekly income benefits of $208.80 under section 12 of the Schedule¹, while Mrs. Leitgeb received $185.60 per week under section 13. Allstate terminated their weekly benefits, effective May 28, 1994, based on the stricter post-156 week tests in sections 12(5)(b) and 13(8)(b) of the Schedule.

Mr. and Mrs. Leitgeb claim that they are entitled to ongoing weekly benefits. After an unsuccessful attempt to resolve the dispute through mediation, they applied for arbitration for a determination of their entitlement to weekly benefits after May 28, 1994.

The arbitration process usually involves a pre-hearing conference which has a number of purposes, including defining the issues and arranging for the exchange of documents. A pre-hearing conference was held in this case on June 14, 1995.

At the pre-hearing, the Leitgebs took the position that Allstate should be ordered to pay a special award under section 282(10) of the Insurance Act, which provides:

282. • (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 Statutory Accident 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.

Allstate argued that the issue of a special award was not mediated and, therefore, could not be included as an issue in the arbitration hearing. Relying on the arbitration decision in Carmen Palumbo and Dominion of Canada General Insurance Company, April 13, 1995, OIC File No. A-007314, the pre-hearing arbitrator decided that the issue of a special award should be included in the arbitration hearing.

Most of the productions were dealt with on consent. However, Allstate objected to a request for all of its internal memoranda from the date of the accident.

The pre-hearing arbitrator made the following order, as set out in the pre-hearing letter, dated June 15, 1995:

After hearing from Mr. Smye, Mr. Soule, and Ms. Baker, I ordered the production of the Insurer's internal memoranda from May 25, 1991 to August 26, 1994, which I was advised was the date of receipt of the request by the Applicants for mediation.

I further ordered that the Applicants shall, within 20 days of receipt from the Insurer of the ordered production, provide the particulars upon which they are relying to support their claim for a special award.

If there are any further particulars upon which the Applicants rely, the Applicants shall advise the Insurer of same forthwith, on an ongoing basis.

Oral submissions were heard on Allstate's appeal of this order on November 15, 1995, by telephone conference. Allstate makes the following alternative arguments in support of its appeal:

1. There is no foundation for the order. A bald assertion that benefits have been unreasonably withheld or delayed is not a sufficient basis for ordering the production of the insurer's file.

2. The order is too broad. The Leitgebs allege that Allstate unreasonably withheld the payment of benefits, but the production order covers three years during which benefits were paid.

3. The litigation privilege that is implicitly recognized in the order should extend back to the date that weekly benefits were terminated.

The Leitgeb's position is that Allstate's internal memoranda are relevant to their claim for a special award. They submit that the pre-hearing arbitrator's order is no broader than the type of production orders that insurers routinely obtain to test the applicant's claim for benefits.

I approach the review of this preliminary issue with considerable caution. The pre-hearing letter is not intended to be a complete record, nor should parties expect full reasons for every preliminary order. I find, however, that the Leitgebs have not advanced any particularized allegation of misconduct by Allstate. Their position is that Allstate might have decided to terminate their weekly benefits based on improper considerations, and that they should have an opportunity to investigate that possibility by reviewing all of its internal memoranda. The pre-hearing arbitrator appears to have accepted this position.

Although I am not convinced that the production order violates any privilege, I accept Allstate's submission that there is no foundation for the order, particularly given its scope. I am unable to accept the proposition that all aspects of the insurer's handling of a file become relevant as soon as a "claim" for a special award is advanced. In my opinion, that would be a distortion of the special award provision in section 282(10) of the Insurance Act.

The dispute resolution process is established to resolve "disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled."² The focus of the arbitration, therefore, is on the applicant's entitlement to benefits, or the proper amount of the benefits. The basis for ordering a special award arises out of that inquiry. The special award provision does not expand the arbitration into a generalized inquiry into the insurer's conduct.

I agree with the arbitration decisions that have held that a special award is not a claim to be advanced like a claim for benefits.³ Rather, it is a statutory authority, or a direction, given to the arbitrator to make an award if he or she finds that not only are benefits owing to the applicant, but that they were unreasonably withheld or delayed by the insurer.

In my view, this has at least two consequences. First, the arbitrator can order a special award whether or not it was raised in mediation or at the pre-hearing.

This is subject to the principles of fundamental justice and fairness, which probably require some notice to the insurer that a special award is being considered. Second, the special award provision does not create an entirely separate basis for production. An applicant seeking production from an insurer's records must demonstrate some reasonable basis for its relevance to the issues before the arbitrator.

For these reasons, I conclude that Allstate's appeal should be allowed. Nothing in this decision, however, is intended to restrict the hearing arbitrator's authority to make any order that he or she considers appropriate in the context of the hearing.

II. ORDER

1. The production order set out in the pre-hearing letter, dated June 15, 1995, is hereby revoked.

November 16, 1995

David R. Draper Director’s Delegate

Date

Footnotes

1. 1The term "Schedule" will be used to refer to Ontario Regulation 672. Before January 1, 1994, Regulation 672 was called the No-Fault Benefits Schedule. As of that date, it became the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994.
2. 2Section 279(1) of the Insurance Act.
3. 3See for example: Victoria Anizor and Royal Insurance Company of Canada, January 24, 1995, OIC FilE No. A-003702; Carmen Palumbo and Dominion of Canada General Insurance Company, April 13, 1995.