Ontario Insurance Commission

Commission des assurances de l’Ontario

Neutral Citation: 1996 ONICDRG 140

Appeal P-001231

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ISABEL ALLISON

Appellant

and

MARKEL INSURANCE COMPANY OF CANADA

Respondent

Before:

Susan Naylor, Director's Delegate

Counsel:

Carolyn V. Amendola (for Isabel Allison)

Brian Leck (for Markel Insurance Company of Canada)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The appeal is dismissed and the arbitrator's order, dated June 14, 1995, is confirmed.
Ms. Allison is not entitled to her appeal expenses.

August 21, 1996

Susan Naylor

Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Isabel Allison applied for arbitration in respect to her entitlement to weekly income benefits after December 23, 1991. A hearing was held and Ms. Allison's claim was dismissed. This appeal concerns the arbitrator's exercise of discretion in declining to award Ms. Allison her arbitration expenses. The appeal proceeded on the basis of the arbitration record and the written submissions of the parties.

II. THE LEGISLATION

The discretion to award an insured his or her expenses is found in subsection 282(11) of the Insurance Act¹, which states:

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 Schedule to Ontario Regulation 664, enacted under subsection 121(1) 26 of the Insurance Act, sets out the allowable expenses. The Schedule is reproduced in the Commission's Dispute Resolution Practice Code. The regulations list the expenses that can be claimed, and the maximum amounts, but there are no statutory guidelines as to when expenses should be allowed or denied, what factors should be taken into account, or what principles should govern an award.

The power to award an insured person his or her arbitration expenses was introduced in the 1990 no-fault benefits legislation. It is an integral part of the optional dispute resolution process provided for resolving disputes about accident benefits. Under this legislation, the right to initiate arbitration is limited to insured persons² and expenses can only be awarded to an insured person - not insurers.

The Insurance Statute Law Amendment Act, 1993³, effective January 1, 1994, modified these rules somewhat. An arbitrator now has the power to order the insured to pay a sum to the insurer, up to the amount of the insurer's assessment, in very limited circumstances. Section 282 (11.2) of the amended Act entitled "assessment against insured person" states:

If an insured person commences an arbitration that, in the opinion of the arbitrator, is frivolous, vexatious or an abuse of process, the arbitrator may award an amount to be paid by the insured person to the insurer that does not exceed the amount assessed against the insurer in respect of the arbitration under section 14.

III. ANALYSIS AND CONCLUSION

In this case, the arbitrator denied Ms. Allison's claim and refused to award her arbitration expenses. He found that Ms. Allison gave an inconsistent and contradictory account of her injuries to the doctors who treated her and at the hearing. Most importantly, she "deliberately withheld" information from her doctors about a previous back injury from a fall two and a half years earlier and misled them by denying any previous difficulties. The arbitrator rejected her testimony that the doctors had not asked about her prior health. Ms. Allison's doctor acknowledged in his testimony that the earlier injury may not have resolved by the time of the automobile accident.

These findings are not challenged on appeal. Ms. Allison accepts the arbitrator's determinations of fact and credibility. Based on these findings, the arbitrator disallowed Ms. Allison's claim for benefits and her arbitration expenses. In considering expenses, he stated:

...a determination of the Applicant's entitlement to benefits largely depends upon the Applicant's ability and honesty in relating her complaints to the doctors and this tribunal. Although Ms. Allison may have little control over her ability to relate her complaints, she can decide whether she will be honest in revealing the state of her pre-accident health. I have clear evidence that the Applicant has been dishonest with respect to the state of her pre-accident health. There was no evidence to mitigate the attempted deception. In the circumstances I decline to award her expenses. Although this may represent a departure from the principles of awarding expenses to an applicant unless the application is manifestly frivolous or vexatious, or unless the applicant's conduct unreasonably prolonged the proceedings, I do not believe that this decision contravenes the spirit of the McCormick decision. (Decision, page 14)

Although the arbitrator refused to award Ms. Allison her arbitration expenses, he did not think that she should be penalised under section 282(11.2) of the Insurance Act, by having to pay the insurer. In his view, Ms. Allison's dishonest behaviour was confined to her description of her pre-accident history, and did not warrant the imposition of a penalty.

On appeal, Ms. Allison relied upon the reasoning in the arbitration decision, McCormick and Economical Mutual Insurance Company, (November 10, 1991, OIC A-000139), in which it was held that expenses should be allowed unless the application was manifestly frivolous, vexatious or the applicant's conduct unreasonably prolonged the proceedings. In their material, both parties canvassed a number of subsequent arbitration decisions on expenses to draw some general principles about when expenses should be awarded or denied. I am indebted to counsel for their thoughtful and thorough review of the Commission's decisions.

Ms. Allison argued that her claim was legitimate and was explicitly not found to be frivolous or vexatious. Moreover, although the arbitrator concluded that she had misrepresented her previous state of health, he did not go on to specifically find that her conduct unreasonably prolonged the hearing. Ms. Allison argued that, therefore, she should get expenses under the reasoning in McCormick.

An award of expenses is a matter within the discretion of the arbitrator, although the discretion must be exercised reasonably. Because the discretion is given to the arbitrator, it should not be interfered with lightly on appeal. The arbitrator is able to consider the evidence in totality, including observing and hearing any witnesses, and usually is in the best position to assess the merits of the case and the way it was handled by the parties. Generally, his or her determination should not be disturbed unless the party appealing the order can point to a serious error in the exercise of the discretion: for example, the arbitrator adopted a wrong approach, based the decision on irrelevant considerations or inadequate evidence, or failed to look at the merits of the individual case by inappropriately fettering his or her discretion.

In each case, the expenses decision must be made on the merits of the particular case:

After all, the existence of discretion implies the absence of a rule dictating the result in each case; the essence of discretion is that it can be exercised differently in different cases. Each case must be looked at individually on its own merits.⁴

While consistency of approach is important to the integrity and fairness of the dispute resolution system, there are bound to be shades of difference in individual arbitrators' perspectives of the cases before them. Provided that the arbitrator has approached the discretion on a proper basis, his or her judgement should not be second-guessed merely on the basis that another arbitrator might have reached a different conclusion.

What then is an appropriate approach? In civil cases, while costs are in the discretion of the court, the general rule is that costs follow the result. In McCormick, it was held that the issue of expenses should be approached from the particular perspective of the purpose and goals of the dispute resolution process and that the principles governing court costs do not necessarily apply:

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.

(McCormick, page 23)

Because facilitating access to the process was regarded as a fundamental goal, an approach that necessarily withheld payment of expenses from unsuccessful applicants was considered counter-productive and alternative criteria were suggested:

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.

(McCormick, page 24)

The principles set out in these paragraphs were endorsed "in the main" by the Director of Arbitrations in the appeal decision, Calogero and The Co-operators General Insurance Company, (February 13, 1992, OIC P-000251).⁵ The Director's choice of language recognises the discretionary nature of the award and leaves some flexibility in the principles to be applied.

The principle that applicants with legitimate claims, conducted reasonably, can expect to recover their allowable expenses, win or lose, has been adopted in numerous subsequent decisions, and can be taken to be the basic ground rule. While arbitrators have uniformly accepted this general principle, they have built on the criteria set out in McCormick. Expenses have been denied, for example, where the claim is found to have been without any merit,⁶ in the case of fraud⁷ or dishonesty⁸ or when documents have been fabricated.⁹

This case-by-case development is to be expected in an evolving adjudication process, as individual arbitrators bring their perspectives to bear on the numerous fact situations presented. It seems to me that the general thrust of these decisions is reasonable and consistent with the purpose and scheme of the legislation. It balances the need for access to the system, with a relatively mild deterrent to undeserving claims or undesirable behaviour.

In many cases, the denial of expenses is framed in terms of the three criteria listed in McCormick. For example, in Calogero, the Director denied expenses because of the applicant's lack of credibility and contradictory evidence. She concluded that these factors prolonged the hearing by making it more contentious and expensive. In this case, the arbitrator cited Ms. Allison's dishonesty about her pre-accident health as the reason for denying expenses, but he did not specifically state that this conduct unreasonably prolonged the hearing. In fact, he said that his decision was a "departure" from the McCormick criteria. Ms. Allison argues that this is fatal to the decision.

In my view, arbitrators are not restricted to applying the three criteria set out in McCormick, nor should the words used in the decision be subject to the same rigorous standard of interpretation as statutory language, which they are not. In Calogero, the Director did not state that the McCormick principles should be treated as fixed rules, or that they are the only factors that may be considered.

The discretion to award expenses is not, nor should it be, applied restrictively. Applicants are reasonably assured that they will recover their expenses even if they are unsuccessful, unless their case is without merit or their conduct is sufficiently serious to disqualify them. The fact that the arbitrator prefers other evidence over that of the applicant or his or her witnesses is generally not sufficient to deny an applicant his or her expenses. More is required than some embellishment or exaggeration. However, applicants who deliberately make false or misleading statements or are dishonest, especially if the dishonesty continues in the hearing, run a real risk that they will be denied their expenses.

It is open to an arbitrator to disallow expenses but to refuse to make an order against the insured person under section 282(11.2). While the factors to be considered in each may overlap, the nature of the two awards is different. An expenses award is principally intended to reimburse an insured, to the extent allowed, for the cost of bringing a legitimate application forward and conducting the case in a reasonable fashion. In contrast, an order against an insured person under section 282(11.2) is more in the nature of a penalty. It can only be made if the arbitrator finds that the application for arbitration was frivolous, vexatious or an abuse of process and in no other circumstances. The discretion of the arbitrator is limited to determining whether an amount should be levied in these specific circumstances, and, if so, how much.

In this case, the arbitrator considered Ms. Allison's conduct. He concluded that she had knowingly and deliberately provided false information to her doctors, which was accepted by them and used as the basis for their opinions. She compounded the misrepresentation in her testimony at the arbitration hearing. Her misrepresentation went to the heart of her evidence.

In this context, Ms. Allison's misrepresentation reasonably falls within the range of circumstances that may justify disallowance of expenses, and the arbitrator was entitled to make the decision he did. It may be that another arbitrator might have taken a different view, or that counsel can point to other cases, involving adverse findings of credibility, in which expenses were allowed. However, such differences are part and parcel of the individual nature of a discretionary power and of the multiple factual situations involved.

I am not persuaded that the arbitrator adopted a wrong approach or exercised his discretion unreasonably in denying Ms. Allison her expenses. Therefore, her appeal of the arbitration order fails. Given the uncontroverted findings in arbitration and the result of this appeal, this is not an appropriate case to award appeal expenses.