Ontario Insurance Commission

Commission des assurances de l’Ontario

Neutral Citation: 1996 ONICDRG 144

Appeal P-96-000020

OFFICE OF THE DIRECTOR OF ARBITRATIONS

KEVIN HANNA

Appellant

and

ROYAL INSURANCE COMPANY OF CANADA

Respondent

Before:

Susan Naylor, Director's Delegate

Counsel:

Michael W. Kelly (for Kevin Hanna)

Nestor. E. Kostyniuk (for Royal Insurance)

APPEAL ORDER

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

1. The appeal is denied and the arbitration order dated December 21, 1995, is confirmed.

2. Mr. Hanna is not entitled to his arbitration expenses.

August 27, 1996

Susan Naylor Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Kevin Hanna applied for arbitration in respect to the amount and duration of his disability benefits and his entitlement to vocational rehabilitation services. A hearing was held and Mr. Hanna's claim for further benefits was dismissed. This appeal concerns the arbitrator's exercise of discretion in declining to award Mr. Hanna his 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 CONCLUSIONS

The arbitrator concluded that Mr. Hanna's application had "little merit" and dismissed his claims. She disallowed his arbitration expenses but did not go so far as to make an award against him under section 282(11.2). While she found Mr. Hanna's claim to be unmeritorious, she did not consider that his application was frivolous, vexatious or an abuse of process. She also noted that his case had been conducted expeditiously.

Mr. Hanna's appeal was limited to the denial of expenses. He did not dispute the arbitrator's determinations of fact or credibility.

The arbitrator accepted that Mr. Hanna started a job as a car cleaner shortly before the accident, as part of a limited-duration, work-placement opportunity under the provincial government's Futures Program. She agreed that he qualified for income-related weekly income benefits as an employed person. However, she rejected his evidence that he earned more than minimum wage, or that he had additional earnings from renovating his mother's house that should be taken into account. She concluded that Mr. Hanna had given Royal Insurance inaccurate information about his earnings to maximise his entitlement, and ordered him to pay back $1,484.80, the difference between the benefits he received and the minimum to which he was entitled.

The arbitrator found "serious discrepancies" in the evidence about when Mr. Hanna returned to work after the accident, and how long he worked. She could not determine precisely what happened, but she was confident that Mr. Hanna "tailored his account of the events for financial benefit".

Mr. Hanna initially received benefits until the end of August, 1990, when he said he returned to work. Then there was a gap of about 18 months before he sought medical attention again in February, 1992. Both at the arbitration and on appeal, he relied on the findings and opinions of various doctors and specialists who saw him after this time, especially Dr. Kean, a rheumatologist with an impressive curriculum vitae. The arbitrator carefully reviewed this evidence. She concluded that Mr. Hanna had suffered essentially uncomplicated soft tissue injuries in the accident that were not disabling after August, 1990. She did not find Mr. Hanna's testimony credible, affecting the weight she was prepared to give to his reports of pain and disability. None of these findings was challenged on appeal.

The 18 month gap in seeking medical treatment influenced the arbitrator's decision a great deal. She found it implausible that Mr. Hanna's problems had remained asymptomatic for this length of time, suddenly becoming disabling, nor did she believe that he suffered significant problems and dysfunction all along - as his later doctors understood - without needing to seek medical attention. She expressed scepticism at the timing of Mr. Hanna's quest for medical attention, noting that he started seeing doctors again only after he had resolved a worker's compensation claim for a pre-existing finger injury and when he was contemplating legal action over the accident.

On appeal, Mr. Hanna argued that, in other cases expenses have been awarded although adverse findings were made about an applicant's credibility. He relied upon the reasoning in the arbitration decision, McCormick and Economical Mutual Insurance Company, (November 10, 1991, OIC A-000139), which held that expenses should be allowed unless the application was manifestly frivolous, vexatious or the applicant's conduct unreasonably prolonged the proceedings. He argued that these criteria had been adopted by the Director of Arbitrations in Calogero and the Co-operators General Insurance Company, (February 13, 1992, OIC File P-000251) and were binding upon arbitrators. He summarised his argument in the following terms:

It is submitted that the statements set forth in Calogero, being an appellate-level decision, is binding upon the arbitrators. The only grounds for denying expenses therefore are if "the application for appointment of an arbitrator was manifestly frivolous or vexatious" or "the applicant's conduct unreasonably prolonged the proceedings". The arbitrator specifically held that this was not the case in the within proceedings.

I dealt with similar arguments in Allison and Markel Insurance Company of Canada, (August 21, 1996, OIC P-001231), a decision issued at the same time as this one. In Allison, I made some general comments, which I repeat here, about the discretion to award expenses, and the appeal function in relation to it:

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 some 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.

These comments have equal application to this case and largely dispose of Mr. Hanna's submissions. In summary, I do not agree that McCormick establishes rigid criteria akin to legislation. It is open to the arbitrator to conclude that Royal should not have to pay Mr. Hanna's arbitration expenses even though it may not be entitled to any payment from him under section 282(11.2).

Mr. Hanna submitted that the medical evidence provided some support for his case, and that in these circumstances it was not unreasonable for him to proceed with his claim. However, the arbitrator was clearly unimpressed by the overall veracity of Mr. Hanna's claim and testimony. The arbitrator's concerns encompassed all material aspects of Mr. Hanna's case: his earnings, his return to work, his failure to seek medical attention in the interim and reasons for seeking it later on, the subjective basis of his doctors' opinions, and the effect of his injuries. The arbitrator observed and heard Mr. Hanna and his witnesses, and was in the best position to evaluate the real merits of his case. None of her findings, including the conclusion that his case had "little merit", was challenged on appeal.

I am not persuaded that there are any grounds for interfering with the arbitrator's assessment that Mr. Hanna's case was so unworthwhile, even if it was not characterised as frivolous or vexatious, that an award of expenses is unjustified. The arbitrator's findings do not present a picture of a meritorous claim, honestly presented but ultimately unsuccessful. An arbitrator must be given considerable leeway to exercise the discretion as he or she sees fit, according to the circumstances of the particular case. It may be that another arbitrator might have taken a slightly different view of things and reached a different result; however this is not a sufficient basis to interfere with the arbitrator's disposition. I do not find that the arbitrator adopted a wrong approach or exercised her discretion unreasonably in denying Mr. Hanna his expenses. Therefore, the appeal fails.

Given the uncontroverted findings in arbitration and the result of this appeal, this is not an appropriate case to award appeal expenses.

August 27, 1996

Susan Naylor Director's Delegate

Date

Footnotes

1. 1R.S.O. 1990. C. I-8.
2. 2Insurance Act, section 281(1) and 282(1).
3. 3S.O. 1993, c. 10.
4. 4Jones & De Villars, Principles of Administrative Law, Carswell, 2nd ed, 1994, page 168.
5. 5The Director stated, at page 9, that "In the main, I adopt this statement as to when expenses may be awarded to an applicant".
6. 6Boateng and CUMIS General Insurance Company, (August 29, 1995, OIC A-006279), upheld on appeal, (July 22, 1996, OIC P-006279); Cooper and Jevco Insurance Company, (April 13, 1994, OIC A-005905).
7. 7Richardson and Royal Insurance Company of Canada, (November 3, 1992, OIC A-001141); Kosmopoulos and Victoria Insurance Company of Canada, (November 10, 1993, OIC A-002264), upheld on appeal (May 14, 1996, OIC P-002264).
8. 8Tagiran and Simcoe & Erie Insurance Company, (August 15, 1994, OIC A-004660), upheld on appeal (February 26, 1996, OIC P-004660); Khanna and State Farm Mutual Automobile Insurance Company, (January 6, 1994, OIC A-001665).
9. 9Ferrari and Royal Insurance Company of Canada, (September 8, 1994, OIC A-007313).