Thoa Hong Nguyen v. Pilot Insurance Company, 1996 ONICDRG 145

Neutral Citation: 1996 ONICDRG 145
Appeal P95-000005
OFFICE OF THE DIRECTOR OF ARBITRATIONS

THOA HONG NGUYEN
Appellant

and

PILOT INSURANCE COMPANY
Respondent

Before: Susan Naylor, Director’s Delegate

Counsel:
Michael Gillen (for Thoa Hong Nguyen)
Rudolph Lobl (for Pilot Insurance Company)

APPEAL ORDER

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

The appeal against the order denying Ms. Nguyen her arbitration expenses is dismissed.
Paragraph 2 of the arbitrator’s order, which states “The Applicants are liable to pay the Insurer $2,700, under section 282(11.2) of the Act” is revoked and the following substituted:

2.1. Thoa Hong Nguyen shall pay Pilot Insurance Company $900, under section 282(11.2) of the Insurance Act;

2.2. Phat Thi Pham shall pay Pilot Insurance Company $900, under section 282(11.2) of the Insurance Act;

2.3. Toan Ngoc Nguyen shall pay Pilot Insurance Company $900, under section 282(11.2) of the Insurance Act.

Thoa Hong Nguyen is not entitled to her appeal expenses.

August 27, 1996

Susan Naylor
Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Ms. Thoa Hong Nguyen applied for arbitration in respect to her entitlement to accident benefits arising out of injuries she allegedly sustained in a two-car accident on February 10, 1994. Ms. Nguyen claimed to have been a passenger in the back seat of one of the cars. The driver of the car, Mr. Toan Ngoc Nguyen and his wife, Phat Thi Pham, a passenger in the front passenger seat, also claimed to have suffered injuries in the accident. They each applied for arbitration, and their applications were joined. Under the usual Commission assessment rules, Pilot Insurance Company (“Pilot”) had to pay $1,000 in respect of each application in order to participate in the arbitration, a total of $3,000 in fees.

Shortly after the pre-hearing discussion, all three applicants withdrew their applications. Pilot sought its costs and payment of its assessment amount under section 282(11.2) of the Insurance Act. The applicants, in turn, sought their expenses to the date of the pre-hearing. These were the only issues left at the arbitration hearing. The arbitrator refused to award the applicants expenses and ordered them to pay a penalty of $2,700 under section 282(11.2) of the Insurance Act. She held that she had no jurisdiction to award Pilot additional costs.

Ms. Nguyen, but not the other two applicants, appealed the arbitrator’s order denying her expenses and imposing a penalty. The appeal proceeded on the basis of the arbitration record, with written submissions by 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. THE ARBITRATOR’S DECISION

The three applicants did not testify at the arbitration hearing, call any witnesses or introduce any evidence. Pilot did not call oral evidence, but provided some documents, including written statements by the parties involved and appraisal reports. In his statement, the driver of one of the cars, a Mr. Costanzo, denied that there was anyone in the back seat of Mr. Nguyen’s car. The applicants indicated that there were two passengers in the back seat, Ms. Nguyen and another person. There were also conflicting accounts about the circumstances of the accident and the damage to the car.

Based on the documents before her, the arbitrator concluded that the accident was minor, with minimal damage. In the absence of any explanation from the applicants about the discrepancies in the material, she concluded that Ms. Nguyen was probably not in the car at all at the time of the accident and that the car had been damaged subsequent to the accident. She found that all three applications were “entirely without merit”.

The arbitrator denied the applicants their arbitration expenses to the date of the pre-hearing. The applicants argued that they were justified in proceeding to arbitration because Pilot did not disclose its reasons for denying benefits, as it was required to do, or produce the evidence it relied upon, until the pre-hearing discussion. The applicants argued that they were thereby deprived of the opportunity of fairly evaluating their prospects of success, before then. The arbitrator rejected this argument:

Arbitrators have generally refused to award applicants their expenses where the claim is found to be fraudulent or frivolous. [It was] submitted that the Applicants in this case withdrew their claims shortly after the pre-hearing, as soon as the Insurer disclosed its reasons for denying benefits, and therefore, the Applicants are entitled to their expenses to the date of the pre-hearing. I am inclined to think this is the right approach in the more typical case where the dispute between the parties centres on a legitimate dispute between their doctors or accountants. In general, applicants should not be penalised for bringing forward a legitimate claim which they later withdraw after reasonably considering their chances of success. In this case, the Applicants filed no evidence in support of their claims at the hearing. I agree with the Insurer that the Applicants knew from the outset that their claims had no merit.

(Decision, page 10)

The arbitrator also concluded that the applications were frivolous and abuse of process but she concluded that Pilot did not deserve to be fully reimbursed for its assessment because it could have disclosed its evidence earlier. Moreover, the applicants had mitigated their abuse by withdrawing well before the hearing. She therefore reduced the amount representing Pilot’s total assessment for the three applications by $300 and made the following, global order:

The Applicants are liable to pay the Insurer $2,700 under section 282(11.2) of the Insurance Act.

Ms. Nguyen appealed these orders. In her submissions, she largely repeated the submissions that she had unsuccessfully advanced at the arbitration.

In summary, Ms. Nguyen argued that Pilot breached its statutory duty⁴ to give reasons for its refusal to pay benefits, thereby forcing her to arbitrate her dispute. She also suggested that the delay had interfered with her ability to collect and present her own evidence. She relied on McCormick and Economical Mutual Insurance Company, (November 10, 1991, OIC A-000139), and other arbitration decisions, to contend that expenses should not be disallowed unless the insurer proved that the application was “manifestly frivolous” or showed, on clear and convincing evidence, that it was fraudulent.

In Allison and Markel Insurance Company of Canada (August 21, 1996, OIC P-001231), a decision issued at the same time as this one, 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.⁵

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’ perspective 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).⁶ 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,⁷ in the case of fraud⁸ or dishonesty⁹ or when documents have been fabricated.¹⁰

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 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. Expenses are in the discretion of the arbitrator. Her judgement is not to be disturbed unless it is clearly unreasonable. I find nothing unreasonable here.

Ms. Nguyen unilaterally withdrew her application before the hearing. In such circumstances, in any event, there is no general principle that applicants should receive their expenses. It is up to the party withdrawing to persuade the arbitrator that the circumstances of their case warrant an expenses order, even though they have chosen not to proceed with their application.

Although invited to do so, Ms. Nguyen chose to put no evidence before the arbitrator that would explain the discrepancies in the statements or would lend credence to the substance of her case. The arbitrator dealt with the issue of expenses at the request of the applicants. Although she did not have the benefit of oral testimony, she was entitled to consider the material before her, assess its weight and reach a decision. She concluded that the applications were entirely without merit and that the applicants knew this from the outset. I find no reason to interfere with this finding.

The arbitrator also considered, and disposed of, the applicants’ complaint that they had not been told why benefits were terminated. She concluded they knew all along that the basis of their claims were false. I agree with the arbitrator’s reasoning.

The expenses appeal may be influenced by the concern that the consequences of Ms. Nguyen’s knowledge should not be visited on her lawyer, who may not have been in a position to assess the legitimacy and strength of his own client’s case until Pilot’s disclosure, and therefore acted reasonably in advancing his client’s case to that point. While I am not unsympathetic to this concern, it is clear that an award of expenses is made not to the insured person’s representative, but to the insured person.

Ms. Nguyen also appealed the award under section 282(11.2), on similar grounds. I find no basis to interfere with the arbitrator’s finding that Ms. Nguyen’s application was frivolous and an abuse of process or with the exercise of her discretion in ordering Ms. Nguyen to pay a more than nominal amount.

However, I agree with Ms. Nguyen that the form of the order is in error. The arbitrator purports to make an order globally against all three applicants for an amount which exceeds her jurisdiction in respect of each applicant individually. I do not accept Pilot’s argument that Ms. Nguyen is jointly and severally liable for the total amount assessed against the applicants (for which it provided no authority). In making the award, the arbitrator did not differentiate between the conduct of the three applicants, and there is no reason to believe that she intended to do otherwise than impose liability for an equal payment on each one. Under section 283(5) of the Insurance Act, I have the authority to substitute my order for that of the arbitrator, which I exercise in this case. Although only Ms. Nguyen appealed the order, the order applies to all three applicants and therefore must be amended in respect of each of them.

Paragraph 2 of the arbitrator’s order, which states “The Applicants are liable to pay the Insurer $2,700, under section 282(11.2) of the Act” is revoked and the following substituted: