Ontario Insurance Commission

Commission des assurances de l’Ontario

Neutral Citation: 1997 ONICDRG 115

Appeal P-004768/P-005403 & V-004768/V-005403

OFFICE OF THE DIRECTOR OF ARBITRATIONS

PROGRESSIVE CASUALTY INSURANCE COMPANY

Appellant

and

ZURICH INSURANCE COMPANY

Respondent

and

TIMOTHY J.P. READY

Respondent

Before:

Susan Naylor, Director’s Delegate

Counsel:

Mark Wilson (for Progressive)

Ian Boundy (for Zurich)

Philip Morrissey (for Mr. Ready)

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 April 7, 1994 is confirmed;
The application for variation of the arbitrator’s order dated April 7, 1994 is dismissed.

June 25, 1997

Susan Naylor Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL AND APPLICATION FOR VARIATION

This appeal and application for variation arose out of two arbitration decisions dated April 7, 1994 and May 12, 1994. The orders involved a dispute over which insurance company - Progressive Casualty Insurance Company (“Progressive”) or Zurich Insurance Company (“Zurich”) is responsible for Mr. Ready’s accident benefits.

Mr. Ready was injured on September 27, 1992, while driving a limousine insured by Zurich. He leased the limousine from a third party and was not named on the certificate of insurance. Mr. Ready owned a vehicle for his personal use, which he insured with Progressive.

In her first order dated April 7, 1994, the arbitrator ruled that Progressive must respond to Mr. Ready’s claim. Progressive then asked to re-open the issue, arguing that Mr. Ready was excluded from benefits under its policy on the basis that the vehicle he was driving was used to carry fares. The arbitrator refused Progressive’s request for reasons given in her second decision dated May 12, 1994. Both these orders are in issue in this appeal.

II. BACKGROUND

A preliminary hearing was scheduled for March 1994 to sort out the question of priorities. The parties proceeded by way of an agreed statement of facts. According to those facts, Mr. Ready approached Progressive shortly after the accident about claiming statutory accident benefits. On September 29, 1992, Progressive sent him an application for benefits. Progressive then sent Mr. Ready a letter dated October 2, 1992, denying liability under its policy. The letter confirmed an earlier telephone conversation to that effect between the parties. It gave two reasons why Mr. Ready could not claim under the policy: firstly, he was entitled to workers’ compensation and, if he was not, his recourse was against Zurich because of a provision in the standard owner’s policy which excludes coverage of another vehicle, if the vehicle was “used for carrying passengers for compensation or hire ...at the time of the loss”, (referred to hereafter as the “commercial use exclusion”).¹

In subsequent mediation proceedings, the parties agreed that Zurich would pay benefits until the issue of priorities was resolved, subject to a right of reimbursement if Progressive ultimately was found liable.

The dispute went to arbitration, leading to the preliminary hearing involving the two insurers. No evidence was called. The hearing dealt with the application of the priority rules under sections 268(2)-(5) of the Insurance Act, R.S.O. 1990, c.I-8. In general terms, the relevant rules provide that if a person is a named insured under only one applicable policy, he or she must claim against that insurer, but if the person is a named insured under more than one such policy, he or she may select which insurer should pay benefits.

Progressive argued that Mr. Ready should be treated as a “named insured” under the Zurich policy, even though he was not specifically named in the certificate of insurance. It was Progressive’s position that Mr. Ready had a choice of insurers and had elected to receive benefits from Zurich. It relied on the arbitration decision in Sittler and Canadian General Insurance Company, Sittler and Pilot Insurance Company, (December 3, 1993, OIC A-000951 and 004495) aff’d on other grounds (November 8, 1995, P-000951 and P-004495). However, a General Division judge had disagreed with the reasoning in Sittler.² The arbitrator found it unnecessary to decide whether Sittler applied because her ruling would not have affected the disposition of the case in any event. She ruled that even if Mr. Ready was treated as a named insured of Zurich’s, giving him the right to chose as between Zurich and Progressive, he had elected to claim benefits from Progressive. The arbitrator also rejected Progressive’s argument that Zurich was estopped from disputing liability.

Progressive did not argue that Mr. Ready was excluded under the commercial use exclusion in the policy. The arbitrator’s decision confirms this:

Mr. Wilson and Mr. Boundy agreed that it is not known whether there was a passenger in the vehicle or whether Mr. Ready was working at the time of the accident. I was not asked to determine whether Mr. Ready is entitled to receive workers’ compensation benefits in connection with the accident, nor whether the commercial use exemption under section 5.2.2(iv) F applies.

(Decision, page 5)

Once the arbitrator decided which insurer was responsible for benefits, she scheduled a hearing date a month later to deal with any remaining issues between Mr. Ready and Progressive. At this point, Zurich was supposedly out of the picture.

In the meantime, Progressive asked to re-open the issue of liability as between the insurers at the upcoming hearing. Shortly before the resumption, the arbitrator held a telephone conference call with Progressive’s and Zurich’s lawyers to deal with the question. Progressive supported its request to be allowed to argue the commercial use exclusion with additional information showing that the limousine was carrying a passenger at the time of the accident.

The arbitrator refused to re-open the issue of the respective liability of Progressive and Zurich. In her view, she had no jurisdiction to do so, under the doctrine of functus officio, having previously ruled on the matter.

When the hearing between Mr. Ready and Progressive resumed, Progressive reiterated its request that the arbitrator deal with the issue of the commercial use exclusion. She refused this request, among other things, because Zurich was not present and had been given no notice that the issue was to be argued. She ruled that Progressive must pursue its remedy through an appeal or application for a variation. This is what Progressive has done.

The Insurance Act provides two different options for reviewing arbitration decisions. Either party may appeal the decision under section 283, provided they do so within the time-frame set out in the legislation. On appeal, the Director may confirm, vary or rescind the order or may make a new order. Alternatively, either party may apply to the Director to vary or revoke an arbitration order under section 284. Section 284(3) sets out when an order may be varied or revoked. It states:

If the arbitrator or Director is satisfied that there has been a material change in the circumstances of the insured or that evidence not available on the arbitration or appeal has become available or that there is an error in the order, the arbitrator or Director may vary or revoke the order and may make a new order if he or she considers it advisable to do so.

Progressive argues that the application of the commercial use exclusion would have changed the result, relieving Progressive of liability and requiring Zurich to respond to the claim. It asks that the arbitrator’s April order be revoked on the basis that relevant evidence has become available since the arbitration. It asks for a re-hearing so that it can introduce evidence and make submissions about the application of the exclusion. It ultimately seeks an order that coverage for accident benefits is excluded under Progressive’s policy and that Zurich is the responsible insurer. Progressive has also appealed the arbitrator’s orders, alleging that the arbitrator erred by:

failing to apply the reasoning in Sittler;
finding that Mr. Ready was entitled to elect to claim benefits in his absolute discretion and that he elected to claim benefits from Progressive;
finding that a telephone conversation between Mr. Ready and Progressive and the October 2, 1992 letter from Progressive constituted an application and denial;
holding that Progressive was estopped from asserting that payment of the initial claim by Zurich constituted acceptance of the claim;
failing to consider the commercial use exclusion or in precluding further evidence and submissions in regards to it;
finding Progressive liable to pay Mr. Ready’s benefits.

III. ANALYSIS

There are few decisions that address the statutory criteria for a variation. However, a number of decisions have considered when it is appropriate to allow fresh evidence on an appeal. For the most part, evidence that was not before the arbitrator will not be allowed on appeal unless the following conditions are met:

(i) the party could not have obtained the evidence for the hearing with due diligence;

(ii) the evidence must be reasonably capable of belief;

(iii) the evidence must relate to a potentially decisive issue, and if believed, when taken with the other evidence adduced at the hearing, be reasonably expected to have affected the result or be an important influence on it.

The criteria for variation on the basis of “evidence not available at the hearing” may be somewhat different. This case, for example, does not involve the question of allowing fresh evidence in respect of an issue that was determined at the hearing. Progressive asks to address an issue that has not been dealt with. In general terms, however, the party seeking the variation must be able to show that the evidence could not have been obtained for the hearing by due diligence and that, if allowed, the evidence might reasonably be expected to have an important influence on the outcome.

The evidence that Progressive relies on is a police report and a transcript of a statement made by Mr. Ready to a claims representative in October, 1992. Both documents confirm that Mr. Ready had a passenger in the limousine when the accident occurred.

Progressive argues that both Zurich and Mr. Ready knew all along that it intended to rely on the exclusion. It was no surprise to anyone. It submits that, despite reasonable efforts, it could not have introduced the evidence at the preliminary hearing. It blames Zurich for this. Progressive concedes that it did not ask the arbitrator to deal with the application of the exclusion and did not introduce evidence in relation to it. It explains that at the outset of the hearing, Zurich refused to agree to the fact that Mr. Ready had a passenger in the limousine, even though this fact was not a contentious one. Progressive had not anticipated this. Since the preliminary hearing was supposed to proceed on the basis of an agreed statement and there were no witnesses present, Progressive decided not to raise the issue of the exclusion. It did so because “in the absence of either an agreement that there was a passenger or, alternatively, Mr. Ready’s evidence, the factual basis for advancing the argument as to the applicability of the exclusion was lacking.” (Written Submissions, page 4).

It is not entirely clear when Progressive received the police report and statement. The arbitrator was told Progressive had a tape of Mr. Ready’s statement but did not have it transcribed until after the hearing. I am not sure it matters. Progressive’s point is that it could not have introduced relevant evidence - including testimony from Mr Ready - at the hearing, because of way the hearing transpired.

I have some difficulty with Progressive’s position. While parties are to be encouraged to proceed on the basis of an agreed statement of facts in appropriate cases, it remains the obligation of the party asserting a claim or raising an exclusion to ensure that the necessary evidence - whatever its nature - is before the arbitrator to prove the party’s position.

The legislation places limits on when an order may be reviewed in the interests of ensuring that, in an adversarial process, the parties prepare adequately for the hearing and to secure a finite end to the adjudication process. There is no suggestion that Zurich deliberately misled Progressive about the facts it was prepared to agree to or that it breached some understanding between the parties. What seems to have happened is that Progressive did not anticipate there would be any difficulty obtaining agreement as to the facts. As it happens, there was. Progressive was then left with insufficient evidence to maintain its position and insufficient time at the outset of the hearing to take other steps to secure the necessary evidence. It did not, however, ask for an adjournment or explain the circumstances to the arbitrator. In my view, that is not a good enough reason to disturb the arbitrator’s order, whether the request is grounded in an application for variation or an appeal.

I might have taken a different view of the variation application, had I thought that Progressive was prevented from raising a determinative argument in its favour. However, arbitration and appeal decisions, to date, have held that the commercial use exclusion does not apply to accident benefit cases.³ This suggests that even if Progressive is granted a new hearing, its prospects of success are slim. Therefore, I am not persuaded that re-opening the issue of which insurer is liable to pay Mr. Ready’s benefits is warranted.

Progressive also suggests that the arbitrator erred in failing to consider the commercial use exclusion on her own motion. However, the issue did not involve the operation of a clearly applicable and unequivocal legal rule. On the contrary, the applicability of the exclusion was a matter of legitimate dispute. It was up to Progressive to place the necessary evidence and arguments before the arbitrator, if it wanted her to address the issue.

Progressive disputes the arbitrator’s finding that Mr. Ready elected to claim benefits against it. The arbitrator’s ruling was made under subsection 268(5) of the Insurance Act. Section 268(4) states that, if a person has recourse as an insured against more than one insurer under the priority rules:

...the person, in his or her absolute discretion, may decide the insurer from which he or she will claim the benefits.

Subsection 268(5) qualifies 268(4). It says:

Despite subsection (4), if a person is a named insured under a contract evidenced by a motor vehicle liability policy or the person is the spouse or a dependant, as defined in the ...Schedule, of a named insured, the person shall claim statutory accident benefits against the insurer under that policy and, if there is more than one such policy, the person, in his or her discretion, may decide the insurer from which he or she will claim the benefits.

Progressive takes issue with the arbitrator’s finding that Mr. Ready decided to claim benefits from it, rather than Zurich. It attaches importance to the fact that he never completed an application for accident benefits and his claim was never formally denied. The arbitrator rejected this position. She relied on the fact that Mr. Ready approached Progressive first, and applied to Zurich only after receiving Progressive’s letter indicating that benefits were not available. In my view, her finding that Mr. Ready decided on Progressive was reasonable and supported by the agreed facts.

Even if the arbitrator was wrong, subsequent decisions suggest that Progressive would not succeed in any event. The reasoning in the cases indicates that, rather than having a choice of insurer, Mr. Ready would have sole recourse against Progressive under the “named insured” provisions of subsection 268(5).⁴

Progressive appeals the arbitrator’s finding that Zurich’s subsequent payment of benefits did not estop Zurich from disputing liability. Progressive did not expand on this ground of appeal and I am puzzled by it. According to the undisputed findings, Zurich put Progressive on notice from the outset that it would pay under protest. Progressive also apparently agreed at mediation that it would not raise an estoppel against Zurich.⁵ In these circumstances, there is little merit to Progressive’s position.

Accordingly, I find no basis to interfere with the arbitrator’s determination that Progressive is the responsible insurer. The appeal is therefore dismissed.