Neutral Citation: 1997 ONICDRG 124

OIC A-012411

BETWEEN:

L. MARGARET R. TURNER

Applicant

and

ECONOMICAL MUTUAL INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

The Applicant, L. Margaret R. Turner, was injured in a motor vehicle accident on May 13, 1991. She applied for and received statutory accident benefits from Economical Mutual Insurance Company, payable under Ontario Regulation 672.¹ Economical paid weekly income benefits up to May 12, 1994. Following an unsuccessful mediation, Ms. Turner applied for arbitration under the Insurance Act, R.S.O. 1990, c.I.8, as amended. At a prehearing discussion, held by telephone conference call shortly before the scheduled hearing, the lawyer for Ms. Turner and the lawyer for Economical negotiated an agreement. Economical takes the position the parties entered into a full and final settlement of their dispute at that time. Ms. Turner says she did not personally participate in the negotiation, did not sign the release, or otherwise personally confirm her acceptance of the agreement.

The issues in this hearing are:

Is Ms. Turner precluded from proceeding to arbitration on the basis she entered into a binding settlement of the issues in dispute?

Ms. Turner also claims her expenses incurred in the hearing.

Ms. Turner is not precluded from proceeding with an arbitration of the issues remaining in dispute.

The hearing was held at the offices of the Ontario Insurance Commission in North York, Ontario, on March 20, 1997, before me, John Friendly, Arbitrator.

The parties, witnesses, exhibits and other documents before the arbitrator are set out in Appendix A.

Economical discontinued payment of weekly income benefits to Ms. Turner on May 12, 1994. A four day arbitration hearing was scheduled to begin October 12, 1995. On September 27, 1995, Mr. Conforzi, the Insurer's legal representative, wrote the pre-hearing arbitrator to request a resumption of the pre-hearing to deal with a number of outstanding production requests. The pre-hearing resumption took place on October 6, 1995, by telephone. Some settlement discussions took place at that time.

A second resumption of the pre-hearing discussion was requested by Ms. Turner's lawyer, Vasken Khabayan. It too was conducted by telephone conference call and took place on October 10, 1995. One of the reasons given for this second pre-hearing discussion was Ms. Turner's request to speak to the pre-hearing arbitrator directly. Apparently, up to that point, Ms. Turner felt she had been excluded from the process.

After Ms. Turner spoke directly and alone with the arbitrator, the pre-hearing continued mainly as a dialogue between Mr. Khabayan and Mr. Conforzi. At a certain point in time Ms. Turner ceased participating in the conference call. The two lawyers, with the arbitrator's assistance, arrived at what they considered to be a settlement of the issues. It is clear that, although Ms. Turner was aware of her lawyer's involvement, she was not connected either to her lawyer or to the other participants during the relevant moments when settlement terms were worked out and agreed to.

On October 10, 1995, the pre-hearing arbitrator noted: "settled at 2nd resumption of pre-hearing; counsel for A will confirm settlement." The settlement was never confirmed by the Applicant or her counsel and the dates scheduled for the hearing passed. On October 24, 1995 the Commission sent out a letter stating that the arbitration file would be considered abandoned.

By letter dated October 19, 1995 Mr. Conforzi sent Mr. Khabayan a "Full and Final Release to be executed by your client and returned to us..." The release was sent together with the written notice required by the Settlement Regulation.²

Mr. Conforzi, on behalf of Economical argued that an agreement was reached on October 10, 1996 "on the numbers" with the help of the arbitrator. Disclosure notices required by the Settlement Regulation, together with a release setting out the terms of the agreement, were sent by the Insurer to Ms. Turner's counsel, and at some point in time she personally reviewed them. Mr. Conforzi submitted that the Insurer received no written notice of rescission and therefore the matter must be considered fully settled.

Mr. Gillen, on behalf of Ms. Turner argued that the "proposed" settlement negotiated by Mr. Conforzi and Mr. Khabayan was subject to Ms. Turner's approval. That approval was never obtained. He also argued that the Insurer's conduct following the October 10, 1995 meeting was inconsistent with its view that a full and final settlement had been reached.

In this case my task is to determine if there was a binding settlement between the parties. In order to make that determination I first have to be satisfied that there is an agreement and that the requirements of the Settlement Regulation have been met. If I find there is a binding agreement it is open to the Applicant to establish the agreement can be rescinded³ or should be set aside⁴or that the Insurer is estopped from relying on it.

1. Is there an Agreement ?

It was not disputed that on October 10, 1995 Mr. Vasken Khabayan was acting as Ms. Turner's legal representative. There was no suggestion his retainer was limited in any relevant respect or that he did not have the authority to engage in and negotiate an agreement on behalf of Ms. Turner. While it is generally preferable that parties fully participate in the dispute resolution process, it is not unusual for parties to engage representatives to advise them, assist them or negotiate on their behalf. Commission practice permits a person who does not fully participate at a meeting to have a representative attend in their stead so long as that representative has authority to make binding decisions on the person's behalf.⁵ I find that Ms. Turner was aware of the nature of the negotiations taking place between her lawyer and Mr. Conforzi but decided not to participate personally, and left the negotiations to her lawyer.

There was no suggestion that Mr. Khabayan could not bind Ms. Turner, or that he indicated to Economical or to the pre-hearing arbitrator that he would need to seek instructions from his client. The correspondence between the lawyers immediately following the October 10, 1995 conference call also indicates that an agreement between the parties had been reached, subject only to the execution of the settlement documents and compliance with the Settlement Regulation.

I find that Mr. Khabayan had sufficient authority to settle the claim on Ms. Turner's behalf in her absence. I find that an agreement was reached on October 10, 1995 between Ms. Turner and Economical.

2. The Terms of the Agreement:

Economical argued that the terms of that agreement are set out in the "Full and Final Release" which was prepared by Economical and sent to Mr. Khabayan for Ms. Turner's signature. In exchange for a Full and Final Release she would receive $7,500 plus fees of $1,500 and disbursements in an amount to be advised. The Release also requires Ms. Turner and her lawyer to "certify" that Ms. Turner has been "provided with legal advice concerning the full effect and meaning of this settlement and the execution of this Full and Final Release ... in full compliance with section 9.1 of the Settlement Regulation"⁶

The release was sent to Mr. Khabayan by letter dated October 19, 1995.

Mr. Khabayan testified these terms were consistent with his understanding of what was agreed to on October 10, 1995. He also stated there were no minutes of settlement, notes or any other contemporaneous document recording what he had agreed to during his telephone conference call with Mr. Conforzi.

Mr. Khabayan wrote Mr. Conforzi on November 6, 1995 as follows:⁷

My client will be in next week to sign the Full and Final Release. At that time I will give you a break-down of the disbursements along with the Release.

Mr. Conforzi wrote again on November 27, 1995 asking for the executed release "in order that we can finalize the matter" but received no response⁸

Ms Turner did not sign the release. The list of disbursements was never sent. The Insurer did not transfer settlement funds.

In her testimony, Ms. Turner indicated that when she attended at her lawyer's office she saw the settlement documents but did not read through them because the settlement "numbers were so ridiculous." She took the settlement documents home but did not read them "for several months." She explained that she was very ill and upset at the time and was "unable to function."

From the end of November 1995 until March 1996 no action was taken by either Ms. Turner or Economical with respect to either the agreement or the arbitration proceeding.

Ms. Turner wrote a letter to the Commission dated March 1, 1996. This was apparently in response to the Commission's letter of October 24, 1995 closing the arbitration file. In her letter Ms. Turner writes that the matter "remains unsettled." She indicates her lawyer "for reasons unknown" did not submit outstanding medical expenses to Economical. She writes: "Before any settlement proposal can be rightly considered these expenses must be reimbursed to me." She requests "an extension" of the arbitration.

A more detailed letter, dated March 18, 1996,⁹ was sent to Economical. In it Ms. Turner sets out the particulars of supplementary medical and rehabilitation expenses totalling more than $12,000. She explains that "...for some unknown reason Mr. Khabayan neglected to submit my receipts."

Ms. Turner sent out two letters dated April 2, 1996. The letter addressed to Economical¹⁰ states she will file a complaint with the Commission if she does not receive payment of her outstanding medical expenses in seven days. Her communication with the Commission requests that the arbitration hearing be rescheduled for some time in September, so that she might have time to retain another lawyer.

Mr. Conforzi wrote Mr. Khabayan on April 2, 1996 to inquire whether he still represented Mrs. Turner.

Mr. Khabayan confirmed by letter faxed April 4, 1996 that he continued to represent Mrs. Turner. He asked whether $16,000 in medical expenses previously submitted to the Insurer had been "... paid out to Mrs. Turner, as they were not part of the mediation and arbitration disputes." Mr. Khabayan also wrote:¹¹

Mrs. Turner also wants confirmation that the final release with respect to the issues in arbitration is for all benefits, and not just weekly income benefits. That was my understanding of the situation but she insists it was otherwise."

Mr. Conforzi wrote back on April 8, 1996:¹²

"...please be advised that the release was for all issues in arbitration. Please advise of your client's position."

Although there is a discrepancy between what Mr. Khabayan says he agreed to and what Ms. Turner thought or assumed had been agreed to I find that the terms of the agreement negotiated on October 10, 1995 are as set out in the Full and Final Release prepared by Economical.

Although certain disbursements are left to be determined at a future date it was not disputed that this agreement would be considered a full and final "settlement" as that term is defined by the Settlement Regulation.

Analysis:

Is there a binding Settlement?

a) The proper approach

Although I have found an agreement was reached on October 10, 1995, both parties acknowledge there can be no binding settlement unless there is compliance with the Settlement Regulation.

In this regard, counsel for the Insurer urged me to adopt the view of Arbitrator Palmer in Abdulbaki¹³ over the reasoning of Arbitrator McMahon in Soordhar.¹⁴ Mr. Conforzi suggested these two decisions come to different conclusions as to when an agreement becomes an irrevocable settlement for the purposes of the Settlement Regulation.

In Abdulbaki, the insurer attempted to withdraw from a settlement negotiated with the applicant four days earlier. In the four day period between acceptance of the offer and the insurer's letter of rescission no action had been taken to finalize the settlement. "No draft release had been sent to the Applicant, no release had been executed, no money had been exchanged and the application for the arbitration had not been withdrawn."¹⁵

Significantly, the insurer in Abdulbaki also did not send the applicant the notice required by the Settlement Regulation.

Arbitrator Palmer concluded:

In my view, the written notice contemplated by the Settlement Regulation must be delivered before an effective settlement can be achieved by the parties to the agreement. Although the wording of the regulation is somewhat awkward because it refers throughout to both an effective settlement (as achieved by following the procedure prescribed by the regulation) and a tentative settlement by the same word "settlement," in my view the plain meaning is clear. First, negotiations by the parties result in a tentative settlement, then the insurer will deliver a comprehensive written notice to the insured person. After two business days elapse, an effective settlement will have been achieved.

In Soordhar the applicant gave her lawyer written instructions to accept the insurer's offer. The lawyer communicated that acceptance to the insurer. Eleven days after the offer was accepted the insurer delivered to the applicant's lawyer the "Final Release and Notice" in accordance with the requirements of the Settlement Regulation, together with settlement funds to be held in escrow. Three days after her lawyer received the settlement documents, the applicant attended at her lawyer's office to review the documentation and sign the release. However, by that time the applicant had changed her mind and no longer wished to accept the terms. Her lawyer faxed a recision notice that same day. The insurer argued that the settlement became binding two days after notice was delivered to the applicant's lawyer. The relevant part of the decision in Soordhar reads:¹⁶

It is my view that the drafters [of the Settlement Regulation] contemplated that the parties would negotiate the basis for a settlement, following which the insurer would prepare the settlement documents including the notice provided for in subsection (2). If after receipt and review of the disclosure statement the insured person is still content to dispose of his or her claim on the basis of the settlement proposal, and confirms that intention by notifying the insurer that the settlement proposal is accepted, then and only then does the "cooling off" period commence.

[The insurer's lawyer] argued that this three step process is too cumbersome and affords the insured too many opportunities to resile from what would otherwise be a binding settlement. He argued that the insured is adequately protected by a two stage process in which the delivery of the written notice follows the formal settlement, and that the "cooling off' period commences upon the delivery of that notice. There is some merit to this argument, however I am satisfied that to accede to it would be to ignore the clear wording of subsection (2) which provides for the delivery of the notice before a settlement is entered into.

b) the significance of the release

I agree with Arbitrator McMahon that the Regulation contemplates, in the typical case, that the insured will signify her acceptance of the proposed agreement following the insurer's compliance with the provisions of the Settlement Regulation. The two day cooling off period does not begin to run until that time. In addition to whatever other significance it may have, signing a release serves the purpose of indicating when the proposed agreement has been accepted by the applicant. In the typical situation, it is evidence of the commencement of the two day cooling off period.

In this case, in the absence of contrary evidence, the fact that Ms. Turner did not sign the release indicates she found the agreement unacceptable (following the Insurer's mandatory disclosure). I find that Ms. Turner rejected the agreement when she visited her lawyer's office in November 1995. While Ms. Turner later discovered other reasons to reject the agreement, I find that the outstanding medical expenses, discovered sometime in early 1996, acted only to reinforce her initial decision in November to reject the proposed agreement.

Like the insurer's lawyer in Soordhar, Mr. Conforzi argued Arbitrator McMahon's 'three step' approach is impractical, unworkable, and unsupported by the legislation.

Far from being impractical or unworkable, it appears to me that the insurer's practice in the Soordhar case - waiting two days following the signing of the release (or the return of the signed release) before issuing funds - can be a routine and efficient procedure.

The real question to be determined is not whether the 'three step approach' is workable or the standard practice of most insurers. The question to be answered is: is it a practice supported by the Settlement Regulation?

c) the Settlement Regulation

Mr. Conforzi argued the Regulation does not say a release is required, or that the two day cooling off period runs from the time it is signed. The Regulation reads as follows:

19.1.— (1) In this section, "settlement" means an agreement between an insurer and an insured person that finally disposes of a claim or dispute in respect of the insured person's entitlement to one or more benefits under the Statutory Accident Benefits Schedule.

(2) Before a settlement is entered into between an insurer and an insured person, the insurer shall give the insured person a written notice that contains the following:

A description of the benefits that may be available to the insured person under the Statutory Accident Benefits Schedule and any other benefits that may be available to the insured person under a contract of automobile insurance.
A description of the impact of the settlement on the benefits described under paragraph 1, including a statement of the restrictions contained in the settlement on the insured person's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act.
A statement that the insured person may rescind the settlement within two business days after the settlement is entered into by delivering a written notice to the insurer.
A statement that the tax implications of the settlement may be different from the tax implications of the benefits described under paragraph 1.
If the settlement provides for the payment of a lump sum in an amount offered by the insurer and, with respect to a benefit under the Statutory Benefits Schedule that is not a lump sum benefit, the settlement contains a restriction on the insured person's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act, a statement of the insurer's estimate of the commuted value of the benefit and an explanation of how the insurer determined the commuted value.
A statement advising the insured person to consider seeking independent legal, financial and medical advice before entering into the settlement.

(3) A settlement may be rescinded by the insured person, within two business days after the settlement is entered into, by delivering a written notice to the insurer.

(4) If the insurer did not comply with subsection (2), the insured person may rescind the settlement after the period mentioned in subsection (3) by delivering a written notice to the insurer.

(5) A restriction on an insured person's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act is not void under subsection 279 (2) of the Act if,

(a) the restriction is contained in a settlement; and

(b) the insurer complied with subsection (2). O. Reg. 780/93, s.7.

Both arbitrators, Palmer and McMahon, wrestled with the awkward wording of the Regulation. They agree that the structure of the Regulation requires that the information set out in subsection (2) be delivered to the insured before an agreement can be considered binding upon the parties. Arbitrator McMahon, in particular, concluded that delivery of the notice was a pre-condition to entering into a settlement. He struggled, however, with the wording of subsection (4) which he found could not be reconciled with his understanding of subsection (2) as a pre-condition to settlement.

I agree with the general conclusion reached by Arbitrator McMahon, that when the Regulation is looked at as a whole its provisions intend the insured to have a meaningful opportunity to consider the information disclosed to him or her before confirming acceptance of the agreement. The disclosure notice, for example, suggests the insured seek legal, medical and financial advice; consider the insurer's estimate of commuted values; review other benefits available, and tax implications. If an insured wished to consider seriously the information disclosed to him or her and make appointments with various professionals for their opinion, it might well take longer than two days to do so.

Arbitrator McMahon concluded that the two day cooling off period would, of necessity, commence after the person had time to digest and work productively with this disclosure information. He said there was an interim step following the insurer's delivery of settlement documents. In his view the insured would next have to communicate his or her continued acceptance to the insurer before the cooling off period could begin.

In my view the sections which troubled Arbitrator McMahon can be reconciled. Subsection (2) directs the insurer to provide a disclosure notice to the insured before the settlement is "entered into." A settlement is merely an agreement that finally disposes of a statutory accident benefit claim. An agreement is "entered into" when there has been acceptance of an offer. Subsection (2) therefore asks the insurer to prepare the disclosure notice and deliver it to the insured before the parties have contractually committed themselves. In practical terms, following a period of negotiations, this will be accomplished by an offer, and a "delayed" acceptance following delivery of the settlement documents. The two day cooling off period runs after the settlement is entered into. In other words, the two day cooling off period runs from the date of the "delayed" acceptance.

If the parties negotiate an agreement but do not delay acceptance they will still have entered into a settlement. In this case however, the insurer will not be in compliance with subsection (2) because it has not delivered the notice before settlement. In this circumstance subsection (4) allows the settlement to be rescinded at any time, despite the acceptance.

If the Regulation is read this way, the disclosure notice should not be construed as a true "pre-condition" to settlement. Whether or not there has been a settlement is still to be determined under contract law principles. The delivery of the notice only affects when or how the insured's right to rescind is given effect.

Arbitrator McMahon did not specify how the insured would or could communicate acceptance of the agreement after receiving the disclosure information from the insurer. As I suggested earlier, in most cases the best evidence of post-disclosure acceptance will be a signed release.

This conclusion is suggested by the Regulation itself. Paragraphs 2 and 5 of subsection (2) requires the insurer to notify the insured that the settlement might restrict the insured's right to arbitrate or litigate their claims. The restriction is void under the Insurance Act¹⁷ unless subsection (5) of the Regulation is complied with. This subsection mandates that a restriction will not be valid unless the restriction is contained in the settlement and the insurer complies with subsection (2). Because notice of this restriction is conceptually and legally different than (or separate from) the restriction itself, this suggests the need to document both the notice and the restriction.

The release document is one manner in which the restriction on the right to arbitrate or litigate the claim may be evidenced as part of the settlement. The Regulation contemplates that following negotiations, settlement documents will be provided to the insured consisting of the notice required by subsection (2) and a restriction on further claims (the Release) which is otherwise prohibited under section 279(2) of the Insurance Act unless permitted by subsection (5) of the Regulation.

I conclude that the settlement scheme imposed by the Regulation was intended to create a higher degree of "settlement certainty" for both insurers and insureds where its provisions are routinely carried out. While the regulation enhances an insured's procedural and substantive rights, it does not do so at the expense of all previous settlement practice.

Viewed from this perspective the insurer can be satisfied that a binding settlement is in place if 1) the essential terms of the settlement are reduced to writing; 2) the insured has been given an opportunity to review the terms of the agreement in light of the information contained in the disclosure notice, and, 3) the insured has indicated he or she has read the disclosure notice and continues to be satisfied with the final agreement they have negotiated.

In my view the practice of obtaining a signed release is consistent with the purpose, scope and practical application of the Regulation. It is proof an insured has accepted or continues to accept the terms of the agreement in light of the insurer's statutory disclosure. If a release was signed in haste or in unfair circumstances, an insured person retains the protection of the two day cooling off period.

Conclusion:

Assuming proper disclosure, a written release indicates when an agreement can be considered binding under the Settlement Regulation. In this case the absence of the signed release was important evidence concerning whether Ms. Turner had accepted the agreement as negotiated by her lawyer and following the Insurer's mandatory disclosures. The evidence submitted at this hearing indicates overwhelmingly that Ms. Turner did not confirm her acceptance of the agreement. It also indicates Economical acted as if the agreement with Ms. Turner would or could not be binding until the release was executed by her. I come to this conclusion for two reasons. Firstly, the correspondence between Mr. Conforzi and Mr. Khabayan is, on balance, consistent with this view. Secondly, the Release document is specifically drafted so that Ms. Turner must acknowledge that compliance with the Settlement Regulation has already taken place.

If the agreement negotiated by her lawyer was intended to be subject to Ms. Turner's "delayed acceptance" it is obvious that that acceptance was not communicated. If instead the Insurer's offer is seen to be accepted on October 10, 1995, Economical would not be in compliance with subsection (2) of the Settlement Regulation. As a result, under subsection (4), Ms. Turner could rescind the settlement at any time. I find that Ms. Turner's letters to Economical dated March 18, and April 2, 1994 constitute sufficient notice of rescission.

Judged by its reactions to her letters, Economical knew, at least by April of 1996, but probably earlier, that Ms. Turner did not intend to complete the settlement on the terms negotiated by her lawyer.

Economical did not raise or attempt to rely on the October 10, 1995 settlement in its direct dealings or correspondence with Ms. Turner after March 1, 1996. On the contrary, it appears to have accepted that Ms. Turner would or could continue with the arbitration, and paid a number of her outstanding claims.¹⁸ This included payment on May 2, 1996, of $7,500. This amount, apparently represents interest owing on late payments of Ms. Taylor's weekly benefits during the initial 156 week period of her entitlement.

For all the reasons above, I find that the agreement negotiated October 10, 1995 is not a binding settlement under the Settlement Regulation.

Expenses:

The Applicant was successful. The Insurer asked that in the event Ms.Turner was successful, payment of her expenses be delayed until the end of the hearing on the main issues. However, I was given no reasons why I should delay payment and depart from the usual practice of awarding the successful Applicant her expenses for this preliminary issue hearing. Accordingly, I conclude that the Insurer should pay Ms. Turner's expenses for this hearing forthwith.

Order:

Ms. Turner did not enter into a binding settlement with Economical on October 10, 1995 and may therefore proceed to arbitration.
Ms. Turner is entitled to her expenses incurred in respect of the hearing of the preliminary issue, payable forthwith.

June 30, 1997

John Friendly

Arbitrator

Date

APPENDIX

Present at the Hearing:

Applicant:

L. Margaret R. Turner

Ms. Turner's

Michael Gillen

Representative:

Barrister and Solicitor

Economical Mutual's

Albert M. Conforzi

Representative:

Barrister and Solicitor

Witnesses:

L. Margaret R. Turner

Vasken Khabayan (Ms. Turner's former lawyer)

Exhibits:

Exhibit 1

Applicant's Document Brief (14 tabs) plus an addendum containing three letters from Ms. Turner addressed to the Commission

Exhibit 2

Statement of Fact of Economical (7 tabs)

Footnotes

Prior to January 1, 1994, Ontario Regulation 672 was called the No-Fault Benefits Schedule. After that date it became the Statutory Accident Benefits Schedule —Accidents On or Between June 22, 1990 and December 31, 1993. In this decision, the term "Schedule" will be used to refer to Regulation 672.
Section 9.1 of Regulation 664 as amended by Ontario Regulation 780/93.
McLennon and Pilot Insurance Company (May 2, 1997), OIC A96-001499
Branchaud and Co-operators General Insurance Company (May 2, 1997), OIC P96-00048
"Authority to Bind," Practice Note 3, Dispute Resolution Practice Code, 1997, Section C.
Exhibit 2, tab 4
Exhibit 2, tab 5
Exhibit 2, tab 6
Exhibit 1, tab 1
Exhibit 1, tab 2
Exhibit 2, tab 7
Exhibit 2, tab 7
Abdulbaki and Royal Insurance Company of Canada (December 12, 1995), OIC A-010205
Soordhar and Citadel General Assurance Company (December 5, 1995), OIC A-0062428
Supra, note 12, p. 4
Supra, note 13, p. 9
Section 279 (2)
Exhibit 1, tabs 5, 6, 7, 8, 9, 10 and 13

L. Margaret R. Turner v. Economical Mutual Insurance Company, 1997 ONICDRG 124

Case Summary