Neutral Citation: 1999 ONFSCDRS 138

FSCO A98-000972

BETWEEN:

AFAF ZEKO

Applicant

and

PROGRESSIVE CASUALTY INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Shemin N. Manji

Heard:

June 7, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Written submissions were received on June 17 and 24, 1999.

Appearances:

Loftus J. Cuddy for Mrs. Zeko

Peter D. Kazdan for Progressive Casualty Insurance Company

The Applicant, Afaf Zeko, was injured in a motor vehicle accident on October 7, 1995. She applied for arbitration on May 22, 1998. At the time Mrs. Zeko applied for arbitration, she had already commenced a court proceeding against Progressive, dealing with her entitlement to statutory accident benefits. At the pre-hearing discussion held on November 30, 1998, Progressive requested an order dismissing the arbitration on the basis of multiplicity of proceedings. Progressive also took the position that an arbitrator had no jurisdiction to hear the matter because Mrs. Zeko had failed to submit to Progressive the claims which were alleged to be in issue, and also had failed to mediate any of the issues in dispute as required by subsection 281(2) of the Insurance Act, R.S.O. 1990, c. I.8, as amended.

At the pre-hearing on November 30, 1998, Mrs. Zeko indicated that it was her preference to proceed with the arbitration rather than her court action. I ruled that Mrs. Zeko could proceed with the arbitration, provided she withdrew her related court action forthwith. Mrs. Zeko's counsel, Mr. Cuddy, undertook to withdraw the court action immediately and to advise me as soon as it was withdrawn.

In respect of Mrs. Zeko's failure to submit the claims which were alleged to be in issue in the arbitration to Progressive, I ruled, again, that Mrs. Zeko could proceed with the arbitration provided firstly she submitted her claims to Progressive within 30 days of the pre-hearing discussion, i.e., by December 30, 1998, and secondly if these claims were disputed, she applied for mediation immediately. Mr. Cuddy undertook to do this on Mrs. Zeko's behalf. I scheduled the arbitration hearing far enough ahead to allow this to happen.

Mr. Cuddy failed to carry out the undertakings given by him at the pre-hearing on November 30, 1998. This necessitated two resumptions of pre-hearing discussion — the first on March 16, 1999 and the second on June 7, 1999. Mr. Cuddy did not submit the claims which were alleged to be in issue in the arbitration to Progressive until March 19, 1999 and he did not obtain an Order from the Superior Court of Justice dismissing the court action until early June 1999. Following receipt of the Application for Accident Benefits, Progressive denied entitlement to all benefits and expenses claimed by Notice of Assessment form sent March 26, 1996. To date Mrs. Zeko has not applied for mediation of any of the issues.

At the resumption of the pre-hearing on June 7, 1999, Progressive again moved for an order dismissing the arbitration and requiring Mrs. Zeko to pay both Progressive's expenses in respect of the arbitration and its assessment fee.

The issues are:

Should this arbitration be dismissed?
Is Progressive entitled to an award under subsection 282(11.2) of the Insurance Act, in the amount of its assessment fee?
Is Progressive entitled to be reimbursed for the expenses it has incurred as a result of this Application for Arbitration being filed?

This arbitration is dismissed because it is premature. This means that Mrs. Zeko may recommence her Application for Arbitration at some future date, after the issues that are the subject of her Application for Arbitration have been mediated and mediation has failed.
Mrs. Zeko shall pay Progressive $3,000. This sum must be paid before Mrs. Zeko recommences her Application for Arbitration.
Mrs. Zeko must pay Progressive its expenses in respect of the arbitration proceeding in the amount of $569.50 plus GST of $39.86.

1. Should this arbitration be dismissed?

Progressive submits that this arbitration should be dismissed principally for two reasons: (1) the issues identified in the Application for Arbitration are already the subject of a court action; and (2) the Application is premature. I will consider both reasons.

Multiple proceedings:

Subsection 281(1) of the Insurance Act requires that, after participating in mediation, an insured person may elect to bring a proceeding in a court of competent jurisdiction, or alternatively, to refer the issues in dispute to arbitration at the Commission, or in the further alternative, with the insurer's consent, to submit any issue in dispute to private arbitration in accordance with the Arbitration Act, 1991. The insured person cannot bring a proceeding in court and refer the issues in dispute to arbitration at the same time.

In this case, I am not able to dismiss this arbitration on the basis that the issues identified in the Application for Arbitration are already the subject of a court action as requested by Progressive. The reason is that on June 14, 1999 I received from Mr. Cuddy a copy of an Order of the Superior Court of Justice dismissing the action in Zeko, A. vs. Progressive Casualty Insurance Company of Canada (Court File 96-SR-112218, June 8, 1999).

Mr. Cuddy did not carry out the undertakings he gave at the pre-hearing discussion on November 30, 1998 and, again, at the resumption of the pre-hearing on March 16, 1999, to withdraw Mrs. Zeko's court action forthwith. However, after having received the confirmation that the court action has been dismissed, I am not satisfied that I have authority to dismiss this arbitration on the basis of Mr. Cuddy's delay in obtaining the court order dismissing the action.

The Application is premature:

Following the accident, Progressive initially disputed Mrs. Zeko's claim to income replacement benefits. The dispute was referred to mediation and the Report of Mediator dated February 23, 1998 states that at mediation Progressive agreed to pay Mrs. Zeko weekly income replacement benefits from October 14, 1995 to February 9, 1996, the date when she returned to her pre-accident employment. Mrs. Zeko worked until August 21, 1998, when she laid off work again.

The claims which are the subject of Mrs. Zeko's Application for Arbitration are as follows:

Further weekly income replacement benefits;
Loss of earning capacity benefits;
Further housekeeping and attendant care benefits;
Further medical or rehabilitation benefits; and
Expenses for any other pecuniary losses.

At the pre-hearing on November 30, 1998, Mr. Cuddy acknowledged that Mrs. Zeko had not submitted to Progressive her claim for further weekly income replacement benefits, for the period after she laid off work in August 1998. Mr. Cuddy also acknowledged that Mrs. Zeko had not submitted claims for any other benefits or expenses. As noted above, Mr. Cuddy undertook to submit these claims to Progressive, on Mrs. Zeko's behalf, within 30 days of the date of the pre-hearing discussion and, in the event there was a dispute in respect of the benefit or expense, to apply for mediation immediately.

Again, as noted above, Mr. Cuddy did not submit Mrs. Zeko's claims to Progressive until March 16, 1999. Progressive denied entitlement to further weekly income replacement benefits and all expenses claimed by Mrs. Zeko by Notice of Assessment form sent March 26, 1996. However, Mr. Cuddy has not referred the issues in dispute to mediation to date.

Progressive has refused to consent to have the issues in dispute referred to arbitration until mediation has taken place and failed. Subsection 281(2) of the Insurance Act states that "(n)o person may "...refer the issues in dispute to an arbitrator under section 282 ... unless mediation was sought..." and mediation failed. Accordingly, I find that Mrs. Zeko cannot refer the issues in dispute to arbitration at this time because she has not sought mediation in respect of those issues and mediation has not failed. Her Application for Arbitration is, therefore, premature. Accordingly, I am dismissing it.

In his submissions, Mr. Cuddy appears to take the position that mediation is not necessary because the first mediation had left "...certain issues alive..." Specifically he submits:

...The fundamental issue raised by the second application for accident benefits, dated March 19, 1999, is the same as it has been since the process began, in October 1995, that is, entitlement. Did the motor vehicle accident of October 7, 1995 cause injuries which have ever prevented Mrs. Zeko from working, whether in the weeks following the accident, or after August 21, 1998? The issue of initial entitlement has never been dealt with, and the insurer's position has officially always been that no accident benefits are due, or have ever in law been due, as a result of the operation of s. 58(3)(a) of the Insurance Act. Initial entitlement, then, is an issue which remains to be resolved, and over which the Commission has never lost jurisdiction in the within proceeding. The mediation process left certain issues alive, as is clear from Mr. Robinson's correspondence dated February 19, 1998.

The only document that I have before me is the Report of Mediator of February 23, 1998. It indicates that the mediation process did not leave any issues "alive." Specifically, it indicates that Progressive agreed to pay Mrs. Zeko weekly income replacement benefits from October 14, 1995 to February 9, 1996, as well as interest on these overdue benefits. The Report of Mediator also indicates that there were no other issues in dispute at the time. It appears that, for settlement purposes, Progressive abandoned its initial position that Mrs. Zeko was not entitled to weekly income replacement benefits as a result of paragraph 58(3)(a) of the Schedule¹

Mr. Cuddy submits that Mrs. Zeko's Application for Arbitration should not be dismissed because of a mere procedural defect or incorrectness. He submits that Progressive has had actual notice of Mrs. Zeko's claims and has received documents in support of those claims and would not be prejudiced if the arbitration proceeded. He also submits that Mrs. Zeko's Application for Arbitration raises live issues — issues worthy of being dealt with at a hearing.

This submission ignores the statutory scheme that governs the resolution of disputes pertaining to statutory accident benefits in this Province which sets out mediation as a prerequisite to arbitration. It is a mandatory first step. Whether Progressive has had notice of Mrs. Zeko's claims or whether her application raises issues worthy of being dealt with at a hearing is insufficient.

The arbitration hearing is scheduled for September 21, 22 and 23, 1999. I am not prepared to adjourn the September hearing dates as suggested by Mr. Cuddy to give him any more time to rectify or cure this jurisdictional defect. I have held off dismissing Mrs. Zeko's Application for Arbitration now for close to seven months, despite repeated requests from Progressive.

Mr. Cuddy submits that I have no authority to dismiss this Application for Arbitration without a hearing on the merits. He relies, inter alia, on my decision in Sofantzidelis and Axa Insurance (Canada)² in support of this proposition.

What I was asked to do in Sofantzidelis was different from what I am doing in this case. In Sofantzidelis there was no dispute as to the initial jurisdiction of this Commission to hear the matter. In this case I am dismissing Mrs. Zeko's Application for Arbitration because it is premature. The issues that are the subject of her Application for Arbitration have not been mediated. The Insurance Act says that she cannot refer issues in dispute to arbitration unless mediation has first been sought in respect of those issues and has failed. This means that Mrs. Zeko can recommence her Application for Arbitration after mediation has been attempted and found unsuccessful.

2. Is Progressive entitled to an award in the amount of its assessment fee?

Progressive seeks an order for recovery of its $3,000 assessment fee from Mrs. Zeko pursuant to subsection 282(11.2) of the Insurance Act, which provides as follows:

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.

There is no evidence before me to indicate that Mrs. Zeko commenced an arbitration that is frivolous or vexatious. I heard no evidence on the merits of the claims which are the subject of her Application for Arbitration. However, in my opinion, Mrs. Zeko commenced an arbitration that is an abuse of process. At the time that she commenced her arbitration there were no issues in dispute between Mrs. Zeko and Progressive. She had not even submitted her claims to Progressive. She had, therefore, also failed to mediate any issues in dispute, as required by subsection 281(2) of the Insurance Act. Also, at the time Mrs. Zeko commenced her arbitration, a court proceeding against Progressive had already been commenced for the same relief (entitlement to statutory accident benefits sought in this proceeding).

After Mrs. Zeko commenced her arbitration, her counsel was given several opportunities to correct these jurisdictional deficiencies. Her counsel's consistent failure to carry out the undertakings he gave to the Arbitrator shows a disrespect for the arbitration process. As noted earlier, his failure to comply with his undertakings necessitated two resumptions of the pre-hearing discussion. He has put both the Commission and Progressive to needless time and expense. I find, therefore, that Mrs. Zeko is required to pay Progressive the amount of $3,000. If she fails to do so, she will be precluded from filing another application for arbitration in respect of the same issues.

Mr. Cuddy submits that some type of mental element is usually present when a finding is made that there has been an abuse of process. He submits that in Beros and Allstate Insurance Company of Canada³ where the applicant had failed to produce documents, had failed to attend two insurer medical examinations, and had failed to make his whereabouts known, the arbitrator declined to dismiss the arbitration because there was no evidence before her to suggest an intention on the part of the applicant to abuse the dispute resolution process or to suggest that the applicant's conduct was wilful. Mr. Cuddy submits that at the two pre-hearings in 1999, he tried to express how much he regretted not having carried out his undertakings made at the November 30, 1998 pre-hearing discussion, and not having filed a notice of discontinuance of the action after the pre-hearing of March 16, 1999. Mr. Cuddy submits that such neglect was not Mrs. Zeko's fault at all. He submits that it was a matter of his paperwork being overlooked in his overly busy practice. Mr. Cuddy submits that his circumstances are much better now. He asks me to find that there was nothing wilful on his part, and there was no intention whatsoever to abuse the dispute resolution process. He submits that he is now more than ready to gather all of the documents requested by Progressive and to advance Mrs. Zeko's claims in an arbitration.

I don't believe that abuse of process is limited to situations of intentional contemptuous conduct. It could be caused by neglect. According to the Law Society of Upper Canada's Professional Conduct Handbook,⁴ an undertaking given by a lawyer to the court or administrative tribunal or to another lawyer in the course of litigation must be strictly and scrupulously carried out. Unless clearly qualified, a lawyer's undertaking is a personal promise and responsibility. The reason offered by Mr. Cuddy for not carrying out his undertakings in this case, an overly busy practice⁵is not a sufficient excuse for his failure to carry out the undertakings. Mr. Cuddy's neglect of his undertakings indicates that he did not attach much importance or priority to them. To date Mr. Cuddy has still not carried out his undertaking to mediate Mrs. Zeko's claims.

I accept that Mr. Cuddy's failure to comply with the undertakings was not Mrs. Zeko's fault, however, pursuant to subsection 282(11.2) of the Insurance Act, I can only make an award (in an amount up to the insurer's assessment fee) against the insured person. Although I have no authority to so order, I am of the opinion that this award should be paid personally by Mr. Cuddy.

EXPENSES:

Progressive also seeks an award of expenses pursuant to subsection 282(11) of the Insurance Act. It seeks to recover the legal expenses incurred by it in the arbitration proceeding to date or its "costs thrown away."

Recent amendments to the Insurance Act permit an arbitrator to award expenses in favour of an insurer. Rule 73 of the Dispute Resolution Practice Code (Third Edition, April 15, 1997) sets out several criteria for the arbitrator's consideration. In particular, under (b), an arbitrator may consider any conduct of a party that "...tended to prolong, obstruct or hinder the proceeding, including failure to comply with undertakings or orders," and under (c) an arbitrator may consider whether the proceeding was "...manifestly unfounded, frivolous, vexatious, fraudulent or an abuse of process."

I find that Mrs. Zeko's counsel's conduct falls within (b) — he failed to comply with his undertakings. And, for the reasons given above, I also find that the arbitration proceeding initiated by Mrs. Zeko was an abuse of process. Therefore, Progressive is entitled to its legal expenses in respect of the arbitration to date.

Mr. Cuddy agrees that Progressive should be compensated for its legal fees to some extent as a result of "...the delay caused by (Mr. Cuddy's) lack of organization and resources." The question is what is the appropriate amount. Mr. Cuddy suggests a total amount of $600.

Progressive seeks to recover legal fees in the amount of $850 plus GST of $59.50. Specifically it seeks to recover the following:

$100 (1 hour x $100/hr.)

Preparation of Response to Mrs. Zeko's Application for Arbitration

$350 (3.5 hours x $100/hr.)

Preparation and attendance at Pre-hearing discussion on November 30, 1998

$200 (2 hours x $100/hr.)

Preparation and attendance at Resumption of Pre-hearing discussion on March 16, 1999

$200 (2 hours x $100/hr.)

Preparation and attendance at Resumption of Pre-hearing discussion on June 7, 1999.

Arbitration decisions have held that the overriding consideration for an arbitrator in fixing expenses is the reasonableness of the expenses claimed.⁶ I heard no detail about Mr. Kazdan's work. However, Mr. Cuddy did not challenge the number of hours claimed by Progressive for the work performed by its counsel (Mr. Kazdan) in this arbitration to date. Further, the number of hours claimed by Progressive for the work performed by Mr. Kazdan to date appear to be reasonable. In coming to this conclusion, I have considered the maximum time allowed under the Regulation made under the Legal Aid Act, R.S.O. 1990, Chap. L. 9, for a comparable service.⁷

While section 76 of the Code does not set out the maximum number of hours to be allowed, it sets out the hourly rate to be paid. Progressive is claiming legal fees at an hourly rate of $100. The Dispute Resolution Practice Code provides that the maximum amount that may be awarded to an insurer for legal fees is an amount calculated using the hourly rates established under the Legal Aid Act, for professional services in civil matters before the Ontario Court (General Division). The base hourly rate established under the Legal Aid Act is $67.⁸ The Legal Aid Act does provide for an increase based on the number of years of practice of counsel in civil litigation.⁹ In this case, however, I have no information as to the number of years of practice of Mr. Kazdan in civil litigation. Therefore, I am only able to award Progressive legal fees at the rate of $67 an hour. I find that Progressive is entitled to its legal fees for 8.5 hours at the rate of $67 per hour ($569.50) plus GST ($39.87). Again, although I have no authority to so order, I am of the opinion that this award should be paid personally by Mr. Cuddy.

July 15, 1999

Shemin N. Manji Arbitrator

Date