Neutral Citation: 1999 ONFSCDRS 21

FSCO A97-001660

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

WANDA GRAY

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before:

Suesan Alves

Heard:

Final submissions with respect to expenses were received by October 8, 1998.

Appearances:

Andrew R. Kerr for Ms. Gray

Guy Farrell for Zurich Insurance Company

Issues:

In a decision dated August 31, 1998, I determined that the Applicant, Wanda Gray, was not entitled to elect a loss of earning capacity benefit. Both parties claimed their expenses in respect of the arbitration, and counsel wished to make submissions in this regard. Further submissions were received from counsel by October 8, 1998.

The issues are:

Is Ms. Gray entitled to her expenses in respect of the arbitration?
Is Zurich entitled to its expenses in respect of the arbitration?

Result:

Ms. Gray is entitled to her expenses in respect of the arbitration.
Zurich is not entitled to its expenses in respect of the arbitration.

Reasons

Both parties claim their expenses in respect of the arbitration. Ms. Gray filed her application for arbitration on September 26, 1997. The legislation which governs the parties' claims for an award of expenses is section 282(11) of the Insurance Act, R.S.O. 1990, c. I. 8, as amended by section 38(4) of the Automobile Insurance and Rate Stability Act, S.O. 1996, c.21, which came into force on November 1, 1996.

Section 282(11) as amended provides:

The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

Section 12(2) of Ontario Regulation 464/96, which also came into force on November 1, 1996, provides:¹

An arbitrator may award expenses to an insurer or insured person under subsection 282 (11) of the Act if the arbitrator is satisfied that the award is justified, having regard to the following criteria:

Each party's degree of success in the outcome of the proceeding.
Conduct of the insurer or the insured person that tended to shorten or facilitate the proceeding or that tended to prolong, obstruct or hinder the proceeding, including failure to comply with undertakings or orders.
Whether the proceeding or any position taken by the insurer or the insured person during the proceeding was manifestly unfounded, frivolous, vexatious, fraudulent or an abuse of process.
The degree of complexity, novelty or significance of the factual or legal issues raised in the proceeding.
If the insurer or the insured person requests, any written offers to settle made after the conclusion of mediation and before the conclusion of the arbitration in accordance with the rules of practice and procedure applicable to the proceeding, including the terms of the offers, the timing of the offers and the responses to the offers, having regard to the result of the proceeding.
Any other matter related to the proceeding that the arbitrator considers relevant to the issue of whether an award of expenses is justified.

Section 282(11) of the Act gives an arbitrator power to grant expenses to both the insured person and the insurer in respect of an arbitration proceeding, according to criteria to be prescribed by regulation. Prior to this, an arbitrator had power to grant expenses only to an insured person, not to an insurer, and the criteria which guided an arbitrator in the exercise of his or her discretion were those developed in arbitration decisions.

In Allison and Markel Insurance Company of Canada,² Director's Delegate Naylor reviewed the manner in which arbitrators have exercised their discretion in relation to an award of expenses, beginning with the case of McCormick and Economical Mutual Insurance Company³ In McCormick, Arbitrator Naylor concluded that:

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.

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.

This principle was approved by the director of Arbitrations in Calogero and The Co-operators General Insurance Company.⁴ Director's Delegate Naylor went on to state that: "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,..." balancing "the need for access to the system, with a relatively mild deterrent to undeserving claims or undesirable behaviour."⁵

A broad discretion:

Section 282(11) of the Act, as amended, states that the arbitrator "may" award. It is therefore in the discretion of the arbitrator to decide if it is appropriate to award some, all, or none of either party's expenses. The Regulation states that the arbitrator may award expenses if "satisfied that the award is justified," again conferring a broad discretion on the arbitrator. The Regulation requires the arbitrator to consider certain specified criteria; however, the arbitrator is also free to consider "any other matter which the arbitrator considers relevant to the proceeding." Thus, the criteria to be considered, the respective weight to be given to each of the criteria in the circumstances of the case, and whether to reduce, deny, or award expenses are all in the discretion of the arbitrator. For these reasons, I conclude that arbitrators enjoy a broad discretion in awarding expenses to a party, in the circumstances of each case, subject to the monetary limits contained in the Regulations.⁶

My reasons are consistent with the views expressed by Director's Delegate Draper in Biliouras and Allstate.⁷ In that case he stated that "Previous appeal decisions have held that the old expense provisions created a broad discretion that should not be lightly disturbed on appeal. In my view, this applies equally to the new provisions." Similarly, in Athanasiadis and Zurich Insurance Company,⁸ Arbitrator Miller chose

to interpret the new expense regulation as being consistent with the purpose of the legislation, namely, to facilitate access to inexpensive, speedy and informal adjudication of disputes regarding statutory accident benefits, while deterring undeserving claims or undesirable behavior....I interpret the regulation as broadening an arbitrator's discretion not only to disallow applicants their expenses in certain circumstances, but also to award expenses to insurers. When and why an arbitrator will exercise his or her discretion in this manner will depend on the facts of each particular case in light of the new regulation.

The exercise of discretion:

I agree that the discretion to award expenses should be exercised having regard to the intent and purpose of the overall statutory scheme. However, McCormick was decided in the context of the 1990 amendments to the Insurance Act, and Allison in the context of the 1993 amendments. In this case, the 1996 amendments apply to the parties.

The 1990 amendments provided an enhanced set of statutory accident benefits in the context of an alternative dispute resolution scheme, in which arbitrators could award expenses only in favour of an insured person.⁹ Two further statutory accident benefits schemes were introduced in 1993¹⁰ and in 1996,¹¹ each of which has modified the 1990 scheme.

Despite the modifications in the 1993 and 1996 schemes, several key features introduced in the 1990 scheme have been preserved. The scheme continues to provide statutory accident benefits as part of every policy of automobile insurance. Under this scheme, insurers and insured persons are considered to be in a first party relationship, since either the applicant, or someone else has paid for this coverage on his or her behalf.

The scheme provides for mandatory mediation of disputes relating to statutory accident benefits, where the parties, with the assistance of a neutral third party, can resolve many of their disputes concerning entitlement to and the amount of statutory accident benefits. Mediation can be initiated by either the insurer or the insured person. However, under the Act, only the insured person may apply for arbitration at the Financial Services Commission.¹²

The Legislature has addressed the differing abilities of the parties to bear the cost of the disbursements and legal fees in order to participate in an arbitration at the Commission. Currently, insured persons pay a filing fee of $100 to commence an arbitration, while insurers pay $3,000 to participate in an arbitration.¹³ While arbitrators now have the power to award legal fees in respect of the arbitration to either party at the Legal Aid rate, the arbitrator also has a discretion to increase the amount of the hourly rate for legal fees to counsel for the insured person only, to $150 per hour.¹⁴ For these reasons, I conclude that the statutory scheme continues to be one "designed to facilitate applicants' access to a speedy adjudication of disputes."¹⁵

I find that with one exception, the criteria specified in the Expenses Regulation have been identified and considered by arbitrators in making expenses awards in relation to applicants prior to November 1, 1996, when the expenses Regulation came into force.¹⁶ Indeed, prior to the granting of the power to award expenses in favour of insurers, there have been cases in which applicants have engaged in egregious conduct, and arbitrators have stated that they would have awarded expenses against an applicant if they had the power to do so.¹⁷

In my view, except for the additional criteria of Offers to Settle, the criteria contained in the Regulation codify existing arbitration case law with respect to applicants, and make those criteria applicable to both applicants and insurers, having regard to the intent and purpose of the overall statutory scheme.

Expenses:

Ms. Gray applied for arbitration in relation to the question of whether she was entitled to receive loss of earning capacity benefits. I determined that she was not. She was completely unsuccessful in this arbitration while Zurich was completely successful. Ms. Gray agreed with Zurich's suggestion, made at the pre-hearing, to have the issue determined by way of a preliminary issues hearing, with written and oral submissions, thereby saving time and expense.

When Ms. Gray informed Zurich that she wished to elect loss of earning capacity benefits, Zurich attempted to have this issue adjudicated before the previous arbitrator. The Applicant objected to this process on the basis that the arbitrator was functus, amongst other grounds. While Zurich's approach would have been speedier, and saved in filing fees, the Applicant raised legitimate jurisdictional concerns and I am not prepared to penalize her in this regard.

Zurich wished me to consider its settlement offer, and if I did so, Ms. Gray wished me to consider her verbal response, which her counsel reduced to writing. The Regulation provides that Offers to Settle and Responses can only be considered when they comply with the applicable provisions of the Dispute Resolution Practice Code. Rule 74 of the Code imposes requirements as to the content, timing and service of both the Offer to Settle and the Response. I find that neither the settlement offer nor Ms. Gray's verbal response which her counsel reduced to writing in his submissions, comply with the requirements of the Code. In addition there is no indication that a notice of intention was served or filed with a statement of service as required by Rule 75 of the Code. I am therefore unable to consider the parties' positions with respect to settlement.

The issue Ms. Gray raised is a novel one in relation to the Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996. In a common law system, law develops and advances when new issues are raised and determined and when legislation is interpreted. Since new issues have not been raised before, they will likely be riskier to advance than issues which have already been decided. The parties to the arbitration as well as insured persons and insurers generally also derive some benefit in obtaining an authoritative interpretation of legislation.

Given that Ms. Gray sustained significant injuries and her entitlement to future economic loss could only be determined under this Schedule, the issue which she raised was of importance to her. It was also important to Zurich because potentially it could have been liable to pay Ms. Gray loss of earning capacity benefits for a period of three years and perhaps longer. In light of the finding of fact made by the previous arbitrator that Ms. Gray no longer met one of the qualifications for entitlement to caregiver benefits, her success was perhaps doubtful in this arbitration. At times the line between a novel issue and a frivolous issue can be a fine one. However, this Schedule is complex and has many interrelated sections, and I do not conclude that the proceeding was "manifestly unfounded." For these reasons, I exercise my discretion to grant Ms. Gray her expenses in respect of the arbitration.

Zurich claimed its expenses in respect of the arbitration. Zurich was completely successful in opposing the Applicant's claim that she was entitled to loss of earning capacity benefits. In my view while success is a factor, insurers cannot expect as a matter of course to receive an award of expenses simply because the Applicant is unsuccessful at arbitration. Such an approach would discourage applicants from bringing forward legitimate disputes. This is contrary to the fundamental goal and objective of the statutory scheme, which, as noted earlier, is to facilitate the bringing of such disputes. For these reasons Zurich will bear its own expenses in respect of the arbitration.

Order:

Ms. Gray is entitled to her expenses in respect of the arbitration.
Zurich is not entitled to its expenses in respect of the arbitration.

January 29, 1999

Suesan Alves Arbitrator

Date