Neutral Citation: 1999 ONFSCDRS 243

FSCO A97-000321

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

LARA KHOURY

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before:

David Leitch

Heard:

All written submissions were received by August 31, 1999.

Appearances:

William A. Garay for Mrs. Khoury

Guy Farrell for Zurich Insurance Company

Issue:

The Applicant, Lara Khoury, was injured in a motor vehicle accident on November 25, 1992. Her entitlement to statutory accident benefits under the Schedule¹ was settled by the parties on terms which included an agreement to have Mrs. Khoury's expenses "assessed" by the Financial Services Commission of Ontario ("FSCO") under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issue is:

Does FSCO have jurisdiction to decide a claim for expenses in relation to a matter which has been settled prior to an arbitration hearing?

Result:

FSCO has jurisdiction to decide a claim for expenses in relation to a matter which has been settled prior to an arbitration hearing.

Legislative Provisions:

Mrs. Khoury filed her Application for Arbitration on January 31, 1997. The legislative provisions governing the issue of expenses are as follows.

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. This section 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 of Regulation 664 of Revised Regulations of Ontario, 1990 as amended by Ontario Regulation 464/96 which also came into force on November 1, 1996. This section provides:

12.(1) The expenses set out in the Schedule are presribed for the purpose of subsection 282(11) of the Act.

(2) 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.
The Schedule which is referred to in section 12(1) of the above regulation and which forms part of the Regulation. This Schedule lists the "Dispute Resolution Expenses" the arbitrator may award and includes filing fees, legal fees, agent's fees, disbursements, witness fees and travelling fees paid by either party with the exception of the insurer's initial filing fee which cannot apparently be claimed as an expense by the insurer. Since, in most cases, it will be a party's legal fees which generate the greatest expense, I draw particular attention to paragraph 3(2) of the Schedule which provides:

The number of hours for which legal fees may be awarded shall be determined by the arbitrator, having regard to the criteria set out in subsection 12(2) of this Regulation.

However, all the expenses listed in the Schedule are subject to the arbitrator's award which is, in turn, governed by subsection 12(2).

Analysis:

As noted, two of these provisions are new since November, 1996 and the changes they introduced have been the subject of arbitral comment. After reviewing the legislative history and prior case law, an arbitrator stated her view that:

...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.²

This view was upheld by a Director's delegate in the following language:

In my view, the new expense provisions signalled a change. Although most of the criteria have been discussed in earlier decisions, the analysis was affected by the fact that only one party could be awarded its expenses. Arbitrators now have an obligation to consider the legislated criteria, including the result, applying them to both parties. However, I agree with the arbitrator that the criteria do not reflect a move to the kind of results-based approach used by the courts. Success is only one criterion in an open-ended list and, therefore, must be weighed against the other relevant considerations. I also agree with the arbitrator that the criteria, specifically clause 6, leave room for concerns about the access to the dispute resolution system. One aspect of accessibility is that insured persons should have a reasonable opportunity to raise novel issues of interpretation, particularly those of general importance.³

In what amounts to a joint submission, the parties confirm that they seek an assessment of the applicant's expenses on the assumption, challenged by neither party, that a FSCO arbitrator has jurisdiction to award expenses despite the fact that all other disputes between the parties were settled prior to an arbitration hearing. Their submission reads, in part, as follows:

If jurisdiction is not accepted by FSCO in this matter then, given that there has been a mutually agreed upon conclusion to the Arbitration except with respect to "expenses" and, given that the parties are agreeable to the "expenses" dealt with by an Arbitrator of the FSCO then the insured will simply have to start further legal proceedings at additional cost to have the Superior Court of Justice deal with the matter of "expenses". This would be "unfortunate" given the unnecessary time and expense to which the parties would be put;⁴

In my view, this submission raises substantial and legitimate concerns about accessibility of insured persons to the dispute resolution system, at least insofar as they seek expense awards in respect of claims settled prior to arbitration hearings. However, FSCO is a creature of statute and may only exercise the jurisdiction conferred upon it by legislation. The question, therefore, becomes whether the legislative provisions set out above authorize FSCO arbitrators to award expenses in respect of matters which are otherwise settled prior to hearing.

All six of the criteria listed in section 12(2) of the Regulation refer to "the proceeding", the proceeding being the "arbitration proceeding" referred to in section 282(11) of the Insurance Act. Though the word "proceeding" is not defined by either the Regulation or the Insurance Act, it has been the subject of the following judicial comment:

"Proceeding" is a word of very large and broad import and, in respect of matters legal, it would be difficult to select a term of more general application. The Shorter Oxford Dictionary contains, among its definitions of "proceeding", the following:

...the instituting or carrying on of an action at law; a legal action or process; any act done by authority of a court or law; any step taken in a cause by either party.

In my view, it is capable of including every species of activity in matters legal, from an interlocutory application in Chambers to an appeal in a Court of last resort.⁵

On this view of the word "proceeding," which I adopt and adapt to the arbitration context, the present matter became an arbitration proceeding when the Application for Arbitration was filed on January 31, 1997. It remained an arbitration proceeding as it worked its way through the various steps outlined in FSCO's Dispute Resolution Practice Code, including the pre-hearing step which was intended to, among other things, explore the possibility of settlement. In my view, the matter did not cease to be an arbitration proceeding because it was settled prior to a hearing anymore than it would have ceased to be an arbitration proceeding had it been settled during the hearing or had it been adjudicated by a FSCO arbitrator after the hearing. A matter which becomes, by way of an application for arbitration, an arbitration proceeding remains an arbitration proceeding throughout whether ultimately settled or adjudicated.

Likewise, I find that FSCO retains jurisdiction to award expenses whether an arbitration proceeding is ultimately settled or adjudicated. I acknowledge that some of the criteria listed in section 12(2) of the Regulation can only be applied if the matter has been adjudicated and others only if a hearing has at least been commenced. However, criteria 4 and 6 are not restricted to these situations and an arbitrator is not obliged to apply the others if he or she believes that it would not make any sense to do so.

Conclusion:

I conclude that FSCO has jurisdiction to decide a claim for expenses in relation to a matter which has been settled prior to an arbitration hearing. The parties may now, therefore, request an assessment of expenses in accordance with Rule 77 of the Dispute Resolution Practice Code (Third Ed., April 15, 1997).

December 15, 1999

David Leitch Arbitrator

Date