Afaf Zeko v. Progressive Casualty Insurance Company, 1999 ONFSCDRS 253

Financial Services Commission / Commission des services financiers de l’Ontario

Neutral Citation: 1999 ONFSCDRS 253

Appeal P99-00042

OFFICE OF THE DIRECTOR OF ARBITRATIONS

AFAF ZEKO Appellant

and

PROGRESSIVE CASUALTY INSURANCE COMPANY Respondent

Before: David R. Draper, Director’s Delegate

Counsel: Loftus J. Cuddy (for Mrs. Zeko) Peter Kazdan (for Progressive)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The appeal is dismissed and the arbitration order dated July 15, 1999 is confirmed.

2. Afaf Zeko shall pay Progressive Casualty Insurance Company’s reasonable appeal expenses, fixed at $150.

December 22, 1999

David R. Draper Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

In a decision dated July 15, 1999, the arbitrator held that Mrs. Zeko’s application for arbitration was premature because the issues in dispute had not been mediated. As a result, she dismissed the arbitration, but without prejudice to Mrs. Zeko’s right to apply again at a later date. However, she ordered that before Mrs. Zeko can reapply for arbitration, she must pay an assessment of $3,000 under s.282(11.2) of the Insurance Act. Finally, the arbitrator ordered Mrs. Zeko to pay Progressive’s arbitration expenses in the amount of $609.37.

Mrs. Zeko appeals all aspects of the arbitrator’s order, asking that it be rescinded.

II. BACKGROUND AND ANALYSIS

The arbitrator was quite critical of the manner in which Mrs. Zeko’s counsel handled this claim. Unfortunately, the appeal was affected by similar problems. Despite two extensions, Mr. Cuddy did not file any written submissions on behalf of Mrs. Zeko. However, based on the record before me, I am satisfied that he and his client have been given every reasonable opportunity to pursue this matter. My reasons follow.

Mrs. Zeko was involved in an automobile accident on October 7, 1995. Shortly afterwards, she applied to Progressive Casualty Insurance Company (“Progressive”) for accident benefits. Progressive paid some rehabilitation expenses, but denied Mrs. Zeko’s claim for income replacement benefits (“IRBs”) on the basis that it issued the insurance policy to Mr. Zeko relying on the material misrepresentation that Mrs. Zeko was not licenced to drive.¹ Mrs. Zeko did not challenge this decision right away.

On February 9, 1996, four months after the accident, Mrs. Zeko returned to her pre-accident employment as a cook in a daycare centre. Nearly two years later, in November 1997, she applied for mediation, represented by Mr. Cuddy. Although she was still working, she claimed ongoing IRBs and various other benefits.

According to the Report of Mediator, dated February 23, 1998, Mrs. Zeko’s claim for IRBs was resolved. Progressive agreed to pay benefits for the period from October 14, 1995, one week after the accident, until February 9, 1996, when Mrs. Zeko returned to work. The total amount payable was $4,338.06, plus interest of $2,200.06. The other issues were either resolved (transportation and the cost of a medical certificate) or the parties agreed there was no dispute (housekeeping and rehabilitation expenses). In her covering letter, the mediator confirmed that “all of the issues in dispute have been resolved.”

Three months later, in May 1998, Mrs. Zeko applied for arbitration, still represented by Mr. Cuddy. She claimed that Progressive had not paid the full amount of interest agreed to at the mediation. Further, she claimed that due to her deteriorating condition, she was entitled to the following benefits:

1. Further IRBs;
2. Loss of earning capacity benefits (“LECBs”);
3. Further housekeeping and attendant care benefits;
4. Further medical or rehabilitation benefits; and
5. Expenses for other pecuniary losses.

Progressive responded, raising two preliminary issues. First, it argued that Mrs. Zeko had already raised these issues in a court action and, therefore, could not also apply for arbitration. Second, it maintained that the claims were premature. In Progressive’s submission, Mrs. Zeko had never applied for the benefits she was now claiming and, therefore, they had not been denied or mediated: the IRBs in dispute were settled at mediation and no further claim was made; LECBs did not arise because there was never any acknowledgment that Mrs. Zeko was disabled for more than 104 weeks; and no application for the other benefits was ever submitted.

Three months after she applied for arbitration, Mrs. Zeko stopped working. At the pre-hearing discussion on November 30, 1998, represented by Mr. Cuddy, she clarified that she was only claiming IRBs from August 21, 1998Cthe date she stopped working. She also indicated that she wanted to proceed with the arbitration, not her court action. The pre-hearing arbitrator refused to dismiss the arbitration, allowing Mrs. Zeko to proceed based on Mr. Cuddy’s undertakings that he would:

• withdraw the court action immediately;

• within 30 days of the pre-hearing, submit the claim for ongoing IRBs from August 21, 1998 to Progressive;

• if the claim for IRBs was denied, apply for mediation immediately and, if mediation failed, apply to have this issue included in the arbitration;

• particularize Mrs. Zeko’s claims for LECBs, medical and rehabilitation benefits, housekeeping expenses, attendant care benefits and other pecuniary losses, and submit them to Progressive within 30 days of the pre-hearing.

• if any of these claims were denied, apply for mediation immediately and, if mediation failed, apply to have the disputed amounts included in the arbitration.

In my view, this approach was fair to Mrs. ZekoCperhaps even generous. The arbitration hearing was scheduled for September 1999, allowing ample time for any dispute to go through mediation and, if not resolved, be brought into the arbitration. However, little happened over the next few months.

At Progressive’s request, a second pre-hearing was held on March 16, 1999, before the same arbitrator. Mr. Cuddy acknowledged that he had not met any of his undertakings, but instead of dismissing the arbitration, the arbitrator gave Mr. Cuddy three more days to comply.

Mr. Cuddy submitted Mrs. Zeko’s claims to Progressive on March 19, 1999, the last day allowed by the arbitrator. On March 26, 1999, Progressive denied the claims. However, Mr. Cuddy did not follow-up by applying for mediation, nor did he have the court action dismissed. This led to a third pre-hearing on June 7, 1999, again before the same arbitrator.

At this pre-hearing, Progressive asked the arbitrator to dismiss Mrs. Zeko’s arbitration and order her to pay its expenses, including the assessment fee of $3,000. The arbitrator did not make an order at that time, but asked for written submissions on Progressive’s claim for expenses and the recovery of its assessment.

The next day, June 8, 1999, Mr. Cuddy finally obtained an order dismissing the court action. The parties then filed their written submissions. Progressive argued that Mrs. Zeko should be required to pay its expenses ($850, plus GST) and an assessment of $3,000 under s.282(11.2) of the Insurance Act because her arbitration was frivolous, vexatious or an abuse of process. In response, Mr. Cuddy acknowledged that his handling of the claim was careless, but argued there was no intention to abuse the process. He suggested that Mrs. Zeko be ordered to pay expenses of $600, but no assessment.

The arbitrator released her decision on July 15, 1999. Dealing first with the issue of multiple proceedings, she was not prepared to dismiss the arbitration on this basis. Although Mr. Cuddy did not act promptly, the court action was eventually dismissed. As a result, there were no longer multiple proceedings underway when she made her ruling.

The arbitrator reached a different conclusion on the second issue. She agreed with Progressive that Mrs. Zeko’s claims were premature and that, despite being given ample opportunity to submit them and properly bring them forward, she and her counsel failed to do so. As a result, the arbitrator dismissed the application for arbitration. However, she did so without prejudice to Mrs. Zeko’s right to reapply at some future date, subject to one condition. The arbitrator concluded that Mrs. Zeko’s arbitration was an abuse of process and, therefore, ordered her to pay an assessment of $3,000 under s.282(11.2) of the Insurance Act before reapplying for arbitration. Finally, the arbitrator ordered Mrs. Zeko to pay Progressive’s arbitration expenses totalling $609.37, roughly the amount suggested by Mr. Cuddy.

On August 16, 1999, Mr. Cuddy filed a Notice of Appeal on behalf of Mrs. Zeko, asking that the arbitrator’s order be rescinded. The grounds for appeal are that the arbitrator erred in:

1. ignoring Commission case law established Srivastava and Coachman Insurance Company, (FSCO A96-000422, September 24, 1998);
2. dismissing the application for arbitration where the applicant’s claim for $1,169.94 in IRBs, plus interest, failed at mediation;
3. dismissing the application where travel, housekeeping, rehabilitation and medical expenses had failed at mediation;
4. in dismissing the application where the issue of initial entitlement had been mediated and failed, and in considering a settlement position, adopted in exchange for a final release, to be the equivalent of a formal abandonment of a position of denial; and
5. in awarding costs for all pre-hearing attendances when at least one attendance was necessary to bring the motion for dismissal.

The appeal was acknowledged, with Progressive Response to Appeal filed on September 14, 1999. In its submission, Mrs. Zeko’s appeal does not raise an error of law or provide sufficient information to allow it to respond, and, in any event, the arbitrator did not err in reaching her conclusions.

The Notice of Appeal also included a request that the arbitration order be stayed “so as not to prevent the insured [Mrs. Zeko] from advancing her claims for accident benefits.” I was not persuaded that the appeal was sufficiently strong or the situation so urgent that a stay was justified. Therefore, I advised Mr. Cuddy that if Mrs. Zeko wanted to proceed with her claims pending the appeal, she would need to comply with the arbitrator’s order. As far as I know, she did not do so.

When Mr. Cuddy did not file written submissions within the time established in the Dispute Resolution Practice Code, he was contacted by the Appeals Administrator. On October 28, 1999, he made a written request that the deadline be extended until November 1, 1999. This request was granted. However, Mr. Cuddy did not meet this deadline and on November 15, 1999, Progressive expressed its opposition to any further extension. Despite Progressive’s objection, I extended the deadline until November 26, 1999, asking Mr. Cuddy to advise if the appeal was proceeding and, if so, why written submissions should still be accepted. This date passed without contact from Mr. Cuddy and on November 30, 1999, I advised counsel that the appeal would be decided on the record. Progressive was invited to make written submissions by December 20, 1999, which it did.

III. CONCLUSION

I am unable to find any merit in this appeal. Mediation is a mandatory first step in the dispute resolution process. According to s.281(2) of the Insurance Act, a dispute cannot be brought in court or arbitration unless mediation has been sought and failed. Although there was a mediation in this case, no issues failed. Mrs. Zeko suggests otherwise in her Notice of Appeal, but there simply is no evidence to support her assertion that her claims failed at mediation.

Because the issues raised in Mrs. Zeko’s application for arbitration had not been mediated, her application was premature. Despite this, and over Progressive’s objections, Mrs. Zeko and her counsel were given a chance to remedy the situation. However, despite repeated indulgences, they failed to do so. As the arbitrator states, she held off dismissing the arbitration for close to seven months. In the circumstances, I find nothing improper or unreasonable in her order, essentially requiring Mrs. Zeko to start over at mediation and pursue her claims in the normal manner.

I also find no reason to second-guess the arbitrator’s decisions about expenses or the assessment. In my view, the order is a fair response to the consequences of Mr. Cuddy’s failure to comply with his undertakings. Unlike the situation in Srivastava, the arbitrator found that Mrs. Zeko’s application for arbitration was an abuse of process. This finding is amply supported by the record. Not only was the application for arbitration filed after the court action was already underway, none of the claims had been denied by Progressive or dealt with through mediation.

For these reasons, the appeal is dismissed.

IV. APPEAL EXPENSES

Progressive submits that it should be compensated for its appeal expenses. I agree. The amount is fixed at $150, reflecting the limited time required to respond. While the appeal might be viewed as frivolous, vexatious or an abuse of process, Progressive did not clearly raise or pursue this argument. Therefore, it will bear the appeal assessment of $500, as insurers typically are expected to do.

December 22, 1999

David R. Draper Director’s Delegate

Date

Footnotes

1. 1In making this decision, Progressive relied on s.58(3)(a) of Ontario Regulation 776/93, as amended, the Statutory Accident Benefits ScheduleCAccidents after December 31, 1994 and before November 1, 1996.