Patrick Lopez v. Commercial Union Assurance Company, 1999 ONFSCDRS 60

Financial Services Commission of Ontario

Neutral Citation: 1999 ONFSCDRS 60 FSCO A98-001223

BETWEEN:

PATRICK LOPEZ Applicant

and

COMMERCIAL UNION ASSURANCE COMPANY Insurer

DECISION

Before: Beth Allen

Heard: March 3, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Richard I. Kesten for Mr. Lopez Christopher J. Schnarr for Commercial Assurance Company

Issues:

The Applicant, Patrick Lopez, was injured in a motor vehicle accident on April 13, 1996. He applied for and received statutory accident benefits from Commercial Union Assurance Company ("Commercial"), payable under the Schedule.¹ It is Commercial's position that it terminated weekly income replacement benefits effective July 25, 1996. Commercial submitted it notified Mr. Lopez of termination by an Explanation of Assessment by Insurance Company dated July 25, 1996. On September 15, 1998, Mr. Lopez filed an application for the appointment of an arbitrator. Commercial submits that Mr. Lopez is barred by subsection 281(5) of the Insurance Act (the "Act") from proceeding to arbitration because he failed to file for arbitration within the prescribed two-year limitation period. Mr. Lopez claims that he had filed two previous applications (December1997 and July 1998) within the two-year period which, he alleges, the Commission misplaced, and accordingly he should be permitted to proceed to arbitration.

The issues are:

1. Is Mr. Lopez precluded from proceeding to arbitration because he applied for arbitration beyond the two-year limitation period set out in subsection 281(5) of the Act?

2. Is Commercial entitled, pursuant to subsection 282(11) of the Act, to its expenses incurred in the arbitration on the basis that Mr. Lopez' claim is frivolous and without merit?

3. Is Commercial entitled to an award of up to $3,000 pursuant to subsection 282(11.2) of the Act on the basis that Mr. Lopez' claim is frivolous and without merit?

Result:

1. Mr. Lopez is precluded from proceeding to arbitration as he filed his arbitration application beyond the two-year period provided in subsection 281(5) of the Act.

2. Mr. Lopez is required to pay Commercial's expenses in the amount of $1,000 pursuant to subsection 282(11) of the Act.

EVIDENCE AND ARGUMENTS:

Factual background

Mr. Lopez was involved in a motor vehicle accident on April 13, 1996. Commercial denied his application for income replacement benefits by an Explanation of Assessment by Insurance Company (notice of refusal) dated July 25, 1996 on the basis that Mr. Lopez had failed to establish a disability and the amount of his claim. Mr. Lopez then provided Commercial with a letter from his family doctor dated August 7, 1996 (not in evidence). By a further notice of refusal dated August 16, 1996, Commercial confirmed its position on disability. The parties dispute whether Mr. Lopez filed an application for arbitration within the two-year limitation period.

Commercial submits that the two-year limitation period commenced on July 31, 1996, on the fifth business day after the date of its notice of refusal and therefore the September 15, 1998 application was out of time. Mr. Lopez argues that the limitation period began to run from August 16, 1996, the date of the second notice of refusal. He claims he filed for arbitration in time as he alleges that he filed for arbitration in December 1997 and July 1998 and both applications were filed within the two-year period. Mr. Lopez specifically asserts that the Commission is responsible for having misplaced these two previous applications.

Mr. Lopez retained Mr. Kesten as his representative. Mr. Kesten also testified at the hearing as a witness for Mr. Lopez. Neither party objected to Mr. Kesten acting in both capacities. I allowed Mr. Kesten to testify in the circumstances, since he has first-hand knowledge of many of the material facts in this case. However, Mr. Kesten did not choose to call Mr. Lopez as a witness, which meant that Mr. Lopez testified only under cross-examination.

As the representative for Mr. Lopez, Mr. Kesten maintained few records or documents in his file. He admitted to keeping no official notes or memoranda to the file and to not having a number of important documents. His notes to the file literally amounted to handwritten notations scrawled on its inside front cover. A photocopy of some of these notations was entered as an exhibit. Mr. Kesten testified that he had previously been a lawyer for 20 years but that he was no longer a lawyer and was happy to be relieved of the responsibility of keeping proper time logs.

Mr. Kesten could not recall from memory, nor from documents in his file, exactly when Mr. Lopez retained him as a representative. He apparently had no written retainer on file. He had to deduce from questions asked in cross-examination and various documents in his file that it was probably in early July 1996. He testified that he neither received nor had on file a copy of the July 25, 1996 notice of refusal, nor the September 15, 1998 arbitration application. Nor did he have on file the other two arbitration applications he allegedly filed with the Commission on Mr. Lopez' behalf. Mr. Lopez also carried documents with him to the hearing, but did not have among them a copy of any of the alleged previously filed applications or notices of refusal. Mr. Kesten seemed to have on file the notice of refusal dated August 16, 1996 and various pieces of correspondence in addition to his scrawled notations.

Mr. Kesten admitted that he did not take immediate steps to address the benefit refusal by expeditiously applying for mediation. He applied for mediation about four months after he received the August 1996 refusal. He did not have the application for mediation on file to assist in establishing the exact date of this application and, again, had to deduce from other documents that the approximate date was in February 1997. He represented Mr. Lopez at mediation on April 29, 1997.

Mr. Kesten stated that he first applied for arbitration on Mr. Lopez' behalf in December 1997 (or January 1998) and filed a further application in July 1998. He did not have on file a copy of the alleged December 1997 or July 1998 applications, associated cover letters or any other documents evidencing their existence. In cross-examination, Commercial showed Mr. Kesten a blank copy of a standard application for arbitration where the cover page instructs the applicant in bold type to "keep your copy." In answer to the question whether he followed this instruction, he responded, "No."

Regarding the first two alleged applications, both Mr. Kesten and Mr. Lopez testified that Mr. Lopez gave Mr. Kesten two $100 cheques, one dated December 18, 1997 and the other dated June 17, 1998 as application filing fees. According to their evidence, Mr. Lopez signed the applications shortly after the dates on the cheques. Mr. Kesten stated that he personally delivered the December application with cheque to the Commission and mailed the July application with cheque to the Commission. He admitted that he did not request receipts from the Commission. Mr. Kesten testified that he delivered the December application around the date on the related cheque, and did not mail the next one until about July 17, 1998. Mr. Kesten referred to a handwritten notation on the inside cover of his file to refresh his memory about the latter date. Mr. Kesten and Mr. Lopez pointed to December 18, 1997 and June 17, 1998 entries on pages of Mr. Lopez' cheque transaction registry (filed into evidence) as proof these applications were filed. Mr. Kesten admitted that he never forwarded a copy of the alleged applications to Commercial, nor did he bother to inquire with Commercial or the Commission on either occasion as to why he had not received an insurer's response to the application for arbitration.

Mr. Kesten's evidence is that between the alleged filings of the December 1997 and July 1998 applications, he asked Mr. Lopez in April 1998 whether his December 18, 1997 cheque had been cashed, since he had heard nothing from the Commission. Mr. Lopez indicated that it had not been cashed, whereupon Mr. Kesten allegedly asked for the second $100 cheque. When Mr. Lopez subsequently reported that the second cheque had not been cashed, Mr. Kesten instructed Mr. Lopez to draw a further cheque and to personally deliver a further application to the Commission and to request a receipt, which Mr. Lopez did on September 15, 1998. Mr. Lopez also filed with the Commission a statutory declaration dated October 15, 1998 in which he swore under oath that Mr. Kesten had filed previous arbitration applications. The declaration indicates that Mr. Kesten had called the Commission on about July 8, 1998 to inquire about the application. Assuming this referred to the July 18, 1998 application, Commercial questioned the discrepancy in the dates. Mr. Kesten replied that the date in the declaration must be a mistake.

Confusing the situation even further is Mr. Lopez' testimony that his cheque record reveals that he drew an earlier cheque for $100 dated June 27, 1997 for an arbitration filing fee. Mr. Kesten did not mention this cheque in evidence, nor does the statutory declaration refer to it. Mr. Lopez indicated that Mr. Kesten told him that this cheque must have been lost and he would look into it.

REASONS FOR DECISION:

Mr. Lopez has the burden to prove that he filed for arbitration within the two-year limitation period prescribed by subsection 281(5) of the Act. This provision requires an insured person to commence a court action or an application for arbitration within two years of the date of the insurer's refusal to pay benefits. I find that Mr. Lopez has failed to prove that he satisfied the limitation requirements.

I believe that the only application for arbitration filed in this matter was the one Mr. Lopez himself delivered to the Commission on September 15, 1998. I accept Commercial's position that the date that triggered the limitation period was July 31, 1998, five business days² after Commercial's July 25, 1996 notice of refusal. I find that the August 16, 1996 notice of refusal was in effect a confirmation by Commercial of its July 25 decision. In view of Mr. Kesten's minimal file management practices, I cannot rely on his self-serving evidence that he did not receive or know about the July 25 notice. I am not persuaded that he did not receive it. Mr. Lopez was therefore about a month-and-a-half out of time in filing for arbitration and, accordingly, is precluded from proceeding to arbitration on the merits of his case.

In reviewing the evidence, I was struck by Mr. Kesten's evident disrespect for the arbitration process and his reckless disregard for his client's interests. He did not seem concerned about his failure to have on file documents crucial to Mr. Lopez' case, although he admitted to making "the mistake" of being "too casual" in handling Mr. Lopez' case.

I find that Mr. Kesten presented misleading and deceptive evidence to this tribunal in an attempt to mask his own inadequate handling of Mr. Lopez' case. I believe Mr. Kesten fabricated the evidence about the December 1997 and July 1998 applications for arbitration to hide the fact that he had missed the limitation period. I find he attempted to placate his client about the delays by seeking to blame his own carelessness on the Commission, and alleging that the Commission misplaced the previous applications and cheques. The evidence shows, and Mr. Kesten freely admitted, that all Mr. Lopez has is his (Mr. Kesten's) word that he filed the previous applications. There are no witnesses to these applications and absolutely no documentary evidence to substantiate that they ever existed. Casting further doubt on Mr. Kesten's allegations is his conduct following the two alleged applications. His actions were not consistent with those expected of an applicant (or representative) who had filed two applications and received no acknowledgement from an insurer or the Commission under circumstances where time was of the essence. Mr. Kesten made no inquiries or complaints and took no action until the Commission rejected the September 15, 1998 application by letter dated September 29, 1998.

For these reasons, I do not hesitate to reject Mr. Kesten's unreliable evidence about the previous two applications.

Mr. Kesten raised an alternative argument. He submitted that arbitrators have the jurisdiction to extend the time for filing for arbitration beyond the two-year limitation period. He submitted that Mr. Lopez should be relieved of the consequences of his failure to comply with the two-year time limit. Mr. Kesten provided no authority for this position. Commercial submitted that the limitation period is not flexible and arbitrators have no authority under the law to extend the limitation period.

Previous arbitration decisions³ have dealt with the issue of whether arbitrators have the jurisdiction to extend the two-year limitation period or grant an aggrieved party relief from forfeiture. These cases held, and I find, that arbitrators have no such jurisdiction.

Mr. Lopez is therefore barred from proceeding to arbitration as he failed to comply with the limitation requirements under subsection 281(5) of the Act.

EXPENSES:

Mr. Kesten stated that Mr. Lopez was not requesting an order for his arbitration expenses.

Commercial however requests, under subsection 282(11) of the Act, that Mr. Lopez pay its expenses incurred in respect of the arbitration. This subsection allows an arbitrator to order expenses to the insured person or the insurer. Commercial also requests under subsection 282 (11.2), an award in the amount of its assessment of $3,000 on the basis that Mr. Lopez' claim is frivolous and without merit. Subsection 282(11.2) gives an arbitrator the authority to award the insurer an amount up to the the amount of its filing fee if the insured person's conduct is found to be frivolous, vexatious or an abuse of process.

Rule 73.2(c) of the Code sets out criteria for determining the expense issue which require me to consider the parties' conduct and the nature of their claims. This Rule requires the arbitrator to consider, "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."

I was not required to consider, and did not hear evidence on, the merits of Mr. Lopez' accident benefits claims. My inquiry was restricted to determining whether Mr. Lopez complied with the prescribed limitation requirements. Therefore, my decision on the expense issue is limited to a consideration of the parties' positions and conduct in relation to the limitation issue.

In view of the evidence, I order Mr. Lopez to pay a portion of Commercial's expenses of the arbitration. I find that the positions and claims Mr. Lopez advanced in relation to the limitation period were manifestly unfounded and resulted in an abuse of the Commission's process.

I am greatly concerned about Mr. Kesten's conduct as Mr. Lopez' representative, but I also, although to a lesser extent, find Mr. Lopez' conduct problematic. My authority under the Act and the Code is restricted to ordering, where warranted, expenses under subsection 282(11) against the insured person or the insurer, taking the parties 'conduct into consideration. I have no authority to make such orders against a representative.

In this case, I find Mr. Lopez's conduct contributed to Mr. Kesten mismanaging his case and flouting the Commission's process, and I award expenses against Mr. Lopez pursuant to subsection 282(11) of the Act and Rule 73 of the Code for his part in bringing about the arbitration under these circumstances.

I find Mr. Lopez had a bona fide intention to file for arbitration before September 1998 and for this reason I do not find his claim on the limitation issue to be frivolous. One of the few things I believe about the alleged previous applications is that Mr. Lopez drew three $100 cheques (besides the September 1998 cheque) for filing fees. I accept his evidence that he gave Mr. Kesten a cheque as early as June 1997 (more than a full year within the limitation period), expecting Mr. Kesten to file an application on his behalf. However, when the June 1997, December 1997 and July 1998 cheques were not cashed and Mr. Lopez received no word about his applications, it does not appear that he diligently followed this up with Mr. Kesten and the Commission. It seems to me that Mr. Lopez had an obligation to do so. Insured persons, in my view, must assume some responsibility in selecting their representatives and, in situations such as this, for how their representatives conduct cases in their names.

Mr. Lopez presented as an intelligent, resourceful person. He testified that since the accident he completed a real estate sales course, successfully obtained his licence and sold a property. However, he seemed not to have questioned Mr. Kesten about the handling of his case, despite the numerous delays and the apparent loss of three $100 cheques and two arbitration applications. He testified that he left the entire matter in the hands of his "lawyer." It was not clear to me that he was aware of Mr. Kesten's lack of professional status. Mr. Lopez pointed to his accident-related injuries and his financial situation to explain the delays in applying for arbitration. Some delay, he explained, resulted from his inability to draw $100 cheques due to serious debt and unemployment. He stated that for about six months following the accident, he was confined to bed due to his injuries. I do not doubt that under the circumstances, financial pressures and his health might have prevented Mr. Lopez from being able at times to move ahead with the arbitration. However, these factors are inadequate to explain why he allowed lengthy delays at pivotal points in the process, without pressing Mr. Kesten to move forward.

While it is reasonable for a client to rely on his representative to represent his interests and to monitor the legal process on his behalf, I also find that the client bears some obligation to ensure that his representative is meeting these responsibilities. This is particularly true in cases such as this, where the client had numerous early warnings that his representative was not meeting his professional obligations. For this reason, I do not find Mr. Lopez entirely blameless in contributing toward the costs associated with this arbitration. I find that Mr. Lopez knew, or ought reasonably to have known, that Mr. Kesten was advancing manifestly unfounded claims about the alleged previous applications. I further find that it was an abuse of the Commission's process to bring an arbitration under these circumstances to claim that he had complied with the limitation requirements.

For these reasons, I order Mr. Lopez, pursuant to subsection 282(11) of the Act, to pay $1,000 of Commercial's expenses.

April 13, 1999

Beth Allen Arbitrator

Date

Neutral Citation: 1999 ONFSCDRS 60 FSCO A98-001223

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

PATRICK LOPEZ Applicant

and

COMMERCIAL UNION ASSURANCE COMPANY Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The arbitration is dismissed. Mr. Lopez is precluded by subsection 281(5) of the Act from proceeding to arbitration.

2. I order Mr. Lopez to pay Commercial a portion of its expenses in the amount of $1,000 pursuant to subsection 282(11) of the Act.

April 13, 1999

Beth Allen Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended by Ontario Regulations 635/94, 781/94 and 463/96.
2. 2The Dispute Resolution Practice Code - Third Edition (the "Code") provides in Rule 7 that delivery of a mailed document is considered to have taken place on the fifth day after it was mailed.
3. 3See for instance, Rahman and Co-operators General Insurance Company, (OIC A-000854, December 21, 1993); Zeppieri and Royal Insurance Company of Canada, (OIC A-005237, February 17, 1994), confirmed on appeal, (OIC P-005237, December 22, 1994; and Robertson and Royal Insurance Company of Canada, (OIC A96-00361, July 11, 1996).