Financial Services Commission of Ontario
Commission des services financiers de l’Ontario
Neutral Citation: 1999 ONFSCDRS 69
Appeal P98-00055
OFFICE OF THE DIRECTOR OF ARBITRATIONS
DESMOND MCLENNON
Appellant
and
PILOT INSURANCE COMPANY
Respondent
Before:
David R. Draper, Director's Delegate
Counsel:
Desmond McLennon (acting on his own behalf)
Grace Pang (for Pilot Insurance Company)
APPEAL ORDER
Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:
Paragraph 4 (arbitration expenses) of the arbitration order dated October 20, 1998 is rescinded.
Paragraphs 1, 2 and 3 of the arbitration order dated October 20, 1998 are confirmed.
No appeal expenses are payable.
April 28, 1999
David R. Draper
Director's Delegate
Date
REASONS FOR DECISION
I. NATURE OF THE APPEAL
This is an appeal by Desmond McLennon from an arbitration decision dated October 20, 1998. He contends that the arbitrator erred in denying his claims for income replacement benefits ('TRBs") after January 8, 1996, caregiver benefits, and expenses for chiropractic treatment, prescription medication and travel. In addition to arguing that the arbitrator erred in her assessment of the evidence, Mr. McLennon submits that the decision must be rescinded because counsel for Pilot Insurance Company ("Pilot") had a conflict of interest.
II. BACKGROUND
This dispute has a lengthy history detailed in two arbitration decisions and my earlier order addressing Mr. McLennon's appeal from an interim arbitration order. In summary, his claims arise out of three automobile accidents. They occurred in May, July and November 1995. At the time of the first accident, Mr. McLennon was 51 years old and had recently started a paralegal business after several years of unemployment. He maintains that as a result of the accidents, he suffers from disabling pain in his neck, shoulder and lower back, as well as headaches, difficulty concentrating and memory problems.
Mr. McLennon initially applied for accident benefits in late May 1995. Pilot did not pay any IRBs until July 1995, when it sent a cheque for $2,590. This represented $185 per week for the period May 15 to August 21, 1995. Pilot refused to pay additional IRBs on the basis that Mr. McLennon failed to provide sufficient information about whether he was receiving collateral benefits or any income from his paralegal business.
The dispute went to mediation in May 1996. When it was not resolved, Mr. McLennon applied for arbitration. Before Pilot filed its response, the parties had further discussions. In September 1996, Pilot gave Mr. McLennon a cheque for $15,000 and he signed what the parties referred to as a waiver agreement, stating as follows:
I, Desmond McLennon, understand and acknowledge that, in order to receive settlement funds from an insurance company, there is a forty-eight hour waiting period which applies. At my request, Pilot Insurance has agreed to waive the waiting period and provide me with the settlement cheque and Release documentation concurrently on this date.
Mr. McLennon cashed the cheque, but then took the position that the arbitration should proceed because this was merely an advance of funds owing to him, not a settlement. In a decision dated May 2, 1997, Arbitrator Friendly rejected Mr. McLennon's position, finding that the $15,000 was paid to settle the dispute. However, he also held that the right to rescind is established in the legislation and cannot be waived. As a result, Arbitrator Friendly accepted that Mr. McLennon had rescinded the settlement agreement and could proceed with the arbitration.
With respect to repayment, Arbitrator Friendly concluded that while he did not have jurisdiction to make an order, Pilot should be able to set off the settlement funds against any amounts the hearing arbitrator found owing. Finally, he held that Mr. McLennon abused the process and made an order under s.282(11.2) of the Insurance Act, requiring him to pay Pilot its assessment fee of $2,000 as a condition of proceeding with the arbitration.
The arbitration hearing was delayed until August 1998, primarily due to problems with Mr. McLennon's representation. It then proceeded before Arbitrator Joachim over four days in August and September 1998. Mr. McLennon was represented by a lawyer - Ms. Regina Senjule. Ms. Grace Pang represented Pilot, as she had since the preliminary issue hearing before Arbitrator Friendly. The issues were as follows:
Is the Applicant entitled to income replacement benefits at the rate of $185 a week beyond August 21, 1995 and continuing?
In the alternative, is the Applicant entitled to caregiver benefits in respect of the accident of November 10, 1995?
Is the Applicant entitled to supplementary medical benefits for chiropractic services in the amount of $10,295.98?
Is the Applicant entitled to supplementary medical benefits for prescription medication in the amount of $1,604.15?
Is the Applicant entitled to transportation expenses?
Was the Insurer obliged to make the Applicant a written offer of loss of earning capacity benefits?
Is the Insurer entitled to repayment of $15,000 in settlement funds paid to the Applicant?
Arbitrator Joachim released her decision on October 20, 1998, substantially rejecting Mr. McLennon's claims. She found that he had a significant pre-accident history of pain in his neck and low back, and anxiety. Further, she found that his accident-related injuries were limited to soft-tissue damage. Credibility was an important factor. Arbitrator Joachim found that she could not rely on Mr. McLennon's evidence, citing five examples of his unreliability. Despite this, she did not entirely reject his claim. She found that as a result of each accident, Mr. McLennon suffered a short period of disability and, consequently, ordered Pilot to pay IRBs for approximately eight weeks following the third accident - until January 8, 1996.
While Arbitrator Joachim found some period of disability based on Mr. McLennon's physical injuries, she was not persuaded that he suffered disabling cognitive impairments. She found that not only did the medical evidence not support his claim, he had demonstrated an ability to work as a paralegal by representing himself and his family in their accident-related claims.
In addition to awarding Mr. McLennon IRBs for eight weeks, Arbitrator Joachim found Pilot's reason for refusing to pay IRBs after the third accident unreasonable. Pilot claimed that Mr. McLennon failed to establish that he was not collecting collateral benefits or income from his business. In the arbitrator's view, this was asking him to prove the impossible - an unreasonable approach to the payment of accident benefits. As a result, she ordered Pilot to pay a special award of $1,800, plus interest. Pilot did not appeal any aspect of the arbitrator's order.
Arbitrator Joachim rejected Mr. McLennon's other claims, stating that she heard no evidence about Mr. McLennon's caregiving responsibilities, prescription medication, or travel expenses. Dealing with his claim for chiropractic expenses, she found that passive chiropractic treatment was not required after April 1996, five months after the third accident.
Arbitrator Joachim then considered Mr. McLennon's obligation to repay the settlement funds, concluding that they must be repaid. She ordered that the settlement funds be set off against the amounts she found owing to Mr. McLennon, and that he repay the balance to Pilot.
Finally, Arbitrator Joachim dealt with arbitration expenses. Although Mr. McLennon was partially successful, she found that he acted in bad faith throughout the process. Consequently, she denied his expenses and ordered him to pay Pilot's expenses.
III. THE APPEAL
Mr. McLennon represented himself on appeal. His grounds for appeal can be divided into two major arguments. First, he claims the arbitrator failed to reach the correct result on the evidence before her. Second, he submits that she erred in not finding that Pilot's counsel had a conflict of interest.
A. Assessment of the Evidence
Appeal decisions have repeatedly stated that my role on appeal is not to second-guess the arbitrator's assessment of the evidence. She had the advantage of hearing the witnesses, including Mr. McLennon. She made findings that are clearly set out in the decisions and are amply supported by the evidence. I do not accept Mr. McLennon's contention that the arbitrator ignored important evidence or misapplied the legislation to the facts of the case. Nor do I find any relevance in the additional material he submitted, dealing with a 1998 accident and his son's medical condition. As a result, there is no basis for disturbing the decision.
B. Conflict of Interest
Mr. McLennon claims that the arbitrator's decision should be rescinded because Ms. Pang, Pilot's counsel, was acting in a conflict of interest. The basis of this allegation is that the law firm where she works (Daniel, Wilson) was also retained by Pilot to represent him in his wife's tort action against him arising out of the November 1995 accident.
Pilot responds that Ms. Pang was unaware that another lawyer in the firm was defending Mrs. McLennon's tort action until she received the appeal. When the situation was discovered, the other lawyer took steps to transfer the tort file to another law firm. Pilot also argues that Mr. McLennon failed to raise the issue at the arbitration hearing, challenging his contention that he raised it as soon as the information came to his attention. In support of this argument, Pilot refers to the following:
(a) Mr. McLennon was being sued by his wife;
(b) they lived in the same household;
(c) Mrs. McLennon was present at the arbitration hearing; and,
(d) Mrs. McLennon is unrepresented in her law suit. As Mr. McLennon was running a paralegal business before his accidents, it may be that he issued the Statement of Claim against himself.
In reply, Mr. McLennon challenges Pilot's assertion that Ms. Pang did not know about her firm's involvement in the tort action, arguing that law firms are responsible for guarding against this kind of conflict. He also strenuously objects to the suggestion that he initiated the tort action against himself.
I am not prepared to find on the material before me that either party failed to raise the conflict issue with the arbitrator despite being aware of it, or that Mr. McLennon prepared his wife's court documents. These findings would require credibility assessments that should be based on more complete evidence, including oral testimony. However, the appeal can be decided without resolving these factual disputes. This is because I am unable to see how the law firm's involvement in Mrs. McLennon's tort action prejudiced Mr. McLennon or gave Pilot any advantage in his claim for accident benefits.
In his appeal material, Mr. McLennon simply asserts that the same law firm cannot represent an insurer in a claim for accident benefits and a tort action arising out of the same accident. He does not cite any case law. The importance, he submits, is that credibility was an issue at the hearing:
The reason it would affect the outcome is because conflict of interest is conflict of interest and credibility was an issue at the hearing. Had the arbitrator known of the law firm's conflict Ms. Pang's arguments in representing Pilot against me while the same firm representing me in the same matter in the Ontario Court (General Division) could not have been deemed to be credible. I verily believe that if Ms. Pang did advise the arbitrator of the conflict of interest, the arbitrator would have decided a mis-trial or the outcome would be different in any event.
Credibility was an important issue at the arbitration hearing. I agree with Pilot, however, that the question was whether the arbitrator could rely on Mr. McLennon's evidence about his pre-accident condition, his work as a paralegal, the nature of his accident-related injuries, and their effect on his ability to return to that kind of work. Ms. Pang's credibility was not in issue. Nor was Pilot's, although its actions were scrutinized by the arbitrator in ordering the special award.
The proper question, in my view, is whether the involvement of the Daniel, Wilson law firm in Mrs. McLennon's tort action gave it access to information, or at least a reasonable apprehension of access, that could have been unfairly used to defeat Mr. McLennon's claim for accident benefits. On the uncontested facts, I find no such conflict.
Mrs. McLennon started her court action in November 1997, more than a year after Mr. McLennon applied for arbitration. Daniel, Wilson was retained in the tort matter four months later, in March 1998. Mr. Harry Daniel, the senior partner at Daniel, Wilson, handled the tort file. By the time he was retained, Mrs. McLennon had already noted Mr. McLennon in default. Consequently, Mr. Daniel's efforts were directed at getting Mrs. McLennon to agree to set aside the default, which she refused to do.
The arbitration hearing proceeded in August 1998, with no mention of Mr. Daniel's involvement in the tort action. Before the arbitration decision was released, Mr. Daniel filed a motion to set aside the default. The return date was December 22, 1998, less than a month after Mr. McLennon filed his appeal. Ms. Pang claims that at that point, she and Mr. Daniel first learned of each other's involvement. Just before the motion was heard, Mrs. McLennon agreed to set aside the default. Mr. Daniel entered a Statement of Defence and transferred his file to another law firm by early February 1999.
Mr. McLennon provided information to Pilot in support of his claim for accident benefits. If he were the plaintiff in the law suit, he could argue that Pilot should not have access to this information in defending his action. However, he is the defendant, not the plaintiff. As a result, he does not face any risk that information might flow from the accident benefits file to the tort file.
Nor can I see any concern about information flowing in the opposite direction. At the time of the arbitration hearing, little had happened in Mrs. McLennon's tort action. Mr. Daniel had not been able to file a defence on his behalf and, therefore, discoveries had not started. As Mr. McLennon acknowledges in his materials, he was never contacted by anyone at the Daniel, Wilson firm about the tort action. It is clear, therefore, that he did not provide any information that could have been used against him in his claim for accident benefits.
A helpful discussion of conflict in this area of practice is found in Klingbeil (Litigation Guardian of) v. Worthington Trucking Inc. et al., (1997), 1997 CanLII 12191 (ON CTGD), 36 O.R. (3d) 656 (Gen. Div.), leave to appeal to the Divisional Court granted. In that case, the issue was whether a law firm could represent an insurer in responding to a claim by Ms. Klingbeil for accident benefits when it was defending her action against the owner and driver of the truck that hit her. Justice Ferrier refers a general bulletin issued by the Insurance Bureau of Canada in July 1997, stating as follows:
INTERNAL TRANSFER OF INFORMATION FROM ACCIDENT BENEFITS ADJUSTER TO TORT ADJUSTER
IBC has received complaints about the practice of some automobile insurers which in adjusting claims where they insure both the tortfeasor for liability coverage and the plaintiff for accident benefits, have not taken appropriate steps to ensure that health records are not disclosed from the accident benefits file to the tort adjuster.
Members are reminded of Rule 13 of the All Industry Claims Agreement which states:
Insurers agree, as a matter of corporate policy, that they shall not gather medical information from doctors or their employees, without the written consent of the patient, subject only to any right to such information under law or rules of practice.
For Rule 13 to be effective, liability insurers are not to seek this medical information directly from the insurer which has received it to adjust the accident benefits claim. Where the same insurer insures both the tortfeasor for liability coverage and the victim for accident benefits, they should set-up "Chinese walls" so that information gathered by it regarding the accident benefits claim does not become available to the tort adjuster, unless the insured so authorizes. The tort adjuster must rely solely on the rules of civil procedure to obtain the information on the plaintiff's medical condition or on amounts s/he has received as accident benefits.
We encourage members to review their internal practices to ensure that they are in compliance with these requirements.
Although Justice Ferrier held that he was not bound by the IBC memorandum, he endorsed it, adding some additional restrictions:
Any insurer being the insurer for both the no-fault benefits and for a tort claim, should follow the policy expressed in general bulletin 184 of the Insurance Bureau of Canada. Further, if solicitors are to be retained, separate firms of solicitors should be retained to deal with the respective claims. Only with the consent of the claimant of the no-fault benefits could an insurer transfer information from one file to the other, and only with the consent of the claimant could one firm of solicitors be retained to act on both matters. (p.666)
On the facts of the case before him, Justice Ferrier prohibited the law firm from acting in either proceeding because it had received information in the accident benefits file that could be used to defend the tort action.
The concern underlying the IBC memorandum and the Klingbeil decision is the confidentiality of medical records provided to an insurer for a particular purpose. An insurer should not be advantaged by the fact that it is responding to two claims. Rather, it should play by the rules applicable to each claim. This is why the IBC memorandum applies "where the same insurer insures both the tortfeasor for liability coverage and the victim for accident benefits." That was the situation in Klingbeil - the insurer was responding both to Ms. Klingbeil's tort action and her claim for accident benefits. However, as discussed above, the situation here is different. Mr. McLennon is the defendant in the tort claim, not the plaintiff.
C. Arbitration Expenses
In his Notice of Appeal, Mr. McLennon also objects to the arbitrator's order that he pay Pilot's arbitration expenses for the hearing dates of October 6, 1997, August 31, 1998, and September 1, 2 and 3, 1998. Although he provides no separate grounds for this part of his appeal, I find that the arbitrator overstepped her authority in making this order.
When the dispute resolution system was introduced in 1990, arbitration expenses could only be awarded to the insured person, not the insurer. However, this changed with the November 1996 amendments to the Insurance Act. Subsection 282(11) was revoked and replaced with a new version authorizing arbitrators to award expenses to either party based on criteria established in the regulations. Arbitrators have consistently held that the new expense provisions do not apply to arbitration proceeding already underway on November 1, 1996. I accepted this approach in Pinto and General Accident Assurance Co. of Canada, (OIC P97-00031, November 26, 1997).
Mr. McLennon's application for arbitration was received in September 1996, before the new expense provisions came into effect. Arbitrator Friendly notes this in his preliminary decision, concluding he did not have authority to award Pilot its expenses. Although the arbitration hearing did not take place for nearly two years, it was the same proceeding. It follows that the new expense provisions do not apply and, therefore, Pilot was not entitled to recover its expenses.
IV. APPEAL EXPENSES
I am not persuaded that Mr. McLennon should recover his appeal expenses. Although he was successful on the issue of arbitration expenses, the balance of his appeal was dismissed. Apart from the conflict issue, the appeal had little merit. In my view, the conflict issue, while arguable, is not one that the insurer should be required to fund.
April 28, 1999
David R. Draper
Director's Delegate
Date