Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2000 ONFSCDRS 101

Appeal P99-00026

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ALLSTATE INSURANCE COMPANY OF CANADA

Appellant

and

BARBARA MILLER

Respondent

Before:

Susan Naylor, Director's Delegate

Counsel:

Grant E. Black (for Allstate Insurance Company)

Lou A. Ferro (for Barbara Miller)

APPEAL ORDER

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

Paragraphs 1 and 2 of the arbitrator's order dated April 29, 1999, providing that Barbara Miller may proceed with her arbitration if, within four weeks of issuance of the order, she withdraws the court action or files an amended Statement of Claim excluding the claim for the March of Dimes expenses, is rescinded.
Paragraph 3, requiring Barbara Miller to pay the Appellant arbitration expenses fixed at $250, is confirmed.
The application for arbitration filed on behalf of Barbara Miller is dismissed.
The parties shall bear their own appeal expenses.

June 12, 2000

Susan Naylor

Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This case involves concurrent proceedings in arbitration and court. Barbara Miller claims expenses totalling $1,750 (plus interest), representing the cost of a functional capacities evaluation and psycho-vocational assessment conducted by the March of Dimes ("the March of Dimes expenses"). She first referred her claim to arbitration, then commenced an action in court that included a claim for same expenses. Allstate Insurance Company of Canada's ("Allstate's") position is that, given Mrs. Miller's choice to go to court, the arbitration should be dismissed and she should be ordered to pay $3,000, representing its arbitration assessment fee. The arbitrator allowed Mrs. Miller to go ahead with her arbitration provided she discontinued her action or filed an amended Statement of Claim specifically excluding the March of Dimes expenses.

Allstate appeals from this order listing the following errors: firstly, the arbitrator's order offends the general principle against multiplicity of proceedings; secondly, the arbitrator exceeded his jurisdiction by ordering that Mrs. Miller's Statement of Claim be amended because this is a matter for the courts, and thirdly, the arbitrator failed to determine that Mrs. Miller's application was an abuse of process and that she should have been required to repay Allstate's assessment.

In fact, the last question - who should be responsible for the insurer's assessment cost - is, and always has been, the main point of contention between the parties.

II. BACKGROUND

Mrs. Miller was involved in an automobile accident on January 18, 1995. She was paid income replacement benefits to July 9, 1996. She filed for mediation seeking an extension of her benefits to January 18, 1997, as well as loss of earning capacity benefits from then on. The mediation, which took place between December 1996 and March 4, 1997, was unsuccessful but Mrs. Miller did not take the matter further at this point.

Starting February 25, 1997, shortly before the mediation concluded, Mrs. Miller was assessed at the March of Dimes, as arranged by her lawyer, Mr. Ferro. The cost of these assessments is the subject of the arbitration.¹

About a year later, in February, 1998, Mrs. Miller applied for mediation on that issue. In mid-May 1998, Mrs. Miller, still represented by Mr. Ferro, applied for arbitration. Her application was limited to a claim for the March of Dimes expenses, plus interest and a special award based on Allstate's conduct in refusing to pay the benefits.

Allstate filed its Response on June 15, 1998, and was duly assessed $3,000, the amount levied under the regulations against an insurer who is a party to an arbitration. In its Response, Allstate challenged the necessity and reasonableness of the expenses, and their relationship to the accident.

On June 30, 1998, approximately six weeks after Mrs. Miller applied for arbitration and two weeks after Allstate's Response, Mr. Ferro issued a Statement of Claim in the Ontario Court (General Division) on his client's behalf. The claim relates to two motor vehicle accidents, the one of January 18, 1995, and an earlier accident on March 15, 1994. Mrs. Miller claims damages against Allstate and two of its employees for breach of duty to act in good faith in handling her claim, and for punitive, aggravated and exemplary damages. She seeks judgment for statutory accident benefits, including, specifically, income replacement benefits and "reimbursement for the cost of mediate [sic] medical rehabilitation expenses incurred."² It is acknowledged that the only such expenses that had been mediated were the March of Dimes expenses previously referred to arbitration.

In accordance with its usual practise, the Commission³ sent the parties a notice dated July 6, 1998, scheduling their pre-hearing for September 17, 1998. A lengthy exchange of correspondence then took place in the ensuing months.

On July 10, 1998, Mr. Daniel, Allstate's representative, wrote to Mr. Ferro respecting the law suit. The letter stated, among other things:

It is my understanding that you cannot sue and arbitrate, you must elect to do one or the other.

In addition, because you have filed for arbitration we have had to pay a $3,000 arbitration fee, therefore, if you decide to sue rather than arbitrate, we want re-payment of the $3,000 arbitration fee, or alternatively, you can try to arrange for the OIC to return it. In the past, they have refused to do so in circumstances such as this.

Mr. Ferro replied by letter dated July 23, 1998, saying:

The issuance of the Arbitration is inadvertent and I know it has happened on a couple of other files and we have now corrected our systems within the offices to avoid it happening again.

I would prefer to sue.

Mr. Daniel reiterated his concerns about the arbitration assessment in a letter dated August 4, 1998:

...that is something that should be reimbursed by you because it is your mistake not ours. May I suggest that you write to the OIC indicating what has happened with a copy of the letter to me, requesting that they return the $3,000 arbitration fee to my offices, or that of Allstate.

In fact, it was Mr. Daniel who first apprised the Commission of the situation in a letter dated September 1, 1998. He asked the Commission to close its file and credit Allstate with the arbitration fee. Mr. Ferro signalled his agreement in a letter to the Commission dated September 16, 1998, which apparently was not received at the Commission until October 8, 1998.

On the date scheduled for the pre-hearing, an arbitrator contacted Mr. Ferro. The arbitrator marked the arbitration application as withdrawn and instructed that the file be closed. The Commission responded to Mr. Ferro's September letter by letter dated October 15, 1998. It refused to refund Allstate's assessment.⁴ The writer notified Mr. Ferro that he could not unilaterally withdraw an application under the rules and that he needed an order permitting him to do so, since Allstate would not consent.⁵

To this point, the only real question was in regards to reimbursement of the insurer's assessment. After it became clear that the Commission would not refund Allstate's assessment, things started to unravel. Mr. Ferro was reluctant to pursue his request to withdraw, faced with the possibility that his client would have to pay a penalty. Allstate brought a motion for an order dismissing the application and re-imbursing the $3,000 assessment fee. A preliminary hearing was held on April 6, 1999.

In his decision, the arbitrator sets out the parties' positions in some detail. Their arguments centred on whether the same issue had been referred to arbitration and to court, and whether Mrs. Miller should be ordered to pay Allstate an amount equivalent to its assessment fee on the grounds that her application was an abuse of process. The arbitrator accepted Allstate's position that Mrs. Miller had commenced a proceeding in court in respect of the same issue, i.e. the March of Dimes expenses, that she had already referred to arbitration. However, he did not give Allstate the relief it sought. Rather, he held that if Mrs. Miller wished to proceed with the arbitration, she could do so provided she withdrew the court action or "filed an amended Statement of Claim that specifically excludes the claim for the March of Dimes expenses." Mrs. Miller was to take these steps within a certain time frame. If she did not, she would be deemed to have elected to proceed to court and her application would be automatically dismissed. The arbitrator deferred Allstate's request for the $3,000 payment, implying that in the event Mrs. Miller amended her action to exclude the March of Dimes expenses, no payment would be ordered. However, he awarded Allstate its expenses on the motion, which he fixed at $250.

Mrs. Miller drafted a Notice of Discontinuance, withdrawing three paragraphs and part of a fourth in the Statement of Claim, specifically dealing with medical and rehabilitation expenses (i.e. the March of Dimes expenses). However, Allstate refused to consent to the amendment. As of the appeal, Mrs. Miller has not taken steps to obtain leave of the court allowing her to discontinue part of her action.

III. CONCLUSION

Allstate's representative described the arbitration order, allowing Mrs. Miller to continue with both her arbitration and the court action provided she amended the latter, as coming from "out-of-the-blue." It is fair to say that Mr. Ferro, at least tacitly, concurred in this characterisation. Neither had sought, or anticipated, the remedy ultimately arrived at.

In my view, on this ground alone, the arbitrator's order cannot stand, although I have some sympathy with the position he found himself in. Mr. Ferro's shifting tactics left both the arbitrator and Allstate dealing with a constantly moving target. However, the arguments of both parties appear to have been premised on the assumption that if Mrs. Miller was found to have claimed the March of Dimes expenses in both forums, the arbitration would be precluded. Mrs. Miller's position was that the issues were not the same. The arbitrator disagreed. Neither party was asked to go on to make submissions on the possibility, or implications, of the action being reframed. At a minimum, fairness required that they should have been given that opportunity.

I see no benefit to remitting the matter for a rehearing. In my view, on the facts, an order should go dismissing the application for arbitration on the basis that the very issue referred for arbitration is before the court.

Section 281(1) of the Insurance Act, R.S.O. 1990, c. I.8, as amended,⁶ gives insureds a choice. Provided mediation has failed, insureds may "bring a proceeding in a court of competent jurisdiction or may refer the matter to an arbitrator." Only an insured may elect arbitration. Numerous decisions, in this forum and the courts, confirm that the statutory scheme "precludes an insured from travelling down both paths of arbitration and litigation"⁷ in respect of essentially the same claims or issues.⁸

An insured is not necessarily stuck with their initial choice of forum. In a number of cases, for example, where an insured has started an action before mediating the dispute but then chooses to go to arbitration, arbitrators have not held insureds to their initial choice and have permitted them to continue in arbitration, provided the action is promptly discontinued.⁹ Here, no objection has been taken to Mrs. Miller's choosing to take her dispute to court even though she initially chose the arbitration route. However, Allstate insists that she not proceed down both paths.

In this case, Mrs. Miller elected to proceed by way of arbitration. She then opted to go to court on a broader range of claims, including the same claim she had previously referred to arbitration. Mrs. Miller made the choice to have her dispute dealt with in court. Her lawyer's correspondence indicates that her preference was to proceed by way of the action rather than arbitration. In my view, she made her election - to go to court. Her choice should be given effect. Therefore, her arbitration should be dismissed.

Moreover, the criteria developed in the cases to assist in determining which proceeding should go forward militate in favour of dismissal of the arbitration. Citadel General Assurance Company v. Gogna, [1992] O.J. No. 1996 (Gen. Div.) lists three criteria:

(1) which proceeding began first,

(2) who has the chief burden of proof, and

(3) which is the most comprehensive in scope.

The first two criteria are neutral in this case. While the arbitration was started first, Mrs. Miller then chose court. This is not a case, as in Gogna, in which the two parties brought separate proceedings, or as in Dominion of Canada General Insurance Co. v. Lee, [1998] O.J. No. 4202 (Gen. Div.), in which the insured sought a stay of the action over the insurer's objection. Mrs. Miller has the burden of proof in both forums. The third criterion favours dismissing the arbitration, which is of much narrower scope than the court action.

I agree that the statutory scheme does not require an insured to chose a single forum in which to bring all disputes, present and future, with his or her insurer. However, it prevents a party from bringing the same claims or issues in the two forums. That is precisely what happened here. Moreover, although it is not strictly necessary for this decision, to the extent the arbitrator's order suggests that Mrs. Miller would be free to bring separate proceedings in relation to the March of Dimes expenses than the rest of her claims, I respectfully disagree.

This is not a case which involves a discrete, distinct dispute that can reasonably be dealt with separately from the remainder of the claims being litigated. The claims do not, in the words of one arbitrator, involve "essentially different lines of inquiry."¹⁰ Rather, they are intertwined. The claim for payment of the rehabilitation assessments, evaluating Mrs. Miller's functional capacities and vocational aptitudes and options, is closely linked to her claim for income replacement benefits based on disability. The timing of the assessments reinforces the relationship. Causation issues are pleaded in both forums. The basis of the court claim as pleaded includes broad allegations in regards to Allstate's failure to meet rehabilitation obligations. Allowing Mrs. Miller to split her case, therefore, likely would lead to undue duplication of evidence and effort and a real risk of inconsistent findings.

Section 281(1) confers a choice of forum on insureds while reflecting the law's general policy against multiple proceedings. Multiple proceedings expose parties to the inherent risk of inconsistent results, interminable adjudication and inordinate expense. Gogna confirms, in the accident benefit context, that "it is fundamental that multiplicity of proceedings is to be avoided, wherever possible."

Although I am dismissing Mrs. Miller's application for arbitration for the above reasons, I will address Allstate's alternative argument - that the arbitrator exceeded his jurisdiction by ordering that Mrs. Miller's Statement of Claim be amended, because this is as a matter for the courts. In my view, Allstate's position, as well as Mrs. Miller's complaint that Allstate's refusal to consent to the amendment of the action is in breach of the arbitrator's order, both reflect a misunderstanding of the order. A court, it has been held, has no authority to stay an arbitration under s. 106 of the Courts of Justice Act.¹¹ An arbitrator, obviously, can only deal with the arbitration proceeding. Arbitration orders permitting an arbitration to go ahead provided an applicant withdraws all or part of a court action do not purport to dictate the outcome of the lawsuit. They do not, and cannot, require an insurer to consent to the discontinuance, nor do they purport to dictate the terms on which all or part of an action may be discontinued. They merely provide a remedy relating to the arbitration that is contingent upon the latter happening, if at all.

That brings me to the question at the heart of the parties' disagreement: responsibility for Allstate's assessment fee. The arbitrator ordered Mrs. Miller to pay $250 towards Allstate's arbitration expenses, but did not make an order in Allstate's favour under s. 282(11.2) of the Insurance Act, effectively reimbursing its $3,000 assessment.

Section 282(11.2) provides that "if an insured commences an application that, in the opinion of the arbitrator, is frivolous, vexatious or an abuse of process, the arbitrator may award an amount to be paid by the insured person to the insurer that does not exceed the amount to be assessed against the insurer in respect of the arbitration."

As part of the Commission's cost recovery scheme, each insurer is assessed $3,000 for every arbitration to which that insurer is a party.¹² Section 282(11.2) allows an insurer to recoup an amount up to its assessment from the insured person in the very limited circumstances set out. The payment, which is in the nature of a penalty, is quite distinct from an award of expenses under s. 282(11),¹³ and an insurer's assessment is not included in the list of expenses that can be recovered by a party under an expense award.¹⁴

An order for payment under s. 282(11.2) is not, nor should it be viewed as, an alternative form of costs. It requires a finding that the application for arbitration not only lacks merit but is frivolous, vexatious or an abuse of process. In previous Commission decisions, it has been held that submitting the same dispute to arbitration and court, being reckless or careless of the consequences, amounts to an abuse. In Tombolini and Jevco Insurance Company, (OIC A96-000142, September 24, 1996), the arbitrator described it as "trite law that to put a party to the expense of proceeding in two concurrent forums amounts to an abuse of process."

Allstate's position is that Mrs. Miller's lawyer, Mr. Ferro, is deliberately instituting multiple proceedings against it as a tactic to run up its costs and leverage settlements. It points to several similar cases involving Mr. Ferro. In Gawronski and Allstate Insurance Company of Canada, (OIC P98-0004, May 13, 1998), Mr. Ferro represented the insured in the arbitration, while another lawyer acted in the action. Director's Delegate Draper agreed with the arbitrator that the insured's failure to co-ordinate the litigation and consider his actions led to an abuse of process.

The insured was permitted to withdraw his application for arbitration only on the condition that he repay the insurer's assessment.

In Osorio and Allstate Insurance Company of Canada, (FSCO A98-000731, June 9, 1999), the insured's arbitration was dismissed and a penalty ordered. The applicant and her representative, Mr. Ferro, failed to show up at the arbitration hearing, after instituting concurrent proceedings.

The cases cited involve somewhat different facts. Furthermore, the correspondence between the parties, which is essentially the only other evidence before me, does not lend support to the suggestion that Mr. Ferro's actions were intentionally aimed at increasing Allstate's costs. However, given the number of times Mr. Ferro has been involved in cases raising the issue,¹⁵ his actions in starting an arbitration and then proceeding to court on issues mediated well before the start of the proceedings suggest, at the very least, a marked nonchalance in regards to visiting unnecessary and avoidable costs on Allstate.

However, even if I were inclined to impose a penalty, there is a further consideration. Allstate has instituted a counterclaim against Mrs. Miller in the courts. Allstate is seeking $3,000 in damages, in reimbursement of its arbitration assessment, and solicitor and client costs. It pleads "an abusive process" and relies on Mrs. Miller's actions in instituting concurrent proceedings.

I have some question whether a court rather than a Commission adjudicator is better positioned to determine issues relating to use of the Commission's processes. However, I agree with Mrs. Miller that Allstate is effectively seeking the same remedy in two forums. Under this order, Mrs. Miller is being required to pursue her remedies in court, rather than splitting her case. Having instituted a counterclaim, Allstate, also, should be held to its decision to seek relief in court. This leaves the court to deal with the entirety of the dispute between the parties

The application for arbitration is therefore dismissed. Allstate's request for an order under s. 282(11.2) is denied. Given that both parties have experienced mixed success on this appeal, no expenses order is made.