Neutral Citation: 2000 ONFSCDRS 115

FSCO A97-001997

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

FILOMENA MORELLI

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before:

Joyce Miller

Heard:

Written submissions received from both parties by March 29, 2000

Appearances:

Mark Baker for Mrs. Morelli

Alan H. Bakker for Zurich Insurance Company

Issues:

The Applicant, Filomena Morelli, was injured in a motor vehicle accident on December 4, 1996. In a decision dated January 14, 2000, I dealt with her claims for statutory accident benefits under the Schedule.¹ I made the following orders, while reserving on the issue of expenses:

1. Mrs. Morelli's claim for non-earner benefit, housekeeping, attendant care and special award is dismissed.

2. Zurich shall pay Mrs. Morelli $15.53 for transportation expenses pursuant to subsection 14(2) of the Schedule.

3. Zurich shall pay Mrs. Morelli interest on outstanding amounts owing.

The issue in this further hearing is:

1. Is Mrs. Morelli entitled to her expenses incurred in respect of this arbitration hearing?

2. Is Zurich entitled to its expenses incurred in respect of this arbitration hearing?

Result:

1. Mrs. Morelli is entitled to her expenses in respect of this arbitration hearing.

2. Zurich is not entitled to its expenses in respect of this arbitration hearing.

The Law:

Section 282(11) of the Insurance Act, R.S.O. 1990, c.I.8, as amended on November 1, 1996, 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.

Subsection 12(2) of the Expense Regulation² enacted on November 1, 1996 provides as follows:

(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:

1. Each party's degree of success in the outcome of the proceeding.

2. 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.

3. 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.

4. The degree of complexity, novelty or significance of the factual or legal issues raised in the proceeding.

5. 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.

6. Any other matter related to the proceeding that the arbitrator considers relevant to the issue of whether an award of expenses is justified.

Prior to November 1996, an arbitrator had the discretion only to award expenses in respect of an arbitration proceeding to an insured person. However, on November 1, 1996, section 282(11) was amended by section 38(4) of the Automobile Insurance and Rate Stability Act, S.O. 1996, c.21 giving the arbitrator the power to award expenses to both an insured person and the insurer. In the case of Athansiadis and Zurich,^3, which was the first case where expenses were awarded to an insurer under the new regulation, I outlined the basic criteria and underlying principle that guided an arbitrator's discretion when exercising his or her power to award expenses to an insured prior to the amendments.

The general criteria and the underlying principle of awarding expenses prior to November 1, 1996 was first articulated by Senior Arbitrator Naylor in October 1991 in the case of McCormick and Economical Mutual Insurance⁴. In this case she held that when awarding expenses, an applicant with a legitimate claim can expect to recover his or her expenses, win or lose, except where the applicant's conduct is unreasonable. She stated that:

The discretion to award expenses should be exercised, having regard to the intent and purpose of the legislative scheme. The arbitration process has been established under the Insurance Act, as amended, in order to facilitate applicants' access to relatively inexpensive, speedy and informal adjudication of disputes regarding no-fault benefits. The discretion to award expenses should be exercised in accordance with this objective, having regard to the individual circumstances of each case.

Accordingly, it is appropriate to award an applicant his or her expenses, unless, in the circumstances of the particular case, it is determined that the application for appointment of an arbitrator was manifestly frivolous or vexatious, or that the applicant's conduct unreasonably prolonged the proceedings.

In February 1992, this statement was adopted "in the main" by the Director in the appeal decision, Calogero and the Co-operators General Insurance⁵. In August 1996, in the appeal decision of Allison and Markel Insurance Company of Canada⁶, Director's Delegate Naylor reaffirmed the general principle in McCormick and pointed out that this principle had been uniformly accepted by arbitrators. However, she also pointed out that when it came to denying expenses, arbitrators have built on the three criteria set out in McCormick.

For example, expenses have been denied to an applicant where the claim was found to have been without merit, or in the case of fraud, or dishonesty, or when documents have been fabricated. Director's Delegate Naylor stated that she agreed with this case-by-case development and commented that: "... the general thrust of these decisions is reasonable and consistent with the purpose and scheme of the legislation. It balances the need for access to the system, with a relatively mild deterrent to undeserving claims or undesirable behaviour."

In Athanasiadis, the Applicant was unsuccessful in her claim, and I awarded the Insurer its expenses on the basis that the Applicant's application for arbitration was without merit and she had subjected Zurich to unnecessary legal expenses. Nevertheless, I held that this did not mean that I was departing from the guiding principles of the old expense regulation and narrowing an arbitrator's discretion to a results-based approach. Rather I stated that:

I choose to interpret the new expense regulation as being consistent with the purpose of the legislation, namely, to facilitate access to inexpensive, speedy and informal adjudication of disputes regarding statutory accident benefits, while deterring undeserving claims or undesirable behaviour.

In my view, the new regulation does not depart from the fundamental objectives of the dispute resolution system as outlined in the McCormick case, and affirmed on appeal in the Calogero and Allison cases. The principles outlined in these latter cases have been uniformly accepted by the arbitrators as the guiding principles in exercising their discretion when awarding expenses.

Accordingly, I do not view the regulation in a light that restricts an arbitrator's discretion to award applicants their expenses in unsuccessful cases. Instead, I interpret the regulation as broadening an arbitrator's discretion not only to disallow applicants their expenses in certain circumstances, but also to award expenses to insurers. When and why an arbitrator will exercise his or her discretion in this manner will depend on the facts of each particular case in light of the new regulation.

Shortly after the Athanasiadis decision was issued, the basic principle that the new regulations retained an arbitrator's broad discretion was reaffirmed by Director's Delegate Draper, in Biliouras and Allstate⁷ wherein he held that "...the old expense provisions created a broad discretion ... that applies equally to the new provisions." including the concept of an arbitrator's broad discretion in awarding expenses.

In Gray, the applicant was completely unsuccessful in the arbitration while the insurer was completely successful. Arbitrator Alves, nevertheless, awarded the applicant her expenses and denied the insurer its expenses. She did so on the basis that she did not find that the applicant's application for arbitration was "manifestly unfounded" despite the finding made by a previous arbitrator that "... [the Applicant's] success was perhaps doubtful in this arbitration." In her assessment of the facts, Arbitrator Alves found that the applicant had raised a novel issue of importance to the parties that involved complicated legislation that had not been considered in previous decisions.

In her decision, Arbitrator Alves again reaffirmed that the statutory scheme continues to facilitate an applicant's access to a speedy adjudication of disputes and that "arbitrators continue to enjoy a broad discretion in awarding expenses to a party, in the circumstances of each case." The Gray and Zurich⁸ decision was upheld on Appeal. In this decision, Director Delegate Draper held:

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.

ANALYSIS AND FINDINGS:

Mrs. Morelli was modestly successful in her application for arbitration in that she was awarded her travel expenses of $15.53. She was not, however, successful on the issues of entitlement to weekly benefits and payment for housekeeping and attendant care. She, nevertheless, claims her expenses arising out of the arbitration proceeding on the basis that there was merit to her bringing an application for arbitration.

1. Submissions

(a) Mrs. Morelli

Mrs. Morelli submitted that the issue in arbitration was not whether she suffered an impairment as a result of the accident, but the extent of that impairment. Mrs. Morelli submitted that this was a legitimate issue of dispute for arbitration. As well, Mrs. Morelli submitted that, while I denied her claim for housekeeping and attendant care expenses, I had concluded that she did require some additional care after her accident, but was not presented with sufficient evidence that she had in fact "incurred" these expenses as defined in the Schedule.

Mrs. Morelli further submitted that while issues of credibility were raised in this case, I did not make my final decision based on credibility. Finally, Mrs. Morelli submitted that in awarding expenses in this case, I should not consider Zurich's offer to settle. Mrs. Morelli pointed out that Zurich's offer to settle was based on a full and final offer instead of an offer based on the issues for arbitration.

(b) Zurich

Zurich submitted that it should be awarded its expenses on the basis that I had awarded Mrs. Morelli a small fraction of what she claimed for in her application for arbitration. Zurich submitted that it had incurred expenses for extensive preparation in order "to dispute the false and unsubstantiated assertions made by the applicant." Moreover, Zurich submitted that Mrs. Morelli's representative had "tended to lengthen the hearing" and that a costly arbitration would have been avoided if Mrs. Morelli had accepted its offer to settle.

2. Findings:

As I noted above, the degree of success in the outcome of an arbitration proceeding is only one of a number of criteria that an arbitrator takes into consideration when exercising his or her discretion to award expenses to a party. Although Mrs. Morelli was for the most part unsuccessful in her claim I, nevertheless, find that Mrs. Morelli had a legitimate claim to dispute that entitled her to apply for arbitration. Contrary to Zurich's submission, I find that Mrs. Morelli presented her case in a timely manner and did not unnecessarily prolong the proceedings. Also contrary to Zurich's submission, I did not find that Mrs. Morelli had made "false and unsubstantiated assertions" that materially affected her claim.

The test that Mrs. Morelli had to meet regarding her disability was an onerous one, namely, she had to show she had suffered "a complete inability to carry on a normal life" as a result of the accident. The fact that Mrs. Morelli did not meet the test does not mean she did not suffer some legitimate impairment as a result of the accident. While I stated in the arbitration decision that there were some discrepancies regarding the amount of time her daughter assisted her after the accident, I did not make my final decision based on lack of credibility.

I agree with Mrs. Morelli's submissions that Zurich's offer to settle should not be taken into consideration in awarding expenses in this case. Zurich's offer to settle was not only for the issues in dispute at this arbitration, but was a full and final, all inclusive, offer which included any future claim for accident benefits that Mrs. Morelli may be entitled to under her policy.

I agree with Arbitrator Blackman's opinion in Pinheiro and Gan⁹ that "arbitration hearings at the Commission exist to resolve past and current disputes. They do not determine future hypothetical claims." For this reason, I do not find it unreasonable that Mrs. Morelli chose not to accept Zurich's offer to settle despite the fact that the amount eventually turned out to be more than she received at arbitration. Had Zurich's offer to settle been for the issues in arbitration, then it would certainly have been an important factor to consider in awarding expenses.

3. Conclusion

As I stated in Athanasiadis, I do not find that the new regulation restricts an arbitrator's discretion to award applicants their expenses in unsuccessful cases. I find that the awarding of expenses at arbitration is not based on the results approach of the courts, but is based on the underlying purpose of the statutory accident benefits scheme, namely, to facilitate access to inexpensive, speedy and informal adjudication of disputes. It is for this reason I find that applicants like Mrs. Morelli should not be discouraged from applying to arbitration by being penalized in expenses where their conduct has been reasonable and they have been unsuccessful in a legitimate dispute for benefits. Accordingly, for all of these reasons, I find that Mrs. Morelli is entitled to her reasonable expenses in this arbitration, and that Zurich is responsible for its own expenses.

June 27, 2000

Joyce Miller

Arbitrator

Date

Neutral Citation: 2000 ONFSCDRS 115

FSCO A97-001997

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

FILOMENA MORELLI

Applicant

and

ZURICH INSURANCE 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. Zurich shall pay Mrs. Morelli her expenses incurred in respect of this arbitration.

June 27, 2000

Joyce Miller

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96 and 303/98.
2. 2Ontario Regulation 464/96 enacted on November 1, 1996.
3. 3Athansiadis and Zurich Insurance Company, (FSCO A97-001239, December 23, 1999).
4. 4McCormick and Economical Mutual Insurance, (OIC A-000139, October 2, 1991).
5. 5Calogero and the Co-operators General Insurance Company, (OIC P-000251, February 13, 1992).
6. 6Allison and Markel Insurance Company of Canada, (OIC P-001231, August 21, 1996).
7. 7Biliouras and Allstate Insurance Company of Canada, (FSCO P98-00002, October 13, 1998).
8. 8Gray and Zurich Insurance Company, (FSCO P-98-00047, June 11, 1999).
9. 9Pinheiro and Gan Canada Insurance Company, (OIC A96-000369), June 30, 1998).