Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2000 ONFSCDRS 141

Appeal P00-00020

Appellant

and

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

Todd J. McCarthy (for Lloyd's)

David J. Levy (for Inderjit Mangat)

APPEAL ORDER

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

The appeal is allowed. The arbitration order dated February 15, 2000 is revoked and replaced with the following order:

Inderjit Mangat's application for arbitration is stayed pending the outcome of his court action, subject to the right to withdraw his arbitration application, without penalty, within 30 days of this decision.

The parties will bear their own expenses, both at arbitration and on appeal.

August 1, 2000

David R. Draper Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by Non-Marine Underwriters, Mbrs. Of Lloyd's ("Lloyd's") from an arbitration order dated February 15, 2000. Lloyd's claims the arbitrator erred in law in concluding that Inderjit Mangat's arbitration can proceed despite his court action dealing with the same accident.

II. BACKGROUND

Mr. Mangat was injured in an automobile accident on December 3, 1992. He applied for and received statutory accident benefits from Lloyd's under the SABS-1990¹ After approximately five months, Lloyd's stopped paying weekly income benefits on the basis that Mr. Mangat was able to return to his pre-accident employment. Mr. Mangat disagreed, referring the issue to mediation. When the dispute was not resolved, he applied for arbitration.

The arbitration hearing was scheduled to start in April 1994, but the parties reached a settlement. Lloyd's paid weekly income benefits up to May 7, 1994, plus interest, expenses and certain supplementary medical expenses. As discussed below, Mr. Mangat contends that Lloyd's has yet to pay the full amount of this settlement.

The dispute did not end there. The parties went back to mediation three more times, with mediators reporting that the following issues were not resolved:

September 1994

Prescription expenses ($25.04), travel expenses ($263), babysitting expenses ($2,420) and an amount remaining unpaid from the previous proceeding (approximately $2,762).

March 1996

Ongoing weekly income benefits from December 4, 1995 (post-156 week benefits).

August 1996

Chiropractic expenses from August 1995, the cost of a screening assessment for a pain management program and a gym membership.

Following the last mediation, Mr. Mangat started separate proceedings. On September 19, 1996, he applied for arbitration. His Application for Arbitration is not before me, but as I understand it, he claimed the supplementary medical and rehabilitation expenses in issue in the August 1996 mediation.² The next day, he issued a Statement of Claim in the Ontario Court (General Division) against Lloyd's. It is drafted in broad terms, claiming general damages, special damages, punitive, exemplary and aggravated damages, and the following declaratory relief:

a declaration that the Plaintiff is entitled to payment of supplementary medical, rehabilitation and care benefits pursuant to Sections 6, 7 and 8 of the Statutory Accident Benefits Schedule—Accidents Before January 1, 1994.
a declaration that the Plaintiff is entitled to the payment of weekly income benefits pursuant to Sections 12(5)(b) of the Statutory Accident Benefits Schedule—Accidents Before January 1, 1994.³

The Statement of Claim specifically alleges that Lloyd's refused and continues to refuse to pay medical and rehabilitation benefits, although it does not detail the amounts claimed. Mr. Mangat also claims ongoing weekly income benefits from December 4, 1995, and that Lloyd's failed to pay $7,259.65 of the 1994 settlement. Finally, he claims that Lloyd's acted in bad faith, prolonging and aggravating his pain and suffering and loss of enjoyment of life, and hindering and irreparably harming his rehabilitation and recovery.

The question of multiple proceedings might have been raised at this point, but apparently was not. As a result, the arbitration and court proceedings both went ahead. Roughly ten months later, in July 1997, the arbitration issues were settled without a hearing. Lloyd's paid $15,968.69 for chiropractic expenses, a screening assessment and a gym membership, plus disbursements for medical reports and legal expenses.

The court action continued. An examination for discovery of a Lloyd's representative took place in January 1998. In June 1998, the action was joined by court order with a previously issued tort action. The tort action was subsequently settled, but the accident benefits issues were not. According to Mr. Mangat, the only claim for supplementary medical and rehabilitation benefits being advanced in the court proceeding is the enforcement of the May 1994 settlement. I note, however, that the action still includes the broadly drafted claim for declaratory relief. In addition, Mr. Mangat's claim for weekly income benefits is still proceeding, as is his claim for damages based on Lloyd's actions, including its refusal to pay supplementary medical and rehabilitation benefits.

In March 1998, Mr. Mangat underwent surgery to repair two discs. Further surgery was done in July 1998 to remove scar tissue resulting from the first surgery. Mr. Mangat then applied to Lloyd's for payment of the additional supplementary medical and rehabilitation expenses he incurred as a result of his surgeries. Lloyd's denied his claims on the basis that they were not required as a result of the accident.

The Report of Mediator, dated November 12, 1998, indicates that Lloyd's agreed to pay for chiropractic services up to February 1998 ($2,099.95) and physiotherapy services up to November 10, 1998 ($1,880), but the other issues were not resolved. Mr. Mangat applied for mediation with respect to all the issues raised at mediation, including the chiropractic and physiotherapy expenses that he claims they failed to pay. The other issues are a knee brace ($792), services provided by Trauma Services ($25,400) and BDH Rehabilitation ($1,658.18), and taxi fares ($271.05). In addition, Mr. Mangat submits that Lloyd's should be ordered to pay a special award at the maximum level based on its refusal to pay these benefits.

In its response, Lloyd's disputed the connection between the accident and Mr. Mangat's ongoing problems. In the alternative, it challenged the extent of his disability and the necessity and reasonableness of the expenses claimed. Finally, Lloyd's submitted that because Mr. Mangat already elected to pursue accident benefits in court, these claims should be added to that action, not brought to arbitration.

A preliminary hearing was held to decide whether Mr. Mangat's court action prevented him from proceeding with the arbitration. The arbitrator rejected Lloyd's position. Citing a number of previous arbitration decisions,⁴ she held that nothing in the legislation prevents an insured person from proceeding in both forums as long as the issues are distinct. On the facts of this case, she concluded that Mr. Mangat was entitled to proceed with his arbitration. Her reasoning is set out below:

In this particular case I find that the issue which Mr. Mangat has chosen to arbitrate is distinct from his court claim. I am not persuaded by Lloyd's submission that the arbitration issue is merely updating the amounts raised in the court action. The issue in Mr. Mangat's court claim deals with whether medical rehabilitation expenses in respect of the April 25, 1994 arbitration was settled on April 24, 1994. The issue for this arbitration is whether Mr. Mangat is entitled to medical and rehabilitation expenses arising out of the surgeries he underwent in March and July 1998. I accept Mr. Mangat's submission that he has chosen the arbitration route in order to have a speedy and inexpensive resolution of this new and distinct expense. (p.7)

For reasons that follow, I find the arbitrator's approach too narrow. By focussing only on Mr. Mangat's claims for supplementary medical and rehabilitation expenses, she failed to consider the overlapping factual questions central to both proceedings.

III. ANALYSIS

The issue of multiple proceedings has been a vexing problem. Since 1990, insured persons have had the option of having their entitlement to accident benefits, or the amount of those benefits, determined in court or by arbitration. Insurers do not have the same choice. They must go to court. The question is how to reconcile the insured person's right to choose arbitration with the sensible goal of avoiding multiple hearings.

In some early decisions, arbitrators had to decide whether insurers could add issues to an arbitration proceeding brought by the insured person.⁵ The dilemma was summarized by Arbitrator Makepeace in Slivecka:

In interpreting these provisions, arbitrators have recognized competing legislative goals. In support of a narrow interpretation of an arbitrator's jurisdiction, it is argued that section 281(1) reflects the Legislature's intention that insured persons have access to relatively speedy, inexpensive and informal means of dispute resolution as an alternative to the courts. On this view, insurers should not be permitted, in effect, to "counterclaim" in response to an application for arbitration, because allowing them to do so would make meaningless the Legislature's decision not to give insurers the right to apply for appointment of an arbitrator.

On the other hand, arbitrators recognize that an unduly narrow definition of their jurisdiction may lead to prolonged, expensive and multiple proceedings, and may allow some insured persons to abuse the arbitration process. (p.19, footnotes omitted)

These rather tortured decisions, including my own in Ayertey, turned on the distinction between "issue" and "matter," the terms used in sections 280-282 of the Insurance Act. Although arbitrators took somewhat different approaches, they attempted to find a middle ground. Insurers were allowed to add new "issues," but only if they reasonably and consequentially flowed from the "matter" raised by the insured person. The developing jurisprudence was helpfully summarized by Arbitrator Bayefsky in Carby and Co-Operators General Insurance Company, (OIC A-950220, January 12, 1996), where he sets out criteria to be considered in deciding whether to allow an insurer to add a new issue. These include whether the new issue involves a different category of benefit, whether it is reasonably incidental to the issues raised by the insured person, whether it would unduly expand the scope of the arbitration proceeding, and whether its inclusion would benefit both parties by avoiding multiple proceedings.

In 1996, the Legislature responded to this line of cases by eliminating the issue/matter distinction.⁶ The clear intention was to encourage more comprehensive proceedings. This was done by amending s.282(3) of the Insurance Act to allow insurers to raise issues at arbitration, and restructuring s.281(1), the provision allowing insured persons to choose between court and arbitration. The relevant provisions now read as follows:

281.—(1) Subject to subsection (2),

(a) the insured person may bring a proceeding in a court of competent jurisdiction;

(b) the insured person may refer the issues in dispute to an arbitrator under section 282; or

(c) the insurer and the insured person may agree to submit any issue in dispute to any person for arbitration in accordance with the Arbitration Act, 1991.

(2) No person may bring a proceeding in any court, refer the issues in dispute to an arbitrator under section 282 or agree to submit an issue for arbitration in accordance with the Arbitration Act, 1991 unless mediation was sought, mediation failed and, if the issues in dispute were referred for an evaluation under section 280.1, the report of the person who performed the evaluation has been given to the parties. 282.—(1) An insured person seeking arbitration under this section shall file an application for the appointment of an arbitrator with the Commission.

(3) The arbitrator shall determine all issues in dispute, whether the issues are raised by the insured person or the insurer.

In Nand and State Mutual Automobile Insurance Company, (OIC A96-001835, July 28, 1997), Arbitrator Baltman described these amendments as marking "a new and significantly broader approach to setting the parameters of an arbitration." I agree with this characterization. While arbitrators retain their authority to control the process, including the authority to sever issues if the proceeding becomes too cumbersome,⁷ insurers are now able to add any issues that have been mediated.

Although Mr. Mangat's appeal raises a somewhat different question, this background helps put it in context. He contends that he is entitled to proceed in both court and arbitration as long as the issues are different, a position he claims has consistently been adopted in arbitration decisions.⁸ In my view, this overstates the rationale behind some of the decisions. However, to the extent that it accurately reflects the jurisprudence at the arbitration level, I respectfully disagree.

The rule against multiple proceedings is one of the more basic common law principles. It is based on concerns that multiple proceedings will increase the cost and complexity of litigation, and lead to inconsistent results that undermine the credibility of the system. The common law is codified for Ontario's courts in Rule 138 of the Courts of Justice Act, R.S.O. 1990, c.C43, which provides that: "As far as possible, multiplicity of legal proceedings is to be avoided."

When the dispute resolution system was introduced in 1990, it was meant to give insured persons a faster, cheaper and less formal alternative to court. Therefore, interpretations that force an insured person into one forum or the other should be resisted. I am not persuaded, however, that the Legislature meant to encourage multiple proceedings. Even if it did, the 1994 amendments to the Insurance Act, allowing insurers to add issues to the arbitration, suggest a change of heart.

I also find it noteworthy that this issue arises only as between the two systems. Judges and arbitrators have clear authority to control proceedings in their own forums. In fact, Mr. Mangat concedes that if all his claims were in either court or arbitration, they probably would be joined in some manner. The question is whether it makes a difference that they are being made in different forums.

This issue first arose in Citadel General Assurance Company v. Gogna, [1992] O.J. 1996. In that case, Mr. Gogna first applied for arbitration. Citadel responded by seeking repayment of the benefits already paid, claiming that Mr. Gogna had fraudulently misrepresented his condition. When the pre-hearing arbitrator included the repayment issue in the issues to be decided at the arbitration, Mr. Gogna withdrew his application for arbitration. Citadel then issued a Statement of Claim against both Mr. and Mrs. Gogna seeking repayment on the basis that they conspired to fraudulently misrepresent Mr. Gogna's situation. After being served with the Statement of Claim, Mr. Gogna reapplied for arbitration. Mrs. Gogna did not consent to Citadel's claims against her being determined in the arbitration. The insurer then asked to proceed with its court action notwithstanding the upcoming arbitration hearing.

Justice E. Macdonald held that nothing in the legislation took away an insurer's right to bring an action for the repayment of benefits, although mediation is now required as a mandatory first step. She concluded, therefore, that the insurer must be allowed to proceed. However, because multiple proceedings are to be avoided, Justice Macdonald went on to consider which proceeding should go first. In doing so, she adopted the following criteria from Victoria Property and Investment Co. (Canada) Ltd. et al. v. Vitznau Management Ltd. (1978), 1978 CanLII 1286 (ON HCJ), 22 O.R. (2d) 193 (H.C.J.):

which action began first;
who has the chief burden of proof;
which is the most comprehensive in scope.

Applying these criteria, Justice Macdonald held that the insurer's court action should proceed. This decision reflects a pragmatic balancing of the criteria, with the outcome arising from a concern that the insurer might lose its remedy if it were not allowed to proceed.⁹

The issue has arisen somewhat differently in arbitration hearings. At the risk of oversimplifying the cases, they deal with situations where the insured person elects to go to court on some accident benefits claims, but pursues others in arbitration. As an arbitrator, I dealt with this issue in Barrow and Guardian Insurance Company of Canada, (OIC A-006082, December 23, 1993). In that case, the insured person argued that he had a statutory right to proceed to arbitration from a failed mediation even if the claims overlapped with his earlier court action. I did not accept this argument. Instead, I applied the Gogna criteria, concluding that the court action should proceed, not the arbitration.

Other arbitrators have also followed Gogna.¹⁰ However, another approach developed, starting with the decision in Oliveira. The question in that case was whether the insured person could go to court on a claim for the services of a rehabilitation company and to arbitration on his other claims, including weekly benefits, caregiver benefits and other supplementary medical and rehabilitation benefits. Relying on the definition of "matter" developed in the DeCicco, Ayertey and Kotsiakos decisions, Arbitrator Seife held that nothing prevented the insured person from proceeding in both court and arbitration on different "matters," which he found these were.

As discussed above, the issue/matter distinction was eliminated in the November 1996 amendments to the Insurance Act, casting doubt on the continuing viability of the Oliveira analysis. Nevertheless, it has been followed by at least two arbitrators, although based on their view that the pre-1996 provisions still applied to the cases before them.¹¹ Arbitrator Bayefsky then attempted to distill the various decisions, as he did with the issue/matter cases. In King and Royal Insurance Company of Canada, (FSCO A98-000234, March 24, 1999), he set out the following principles:

Arbitration decisions have established a number of principles governing the question of whether a person is precluded from proceeding before both a court and the Commission, the most basic of which being that an insured may not pursue a dispute in more than one forum, but is not required to pursue all of his or her disputes in only one forum. The remaining principles may be summarized as follows:

Does the arbitration involve issues substantially similar to those in the civil action?
How far along has the civil action proceeded (for example, have discoveries taken place on the issues before the court)?
Is the civil action broader in scope than the arbitration, both in terms of the issues involved and the relief sought?
Is there any serious impediment to having the issues in the arbitration dealt with in the court proceeding?
Would permitting the Applicant to proceed with the arbitration unduly duplicate proceedings, leading to greater costs and delays and raising the spectre of inconsistent results?

[p.4, footnote omitted, emphasis in the original]

In King, the court action concerned entitlement to a modified van. The main issues in the arbitration were entitlement to weekly income benefits and the amount of those benefits. Applying the principles set out above, Arbitrator Bayefsky found that, in general, the issues in the two proceedings were "substantially different" and involved "significantly different lines of inquiry." Further, he found that the evidence required in the two proceedings was not unduly repetitious, there was little danger of inconsistent results, and greater costs and delays would result if Mr. King was required to shift his entire dispute into the court action than if both proceedings were allowed to continue. As a result, Arbitrator Bayefsky allowed Mr. King to proceed with his arbitration with the exception of insurance for the van, which he found was originally raised in the court proceeding.

In two recent arbitration decisions, both appealed, insured persons have been allowed to split their cases. In Reid and Royal & SunAlliance Insurance Company of Canada, (FSCO A99-000959, January 19, 2000), Arbitrator Blackman allowed the insured person to proceed with an arbitration involving claims for dental and chiropractic expenses and a special award. He held that this proceeding was distinct and not duplicitous of the insured person's court action, started earlier, that included a claim for punitive damages for, among other things, failing to respond to the claims for dental and chiropractic expenses.

In Miller and Allstate Insurance Company of Canada, (FSCO A98-000708, April 29, 1999), Mrs. Miller applied to arbitration for the cost of an assessment at the March of Dimes. She subsequently started a broader court action that included claims for accident benefits. When Allstate questioned the multiple proceedings, Mrs. Miller agreed to withdraw the arbitration. However, when faced with the possibility of being ordered to pay the insurer's assessment fee, she changed her position, arguing that she was entitled to proceed with her arbitration because it was distinct from her court action.

Arbitrator Seife rejected Mrs. Miller's position that the two proceedings involved different issues. He found that she had commenced a proceeding in court that included the claim she had already brought to arbitration, namely the March of Dimes expenses. However, rather than dismissing the arbitration as Allstate requested, Arbitrator Seife gave Mrs. Miller four weeks to withdraw the portion of her court action dealing with the March of Dimes expenses, in which case she would be allowed to proceed with the arbitration.

Just before this appeal was heard, Director's Delegate Naylor issued her appeal decision in Miller. She concluded that the decision could not stand because the outcome was not sought or argued by either party. However, she went on to discuss the issue of multiple proceedings, suggesting an approach different from the Oliveira line of arbitration decisions:

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." 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. (p.9, footnote omitted)

Although this part of the Miller decision is clearly obiter, I agree with the approach. Section 281 of the Insurance Act gives the insured person a choice of forum. It does not follow, however, that he or she has an unfettered election with respect to each claim. Looking back at the procedures in the Insurance Act, mediation is a mandatory first step. If the issues in dispute are not resolved, the insured person can "bring a proceeding in a court of competent jurisdiction" or "refer the issues in dispute to an arbitrator."¹² This involves an election. When a mediation fails on a number of issues, the insured person clearly cannot go to both forums claiming the same benefits. In my view, it goes beyond that. Because the election is with respect to "the issues in dispute," the insured person is not entitled to take some issues to court and others to arbitration.

The more difficult question, as here, involves subsequent claims. It is inherent in this system that insured persons will submit claims at different times. As a result, insurers will often make a series of decisions that can be mediated and, indeed, must be mediated if they are to be taken further.¹³ If mediation is unsuccessful, the question is whether the insured person's ability to choose arbitration is restricted by his or her previous election to go to court.

I accept that an election to go to court does not necessarily govern all future claims. The later issues may be sufficiently distinct, or the timing so problematic, that it would be unnecessary or unfair to insist that they be brought in the court action. It is not enough, however, to simply ask whether the new claim involves a different benefit. What is required is the kind of pragmatic balancing of interests seen in Gogna and King, and suggested in the recent appeal decision in Miller.

In this case, the arbitrator failed to go beyond the benefit-category approach. She simply found that the supplementary medical and rehabilitation benefits claimed in the court proceeding were different from the ones claimed in arbitration. By stopping there, she ignored the substantial overlap between the two proceedings. This is an error of law that justifies interfering with the decision.

Mr. Mangat contends that there is no danger of inconsistent results because the tests for weekly income benefits and supplementary medical and rehabilitation benefits are different. For example, he might not meet the test for ongoing weekly income benefits, but could still be entitled to some or all of the benefits he is claiming in arbitration. While this is true, it misses the point. Concerns about inconsistency are not limited to the ultimate orders. Inconsistent factual findings supporting the orders are at least as big a concern. If Mr. Mangat is found ineligible in court for weekly income benefits on the basis that his ongoing problems are unrelated to the automobile accident, it would be inconsistent for an arbitrator to conclude that he was entitled to supplementary medical and rehabilitation benefits due to those same problems.¹⁴

In determining whether the arbitration can proceed, it is my view that the Victoria Property criteria used in Gogna are the starting point. In addition, the criteria set out in King provide some useful guidance. These criteria, however, must be applied against the backdrop of the insured person's right to choose arbitration. Where the insured person elects to pursue statutory accident benefits through arbitration, that choice should be respected to the greatest extent possible. Judges and arbitrators should be slow to force an unwilling insured person into court.¹⁵ If the insurer wants to raise its own issues, it should add them to the arbitration proceeding as now allowed by s.282(3).

The situation is fundamentally different if, as here, the insured person first elects to go to court. While a subsequent mediation may offer a further choice of forum, the insured person may not be allowed to proceed in arbitration if the claims could reasonably have been added to the court action, and allowing both proceedings to continue would result in both forums dealing with evidence or issues that substantially overlap.

In my view, Lloyd's bears some responsibility for the current situation. The issue of multiple proceedings could have been raised in September 1996 when the split in the proceedings first arose. By not raising the issue and settling the previous arbitration, Lloyd's effectively participated in splitting the case. Nevertheless, I conclude that, based on the criteria, the court action should take precedence over the current arbitration proceeding:

The court action was started before this application for arbitration and is broader in scope.
The same parties are involved in both proceedings, with Mr. Mangat having the chief burden of proof in both forums.
The court action includes a broad claim for supplementary medical and rehabilitation benefits that is broad enough to include the benefits claimed in the arbitration proceeding.
The court action includes a claim for punitive damages based on Lloyd's refusal to pay supplementary medical and rehabilitation benefits, likely resulting in the need for the same evidence in both forums.
The court action includes a claim for ongoing weekly income benefits. As Lloyd's is challenging the connection between the accident and Mr. Mangat's ongoing problems, the same evidence will be required in both forums.
There is no obvious impediment to Mr. Mangat adding the issues to the court action.
The two proceedings will require substantially overlapping medical evidence, inflating the overall cost of litigation.
The overlapping factual and legal issues create a real possibility of inconsistent findings. Alternatively, if issue estoppel is going to be used to preclude the parties from revisiting findings in the later proceeding, those findings are better made in the more comprehensive proceeding.

For these reasons, I conclude that Mr. Mangat is not entitled to proceed with his arbitration. However, rather than dismissing it, I believe the more appropriate remedy is to stay the arbitration, giving Mr. Mangat an opportunity to withdraw it without penalty.

IV. EXPENSES

The arbitrator did not decide on the expenses related to Lloyd's motion, leaving it to the arbitrator conducting the hearing. At the appeal hearing, both parties asked for their expenses at both levels. In addition, Lloyd's argued that Mr. Mangat should be ordered to pay its assessment fees.

In my view, Mr. Mangat's actions cannot be regarded as abusive. There was substantial support in the arbitration decisions for splitting claims between court and arbitration. Further, as noted above, Lloyd's condoned this approach to some extent. As a result, I am not persuaded that Mr. Mangat should be ordered to pay Lloyd's assessments. For similar reasons, I am not prepared to require Mr. Mangat to pay Lloyd's expenses. Rather, the parties will bear their own expenses, both at arbitration and on appeal.