Neutral Citation: 2000 ONFSCDRS 35

FSCO A97-000593

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

WAYNE DUTTON

Applicant

and

LIBERTY MUTUAL INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Asfaw Seife

Heard:

October 18, 1999, in Hamilton, Ontario.

Appearances:

Graham Sirman and Lou Ferro for Mr. Dutton

John A. Soule for Liberty Mutual Insurance Company

Issues:

Mr. Dutton was injured in a motor vehicle accident on September 17, 1995. He applied for and received from Liberty Mutual Insurance Company ("Liberty Mutual") statutory accident benefits under the Schedule.¹ Liberty Mutual terminated weekly income replacement benefits ("IRBs") on June 22, 1996 and refused to pay certain supplementary and medical expenses claimed by Mr. Dutton. Mr. Dutton applied for mediation of the disputes. Mediation having failed, Mr. Dutton applied for arbitration at the Financial Services Commission of Ontario ("Commission") under the Insurance Act, R.S.O. 1990, c.I.8, as amended, (the "Act").

I issued an order on a preliminary issue in this matter on October 18, 1999, indicating that written reasons would follow. I now provide those reasons.

The preliminary issue is:

Is Liberty Mutual prevented from raising in this arbitration its claim for repayment of IRBs paid to Mr. Dutton between September 25, 1995 and June 21, 1996?

Result:

1. Liberty Mutual may add to this arbitration its claim for repayment of IRBs paid to Mr. Dutton, provided it withdraws the related court action forthwith.

2. Liberty Mutual shall file with the Commission and serve on Mr. Dutton a written confirmation that it has withdrawn the court action or has filed with the court an amended Statement of Claim that specifically excludes the claim for repayment of IRBs on or before November 18, 1999. If Liberty Mutual fails to comply with this order, its claim for repayment will not be included in this arbitration. The hearing will proceed on the issues Mr. Dutton has referred to arbitration.

3. If Liberty Mutual complies with the order, either party may request a resumption of the pre-hearing to deal with production matters related to the added issue.

4. Liberty Mutual shall pay Mr. Dutton his expenses incurred as a result of this preliminary issue hearing.

5. The hearing is adjourned to March 27, 28 and 29, 2000.

EVIDENCE AND ANALYSIS:

Background:

There is no dispute about the following facts:

1. By two Applications for Arbitration, filed on March 25, 1997 and April 7, 1997, Mr. Dutton claimed entitlement to ongoing IRBs, his expenses for transportation, prescription drugs, housekeeping services and the cost of treatment by Trauma Services. These issues were mediated unsuccessfully.

2. On May 12, 1998, Liberty Mutual commenced a court action (Court File No. 4228/98) against Mr. Dutton for, among other things, repayment of statutory accident benefits paid to Mr. Dutton, including all IRBs paid to him in respect of the motor vehicle accident of September 17, 1995. The court action has not progressed beyond the exchange of pleadings. No date has been set for examination for discovery.

3. A pre-hearing discussion of the issues referred to arbitration was held on November 17, 1997. Mr. Dutton was represented by Mr. Michael Winward and Mr. Lou Ferro, as co-counsel. Liberty Mutual was represented by Mr. John Soule. The issues raised at the pre-hearing were those raised in Mr. Dutton's two Applications for Arbitration. The arbitration hearing was set for four days commencing September 28, 1998, in Hamilton.

4. On July 30, 1998, Mr. Winward withdrew as Mr. Dutton's counsel in the arbitration proceeding. On the same date, Mr. Dutton was asked by the Commission to advise if he was still represented by Mr. Ferro. On September 9, 1998, Mr. Ferro wrote to the Commission requesting an adjournment on Mr. Dutton's behalf to allow him time to retain other counsel to represent him on the remaining issues. The hearing was adjourned on consent of both parties to October 18, 1999.

5. By letter dated June 30, 1999, Liberty Mutual sought an interim order, pursuant to Rule 65 of the Dispute Resolution Practice Code to permit it to add repayment of IRBs as an issue in this arbitration. On July 14, 1999, the Registrar of the Commission advised Mr. Dutton that the Commission was prepared to grant Liberty Mutual's request unless submissions were received from Mr. Dutton before July 30, 1999, indicating why the issue should not be added.

6. Mr. Dutton did not respond by July 30, 1999. However, on October 14, 1999, Mr. Dutton's new solicitor, Mr. Graham F. Sirman, sent a letter to the Commission advising that he had been retained by Mr. Dutton with respect to his claim for IRBs and the issue of repayment and that he would object to Liberty Mutual's request to add the issue of repayment to the arbitration. He confirmed that Mr. Ferro would be representing Mr. Dutton on the issue of the Trauma Services account.

Analysis:

After a failed mediation, only the insured person may refer a dispute to arbitration, under subsections 281(1) and (2) of the Act. The insurer has no independent right to invoke the arbitration process. The jurisdiction of the arbitrator is defined by subsection 282(3) of the Act. Until the amendment of subsection 282(3) on November 1, 1996 by Bill 59 (the Automobile Insurance Rate Stability Act)², arbitration cases held that the issues in arbitration were generally defined by the insured person, and the insurer was only permitted to raise an issue that "reasonably and consequentially" flowed from the issues referred to arbitration by the insured person.³ The new subsection 282(3) states:⁴

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

In Nand and State Farm Mutual Insurance Company⁵, Arbitrator Baltman held that the amendment "marks a new and significantly broader approach to setting the parameters of an arbitration." She stated:

Until the recent amendment, therefore, the case law consistently held, as noted by Arbitrator Bayefsky in Carby⁶, "that the applicant must have some control over the arbitration process and that insurers are, consequently, not entitled to raise disputes regarding entitlement to or the amount of a different benefit." (emphasis in original) It was against this background that the new section 282(3) was passed, suggesting, I believe, that the legislators intended to clarify what the parameters of an arbitration should be. The contrast between what was permitted under the old wording — "such other issues as the parties may agree" — and the new wording — "whether the issues are raised by the insured person or the insurer" — is, in my view, a clear movement toward an inclusive approach to the hearing. Once an applicant has opted for arbitration, this amendment requires the arbitrator to determine "all" issues in dispute. As such, it goes well beyond the guidelines expressed in Carby.

However, Arbitrator Baltman also cautioned:

I do not intend by these comments to suggest that under the new provision an arbitrator has no discretion over whether to include an issue at the hearing. The insurer must satisfy the arbitrator that there is a genuine issue for determination, and that the matter has not been raised late in the proceeding for tactical reasons. If the hearing arbitrator determines that the insurer abused this process, she may issue a special award and/or address the matter through expenses. In this case, however, I am satisfied that the issue of entitlement is properly added to this arbitration.

I agree with Arbitrator Baltman's view and adopt it for the purposes of this case.

Subsections 70(1) and 70(3) of the Schedule state:

70.—(1) A person shall repay to the insurer any benefit received under this Regulation that is paid to the person through error, wilful misrepresentation or fraud.

(3) A person shall repay to the insurer any benefit received under Part II, III, V or VI that is paid to him or her if the person or the person in respect of whom the payment was made was disqualified from payment under Part XIV.

Liberty Mutual alleges that benefits were paid to Mr. Dutton because of Mr. Dutton's wilful misrepresentation or fraud. It alleges, among other things, that Mr. Dutton did not sustain any injury as a result of involvement in the accident of September 17, 1995, and that he received IRBs as a result of wilful misrepresentation or fraud. I find that the issue of repayment in this case is a genuine dispute that needs a determination and one that is not raised for tactical purposes.

Liberty Mutual is entitled to raise the issue of repayment and have it determined by the arbitrator hearing Mr. Dutton's claim. However, the question I must answer is whether, as Mr. Dutton alleged, Liberty Mutual is prevented from doing so because of the existing related court action and because the repayment issue was not mediated.

Liberty Mutual conceded that the court action includes the same issue of repayment as the one it is seeking to add to this arbitration. It also agreed that it did not raise the issue at mediation or at the pre-hearing discussion. However, it argued that the court action has not progressed beyond the initial stage of exchange of pleadings and that it is prepared to withdraw the issue from the court case in order to avoid duplicity of proceedings and inconsistent decisions. Liberty Mutual submitted that the repayment issue "reasonably and consequentially flows from the issue" of entitlement to IRBs, and therefore it need not be mediated separately.

In DeCicco and State farm Automobile Insurance⁷ (OIC A-000277, December 18, 1991), Arbitrator Naylor stated:

If an insurer is compelled to proceed to court, notwithstanding a pending arbitration, the parties will be exposed to multiple proceedings in different forums. The parties run the risk of inconsistent decisions. The general policy of the law is against multiple proceedings. They may result in disputes over no-fault benefits being dragged out interminably. The purpose of the legislation in providing a speedy and inexpensive means of redress will thereby be frustrated.

I agree. In Mr. Dutton's case, considering that the court action is still in its early stages, it would not be prejudicial to Mr. Dutton to have the issue of repayment determined in this arbitration, provided Liberty Mutual withdraws the related court case forthwith.

With regard to Mr. Dutton's submission that the repayment issue cannot be decided in this arbitration because it was not mediated, I agree that subsection 281(2) of the Act would limit the jurisdiction of the arbitrator to issues that were mediated, and mediation failed. However, as stated in DeCicco, a case decided under the same legislative wording as subsection 281(2), the arbitrator has jurisdiction to determine an issue that "reasonably and consequentially flows" from the dispute properly before the arbitrator, whether or not the issue was mediated.

In DeCicco, as in this case, the applicant's entitlement to IRBs was mediated while the insurer's claim of repayment was raised subsequent to the commencement of the arbitration proceeding. Arbitrator Naylor acknowledged that if the issues in dispute have not been mediated, they are not arbitrable unless both parties consent to their inclusion. However, in deciding to include the unmediated issue of repayment in the arbitration without the applicant's consent, Arbitrator Naylor stated:

However, the scope of the issues before the arbitrator should not be defined in a narrow and technical way. The authority of the arbitrator extends to anything that reasonably and consequentially flows from the issues that are before her. In my view, this includes an applicant's liability to repay any benefits found to have been overpaid in light of the arbitrator's findings.

Arbitrator Naylor stated that an applicant's liability to repay benefits relates directly to the applicant's entitlement to the benefit or the amount of the benefit payable, and that "an order for the repayment of benefits — if raised by a party — falls squarely within the jurisdiction of an arbitrator."

I agree.

In this case, Mr. Dutton's claim for ongoing IRBs was mediated, and is properly before me. The inquiry to determine whether Mr. Dutton is entitled to IRBs involves an inquiry about the accident, the injuries he sustained, the extent of his disability and if his disability results from the motor vehicle accident of September 17, 1995. This inquiry necessarily includes an examination of his disability, if any, from September 25, 1995 to June 21, 1996 (the period in issue in Liberty Mutual's claim for repayment of IRBs). I do not find that a determination of the issue of repayment would significantly change the nature of the hearing or expand the scope of my inquiry. Because there is overlap between the issues, much of the evidence to be led by the parties will be similar. Liberty Mutual is also entitled to raise any defence to the claim, including any provisions under Part XIV of the Schedule, that would disqualify Mr. Dutton from entitlement to IRBs.

Therefore, I find that the issue of repayment "reasonably and consequentially flows from the issue" of entitlement to IRBs and may be included in this arbitration.

However, because Liberty Mutual raised this issue late in the arbitration process, Mr. Dutton is entitled to adequate time to prepare and respond to the new issue. For this reason, I adjourned the hearing to March 27, 2000, on consent of the parties, and ordered that a pre-hearing be held to discuss the particulars of the new issue and any related production matters, unless the parties agree to waive it. I also exercise my discretion to award Mr. Dutton his expenses incurred as a result of this preliminary issue hearing as I find Liberty Mutual is responsible for unreasonably delaying the proceedings by failing to raise the issue in a timely fashion.

EXPENSES:

I exercise my discretion to award Mr. Dutton his reasonable expenses as a result of this preliminary issue hearing. Recovery of legal fees will be limited to services provided by Mr. Sirman only. The expenses are payable at the conclusion of the hearing, whether or not Mr. Dutton is successful in his claims.

February 10, 2000

Asfaw Seife

Arbitrator

Date

Neutral Citation: 2000 ONFSCDRS 35

FSCO A97-000593

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

WAYNE DUTTON

Applicant

and

LIBERTY MUTUAL 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. Liberty Mutual may add to this arbitration its claim for repayment of income replacement benefits paid to Mr. Dutton, provided it withdraws the related court action forthwith.

2. Liberty Mutual shall file with the Commission and serve on Mr. Dutton a written confirmation that it has withdrawn the court action or has filed with the court an amended Statement of Claim that specifically excludes the claim for repayment of income replacement benefits on or before November 18, 1999. If Liberty Mutual fails to comply with this order, its claim for repayment will not be included in this arbitration. The hearing will proceed on the issues Mr. Dutton has referred to arbitration.

3. If Liberty Mutual complies with the order, either party may request a resumption of the pre-hearing to deal with production matters related to the added issue.

4. Liberty Mutual shall pay Mr. Dutton his expenses incurred as a result of this preliminary issue hearing. The expenses are payable at the conclusion of the hearing, whether or not Mr. Dutton is successful in his claims.

5. The hearing is adjourned to March 27, 28 and 29, 2000.

February 10, 2000

Asfaw Seife

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, 463/96 and 304/98.
2. 2Before the amendment, subsection 282(3) of the Act read:
   The Arbitrator shall determine all issues in dispute and such other issues as the parties may agree.
3. 3DeCicco and State Farm Mutual Automobile Insurance Company (OIC P-000277, February 21, 1992); Kotsiakos and State Farm Mutual Insurance (OIC A-002354, July 26, 1994); Rescigno and State Farm Mutual Automobile Insurance Company (OIC A-008268, September 26, 1994); Oliveira and Markel Insurance Company of Canada (OIC A-006434, February 9, 1995); Ayerty and Toronto Transit Commission (OIC A-004077, June 1, 1995)
4. 4There is no dispute that the new provision applies to this case as Mr. Dutton commenced the arbitration proceeding after November 1, 1996.
5. 5( OIC A96-001835, July 28, 1997)
6. 6Carby and Co-operators General Insurance Company (OIC A-950220, January 12, 1996)
7. 7Upheld on appeal (OIC P-000277, February 21, 1992)