Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2000 ONFSCDRS 76

Appeal P99-00041

OFFICE OF THE DIRECTOR OF ARBITRATIONS

GARY DYER

Appellant

and

GENERAL ACCIDENT ASSURANCE CO. OF CANADA

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

Paul Barrafato (for Gary Dyer)

Robert H. Rogers (for General Accident)

APPEAL ORDER

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

1. The appeal is denied and the arbitration order dated July 22, 1999 is confirmed.

2. No appeal expenses are payable.

April 25, 2000

David R. Draper

Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Gary Dyer appeals from an arbitration order dated July 22, 1999. He claims the arbitrator erred in refusing to set aside a release that he signed on October 26, 1993.

II. BACKGROUND

On December 24, 1992, Mr. Dyer, a pedestrian, was hit by an automobile insured by General Accident Assurance Company of Canada ("General Accident"). Because he did not have his own automobile insurance, he applied to General Accident for statutory accident benefits under the Schedule.¹

General Accident's adjuster, Ms. Zorka Djurdjevic, met with Mr. Dyer shortly after the accident. She agreed that General Accident would pay weekly income benefits, although there was some question about the amount. Just days before the accident, Mr. Dyer had started working on a trial basis as an auto dismantler at a wrecking yard after a lengthy period of unemployment. General Accident initially paid benefits at the minimum rate of $185.60 per week, but later accepted that Mr. Dyer had an offer to continue working at the wrecking yard, increasing his benefits to $400.

The arbitrator found that by June 1993, six months after the accident, Mr. Dyer was becoming depressed. He began drinking and moved out of his girlfriend's house, living with various friends through the summer. General Accident arranged for psychological assistance, but felt that Mr. Dyer was not cooperating. On August 26, 1993, Ms. Djurdjevic noted in the file that: "Intent is to discontinue benefits within 1 to 2 months . . ."

General Accident was able to arrange for Mr. Dyer to return to work at the wrecking yard on a gradual basis, a plan supported by his doctors. On October 1, 1993, he met with Ms. Djurdjevic at her office and signed a work schedule covering seven weeks — October 4, 1993 to November 19, 1993. The plan was for Mr. Dyer to start working part-time, doing light to moderate duties, increasing to full-time regular duties by November 8, 1993. The schedule states that: "Disability benefits will continue until Nov 19, 1993."

At the meeting on October 1, 1993, Mr. Dyer asked for eight weeks of benefits in advance. Ms. Djurdjevic initially offered four weeks, but then agreed to six weeks. She prepared a cheque for $2,400, representing six weeks of weekly benefits at $400 per week, and gave it to Mr. Dyer. Because his benefits had already been paid in advance, this payment covered the period through November 17, 1993 — two days before the end of the work schedule.

On October 25, 1993, Mr. Dyer phoned Ms. Djurdjevic asking for another advance payment. According to Ms. Djurdjevic, she was reluctant to pay any more weekly benefits because she was not convinced that he continued to qualify and felt that she had done everything she could in arranging appropriate treatment and work opportunities. However, she agreed to make one more payment of $800. She had a cheque issued and marked "Final Payment." General Accident's records show this payment as covering the period November 18, 1993 to December 1, 1993.

The next day, October 26, 1993, Mr. Dyer went to pick up the cheque. According to the arbitrator, he did not know that before receiving it, he would have to sign a release, giving up his right to any further weekly income benefits. The release did not, however, affect his right to claim any other type of benefits, including medical and rehabilitation benefits.

Mr. Dyer signed the release and took the cheque. Within a couple of months, he submitted a claim for travel expenses, but did not ask for any further weekly income benefits. In early April 1994, approximately five months after he signed the release, Mr. Dyer contacted General Accident advising that he had retained a lawyer and wanted a copy of his file. He picked up the file at the end of the month. Eight months later, in December 1994, Mr. Dyer's current counsel wrote to General Accident suggesting a neurological assessment. However, no further claims were made until early 1997, when Mr. Dyer applied for mediation claiming ongoing weekly income benefits from December 1, 1993.

At the mediation, General Accident raised two preliminary issues. First, it argued that by signing the Release, Mr. Dyer had given up his right to claim additional weekly income benefits. Second, General Accident submitted that Mr. Dyer did not apply for mediation within two years of its final payment and, therefore, was time-barred.

When the dispute was not resolved at mediation, Mr. Dyer applied for arbitration. At the pre-hearing, two hearings were scheduled — a preliminary hearing to decide the two preliminary issues and, if Mr. Dyer was successful on the preliminary issues, a hearing to determine his entitlement to weekly income benefits after December 1, 1993.

The preliminary hearing took place on April 29, 1999. Mr. Dyer, Ms. Djurdjevic and Ms. Dorothy Lambert (General Accident's claims supervisor) testified. Mr. Dyer argued that his poor health, lack of sophistication and reliance on General Accident caused him to be mistaken about the nature of the release. He also claimed that he signed the release under duress, that General Accident exercised undue influence over him, and that the settlement was unconscionable.

In reaching his decision, the arbitrator made a general finding against Mr. Dyer's credibility, stating: "I find Mr. Dyer concocted evidence to suit his position. I find it more probable he has little memory of the events, and I place little weight on his evidence." The arbitrator then dealt with Mr. Dyer's reasons for claiming that General Accident should not be allowed to rely on the release.

Mistake: The arbitrator did not accept that Mr. Dyer signed the document without realizing it was a release. On the contrary, he found that: "Mr. Dyer understood and appreciated the significance of his signing the release on October 26, 1993, and that by accepting the $800 final payment he was terminating his rights to claim further disability benefits from GA as a result of this accident." In reaching this conclusion, the arbitrator made the following findings:

• At the time Mr. Dyer signed the release, he was capable of managing his life and financial affairs.

• Mr. Dyer was able to read the words "Final Payment" on the cheque and the cheque stub.

• Ms. Djurdjevic read and explained the release to Mr. Dyer.

• Although Mr. Dyer was anxious and depressed, he was able to understand and appreciate Ms. Djurdjevic's explanation.

• Mr. Dyer's actions after he signed the release, claiming transportation expenses but not any additional weekly benefits, support the conclusion that he understood the release.

Duress: The arbitrator rejected Mr. Dyer's claim that he signed the release in a coercive atmosphere created by the presence of four representatives from General Accident. At page 8 of the decision, he finds that Mr. Dyer and Ms. Djurdjevic were alone and that Mr. Dyer was not under physical or economic duress.

Unconscionability/Undue Influence: The arbitrator dealt with unconscionability and undue influence in the same section, adopting a two-pronged test:

1. Is the settlement grossly inadequate or unfair?

2. If so, did one party take advantage of another's vulnerable, gullible or ignorant state so that the individual's will was overpowered?

After setting out this test, which neither party challenges on appeal, the arbitrator found that the consensus of medical opinion in October 1993 was that Mr. Dyer was capable of returning to work. As a result, he concluded that the settlement was not grossly inadequate or unfair. This might have ended the matter, but the arbitrator did not stop there. He went on to consider whether General Accident abused its dominant position at the bargaining table, concluding that it did not exercise undue influence. This still did not end the arbitrator's inquiry. His final comments are the subject of this appeal and, therefore, are set out below:

However, first party benefits are a privately-funded safety net for accident victims. The protections afforded by the insurance policy should not be given up lightly. In 1994 the government enacted regulations requiring no-fault insurers to make full written disclosure of the accident benefits being released at the time an insured person signs his or her rights away. This regulation also affords the insurance consumer the right to rescind the settlement during a 48-hour cooling-off period.² Although this regulation was not in force at the relevant time in this case, first party insurers risk breaching their fundamental fiduciary obligation to their insured when they seek to push their inherently dominant bargaining position upon a weak, ignorant and needy individual without full disclosure.

I find that Mr. Dyer was in a weakened state. While he knew that he was releasing his rights to future benefits, I find he was not informed as to his potential future benefits. Mr. Dyer was entirely susceptible to GA's dominance at the bargaining table. The company should have terminated Mr. Dyer's benefits with a notice of assessment based on medical opinion, allowing Mr. Dyer time to consider his options.

GA more than likely knew that Mr. Dyer would sign the release just to get immediate money. In my opinion, this inequality of position stretches beyond strategic bargaining. It amounts to sharp practice.

However, in view of the medical and psychological opinions that Mr. Dyer could resume employment, I find that GA's $800 offer of two weeks of disability benefits is not grossly inadequate or unfair. Therefore, I find the settlement is not unconscionable.

Although not essential to his decision, the arbitrator also dealt with General Accident's argument that the arbitration was out-of-time. On this issue, he found in Mr. Dyer's favour. He was not prepared to equate the release with a termination, holding that the release did not provide Mr. Dyer with the kind of unequivocal notice of termination and reasons for the termination required to start the two-year time period running.

III. ANALYSIS

Not surprisingly, Mr. Dyer asks how the arbitrator's comments about sharp practice fit with upholding the settlement. He does not challenge the conclusions on mistake, duress, or undue influence. Instead, he claims that the arbitrator erred on the issue of unconscionability, making two overlapping arguments. First, he submits that the arbitrator misapprehended the medical evidence and the basis of his claim, undermining his conclusion that the settlement was not grossly inadequate or unfair. Second, he claims that General Accident breached its duty of good faith and, therefore, should not be allowed to rely on the release. In support of this contention, Mr. Dyer relies on the arbitrator's finding that General Accident did not provide full disclosure and the uncontradicted evidence that he was never advised to obtain independent legal advice before signing the release.

Although I have difficulty with some of the arbitrator's analysis, I find nothing to compromise the result. If anything, his comments about sharp practice are harsh. This is in part because the reference to the settlement regulation leaves the impression that he was guided by requirements that were not in place when the settlement was negotiated. Also, many aspects of the case suggest that General Accident attempted to deal with Mr. Dyer fairly. For example, it accepted that Mr. Dyer had a job offer despite the apparently informal nature of the arrangements. Ms. Djurdjevic's willingness to meet with Mr. Dyer and provide him with advance payments is also to General Accident's credit, as is the fact that the release dealt only with weekly benefits.

Settlement is an integral part of the claims process.³ Insured persons and insurers regularly settle claims without the involvement of lawyers. Even after one of the parties brings a dispute into the dispute resolution system, settlement is encouraged. Mediation is mandatory, with no expectation that everyone will have legal representation. Settlement initiatives continue through the arbitration process, where settlement is canvassed at the pre-hearing discussion and, again, shortly before the start of the hearing. Although lawyers are more likely to be involved at this stage, a substantial number of claimants proceed without representation. There is no suggestion, however, that settlements cannot be reached without the assistance of lawyers.

It follows that settlements between competent parties should be respected unless they are based on fraud, mistake, misrepresentation, undue influence, unconscionability or some other vitiating factor. This is the approach taken in the early arbitration decision in Tuzin and Allstate Insurance Company of Canada, (OIC A-000596, May 28, 1992), with the following caution, which I adopt:

This decision should not be seen as a mandate for insurers to rush out and attempt to settle weekly income claims with unsophisticated insureds in the expectation that any agreement or release obtained from them will [sic] upheld before this tribunal. Each case must be considered on its own facts. Likewise, applicants who freely choose to settle their claims must deal with their insurance companies in good faith. They cannot come to this forum expecting in every case to be absolved from compliance with the terms of a valid and binding contract. Signing such an agreement is a serious matter. This tribunal will not tolerate abuse of the system by any of the participants. (p.35)

Arbitrators have an important role in ensuring that settlements are valid, but the limits of that role must be recognized. Their focus is on determining the insured person's entitlement to accident benefits and the amount of those benefits.⁴ While their authority extends to preliminary questions that must be answered to make that determination, including the validity of a settlement,⁵arbitrators cannot take on some of the functions that might be exercised by a judge. They cannot issue declarations about the validity of a settlement, or award damages for breach of contract or negligence. The question before the arbitrator is whether the insured person's entitlement was settled, precluding his or her right to pursue the claim. This does not involve a close evaluation of the wisdom of the settlement. Rather, it is broad check on settlements that should not be allowed to stand because they are based on fraud, mistake, misrepresentation, undue influence, unconscionability or some other vitiating factor.

As stated above, Mr. Dyer's appeal focuses on unconscionability. He submits that the arbitrator erred in his assessment of the medical evidence and by failing to deal appropriately with General Accident's breach of its duty to act in good faith.

A. The Medical Evidence

Mr. Dyer claims that his entitlement to weekly income benefits was based on his inability to perform the essential tasks of his pre-accident employment as an auto dismantler, a physically demanding job.⁶ Although he acknowledges that he was encouraged to return to work on a trial basis, he argues that it was uncertain whether he would be able to continue working full-time. In his submission, there was evidence in October 1993 of a deterioration in his lumbar spine, emotional disturbances of probable psychiatric proportions, ethanol abuse and a high potential for a chronic disability syndrome. As a result, he claims that the evidence does not support the arbitrator's finding that "[t]he evidence here is that Mr. Dyer was capable of returning to work."

I am unable to accept this argument. The arbitrator's finding must be evaluated in context. He was not deciding Mr. Dyer's entitlement. That issue was left to be determined at a later hearing if Mr. Dyer was successful on the preliminary issues. The question was whether the settlement was grossly inadequate or unfair.

On October 26, 1993, the day the release was signed, Mr. Dyer was halfway through a return-to-work program that was supported by his doctors and had him scheduled to be back to full-time regular duties about two weeks later. He approached Ms. Djurdjevic because he needed rent money, not because his condition had deteriorated or the return-to-work program was not working out.⁷ His request was complicated by the fact that he had already been paid three weeks in advance as a result of his previous requests. Nevertheless, Ms. Djurdjevic agreed to pay an additional $800, extending the coverage beyond the end of the return to work schedule, when benefits were to end, but only if he acknowledged that he would not be entitled to any further weekly income benefits.

In these circumstances, I am not persuaded that the arbitrator erred in concluding that the settlement was not grossly inadequate or unfair. The fact that there may have been some uncertainty about Mr. Dyer's condition and his ability to continue working is not sufficient to invalidate the settlement. Indeed, uncertainty often provides a motivation to settle. While I accept that claims should not be settled prematurely, the arbitrator was not satisfied that is what happened here. Nor am I.

Mr. Dyer's position might have been stronger if he had acted more quickly. However, as outlined above, he did nothing for five months after he signed the release to suggest that the settlement was unfair. Even then, he simply notified General Accident that he had retained a lawyer and asked for a copy of his file. Apart from sending one letter suggesting a neurological assessment, his lawyer did nothing to pursue any claim for additional weekly income benefits until he filed for mediation in early 1997, more than three years after the release was signed. In my view, the arbitrator properly considered this evidence in concluding that Mr. Dyer understood the settlement and agreed to it.

B. Breach of the Duty of Good Faith

Mr. Dyer submits that General Accident's breach of its duty of good faith goes beyond its failure to provide full disclosure. In particular, he argues that its failure to recommend that he obtain independent legal advice before signing the release is fatal. In support of this position, he relies on a number of decisions, including Collee v. Kyriacou, (1996) 1996 CanLII 8245 (ON CTGD), 31 O.R. (3d) 558 (Gen. Div.) and Hermanson v. Makkar, [1988] B.C.J. No. 1731.

General Accident argues that even if it breached its good faith obligations, which it denies, that is not a sufficient basis for setting aside a settlement without a finding that it was based on fraud, mistake, misrepresentation, undue influence, unconscionability or some other factor that vitiates the contract. That may be so, but the arbitrator's point seems to be that an insurer's breach of its duty of good faith can result in a finding of unconscionability. I am not prepared to rule out that possibility.

In this case, however, the first part of the test was not met. The arbitrator found that the settlement was not grossly inadequate or unfair — a finding I have upheld. Also, I am not persuaded that failing to recommend counsel necessarily invalidates a settlement. While the absence of legal advice is a factor to be considered in evaluating the validity of the settlement, the decisions do not establish any more than that.

In Collee, the settlement was not set aside. In fact, Quinn J. recognized it in concluding that Mr. Collee had improvidently signed away benefits for which the tort defendant should receive credit. His criticisms of the person handling the accident benefits claim, which go beyond her failure to recommend independent legal advice, involve obiter comments made without hearing from the first-party insurer. In conclusion, he says that if he had the authority to do so, he would have awarded damages (not recission) against the first-party insurer and its employee.

In Hermanson, a decision from British Columbia, McKenzie J. acknowledges that it was a borderline case that caused him great difficulty. Interestingly, he specifically states that the fact that the adjuster did not recommend independent legal advice was not a sufficient basis for upsetting the release. The other decisions cited by Mr. Dyer arise in a fundamentally different context, making them of little use here.

Finally, there is one more problem with Mr. Dyer's position. He has sued General Accident, claiming damages for breach of its duty of good faith in the handling of his claim for accident benefits.⁸ This raises serious question about whether he can pursue overlapping remedies in both forums. However, given my conclusion that there is no basis for setting aside the settlement, this issue does not need to be decided.

For all these reasons, the appeal is dismissed.

III. APPEAL EXPENSES

I conclude that the parties should bear their own appeal expenses. Mr. Dyer has already been awarded his arbitration expenses, despite his lack of success in having the settlement set aside.

While his appeal raised legitimate issues, I am not persuaded that General Accident should be required to fund it.

April 25, 2000

David R. Draper

Director's Delegate

Date

Footnotes

1. 1R.R.O. 1990, Reg. 672, as amended, the Statutory Accident Benefits Schedule—Accidents Before January 1, 1994.
2. 2Ontario Regulation 780/93 (effective January 1, 1994)
3. 3Settlement is recognized in s.279(2) of the Insurance Act as an exception to the general rule that the right to pursue a claim for accident benefits cannot be restricted.
4. 4Insurance Act, s.279(1) and s.282(3).
5. 5Branchaud and Co-Operators General Insurance Company, (OIC P96-00048, May 2, 1997). The Ontario Superior Court of Justice, Divisional Court, recently took this approach in Wood v. Ontario Insurance Commission, Guardian General Insurance Company of Canada and Attorney General of Ontario, unreported decision dated November 9, 1999.
6. 6The basis of Mr. Dyer's entitlement is not as clear as he suggests. According to the pre-hearing letter, the issue for the main hearing was whether he was entitled to weekly benefits under either section 12 or 13 of the Schedule. Nevertheless, the arbitrator treated this as a section 12 case. He refers to Mr. Dyer's work as an auto dismantler and relies on reports by medical practitioners who were addressing his ability to return to this job.
7. 7Arbitration decision, p.6.
8. 8I was not informed when this action was started. Although a tort action was mentioned during the arbitration, it is not clear whether it included the claim for breach of General Accident's good faith obligations.