Martin Kirby v. Liberty Mutual Fire Insurance Company, 2001 ONFSCDRS 156

FINANCIAL SERVICES COMMISSION OF ONTARIO

Neutral Citation: 2001 ONFSCDRS 156 FSCO A00-000249

BETWEEN:

MARTIN KIRBY Applicant

and

LIBERTY MUTUAL FIRE INSURANCE COMPANY Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Janice Sandomirsky Heard: April 26, 2001, in Hamilton, Ontario Appearances: Paul Barrafato for Mr. Kirby Stuart Aird for Liberty Mutual Fire Insurance Company

Issues:

The Applicant, Martin Kirby, was injured in a motor vehicle accident on September 29, 1994. He brought a court action against Liberty Mutual Fire Insurance Company ("Liberty Mutual") for payment of statutory accident benefits under the Schedule.¹ Mr. Kirby and Liberty Mutual reached a settlement of the court case.² On December 11, 1997, the parties executed a release of all claims up to December 1, 1997. On January 29, 1998, Mr. Kirby took out an order dismissing the court action.

Pursuant to that settlement, Liberty Mutual paid Mr. Kirby a lump sum payment for income replacement benefits for the period between October 6, 1994 and December 1, 1997. Liberty Mutual made deductions for Canada Pension Plan ("CPP") benefits for the period between January 1, 1995 and December 1, 1997. Mr. Kirby claims entitlement to payment of the money deducted for the CPP benefits for this period.

The parties were unable to resolve their disputes through mediation, and Mr. Kirby applied for arbitration at the Financial Services Commission of Ontario (the "Commission") under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

As a preliminary issue, Liberty Mutual takes the position that the Commission does not have the jurisdiction to hear this application.

The preliminary issue is:

1. Does the Commission have the jurisdiction to hear the dispute between the parties regarding the extent and nature of the settlement agreement regarding statutory benefits entitlement, which was arrived at through the civil litigation process?

Result:

1. The Commission does not have the jurisdiction to hear Mr. Kirby's application.

The Argument:

Liberty Mutual takes the position that, as a result of the settlement between the parties in the court action, the Commission does not have the jurisdiction to hear the matter. It relies on section 281(1) of the Act, which provides that:

If mediation fails, the insured person may bring a proceeding in a court of competent jurisdiction or may refer the matter to an arbitrator.

Liberty Mutual submitted that, allowing Mr. Kirby to proceed to arbitration, amounts to a re-election under this section.

Mr. Kirby submitted that the court was functus after issuing the order dismissing the action. He characterized the settlement agreement as a contract between the parties, separate and apart from the litigation proceedings, and argued that he had a right to access the arbitration system for consideration of an issue involving his entitlement to benefits arising out of the interpretation of that contract.

Mr. Kirby relied on a number of decisions that found implicit jurisdiction to consider a settlement agreement. In the appeal decision in Haripersaud and State Farm, Director's Delegate Makepeace considered an arbitrator's jurisdiction to enforce a settlement agreement dealing with the payment of medical expenses.³ She referred to subsection 282(3), which confers jurisdiction on an arbitrator to deal with questions that must be answered in order to make a ruling on an applicant's entitlement to benefits, and concluded that the question of whether the settlement agreement governed the benefits claimed was one the arbitrator had to answer in order to make a ruling on the applicant's entitlement to benefits. Accordingly, the arbitrator had jurisdiction to determine the issue.

The appeal decision in Branchaud v. Co-Operators General Insurance Company also considered the jurisdiction of an arbitrator to review a claim after there had been a settlement between the parties.⁴ In the decision under appeal in that case, the arbitrator accepted that he had the jurisdiction to apply common-law rules to determine whether there was a valid contract in place and to determine its scope, but held that he had no equitable jurisdiction to set aside an otherwise valid settlement. Director's Delegate Naylor found the arbitrator's approach too restrictive. She concluded that the arbitrator had the implicit statutory jurisdiction to determine the nature of the settlement.

Liberty Mutual relied on the case of Bapoo v. Co-Operators General Insurance Company where the arbitrator declined jurisdiction to consider a matter where there was a court action.⁵ In that case, the applicant issued a statement of claim in the court six months before filing for arbitration claiming entitlement to interest payment and a special award. Arbitrator Sampliner relied on section 281(1) of the Insurance Act and concluded that an arbitrator had no jurisdiction to deal with the matter in dispute after the party elected to proceed with a court action. He found further, that neither a special award claim nor a claim for interest could be maintained in an arbitration proceeding in the absence of a substantive claim for benefits.

Liberty Mutual also relied on the motions court decision in Kibalian v. Wellington Insurance Company⁶. In that case, the Plaintiff was injured in a motor vehicle accident, and commenced litigation against the Insurer for statutory benefits. There was an offer to settle under Rule 49 of the Rules of Civil Procedure and the Plaintiff accepted the offer. More than two months later, the Plaintiff attempted to rescind the settlement, arguing that it was not in compliance with section 9.1 of Ontario Regulation 664, promulgated under the Insurance Act. The Plaintiff took the position that the insurer was required to comply with the conditions of settlement set out in the Regulation because the litigation dealt with statutory accident benefits. The motions court judge rejected this argument. He concluded that, by choosing to proceed in the courts, the Plaintiff in effect waived the provisions of the Insurance Act.

Mr. Kirby pointed out, however, that the Kibalian decision was overturned on appeal to Divisional Court.⁷ The Divisional Court concluded that nothing in section 9.1 indicated that it only applied where an action had not been commenced. Noting that section 281(1) of the Insurance Act provides that an insured person may bring a proceeding in a court of competent jurisdiction, or may refer the matter to an arbitrator, the Divisional Court concluded that there was "no reason why the insured needs protection from an improvident settlement during the arbitration process but not during the litigation process."

The Igbokwe Case:

Subsequent to hearing this case, the Court of Appeal released its decision in Igbokwe v. HB Group Insurance Management Ltd. and Coseco Insurance Company (July 27, 2001), which had the effect of overturning the Divisional Court decision in Kibalian.⁸ Given that the parties referred to the Kibalian decision in their submissions, I provided them an opportunity to make further written submissions on the Igbokwe case before issuing my decision.

Mr. Kirby submitted that the decision had no relevance to the issue in this preliminary hearing. He argued that Igbokwe only dealt with the effect, if any, of the procedural requirements of section 9.1 of the Regulation upon a Rule 49 offer to settle, and concluded that, once a party accepted a Rule 49 offer to settle, it cannot rely on section 9.1 of the Regulation to void the agreement. Mr. Kirby argued that he was not trying to void the settlement based on section 9.1 of the Regulation. He noted that no judgment was taken out pursuant to the terms of the settlement; rather an order was taken out dismissing the claim without costs. Therefore, he was not seeking to vary, rescind or revoke the court order. The issue in dispute between the parties was whether the settlement also took into consideration the issue of CPP deductions. In other words, the issue between the parties involved the intention and interpretation of the terms of settlement, based upon the correspondence between the respective solicitors, and the partial release executed in December 1997. Mr. Kirby argued that there was nothing in the Igbokwe decision stating that, once the parties commenced litigation and resolved an issue by way of settlement, they were prevented from accessing the arbitration process to resolve any dispute about the interpretation of the agreement.

Liberty Mutual submitted that, while this case did not deal with a Section 9.1 issue or a Rule 49 offer, the underlining principle set out in the Igbokwe case applied. Liberty Mutual argued that Mr. Kirby was attempting to have the Commission deal with a dispute that he already elected to pursue by way of litigation. It took the position that the decision in Igbokwe clearly supported the proposition that, once an applicant choose an avenue to pursue the dispute, it must remain within the jurisdiction where the applicant elected to proceed. Liberty Mutual argued that it was not material that the resolution of the case did not get incorporated into the final order or judgment of the court. An investigation into the intention or interpretation of the terms of settlement by necessity must deal with letters and potential settlement offers that arose through the litigation process. Therefore, it argued, any review of such correspondence or offers ought to be conducted by the court in which the original litigation was commenced.

The Findings:

The dispute resolution procedures of the Commission are set out in subsections 279 to 283 of the Insurance Act. Subsection 279 provides that:

(1) Disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled shall be resolved in accordance with section 280 to 283 and the Statutory Accident Benefits Schedule.

(2) Any restriction on a party's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 is void except as provided in the regulations. R.S.O. 1990, c. I.8, s. 279 (2); 1993, c. 10, s. 32 (1).

Subsections 280 to 283 set out the process for dealing with disputes regarding an insured person's entitlement to, and the amount of, statutory accident benefits. Mediation is a mandatory step. After completing that step, the insured person can elect to either take the dispute to court or proceed to arbitration. If the insured person chooses arbitration, subsection 282(3) gives the arbitrator the statutory mandate to determine all issues in dispute and such other issues as the parties may agree."

Nothing in the Insurance Act confers explicit jurisdiction to consider the effect of a settlement. The Haripersaud and Branchaud decisions conclude that this jurisdiction is implicit in the legislative scheme. Liberty Mutual argues that this case is different, however, because the settlement between the parties arose out of a court proceeding rather than an arbitration proceeding. It argues that, having elected to take his dispute regarding entitlement to income replacement benefits to court, Mr. Kirby is now precluded from re-electing and accessing the arbitration system to deal with a dispute arising out of the settlement of that issue.

The decision in Bapoo is the most similar to this case. It held that, once the applicant filed his court action, an arbitrator has no jurisdiction to deal with the matter in dispute. The Court of Appeal decision in Igbokwe reaches a similar conclusion when considering the interaction between Rule 49 and section 9.1 of the Regulation. At paragraph 22 of the decision, Mr. Justice Labrosse, speaking for the court states, that:

In my view, s. 279 and hence s. 9.1 of the regulations have no application once the parties are in litigation. Sections 280 to 284 are in a part of the Act headed "Dispute Resolution - Statutory Accident Benefits" and deal exclusively with the scheme for resolving disputes through mediation or arbitration. The only reference to litigation is contained in s. 281 and requires the parties to exhaust mediation before bringing a proceeding in a court of competent jurisdiction. If the parties have exhausted mediation under ss. 280 and 280.1, chosen not to attempt arbitration in accordance with ss. 282 to 284, and embarked upon litigation, the Rules of Civil Procedure apply and the litigation must be settled in accordance with the rules, including Rule 49. [emphasis added]

In reaching this conclusion, the Court of Appeal explicitly agrees with the analysis of the motions court judge in the Kibalian case.

I also agree with this analysis. Subsection 279(1) is mandatory. It requires that disputes regarding entitlement to statutory benefits, or the amount of those benefits "shall be resolved in accordance with sections 280 to 283 and the Statutory Accident Benefits Schedule." Subsection 281(1) provides that, if mediation fails, the insured person must elect to bring a proceeding in a court or refer the matter to an arbitration. I agree with Liberty Mutual's submission that, by making the choice to proceed with his claim for income replacement benefits up to December 1, 1997 in the court, Mr. Kirby removed that disputed issue from the Commission's jurisdiction.

Mr. Kirby argued that the settlement agreement between the parties is a new issue and, therefore, he can elect to bring that matter to arbitration. I disagree. In my view, an issue involving the interpretation of the terms of settlement of a claim for income replacement benefits is directly related to the matter that was before the court. As a result, the election to take that dispute through a court proceeding precludes Mr. Kirby from bringing the issue regarding the interpretation of the settlement of that issue to arbitration. If, as Mr. Kirby claims, the matter of CPP deductions was not part of the settlement agreement, he may seek to have the court set aside the order dismissing the court action and continue to seek a remedy in that forum.

Accordingly, I find that an arbitrator does not have the jurisdiction to consider Mr. Kirby's application.

October 31, 2001

Janice Sandomirsky Arbitrator

Date

Neutral Citation: 2001 ONFSCDRS 156 FSCO A00-000249

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MARTIN KIRBY Applicant

and

LIBERTY MUTUAL FIRE 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. The Commission does not have the jurisdiction to hear Mr. Kirby's application.

October 31, 2001

Janice Sandomirsky 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. O.R. 776/93 was extensively modified by O.R. 781/94; accordingly, where necessary, "1994 Schedule "refers to the original O.R. 776/93, and "1995 Schedule "refers to O.R. 776/93 as amended.
2. 2Ontario Court (General Division) Court File #9592/95 at the City of Hamilton
3. 3Appeal Order P98-00018, December 17, 1999
4. 4Appeal Order P96-00048, May 2, 1997
5. 5OIC A-006212, October 3, 1994
6. 6Ontario Superior Court of Justice, May 15, 2000
7. 7Ontario Superior Court of Justice (Divisional Court) oral judgment, January 26, 2001
8. 8Leave to appeal to the Supreme Court has been filed by the Respondent in the Igbokwe case.