Neutral Citation: 2001 ONFSCDRS 159

FSCO A00-000253

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

CARMEL NELSON

Applicant

and

LIBERTY MUTUAL INSURANCE COMPANY

Insurer

DECISION ON AN INTERIM ISSUE

Before:

Susan Sapin

Heard:

May 4, 2001, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

David S. Wilson for Ms. Nelson Dwaine Burns for Liberty Mutual Insurance Company

Issues:

The Applicant, Carmel Nelson, was injured in a motor vehicle accident on October 28, 1998. She applied for and received statutory accident benefits from Liberty Mutual Insurance Company ("Liberty Mutual"), payable under the Schedule.¹ Liberty Mutual terminated weekly income replacement benefits (IRBs) on April 6, 1999. The parties were unable to resolve their disputes through mediation, and Ms. Nelson applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

Issue:

Can the Insurer's unilateral reinstatement of weekly IRBs be made the subject of an order for ongoing IRBs?

Result:

The Insurer's unilateral reinstatement of IRBs cannot be made the subject of an order for ongoing IRBs, absent a hearing of the merits or the consent of the parties.

Background to the current proceeding:

At the hearing of the motion before me, the parties disagreed about how to frame the issue in dispute. To put the dispute into perspective it is necessary to know something about how it came to be before me.

After applying for arbitration, Ms. Nelson brought a motion before Arbitrator Makepeace for interim weekly IRBs to be paid to her pending the resolution of her dispute with Liberty Mutual. Following the hearing of the motion in November 1999, but prior to the decision issued on February 16, 2001, Liberty Mutual reinstated Ms. Nelson's IRBs effective October 6, 2000, but suspended them between October 24 and November 27, 2000.

The parties agreed that the only substantive issue in dispute in the motion before Arbitrator Makepeace was Ms. Nelson's entitlement to benefits on an interim basis between April 6, 1999 (when benefits were first terminated) and October 6, 2000; and between October 24 and November 27, 2000. Ms. Nelson did not succeed on her motion. Furthermore, Arbitrator Makepeace specifically made no order with respect to ongoing entitlement after November 27, 2000.

At the time of the May 4, 2001 hearing before me, Ms. Nelson continued to receive weekly IRBs.

The arbitration hearing to finally determine Ms. Nelson's entitlement to IRBs during the two periods she was without benefits as well as her entitlement to ongoing IRBs was scheduled for March 26, 2001. On March 23, the parties entered into settlement discussions. On March 23, Mr. Wilson wrote two letters to Mr. Burns confirming his understanding of the terms of the settlement.² His first letter reads in part:

Although I am formally awaiting instructions from my client, I confirm that I will recommend and Liberty Mutual has agreed to resolve this dispute on the following terms:

An order will go that the applicant is entitled to ongoing Income Replacement Benefits pursuant to Part II of the Schedule.

Please ensure the release reflects only those matters disposed of, i.e. arrears of IRBs, quantum of IRBs, housekeeping benefits to 104 weeks, interest and costs, and not benefits on a go forward basis.

The second letter reads in part:

I will advise FSCO that the matter has been settled, a term of which is that a consent order in a form to be provided is to be made.

I propose the following form of order.

The applicant is entitled to ongoing Income Replacement Benefits pursuant to Part II of the Schedule;
The respondent shall pay the applicant her costs of these proceedings, including the motion for interim benefits, as agreed or assessed.

Please confirm that you agree with the form of the order so that I may provide same to FSCO this afternoon.

Mr. Wilson then advised the Commission that the case had been "substantially settled except for two matters in respect of which the parties require an Order of an Arbitrator."³ [emphasis added]

These two matters were costs, and the form of the order.

On March 29, 2001, a pre-hearing was held before Arbitrator Sone. Her pre-hearing letter to the parties confirms that the outstanding issues in dispute were the expenses of the arbitration proceeding, and Ms. Nelson's request "for an order that she is entitled to ongoing weekly income replacement benefits," which Liberty Mutual opposed.⁴ An arbitration hearing to determine these issues was scheduled before me on May 4, 2001.

Also on March 29, Liberty Mutual's adjuster sent Mr. Wilson a letter "further to settlement discussions," together with a cheque, a Full and Final Release and a Notice pursuant to the Settlement Regulation.⁵ The letter notes that the issue of costs was unresolved.

It is clear from this and from subsequent correspondence that the parties were not at ad idem on a number of items, including the calculation of arrears and the amount of weekly benefit, as well as Ms. Nelson's entitlement to an order for ongoing benefits.⁶ I find it clear from the correspondence that an order for ongoing benefits was a fundamental term of the settlement itself in the Applicant's mind (as per Mr. Wilson's first letter, above). As Liberty refused to consent to this term as a part of the settlement, I find there was no meeting of the minds, and, consequently, there was no settlement.

The relevance of this finding to the issue in dispute is that, without agreement on the terms of settlement, the parties cannot obtain a consent order from an arbitrator dismissing the proceeding, which is the normal procedure when issues in dispute in an arbitration are settled.⁷

I find therefore that the issue before me is whether Liberty Mutual's unilateral reinstatement of IRBs can be made the subject of an arbitrator's order under any other circumstances.

Analysis:

The Applicant argues that her ultimate goal in commencing arbitration was to obtain an order from an arbitrator that she is entitled to ongoing IRBs, in order to obtain the protection of section 287 of the Insurance Act, R.S.O. 1990, c.I..8, as amended, which reads as follows:

Protection of benefits

An insurer shall not, after an order of the Director or of an arbitrator appointed by the Director, reduce benefits to an insured person on the basis of an alleged change of circumstances, alleged new evidence or an alleged error, unless the insured person agrees or unless the Director or an arbitrator so orders in a variation or appeal proceeding under section 283 or 284. 1990, c.2, s. 65, part. [Bill 59 s.42]

The Applicant argues, and Liberty concedes, that section 287 means that, where there exists an order of an arbitrator that an insured person is entitled to ongoing IRBs, an insurer cannot then terminate benefits on the basis of new medical information such as an insurer's medical examination (IME) without first applying for a variation or appeal of the order.⁸

The Applicant maintains that, by unilaterally reinstating her IRBs, Liberty has effectively precluded her from proceeding to arbitration to obtain an order for ongoing IRBs, and has thereby prevented her from protecting her benefits under section 287. The Applicant is correct in her contention that had she succeeded at arbitration, she would have obtained an order for ongoing benefits, because that is the standard wording of orders issued by arbitrators at the Commission. By way of remedy, the Applicant submits that she should now be entitled to an order on these same terms, because, having had to commence an arbitration proceeding in order to obtain her benefits in the first place, she should not now be in any lesser position under section 287 simply because Liberty avoided a final disposition of the merits of her case when it reinstated her IRBs and offered to settle other outstanding matters. She likens this to the situation where an insurer who reinstates benefits on the eve of an arbitration will not thereby avoid a special award.⁹

Liberty has consistently refused to agree to an order that the Applicant is entitled to ongoing IRBs, and argues that she is not entitled to such an order absent a hearing on the merits. It argues that it reinstated the Applicant's benefits on the basis of medical information provided by the Applicant and on the report of an IME, and that it did so as part of the normal process of adjusting the claim. It argues that, in the absence of any order of an arbitrator, section 287 does not apply.

In my view, Liberty Mutual is correct. The mandatory language of section 287 is very clear, prohibiting an insurer from reducing benefits unless it first applies to vary or appeal an existing order of an arbitrator. The prohibition depends upon the existence of an order; without one, the prohibition, and the section itself, is meaningless.

How then, does one obtain such an order? Under the arbitration scheme as set out in the Insurance Act, there are two ways to obtain an order contemplated by section 287. The first is as part of the final determination of the matters in dispute by an arbitrator as a result of an arbitration hearing on the merits.¹⁰ The second is on the consent of the parties. In the latter case, where the parties have settled the matters in dispute, an arbitrator may order that the arbitration is dismissed.¹¹Presumably, settlement need not be the only circumstance in which the parties may consent to an order, and not every consent order need result in the dismissal of an arbitration.

In this case, the Applicant did not obtain an order for ongoing IRBs as a result of her motion for interim benefits, and an arbitration hearing on the issue of her entitlement to these benefits has not yet taken place. Liberty does not consent to an order for ongoing IRBs, and I was presented with no authority that would permit me to impose such an order either as a term of settlement, or on any grounds other than a hearing of the merits. Indeed, the imposition of an order runs contrary to the concept of voluntary settlement of disputes.

The Applicant's argument is, in essence, one of fairness, in that it can be said that she has not as yet received the full benefit and protection of the arbitration process, which in her case is an order for ongoing benefits pursuant to section 287. However, the process is not yet over. As there is no order dismissing the arbitration, and the issue of an order for ongoing entitlement to IRBs is still very much in dispute, there is no reason why a hearing on the merits cannot still take place, regardless of the fact that Liberty Mutual reinstated benefits and continues to pay them. A hearing on the merits would no doubt be considerably shortened by the fact that Liberty Mutual concedes that Ms Nelson currently qualifies for IRBs based on the medical evidence.

EXPENSES:

The issue of fairness may also be appropriately dealt with by addressing the question of which party should bear the expenses of the arbitration proceeding, including the two motions undertaken to date. I did not hear submissions about expenses during this motion. In the event the parties are unable to agree about who should pay the expenses of the motions, I may be spoken to.

November 8, 2001

Susan Sapin Arbitrator

Date