Financial Services Commission
Commission des services financiers de l’Ontario
Neutral Citation: 2001 ONFSCDRS 16
Appeal P99-00048
OFFICE OF THE DIRECTOR OF ARBITRATIONS
ALLSTATE INSURANCE COMPANY OF CANADA
Appellant
and
JAMIL PUTRUS
Respondent
Before: Susan Naylor, Director’s Delegate
Counsel: David F. Longley (for Jamil Putrus) Ian D. Kirby (for Allstate)
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 in part. The arbitrator’s order dated August 23, 1999, awarding Jamil Putrus his arbitration expenses is varied as follows:
Jamil Putrus is entitled to two-thirds of his reasonable arbitration expenses prescribed by regulation.
February 12, 2001
Susan Naylor Director’s Delegate
Date
REASONS FOR DECISION
I. NATURE OF THE APPEAL
This appeal concerns application of the criteria for awarding arbitration expenses under the current version of the statutory accident benefits regime. Allstate Insurance Company of Canada (“Allstate”) had expenses awarded against it, although it was successful at the arbitration and had made a prior offer to settle under the rules. It appeals the expenses order.
II. STATUTORY CONTEXT
The power to award arbitration expenses was substantially changed as of November 1, 1996, for the first time allowing expenses to be awarded in favour of insurers, as well as insured persons, and establishing criteria to be considered in awarding expenses.
The current version of s. 282(11) of the Insurance Act, R.S.O. 1990, c. I.8, as amended, provides as follows:
The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.
The provision must be read in conjunction with the regulations and Commission’s Dispute Resolution Practice Code. Regulation 664, R.R.O. 1990, as amended by O. Reg. 464/96, lists a series of factors to be considered in the exercise of the discretion.1 Section 12(2) states:
An arbitrator may award expenses to an insurer or insured person under subsection 282 (11) of the Act if the arbitrator is satisfied that the award is justified, having regard to the following criteria:
Each party’s degree of success in the outcome of the proceeding.
Conduct of the insurer or the insured person that tended to shorten or facilitate the proceeding or that tended to prolong, obstruct or hinder the proceeding, including failure to comply with undertakings or orders.
Whether the proceeding or any position taken by the insurer or the insured person during the proceeding was manifestly unfounded, frivolous, vexatious, fraudulent or an abuse of process.
The degree of complexity, novelty or significance of the factual or legal issues raised in the proceeding.
If the insurer or the insured person requests, any written offers to settle made after the conclusion of mediation and before the conclusion of the arbitration in accordance with the rules of practice and procedure applicable to the proceeding, including the terms of the offers, the timing of the offers and the responses to the offers, having regard to the result of the proceeding.
Any other matter related to the proceeding that the arbitrator considers relevant to the issue of whether an award of expenses is justified.
The procedural requirements for settlement offers, referred to in s.12(2) 5, are found in Rules 74 and 75 of the Code. A written offer must be served on the other side, containing the full terms, and specifying the time-frame it is open for acceptance. Consideration is only to be given to offers made in the period after mediation has ended and before the arbitration hearing is concluded, but with “particular consideration given to any offer served after the conclusion of the pre-hearing discussion...up to five days before the commencement of the hearing.”2 This emphasis is reflective of the significance attached to the role of the pre-hearing discussion stage in the process, in finalising disclosure and encouraging settlement.
The rules also provide a framework for the disposition of expenses. Rule 75.2 prohibits the parties from notifying the arbitrator of an offer until after the disposition of the arbitration, and sets out a special procedure to be followed in respect of expenses. However, if no offer is involved, the parties are required to jointly notify the arbitrator at the end of the hearing, in which case, by implication, the arbitrator is then free to address the issue of expenses.
III. BACKGROUND
Mr. Putrus was involved in an accident on August 9, 1995. He applied for arbitration in January 1997, claiming income replacement benefits (IRBs) at $328.12 a week from December 26, 1995, and payment of various medical and other expenses. The disputed expenses were refined at the pre-hearing discussion stage held a year later on January 5, 1998. Mr. Putrus claimed $3,400 for physiotherapy services, $469.24 in prescription costs, transportation expenses of $555 and housekeeping expenses of $800. He also sought his arbitration expenses.
Shortly after the pre-hearing conference, Allstate’s lawyer, Mr. Kirby, wrote to Mr. Putrus’ lawyer, Mr. Longley, offering to settle the dispute. The letter, dated January 10, 1998, stated:
Pursuant to the provisions of the Dispute Resolution Practice Code, the Insurer hereby offers to settle the claims of Jamil Putrus arising out of the motor vehicle accident on August 9, 1995 and as set out in the within Application for Arbitration on the basis of a payment of $10,000.00, all inclusive.
It is not disputed that Allstate’s offer complied with the requirements, and under Rule 74.1(b), was an offer qualifying for particular consideration.
The offer, which was open-ended, was not withdrawn or accepted and the matter proceeded to a four-day hearing in January 1999. Under the rules,3 the offer was deemed to have expired at the conclusion of the hearing. Mr. Putrus withdrew his claim for physiotherapy expenses at or shortly before the start of the hearing. The claim for prescription expenses was resolved in mid-1998 after Allstate agreed to pay it. The claim for IRBs, transportation and housekeeping expenses went ahead.
In his decision dated March 29, 1999, the arbitrator dismissed Mr. Putrus’ claims, except for the transportation expenses which were uncontested. He ordered Allstate to pay Mr. Putrus’ arbitration expenses, citing usual arbitral practice and medical evidence in Mr. Putrus’ favour. The arbitrator assumed, wrongly as it turned out, that Allstate did not contest arbitration expenses.4 On learning of his mistake and that Allstate was relying on the offer to settle, the arbitrator agreed to reconsider his decision on expenses. He reconvened the hearing, confirming his original award in a letter dated August 23, 1999.
In the letter, the arbitrator referred to some of the medical evidence supporting Mr. Putrus’ claim, including, in particular, the evidence of Dr. Morris, who conducted a psychological assessment as part of a Designated Assessment Centre (“DAC”) assessment.
As set out in the arbitrator’s decision, Mr. Putrus was knocked down by a car, sustaining a closed head injury, injury to his right middle ear and soft tissue injuries. His claim was based on physical and psychological impairment. His main complaints were of ongoing back and right shoulder pain, headaches, dizziness, cognitive difficulties and emotional problems.
The arbitrator looked to the medical evidence for objective verification of Mr. Putrus’ condition. He discounted Mr. Putrus’ own account of his limitations, finding him to be a poor historian prone to exaggeration, whose testimony about his functional restrictions was at odds with his level of functioning displayed on surveillance videotape. Testing confirmed bilateral hearing loss, but the arbitrator concluded that there were insufficient objective findings to substantiate disability based on physical impairment. Neuropsychological testing was discontinued, and deemed too unreliable in Mr. Putrus’ particular case (the DAC report pointed to language barriers, complicated by Mr. Putrus’ level of anger and hostility). In addition, an MRI brain scan that had been recommended was never done. The arbitrator found that there was no evidence of any cognitive deficits.
The arbitrator accepted Dr. Morris’ evidence, supported by Mr. Putrus’ own doctors, that Mr. Putrus suffered emotional problems in the aftermath of the accident, possibly amplified against the backdrop of his stressful past experiences as a conscript in a war-torn region and as a refugee. The arbitrator held, however, that there was insufficient expert evidence that these problems disabled him from employment. As a consequence, when the absence of expert evidence was combined with the frailties of Mr. Putrus’ own testimony and his refusal to co-operate in return-to-work arrangements, the arbitrator concluded that Mr. Putrus had failed to prove his claim. The arbitrator was sympathetic to Mr. Putrus’ situation, however, recommending that Allstate assist with a return-to-work plan and psychological support.
In his reasons for awarding Mr. Putrus his expenses, the arbitrator cited Dr. Morris’ evidence and the abandonment of testing that might have linked Mr. Putrus’ psychological problems more securely to the accident. He concluded that, given the medical evidence, Mr. Putrus’ belief that he could succeed at arbitration was a reasonable one. The arbitrator reasoned that, once the physiotherapy fee and arbitration expenses to the date of the offer were taken into account, only about a third ($3,100) of the amount offered would be left over, representing some nine weeks of IRBs, in exchange for which Mr. Putrus had to give up any and all rights to future benefits. The arbitrator felt that, all things considered, the offer “did not reasonably account for the company’s long-term risk.” He also took account of the applicant’s handling of the case, relying on prior arbitral practice in allowing expenses when claims have some merit.
IV. ANALYSIS AND CONCLUSION
The arbitrator’s decision as to expenses must be respected unless it is wrong as a matter of law. In this case, the arbitrator misunderstood the terms of the offer. He thought the offer called on Mr. Putrus to give up all rights to future benefits, when it did not. The mistake was a serious one. Arbitrators in other decisions have been reluctant to attach cost consequences to over-reaching settlement offers because of the potential ramifications for the insured in conceding all future claims. In this case, however, the offer was tailored to the specific claims advanced in the application for arbitration. It was not overly broad.
I am satisfied that, in making his decision on the basis of misapprehended facts, the arbitrator failed to exercise his discretion properly in law. I accept Allstate’s position that the decision cannot stand. I am therefore left with the task of deciding what order should be substituted.
Allstate does not seek payment of its own expenses, but argues that on any consideration of the criteria, expenses should not have been awarded against it. For reasons that follow, I think that Allstate’s view of the statutory criteria is too restrictive.
Up until the November 1996 revisions, arbitrators could only award expenses in favour of insured persons, not insurers, and no statutory criteria structured the exercise of the discretion whether to award the expenses. In this statutory context, Commission arbitrators developed the approach of awarding applicants their expenses, whether or not they were successful at arbitration, provided the claim had some merit and the applicant’s conduct did not disqualify him or her.5 This approach emphasised the legislative policy of facilitating consumer access to the dispute resolution system.6 The legislation has since been changed to its current form. Expenses may be only awarded “if the arbitrator is satisfied that the award is justified, having regard to the..... criteria.” The statutory framework does not differentiate between the insured and insurer in the application of the criteria.
The statutory changes are not just a consolidation of the principles under the old caselaw, with some expanded powers. As stated in Gray and Zurich Insurance Company, (FSCO P98-00047, June 11, 1999), the provisions “signal a change,” but they do not represent a move to the approach underlying court costs.
Degree of success and qualifying offers must be considered but, unlike in the court system, they are not paramount considerations.7 They are simply part of the mix. The regulations do not rank or prioritize the criteria. They are left open-ended to allow scope for flexibility. Although the arbitrator is directed to consider the criteria listed, he or she must decide the extent to which the factors should count, with the discretion to be exercised according to the circumstances of each case.
Subsequent cases, including Gray, reflect the view that, in exercising the discretion as to expenses, there is scope for recognising that the system should be open to consumers advancing reasonable claims in a reasonable manner. However, under the regulations, criteria are brought to the foreground that serve to help ensure that the process accessed is speedy, inexpensive and sound, in keeping with the scheme’s fundamental purpose.
The result ultimately achieved is recognised as relevant to the analysis. So too are the parties’ carriage of the proceedings and the legitimacy of the positions they advance. Cases of special distinction are recognised. Mandating arbitrators to heed offers to settle is central in serving to achieve a more effective system. Parties are thereby encouraged to take stock of their situation as the process moves along, and make settlement offers genuinely aimed at resolving the dispute, short of a hearing.
The drafters, however, have not imposed standard consequences for a party’s failure to match or trump an offer at arbitration. Section12(2) 5 directs the arbitrator to have regard to offers to settle made in accordance with the rules, “having regard to the result.” The terms of the offer, its timing and any response are all to be considered.8 Although in assessing offers, arbitrators must have regard to the result, there are no presumptive rules, unlike in the court context, as to cost consequences in set situations.9
Exercise of the discretion on expenses is not an “all or nothing” proposition. Arbitrators have a range of options. Section 282(11), in its amended form, specifically authorises arbitrators to award all or part of prescribed expenses to either party. The options therefore include awarding full expenses to the insured, awarding him or her partial expenses, requiring the parties to bear their own expenses, awarding the insurer partial expenses, awarding both parties part of their expenses and giving full expenses to the insurer. Where a case fits in this continuum will depend on the particular circumstances, with the arbitrator balancing all the factors involved. If settlement is to be encouraged, however, there must be some measure of confidence that making a serious offer can tip the balance.
In my view, there is no justification for awarding Mr. Putrus his full expenses, as the arbitrator did. Allstate not only was mostly successful at the arbitration – as Mr. Putrus readily conceded – it had an offer on the table that complied with the rules, qualifying for particular consideration. Although the arbitrator credited Mr. Putrus and his lawyer for their co-operation in facilitating the process, there is no suggestion that Allstate’s approach was any less creditable. While the case certainly was not frivolous or manifestly unfounded, the parties agreed that it was not of special significance or particular difficulty.
This brings us back to the offer. The policy of the legislation is not to encourage settlement at any cost. However, this was a serious offer, providing Mr. Putrus substantially more than he ultimately recovered. This does not end the inquiry. Allstate’s position is that the offer may only be considered relative to the result.
When the regulations are read as a whole, and, in particular, reading sections 12(2) 5 and 12(2) 6 together, I am not persuaded of this. I accept that in deciding the extent to which an offer should count, an arbitrator has scope to view it in the context of the overall picture. This includes a consideration of the relative strength of the applicant’s case, the consequences for the insured of acceptance of the offer, the insured’s response/counter-offer, if any, as well as the ultimate result achieved.
The arbitrator dismissed the offer in part because, as I have already said, he thought it required Mr. Putrus to give up rights to any future benefits. He also discounted the value of the offer by two thirds, allowing for arbitration expenses to the date of the offer and the $3,400 physiotherapy account. Mr. Putrus abandoned the latter claim. It is not obvious, therefore, why it would be credited fully to Mr. Putrus, especially given that the offer was open for acceptance for a full year before the hearing.
Factoring out the physiotherapy claim, what the arbitrator viewed as an offer representative of some nine weeks of IRBs in exchange for the release of any and all benefits was actually closer to 19 weeks worth of IRBs. It did not require that Mr. Putrus give up all future benefits, but it did call on him to forego his claim to IRBs, with more than two years of arrears in issue as of the date of the offer.
I would view the offer as falling somewhere in the middle range. While it was not so high that it could be said that no reasonable person would have turned it down, it was worthy of serious consideration. Correspondingly, while Mr. Putrus’ view that he had a realistic prospect of success if he went ahead may not have been unreasonable, I am not sure his case could be put much higher than this. In the circumstances, there should have been some reflection of the offer and outcome arrived at in the expenses order.
However, it does not follow that Mr. Putrus is disqualified from recovering any expenses. The legislation specifically confers authority on an arbitrator to award a party all or part of their expenses. The strength of the offer and of the applicant’s case, as well as other relevant particulars are all included in the mix in determining the extent to which the balance should be tipped further in favour of one party or another.
Allstate urged me to view this case as turning on adverse credibility findings. Although the arbitrator did not accept Mr. Putrus’ account, I do not think the case can be reduced to one in which the applicant was simply not believed. The arbitrator, who had the advantage of hearing the case, viewed it as having some strength.
The medical evidence left open the possibility that the accident may have had significant continuing consequences. Mr. Putrus sustained a documented closed head injury, characterised in the hospital records as moderately severe. Mild hearing loss was confirmed. A multidisciplinary DAC assessment identified emotional problems and post-concussive syndrome, recognising that the effects might be magnified given Mr. Putrus’ vulnerability. The interplay of a language barrier, a turbulent history and incomplete testing complicated the picture.
Given the evidence, there is sufficient support for the arbitrator’s view that payment of some expenses was justified. In the particular circumstances, I would substitute an award of two-thirds of Mr. Putrus’ expenses, calculated at the hourly rate established under the legal aid tariff, with an appropriate adjustment for experience.
V. APPEAL EXPENSES
Both parties have achieved mixed degree of success on the appeal. Subject to any further considerations the parties wish to draw to my attention, I am inclined to let each party bear their own expenses. If either party wishes to address the issue further, they should do so within 20 days of this order, at which point I will go ahead and finalise the disposition of expenses.
February 12, 2001
Susan Naylor Director’s Delegate
Date
Footnotes
- These are reproduced, with some modifications in language, in Rule 73 of the Commission’s Dispute Resolution Practice Code.
- Rule 74.1 (b)
- Rule 74.4 of the Code.
- Allstate did not raise the issue of expenses at the hearing, following the procedure stipulated in Rule 75.2 of the Code, because it intended to ask the arbitrator to take account of an offer to settle in the exercise of his discretion on expenses.
- See Allison and Markel Insurance Company of Canada, ( OIC P-001231, August 21, 1996) and the decisions cited therein, in particular, McCormick and Economical Mutual Insurance Company, (OIC A-000139, November 10, 1991).
- See Note 5.
- Cf. the Rules of Civil Procedure, Rules 57.01 and 49. Section 131(1) of the Courts of Justice Act provides that, subject to legislative provisions or rules of court, costs are in the discretion of the court. Rule 57.01 sets out a series of factors that the court may consider, in addition to the result in the proceeding and any offer to settle made in writing.
- Grammatically, the phrase “including the terms of the offers, the timing of the offers and the responses to the offers,” refers to “any written offers” at the start of the subparagraph rather than “the rules of practice and procedure applicable to the proceeding” immediately preceding it.
- Cf. Rule 49 of the Rules of Civil Procedure dealing with offers to settle and setting out the cost consequences: Where the plaintiff makes an offer and obtains judgement that is at least as favourable as the terms of the offer, the successful plaintiff gets the usual party-and-party costs to the date of service of the offer, which are then raised to solicitor-client costs thereafter. Where the offer is the defendant’s and the judgement no more favourable, the plaintiff gets the usual party-and-party costs to date of service of the offer, but no costs thereafter; rather, the defendant gets party-and-party costs from then on. In either case, the rule provides that the court may rule otherwise. However, courts have cautioned that the usual rule should be departed from only where, having due regard to the policy and the importance of reasonable predictability and even application, the interests of justice demands it. See Niagara Structural Steel (St. Catharines) Ltd. v. W.D. Laflamme Ltd. (1987), 1987 CanLII 4137 (ON HCJ), 58 O.R. (2d) 733 (C.A.). Rule 49.10 does not deal with the situation where the plaintiff is entirely unsuccessful. In that case, the defendant gets the usual party-and-party costs, but may be awarded solicitor-client costs from the date of the offer under the court’s general discretion to consider offers in 49.13 and Rule 57.01. See for example S.A. Strasser Ltd. v. Richmond Hill (Town) (1990), 1990 CanLII 6856 (ON CA), 1 O.R. (3d) 243 (C.A.).