Neutral Citation: 2001 ONFSCDRS 40

FSCO A98-000080

BETWEEN:

ROLAND FALCONER

Applicant

and

YORK FIRE & CASUALTY INSURANCE COMPANY

Insurer

DECISION

Before:

Susan Sapin

Heard:

By telephone conference call on April 10, 2000.

Appearances:

Jerry F. O'Brien for Mr. Falconer

Stanley Tessis for York Fire & Casualty Insurance Company

This is a motion by the Applicant, Roland Falconer, for an order that the parties are bound by a settlement agreement negotiated by their counsel on October 27, 1998.

Roland Falconer suffered a fractured neck in a motor vehicle accident on January 27, 1997. He applied for weekly income replacement benefits (IRBs) from York Fire & Casualty Insurance Company (York), payable under the Schedule.¹ York refused to pay the benefits. After an unsuccessful mediation, Mr. Falconer applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. A hearing was scheduled for November 4 and 5, 1998 in Chatham, Ontario. On October 27, 1998, counsel for the parties participated in a telephone settlement conference before Senior Arbitrator Fredericka Rotter. As a result of this teleconference, the arbitration dates were cancelled. On October 30, Mr. O'Brien wrote to the Commission advising that the matter had settled. On November 5, 1998, the Commission wrote to the parties in response, advising that it had closed its file on the basis that the matter had settled. No Minutes of Settlement were filed and no Order dismissing the arbitration was issued.

Approximately a year later, on October 6, 1999, Mr. Falconer brought a motion for an Order that the Insurer was bound by a settlement reached in the course of the October 27, 1998 teleconference. Mr. Falconer maintains that the Insurer agreed to settle the arbitration by paying him $14,200 for income replacement benefits for the two-year period from January 27, 1997 to January 27, 1999, including interest, plus the sum of $800 for costs.

The Insurer submits that it agreed to pay a lump sum payment of $15,000, all inclusive, in exchange for a full and final release of all past, present and future weekly income replacement benefits. It maintains there was no meeting of the minds on an essential term of the agreement, and therefore there was no binding agreement to settle the arbitration.

The parties agreed to proceed by way of affidavit and documentary evidence, filed. The issues to be decided are:

Did the parties reach a binding settlement, and on what terms, during the October 27, 1998 settlement teleconference?
If so, is the Applicant entitled to interest?
Is the Applicant entitled to a Special Award pursuant to section 282 (10) of the Insurance Act because the Insurer resiled from an agreement to settle his claim?
Is the Applicant entitled to a Special Award because the Insurer failed to pay him $8,000 in non-earner benefits to which it had agreed he was entitled?
Is either party entitled to its expenses of this motion?

The parties reached a binding agreement to settle the issues in dispute at arbitration during the October 27, 1998 settlement conference.
The Applicant is entitled to interest.
The Applicant is entitled to a Special Award equal to $3,500, plus interest, because the Insurer resiled from a binding agreement to settle his claim.
The Applicant is entitled to a Special Award equal to 50 percent of the value, on the day it is paid, or, if applicable, on the day it was paid, of the $8,000 in non-earner benefits to which the Insurer had agreed he was entitled.
Mr. Falconer is entitled to his expenses of this motion.

Arguments of the parties:

The Applicant maintains that a settlement was reached at the teleconference on October 27, 1998, and confirmed in writing in clear and unequivocal terms the next day. In support of his position, he relies on a letter sent by his solicitor, Mr. Jerry O'Brien, to Mr. Ted Lawson, then in-house counsel for York, on October 28, purporting to accept the settlement and outlining the precise terms agreed to. In addition, the Applicant relies on his written instructions to Mr. O'Brien dated October 28, authorizing him to accept those same terms. The Applicant argues that, despite further correspondence between the parties, the Insurer made no attempt to disagree with or reject the terms of the settlement as outlined by Mr. O'Brien until December 14, 1998, almost two months later. He maintains that York either subsequently changed its mind about what it had agreed to at the settlement conference on October 27 and attempted to resile from the agreement, or Mr. Lawson was genuinely mistaken about the terms he had agreed to (unilateral mistake). Either way, the Applicant argues that York should be held to its bargain. The Insurer argues that this is a case of common or mutual mistake, where each party thought it agreed to something different at the October 27 teleconference. Accordingly, there was no meeting of the minds, and no binding agreement, then or at any time thereafter. York submits that the fact that Mr. Falconer did not participate in the October 27 settlement conference and that Mr. O'Brien did not have written instructions from his client until the following day, supports its position that no settlement was actually agreed to on the 27th. It further submits that Mr. O'Brien's October 28 letter is not confirmation and acceptance of the settlement, but rather a new offer that begins a new round of discussions, and that subsequent correspondence establishes that this offer was never accepted, and so no settlement was ever reached.

The law:

The law of mistake, as it applies to agreements to settle a claim, can be complex and confusing, as the many cases relied upon by York in support of its position illustrate. However, I accept the following legal principles, set out in these decisions, as a sound basis from which to assess the facts of this case:

i) An agreement to settle a claim is a contract, and as such the parties must agree on all of the essential or fundamental terms in order for the contract to be valid.²

ii) The onus is on the party asserting the agreement to satisfy the decision-maker that all essential terms were agreed upon although not yet incorporated into formal documents;³ the fact that a formal written document to the same effect is to be thereafter prepared and signed does not alter the binding validity of the original contract;⁴

(iii) Where the parties are mistaken about a fundamental term of the contract, a court may find that the agreement is not binding. The reasoning behind this is that there can be no agreement without consent, and there can be no consent where there is a mistake, as for example where the parties communicate at cross purposes, or where an offer is made in one sense and accepted in another.⁵ This is because the law requires that an agreement must satisfy standards of certainty as a prerequisite to incurring binding and enforceable contractual relations.⁶

(iv) The law, however, distinguishes between mutual mistake, where both parties are honestly mistaken as to the obligations they are undertaking, and unilateral mistake, where only one party is mistaken. In the former, neither party may enforce the agreement. If only one party is mistaken, the contract may be enforceable by the other:

[Where one party] laboured under a misapprehension as to the intent or terms of the settlement, this would, in the circumstances, constitute a unilateral mistake which cannot, in itself, render the contract void.⁷

(v) In order to determine if an agreement has been reached when there has been a mutual mistake, the court applies an objective test, that is, would a reasonable man in the circumstances decide that an agreement had been reached between the parties.⁸

(vi) a party may not "snap at" an obviously mistaken offer where the mistake is as to the terms of the offer itself as opposed to the motive or underlying assumptions upon which the offer is premised.⁹ In other words, one party may not take advantage of the other's mistake if he knows, or a reasonable person in his position ought to have known, that the other party was mistaken.

The law, applied to the facts of this case — unilateral or mutual mistake?

The essential term in dispute in this case is whether, during the telephone conference on October 27, 1998, York agreed to settle the Applicant's claim for a full and final release for two years of IRBs, as he asserts, or for a full and final release of all past, present and future weekly benefit claims, as maintained by York.

The first question to be determined is whether one or both parties were mistaken as to this essential term.

(a) Background to the October 27, 1998 settlement teleconference:

In order to determine whether or not there was a meeting of the minds on October 27, it is important to determine what facts the parties knew or ought to have known about their dispute, going into the settlement conference.

(i) The issues in dispute at the arbitration scheduled for November 4 and 5, 1998

The Application for arbitration and the Insurer's Response ¹⁰ clearly indicate that the only issues to be arbitrated were entitlement to weekly IRBs up to 104 weeks, and interest. In fact, as the arbitration was to be heard within 104 weeks of the accident, the issue of post-104 week entitlement to IRBs could not be an issue in dispute at the arbitration.

The July 14, 1998 pre-hearing letter of Arbitrator Dirk VanderBent summarizing the pre-hearing conference held that day confirms that these were the only issues in dispute.¹¹ Mr. Lawson, who was in-house counsel for York at the time, attended the pre-hearing, as did Mr. Falconer and his then solicitor, Mary Jane Moynahan. No York employee involved in adjusting Mr. Falconer's file attended.

(ii) Mr. Falconer was entitled to a non-earner benefit of $185 per week

Arbitrator VanderBent's letter goes on to state that "York Fire advised that it had recently approved payment of a non-earner benefit, which Mr. Lawson believed to commenced [sic] retroactively to October 1997, although he did not have specific particulars at hand."¹²

I find that the affidavit and documentary evidence filed further confirms that the Insurer at some point issued a cheque for $8,000 in non-earner benefits in favour of Mr. Falconer, and that Mr. Falconer never received this cheque. The Insurer concedes that if the amount is still outstanding, it remains payable to Mr. Falconer regardless of whether or not I decide that a settlement was reached.

These, then, are the facts that I find the parties and their solicitors knew, or ought to have known, prior to the settlement conference, and about which there ought to have been no confusion.

(b) The October 27, 1998 settlement teleconference and ensuing exchange of correspondence.

Evidence of what else the parties knew, believed or discussed during the settlement conference is contained in correspondence exchanged after the meeting, and in two affidavits of Mr. Falconer, sworn October 1, 1999 and March 2, 2000, and the affidavits of Ted Lawson, sworn November 12, 1999 and Randy Waters, York's claims manager, sworn November 15, 1999. As noted above, in order to determine if an agreement has been reached, the law applies an objective test, that is, would a reasonable person in the circumstances decide that an agreement had been reached. Given the length of time that passed between October 27, 1998, the date of the settlement conference, and the dates the affidavits were sworn, I find the documents exchanged shortly after the teleconference to be more objective, and therefore more reliable evidence of what was in the parties minds rather than affidavits prepared one year and more after the fact, for two obvious reasons. Over time, memory is less accurate, and the opportunity to rationalize events and create self-serving explanations, whether intentional or not, is significantly increased. As well, because the parties agreed to proceed by way of documentary evidence and thereby forego the opportunity to test credibility through cross-examination, I have relied on the face value of the documents and affidavits presented, and have placed less weight on them where the information they contain is contradicted by more objective fact.

(i) October 28, 1998 letter from Jerry O'Brien to Ted Lawson and the OIC

The parties agree that on October 28, 1998, the day after the teleconference, Mr. O Brien faxed a letter to Mr. Lawson stating:

" I confirm that my client agrees to accept the settlement proposed at the pre-arbitration meeting. He has agreed to accept the sum of $14,200 in full satisfaction of his IRB entitlement for the first two years, inclusive of interest. He also agrees to accept your figure of $800 for his costs, making a total settlement of $15,000."

The letter asked Mr. Lawson to substantiate that $8,000 has already been paid, and to send a draft release for review.

I find that this letter is exactly what it purports to be, that is, an acceptance of the terms of settlement proposed the previous day. I further find that it clearly sets out the terms the author (Mr. O'Brien) believed he and his client agreed to.

ii) Client instructions from Mr. Falconer to Mr. O'Brien dated October 28, 1998[^13]

This document states as follows:

I irrevocably authorize and direct you to settle my claim for loss in come (sic) benefits from York...., for the period of time from January 29/97 to Jan.29/99 in the amount of $14,200, inclusive of interest, plus costs of $800 for a total of $15,000......
I acknowledge your advice that I will have to sign a full and final release of all liability of ....York.... for such benefits for the period in question.

This document clearly sets out the same terms of settlement as the letter, above. It is clear that at this point, Mr. O'Brien and his client, at least, were in agreement about the terms of the settlement they believed they obtained.

iii) October 29, 1998 letter from Mr. Lawson to Mr. O'Brien

The day after receiving Mr. O'Brien's letter, Mr. Lawson faxed back a letter to him stating:

" Further to your fax of yesterday's date in which you indicated that your client had agreed to settle the matter on the terms as discussed in the teleconference with Arbitrator Rotter, attached please find a copy of our proposed release.."

The letter went on to state that a cheque for $8,000 had been issued and sent, but as it had not been cashed, it would be cancelled and a new draft issued, and that settlement funds were to be forwarded on receipt of the completed release.

Mr. Lawson specifically acknowledged in this letter that Mr. Falconer had agreed to settle the matter "on the terms as discussed in the teleconference with Arbitrator Rotter....." He ought to have known what Mr. O Brien thought those terms were, because Mr. O Brien clearly stated what he understood them to be in his letter. Whether the settlement was limited to two years IRBs or included all past, present and future IRB claims was the essential term of this agreement, yet Mr. Lawson did not indicate in his letter that his own understanding of this fundamental term differed from Mr. O Brien s. I find that there is nothing in Mr. Lawson’s letter that would indicate to any reasonable person that Mr. Lawson’s understanding of "the terms as discussed in the teleconference with Arbitrator Rotter" was any different than what Mr. O Brien stated them to be in his letter.

iv) Mr. Lawson’s affidavit

However, Mr. Lawson maintained that his understanding was different. Referring to Mr. O'Brien’s letter in his November 12, 1999 affidavit, he stated:

"The amount of the settlement was correct, but the fact that the settlement was in settlement of two years weekly benefits only, was incorrect. While I did receive Mr. O Brien’s letter, I did not appreciate that Mr. O Brien had changed the settlement from a full and final settlement of all past, present and future weekly benefits to a settlement of the two-year period only. Mr. O'Brien's understanding of the settlement was obviously wrong..."

I do not agree with the Insurer that the conclusion to be drawn from this evidence is that both parties were mistaken about the terms of the agreement. There is no evidence that Mr. O'Brien's understanding was "obviously wrong," or that he had "changed" the settlement. I find it more likely, on a balance or probabilities, that Mr. Lawson "failed to appreciate" that he had agreed to a two-year release during the October 27 settlement conference itself. I find the contemporaneous evidence of the correspondence between the parties to be more reliable than Mr. Lawson's affidavit evidence, which I find self-serving. I find this to be a clear case of unilateral mistake on Mr. Lawson's part.¹⁴

As stated by Arbitrator Baltman in a case very similar to this one, where the mistake is clearly one-sided, the law applies an objective test to determine whether there was mutual assent:

The source of this approach to cases of this kind is the language of Blackburn J. in the English case of Smith v. Hughes, which has frequently been cited and followed in Canadian courts:

If whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms.¹⁵

Having found that only Mr. Lawson was mistaken about an essential term of the agreement, the question that remains to be answered is whether, by his conduct, Mr. Lawson entered into a binding agreement with the Applicant on October 27.

I find that he did.

Mr. Lawson was in-house counsel for York. He was the sole attendee on behalf of York at both the pre-hearing and the settlement teleconference. As such, he must be taken to have full authority from York to act competently on its behalf and to understand that his words and actions are binding on the Insurer. If he believed that Mr. O Brien and Mr. Falconer were mistaken about a fundamental term of the agreement, it was incumbent upon him to clearly say so as soon as possible. His failure to do so is fatal to the Insurer’s case. His explanation, over a year after the fact, that he "failed to appreciate" that Mr. O'Brien had "changed" the terms of settlement in his letter, is less than plausible. His failure to correct the supposed error reinforced the Applicant’s belief that an agreement had been reached on October 27 on the terms clearly and unequivocally set out by Mr. O Brien in his letter. Mr. Lawson’s contemporaneous silence brings his conduct squarely within the circumstances contemplated by the law as expressed in Smith v. Hughes. York’s argument, that the Applicant cannot rely on Mr. Lawson’s silence about the essential term to mean agreement, does not apply in a case of unilateral mistake.

Mr. Lawson’s mistake does not excuse York from its contractual obligations in this case. There is no evidence to suggest that this is a case where one party is seeking to take advantage of the other’s mistake where he knows, or a reasonable person in his position ought to have known, that the other party was mistaken.

I find that the remainder of the evidence, considered below, simply reinforces Mr. Falconer’s position.

v) Insurer’s standard form release accompanying Mr. Lawson’s October 29 letter

The Insurer argued that the terms of the release that accompanied Mr. Lawson's letter are further proof that Mr. Lawson intended the settlement to include all past, present and future weekly benefits claims. However, the correspondence exchanged about the terms of the release belie this argument.

The release that accompanied Mr. Lawson’s letter is a standard form release. It provides, in part, as follows:

... in consideration of payment... to me in the amount of $7000, in addition to any payments already received...., I, Roland Falconer, hereby release and forever discharge York.... from any and all actions, claims and demands for accident benefits inclusive of all past, present and future weekly benefits, legal fees and disbursements ....which heretofore may have been or may hereafter be claimed by me... (My emphasis)

I find that the reference to "any and all actions, claims and demands" means all statutory accident benefits, of any kind, not just weekly benefits. This is more comprehensive than the bottom paragraph on the first page (which Mr. Lawson refers to in his November 2 letter to Mr. O'Brien, below), which states:

....such payments are accepted voluntarily by me as full and final settlement of all claims for me for statutory accident benefits relating to weekly benefits arising out of this motor vehicle accident. (my emphasis)

Neither paragraph limits the release to two years of IRBs, nor is this term included anywhere else in the release.

Attached to the release is Schedule "B," which shows the Insurer's estimate of the commuted value of accident benefits that the insured person will be precluded from claiming as a result of the settlement, as required by the settlement regulation.¹⁶

vi) October 30, 1998 letter from Mr. O'Brien to Mr. Lawson

Having received Mr. Lawson’s letter and release, Mr. O Brien faxed back:

I confirm we have settled the matter under arbitration on the basis of payment of the sum of $14,200 in full satisfaction of his IRB entitlement for the first two years, inclusive of interest.....

You now indicate that the $8000 cheque was not cashed, and you will put a stop payment on it. Please include this amount in the settlement cheque.

I have reviewed your draft release. It does not reflect the $14,200 agreement for IRB’s to the 2 year date, nor that interest is included, or $800 in costs. Also it is a full and final release for all claims, which was not agreed to. It should reflect a full and final settlement of any IRB claim and interest thereon, up to January 29, 1999. Please send a revised release for execution.

For the second time, Mr. O'Brien set out the terms of the original agreement as he understood it in clear and unmistakable terms. Yet, once again, Mr. Lawson did not address the fundamental question of whether the settlement was for two years of IRBs or for all claims:

vii) November 2 fax from Mr. Lawson to Mr. O Brien

Instead, Mr. Lawson opened his next correspondence by explaining that the $8,000 was not included in the release because he had arranged for a separate draft to be issued. He responded to Mr. O'Brien's concern that the release should be for two years of IRBs up to January 29, 1999, rather than a full and final release for all claims by stating:

"In regards to the release there are actually portions of it which indicate that it only applies to the weekly benefits payable to Mr. Falconer, I would draw your attention to the bottom paragraph on the first page."

This is the paragraph I quoted above which says that the Applicant accepts the sums offered as full and final settlement of all claims for statutory accident benefits "relating to weekly benefits arising out of this motor vehicle accident." This paragraph is less comprehensive than the second paragraph of the release, also quoted above, and which Mr. Lawson ignored, which "releases and forever discharges York Fire from any and all actions, claims and demands for accident benefits inclusive of all past, present and future weekly benefits, legal fees and disbursements.... including all claims ...not now known or anticipated ..."

The concern raised by Mr. O Brien was not, as Mr. Lawson appeared to think, whether the release was for weekly benefits as opposed to all other types of accident benefits. Mr. O'Brien's concern was very clearly that the release purported to be for all weekly benefits as opposed to two years of IRBs. Again, Mr. Lawson failed to respond to this specific concern.¹⁷

Mr. Lawson concluded his letter as follows: "I do not have a problem with amending the release and perhaps it would be best if you simply forwarded what you would prefer to see in the release, I will review the amendments and insert them accordingly."

This is hardly the type of language one would expect to find where there is fundamental disagreement about an essential term of a contract. I find that Mr. Lawson's very use of the term "amending the release" further indicates that there is not anything particularly significant he disagrees with in what Mr. O Brien has stated. I find there is nothing in this letter that would cause Mr. O Brien, or any reasonable person, to conclude that Mr. Lawson disagrees that the release is for two years of IRBs.

I find that a reasonable person would be more likely to conclude from the language in these documents that Mr. Lawson agreed, rather than disagreed, with Mr. O Brien’s characterization of the settlement agreement.

viii) November 3 fax from Mr. O'Brien to Mr. Lawson

As requested by Mr. Lawson, Mr. O'Brien faxed back his amendments, handwritten onto the Insurer's release form, so that the release now reflected the same terms he had been insisting on all along.

ix) November 9 fax from Mr. Lawson to Mr. O'Brien

Mr. Lawson faxed back, stating he made some, but not all of the amendments suggested:

"You will note that rather than your phraseology of income replacement benefits from January 29, 1997 to January 29, 1999, I have simply substituted weekly benefits with respect to the entire accident. This is because Mr. Falconer had two potential claims under weekly benefits and not just IRB's."

The "two potential claims" for weekly benefits refer to the IRBs and the $8,000 non-earner benefits York had approved as far back as the pre-hearing but had never paid.

This letter is the first indication that Mr. Lawson's understanding of the term of the agreement — two years vs. all future IRBs — was different from what Mr. O'Brien had communicated all along. Even so, the language used by Mr. Lawson is not clear or strong enough to communicate disagreement. He has reduced a fundamental term of the contract to a mere issue of "phraseology," hardly an appropriate term in the circumstances, and goes on to state that he has "simply" substituted weekly benefits with respect to the entire accident. Not only does he deliberately use language to downplay the significance of the change he has made to Mr. O'Brien's language, but his explanation for the change makes no sense. His response, that Mr. Falconer had both a non-earner and an IRB claim, does not address the point raised by Mr. O'Brien, which is that the release of the IRB claim was for two years and not for all future claims.

x) November 25 letter from Mr. O'Brien to Mr. Lawson

In his next correspondence, Mr. O Brien requested that his amendments be made as per his November 3 letter and that the two-year time limit must be included. He again reminded Mr. Lawson that the words "To date you have been paid $8000" should be deleted from the release because the money had not been paid, and he included a copy of the Consent and Order to be signed and approved by York.

xi) December 14 letter from Mr. Lawson to Mr. O Brien

Seven weeks after the settlement teleconference, Mr. Lawson clearly indicates for the first time that he actually clearly disagrees with Mr. O'Brien's understanding of the terms of the agreement:

" I am afraid at this point in time I still cannot agree to merely have the benefits limited to the time period as you have suggested. ...my concern is obviously that if we limit it at such in the release then Mr. Falconer can come back and claim for benefits outside of that. This clearly was not the intention of our agreement at the telephone conference, rather it was that all weekly benefits of any shape, size or form were to be released for all time under the settlement."

This ought to have been part of Mr. Lawson's discussions with Mr. O'Brien at the October 27 teleconference, and, at the very least, ought to have been communicated in his letters to Mr. O'Brien on October 29, November 2 and November 9. I find his use of the term "I still cannot agree...." at this late date, and after all the correspondence exchanged between the parties wherein he failed to clearly mention any disagreement, to be self-serving. In any event, it was too late. As noted above, a mistake on the part of one party will not void the agreement, which I find was reached in the course of the October 27, 1998 teleconference.

I do not agree with the Insurer's characterization of events in this case, that the correspondence between the parties was nothing more than a series of offers that never culminated in acceptance and a binding agreement. As set out in Cellular Rental Systems,¹⁸ the fact that an agreement has yet to be reduced to a formal written contract does not alter the binding validity of an original contract.

c) Affidavit evidence:

For the reasons outlined above, I did not find the subjective affidavit evidence filed to be as reliable as the objective evidence contained in the contemporaneous documents in arriving at my conclusion that the parties reached a binding agreement to settle Mr. Falconer's claim during the settlement conference on October 27, 1998. The statements contained in Mr. Lawson's and Mr. Waters' affidavits, about what they would or would not have agreed to at the time, or what they thought they had agreed to, were simply too subjective, speculative and self-serving to be of any assistance. Furthermore, they contained erroneous assumptions, such as Mr. Lawson's statement that "I prepared the written notice as it was my understanding that all of the insured's claims for weekly benefits had been settled on a full and final basis. Otherwise, there was no need to provide the insured with written notice pursuant to section 9.1 of the Regulation 664 made under the Insurance Act." This tends to support Mr. Falconer's claim, that York was the only party labouring under any mistaken apprehensions in this case.

Is Mr. Falconer entitled to a Special Award because York failed to pay him $8,000 in non-earner benefits to which it had agreed he was entitled?

Section 282(10) of the Insurance Act authorizes an arbitrator to order a special award where he or she finds that benefits were unreasonably delayed or withheld, taking into account all relevant evidence. The inquiry involves looking at the total context in which the decisions relating to the insured's benefits were made in judging whether an insurer's actions were unreasonable. The conduct of both the insurer and the insured are also factors for consideration. Section 282(10) limits the maximum amount of an award to 50 percent of the value of the benefits found to be owing. This maximum is reserved for especially egregious conduct on an insurer's part, without mitigating factors.¹⁹

Mr. Falconer's uncontradicted affidavit states that he suffered serious injuries in his January 27, 1997 accident, including a fracture to his cervical spine. His affidavit further states that he suffered financial hardship as a result of York's failure to pay weekly benefits, and that his solicitor advised York that his client's situation was urgent on April 15, 1997. As noted above, at the July 14, 1998 pre-hearing, Mr. Lawson advised that York had recently approved payment of $8,000 in non-earner benefits retroactive to October 1997. At the hearing, York conceded that this amount was owed to Mr. Falconer independent of any finding that there had been a binding agreement to settle his claim. I find that, at the time of the hearing, the amount had not been paid. I do not know if it was subsequently paid.

I heard no evidence that any conduct on Mr. Falconer's part contributed to delay payment to him of a non-earner or income replacement benefit. Nor was there evidence of outright bad faith on York's part. Nevertheless, I find that York's handling of Mr. Falconer's claim was careless and sloppy. It did not trouble itself to have an adjuster present at either the pre-hearing in July or the settlement conference in October 1998, and apparently could not be bothered to check its files and rectify the problem when informed, on more than one occasion, that Mr. Falconer had never received the cheque it claimed to have issued. Given the circumstances, the lack of follow-up and the delayed payment to Mr. Falconer is more than unreasonable, it is inexcusable. I find that York's conduct in this case merits a maximum special award of 50 percent of the value of the $8,000 owing to Mr. Falconer, to be calculated as of the date the $8,000 is paid.

Is Mr. Falconer entitled to a Special Award because the Insurer resiled from an agreement to settle his claim?

Resiling from an agreement to settle a claim is not something that an insurer can afford to enter into lightly. The paramount importance of settling, as opposed to litigating automobile accident injury claims, is recognized by both FSCO and the courts:

One of the hallmarks of the statutory accident benefit scheme is to encourage insured persons and their insurers to resolve disputes without the necessity of resorting to litigation. The parties are required to submit their disputes to mandatory mediation. They are also provided with access to arbitration services where adjudicators are required to assist the parties in negotiating settlement of their disputes. The provision of alternate dispute resolution services clearly evidences that it is in the public interest that parties negotiate a resolution of their disputes.²⁰

As discussed by Arbitrator VanderBent, FSCO imposes a number of obligations upon insurers with respect to agreements to settle disputes, including compliance with section 9.1 of Regulation 664. Failure to comply with the Regulation may allow the insured person to rescind an agreement but will not excuse the insurer from its obligations.²¹

Furthermore, the parties are entitled to rely on the apparent authority of counsel to enter into binding settlement agreements on their behalf.²²

Similarly, in the courts,

...the misapprehension of facts by the solicitor does not justify the court in setting aside or refusing to enforce a compromise. It is recognized that only a very small percentage of personal injury cases proceed by way of litigation and that by far a large portion are resolved by way of negotiations, settlement and releases....²³

I find that York's refusal to acknowledge that a binding agreement was negotiated by Mr. Lawson on its behalf on October 27, 1998 was unreasonable in the circumstances. York failed to meet its obligations with regard to Mr. Falconer in many respects. No adjuster was present at either the pre-hearing or the settlement conference, and Mr. Lawson, representing York as in-house counsel on both occasions, was poorly informed about the particulars of Mr. Falconer's file and mistaken about York's legal obligations regarding the section 9.1 notice requirement. York was made aware that Mr. Falconer was in financial distress. I find that York's conduct in this case, in attempting to avoid a settlement negotiated in good faith by the Applicant, on the basis of a flimsy case of a mistake, falls far below what is acceptable in the context of the statutory no-fault scheme. I would therefore impose the maximum special award of 50 percent of the amount of the negotiated settlement.

EXPENSES:

I exercise my discretion to award Mr. Falconer his expenses incurred in this preliminary issue hearing.

March 15, 2001

Susan Sapin Arbitrator

Date