Liberty Mutual Insurance Company v. Molly R. Persofsky, 2002 ONFSCDRS 1

Neutral Citation: 2002 ONFSCDRS 1

Appeal P00-00041

OFFICE OF THE DIRECTOR OF ARBITRATIONS

LIBERTY MUTUAL INSURANCE COMPANY Appellant

and

MOLLY R. PERSOFSKY Respondent

and

INSURANCE BUREAU OF CANADA ONTARIO TRIAL LAWYERS ASSOCIATION MINISTRY OF FINANCE Intervenors

Before: David R. Draper, Director of Arbitrations

Counsel: Eric T. Sigurdson (for Liberty Mutual) Jeremy R. Solomon (for Molly R. Persofsky) S. Gordon McKee (for Insurance Bureau of Canada) Leslie McIntosh (for Ministry of Finance)

APPEAL ORDER ON MOTION TO ADMIT EVIDENCE

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

The motion is allowed: The affidavit of Elisabeth Sachs, sworn November 1, 2001, is admitted as evidence in this appeal.
The issue of expenses is reserved to the main appeal.

January 3, 2002

David R. Draper Director of Arbitrations

Date

REASONS FOR DECISION

I. SUMMARY

This is a motion by the Ministry of Finance (the Ministry) to introduce new evidence. Specifically, it seeks to rely on the affidavit of Elisabeth Sachs, sworn November 1, 2001. Ms. Persofsky supports the introduction of this affidavit, while Liberty Mutual Insurance Company (Liberty Mutual) and the Insurance Bureau of Canada (IBC) object to certain paragraphs. The other intervenor, the Ontario Trial Lawyers Association (OTLA), did not participate.

II. ANALYSIS

The background to this appeal is set out in my decision dated July 3, 2001, dealing with Liberty Mutual’s earlier motion to introduce new evidence. In summary, it is an appeal from an arbitrator’s order that Liberty Mutual pay a special award. For the purposes of the appeal, Liberty Mutual accepts the arbitrator’s conclusion that it unreasonably withheld benefits, but challenges the amount of the special award. It also makes a much broader argument, claiming that the entire arbitration order cannot stand due to institutional bias. The basis of this argument is that in a system where only insured persons can choose arbitration instead of court, there will be a reasonable apprehension of bias if arbitrators do not have security of tenure and, as a result, have an interest in encouraging insured persons to choose arbitration, and an ability to do so through their decisions.

In December 2000, I allowed two groups to intervene to make legal submissions on the issues of special award and institutional bias — the IBC, a national organization representing property and casualty insurers in Canada, and OTLA, an organization of lawyers who represent plaintiffs that focuses on issues of civil justice. In granting intervenor status, I made the following comments about their involvement:

Their role will be to present arguments based on their unique knowledge and perspective, not simply to support the position of one party or the other. Their submissions should be at the level of general application, not specifically addressed to the outcome of this case. This is for the parties. As a final general statement, the intervenors will not be allowed to complicate or delay the proceedings to any significant extent. Therefore, if necessary, limits will be placed on the issues they are entitled to raise, or the time allowed for their submissions.

At this point, the proceedings were delayed, on consent, while Liberty Mutual pursued evidence through an application under the Freedom of Information and Protection of Privacy Act, R.S.O. 1990, c.F.31.

In April 2001, Liberty Mutual brought a motion to admit various documents as new or extrinsic evidence. Most of them related to the institutional bias issue, although Liberty Mutual also presented an affidavit concerning the special award. In a decision dated July 3, 2001, I allowed the motion in part. The affidavit of Suzanne Courtlander, sworn March 23, 2001, dealing with institutional bias, was accepted as evidence in the appeal, along with the documentary evidence listed in the appendix to the decision. The affidavit of Beth Jones, sworn March 23, 2001, dealing with the special award, was not accepted.

In making this decision, I expressed concerns about expanding the scope of the appeal:

Despite my concerns about expanding the scope of this appeal, fairness demands that Mrs. Persofsky be given an opportunity to file evidence in response. I intend to give her the same broad scope I have afforded Liberty Mutual. However, the same does not apply to the intervenors. In my letter decision dated December 20, 2000, I specifically declined to name OTLA or IBC as parties, but accepted them as intervenors to “make legal submissions on the issues of special award and institutional bias.” As a result, they do not have the same status to present evidence. However, they will be allowed to make submissions that the record is deficient in some significant respect. I encourage the participants to discuss the need for additional evidence, but any disagreement can be brought to me by motion.

At about the same time this motion was heard, the Ministry of Finance applied for intervenor status on the institutional bias issue. It did not ask to intervene on the special award issue. Neither party actively resisted the application, although Liberty Mutual argued that I should not allow a “stacking” of intervenors opposing its position.

By letter dated August 31, 2001, I granted the Ministry intervenor status, concluding that its unique perspective would be helpful and would not significantly overlap with OTLA’s role. My letter includes the following comments about the Ministry’s role:

I order that the Ministry is permitted to make submissions on the issue of institutional bias.

There was also discussion of additional evidence: Ms. McIntosh outlined the kind of evidence she might like to see included in the appeal; Mr. Sigurdson previously shared some additional evidence that he wants to file; and, Mr. Wolfe indicated that consideration is being given to presenting evidence on behalf of Ms. Persofsky. Counsel agreed to exchange correspondence by September 24, 2001, setting out what evidence they propose to present, followed by an attempt to reach agreement to the extent possible. If there is disagreement, a motion will be scheduled by telephone or in person, as appropriate. I would expect this to happen by mid to late October. I accept Mr. McKee’s submission that if the Ministry seeks to introduce evidence over the objections of either parties, the other intervenors can ask that their right to file evidence be reconsidered.

Ms. McIntosh filed a letter, without objection, that she sent to the other counsel on September 24, 2001. In it, she advised that the Ministry intended to rely on excerpts from the Osborne Commissioon Report, the Ontario Automobile Insurance Board Report and Hansard, and an affidavit from an official at the Ministry or the Financial Services Commission of Ontario (FSCO) describing the process for recommending and appointing arbitrators, and including statistical information about special awards and caseloads. She also indicated that she planned to prepare a legislative history.

As I understand it, Ms. McIntosh did not receive agreement for this approach, leading to the contested affidavit sworn by Ms. Sachs on November 1, 2001. Ms. Sachs is employed at FSCO as Executive Director, Special Projects. Previously, she was Executive Director, Dispute Resolution Group and appointed by Order-in-Counsel as Director of Arbitrations under the Insurance Act, a position she held from May 1990 to August 2001. Ms. Sachs was cross-examined on her affidavit on November 26, 2001. The parties anticipate that the transcript of the cross-examination will be filed in evidence, although subject to deletions if any of the contested paragraphs are struck.

The affidavit has 68 paragraphs. There are no objections to paragraphs 1-10, 22, 26-27, 31, 34, 40-55 and 60-64. Liberty Mutual and the IBC object to the other paragraphs for reasons dealt with below.

1. References to Reports

In her affidavit (paragraphs 11-21; 23-25 and 28), Ms. Sachs refers to three reports: the Ontario Task Force on Insurance; the Osborne Commission Report; and the report of the Ontario Automobile Insurance Board. According to the Ministry, this evidence is not presented for the truth of the factual underpinnings of the reports, but to establish the background and purpose of the 1990 amendments to the Insurance Act that created the dispute resolution process at FSCO.¹ Liberty Mutual, supported by the IBC, submits that these paragraphs are irrelevant, prejudicial, contain opinions and conclusions, and are collateral to the institutional bias issue on which the Ministry was granted intervenor status.

The focus of the concern seems to be negative comments in the reports, particularly the Osborne Commission Report, about the performance of the insurance industry in delivering first party benefits. I agree that this appeal does not involve any determination of the industry’s performance in the late 1980's or now. However, the institutional bias issue is not a simple matter of statutory interpretation, as suggested by Liberty Mutual and the IBC. It involves the exercise of a multi-layered discretion in the appointment of arbitrators brought in as part of the 1990 amendments. In this context, the background to this legislation, its implementation, and the approach taken over time to the appointment of arbitrators is relevant.

Ms. Sachs is an appropriate source for this information, having served as Director of Arbitrations for the first eleven years of the dispute resolution system. In my view, her affidavit, including the references to the reports, speaks to the institutional bias issue in a manner that will assist my analysis and does not unduly expand the scope of the appeal. Further, she was made available for cross-examination, allowing the other participants to challenge any deficiencies or gaps in her affidavit. The list of undertakings included in Liberty Mutual’s material suggests that it took full advantage of this opportunity.

While this kind of evidence could have been presented by Ms. Persofsky, she does not have the same broad interest in Liberty Mutual’s challenge to the impartiality of the system as the Ministry, or the same level of resources. Importantly, she supports its introduction. As her lawyer said at the hearing, if the Ministry were not presenting this evidence, he might have to. In these circumstances, I am not persuaded there is anything wrong with allowing the Ministry to present this evidence.

For these reasons, I am not prepared to strike the contested paragraphs. However, having opened the door to evidence about the legislative history, it is only fair that the other participants be allowed to comment on the need for any additional evidence. With respect to the three reports mentioned in Ms. Sachs’ affidavit, I accept that the record should be complete. Therefore, if any participant feels that other parts of the reports are relevant, I am prepared to accept additional excerpts as exhibits, or, alternatively, simply accept the entire reports. Other evidence will need to be admitted on consent or by way of a further motion.

Paragraphs 57-59 of Ms. Sachs’ affidavit refer to the special award section of the Insurance Act. Liberty Mutual and the IBC submit that this goes beyond my order granting the Ministry intervenor status on the institutional bias issue, not the special award issue. Therefore, they argue, the paragraphs should be struck. I do not agree. Paragraph 57 addresses the structure created by the legislation, and is relevant to the institutional bias issue. The relevance of paragraph 58 and the first sentence of paragraph 59 is not as obvious. However, as they merely restate sections of the Insurance Act, I see no prejudice in allowing them to stand.

The final sentence of paragraph 59 is different. It states that “[s]ince the start of the system, there have been approximately 102 special awards, and 75 assessments made against insureds.” In my view, this is close to the line. The Ministry was granted intervenor status to deal with Liberty Mutual’s challenge to the use of government-employed arbitrators, not to defend the decisions made by those arbitrators. Nor is it obvious what conclusions could be drawn from this information, as the affidavit does not include statistics on the amount of the awards, or how many special awards and assessments were requested but refused. In any event, Liberty Mutual is not alleging actual bias.

That being said, it is central to Liberty Mutual’s argument that arbitrators have the ability to make the dispute resolution process more attractive to insured persons through their orders, including their authority to order special awards. That is why my letter granting intervenor status specifically allowed the Ministry to address “the role of the special award provision as it relates to institutional bias.” While I did not have this kind of statistical analysis in mind, I am not persuaded it should be struck. In reaching this conclusion, I am influenced by the fact the information is relatively straightforward. Further, paragraphs 16 and 17 of Liberty Mutual’s written submissions involve its own analysis of the special awards issued by arbitrators over the years and, as well, the evidence filed by Liberty Mutual includes a substantial amount of statistical information. In this context, paragraph 59 of the affidavit is not out of line.

3. Reference to Adams Report

Paragraphs 65-67 of the affidavit refer to a performance audit done by the Hon. George W. Adams in 1998, attaching the executive summary. Liberty Mutual, supported by the IBC, objects to these paragraphs, arguing they are irrelevant. In my view, however, they are relevant as part of the history of the dispute resolution system provided by Ms. Sachs in her affidavit and, as such, are helpful in providing a more complete picture of the situation being challenged by Liberty Mutual. As with the other three reports, any participant may ask to include other sections of the Adams report in the appeal record.

4. Reference to Judicial Review

Paragraph 68 of the affidavit deals with the approach to arbitrators’ authority taken by the courts on judicial review. While the relevance of this evidence is not obvious, neither is the prejudice. Therefore, consistent with the approach I took with the evidence presented by Liberty Mutual and supported by the IBC, I am prepared to take a broad view of relevance with respect to this evidence presented by the Ministry and supported by Ms. Persofsky.

5. Recitation of the Legislation

In its written submissions, Liberty Mutual objected to paragraphs 29, 30, 32, 33, 35-39 and 56 of the affidavit, arguing that they appeared to be mere recitations of sections of the Insurance Act and, therefore, inappropriate in an affidavit. During the motion, Ms. McIntosh agreed to provide specific section references, a solution that Mr. Sigurdson accepted as sufficient. Therefore, these paragraphs will remain as part of the affidavit.

III. CONCLUSIONS

For the reasons set out above, the affidavit is accepted in its entirety as evidence in this appeal. As I understand it, Liberty Mutual wants to file the transcript of her cross-examination. It may now do so.

Mr. Solomon, on behalf of Ms. Persofsky, asks that Liberty Mutual provide him with a copy of the transcript of the cross-examination at its expense. Liberty Mutual objects, arguing that this expense arises out of the Ministry’s involvement and, therefore, Ms. Persofksy should look to it for funding. While there is some merit to Liberty Mutual’s position, I conclude that it should bear this expense. It is the party relying on the transcript and the expense is quite minor within the broader context of the appeal.

During the motion, Liberty Mutual referred to the Ministry’s non-compliance with some of the undertakings given during Ms. Sachs’ cross-examination. My understanding is that this matter was not pursued based on Ms. McIntosh’s assurance that they would be met. Therefore, I leave it to counsel to resolve the undertakings.

Mr. Sigurdson, in his letter dated November 8, 2001, set out a mutually agreeable timetable for the appeal that I would like to preserve to the extent possible. To do so, I need to hear about any further evidence as soon as possible. Any submissions about additional evidence from the three reports mentioned in Ms. Sachs’ affidavit should be made within two weeks of receiving this decision. Also, if any participant proposes to rely on additional evidence about the background of the legislation, submissions should be filed within the same time period. Finally, I understand that Liberty Mutual may have obtained some additional material that it wants to file. If so, notice should be provided within the same two-week period.