Yuri and Ludmilla Gurevich v. Royal & SunAlliance Insurance Company of Canada, 2002 ONFSCDRS 147

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 147

Appeal P02-00011

OFFICE OF THE DIRECTOR OF ARBITRATIONS

YURI and LUDMILLA GUREVICH Appellant

and

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA Respondent

Before: Nancy Makepeace

Representatives: Hogarth F. Clauzel for Mr. and Mrs. Gurevich William McCorriston for Vadim Malyshev Robert Ipacs for Roman Volfson Peter Kazdan for Royal

Hearing Date: Written submissions were completed by July 25, 2002.

APPEAL ORDER

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

1. The appeal from the arbitration decision, dated April 29, 2002, is rejected as premature, pursuant to Rule 51.2 of the Dispute Resolution Practice Code.

September 18, 2002

Nancy Makepeace Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

The issue in this appeal is whether an arbitrator has power to order a representative to pay an insurer's arbitration expenses. The arbitration decision dealt with a number of issues around the participation in FSCO proceedings of paralegals associated with treatment and assessment facilities.

I find that the appeal is premature. I exercise my discretion to reject it, pursuant to Rule 51.2 of the Dispute Resolution Practice Code, for the following reasons.

II. BACKGROUND

I accept the facts as described by the Arbitrator for the purposes of this appeal decision.

Yuri and Ludmilla Gurevich claimed benefits¹ from Royal & SunAlliance Insurance Company of Canada ("Royal") relating to an accident on September 10, 1999. Shortly after the accident, they attended the Universal Injury Rehabilitation Centre ("Universal") for a short period of treatment. Universal submitted treatment claims on behalf of Mr. and Mrs. Gurevich, relying on documents in which they purportedly authorized the clinic to pursue payment on their behalf. Royal disputed the claims.

Roman Volfson, the manager of Universal, commenced mediation of the disputes. He appears to have retained Jorge Pignalosa, of Pignalosa/IMC Associates, by that time. The Report of Mediator with respect to Mr. Gurevich indicated that all issues in dispute were resolved. The Report of Mediator with respect to Mrs. Gurevich indicated that a dispute remained concerning physiotherapy and massage therapy.

Mr. Volfson then commenced arbitration. According to the Arbitrator, Mr. Volfson signed the application forms, which were not signed by Mr. and Mrs. Gurevich. In response, Royal claimed that there were no issues in dispute relating to Mr. Gurevich, and that Mrs. Gurevich should be barred from proceeding to arbitration because she failed to present herself for an assessment.² Royal also challenged Mr. Volfson's authority to act. Royal argued that both proceedings were an abuse of process, and claimed arbitration expenses under s. 282(11) and an assessment under s.282(11.2) of the Insurance Act.

The applications were combined, and a pre-hearing was held in October 2001. Mrs. Gurevich did not attend, and declined to participate when contacted by telephone. Mr. Gurevich appeared, along with Vadim Malyshev, who "was, apparently, retained by both parties [Mr. and Mrs. Gurevich] to pursue the claims."³ Mr. Malyshev is associated with Pignalosa/IMC Associates. Royal and its counsel also participated in the pre-hearing. A hearing date was set for February 27 and 28, 2002.

On January 18, 2002, Mr. Malyshev moved to withdraw Mr. Gurevich’s application without expenses. He conceded that the issues had been resolved at mediation. Royal objected on the ground that it had to "retain counsel to: respond to the Application for Arbitration; review the file and prepare an opinion with respect to the Application; prepare and attend the pre-hearing; and prepare for the Arbitration Hearing." The Arbitrator granted the withdrawal motion. He concluded that the application was an abuse of process, and, "in the absence of important mitigating factors, an obvious case for an award of expenses to the Insurer."⁴

That left the arbitration commenced in the name of Mrs. Gurevich. The Arbitrator was concerned whether Mr. Malyshev had authority to act on her behalf:

I noted the lack of an applicant's signature on the application for arbitration, the refusal of Ms. Gurevich to participate in the pre-hearing, the potential irregularities in the authorizations provided, and the Insurer's allegations that the application was brought without proper authority.

I ordered, pursuant to subrule 9.2 of the Code, that Mr. Malyshev obtain, within two weeks, an authorization, legibly signed, witnessed and dated, containing an acknowledgement that Mr. Malyshev is not a lawyer nor subject to any discipline and that Ms. Gurevich, as the named applicant, may be responsible paying any expense order made against her at the hearing.

I also noted that, failing receipt of the required authorization, her claim would be dismissed subject to the right of the Insurer to submit any claim for expenses against the party who brought the arbitration.

Mr. Malyshev was unable to obtain the required authorization. Rather, a letter, dated February 28, 2002 was received by the Commission from Mr. Yuri Gurevich, stating that "my wife, Ludmilla Gurevich, and I do not have interest in continuing this case, if we will not be exposed to any claims for expenses and other charges."⁵

The Arbitrator made a number of findings about how the applications came about:

• "Although brought in the name of the insured persons who underwent treatment, it was undertaken by the owner of the treating clinic."⁶
• "I have difficulty accepting that Mr. Gurevich is the directing mind behind this abuse of process, or that he knowingly participated in an abuse of process."⁷
• "Mr. Volfson was clearly in the driver's seat in this matter."⁸
• "I find that the application [for arbitration] itself is uncontradicted prima facie evidence that Mr. Volfson instigated this improper application. . . . The retainer documents, upon which Mr. Volfson and his agents appear to rely, contain serious flaws, both in execution and in content. On one hand most of the documents lack legible and identifiable signatures, dates or witnesses. Even if these difficulties can be overcome, however, they appear to bestow upon Mr. Volfson something other than mere agency."⁹
• "I find, based on the 'retainer letters' previously referred to, the 'agents' were in fact, assignees of Mr. Gurevich's rights to claim compensation for treatment from his insurers."¹⁰
• "Mr. Volfson's involvement in this matter appears to fall clearly within the ambit of the 1897 [Champerty] Act and the Common Law rule. . . . I find that there is a serious issue as to whether the 'retainer' agreements between Mr. Gurevich and Mr. Volfson and Pignelosa [sic] and Associates are void as offending both the rule against assignability of benefits, and the rule against champerty."¹¹
• I will not repeat my comments concerning the application made in Mr. Gurevich's name, other than to say that they apply equally to Ms. Gurevich. In fact, given her refusal to participate in either assessments or the pre-hearing of this matter, it is even less likely that she is the person responsible for the bringing of this matter and its subsequent conduct. She has also clearly expressed her intention that this matter not proceed in her name.¹²

The Arbitrator dismissed Mrs. Gurevich's application for arbitration, because of Mr. Volfson's failure to provide the required authorization, subject to Royal's expenses claim "against the party who brought the arbitration."¹³

The next question was "who should pay?" Subsection 282(11) of the Act authorizes an adjudicator to award arbitration expenses "to the insured person or the insurer." It does not expressly state who may be ordered to pay these expenses.¹⁴ The Arbitrator concluded that his remedial jurisdiction extends beyond the parties to include their representatives. He reasoned as follows:

While an expense award may only be payable to an insured or an insurer, neither the legislation, the regulations, nor the Practice Code limits the exposure of anyone else involved in a proceeding to cost sanctions due to their conduct within the proceeding.

As well, subsection 21(1) of the S.P.P.A.¹⁵ also provides that "a tribunal may make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its processes."

I accept that an arbitrator is entitled to make expense orders, sanctioning participants in an arbitration that are payable to an insured or an insurer as the case may be, as part of the complementary authority granted pursuant to the expense regulation, the Insurance Act, the Practice Code, and its power to make orders to sanction an abuse of process.¹⁶

The Arbitrator ruled that Mr. Gurevich is not responsible for Royal's arbitration expenses, and found it "even less likely" that Mrs. Gurevich "is the person responsible" for the arbitration. He declined to make an expenses order against Mr. Volfson, Mr. Malyshev or Mr. Pignalosa until they were given notice and an opportunity to respond. He remain seized of the issue, and set out time lines for any expenses motion. He made the following order:

1. Mr. Gurevich shall be permitted to withdraw the application for arbitration without personal liability for expenses, subject to the Insurer's option to claim its expenses from either or all of Mr. Volfson, Mr. Malyshev, or Mr. Pignelosa. [sic].
2. The application for arbitration in the name of Ms. Gurevich is dismissed, subject to any claims for expenses against the party who brought the arbitration.

The time lines for any expenses motion have now passed. I am advised that Royal has submitted a bill of costs, but I am not aware of the details.

III. ANALYSIS

In late May of this year, Mr. Volfson and Mr. Malyshev commenced appeals from the Arbitration order.¹⁷ As the pleadings raised a number of preliminary issues, I invited comment from the parties, as well as the other "participants" – Mr. Volfson and Mr. Malyshev – before deciding whether to acknowledge or reject the appeal. With the consent of Royal and the other participants, I granted Mr. and Mrs. Gurevich an extension of the time for comment, in order to allow them to retain counsel. They did so, and written submissions were completed on July 25, 2002.

Rule 51.2 of the Dispute Resolution Practice Code states that an appeal "may be rejected if . . . it is from a preliminary or interim order that does not finally decide the issues in dispute." In his Notice of Appeal, Mr. Malyshev checked off the "no" box, in response to the question, "Are you asking for an Appeal of a Preliminary or Interim Order?" He submitted that the order was final in that its meaning was "crystal clear" to Mr. Malyshev – "he is in a position to be held accountable for [Royal's] costs." Further, the Arbitrator's analysis of the law should not be allowed to stand, in any event.

Responding to the same question, Mr. Volfson checked off "yes," and gave the following reasons why the appeal should be acknowledged:

Arbitrator Wilson's decision stated that Mr. Volfson should have full notice, and an opportunity to respond to any claim. Mr. Volfson wishes to respond through his appeal.

The position of Mr. and Mrs. Gurevich is that they did not authorize the arbitration proceedings, or, implicitly, the appeals. They claim that: they only attended Universal about three times each; they never received an invoice for the treatment; they did not know about the arbitration proceedings until some time after they were commenced; they did not give instructions or informed consent to Mr. Volfson, Mr. Malyshev or Mr. Pignalosa to commence the arbitration on their behalf; they do not recall executing the authorization and direction documents on which Mr. Volfson and Universal relied in commencing the arbitration; and they did not execute the authorizations requested by Mr. Malyshev pursuant to the Arbitrator’s order.

Royal’s position is that the appeal is premature until the Arbitrator makes an order against Mr. Volfson or Mr. Malyshev. Royal requests that the matter be referred back to the Arbitrator for determination. Mr. and Mrs. Gurevich do not oppose this request.

The Arbitrator did not make an expenses order. He has not ordered Mr. Volfson or Mr. Malyshev (or Mr. Pignalosa) to pay anything. In fact, he expressly deferred that decision pending a further hearing on whether the representatives should be ordered to pay Royal’s arbitration expenses, and he remained seized of the issue. I find that the Arbitrator has not made a final order. That does not settle the matter, because I have discretion to acknowledge an appeal from a preliminary or interim decision where appropriate. I reviewed the relevant considerations in Torok and Allstate Insurance Company of Canada:¹⁸

The purpose of Rule 46.2 [now Rule 51.2] is to facilitate the most cost-effective resolution of disputes by minimizing the time and money spent on procedural or collateral matters. The decision whether to hear an appeal of a preliminary order is discretionary. As Delegate Naylor stated in General Accident and Glynn, the over-arching principle guiding the exercise of the discretion is that the rule "should be broadly interpreted to produce the quickest, most just and least expensive resolution of the dispute."¹⁹ The criteria to be considered include the apparent strength of the appeal, the importance or novelty of the issue raised, and whether rejecting the appeal or hearing it will prejudice either party.²⁰

The Arbitrator's finding that arbitration expenses may be awarded against a participant, other than an insured person or insurer, runs counter to the weight of Commission authorities.²¹ His reasoning with respect to agency, assignment and champerty represents a novel attempt to deal with a systemic issue – the many arbitration proceedings that are commenced and apparently controlled by third-party facilities whose interests may conflict with those of the insured person.²² These considerations favour acknowledging the appeal.

However, I conclude that considerations of standing and appeal expenses require a different outcome.

The Arbitrator stated that Mr. Volfson, Mr. Malyshev and Mr. Pignalosa may be the parties who brought the arbitration nominally commenced by Mr. and Mrs. Gurevich. Near the end of the decision, he described them as "potential parties."²³ Section 283(1) of the Insurance Act states that "[a] party to an arbitration under section 282 may appeal the order of the arbitrator to the Director [or Delegate] on a question of law." Section 282 permits "[a]n insured person" to seek arbitration following a failed mediation. I agree with the Arbitrator that the parties to the arbitration were Mr. and Mrs. Gurevich (insured persons) and Royal. Neither has commenced an appeal of the decision. As Mr. Volfson and Mr. Malyshev were not parties to the arbitration, I am not satisfied they are parties under s. 283(1) of the Act.

Mr. Malyshev also relies on s. 5 of the Statutory Powers Procedure Act, which states:

The parties to a proceeding shall be the persons specified as parties by or under the statute under which the proceeding arises or, if not so specified, persons entitled by law to be parties to the proceeding.

In general, the persons "entitled by law to be parties" are those who have a direct interest in the outcome of the proceeding. Mr. Malyshev submits that if he is denied standing to bring an appeal, "there is no mechanism available" to challenge the Arbitrator's ruling that he may be responsible for Royal's arbitration expenses. If this were so, I would acknowledge the appeal. But the Arbitrator set out a procedure for ensuring that Mr. Malyshev, Mr. Volfson and Mr. Pignalosa would have an opportunity to present evidence and make submissions before a final order is made. Although the Arbitrator’s lengthy reasons suggest he has already decided that the representatives are parties who can be held liable for expenses, a closer reading of the decision indicates that he concluded only that Mr. Malyshev, Mr. Volfson and Mr. Pignalosa are "potential parties" who "may" be responsible for Royal's expenses. In any event, my order that the appeal is premature will not affect anyone's right to appeal if the Arbitrator makes a final order for the payment of expenses.

The issue of appeal expenses provides the other compelling argument for rejecting the appeal. The Arbitrator found that Royal should be awarded its arbitration expenses because the arbitration brought in the name of Mr. Gurevich was an abuse of process, and both applications were commenced without authority. For the same reasons, he did not find it appropriate that Mr. and Mrs. Gurevich should be responsible for Royal's expenses. However, if I acknowledge the appeal, the parties are likely to incur additional expenses they may not be able to recover from Mr. Volfson and Mr. Malyshev. Therefore, I conclude that fairness precludes acknowledging this appeal in the absence of a final order for the payment of arbitration expenses.

Accordingly, the appeal is rejected under Rule 51.2 of the Dispute Resolution Practice Code.

September 18, 2002

Nancy Makepeace Director's Delegate

Date

Footnotes

1. 1Under the Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended (the "SABS-1996").
2. 2The arbitration decision does not say whether this was an insurer assessment under s. 42 of the SABS-1996 or an assessment at a designated assessment centre under s. 43.
3. 3Arbitration decision, p. 2.
4. 4Arbitration decision, p. 8.
5. 5Arbitration decision, pp. 3-4.
6. 6Arbitration decision, p. 8.
7. 7Arbitration decision, p. 11.
8. 8Ibid.
9. 9Arbitration decision, p. 12.
10. 10Arbitration decision, p. 14.
11. 11Arbitration decision, p. 16.
12. 12Arbitration decision, p. 19.
13. 13Arbitration decision, p. 19.
14. 14Unlike s.282(11.2), which authorizes an arbitrator to order an amount to be paid "by the insured person to the insurer," not to exceed the amount of the insurer's arbitration assessment, if, in the opinion of the arbitrator, the insured person commenced an arbitration that is frivolous, vexatious or an abuse of process. Despite finding that Mr. Gurevich (or Mr. Volfson) commenced an application that was an abuse of process, the Arbitrator did not discuss Royal's claim for an assessment award.
15. 15Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, as amended. [footnote added]
16. 16Arbitration decision, p. 6.
17. 17Mr. Malyshev framed his challenge, alternatively, as an application for variation or revocation under s. 284 of the Insurance Act.
18. 18(FSCO P01-00021, May 29, 2001), at p. 5.
19. 19The "over-arching principle" is found in Rule 1.1 of the Code. Glynn and General Accident Assurance Company, (OIC P96-00085, March 17, 1997). [footnote in original]
20. 20The principles have been considered in a number of appeal decisions. See, for example, Tesfay and Allstate Insurance Company of Canada (FSCO P99-00023, June 21, 1999), Ms. Z. and Dominion of Canada General Insurance Company, (FSCO P98-00053, December 11, 1998), Glynn and General Accident (above), and Christo and Royal Insurance Company of Canada, (OIC P96-00049, September 11, 1996). [footnote in original]
21. 21See Tallis and Royal Insurance Company of Canada, (OIC A007109, May 1, 1995); Lopez and Commercial Union Assurance Company, (FSCO A98-001223, April 13, 1999); Armstrong and Personal Insurance Company of Canada, (FSCO A97-001844, May 14, 1999); Farella and Security National Insurance Company, (FSCO A98-001162, June 25, 1999); Sabti and AXA Insurance (Canadaa), ( FSCO P00-00015, February 5, 2001) confirming Sabti and AXA Insurance (Canada), (FSCO A98-001267, November 10, 1999); Docoute and Zurich Insurance Company, (FSCO A00-00027, September 19, 2001), confirmed, (FSCO P01-00036, July 29, 2002); Gik and Zurich Insurance Company, (FSCO A00-001144, October 4, 2001); and Dhawan and State Farm Mutual Automobile Insurance Company, (FSCO A00-00031 April 20, 2001), confirmed, (FSCO P01-00025, May 16, 2002). Contra: Piotto and Kingsway General Insurance Company, (FSCO A00-001061, March 22, 2002).
22. 22I expressed my concerns about clinic-driven proceedings in Smith and Citadel General Assurance Company, (FSCO P01-00034, August 20, 2002).
23. 23Arbitration decision, p. 17.