Marina Bersteyn v. Allstate Insurance Company of Canada, 2002 ONFSCDRS 205

Neutral Citation: 2002 ONFSCDRS 205

FSCO A01-000858

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MARINA BERSTEYN

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

DECISION ON A MOTION

Before:

Janice Sandomirsky

Heard:

November 4, 2002, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Roland Spiegel for Ms. Bersteyn

Richard F.L. Rose for Allstate Insurance Company of Canada

Issues:

The Applicant, Marina Bersteyn, was injured in a motor vehicle accident on December 21, 2000. She applied for statutory accident benefits from Allstate Insurance Company of Canada ("Allstate"), payable under the Schedule.¹ Disputes developed between the parties which they were unable to resolve through mediation and Ms. Bersteyn applied for arbitration at the Financial Services Commission of Ontario (the "Commission") under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issue identified in the application for arbitration involved the payment of the cost of a disability certificate, in the amount of $83.87, claimed pursuant to section 14 of the Schedule. Three months after applying for arbitration, the Applicant's representative, Mr. Spiegel, advised the Commission that his client wished to withdraw her application "without any penalty."

Allstate objected to the request to withdraw the application and requested a hearing to determine its entitlement to repayment of the costs of defending the application, including the filing fee, on the basis that the proceeding is frivolous, vexatious and an abuse of the process.

The issue to be decided is:

1. Whether Ms. Bersteyn is entitled to withdraw her application for arbitration and, if so, on what terms and condition?

Result:

1. Ms. Bersteyn may withdraw her application for arbitration on the condition that she pay Allstate $1,151.44, under subsection 282(11) of the Insurance Act, as expenses, and $3,000 under subsection 282(11.2) of the Act, representing the amount assessed against the Insurer.

EVIDENCE AND ANALYSIS:

Background:

Ms. Bersteyn was involved in a motor vehicle accident on December 21, 2000. Among other claims, she submitted a disability certificate to Allstate and requested payment of $83.87. Allstate refused payment of the disability certificate, and Ms. Bersteyn took the matter to mediation. The mediation failed, and she applied for arbitration on June 27, 2001.

The application for arbitration also included claims for interest, a special award and arbitration expenses. Allstate delivered a Response to the Application for Arbitration, dated July 18, 2001.

On September 25, 2001, Mr. Spiegel wrote to the Director of Arbitrations, Mr. David Draper, giving notice that he wished to withdraw Ms. Bersteyn's application for arbitration "without any penalty." Mr. Spiegel stated that his decision to withdraw was,

due to our client's concerns arising as the result of the unresolved issues of FSCO's Arbitrators' 'institutional bias and/or reasonable apprehension of bias.'

Accordingly, our client prefers and elects to pursue his/her claims for Accident Benefits via the Courts proceedings (in a wider and broader scope and in more comprehensive proceedings, which will include claims for 'bad faith," breach of Insurance Contract, and punitive/aggravated/exemplary damages, which is not within the jurisdiction of the Arbitration process).

The request to withdraw referenced Director's Delegate Draper's decision in Mangat and Non-Marine Underwriters, Mbrs of Lloyd's (FSCO P00-00020, August 1, 2000)² and concluded by stating that,

The Applicant respectfully reserves his/her right/prerogative [sic] to have a change of heart/mind (under the prevailing circumstances) and prefer/favor to proceed with actions in pursuit of his/her Accident Benefits via Court proceedings (particularly, when the withdrawal occurs prior to the commencement of any of the Pre-Arbitration proceedings).

Allstate objected to the request to withdraw the application. It submitted that the proceeding was frivolous, vexatious and an abuse of process, and, therefore, it was entitled to recover its $3,000 assessment and arbitration expenses.

On October 3, 2001, the Director of Arbitrations replied to the parties advising that a hearing would be arranged to determine the issue under Rule 70.3 of the Dispute Resolution Practice Code ( Fourth Edition, May 31, 2001) (the "Code"), which provides that,

70.3 Where a party does not agree to the withdrawal, an adjudicator may:

(a) permit the withdrawal on such terms and conditions as he or she considers just;

(b) award expenses to either party as permitted by Rule 75 and following, and the Expense Regulation under Section F of the Code;

(c) award an amount to the insurer, up to the amount of the assessment the insurer is required to pay to participate in the hearing, where the adjudicator is of the opinion that the insured person commenced an arbitration that was frivolous, vexatious or an abuse of process.

A Notice of Motion was sent to the parties on October 16, 2001, setting January 21, 2002, as the date for the hearing. The hearing of the motion was stayed, however, while the Director of Arbitrations proceeded to deal with Mr. Spiegel's allegations of bias in this, and three other cases. Two of the cases involved appeals from arbitration decisions.³ The third case, like this one, involved a motion to withdraw the application for arbitration.⁴ The Director of Arbitrations advised the parties that, in his opinion, the most just and least expensive approach was to defer the arbitration proceedings, and schedule the motions before him at the same time as the appeal in the Docoute case.

Allstate was required to attend at the hearing into the bias allegation. The hearing took place on May 24, 2002, and Mr. Spiegel's submissions lasted for three hours. At the conclusion of the hearing, Mr. Spiegel had not yet finished his submissions and the Director of Arbitrations ordered written submissions. According to Allstate, Mr. Spiegel's written submissions were in excess of 70 pages. Allstate delivered its submissions on July 2, 2002.

Mr. Spiegel's motion on the issue of bias was dismissed by the Director of Arbitrations in an Order dated July 29, 2002. After outlining the above history of the application, the Order stated the following:

To put this matter in context, Mr. Spiegel has represented many insured persons in the dispute resolution process. Starting in July 2001, with the release of my interim decision in Persofsky and Liberty Mutual Insurance Company, (FSCO P00-00041, July 3, 2001), he began arguing that his clients should not have to proceed before adjudicators at the Financial Services Commission of Ontario due to a reasonable apprehension of bias or actual bias.⁵

The Director or Arbitrations concluded that, for the reasons set out in the Docoute decision (released on the same date), Mr. Spiegel fell short of establishing the case for bias. Therefore, the application was dismissed.⁶

The Director of Arbitrations then dealt with the issue of expenses stating that,

Not surprisingly, Allstate seeks its expenses. If I had authority to award them, I would do so. However, as I held in Castaneda and CGUInsurance Company of Canada, (FSCO P01-00053, December 18, 2001), the Insurance Act does not provide for expenses in respect of bias applications under s. 282(12). That does not mean the bias application must be ignored. It was a step taken in the arbitration process that prolonged the proceeding, within the meaning of the expense regulation. In my opinion, therefore, it is a factor that can be considered when arbitration expenses are eventually determined.

After the release of this Order, Allstate requested a date to hear the motion to determine Ms. Bersteyn's request to withdraw the application and its entitlement to repayment of the costs of defending the arbitration, including the Insurer's assessment.

Findings:

Rule 70.3 gives an arbitrator the authority to permit the withdrawal of an arbitration on such terms and conditions as are considered just. It also gives an arbitrator the authority to award expenses to either party in accordance with the Expense Regulation, and to award the insurer its assessment cost where the arbitrator is of the opinion that the insured person commenced an arbitration that was frivolous, vexatious or an abuse of process.

The relevant criteria of the Expense Regulation are as follows:

12 (2) 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:

2. 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.

3. 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.

In this case, Allstate did not object to Ms. Bersteyn's request to withdraw the application for arbitration. Allstate argued that the withdrawal should only be allowed if Ms. Bersteyn pays its arbitration expenses and assessment.

I find that there is no reason to force Ms. Bersteyn to participate in an arbitration proceeding that she now has no interest in pursuing. Therefore, I exercise the discretion granted under Rule 70.3 to permit Ms. Bersteyn to withdraw the application for arbitration.

For the following reasons, I also exercise my discretion to allow the withdrawal on the condition that Ms. Bersteyn pay Allstate's legal expenses and $3,000 assessment.

(i) Assessment fee

Allstate sought an order that Ms. Bersteyn pay its assessment fee. Section 282(11.2) of the Insurance Act gives an arbitrator the authority to award an amount equal to the amount assessed against the insurer if, in the opinion of the arbitrator, the insured "commences an arbitration that, in the opinion of the arbitrator, is frivolous, vexatious or an abuse of process."

A number of arbitration decisions have considered the temporal relationship implied by the phrase "commences an arbitration" in subsection 282(11.2).⁷ Some decisions have concluded that the word "commences" does not restrict the focus of the inquiry to the period of time when the application for arbitration is filed, and that subsequent steps in the arbitration process can also be considered in deciding whether the applicant is liable to the insurer for the cost of the assessment fee.⁸

Other decisions have concluded that the phrase "commences an arbitration" ought to be interpreted more narrowly. In Richard and Lombard General Insurance Company of Canada (OIC A97-001526, April 29, 1998), for example, Arbitrator McMahon concluded that the insertion of the word "commences" limits the focus of the inquiry to "the state of affairs as they existed at the time the action was launched, and not on later procedural stages." He decided that a subsequent decision to withdraw an application was insufficient to trigger the section, unless it was part of a larger course of improper conduct tied to the commencement of the arbitration.⁹ Arbitrator McMahon reached this conclusion after noting that, with the change of legislation allowing an arbitrator to award expenses against the insured person in cases found to be frivolous, vexatious, fraudulent or an abuse of process, an award under section 282(11.2) ought to be limited to those "extreme cases" where the insurer is required to pay an assessment in cases that "are so devoid of merit as to be frivolous, or were launched to vex the insurer, or are in and of themselves, an abuse of the process."

The only appeal decision that considers this issue is Gawronski and Allstate Insurance Company of Canada (FSCO P98-00004, May 13, 1998). In that case, Director's Delegate Draper upheld the arbitrator's decision to allow Mr. Gawronski to withdraw his application for arbitration on the condition that he pay the insurer's assessment, which was then $2,000. He found that there was ample evidence to support the arbitrator's finding that Mr. Gawronski acted carelessly in filing for arbitration and then deciding to withdraw the application and take the case to the courts. Further, no evidence showed that Mr. Gawronski and his representatives made any attempt to coordinate the litigation and, therefore, it was not surprising that the arbitrator held Mr. Gawronski responsible for the unnecessary costs in withdrawing from arbitration.

Director's Delegate Draper also commented on the interpretation of section 282(11.2) that limits the inquiry to the circumstances as they existed at the commencement of the arbitration. He stated that he found that interpretation too narrow, and held that there was sufficient evidence in that case to find that Mr. Gawronski's failure to consider his actions led to an abuse of process and was sufficient to trigger section 282(11.2) of the Act as well as an expense award as set out in the Expense Regulation.

In reviewing the facts of this case, I accept that Ms. Bersteyn has a legitimate dispute with Allstate regarding the payment for the disability certificate. According to Allstate, however, Mr. Spiegel has submitted multiple applications for mediation for individual expenses on behalf of Ms. Bersteyn and, as well, has commenced three actions in Small Claims Court for similar claims. Allstate referred to the case of Suliman and Economical Mutual Insurance Company, (FSCO A02-000596, October 16, 2002), where Arbitrator Blackman stated that it was his duty to "prevent any abuse of the process of this tribunal," after noting that the "representative's actions on their face suggest a deliberate attempt to harass this insurer by the implicit threat of multiple proceedings being brought at various times and various forums on intertwined, if not identical issues."¹⁰

Following the reasoning in Gawronski and Suliman, I find that the decision to apply for arbitration for a disability certificate costing $83.87 represents a failure by Ms. Bersteyn to fully consider her legal options. Further, as one of a series of claims, I find that the application is part of a larger course of improper conduct designed to aggravate the Insurer. I conclude therefore that the filing of this application for arbitration comes within the meaning of both "vexatious" and "abuse of process" in subsection 282(11.2) and, therefore, Allstate is entitled to payment of the entire $3,000 assessment.

(ii) Expenses

For the reasons set out by the Director of Arbitrations in the bias decision, I find that Ms. Bersteyn is liable to pay Allstate's reasonable legal expenses. I agree that the bias application was a step taken in the arbitration process that prolonged the proceedings, within the meaning of the Expense Regulation. I also agree with the Director of Arbitrations' conclusion that the institutional bias argument was "manifestly unfounded." Therefore, I order Ms. Bersteyn to pay Allstate's expenses as a condition to her withdrawal of the application for arbitration.

Allstate attached a Bill of Costs to its submissions on this motion. It included the costs of Allstate's participation in the bias application. I find that the time claimed is reasonable.

The Bill of Costs sets out $150 per hour for 12.3 hours of Mr. Rose's time and $100 for 2 hours of Mr. D'Angelo's time. Rule 78 of the Code provides that the normal range for expense claims is based on the Legal Aid tariff, with the usual adjustment for experience ratings. Rule 78.1 also provides that "... where an adjudicator is satisfied that a higher amount for legal fees to an insured person is justified, an hourly rate of up to $150 may be awarded." This provision, however, only applies in instances where the "insured person" has been awarded costs.

In this case, Mr. Rose is the Insurer's counsel and, therefore, not entitled to the $150 rate. The legal aid tariff in place up to the date of the amendments in August 2002 provides a maximum hourly rate for a lawyer with four years of practice in civil litigation of $83.75, not the $150 requested by the Insurer.

Consequently, Allstate is awarded expenses for Mr. Rose's time of 12.3 hours at a rate of $83.75 per hour ($1,030.12), plus GST ($72.10), for a total of $1,102.22. Mr. D'Angelo is not listed as a member of the Law Society of Upper Canada and, therefore, I set his expenses at the rate for a law student or law clerk, which amounts to 2 hours at $23 per hour ($46) plus GST ($3.22), for a total of $49.22.

As a result, I find that Allstate is entitled to $1,151.44 for expenses.

In the circumstances of this case, I would consider it just, within the meaning of Rule 70.3, to order Mr. Spiegel to personally pay Allstate's expenses. However, my jurisdiction is limited by the provisions of the Insurance Act, which does not grant an arbitrator equitable jurisdiction beyond that which is authorized in the legislation. Therefore, while just terms and conditions may dictate that it is Mr. Spiegel and not Ms. Bersteyn who should be held responsible for the costs of conducting this proceeding, I agree with other arbitration decisions that the legislation does not provide an arbitrator with the jurisdiction to order expenses or an assessment against a representative.¹¹

Unfortunately, Ms. Bersteyn was not present at the hearing of this motion. She did, however, sign a form which stated that she appointed Mr. Spiegel to represent her in this matter and was aware of the potential cost consequences. I find that, having authorized Mr. Spiegel to act on her behalf, Ms. Bersteyn must take responsibility for the results of his managing of her case.

December 31, 2002

Janice Sandomirsky

Arbitrator

Date

Neutral Citation: 2002 ONFSCDRS 205

FSCO A01-000858

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MARINA BERSTEYN

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Ms. Bersteyn may withdraw her application for arbitration on the condition that she pay Allstate $1,151.44, under subsection 282(11) of the Insurance Act, as expenses, and $3,000 under subsection 282(11.2) of the Act, representing the amount assessed against the Insurer.

December 31, 2002

Janice Sandomirsky

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98, 114/00 and 482/01.
2. 2In that case, Director's Delegate Draper concluded that the court action should take precedence over the arbitration proceeding, and outlined a number of specific reasons in the decision.
3. 3Docoute and Zurich Insurance Company, (FSCO P01-00036, July 29, 2002) and Tanzos and State Farm Mutual Automobile Insurance Company, (FSCO P01-00017, November 21, 2001).
4. 4Sverdik and Lombard General Insurance Company of Canada, (FSCO P01-00050, July 29, 2002).
5. 5Persofsky is an ongoing case in which the insurer is challenging an arbitration order based on institutional bias. It argues that, in a system where only insured persons can choose arbitration, there is 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.
6. 6The Docoute case involved an appeal from an arbitration order dismissing Mr. Docoute's claims for accident benefits under s. 24 to pay for the cost of an assessment at DEAHY Medical Assessments Inc. The arbitration also ordered Mr. Docoute to pay the insurer $500 for arbitration expenses and $500 as an assessment under s.282(11) of the Insurance Act. In the appeal decision, the Director of Arbitrations stated that it was clear that Mr. Spiegel personally objected to many aspects of the dispute resolution process, however, he had fallen far short of establishing that the arbitration decision in that case could not stand due to institutional or personal bias. The Director of Arbitrations concluded that the Insurer should recover its expenses in that case on the basis that Mr. Docoute was completely unsuccessful in the appeal and his representative engaged in conduct that needlessly prolonged and hindered the proceedings, including advancing arguments that were manifestly unfounded. The expenses were fixed at $1,500, all inclusive. In addition, Mr. Docoute was ordered to pay $500, in accordance with s.282(11.2), on the basis that the appeal was frivolous, vexatious and abusive. The Order stated that the appeal was "misconceived from the outset, and conducted in an abusive manner, warranting an order at the maximum rate."
7. 7Section 282(11.2) contains the phrase "commences an arbitration" while Rule 70.3 contains the phrase "commenced an arbitration," however, I cannot conclude that the use of the past or present tense of the verb "to commence" implies a different interpretation of those words.
8. 8See the recent case of Duffus and CGU Insurance Company of Canada (FSCO A01-001030, June 14, 2002), and the decisions cited therein.
9. 9This line of reasoning has been adopted by Arbitrator Leitch in a number of his decisions. For example in Nguyen and Scottish & York (FSCO A00-000136, May 10, 2001) he stated that, The distinction drawn by Arbitrator McMahon in Richard and Lombard seems sensible to me. It tends to reduce the potential for section 282(11.2) of the Insurance Act to overlap with the Expense Regulation. In my view, the former is intended to return to the insurer the filing fee which it should not have been required to pay because the application for arbitration should not have been filed in the first place. The latter is intended to indemnify either party (including an insurer) for arbitration expenses (but not the insurer's filing fee) incurred due to the other party's insistence on continuing with the proceeding or any position taken by the other party during the course of the proceeding.
10. 10In Suliman, the issue involved payment for treatment provided by Centre City Health Recovery Inc ("Centre City"). The claim in issue was for one of 14 treatment plans submitted by Centre City. Some of the denied treatment plans had already been through mediation and some had not. The Insurer asked that all of the treatment plans be included as issues in the one proceeding. The Applicant objected, submitting that only the three treatment plans that were mediated should be included in the proceeding. Similar to the argument in this case, Mr. Suliman's representative submitted that his client had the right to proceed with some claims through the arbitration process and to take other claims to a different forum. Arbitrator Blackman disagreed and ordered that all outstanding issues involving Centre City treatment plans be consolidated into one arbitration.
11. 11See Farella and Security National Insurance Company (FSCO A98-001162, June 25, 1999), Jelisic and Guarantee Company of North America (FSCO A98-000029, October 21, 1999), and DAngelo and Wawanesa Mutual Insurance Company (FSCO A99-000797, January 5, 2001). Note, however, that section 127 of the proposed changes to the Insurance Act amends section 282(11.2) to include a provision that allows an arbitrator to order that a representative personally pay all or part of any expenses awarded against a party under certain specified conditions.