Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 56

Appeal P01-00037

OFFICE OF THE DIRECTOR OF ARBITRATIONS

MILRED NUNES

Appellant

and

ST. PAUL FIRE & MARINE INSURANCE COMPANY

Respondent

Before:

David R. Draper, Director of Arbitrations

Representatives:

Mark Rowe (for Mildred Nunes) Gregory P. Heckel (for St. Paul Fire & Marine)

APPEAL ORDER

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

The appeal is dismissed and the arbitration order dated August 15, 2001, is confirmed.
The Appellant shall pay the Respondent's appeal expenses, fixed at $2,000.

April 24, 2002

David R. Draper Director of Arbitrations

Date

REASONS FOR DECISION

I. ISSUE

This is an appeal from an arbitration order dated August 15, 2001, dismissing a claim for the cost of five assessments done through Profile Evaluations ("Profile"), and refusing to order a special award against St. Paul Fire & Marine Insurance Company ("St. Paul").

II. BACKGROUND

Ms. Nunes was involved in an automobile accident on July 13, 1998. She was taking driving lessons when her vehicle was rear-ended at a red light. On the advice of her family doctor, Dr. Gilbert Aarons, she attended seven weeks of physiotherapy at ACT Health Group ("ACT") to treat strains in her neck and lower back. St. Paul paid the cost of this program. The discharge report, dated September 11, 1998, indicates that Ms. Nunes had returned to her pre-accident status and was able to resume all activities of daily living.

Upon completing the physiotherapy program at ACT, Ms. Nunes returned to her pre-accident job as a health care aid at a nursing home, working three to four days per week. In October 1998, shortly after returning to work, she received $600 in full settlement of her claim for accident benefits. In exchange, she signed a release. As set out below, the validity of this release was later challenged.

The situation is complicated by the fact that at the time of her automobile accident, Ms. Nunes had just returned to work following hand surgery. Three weeks before the accident, her orthopaedic specialist, Dr. M. K. Joseph Kwok, reported that her work might be aggravating her hand, and suggested lighter duties or retraining.

In July 1999, one year after the accident, Ms. Nunes had a second hand surgery and stopped accepting shifts at work. She testified that she was unable to work due to a combination of her hand and back problems, but did not tell her employer or Dr. Kwok about any back problems because she was concerned that her job and workers' compensation claim would be jeopardized.¹

At about this time, Ms. Nunes retained a lawyer, Mr. Sal Grillo. In August 1999, a paralegal in Mr. Grillo's office, Ms. Kathryn McRae Hill, sent two faxes to the independent adjuster who had handled the claim on behalf of St. Paul, asking for a copy of his file. On September 23, 1999, Ms. McRae Hill sent another fax, complaining that the adjuster had not responded. St. Paul sent the requested material on October 8, 1999, along with a copy of the settlement documents. Mr. Grillo wrote on October 28, 1999, as follows:

. . . Please be advised that the Release you have in your possession is null and void. Please be further advised that we will be proceeding with our client's claim for indemnification under the SABS [Statutory Accident Benefits Schedule].

Ms. Nunes is being assessed by her chosen treatment provider and an assessment will be sent to you upon completion.

St. Paul did not agree to any further assessments. Instead, it referred to the release and expressed confusion about the type of action being contemplated. Nevertheless, the assessments went ahead. Ms. McRae initiated the referral to Profile, although Dr. Aarons provided his approval. Five assessments were done: attendant care, in-home, and work site assessments in late November 1999, a functional capacity evaluation in December 1999, and a psychological assessment in January 2000. The invoices were sent to St. Paul, but not paid.

Ms. Nunes applied for mediation, represented by Mr. Rod Hare, the co-owner of Profile.² The only issue was the cost of the Profile assessments ($5,800), plus interest. No claim was made for the treatment Ms. Nunes said she paid for out of her own pocket, or any of the services recommended in the Profile assessments. This is difficult to understand and, ultimately, undermined the claim that the assessments were reasonable expenses under s. 24 of the SABS-1996.³

When the dispute was not resolved at mediation, Mr. Hare filed an Application for Arbitration as Ms. Nunes' representative. The amount in dispute had risen to $9,280, plus interest. The additional amount apparently relates to an invoice from Profile dated April 28, 2000, for an "Arbitration Fee Adjustment" of 60 per cent of the outstanding balance. This invoice includes the following explanation:

In accoradance [sic] with the OKA recommended Fee for Service Guideline, fee adjustments are appropriate for individual circumstances when the provision of the service demands exceptional expertise, skill, travel or time, or when other conditions impact on the delivery of the service (i.e. participating in the FSCO ADR process to re-coup payment of past services rendered).⁴

It is difficult to see how this kind of litigation cost can be characterized as a benefit under the SABS-1996. In any event, the matter proceeded to a pre-hearing in September 2000. The pre-hearing arbitrator scheduled a preliminary issue hearing to deal with St. Paul's contention that Ms. Nunes was not entitled to proceed because the claim was settled. He also scheduled a hearing to deal with the substantive issues in the event that the preliminary issue was decided in Ms. Nunes' favour. The main issues for that hearing were Ms. Nunes' entitlement to the cost of the Profile assessments, and her claim that St. Paul should be ordered to pay a special award under s. 282(10) of the Insurance Act for unreasonably withholding or delaying the payment of benefits.

On December 13, 2000, two days before the preliminary hearing, counsel for St. Paul advised the Commission and Mr. Hare that he had instructions to withdraw the preliminary issue, stating that the "insurer therefore admits that the settlement is ineffective as it relates to Ms. Nunes' claims, as advanced in these proceedings." As a result, the preliminary hearing did not go ahead.

The arbitration hearing took place in April 2001, as scheduled. Ms. Nunes testified, as did Mr. Mark Rowe, the other co-owner of Profile,⁵ and Mr. Mark Goodall, St. Paul's claims supervisor. Twelve exhibits were filed, including letters from Ms. McRae Hill and Dr. Aarons that were prepared at Mr. Hare's request. In her letter, Ms. McRae Hill explains her use of the assessment reports:

These assessments were used by me in order to assess this client's benefit entitlement and document to the insurer that indeed the release that their representative had Mrs. Nunes sign was in bad faith and that she indeed needed further treatment and further services that should rightfully be paid by her insurer.⁶

Using wording suggested by Mr. Hare, Dr. Aarons indicated that he signed Profile's referral request form, received and read the five assessment reports, and that they were "required and useful in my overall Management and Understanding of the patient's issues as they relate to this claim."⁷

In a decision dated August 15, 2001, the arbitrator dismissed the claim in its entirety. He found that by the time of the Profile assessments, Ms. Nunes had recovered from her accident-related injuries, and that the assessments "were not intended to establish a useful treatment plan, were not useful for her rehabilitation and were not otherwise useful in respect of some income replacement benefits or other potential claim for accident benefits." As a result, he concluded that they were not reasonable expenses payable under s. 24 of the SABS-1996.

Mr. Hare and Mr. Rowe then filed a Notice of Appeal on behalf of Ms. Nunes as her representatives. Ms. Nunes also signed this form, certifying that she had given Mr. Hare and Mr. Rowe full authority to deal with the issues in dispute.

III. ANALYSIS

Despite the involvement of the Mr. Hare and Mr. Rowe, the issue before the arbitrator was not whether Profile performed services and should be paid. It was whether the assessments were reasonable expenses incurred by or on behalf of Ms. Nunes that St. Paul was required to pay under s. 24 of the SABS-1996. Absent evidence that the assessments were needed to advance a claim for accident benefits beyond the cost of the assessments, the arbitration had little chance of success. While Ms. McRae Hill and Dr. Aarons provided brief statements about the need for the assessments, the arbitrator concluded they did not provide an adequate explanation. This was within his authority and, to the extent it is relevant, I agree.

Let me deal with the specific arguments raised on appeal.

A. Natural Justice

Mr. Rowe acted for Ms. Nunes at the appeal hearing. He claims the arbitrator erred in allowing St. Paul to raise "altogether new grounds" and "completely alter the basis for its argument . . . on the very day of the hearing." I find little strength in this argument. First, it is factually inaccurate. From the outset of the arbitration process, St. Paul raised issues beyond the purported settlement. In its Response to an Application for Arbitration, it challenged Ms. Nunes' level of disability, the connection between any disability and the automobile accident, and the need for the assessments.

Second, the pre-hearing and hearing arbitrators dealt with this issue in a manner that, in my opinion, was appropriate. Following notice that St. Paul was no longer relying on the settlement, Mr. Hare wrote letters to the Commission, claiming that St. Paul should not be allowed to raise any other grounds for its refusal and asking for a preliminary hearing or pre-hearing on this issue. The pre-hearing arbitrator replied on April 3, 2002, as follows:

As best I understand it, you appear to object to the Insurer raising a different reason for its refusal to pay the benefit. Several recent decisions have not limited the Insurer to the initial reasons given for refusing benefits. See Sudah Sivanesan and CIBC Insurance (FSCO A99-000872, January 4, 2001) and, of course, the recent decision involving your treatment facility, Alba Aleman and State Farm (FSCO A00-000498, March 6, 2001). Accordingly, I see no reason for a further pre-hearing nor, in particular, for a preliminary issue hearing.

You may still raise any preliminary objections at the hearing itself.

This is consistent with many decisions holding that the insurer is not strictly bound by its initial reason for refusal. As Director's Delegate Makepeace stated in Tesfai and Allstate Insurance Company of Canada, (FSCO P00-00048, December 21, 2001), "FSCO adjudicators have long recognized that the legislative objective of promoting early claims assessment and ongoing communications between the parties requires that parties be given some leeway in reassessing and developing their positions after the initial refusal."

The written appeal submissions filed on behalf of Ms. Nunes suggest that she did not argue that was St. Paul was precluded from changing its reason for denying benefits, but that it had to provide clear notice of its new position: "In fact, the insured's representatives had not written to object to the insurer's raising new 'reasons' (or new issues for that matter) but rather to the insurer's refusal to present its position or advance any basis for its denial of benefits to the insured after it had withdrawn the sole basis for its denial of the benefits in dispute."

This assertion is doubtful. The letter from Mr. Hare, dated April 2, 2001, to which the pre-hearing arbitrator was responding, states that St. Paul, having withdrawn the only reason given for its refusal to pay for the assessments, "is now statute barred from attempting to bring in other issues that have not already been mediated and failed." This position is also reflected in the following excerpt from the transcript:

THE ARBITRATOR: So you're saying that the Manjat case stands for the proposition that an insurance company is precluded from changing its reasons for bringing forth any evidence on arbitration?

MR. HARE: Yes.⁸

The written appeal submissions also allege that this issue was raised at the arbitration hearing as a preliminary objection, but ignored. It was not ignored. At page 3 of his decision, the arbitrator sets out his reasons for allowing the hearing to proceed:

The Legislature did not intend to limit insurers to the reasons initially used in an assessment form.⁹ Restricting a party's evidence denies effective presentation of their case. While in some cases a party might be surprised by a changed position and consequently unable to develop responsive evidence, this can be dealt with far less drastically through an adjournment to allow the party to address the new evidence or position.

In this case, Ms. Nunes did not argue or present any evidence that she was caught by surprise or that her ability to advance her claims was compromised. She knew that St. Paul was not relying on the release four months prior to the hearing. I declined Ms. Nunes' request to exclude St. Paul's evidence and limit the hearing to her evidence alone.

After the arbitrator released his decision, but before the argument of this appeal, Director's Delegate McMahon dismissed the appeal in Aleman, a case argued by Mr. Hare.¹⁰ In doing so, the Delegate specifically adopted the arbitrator's reasoning in this case, concluding as follows:

I reject the Appellant's argument that an insurer can never go beyond the reasons for denying the claim set out in its initial notice of denial. To my mind, the real question is how to manage the arbitration process so that prior to the hearing the insured person knows the case she must make, and has fair disclosure of the defences that will be raised by the insurer.

The Appellant argues there cannot be fair disclosure unless the insurer files an amended Response to the Application for Arbitration every time it develops a new reason for denying the claim. Likewise, it argues that if the new defence is asserted after the pre-hearing, an additional pre-hearing should be held in every case. The Appellant argues that because neither of these steps were undertaken, the arbitrator erred in considering the additional defences.

The arbitration unit at the Commission has consistently tried to keep formalities to a minimum, and parties are routinely permitted to alter their position without formal amendment. There will be some cases where consideration should be given to holding an additional pre-hearing, but in most cases adequate disclosure and arrangements can be made without this formality.¹¹ The decision to allow or refuse the insurer's request to rely on a new reason for denying the claim, must be made on a case-by-case basis. The overriding factor must be fairness. In most cases, the decision will turn on whether or not the insured person will be unduly prejudiced by the new defence. [pp. 5 - 6]

I agree with this approach. In this case, the arbitrator properly viewed the issue as one of fairness, and I find no reason to second-guess his ruling. Multiple pre-hearings simply are not required or appropriate in every case. The issues here were not particularly complex, nor was the amount in dispute especially large. Despite the impassioned tone of the submissions, it remains unclear to me what information Ms. Nunes and her representatives felt they were lacking. In the circumstances, I conclude that the arbitrator acted well within his authority in deciding to proceed with the hearing as he did.

B. Ms. Nunes' Position at Arbitration

According to the arbitrator, Ms. Nunes claimed that an insured person has "an automatic right to all assessments," and "should be entitled to an assessment for every available benefit . . ,"¹² He rejected this argument, noting that s. 24 of the SABS-1996 requires that the assessment be "for the purpose of the Regulation," requiring a link between the assessment and the insured person's need for some benefit potentially provided in the SABS-1996.

On appeal, Mr. Rowe claims this was never the argument. His suggestion seems to be that Ms. Nunes accepted a narrower reading of s. 24. Given other inaccuracies in the submissions, I am not inclined to accept this assertion. However, even assuming the arbitrator overstated the position taken on behalf of Ms. Nunes, he went on the answer the right question — were the assessments a reasonable expense incurred by or on behalf of Ms. Nunes for the purpose of the Regulation? As a result, there is no error of law.

C. Factual Errors

Appeals are limited to questions of law.¹³ Nevertheless, the bulk of Mr. Rowe's appeal submissions focussed on alleged factual errors. He claimed the arbitrator ignored important evidence supporting the claim, while making findings unsupported by any evidence. In his submission, this amounted to an error of law.

Mr. Rowe did not stop there. He claimed the arbitrator "fabricated evidence." This is an extremely serious allegation that no representative, lawyer or non-lawyer, should make lightly. As an example of the arbitrator's fabrication, Mr. Rowe pointed to the following sentence from page 7 of the decision: "Ms. Nunes' evidence is that her husband helped with any household chores." In his submission, Ms Nunes made no such statement and, in fact, never even said she had a husband.

The record refutes this allegation. In response to a question from Mr. Hare, Ms. Nunes said that she had a husband.¹⁴ Her Application for Accident Benefits also indicates that she is married.¹⁵ Most pointedly, there are no fewer than eight references to Ms. Nunes' husband in the Profile assessments, most reporting that he assisted in some aspect of the housework.¹⁶

Regrettably, this is not the only instance of unfounded, inflammatory allegations. During the appeal hearing, an issue arose about the contents of one of the arbitration exhibits. Mr. Rowe made comments apparently suggesting that the arbitrator, or perhaps the insurer, removed critical pages. While representatives are expected to advance the claims of their clients fearlessly, this type of offhand accusation is entirely inappropriate.

Challenging findings of fact is an uphill task. Even before appeals under the Insurance Act were restricted to questions of law, the Divisional Court cautioned appeal adjudicators about intruding on the arbitrator's fact-finding function.¹⁷In this case, there was ample basis for the arbitrator's doubts about the extent of Mrs. Nunes' accident-related injuries. While a review of the record suggests that some parts of the decision may misstate, or at least overstate, the evidence, I am not persuaded that any such error, even assuming it amounts to an error of law, undermines the result.

Mr. Rowe's strongest argument is that the arbitrator erred in finding that, at the time of the Profile assessments, Ms. Nunes had not received any treatment or treatment recommendations beyond the initial program at ACT. In making this argument, Mr. Rowe attacks the following primary factual findings:

Ms. Nunes testified that she attended chiropractic and massage therapy for her accident injuries in November and December 1999, but she could not remember the name of the clinic or the practitioners . . .

However, Ms. Nunes' [sic] submitted no bills, treatment recommendations, treatment plans, clinical notes or records of clinics or health care providers or reports from any health professional to St. Paul since her initial treatment, and she did not introduce at the hearing any further documentary evidence of continuing treatment since her initial physiotherapy in 1998 . . .

In my view, the record casts doubt on the first excerpt. Although Ms. Nunes' testimony is confusing, the transcript includes many references to Willowdale Physiotherapy, ProMed and a chiropractor named Mr. Scott.¹⁸ As I understand Ms. Nunes' evidence, Dr. Aarons referred her to Willowdale Physiotherapy, where she attended from November 4 to December 15, 1999. When she found that the treatment at Willowdale was making things worse, Dr. Aarons referred her to ProMed. She had about eight massage and chiropractic sessions at ProMed before seeing the Profile psychologist in January 2000, but could not afford to continue.

I find less reason to doubt the second finding. Mr. Rowe submits that the record proves that Ms. Nunes returned to ACT in 1999. In support, he refers to an invoice included in Exhibit 9. In my opinion, this document is equivocal. It refers to services from July 16-31, 1999, but describes the service as "initial assessment visit," with a fee of only $200. In the absence of any explanation of this document in the record, I am not prepared to treat it as confirmation that Ms. Nunes returned to ACT in 1999.

Even if Ms. Nunes' version of the facts is accepted, it raises as many questions as it answers. If the need for treatment at Willowdale or ProMed was clear, why were the Profile assessments necessary? If there was some uncertainty about Ms. Nunes' needs, why not ask Willowdale or ProMed to assess the situation before committing to such extensive assessments? At a minimum, why was there no coordination between the treatment and the assessments?¹⁹ Finally, if the Profile assessments were needed to determine the course of treatment and document a claim for additional accident benefits, why were the recommendations not pursued? As the arbitrator correctly held, the most serious problem was the lack of a clear link between the assessments and any claim for accident benefits other than the cost of the assessments.

D. Special Award

The arbitrator expressed concern that St. Paul had not responded to the claims for payment of the Profile assessments, but found its reliance on the release reasonable. At two points in the decision, he says that St. Paul changed its position on the release based on Court of Appeal decisions imposing strict obligations on insurers in settling accident benefits claims.²⁰ Mr. Rowe challenges this statement, claiming there is no basis for it. I disagree. As the arbitrator clearly states in footnote 4, the explanation came by way of submission. Further, it is consistent with the manner in which the preliminary issue was framed by the pre-hearing arbitrator, focussing on the validity of the release "despite the provisions of section 9.1 of Ontario Regulation 664 (as amended), governing settlements under the Statutory Accident Benefits Schedule." Finally, on cross-examination by Mr. Hare, St. Paul's claims manager also focussed on the technical validity of the release: "Sometimes [sic] after we'd received all the reports from Profile Evaluations we took the position that in point and fact the release as it was completed would probably not be of help, because it wasn't to the form that FSCO required."²¹

There is no basis for a special award in any event. According to s. 282(10) of the Insurance Act, a special award is only available if the insurer unreasonably withheld or delayed the payment of benefits, and the size of the award is based on the amount owing. In this case, the claim was rejected. St. Paul was not obliged to pay for the Profile assessments and, therefore, no special award could be ordered based on its failure to do so.

IV. APPEAL EXPENSES

Subsection 282(11) of the Insurance Act, dealing with expenses, is made applicable to appeals by s. 283(7). It states as follows:

(11) The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of any arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

The criteria are set out in the following subsection of R.R.O. 1990, Reg. 664, as amended:

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:

Each party's degree of success in the outcome of the proceeding.
Conduct of the insurer or insured person that tended to shorten or facilitate the proceeding or that tended to prolong, obstruct, or hinder the proceeding, including failure to comply with undertakings or orders.
Whether the proceeding or any position taken by the insurer or the insured person during the proceeding was manifestly unfounded, frivolous, vexatious, fraudulent or an abuse of process.
The degree of complexity, novelty or significance of the factual or legal issues raised in the proceeding.
If the insurer or the insured person requests, any written offers to settle made after the conclusion of mediation and before the conclusion of the arbitration in accordance with the rules of practice and procedure applicable to the proceeding, including the terms of the offers, the timing of the offers and the responses to the offers, having regard to the result of the proceeding.
Any other matter related to the proceeding that the arbitrator considers relevant to the issue of whether an award of expenses is justified.

Applying these criteria, I conclude that St. Paul should recover its appeal expenses. This was a weak claim from the outset and, while I am not prepared to characterize the entire appeal as frivolous and vexatious, it had little chance of success. I am also influenced by the fact that the inaccuracies in Mr. Rowe's submissions prolonged the process, requiring St. Paul to respond to arguments that should not have been made. Finally, some of the specific arguments, particularly Mr. Rowe's suggestion that the arbitrator "fabricated evidence," were frivolous or vexatious.

St. Paul submits that although Ms. Nunes is responsible for the actions of her representatives, it would be more appropriate for the true litigants, Mr. Hare and Mr. Rowe, to bear the cost. It argues that s. 12(2)6 of O. Reg. 664, set out above, and s. 23.1 of the Statutory Powers

Procedure Act, R.S.O. 1990, c. S-22, set out below, are broad enough to allow such an order:

(1) A tribunal may make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its processes.

St. Paul also relies on the Ontario Court of Appeal decision in Television Real Estate Ltd. v. Rogers Cable T.V. Ltd. (1997), 1997 CanLII 999 (ON CA), 34 O.R. (3d) 291. In that case, the Court held that although s. 131 of the Courts of Justice Act does not provide a basis for awarding expenses against a non-party, the court has inherent jurisdiction to make such an award where three conditions are met: the non-party had status to bring the action himself; the plaintiff was not the true plaintiff; and the plaintiff was a "man of straw" put forward to protect the non-party from liability for costs.

Although I find St. Paul's suggestion attractive, I am not persuaded I have authority to award costs against Mr. Hare or Mr. Rowe. Neither is a "party," an "insurer," or an "insured person," the terms used in the legislation. Nor does the Television Real Estate decision assist. Even assuming I have inherent jurisdiction in respect of expenses, a doubtful proposition, the conditions established in that case are not met here. Most significantly, this is not a claim that Mr. Hare and Mr. Rowe could have brought on their own, or on behalf of Profile. According to s. 281(1) of the Insurance Act, only "the insured person" can refer a dispute to arbitration. Therefore, Ms. Nunes is responsible for the appeal expenses, which I fix at $2,000, all inclusive.