Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 71 Appeal: P00-00038

OFFICE OF THE DIRECTOR OF ARBITRATIONS

JOE FALCO Appellant

and

CONTINENTAL INSURANCE COMPANY and PAFCO INSURANCE COMPANY LIMITED Respondents

Before: Stewart M. McMahon, Director's Delegate

Counsel: Paul Barrafato (for Mr. Falco) Albert Conforzi (for Continental) Derek E. Wilson (for Pafco)

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.
The parties shall bear their own expenses associated with the appeal.

May 15, 2002

Stewart M. McMahon Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

The Appellant, Mr. Falco, appeals from an order dismissing his claim for further income replacement benefits (IRBs). Section 7(1)1 of the SABS-1994¹ provides that this benefit is payable if the insured person "suffers a substantial inability to perform the essential tasks" of his employment. The central issue at the arbitration was the nature of Mr. Falco's employment duties, and a determination of his "essential tasks." Mr. Falco submits that the arbitrator erred in rejecting the assertion that his essential tasks included heavy physical labour. Mr. Falco also appeals the arbitrator's treatment of his post-accident income. Finally, Mr. Falco submits that the arbitrator erred in not adjourning the proceeding until an assessment was conducted by a Designated Assessment Centre (DAC).

II. BACKGROUND

Mr. Falco was injured in a motor vehicle accident on January 26, 1994. He was subsequently injured in another motor vehicle accident on December 4, 1995. The Respondent, Continental Insurance Company ("Continental"), insured him with respect to the first accident. The Respondent, Pafco Insurance Company Limited ("Pafco"), insured him with respect to the second accident.

Continental paid Mr. Falco IRBs for approximately two years. Pafco refused to pay IRBs. Mr. Falco filed separate Applications for Arbitration seeking ongoing benefits from each Respondent.

Mr. Falco had been self-employed for many years as the owner/operator of a small construction company. There was no dispute that he was responsible for virtually all the administrative tasks, and supervised the operations of the company. He was able to resume these duties within a few weeks of the first accident, and the second accident did not impair his ability to undertake these tasks. However, Mr. Falco submitted that before the first accident he also worked alongside his crews, operating machinery and doing manual labour. Mr. Falco has not resumed these activities. He argued that they should be included among his "essential tasks." The Respondents did not accept this assertion and maintained that Mr. Falco did very little physical work, and what work he did do, should not comprise part of his essential tasks.

The arbitrator rejected Mr. Falco's claim. She stated that in the past, Mr. Falco may have been actively involved in physically demanding tasks, but she found that in the year or so before the accident, he did little physical work, and that his essential tasks should be defined solely by reference to his administrative and supervisory tasks. Based on this finding, she dismissed his claim for further IRBs. For the reasons set out below, I find no basis for interfering with the arbitrator's conclusions on this question.

The parties settled the question of Mr. Falco's pre-accident income in the midst of the hearing, but they could not settle the question of his post-accident income. The arbitrator heard evidence on this issue from Mr. Falco. She was also given reports prepared by accounting firms retained by Mr. Falco and Continental. Mr. Falco's records were incomplete, which made it difficult to ascertain his post-accident income. Ultimately, the arbitrator preferred Continental's evidence on this point, including its decision to "annualize" his post accident income, rather than trying to match it week for week against his benefits.

Mr. Falco's counsel acknowledged during the course of the appeal argument that the evidence before the arbitrator did not permit a week-by-week analysis of his client's post-accident income. Based on this, he conceded the arbitrator did not err in using the annualized approach with respect to deductions from benefits that had already been paid. However, he submitted that if Mr. Falco were awarded further benefits, a new accounting should be done to allow for a "proper" matching. Given that I have dismissed Mr. Falco's appeal on the entitlement issue, I need not consider this accounting issue further.

Finally, Mr. Falco argued, at the arbitration stage, that Continental had not followed the procedure mandated by s.64 of the SABS, when it stopped paying benefits. In particular, he claimed that Continental failed to respond to a request that it arrange an assessment at a Designated Assessment Centre ("DAC") and accordingly, was not authorized to terminate benefits. In the rather peculiar circumstances of this case, the arbitrator found that it was appropriate to continue with the hearing notwithstanding that a DAC report had not been issued, and Mr. Falco was not entitled to interim benefits. Mr. Falco has not appealed the denial of interim benefits, but submits that the arbitrator erred by not adjourning the hearing until a DAC assessment was conducted. For the reasons set out later in this decision, I find no error in the arbitrator's conclusions on this issue.

III. STANDARD OF REVIEW

Because Mr. Falco's Applications for Arbitraton pre-date the Bill 59 amendments to s.283(1) of the Insurance Act, R.S.O. 1990, c.I.8, the arbitrator's decision may be appealed on questions of fact and law.

Mr. Falco cites the Ontario Court of Appeal's decisions in D 'Costa v. Mortakis (2000), 47. O.R. (3d) 417, and Equity Waste Management Canada v. Halton Hills (Town) (1997), 1997 CanLII 2742 (ON CA), 35 OR. (3d) 321, for the proposition that an appellate body may interfere with findings of fact where the record discloses a lack of appreciation of relevant evidence, or where the trier of fact makes a finding not reasonably supported by the evidence, or draws an unreasonable inference. However, the quotations found in the Appellant’s factum omit the opening words of the respective paragraphs, which affirm the deference that should be afforded to a trial court’s findings of fact. For example, in D Costa, the Court of Appeal relies on the Supreme Court of Canada's decision in Harper v. R., 1982 CanLII 11 (SCC), [1982] 1 S.C.R. 2. The text of the entire quote as found in D 'Costa is as follows:

An appellate tribunal has neither the duty nor the right to reassess evidence at trial for the purpose of determining guilt or innocence. The duty of the appellate tribunals, however, includes a review of the record below in order to determine whether the trial Court has properly directed itself to all the evidence bearing on the relevant issues. Where the record, including the reasons for judgement, discloses a lack of appreciation of relevant evidence and more particularly the complete disregard of such evidence, then it falls upon the reviewing tribunal to intercede.

Likewise, the full passage from Equity Waste Management reads as a caution to appellate tribunals. It states:

Deference to a trial judge’s findings of fact is a well-established principle of appellate review. An appellate court should not interfere with the trial judge’s findings of fact, unless the trial judge has made a 'palpable and overriding error' or a 'manifest error' or a 'clear error." As Iacobucci J. observed in Canada (Director of Investigations & Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, 144 D.L.R. (4th), these phrases amount to review on a standard of unreasonableness.

Continental’s factum contains the following statement from Director’s Delegate Naylor’s decision in Sharma and Pilot Insurance Company, (OIC P96-000021, May 14, 1998):

Previous cases have established that, even where there is a complete transcript, my role on appeal is limited. It is not to second-guess the arbitrator's evaluation of the evidence nor to substitute my own view of the weight to be attributed to it. Factual findings, particularly those resting on an assessment of credibility, will not be disturbed unless the arbitrator has made some serious error, such as ignoring material evidence, considering irrelevant factors or reaching findings that are unsupported on the evidence

This concise statement of the Director's powers on appeal is in keeping with judicial comment. It is the appropriate standard to be applied in this case.

IV. THE ARBITRATOR'S DECISION AND THE ARGUMENTS ON APPEAL

Did the arbitrator err in her determination of what activities should be included in the list of Mr. Falco's essential tasks?

The arbitrator received evidence concerning Mr. Falco's pre-accident activites from four principal sources: the description provided by Mr. Falco in his Application for Accident Benefits, Mr. Falco's testimony, the testimony of former employees and customers, and comments recorded in his family doctor's clinical notes and records.

When Mr. Falco completed the Application for Accident Benefits he included a list of physical tasks associated with construction work. He did not mention administrative or supervisory tasks.

Mr. Falco stated at the arbitration hearing that he spent 90 to 95 percent of his time on-site, doing " everything," including physical labour and operating heavy machinery. However, he also testified that he did all the administrative tasks, such as preparing tender documents and dealing with customers, suppliers and sub-contractors. In addition, he stated that he supervised his employees.

The arbitrator noted the discrepancy between the tasks listed on the Application, and the description Mr. Falco provided at the hearing. She rejected Mr. Falco’s assertion that he did not list his management duties in the Application due to space constraints. She concluded that he had misrepresented his essential tasks when he completed the Application. She stated that this adversely affected her view of his testimony.

Mr. Falco challenges this finding of fact. He relies on the Divisional Court’s decision in Re Pitts and Director of Family Benefits Branch of the Ministry of Community & Social Services (1985), 1985 CanLII 2053 (ON HCJ), 51 O.R. (2d) 302, for the proposition that the existence of discrepancies should not result in the witness being discredited automatically. He submits that the arbitrator erred in law by discrediting him inappropriately.

I am not persuaded that the arbitrator erred. It is true that a trier of fact errs if she automatically rejects a witness’s testimony on the basis of a discrepancy. The trier of fact must consider innocent explanations for the discrepancy before concluding the evidence is unreliable. In this case, the arbitrator considered Mr. Falco’s explanation for the discrepancy, but ultimately rejected it. She was entitled to do so, and it is not for me to second guess this finding. In addition, I note the arbitrator bolstered her decision on this point by commenting negatively on other aspects of Mr. Falco’s testimony, which suggested to her that his evidence was generally unreliable. I am satisfied the arbitrator had sufficient reason to discount the value of Mr. Falco’s testimony relating to his pre-accident duties, and that she provided sufficient reasons for her decision.

Mr. Falco also challenges the arbitrator's consideration of the other witnesses' evidence on this issue.

Mr. Falco called three witnesses. He called the manager of a Zeller's store who testified about his observations of Mr. Falco during snow clearing operations. He also called a client who hired him to do home renovations. The only employee Mr. Falco called was his brother, Mr. Angelo Falco. None of these individuals could testify concerning Mr. Falco's duties in the year preceding the accident: the manager moved to another store about a year before the accident; the customer had hired Mr. Falco three years before the accident; and Mr. Falco's brother worked for someone else in 1993.

The Respondents called three former employees. Only one of these individuals worked for Mr. Falco in 1993. This left the arbitrator with little evidence regarding Mr. Falco's duties in the period leading up to the first accident.

Ultimately, the arbitrator preferred the Respondents' evidence. She stated that Mr. Falco's witnesses "did not strongly support his evidence concerning the extent of his physical work." On the other hand, she found that Continental's witnesses "provided a more realistic view of Mr. Falco's work." She found that "Mr. Falco was not part of work teams on sites, [and] that he spent the largest portion of his time off-site generating business, procuring contacts, dealing with customers and supervising and overseeing work projects."

The arbitrator referred to each of these witnesses individually and provided a brief summary of their evidence and her impressions. It is fair to say that her summaries do not capture all of the nuances of the witnesses' evidence, but I see no basis for interfering with her findings. The arbitrator considered the relevant evidence and weighed it. Another arbitrator may have interpreted the evidence as suggesting that Mr. Falco did more physical labour while he was on site, but the testimony on this question was often vague and sometimes contradictory. The arbitrator considered the testimony in light of the other evidence and came to conclusions that are supportable.

Mr. Falco's most important complaint was with respect to the arbitrator's treatment of the evidence concerning the operation of heavy machinery. Mr. Falco testified that he and his brother operated the heavy machinery. Mr. Falco's brother's evidence was consistent with this, although he admitted on cross-examination that he could not say who operated the machinery after he left his brother's company. The three witnesses called by the Respondents testified that they did not operate the machinery. Mr. Falco argued on appeal, that the natural inference was that he was the only one operating the machinery. This inference could have been drawn, but I do not think it was inevitable. Among other things, the arbitrator had to consider the fact that Mr. Falco did not call a single employee to testify about his activities in the year immediately preceding the accident.

The absence of any direct corroborative evidence about Mr. Falco's activities in the year immediately preceding the accident, became particularly important in light of what was revealed in the family doctor's clinical notes. The arbitrator noted in the decision that the clinical records contain references to the following: seizure-like episodes, severe headaches, hypertension, alcoholism, depression, borderline diabetes, heart palpitations, obesity and a sore neck, hip and knee flexion problems which produced pain in the mid-back. She stated she was "persuaded that the poor state of Mr. Falco's health before the 1994 accident was a likely factor in limiting his physical abilities."

During the appeal, Mr. Falco noted that the Respondents had not filed a medical report that specifically addressed his pre-accident physical abilities. He submitted that in the absence of such a report, the arbitrator erred in concluding he had a pre-existing condition that prevented him from engaging in hard physical labour, or operating heavy machinery. I do not read the decision in these stark terms. The arbitrator stated only that she was satisfied that his pre-accident health was "a likely factor in limiting his physical abilities." In my view this was a permissible inference to draw from the records, even in the absence of any direct medical opinion. More importantly, the medical records were not considered in isolation. The records were a single piece of evidence that was considered in the context of the evidence as a whole.

In a similar vein, Mr. Falco argued the arbitrator erred in failing to review the medical reports generated after the accident. Mr. Falco claimed that he readily admitted to the doctors who treated and assessed him after the accident, that he had extensive management responsibilities, and this fact undermines the suggestion that he was attempting to deceive the Respondents. Mr. Falco referred to three such reports in his oral submissions. Only one contains anything more than a passing remark about his pre-accident activities. I have had the benefit of reviewing the written submissions filed by the parties at the conclusion of the arbitration hearing. Mr. Falco did not refer to any of these reports in the portion of these submissions that dealt with the nature of his pre-accident duties, suggesting he did not think they were terribly crucial to the argument. The arbitrator cannot be expected to refer to every piece of evidence. I am not convinced that this evidence was so important that the arbitrator’s failure to refer to it should result in her decision being set aside.

Mr. Falco also argued that the arbitrator erred in failing to differentiate between Mr. Falco’s activities during the summer, and his activities in the winter, when most of the work involved snow-clearing. He submits there was no basis for rejecting his evidence concerning what he did during the winter months. I fail to see how this argument advances Mr. Falco’s case in any material way. On cross-examination, he admitted that in general, he would direct the work crew performing snow-clearing operations, and perform clean up duties in a truck. Mr. Falco testified that he could not operate heavy machinery which has no shock-absorbing features. However, nothing in the materials presented to me on appeal, suggests that as of the time benefits were stopped, Mr. Falco was incapable of doing the lighter work associated with directing snow removal crews, or operating a pick-up truck. In addition, the snow removal operation was a rather modest part of the company’s revenues, and I question whether an inability to do this limited activity would justify ongoing benefits.

Finally, Mr. Falco argued that the arbitrator erred in taking a snap-shot of his condition immediately before the accident, rather than taking a longer view of his circumstances. I see no merit in this submission. The arbitrator did not take a snap-shot. She tried to assess the nature of Mr. Falco's essential tasks over a reasonable period of time. The selection of the period is a matter of judgement to be exercised by the arbitrator. Using the period of a year or so pre-accident was quite appropriate.

In conclusion, I am not persuaded that there are grounds for interfering with the arbitrator's findings on this issue. The arbitrator considered the evidence, applied the appropriate law, and gave sufficient reasons for her findings.

Did the arbitrator err in proceeding with the arbitration hearing in the absence of a report from a Disability DAC?[^2]

On the eve of the arbitration hearing Mr. Falco brought a motion seeking an adjournment of the hearing and interim benefits. He argued that he had asked for a DAC assessment, but Continental had failed to arrange one. He submitted that the arbitration hearing should be adjourned until the assessment was arranged and conducted, and that he should receive benefits in the interim.

The motion was heard by the arbitrator at the commencement of the hearing. It proceeded on the basis of correspondence and records only. The arbitrator dismissed the motion at the conclusion of the argument.

The records reveal that following a notice from Continental in October 1995, that it intended to terminate benefits, Mr. Falco asked for a DAC as he was entitled to do. Continental continued his benefits and scheduled the DAC for early December. However, four days before the assessment, Mr. Falco was involved in the second accident. The arbitrator notes that the ensuing correspondence revealed a disagreement over whether Mr. Falco should attend the DAC in light of the injuries he sustained in the second accident. Ultimately, he did attend, but the assessment did not take place. Subsequent correspondence left some doubt about whether Mr. Falco attended, but refused to participate in the assessment, or whether the DAC refused to conduct the assessment without prior clearance from Mr. Falco’s family doctor. Shortly thereafter, Continental sent out a further notice of its intention to terminate benefits that contained the usual advice that a DAC could be requested. Mr. Falco’s counsel replied by requesting another DAC, but it is common ground that Continental did not respond. It is also common ground that Mr. Falco never provided a note from his doctor clearing him to participate in a DAC assessment.

The arbitrator stated that based on the limited evidence before her, she was not in a position to determine if Continental had complied with the stoppage provisions of s.64. However, she went on to state that even if Continental had not complied, it would not have been reasonable to adjourn the hearing. Because she did not make a finding on whether Continental had complied with its obligations, she declined to make a ruling on whether or not Mr. Falco would have been entitled to interim benefits.

In large measure, the arbitrator rejected the request for an adjournment because the matter had not been pursued in a timely fashion. I agree with the arbitrator’s decision. To put the matter in context, a brief review of the proceedings is necessary.

By the time IRBs were terminated in early 1996, Mr. Falco had already applied for arbitration with respect to the amount of the benefit. A pre-hearing was conducted in April 1996 at which time the hearing was scheduled to commence in late September 1996. Shortly before the hearing, Mr. Falco’s lawyer sent a letter to Continental’s lawyer, apparently in anticipation of a conference with a FSCO official regarding an adjournment of the upcoming hearing. In that letter, Mr. Falco's lawyer referred to the DAC issue. The letter from FSCO confirming that an adjournment had been granted refers only to the need to adjourn the hearing to allow Mr. Falco to secure financial documentation. A pre-hearing was scheduled for November 1996, and the hearing was scheduled for March 1997. There is nothing in the materials to suggest that Mr. Falco raised the DAC issue with the adjournment officer, or asked for a preliminary ruling on whether Continental was obliged to arrange a DAC or to pay benefits in the interim.

The arbitrator's letter following the November pre-hearing confirms that the hearing would deal with both entitlement and quantum, and re-confirms the hearing date. Again, there is nothing in the letter to suggest that Mr. Falco sought a preliminary ruling compelling Continental to conduct a DAC, or that he sought to adjourn the proceedings pending the DAC, or any indication that he was seeking interim benefits.

In February 1997, Mr. Falco asked for a further adjournment to allow for a joint hearing with respect to both accidents. In July 1997, a further pre-hearing was conducted that involved Mr. Falco's counsel and counsel for Continental and Pafco. A hearing date was scheduled for April 1998. In March 1998, Mr. Falco requested a further adjournment to allow him to secure financial documentation. FSCO allowed the adjournment and scheduled the hearing for June 1999. Mr. Falco did not raise the DAC issue on either of these occasions, or ask for any form of preliminary hearing.

Finally, on the eve of the June 1999 hearing, approximately three years after benefits had been terminated, Mr. Falco brought a motion to adjourn the hearing until a DAC was arranged, and for interim benefits pending release of the DAC report.

As noted above, the arbitrator heard the motion at the commencement of the hearing. She stated that she was unable to ascertain if the Insurer had breached its obligation to schedule a DAC, but, more importantly, she concluded that given the lengthy delays that had already occurred, adjourning the hearing would not be appropriate. She stated that adjourning the hearing would only multiply past errors and increase expenses. She also questioned the value of a DAC report conducted three years after Mr. Falco’s benefits had been terminated.

After the arbitrator advised the parties that the adjournment request was denied, Mr. Falco’s counsel indicated that as a result of the decision, he had a potential conflict of interest with his client. Counsel requested an adjournment so that Mr. Falco could seek independent legal advice. The arbitrator allowed the adjournment, but indicated that the medical evidence would be limited to what the parties had generated to date. She also indicated that on the resumption, she would entertain further evidence from the parties concerning what happened at the time of the aborted DAC assessment. She stated that she would consider this evidence in the context of the demand for a special award.

On the resumption, the arbitrator received a little more evidence about what happened when Mr. Falco attended at the DAC, but because she did not order any further benefits, the question of a special award became moot, and she did not make any further findings on whether or not Continental had breached its obligations.

Mr. Falco initially appealed the arbitrator’s decision to deny the adjournment, and the arbitrator’s refusal to make an order for the payment of interim benefits pending release of a DAC report. However, during oral argument, Mr. Falco indicated that he was pursuing only the adjournment issue. Mr. Falco argued that the decision should be set aside and the matter remitted to another arbitrator once a DAC assessment was conducted.

Mr. Falco argued on appeal that the provisions of s.64 are mandatory and once he asked for a DAC, Continental was obliged to arrange one and to continue benefits in the interim. He argued that he had an unassailable right to a DAC, and the arbitrator’s refusal to grant an adjournment deprived him access to "important medical evidence."

Mr. Falco is correct when he asserts that s.64 provides a mandatory code regarding the termination of IRBs on the basis that the insured person is no longer disabled. At the heart of these provisions is s.64(3), which provides that the insured person may challenge the insurer's decision to terminate benefits by electing a DAC assessment. If the insured elects to attend a DAC, the insurer must continue paying benefits pending release of the report. However, s.64(14) allows the insurer to suspend benefits if the insured person requests an assessment, but then fails to submit to it.

In this case, the analysis was complicated by the fact that there was a second accident. There is nothing in the otherwise comprehensive scheme set out in s.64 to indicate what happens if the insured person in unable to participate in a DAC assessment due to a subsequent event. The situation was further complicated by the fact that Mr. Falco stated he could not participate in the first DAC, but a few weeks later when Continental offered the possibility of a second DAC he took up the offer, but did not provide any indication that his condition had improved to the point where he could participate. Ultimately, however, this begs the real question the arbitrator had to grapple with, namely was Mr. Falco entitled to an adjournment of the hearing.

Section 64 is concerned with procedure. Subsection 64(3) is designed to bridge the gap between the insurer's notice of termination and the DAC assessment by providing an uninterrupted flow of benefits pending release of a DAC report. However, this procedural provision does not guarantee entitlement to benefits. See Henry and Allstate Insurance Company of Canada (OIC P96-00064, July 23, 1997). The provision works well if the parties co-operate in arranging the DAC, or at least are diligent about dealing with any disagreement over whether the provisions have been complied with. It is unworkable if, as here, the insured person sits on the argument for years.

There is no absolute necessity that a DAC assessment takes place in every case. The insured person may elect a DAC, or they may elect to proceed directly to arbitration without a DAC assessment. If the insured person is already in the midst of an arbitration, when a disagreement over the right to a DAC assessment arises, they should move expeditiously to have that issue resolved, or risk the possibility that they will not be granted an adjournment.

At best, Mr. Falco alerted Continental to the possibility of the argument, but then took no steps to pursue it, despite having numerous opportunities to ask an arbitrator to adjourn the proceedings and to seek a determination of whether or not Continental was obliged to arrange a DAC assessment. Given that he did not avail himself of any of them, he has little basis for complaining that the arbitrator did not adjourn a proceeding that had already been adjourned three times at his behest.

Delaying the hearing further and requiring Continental to pay the benefits that had accrued over the three years that the case had slowly been working its way to a hearing, would have been inappropriate.

Granting an adjournment is inherently a matter of discretion that should not be interfered with lightly. I see no basis for interfering with the arbitrator’s exercise of her discretion.

Mr. Falco attempted to rely on s.71.1(b) which prohibits an insured person who has requested a DAC assessment, but then failed to attend, from applying for mediation. He argued that because completing a mediation is a pre-condition to pursuing arbitration, if the insured has not attended a DAC, the arbitrator has no authority to proceed with the arbitration. I do not see how this provision assists Mr. Falco. It is designed for the protection of the insurer, not the insured person. Mr. Falco agreed on at least three occasions to set the matter down for an arbitration hearing, notwithstanding that he had not yet been to a DAC. It does not behove him now to argue that a hearing should not have been scheduled.

Mr. Falco’s appeal on this issue is dismissed.

V. EXPENSES

Mr. Falco's appeal had little chance of success. I can appreciate that he believes the arbitrator came to the wrong conclusions about his pre-accident duties, and other arbitrators may have viewed the matter differently, but that does not provide a basis for overturning the arbitrator's order. She had ample evidence on which to base her findings. With respect to the termination argument, there may have been some basis for asserting it, if it had been pursued in an appropriate fashion, but it had virtually no chance of success given that it was raised three years after the fact. In the circumstances, the parties shall bear their own expenses associated with the appeal.