Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2003 ONFSCDRS 163

Appeal P02-00031

Appellant

and

Respondent

Before:

David R. Draper

Representatives:

David S. Wilson for Ms. Howden

Grant R. Dow for Pembridge

Hearing Date:

July 18, 2003

APPEAL ORDER

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

The appeal from the arbitration order, dated October 16, 2002, is allowed in part. Paragraph 2 is revoked and replaced with the following:
Pembridge shall pay to Ms. Howden a special award fixed at $5,000.
The appeal from the arbitration order, dated January 23, 2003, is allowed in part. The order is revoked and replaced with the following:
Pembridge shall pay to Ms. Howden arbitration expenses fixed at $38,966.98.
If the parties cannot agree on appeal expenses, they may request a determination by writing to the Commission within 30 days of this order, as set out in Rule 79.1 of the Dispute Resolution Practice Code.

November 20, 2003

David R. Draper Director of Arbitrations

Date

REASONS FOR DECISION

Pembridge Insurance Company ("Pembridge") appeals from arbitration orders dated October 16, 2002 and January 23, 2003. It claims the Arbitrator erred in law in ordering it to pay the following:

income replacement benefits ("IRBs") beyond the 104-week mark;
a special award of 50 per cent of the outstanding benefits, including accrued interest;
arbitration expenses assessed at $39,058.98.

For reasons that follow, the appeals in respect of the special award and arbitration expenses are allowed in part. The appeal in respect of IRBs is dismissed.

Lorna Howden was involved in an automobile accident on October 5, 1998. She suffered soft tissue injuries to her right arm that restricted her ability to do heavy lifting or use that arm or hand for extended periods. Pembridge accepted that she could not return to work as a health aide, a physically demanding job she had done for 19 years, and paid her IRBs for 104 weeks under paragraph 1 of s. 4 of the SABS-1996.¹

At that point, the test changed. According to s. 5(2)(b), IRBs are not payable for "any period longer than 104 weeks of disability, unless, as a result of the accident, the insured person is suffering a complete inability to engage in any employment for which he or she is reasonably suited by education training or experience." Pembridge was not satisfied that Ms. Howden met this test, and notified her of its intention to terminate her benefits. Ms. Howden applied for mediation. When mediation did not resolve the dispute, she applied for arbitration. The main issues in dispute were Ms. Howden's entitlement to IRBs beyond the 104-week mark, and her assertion that Pembridge should be ordered to pay a special award because it unreasonably withheld or delayed the payment of benefits.

Ms. Howden also applied for interim benefits. In a decision dated August 31, 2001, Arbitrator Sandomirsky denied the application. She was not persuaded on the evidence before her that Ms. Howden had made out a prima facie case for entitlement, or that there was sufficient evidence of urgency to justify an interim order.

The arbitration hearing started in November 2001. It was unusually lengthy, involving 10 hearing days, with extensive written submissions filed in April 2002. Ms. Howden then asked that the hearing be reopened, but her motion was denied. The Arbitrator released his decision on October 16, 2002. He ordered Pembridge to pay IRBs beyond 104 weeks, and a special award at the maximum amount allowed by the legislation — 50 per cent of the outstanding benefits, including accrued interest. The parties were unable to agree on arbitration expenses. Consequently, the Arbitrator issued another decision, dated January 23, 2003, ordering Pembridge to pay Ms. Howden's arbitration expenses in the amount of $39,058.98. Pembridge appeals all three aspects of the Arbitrator's orders — IRBs, special award and expenses.

A. Income Replacement Benefits

Pembridge submits that the Arbitrator erred in law in concluding that Ms. Howden met the post-104 week test. It makes two arguments. First, it contends that the Arbitrator misinterpreted the test, setting the bar too low. Second, it submits that he failed to deal with essential portions of the evidence that did not support his conclusion.

The Arbitrator started by analyzing the "complete inability" test in s. 5(2)(b) of the SABS-1996. He held that it is essentially the same as the "substantial inability" test used in previous versions of the SABS, with any difference being, at best, a matter of nuance. I disagree. The phrase, "substantial inability," is not just used in earlier legislation, it is the centerpiece of the test for initial entitlement to IRBs found in paragraph 1 of s. 4 of the SABS-1996. If the Arbitrator's interpretation were correct, there would be little, if any, difference between the pre and post 104-week tests. This is contrary to the structure of the legislation. As in the SABS-1990, entitlement to weekly benefits is established in one section, with the insurer being relieved from paying benefits after a certain period unless the insured person can establish that he or she meets a different, stricter test.²

Other arbitrators have interpreted the "complete inability" test in s. 5(2)(b) in a manner that, in my view, is more consistent with the legislation. In Lombardi and State Farm Mutual Automobile Insurance Company, (FSCO A99-000957, April 11, 2000), confirmed on appeal, Arbitrator Sampliner considered the various disability tests used in the legislation, concluding as follows:

Three distinct levels of injury or disability appear in the 1996 Schedule. A " catastrophic impairment" is the most severe and has a specific definition. The phrases "substantial inability" and "complete inability" are undefined, but each has been interpreted in previously noted cases. I find that the drafters did not intend for there to be a similarity between these two because otherwise there would be no need for both.

I am persuaded from the review of the various no-fault legislation and the case law that the drafters of the 1996 Schedule intended all three phrases to operate as a continuum. I find that "complete inability" does not require the degree of impairment that is as high as a "catastrophic impairment" so as to preclude legitimate claims for ongoing disability, nor so low as a "substantial inability," as that would encourage specious claims after the first 104 weeks.

Thus, two themes emerge from the current regime's use of the term "complete inability." First, I find that the grammatical arrangement of the phrase modifies "any employment," distinctly referring to the range of all suitable jobs. Second, I find that the Legislature intended to raise the standard beyond a relatively sizable inability for each job. [p. 8, footnotes omitted]

Other arbitrators have adopted the approach taken in Lombardi. For example, see Terry and Wawanesa Mutual Insurance Company, (FSCO A00-000017, July 12, 2001); Horne and CIBC Insurance, (FSCO A00-000291, December 20, 2001); L.F. and State Farm Mutual Automobile Insurance Company, (FSCO A00-000364, August 21, 2002), under appeal; and Patrick and State Farm Mutual Automobile Insurance Company, (FSCO A01-000981, December 31, 2002).

In short, while the line between the "substantial inability" test in paragraph 1 of s. 4 of the SABS-1996 and the "complete inability" test in s. 5(2)(b) may be difficult to draw, the latter is a stricter test.

This might suggest that the Arbitrator's decision cannot stand. However, on page 8, he states as follows:

Even if, as some suggest, the threshold, post 104 weeks, should be found to be much enhanced from the Bill 68 level (see Lombardi and State Farm Mutual Insurance Company, FSCO A99-000957 April 11, 2001), I am prepared to find, for the reasons that follow, that Ms. Howden would still have a complete inability to engage in any employment for which she is reasonably suited by education, training or experience.

Such an assurance generally would not be sufficient to satisfy the losing party that the proper test had been applied. In this case, however, the Arbitrator went on to make findings that addressed the stricter test. His decision leaves little doubt about his conclusion that Ms. Howden had no viable employment options. He found that due to her limited general skills and narrow employment history, the injury to her right arm left her with no ability to engage in any employment without upgrading her numeracy and literacy skills.

Pembridge also submits that the Arbitrator made factual errors and ignored essential evidence that contradicted his conclusion. After reviewing the record, including the transcripts, I am satisfied the evidence supports the Arbitrator's conclusion. Most importantly, he was entitled to prefer the opinions presented by Mr. Robert W. Katz, the vocational expert who gave evidence on behalf of Ms. Howden.³ Given the frailties in the evidence presented by the experts retained by Pembridge, the Arbitrator had every reason to do so. As a result, I am not prepared to interfere with the order that Pembridge pay IRBs beyond the 104-week mark. Pembridge's submissions about the evidence, in my view, have more bearing on the special award, which is addressed below.

III. SPECIAL AWARD

The authority to order a special award comes from s. 282(10) of the Insurance Act, which reads as follows:

(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time benefits first became payable under the Schedule.

The Arbitrator found that Pembridge unreasonably withheld the payment of benefits to Ms. Howden and ordered it to pay a special award at the maximum amount allowed by the legislation. His reasons end with the following explanation:

I find, therefore, that, at the latest, by June 2001, the Insurer ought to have realized that it had based its assessment on erroneous assumptions, and that Ms. Howden's skill levels were much less than considered by either Dr. Siegel or Cameron Adams-Webber. The Insurer essentially closed its eyes to alternative, credible evidence that did not support its preconceptions. By failing to address that evidence the Insurer ceased to deal with the claim in a balanced and reasonable manner.

Consequently, the Insurer, by not paying benefits post 104 weeks, unreasonably withheld its benefit payments from Ms. Howden. Pursuant to subsection 282(10) of the Insurance Act, it should be subject to a special award.

In light of the clarity and the multiplicity of attempts by Mr. Katz to draw the attention of the Insurer to the inadequacies of the selected jobs, the contumacious approach taken by the Insurer, and the length and complexity of this unnecessary hearing, I find that the Insurer should be subject to a full special award of 50 per cent of the outstanding benefits, including accrued interest. (p. 28)

I conclude that the Arbitrator's order cannot stand. The most obvious reason is that it is inconsistent with my appeal decision in Persofsky and Liberty Mutual Insurance Company, (FSCO P00-00041, January 31, 2003). Although Persofsky was issued after the Arbitrator released his decision, it was properly raised in the appeal and must be considered.

In Persofsky, I held that it was inappropriate to order a special award expressed as a percentage of benefits owing, plus interest. This clearly affects the Arbitrator's order, which requires Pembridge to pay "a special award of 50 per cent of the outstanding benefits, including accrued interest." However, the analysis in Persofsky also affects the Arbitrator's decision to order a special award at the maximum amount allowed by the legislation. I held that "[w]hile arbitrators must consider the gravity of the insurer's conduct, and may want to locate it along a continuum, it is not sufficient to assign a percentage without determining whether the amount that flows from the resulting calculation is appropriate." In this case, there is no consideration of whether the maximum amount, when quantified, is appropriate.

In many cases, it would be appropriate to send the matter back to the arbitrator to fix the amount based on his or her assessment of the facts. Stargratt and Zurich North America Canada, (FSCO P01-00045, March 31, 2003) provides a recent example. In my view, however, there are other problems with the order that must be addressed.

First, as discussed above, the Arbitrator misstated the test for IRBs after 104 weeks. This suggests that when it came to evaluating Pembridge's conduct, he may have had the wrong test in mind. As Pembridge submits, if the Arbitrator had the proper test in mind, he might have viewed its behaviour as "closer to the line" and ordered a smaller special award, or none at all.

Second, I conclude that the Arbitrator failed to consider all the relevant factors in ordering a special award at the maximum. According to the Arbitrator, Pembridge's main failing was in not reconsidering its decision as more information became available. The question is whether, and at what point, Pembridge should have known that its position was untenable and reversed its decision.

The Arbitrator found that the essential facts about Ms. Howden's situation were established quite early. She had an injury to her right arm that was not likely to improve, and prevented her from engaging in the kind of heavy, physical work she did before the accident. The dilemma was that Ms. Howden had spent her whole career, some 25 years, working as an aide in nursing homes. That is where her interest and experience lay, so alternatives were not obvious.

By the summer of 2000, roughly three months before the 104-week mark, Dr. Peter Parker, a physiatrist retained by Pembridge to conduct a number of insurer medical examinations, reported that Ms. Howden would not be able to return to her old job, and suggested that "[g]iven her young age and the unlikelihood of finding modified duties at her previous place of employment, consideration should be given to job retraining." Dr. Pierre Kirwin, a consultant in Physical Medicine who saw Ms. Howden on referral from her family doctor, expressed a very similar view. He agreed that Ms. Howden's condition had stabilized and that she should look into retraining.

As the 104-week mark approached, Pembridge arranged for an assessment of Ms. Howden's vocational options. This was done through a three-step process. Ms. Kendra Robinson conducted a functional abilities evaluation ("FAE") on September 15, 2000. Then, based on the results of the FAE, Dr. Jonathan E. Siegel did a vocational assessment on September 21, 2000. Finally, Ms. Robinson reviewed Ms. Howden's functional ability to pursue the options identified by Dr. Siegel. This strikes me as a sensible approach, and the Arbitrator did not suggest otherwise.

At the arbitration hearing, Ms. Howden questioned the choice of Dr. Siegel. She alleged that Pembridge knew or ought to have known that appointing Dr. Siegel would result in a biased and meaningless report. The Arbitrator rejected this argument. However, he went on to find that, as additional information became available, Pembridge should have reconsidered its position.

One piece of information was the arbitration decision in Bogojevski and State Farm Mutual Insurance Company, (FSCO A97-001568, February 15, 2001), a decision issued after Dr. Siegel prepared his report, but before the arbitration hearing started. Arbitrator Alves recorded negative comments made by Dr. N.C.S. Doxey about the accuracy and impartiality of a report prepared by Dr. Siegel. While the Arbitrator acknowledged that Pembridge was not involved in Bogojevski, and that Arbitrator Alves did not make a specific finding that Dr. Siegel was biased, he found that "as of the date of the hearing, and clearly by the date of the decision being issued by Arbitrator Alves, there were facts available, on the public record, concerning Dr. Siegel's reliability, that, if reviewed, ought to have raised questions on the part of the Insurer."

In my opinion, the Arbitrator's reliance on Bogojevski was inappropriate. First, it is unclear to me what facts were available "as of the date of the hearing," before Bogojevski was issued. Second, and more importantly, the only fact disclosed in Bogojevski is that Dr. Doxey made negative comments about Dr. Siegel's report. The sole reference to Dr. Siegel in Arbitrator Alves' assessment of the evidence is found in the following paragraph:

Generally, I prefer the evidence of Mrs. Bogojevski's health practitioners, most of whom have seen Mrs. Bogojevski frequently and over time. Their explanations for her problems seem to correlate well with her actual history. I find they have provided a realistic assessment of the Applicant's pre and post-accident difficulties. In particular, I prefer the evidence of Drs. Cheung, Ko, Kachooie, Doxey and Butler to that of Drs. Urovitz, Nathanson, Mah Margulies and Siegel. The Applicant's witnesses have persuaded me on a balance of probabilities that the injuries she sustained in the motor vehicle accident in August 1995 significantly contributed to her physical and emotional disability. I find that the Applicant is physically unable to perform her job because of chronic myofascial pain in her neck, shoulders and upper body. Her job requires her to make frequent upper body motions. Mrs. Bogojevski is also unable to stand for six or seven hours as required by her job. I also find that the pain from her injuries has led to her depression, which in turn intensifies her perception of the pain, leading to increased disability. Thus, her chronic pain, depression and her soft tissue injuries all interact to prevent her from working as she did pre-accident. I accept the evidence of Dr. Digby and Dr. Kachooie that the most important contributing factor to Mrs. Bogojevski's ongoing disability is the August 1995 motor vehicle accident. In my view, the presence of her pre-existing problems does not eliminate the motor vehicle accident as a material contribution to Mrs. Bogojevski's disability. (p. 24)

I agree that parties are well advised to pay close attention to the professional reputations of the experts they choose to engage, including any judicial and arbitral assessments. However, I do not see how Pembridge can be criticized for relying on Dr. Siegel based on a decision that merely accepts a different set of opinions, without commenting negatively on his qualifications, competence or impartiality.

The Arbitrator also criticized Pembridge for failing to respond to other information. He found that by June 2001, Pembridge had information that "contradicted some of Dr. Siegel's assumptions." The main issue was Ms. Howden's educational level. In Dr. Siegel's report dated September 29, 2000, he reported as follows:

Ms Howden indicated that she was born in Jamaica on December 1, 1954. She immigrated to Canada in 1971. Ms. Howden indicated that she completed high school in Jamaica. In Canada, Ms. Howden stated that she took additional night courses, including Grade 11 English and Grade 10 math. Ms. Howden indicated that she earned a Health Care Aide Certificate from Sheridan College, graduating in 1976 or 1977 (estimate). Ms. Howden completed the program on a part-time basis.

I note that Dr. Siegel testified that he simply recorded what Ms. Howden told him, including her educational background. The Arbitrator did not make any finding to the contrary.

The contradictory evidence came from Mr. Katz, who was retained by Ms. Howden. In his report, dated February 22, 2001, Mr. Katz stated that Ms. Howden attended Mearnsville Primary School in Jamaica until she was 16 years old. He also noted that following her arrival in Canada in 1971, she enrolled in two grade 10 courses. Significantly, Mr. Katz did not disagree with Dr. Siegel's conclusions based on his misunderstanding of Ms. Howden's educational background. In fact, he did not even comment on the discrepancy in this report.

Although Mr. Katz's report was prepared in February 2001, Pembridge did not get a copy right away. The Arbitrator found that Mr. Cameron Adams-Webber, who was retained by Pembridge in June 2001 to do a vocational assessment, received a copy of Mr. Katz's report. The Arbitrator held that at this point, Pembridge "should have noted the serious discrepancy between Mr. Katz's and Dr. Siegel's view of Ms. Howden's educational achievements." To the contrary, he found no evidence that Pembridge or Mr. Adams-Webber made any enquiries into the matter.

On appeal, Pembridge submits that the Arbitrator erred in concluding that it acted unreasonably in continuing to rely on Dr. Siegel's opinion. It claims that he failed to consider the evidence in an even-handed manner,⁴ ignored significant evidence,⁵ and made at least one factual error.⁶

While I find strength in these arguments, they take me a considerable distance down the road of re-evaluating the evidence. That is not my role and, in any event, I find it unnecessary. The reason is that, in my opinion, the sequence of events in this case is determinative.

As set out above, Pembridge stopped paying IRBs in October 2000 — the 104-week mark. At that point, Ms. Howden could have asked for an assessment by a Designated Assessment Centre ("DAC"). If the DAC had found her disabled, Pembridge would have been obliged to resume paying IRBs.⁷ However, Ms. Howden did not take this option. Instead, she applied for mediation. To her credit, she did so promptly. When mediation did not resolve the dispute, she immediately applied for arbitration. When the pre-hearing was scheduled for June 19, 2001, Ms. Howden brought a motion for interim benefits.

It was at this point, in June 2001, that Pembridge first had any access to Mr. Katz's report. The Arbitrator recognized this by criticizing Pembridge's failure to re-evaluate its position from this time on. As set out above, he found that, "at the latest, by June 2001, the Insurer ought to have realized that it had based its assessment on erroneous assumptions, and that Ms. Howden's skill levels were much less than considered by either Dr. Siegel or Cameron Adams-Webber."

In my opinion, the Arbitrator erred in failing to consider Ms. Howden's motion for interim benefits. At the pre-hearing, this motion was scheduled for August 21, 2001. All of the critical reports were available, including reports from Dr. Parker, Ms. Robinson, Dr. Siegel, Mr. Adams-Webber and Mr. Katz, and were submitted to Arbitrator Sandomirsky, the arbitrator hearing the interim benefits motion. This gave Ms. Howden an opportunity to challenge Pembridge's position, which she did. She argued, as she did at the main hearing, that the employment positions suggested by Dr. Siegel were not reasonable options. She claimed that she was not trained in areas in which she had an interest and, therefore, without further training, her only options were dead-end jobs that paid significantly less than her pre-accident employment.⁸

If the interim benefits decision had gone against Pembridge, there might have been room to criticize its failure to reconsider its position in June, when it received Mr. Katz's report.

However, that is not what happened. Arbitrator Sandomirsky refused to order interim benefits on the basis that Ms. Howden had not established a prima facie case or sufficient urgency. It is difficult to understand how, in the face of this decision, Pembridge's refusal to pay IRBs can be viewed as unreasonable.

The remaining question is whether Pembridge acted unreasonably in maintaining its position throughout the hearing. There is no doubt that its case was substantially undermined during the course of the hearing. In particular, the cross-examination of Dr. Siegel, the bulk of which took place on February 18, 2002, the seventh day of the hearing, was devastating. While litigation is complicated, with parties making many tactical decisions along the way, there is evidence to support the Arbitrator's view that Pembridge's continued reliance on Dr. Siegel became untenable at this point. Therefore, I conclude that the special award should be reduced, not revoked entirely.

In its appeal submissions, Pembridge states that the maximum special award ordered by the Arbitrator amounts to approximately $25,000. Ms. Howden did not make any submissions to the contrary. Therefore, I take this as the maximum. Considering the factors set out in Persofsky, particularly the relatively short period that the withholding of benefits can be viewed as unreasonable, I conclude that the special award should be fixed at $5,000, all inclusive. As this is the amount Pembridge was ordered to pay pending the release of this decision, no further amount is payable.

Although not essential to the decision, I will deal briefly with two other objections raised by Pembridge. First, it submits that the Arbitrator erred in suggesting it had been accused of bad faith. This stems from the Arbitrator's statement that: "While, from a strictly financial viewpoint, the non-payment of benefits by an insurer may be eminently reasonable, an insurance company has obligations to more than its shareholders." Read in context, I am persuaded that the Arbitrator was simply exploring the meaning of "unreasonable" for the purpose of interpreting the special award provision in s. 282(10) of the Insurance Act, not commenting on Pembridge's actions in this case. Consequently, I find no error.

Second, Pembridge submits that the Arbitrator erred in relying on the affidavit of Doug Morgan, its Senior Staff Claims Consultant. It argues that this affidavit was prepared for the interim benefits motion and filed for that purpose. It was not marked as an exhibit at the arbitration hearing and, therefore, Pembridge was unaware that it formed part of the case it had to meet on the issue of a special award. In Pembridge's submission, this was contrary to the rules of natural justice and s. 15.1 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, which states:

15.1 (1) The tribunal may treat previously admitted evidence as if it had been admitted in a proceeding before the tribunal, if the parties to the proceeding consent.

There is no doubt that the parties are entitled to know what evidence is before the arbitrator. However, because arbitration is meant to be less formal than court proceedings, the rules are less detailed. The Dispute Resolution Practice Code does not include a specific rule governing the status of documents filed in interim proceedings. In my view, however, various rules suggest that the hearing arbitrator can only rely on evidence that he or she has admitted in the context of the arbitration hearing. For example, Rule 39.3 states that "[t]he hearing arbitrator will determine the relevance, materiality and admissibility of evidence submitted at the hearing . . ." Also, Rule 56.4 defines the appeal record as including "the record of the arbitration hearing, including all arbitration exhibits and, if it is filed, the transcript of the arbitration hearing."

In this case, it is clear the Arbitrator was attuned to the need for clarity about the exhibits. The transcript includes numerous discussions about the manner in which documents should be introduced and marked as exhibits.⁹ However, there is no discussion about the documents filed for purposes of the interim benefits motion. As a result, I find considerable strength in Pembridge's position that it was taken by surprise by the Arbitrator's reliance on Mr. Morgan's affidavit. The question is whether this was a serious error, undermining the decision. In my view, it was not. The Arbitrator provided a number of reasons for finding Pembridge's conduct unreasonable, with the affidavit playing no role in most of those findings. At page 27 of the decision, the Arbitrator specifically states that Ms. Howden's direct evidence was sufficient to support a special award. Therefore, if this had been Pembridge's only ground of appeal, I would not have reduced the award.

IV. ARBITRATION EXPENSES

Ms. Howden claimed arbitration expenses of $40,483.93. The Arbitrator substantially accepted her claim, reducing it by only $1,745.95. The reductions were for an expert report that exceeded the maximum, and a treatment plan filed by Mr. Katz, who is not a health practitioner and, therefore, not entitled to file a treatment plan.

In its appeal, Pembridge challenges two aspects of the Arbitrator's order — expenses that pre-dated the mediation, and the expenses related to retaining another lawyer to handle part of the proceeding.

A. Expenses Prior to Arbitration

Arbitration expenses are awarded under s. 282(11) of the Insurance Act, which provides 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 an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

There is no corresponding section for mediation expenses. The relevant regulation for arbitration expenses is R.R.O. 1990, Regulation 664. The criteria for awarding expenses are found in s. 12(1), while the expenses that can be awarded are set out in a schedule to the regulation. In addition to various disbursements, the Schedule authorizes the following expenses relevant to this appeal:

(1) The legal fees payable by the insured person or the insurer for the following matters may be awarded:
For all services performed before an arbitration, appeal, variation or revocation hearing.
For the preparation for an arbitration, appeal, variation or revocation hearing.
For attendance at an arbitration, appeal, variation or revocation hearing.
For services subsequent to an arbitration, appeal, variation or revocation hearing.

The Schedule reads somewhat differently before November 1996.¹⁰ No one suggests, however, that the change in wording affects this appeal.

Starting in 1992, with Ajzenstadt et al. and CAA Insurance Company (Ontario) et at., (OIC A-000185, A-000076, A-000162, A-000250, A-000206 and A-000355, February 6, 1992),¹¹ arbitrators have consistently held that expenses incurred during the mediation process are not recoverable. For example, in Epps and Co-Operators General Insurance Company, (OIC A-002340, September 3, 1993), Arbitrator Mackintosh held that:

Unlike "expenses incurred in respect of an arbitration proceeding", there is no specific provision in the Insurance Act or its regulations pertaining to expenses incurred in respect of mediation at the Commission. It would have been an easy matter for the legislature to have expressly included such a reference. The omission of expenses related to mediation must be given some significance in the overall legislative scheme. I excluded this time when reducing the claim for 164 hours of preparation time prior to the hearing. (p. 9)¹²

More recently, Arbitrator Blackman has taken a somewhat different approach. In Cruz and Royal & SunAlliance Insurance Company of Canada, (FSCO A00-001179, September 14, 2001), the insured person's claim for arbitration expenses included a claim for $361.82 (4.8 hours @ $75.38 per hour) for work done by counsel, up to and including mediation. Arbitrator Blackman acknowledged the previous decisions, but allowed the claim, holding as follows:

There has, however, been a consistent trend in the Commission to encourage earlier preparation and production exchange. The present Dispute Resolution Practice Code, Fourth Edition, May 31, 2001, reiterates the need for early production exchange well before the pre-hearing in addition to the new requirement that in the Application for Arbitration, the parties must list both the key documents in their possession and set out the key documents each side intends to obtain from the other side.

Given the new short publicly announced time line of six to eight weeks between registration of a completed Application for Arbitration and the arbitration pre-hearing discussion (and short time lines between the pre-hearing and the hearing date), it is implicit that for there to be meaningful use of the pre-hearing discussion and expeditious movement through the arbitration system, preparation in relation to the arbitration (such as obtaining necessary documents from third parties including clinical notes and records, OHIP summaries, filed income tax returns, etc.) and necessary document exchange must start well in advance of the filing of the Application for Arbitration, indeed, perhaps well in advance of the mediation being held, in anticipation that same may fail to resolve the issues in dispute. Requiring early preparation and production yet not allowing compensation for such legal services, would appear to be counter-productive and contrary to the intent of the Dispute Resolution Practice Code and the Insurance Act. (pp. 7 - 8)

Arbitrator Blackman revisited the issue in Lacroix and Elma Mutual Insurance Company, (FSCO A99-000158, February 12, 2002). In that case, the insured person claimed arbitration expenses, including "an unspecified amount of work done during the mediation process." The Arbitrator referred to his decision in Cruz, stating as follows:

. . . As discussed, in part, in the expense decision in Cruz and Royal & SunAlliance Insurance Company of Canada (FSCO A00-001179, September 14, 2001), I am of the view that work done during mediation in respect of a future arbitration proceeding, and specifically regarding document exchange, should be compensable in order to encourage and acknowledge the early exchange of necessary documentation. (p. 8)

On the facts of the case, Arbitrator Blackman did not allow any expenses for work done during mediation because he found that the insured person's counsel did not follow through on undertakings related to document production.

In this case, Ms. Howden's claim for arbitration expenses was based on a Bill of Costs that included the following entries that pre-dated the application for arbitration (edited):

DATE	ITEM	TIME EXPENDED
January 22, 2001	Telephone conversation with Robert Katz	.2 hrs
January 23, 2001	Telephone conversation with Robert Katz; review of file and correspondence to Robert Katz	.5 hrs
January 24, 2001	To telephone conversation	.1 hr
February 8, 2001	To conducting mediation; memo to DSW; preparation of application for arbitration; correspondence to client and Robert Katz;	6 hrs

In response to Pembridge's argument that mediation expenses are not recoverable, the Arbitrator held as follows:

. . . While it is highly questionable whether all mediation expenses are recoverable, it is reasonable to anticipate that some compensable activity will take place prior to the filing for arbitration. In this case, in retrospect, it must have been apparent that, given the positions taken by the Insurer, the mediation would not resolve the matter.

Since mediation is a necessary pre-condition to arbitration, I see no reason why reasonable ancillary expenses and preparation for the failed mediation should not also be applicable to the arbitration and thus subject to an expense order.

More obviously, of course, there is the preparation for the filing and the creation of the application for arbitration document itself. Indeed, since there is a significant penalty for the filing of an arbitration that is frivolous or vexatious, it is anticipated that counsel will thoroughly review a file prior to filing to avoid such consequences, a review which must take place prior to the filing for arbitration.

Consequently I find that the specific expenses claimed which were incurred prior to the filing of the application for arbitration were reasonable and necessary to the arbitration and should be paid. The only time which could not be compensable is that directly occupied by the mediation proceeding itself. I would therefore deduct two hours from the bill of expenses as a disallowance of the time spent in mediation. (p. 5)

This statement of the law is even broader than the approach in Cruz and Lacroix. It largely ignores the distinction between mediation and arbitration, apparently treating everything other than the mediation meeting itself as "expenses incurred in respect of an arbitration proceeding," the phrase used in the Insurance Act. In my opinion, the legislation cannot reasonably bear this interpretation. Mediation is a distinct step. Because the insured person can choose to go to either court or arbitration following a failed mediation, mediation cannot be viewed as part of the arbitration process. For whatever reason, the legislators have chosen not to provide for mediation expenses, and that must be respected.

Under the current legislation, an arbitration proceeding is not commenced until one of the parties files an application. While I have no difficulty with the proposition that steps taken after the mediation directly related to completing the arbitration application are part of the arbitration proceeding, expenses that precede the mediation are doubtful at best. In this case, I find no legal basis for the Arbitrator's conclusion that the pre-mediation expenses are recoverable. To the extent that the result turned on the Arbitrator's view that the mediation in this case had no chance of succeeding, I find that an inappropriate consideration. Mediation is a mandatory step. Parties are expected to participate in good faith and, in my experience, many cases that look hopeless at the outset can be resolved.

The Arbitrator attributed two hours for the mediation meeting. I find no reason to second-guess this assessment. Therefore, I am not prepared to interfere with the Arbitrator's conclusion that Ms. Howden is entitled to four of the six hours spent on February 8, 2001. However, I conclude that he erred in awarding expenses for the work done on January 22, 23 and 24, 2001. As a result, the expenses order will be reduced by $92.00 (0.8 hours at $115 per hour).

For these reasons, the expenses order will be reduced to $38,966.98. Assuming that Pembridge complied with my interim order, set out in a letter dated March 7, 2003, to pay the Arbitrator's expenses order forthwith, Ms. Howden is required to repay the difference. I note that she was alerted to this possibility in my letter.

B. Outside Counsel

Ms. Howden's Bill of Costs included $1,720.03 for the services of outside counsel. Most of this amount was based on the services provided by one lawyer, charged at $150 per hour. The Arbitrator allowed this expense, stating: "From the date of his call to the bar [1996], Mr. Isaacs does not appear to be a neophyte in legal matters. It is, therefore, appropriate that the Insurer pay his expenses at the rate claimed [$150 per hour]."

Pembridge submits that the Arbitrator erred in awarding the full amount of the expenses claimed for outside counsel for the following reasons:

It was unreasonable to order legal fees at the maximum rate of $150 for someone called to the bar in 1996.
The Arbitrator failed to deal with acknowledgment by Ms. Howden's lawyer that $115 per hour would be an appropriate rate given outside counsel's limited experience.
The Arbitrator failed to deal with its submission that the fees should be reduced because the outside counsel had no instructions and declined to discuss settlement, one of the purposes of the pre-hearing.
The Arbitrator failed to deal with the duplication in the work done by Ms. Howden's lawyer and the outside counsel.
The Arbitrator failed to address its submission that the outside counsel's account included preparation for a motion that did not proceed.

I find merit in these submissions. In particular, the test articulated by the Arbitrator for awarding counsel fees at the maximum rate — not a "neophyte in legal matters" — seems quite low. However, appeal adjudicators have recognized the need to assess arbitration expenses based on an overall assessment of the case and the way it was handled by the parties.¹³ Arbitrators are in the best position to do this. I agree with the deferential approach taken in previous appeal decisions, and am not prepared to interfere in this case.

V. APPEAL EXPENSES

The parties did not address the question of appeal expenses. If they are unable to reach an agreement, they may request a determination by writing to the Commission within 30 days of this order, as set out in Rule 79.1 of the Dispute Resolution Practice Code.