Financial Services Commission
Commission des services financiers de l’Ontario
Neutral Citation: 2003 ONFSCDRS 9
Appeal P00-00041
OFFICE OF THE DIRECTOR OF ARBITRATIONS
LIBERTY MUTUAL INSURANCE COMPANY
Appellant
and
MOLLY R. PERSOFSKY
Respondent
and
INSURANCE BUREAU OF CANADA ONTARIO TRIAL LAWYERS ASSOCIATION and MINISTRY OF FINANCE
Intervenors
Before:
David R. Draper, Director of Arbitrations
Representatives:
Eric T. Sigurdson for Liberty Mutual Jeremy R. Solomon for Mrs. Persofsky S. Gordon McKee for Insurance Bureau of Canada Stewart C.E. Gillis for Ontario Trial Lawyers Association Leslie M. McIntosh for Ministry of Finance
Hearing Dates:
July 9, 10 and 11, 2002
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 allowed in part. Paragraph 8 of the arbitration order dated June 23, 2000 is rescinded. The other paragraphs are confirmed.
I remain seized of:
(a) the determination of the amount of the special award; and
(b) the issue of appeal expenses and, if necessary, arbitration expenses.
January 31, 2003
David R. Draper Director of Arbitrations
Date
REASONS FOR DECISION
I. NATURE OF THE APPEAL
Liberty Mutual Insurance Company (“Liberty Mutual”) appeals from an arbitration order dated June 23, 2000. While this decision deals with Mrs. Persofsky’s claims for caregiver benefits, housekeeping services, and various supplementary medical and rehabilitation benefits, the focus of the appeal is on the Arbitrator’s order that Liberty Mutual pay a special award under 282(10) of the Insurance Act for unreasonably withholding or delaying the payment of benefits. The order states as follows:
Liberty Mutual Insurance Company shall pay Molly Persofsky a special award under section 282(10) of the Schedule [sic] of 40 per cent of the amounts to which she is entitled for housekeeping and for care as of this date, together with interest on all amounts owing to her (including unpaid interest), at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule. On the swimsuit claim, Liberty Mutual shall pay a special award of 50 per cent. On all other amounts owing, Liberty Mutual shall pay a special award of 30 per cent.
Liberty Mutual does not challenge the imposition of a special award. Instead, it objects to the amount, claiming that:
the Arbitrator erred in law in basing her special award on a percentage of the benefits owing rather than determining an appropriate penalty based on all the relevant factors and ordering a lump sum;
the Arbitrator erred in law in issuing an order that is vague and cannot be determined with any confidence, even with the assistance of accountants;
to the extent it can be determined, the special award is unreasonably large in relation to the purposes of s. 282(10) of the Insurance Act, previous special awards and punitive damage judgments issued by the courts; and
in assessing the amount of the special award, the Arbitrator erred in considering industry standards, a test that is not part of the legislation and was not addressed by either party.
Liberty Mutual also makes a broader argument, potentially affecting the entire arbitration order. It contends that the use of full-time government employees as arbitrators raises a reasonable apprehension of institutional bias or, alternatively, a reasonable apprehension of individual bias. The basis of this argument, according to Liberty Mutual, is that in a system where only insured persons can choose arbitration, there is a reasonable apprehension of bias if full-time arbitrators, who rely on this type of work for their livelihood, do not have security of tenure and, as a result, have an interest in encouraging insured persons to choose arbitration, and an ability to do so through their decisions.
For reasons that follow, I am not persuaded this case raises a reasonable apprehension of bias. However, I conclude that the Arbitrator erred in issuing an order that is imprecise and does not clearly represent an appropriate measure of Liberty Mutual’s failings.
II. BACKGROUND
On March 18, 1992, Mrs. Persofsky was involved in an automobile accident. She suffered a torn rotator cuff in her left shoulder and soft-tissue damage in her lower back. Unfortunately, the impact on her life was particularly serious due to a pre-existing medical condition. Since birth, Mrs. Persofsky has had a shortened right arm and minimal use of her right hand. According to the Arbitrator, this meant that she used her left arm and hand for everything. Consequently, the importance of a “painful and significant disability of her left arm” is obvious.1
At the time of the accident, Mrs. Persofsky was working as a computer installation and support supervisor at the head office of Shoppers Drug Mart. Her adult daughter, Wendy, was living with her. Wendy did not have a job, but as discussed below, she started working at Goodman’s China in June 1992. She earned $8.00 per hour, and continued working there until September 1992.
Shortly after the accident, Mrs. Persofsky applied to her automobile insurer, Liberty Mutual, for benefits under the SABS-1990.2 Liberty Mutual accepted that she was unable to return to work, and paid her income replacement benefits (“IRBs”). Because Mrs. Persofsky was also entitled to benefits from a group disability plan and the Canada Pension Plan, her IRBs were reduced to approximately $150 per week. There has never been any dispute about IRBs, which continued to be paid at the time of the arbitration hearing.
Six years after the accident, Mrs. Persofsky retained her current lawyers. They presented claims for personal care, housekeeping and home maintenance services dating back to 1992, totalling $103,226.18.3 These claims, submitted in May 1998, were based on services provided by Wendy, as follows:4
Attendant care provided by Wendy Persofsky, June 30, 1992 to May 14, 1998 (305 weeks + 3 days x $176/wk = $53,755.43)
Total Amount
Housekeeping and home maintenance services provided by Wendy Persofsky, June 30, 1992 to May 14, 1998 (305 weeks + 3 days x $162/wk = $49,470.75)
$ 53,755.43
$ 49,470.75
$103,226.18
Mrs. Persofsky provided Liberty Mutual with two agreements in support of these claims. Both are dated May 14, 1998, and set out arrangements between her and Wendy. The first states that because Mrs. Persofsky was unable to attend to her personal care due to injuries sustained in the accident, they agreed that Wendy would be paid $8.00 per hour for her services which, from June 30, 1992 to May 14, 1998, involved 22 hours per week. The second agreement is similar. It states that because Mrs. Persofsky was unable to attend to her housekeeping and home maintenance chores, they agreed that Wendy would be paid $8.00 per hour for her services which, from June 30, 1992 to May 14, 1998, involved an average of 20.25 hours per week.5
The relevant sections of the SABS-1990 provide as follows:
6.-(1) The insurer will pay with respect to each insured person who sustains physical, psychological or mental injury as a result of an accident all reasonable expenses resulting from the accident within the benefit period set out in subsection (3) for,
(f) other goods and services, whether medical or non-medical in nature, which the insured person requires because of the accident.
7.-(1) The insurer will pay with respect to each insured person who sustains physical, psychological or mental injury as a result of an accident, for the care, if any, required by the insured person,
(a) the reasonable cost of a professional caregiver or the amount of gross income reasonably lost by a person other than the insured person as a result of the accident in caring for the insured person; and
(b) all reasonable expenses resulting from the accident in caring for the insured person after the accident.
Liberty Mutual refused to pay Mrs. Persofsky’s claims for care, housekeeping and home maintenance on the basis that the cost was not reasonable or necessary. Mrs. Persofsky applied for mediation on these issues, along with some others. Two separate mediations were held. The Reports of Mediator, dated September 9, 1998 and May 31, 1999, set out the issues that were not resolved. Mrs. Persofsky applied for arbitration in July 1999, raising all of the unresolved claims. Following the pre-hearing process, where the issues were further clarified and productions addressed, the matter was scheduled for hearing in April 2000.
Less than a month before the arbitration, the Court of Appeal issued a decision that cast some doubt on the manner in which Mrs. Persofsky’s claims were framed — Monachino v. Liberty Mutual Fire Insurance Company (2000), 2000 CanLII 5686 (ON CA), 183 D.L.R. (4th) 577, 47 O.R. (3d) 481, 20 C.C.L.I. (3d) 127. The issue in that case was whether the insured person, Mr. Monachino, was entitled to benefits under the SABS-1990 for the time his family spent caring for him and providing household services such as cooking, cleaning, laundry and shopping. The Court concluded (2:1) that no benefits were payable. It held that s. 7(1)(a) only covers the cost of services provided by a professional (lost income was not an issue). With respect to Mr. Monachino’s alternative claim that the costs were recoverable under s. 7(1)(b) or s. 6(1)(f), the Court concluded that the value of services performed by family members was not an “expense” within the meaning of the SABS-1990.6
It appears that, in light of Monachino, the focus of Mrs. Persofsky’s claim under s. 7(1)(a) shifted from a claim for Wendy’s time, to a claim for her lost income. This is reflected, at least to some extent, in her lawyer’s opening statement and the material filed.7
Arbitrator Palmer released her decision on June 23, 2000. On the care benefits issue, she found that Wendy reasonably lost income from October 1, 1992 (when she stopped working at Goodman’s) to December 31, 1997 (when she was no longer capable of providing proper care). The Arbitrator distinguished Monachino and ordered Liberty Mutual to pay the reasonable cost of a professional caregiver for the periods not covered by Wendy — June 15, 1992 to September 30, 1992, and from January 1, 1998, ongoing. She also ordered Liberty Mutual to pay housekeeping expenses at the rate Mrs. Persofsky claimed, but only for the periods that Wendy was not providing care.
In her decision, Arbitrator Palmer is quite critical of Liberty Mutual’s handling of the file. She states in three places that it failed to ensure that Mrs. Persofsky was aware of the benefits available to her and received the services she needed. Her assessment of the case is captured in the following excerpt:
In my view, Liberty Mutual never properly implemented its role as Mrs. Persofsky’s statutory accident benefits insurer. It is apparent on a review of the adjuster’s notes and some of the health professionals’ assessments that Mrs. Persofsky’s claim has been adjusted throughout as if it were a third party claim, not the claim of one of its own insureds for first party statutory accident benefits. From the outset, Liberty Mutual has vacillated between sitting and waiting for Mrs. Persofsky to present claims for accident benefits and wanting to become actively involved in directing her rehabilitation. Mostly it sat and waited. [p.12]
The resulting order is lengthy. However, because the details are important to the issues raised in the appeal, I will set it out in its entirety:
Liberty Mutual Insurance Company shall pay Molly Persofsky $320 per week from October 1, 1992 to December 31, 1997 for the gross income reasonably lost by Wendy Persofsky as a result of the accident in caring for Molly Persofsky.
Liberty Mutual Insurance Company shall pay Molly Persofsky $352 per week from June 15, 1992 to September 30, 1992 and from January 1, 1998, ongoing, as the reasonable cost of a professional caregiver for the care she requires as a result of the accident.
Liberty Mutual Insurance Company shall pay Molly Persofsky $160 per week from May 8, 1992 to September 30, 1992 and from January 1, 1998, ongoing, for housekeeping services which she requires because of the accident.
Liberty Mutual Insurance Company shall pay Molly Persofsky interest on $160 per week of the amounts in paragraph 1 from June 8, 1992 and on the remainder of the amounts in paragraphs 1 and 2 from June 20, 1998. Liberty Mutual Insurance Company shall pay interest on the amounts in paragraph 3 from June 8, 1992. Interest is payable at the rate of 2 per cent per month, according to the provisions of section 24(4) of the Schedule [SABS-1990].
Liberty Mutual Insurance Company shall pay Molly Persofsky $700 per year for miscellaneous handyman chores, under the provisions of subsection 6(1)(f) of the Schedule.
Liberty Mutual Insurance Company shall pay Molly Persofsky $6,000 for an electrically-operated bed; $102.35 for a swimsuit; the amount required for an electric wheelchair or motorized scooter and batteries, estimated at $3,600; $6,000 for an interior chair lift and $100 for maintenance of the chair lift, annually; $400 for a driving assessment; $13,038.99 for a residential weight reduction program plus transportation costs and $1,630 for a consulting nutritionist once weekly for one year; and $8,365.26 for the services of Rehabilitation Network Canada.
Liberty Mutual Insurance Company shall pay Molly Persofsky interest on the amounts set out in paragraphs 5 and 6, as provided in subsection 24(4) of the Schedule. The interest on the services of Rehabilitation Network Canada runs from December 29, 1998.
Liberty Mutual Insurance Company shall pay Molly Persofsky a special award under section 282(10) of the Schedule [sic] of 40 per cent of the amounts to which she is entitled for housekeeping and for care as of this date, together with interest on all amounts owing to her (including unpaid interest), at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule. On the swimsuit claim, Liberty Mutual shall pay a special award of 50 per cent. On all other amounts owing, Liberty Mutual shall pay a special award of 30 per cent.
Liberty Mutual Insurance Company shall pay Molly Persofsky her reasonable expenses of this arbitration, as agreed or assessed.
Liberty Mutual calculated that the amount owing for paragraphs 1 to 7 of the order was $321,228.79, and paid this amount. The calculation follows:8
- Gross income lost by Wendy at $320.00 per week
$ 87,360.21
plus interest
$ 75,392.02
- Cost of professional caregiver at $352.00 per week
$ 51,098.89
plus interest
$ 16,180.26
- Cost of housekeeping services at $160.00 per week
$ 24,093.57
plus interest
$ 12,719.88
- Cost of handyman chores at $700 per year plus interest
$ 1,064.52 $ 204.01
- Miscellaneous payments set out in paragraph 6 plus interest
$ 39,034.25 $ 14,081.18
TOTAL
$321,228.79
Liberty Mutual then filed a Notice of Appeal, challenging the amount of the special award and raising the bias issue. Importantly, it did not appeal any of the benefits ordered or the imposition of the special award (except to the extent that these orders would fall if the bias argument were successful).
At roughly the same time Liberty Mutual filed its appeal, counsel for Mrs. Persofsky wrote to the Arbitrator, asking for clarification of paragraph 5 of the order. As I understand it, Mrs. Persofsky’s contention was that Liberty Mutual was obliged to make annual payments for the handyman back to 1992, plus interest, not just from 1999 as Liberty Mutual interpreted the order. The Arbitrator acknowledged that her order with respect to the handyman was “not crystal clear,” but indicated that she found Liberty Mutual’s position “understandable.” While she held that she did not have any authority to amend her order, she suggested that Mrs. Persofsky could formally apply for a variation under Part 5 of the Dispute Resolution Practice Code.
Mrs. Persofsky did not apply for variation. Instead, the appeal went ahead. On September 22, 2000, a telephone conference was held to deal with a number of preliminary issues.9 After hearing submissions from counsel, I ordered that both parties could present accounting evidence in respect of the calculation of the special award, subject to any specific objections that might arise about the reports. Due to the bias issues being raised, I also ordered Liberty Mutual to provide notice of its appeal to the Superintendent of Financial Services. Finally, because Liberty Mutual was advancing arguments based on the Canadian Charter of Rights and Freedoms, I ordered that it provide notice to the Canadian and Ontario Attorneys General. This order later became moot when Liberty Mutual abandoned its reliance on the Charter.
In its Notice of Appeal, Liberty Mutual asked for a stay of the special award. This issue was addressed during a further telephone conference on September 29, 2000.10 I ordered Liberty Mutual to pay $10,000 toward the special award, stating that this amount would be considered in the final appeal order. The balance of the special award was stayed.
The appeal hearing was tentatively scheduled for December 14 and 15, 2000. As agreed, Liberty Mutual filed written submissions and supporting material in October 2000. This material was extensive. In addition, Liberty Mutual took steps to obtain information from the Financial Services Commission of Ontario (“FSCO”) in respect of the bias allegations, ultimately pursuing its request by way of application under the Freedom of Information and Protection of Privacy Act (“FOIPOP”). Later that month, the parties agreed that Liberty Mutual would proceed with its request for documents under FOIPOP, and that any issues about production or admissibility of those documents would be addressed by way of a motion under Rule 65 of the Dispute Resolution Practice Code. As a result, the appeal hearing was adjourned indefinitely.11
In late 2000, the Ontario Trial Lawyers Association (“OTLA”) and the Insurance Bureau of Canada (“IBC”) applied for intervention. A hearing was held on December 19, 2000, to deal with these applications.12 I granted both organizations intervenor status “to make legal submissions on the issues of special award and institutional bias.” My decision made it clear that their role was “to present arguments based on their unique knowledge and perspective, not simply to support the position of one party or the other.” On the question of expenses, the intervenors were made responsible for their own expenses, as well as any additional disbursements resulting from their involvement.
In April 2001, Liberty Mutual brought a motion to admit additional evidence in support of its appeal. The motion had two distinct parts. First, Liberty Mutual asked for an order admitting a large number of documents as extrinsic evidence on the bias issue. Second, it asked to submit new evidence in support of its claim that the special award was too high. The IBC supported the motion. Mrs. Persofsky and OTLA opposed it. On July 3, 2001, I issued an order, allowing the evidence on the bias issue but not on the special award.
Due to the arguments advanced by Mrs. Persofsky and OTLA, I had to address some fundamental questions about the appeal in my reasons. For example, OTLA argued that Liberty Mutual should have applied under s. 282(12) of the Insurance Act, which provides a specific procedure where bias is alleged. I did not accept this argument, concluding that the appeal process under s. 283(1) was broad enough to include the kind of jurisdictional challenges being raised by Liberty Mutual.
Mrs. Persofsky raised two objections. First, she argued that the evidence was irrelevant because the alleged bias arose directly from the legislation, which Liberty Mutual was not challenging. Second, she claimed that Liberty Mutual had ample information about the appointment of arbitrators and, therefore, should have raised its concerns at the start of the arbitration hearing, not on appeal. Despite finding considerable merit in these arguments, I concluded that waiver should not be applied to prevent Liberty Mutual from advancing its bias argument on appeal, and that it should be given broad scope to present evidence in support of its position.
Mrs. Persofsky maintained her objections throughout these proceedings. At the appeal hearing, her lawyer attempted to argue the question of waiver. Liberty Mutual objected, claiming the issue had already been decided in my decision dated July 3, 2001. Mrs. Persofsky did not pursue the argument, but only because I expressed reluctance to revisit the issue.
At about the same time this motion was argued, the Ministry of Finance applied for intervenor status on the bias issue. It did not seek intervenor status on the appeal of the special award. Neither party actively resisted the Ministry’s application, although Liberty Mutual argued that I should not allow “stacking” of intervenors opposing its position. On August 31, 2001, after hearing submissions from counsel, I granted the Ministry intervenor status on the basis that its unique perspective would be helpful and would not significantly overlap with OTLA’s role.13
Shortly after the release of my decision on the motion to admit new evidence, Mr. Roland Spiegel, a paralegal who represents insured persons in accident benefits claims, began raising allegations of institutional bias in a number of arbitration and appeal proceedings. In November 2001, Mr. Spiegel applied for intervenor status in this case in his personal capacity. The parties opposed his involvement. In a decision dated November 21, 2001, I rejected Mr. Spiegel’s application. In summary, I was not persuaded that his involvement would assist the process. Unlike the other intervenors, he did not represent a recognized group with an important perspective on the issues raised in the appeal. Further, because he was raising substantially different arguments, I concluded that his involvement would unduly complicate the proceedings.14
During the fall of 2001, counsel attempted to reach an agreement on what further evidence, if any, should be included in the appeal record. A full agreement was not reached. As a result, the Ministry of Finance brought a motion asking to file an affidavit sworn by Ms. Elisabeth Sachs, the first Director of Arbitrations, explaining various aspects of the dispute resolution process. This motion was heard on December 7, 2001. Mrs. Persofsky supported the motion, while Liberty Mutual and the IBC objected to certain paragraphs in the affidavit. The other intervenor, OTLA, did not participate. On January 3, 2002, I issued an order accepting Ms. Sachs’ affidavit in its entirety, and also indicating that Liberty Mutual could file the transcript of its cross-examination of Ms. Sachs.
The final pre-hearing motion was heard on March 13, 2002. I ordered that Liberty Mutual could file two additional affidavits, with exhibits, and the material obtained from the Ministry of Finance through undertakings arising out of the cross-examination of Ms. Sachs. Finally, I made an order about four lengthy reports. This order was confirmed at the appeal hearing, as follows:
It is hereby ordered that the following reports do not need to be filed in their entirety for the hearing of this appeal but will be treated as forming part of the evidentiary record on this appeal, and any part thereof may be referred to by any party during the hearing of this appeal:
(a) Report of the Ontario Task Force on Insurance - May 1986 (“the Task Force Report”);
(b) The Ontario Report of Inquiry into Motor Vehicle Accident Compensation in Ontario - February 1988 (“the Osborne Report”);
(c) Report of the Ontario Automobile Insurance Board - July 14, 1998 (“the Auto Board Report”); and
(d) Ontario Insurance Commission Dispute Resolution Group Evaluation Report - June 1998 (“the Adams Report”).
The appeal hearing took place on July 9, 10 and 11, 2002. To bring order to the large number of documents, Mr. Sigurdson prepared a list of documents that had been accepted as part of the appeal record. The parties and intervenors all agreed that the list was complete, with the addition of the four reports described immediately above.
III. ANALYSIS
A. Special Award
Special awards are authorized under s. 282(10) of the Insurance Act, which states 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.
This section is a 92-word sentence. As Director’s Delegate Naylor said in Jensen and GAN Canada Insurance Company, (FSCO P96-00079, March 31, 1999), “[t]he meaning of s. 282(10) is not straightforward” — not by any means.
In this case, the Arbitrator framed the special award as a percentage of benefits owing, with different percentages applying to different benefits. For convenience, I will set it out again:
Liberty Mutual Insurance Company shall pay Molly Persofsky a special award under section 282(10) of the Schedule [sic] of 40 per cent of the amounts to which she is entitled for housekeeping and for care as of this date, together with interest on all amounts owing to her (including unpaid interest), at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule. On the swimsuit claim, Liberty Mutual shall pay a special award of 50 per cent. On all other amounts owing, Liberty Mutual shall pay a special award of 30 per cent.
Liberty Mutual challenges this order, making four distinct arguments that are addressed below. To a large extent, I accept Liberty Mutual’s criticisms of the order. While each argument might not be sufficient to overturn the decision, I conclude that the cumulative effect is. Put simply, I am unable to determine with any confidence how much the Arbitrator expected Liberty Mutual to pay, or what considerations went into determining the amount. This is a particular concern given the apparent size of the award, which has been calculated at various amounts up to more than $250,000.
1. Did the Arbitrator err in using the percentage approach?
Liberty Mutual claims the Arbitrator erred in using percentages. In its submission, the 50 per cent calculation in s. 282(10) simply establishes the maximum that can be awarded; it does not suggest that special awards can or should be expressed as a percentage of benefits owing. On the contrary, Liberty Mutual argues that the percentage approach is inconsistent with the legislation, and leads to awards that are not rationally connected to the insurer’s conduct or proportional to penalties imposed in other cases.
A plain reading of s. 282(10) supports Liberty Mutual’s position. It states that the arbitrator is to award “a lump sum” if he or she finds that the insurer has unreasonably withheld or delayed payments. In my opinion, this requires a fixed amount or, at a minimum, an order that can be readily converted into a fixed amount.15 As discussed in more detail below, the order in this case is subject to three levels of uncertainty: disagreement about the benefits payable under the order; disagreement about the meaning of the special award imposed by the Arbitrator (paragraph 8 of the order); and disagreement about the calculation of the special award, particularly the approach to interest.
Beyond the wording of s. 282(10), the parties to an arbitration hearing are entitled to a clear, enforceable order. Arbitrators have limited jurisdiction. They determine entitlement to statutory accident benefits and the amount of those benefits. They communicate their decisions through orders, but do not enforce those orders.16 Enforcement is left to the courts. The Statutory Powers Procedure Act (“SPPA”), which applies to arbitrations, provides as follows:
- (1) A certified copy of a tribunal's decision or order in a proceeding may be filed in the Ontario Court (General Division) by the tribunal or by a party and on filing shall be deemed to be an order of that court and is enforceable as such.
(2) A party who files an order under subsection (1) shall notify the tribunal within 10 days after the filing.
(3) On receiving a certified copy of a tribunal's order for the payment of money, the sheriff shall enforce the order as if it were an execution issued by the Ontario Court (General Division).
Subsection 17(2) of the SPPA reflects the need for tribunals to issue enforceable orders. It states:
- (2) A tribunal that makes an order for the payment of money shall set out in the order the principal sum, and if interest is payable, the rate of interest and the date from which it is to be calculated.
The difficulty for arbitrators is that it is not always possible, at the close of the hearing, to quantify the amounts owing with precision. Nor is there any established procedure for settling orders, as is done in the courts. In this case, the Arbitrator interpreted her post-order powers quite narrowly. She was asked to clarify paragraph 5 of her order, but held that she lacked the authority to do so.17 The result is that the parties do not have an enforceable order.
This is not a new issue. Early arbitration decisions considered the appropriate form of a special award. In Erickson and The Guarantee Company of North America, (OIC A-000560, July 16, 1992), the first case in which a special award was ordered, Arbitrator Rotter stated that she had to “take into account the total dollar amount of benefits and interest owed, before determining the percentage of the lump sum.” After reviewing the specific circumstances of the case, she determined that “a special award of 15% is appropriate in this case.” In other words, she adopted the percentage approach.
The second special award was issued by Arbitrator Palmer in Plowright and Wellington Insurance Company, (OIC A-003985, October 29, 1993). This decision is often referenced for its interpretation of the test for unreasonable conduct in the context of s. 282(10). However, Arbitrator Palmer also discussed the form of the order, as follows:
In the Erickson decision, Senior Arbitrator Rotter awarded a special award expressed as a percentage of the arrears outstanding as at the date of the hearing: 15% of an amount which was submitted to be approximately $36,000. This would equate to roughly $5,400 plus interest.
I prefer to express the special award in this case as a dollar figure. I award the sum of $2,000 to Mr. Plowright because of the unreasonable withholding of weekly income payments by his no-fault insurer. Since the amount outstanding from January 23, 1993 to October 23, 1993 equates to some $23,400 ($600 x 39 weeks), this award clearly falls within the 50 per cent limit.
The next two Arbitrators to order special awards followed Erickson and framed their orders as lump sum amounts.18 This approach was followed again in the next two decisions, where the special awards were expressed as a lump sum, plus interest according to s. 282(10).19 In the second of these decisions, Beiler, the parties were unable to agree on what interest was payable. Mrs. Beiler argued that she was entitled to an additional 2 per cent compound interest, including interest on the special award. Arbitrator Sampliner did not accept this interpretation which, in his view, would give too much prominence to interest.20 Instead, he held that the interest component in s. 282(10) is part of the calculation of the maximum; it is not a separate amount to be paid in addition to the special award. He set out a formula for calculating the maximum, “the Beiler formula,” as follows:
benefits awarded + two per cent simple interest under section 24(2) [sic] + two per cent compound interest
Finally, Arbitrator Sampliner held that interest is not payable on the special award, except as part of the enforcement process. He stated that “the special award bears interest like any other order which is enforceable under the Courts of Justice Act, R.S.O. 1990.”
I agree with the analysis in Beiler. Since it was released, it has been specifically adopted in other decisions and, in most cases, arbitrators have followed the practice of framing the special award as a lump sum that fits somewhere within the 50 per cent maximum.21 Arbitrator Palmer has been the main exception. Of the roughly 90 special awards issued since Beiler, 19 have been expressed as a percentage of benefits, with no specific amount calculated. Twelve of these decisions, including this one, were issued by Arbitrator Palmer.22
While I doubt that a percentage-style order meets the requirements of the Insurance Act and the SPPA, unless the calculation is completely straightforward, this approach is further undermined by the difficulty in interpreting s. 282(10). In this case, and in others, Arbitrator Palmer has framed her order as a percentage of benefits owing, and then simply repeated the wording of s. 282(10) — For example, x% of the benefits found to be owing, 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. This form of order is only clear and quantifiable to the extent there is agreement on the interpretation of s. 282(10). Unfortunately, this section has continued to cause problems.
Although most special awards have been expressed as a specific amount, these orders have not been entirely consistent. Some simply state the amount; some state that the amount is inclusive of interest; and, some order a specific amount, plus interest under s. 282(10). The two decisions in Olszynko and Dominion of Canada General Insurance Company, (FSCO A97-001495, February 22, 1999 and August 27, 1999) provide a good example of the ongoing uncertainty.
In the first Olszynko decision, the Arbitrator ordered Dominion to pay various benefits and “a special award of $5,000, plus interest under subsection 282(10) of the Act.” The parties were unable to agree what additional interest, if any, was payable on the $5,000 special award. The Arbitrator agreed with the analysis in Beiler and Murray, concluding that s. 282(10) does not provide for any further interest on the special award. Following the approach taken by other arbitrators, she amended her order to read: “The Insurer shall pay the Applicant a special award of $5,000, inclusive of interest.” She went on to explain her order as follows:
I held that the Applicant was entitled to loss of earning capacity benefits (“LECBs”) of $172.85 per week, from January 19, 1996, indexed in accordance with section 80 of the Schedule. I ordered a special award because I found that the Insurer’s termination of the Applicant’s LECBs in October 1997 was improper. I calculate the principal amount of LECBs outstanding as of the date of the decision to be approximately $12,400. Interest under section 68 of the Schedule and subsection 282(10) of the Act raises the amount payable to approximately $17,000. I find that an award of $5,000 inclusive of interest — about 30 percent of $17,000 — fairly reflects the factors I considered in making the award. The order will be corrected accordingly.
To clarify, I find that the Applicant is entitled to her overdue benefits, plus interest of 2 per cent per month, compounded monthly, pursuant to section 68 of the Schedule, plus “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 the benefits first became payable under the Schedule,” plus a lump sum of $5,000. [p. 15]
Up to the final paragraph, I agree with this decision. In my opinion, however, the additional interest in s. 282(10), above that imposed by the SABS, only serves to increase the maximum amount that can be ordered as a special award. It is not payable except through the special award. More importantly for this appeal, I conclude that the interpretation difficulties posed by s. 282(10) make it inappropriate to issue an order that simply repeats the troublesome wording.
Liberty Mutual does not just complain about the lack of specificity. It argues that the percentage approach is overly simplistic and does not serve the purposes of the legislation. I agree. While 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. The vagaries of the percentage approach can be seen most clearly at the ends of the spectrum. In cases where the amount in issue is small, a modest percentage simply may not result in a meaningful order, even for modest misconduct.23 At the other end of the spectrum, there will be situations where the insurer’s misconduct is serious, but other factors may make it inappropriate to award the maximum. The most obvious variable is interest. It makes little sense, in my view, for the size of the award to increase simply as a consequence of delays that are caused by the insured person, or are not otherwise meaningfully part of the insurer’s misconduct. Therefore, the arbitrator should focus on the dollar amount of the special award. That is the penalty visited on the insurer — not the percentage. The task, which is not an easy one, is to determine an appropriate amount.
In taking this view, I am heavily influenced by the Supreme Court of Canada’s discussion of punitive damages in Whiten v. Pilot Insurance Company, 2002 SCC 18, [2002] S.C.J. No. 19. In that case, Binnie J., speaking for the majority, held that while ratios are easy to apply, they are overly simplistic. More specifically, he held that it was inappropriate to adopt a fixed ratio between compensatory damages (which compensate the plaintiff for losses sustained as a result of the defendant’s misconduct) and punitive damages (which are meant to punish defendants for conduct that is malicious, oppressive and high-handed).24
I would not suggest that punitive damages and special awards are directly comparable. The former is a common law remedy that is integrally connected to other common law remedies. In contrast, special awards are defined by legislation and are capped. However, the purpose of a special award, like punitive damages, is to punish the insurer for its misconduct and to deter it, and others, from acting similarly in the future. Or, as Binnie J. described it — retribution, denunciation and deterrence. In my view, the percentage approach to calculating special awards is subject to the same criticism Binnie J. levelled against ratios — they are easy to apply, but may not serve the purposes behind the order. To borrow another term from Whiten, what is needed is a “nuanced” analysis aimed at determining an appropriate penalty, within the maximum, that is sufficient to penalize the insurer for its misconduct, and to serve as a deterrent, but no larger than is needed for these purposes.25 The considerations that go into determining the appropriate amount of a special award are discussed in more detail below.
In summary, I conclude that the proper approach to special awards under s. 282(10) of the Insurance Act is as follows:
Determine the benefits owing to the insured person, including interest calculated under the applicable version of the SABS;26
Decide whether the insurer unreasonably withheld or delayed the payment of these benefits. If so, the insurer will be ordered to pay a lump sum amount in addition to the benefits and interest calculated in #1;
If the insurer did not act unreasonably in respect of all the benefits owing under #1, determine the amount of the benefits that were unreasonably provide for compound interest. withheld or delayed, and the interest payable on these benefits under the applicable version of the SABS.27
Determine the maximum special award that can be awarded under s. 282(10), or at least a reasonable approximation. This is done by taking the amount in #1 or #3, whichever is applicable, and adding the additional interest component in s. 282(10) — two per cent per month, compounded monthly. To be clear, this calculation includes interest on the unpaid SABS interest. The maximum special award is 50 per cent of this total. Expressed as a formula, the calculation is as follows: Maximum special award = 50% x (benefits that were unreasonably withheld or delayed + interest on these benefits calculated under the SABS + compound interest calculated according to s. 282(10))28
Consider all relevant factors (discussed below) to determine an appropriate lump sum special award, not a percentage, that responds to the facts of the case and bears a reasonable relationship to other special awards, and does not exceed the maximum.29
Provide reasons for concluding that the special award is payable, and for the amount of the award.30
In the order, express the special award as a specific, lump sum amount. No interest is payable on this amount, except as part of the enforcement process.
This approach is not new. Many decisions reflect a similar analysis, at least implicitly.31 In my view, the explicit and consistent use of these steps can only improve the transparency and predictability of special awards.
2. Is the order too vague?
The arguments presented in this appeal about the proper approach to special awards are important. However, the most immediate problem with the order is its lack of specificity. It leaves too many questions unanswered: How should it be calculated? Is this the calculation the Arbitrator had in mind when she made the order? Did she realize the size of the order, or at least a reasonable approximation? Based on the uncertainty of the order alone, I conclude that it cannot stand.
The Arbitrator issued her decision in June 2000. Counsel for Mrs. Persofsky immediately retained an accounting firm to help quantify the order. Mr. Ian Wollach calculated that $732,989 was owing, including the special award. The schedules to his report indicate that the amount calculated for the special award was $201,344.32
In July 2000, one month after the arbitration decision was released, Liberty Mutual paid $321,228.79, including interest, in response to paragraphs 1 to 7 of the arbitration order. As noted above, this calculation was based on an interpretation of the order that Mrs. Persofsky did not entirely accept, particularly in respect of the handyman benefits. later.
Liberty Mutual retained the accounting firm, Arthur Andersen LLP, to calculate the special award. The resulting report, dated October 12, 2000, provides a number of alternative calculations depending on the interpretation of the benefits owing, the interest payable on those benefits, the meaning of the special award order in paragraph 8, and the meaning of the special award calculation in s. 282(10), as paraphrased by the Arbitrator in her order. These calculations range from a low of $68,044 to a high of $252,956. However, if the non-Beiler approaches are eliminated, the calculation options are $166,973 or $252,956.33
Mr. Wollach reviewed the Arthur Andersen calculations and prepared a second report, dated December 30, 2000. In this report, Mr. Wollach largely accepts the amounts used by Arthur Anderson for the benefits owing.34 The exceptions are the “other amounts” ordered under paragraphs 5 and 6. Looking at the alternative calculations done by Arthur Anderson, he states that the only valid approach is the one that leads to the highest special award — $252,956. Using this amount, he calculates that the total owing to Mrs. Persofsky is $575,917, as contrasted with $560,964 found in the Arthur Anderson report. As I understand it, the difference relates to interest.
Finally, the Arthur Anderson accountants responded in December 2001. They contend that the significant differences between the two Wollach reports support their view that the order does not yield a clear result. Further, they claim that Mr. Wollach could not have arrived independently at the same amounts for the benefits owing under the order. Instead, he simply adopted their calculations, again showing the uncertainty of the order.
I am not persuaded that all of the purported ambiguities set out in the Arthur Anderson report represent real problems with the order. For example, I have little doubt that the 40 per cent special award in paragraph 8 was meant to attach to the income lost by Wendy as a result of caring for her mother, plus applicable interest. Nevertheless, the accounting reports amply demonstrate the problem with the order — it is not clear how much the Arbitrator intended Liberty Mutual to pay as a special award.
3. Is the amount of the order too high?
Liberty Mutual claims that the award, to the extent it can be determined, is unreasonably large. There is little question that it is the largest award issued under s. 282(10). Even using the lower amount calculated by Arthur Anderson using the Beiler approach ($166,973), it far exceeded the next two highest special awards that had been ordered up to that time — $30,000 and $65,000.35 Nor have any subsequent awards come close.36 According to calculations done by Liberty Mutual, which I accept as reasonably accurate, the average of all the special awards issued (excluding the percentage awards) is $8,818.54. If this case is removed from the calculation, the average drops to $5,474.20.
By any measure, the special award in this case is large. While the Arbitrator was critical of Liberty Mutual’s failure to ensure that Mrs. Persofsky received assistance, she did not explain why its conduct warranted an award so far beyond what had been ordered in other cases. One is left with the impression that she did not appreciate the impact that interest would have on the final amount. In any event, the potential size of this award amplifies the vagueness problems discussed above, and reinforces my conclusion that the order cannot stand.
Liberty Mutual also makes a more general argument about special awards. It claims they are meant to be modest, and points to the following factors in support of this position:
special awards only require unreasonable conduct, while an insurer is not liable for punitive damages unless it commits an independent actionable wrong by conduct that is sufficiently harsh, vindictive, reprehensible and malicious that it offends the court’s sense of decency;
arbitrators and appeal adjudicators have held that a special award can be ordered even if the insured person does not raise the issue prior to the hearing, provided the insurer is given sufficient notice to satisfy the principles of natural justice and fairness;
arbitration proceedings do not provide some of the procedural protections available in court actions, such as strict rules of evidence, examinations for discovery, and the right to elect a judge or jury;
insurer’s already are required to pay an assessment of $3,000 for each arbitration, and are generally required to pay the insured person’s legal expenses;
an insurer that fails to meet its duties is subject to other penalties, including a referral by the Director of Arbitrations under s. 288 of the Insurance Act to the Superintendent for an investigation for unfair or deceptive business practices.
These arguments were advanced, and largely rejected, in Graper and Liberty Mutual Fire Insurance Company, (FSCO A00-000133, July 20, 2001). While I agree with most of the Arbitrator’s comments in Graper, I find somewhat more strength in Liberty Mutual’s position. In my view, there should be some relationship between special awards and the level of damages awarded in bad faith claims. Arbitration and the courts are alternative forums for dealing with disputes about entitlement to accident benefits, including insurer misconduct.37 While the remedies differ in important respects, the conduct under review can be similar and the purposes for imposing a penalty overlap. Any court decision quantifying punitive damages on a principled basis will be of interest, particularly if it involves accident benefits. The most productive approach, in my opinion, is for arbitrators and judges to exercise their discretion within their particular authority, but with an eye on the approach taken in the other forum.
FSCO arbitrators are specialists. Their focus is on the accident benefits payable in the case before them. They are not meant to assess damages or deal with industry practice in a general sense. Put differently, the arbitrator’s light should be aimed at the insured person’s entitlement to accident benefits, including the insurer’s conduct in denying those benefits if that is in issue. That light should be bright, but with a relatively narrow beam.
Arbitration was introduced as part of the 1990 amendments to the Insurance Act, which changed Ontario’s approach to compensating automobile accident victims. The right to sue was limited, but more generous first-party benefits were made available, regardless of fault. One of the policy reasons for this “exchange of rights”38 was to ensure that people injured in automobile accidents are compensated promptly.39 This focus on timeliness is seen in the SABS-1990. Insurers are required to respond to applications within a very short period and, if they fail to pay benefits in a timely manner, they are subject to interest at the rate of 2 per cent per month. While this rate of interest may not be punitive, it is a distinctly negative consequence designed to encourage insurers to meet their obligations promptly.
Section 282(10) should be viewed in this context. It requires arbitrators to impose a penalty — a special award — where the insurer’s conduct goes beyond delay, which is addressed through interest, and amounts to unreasonable delay. The focus on delay is reinforced by the nature of the award. As discussed above, the maximum that can be ordered is based on the amount that was unreasonably withheld or delayed, including interest, plus an additional interest component that magnifies the potential consequences for an insurer that fails to meet its obligations.40
It is difficult to know what dollar amounts were anticipated when s. 282(10) was enacted.41 It would not be surprising if the expectation in 1990 was that arbitration hearings over first-party benefits would involve relatively modest claims that would be decided within a matter of months. For various reasons, that is not how things developed. Arbitrations often involve substantial claims that do not reach the arbitrator for years. While this case may be an extreme example, the potential special award in many cases, as calculated under s. 282(10), will be quite high. However, as pointed out in Graper, the Legislature has not seen the need to amend this section, despite significant changes to other parts of the Insurance Act.
The purpose of s. 282(10) is to punish insurers that unreasonably fail to pay accident benefits promptly, as required by the SABS, and to deter that company and others from acting similarly in the future. The size of the special award should be aimed at that purpose. While I not prepared to say that special awards must be “modest,” whatever that means, it is not obvious that they should exceed the amounts typically awarded in bad faith claims involving more serious misconduct.
I prefer the analysis suggested by the IBC, which focusses more on the common principles between punitive damages and special awards. It suggests that the amount of the special award should be considered within the context of the Insurance Act, but according to the same principles identified in Whiten for punitive damages: rationality and proportionality. Rationality refers to the need to relate the particular facts of the case to the underlying purposes of the legislation. In other words, what amount is large enough to further the goals of punishment and deterrence, but no larger than is needed to serve that purpose?42 view.
Proportionality refers to the need to ensure that the consequences imposed on the insurer are rationally related to the misconduct at issue. The Supreme Court of Canada identified various dimensions of proportionality for punitive damages, which I find relevant to special awards. To paraphrase, the award should be proportionate to: (i) the blameworthiness of the insurer’s conduct; (ii) the vulnerability of the insured person; (iii) the harm or potential harm directed at the insured person; (iv) the need for deterrence; (iv) the advantage wrongfully gained by the insurer from the misconduct; and (vi) should take into account any other penalties or sanctions that have been or likely will be imposed on the insurer due to its misconduct.
Many of the relevant considerations have been applied in previous arbitration and appeal decisions. Without attempting to create an exhaustive list, I would identify the following:43
- The amount of the benefits unreasonably withheld or delayed.
This is clearly a major factor in calculating the maximum amount that can be ordered. In my view, it is also an important consideration in fixing the size of the special award. However, the amount of the claim is not an absolute measure of the gravity of the insurer’s conduct. The refusal of a large claim is not necessarily more blameworthy than a small, but essential claim.
- The time the benefit is withheld or delayed.
Again, this is clearly a factor in calculating the maximum, and generally will be an important consideration in the size of the award. However, it is a factor that must be carefully considered. Due to the double interest component in the calculation under s. 282(10), particularly now that interest under the SABS is compounded, the potential size of a special award increases quickly with the passage of time. While timeliness is a high value under the SABS that arbitrators should enforce, arbitrators should take a hard look at the period over which the delay was unreasonable.
- Failing to respect important obligations under the SABS.
The SABS include important procedural and other protections, including notice requirements and pay-pending-dispute provisions. The failure to respect these obligations, particularly if the failure is persistent, undermines the system. Therefore, a higher special award may be required to serve the goal of deterrence.
- Other factors that increase the gravity of the insurer’s conduct.
Bad faith is not required for a special award and, therefore, is not the focus of the inquiry. However, evidence of bad faith may increase the amount of the special award. As set out in Whiten, the degree of blameworthiness may be influenced by various factors. For example, a higher special award may be justified if the insured person is especially vulnerable, particularly if the insurer is aware of the likely impact of its actions.
- Mitigating factors
Even where the insurer has acted unreasonably, other factors may reduce the size of the special award. For example, any actions by the insured person that make the claim more difficult to determine, or delay the process, may be relevant considerations.
- Other penalties
Arbitrators should consider the whole picture. If the insurer will suffer other consequences as a result of its misconduct, that should be taken into account. Investigation and prosecution by the Superintendent is a possible example, but only if it is likely to occur.
Interest has been a matter of some debate. While I agree with the Arbitrator in Graper that interest and special awards are distinct responses, I conclude that the insurer’s obligation to pay interest at the high rate imposed by the SABS may be a factor in assessing the proportionality of the award.
Finally, I am not prepared to set a specific range for special awards. In my view, the better course is for arbitrators to continue to work that out in the context of actual cases.
4. Did the Arbitrator err in applying industry standards?
At page 32 of her decision, the Arbitrator states that “Liberty Mutual’s adjustment of Mrs. Persofsky’s claim fell dismally below the reasonable standards expected of an accident benefits insurer in Ontario.” Liberty Mutual claims this is not the proper test and, in any event, the only evidence about industry standards came from its employee, Ms. Tina Maasland, who testified that the file was handled properly.
In my view, this is an overly technical reading. It is clear from the decision, read as a whole, that the Arbitrator applied the test in the SABS-1990. The subject sentence is simply a shorthand means of expressing her disapproval. If this were Liberty Mutual’s only objection, I would have no hesitation in dismissing the appeal.
How should the amount of the special award be determined in this case?
For the reasons set out above, I conclude that the special award in paragraph 8 of the order, dated June 23, 2000, must be rescinded. What comes next is less obvious. Arbitrator Palmer has taken an extended leave of absence to explore other opportunities. As a result, she is not available to reconsider her decision in light of these reasons. This presents some problems. Liberty Mutual did not appeal from the Arbitrator’s finding that it unreasonably withheld the payment of benefits. While I see no option but to allow some reconsideration of the factors relevant to the amount of the special award, Mrs. Persofsky should not lose the benefit of the Arbitrator’s general assessment of the evidence. In my view, this is reflected in the percentages she chose for the various benefits. It is clear that she viewed Liberty Mutual’s misconduct as serious but, for most of the benefits, not at the extreme end of the scale.
The next question is who should decide the amount? As stated in Rule 1.1 of the Dispute Resolution Practice Code, the process should be aimed at “the most just, quickest and least expensive resolution of the dispute.” This dispute has already consumed considerable time and resources. I have reviewed the voluminous material and have heard submissions, including lengthy submissions from both parties on the seriousness of Liberty Mutual’s misconduct. While fact-finding is generally left to arbitrators, I conclude that, in these circumstances, the remaining issues should be resolved at the appeal level.
Before deciding the amount of the special award, I would like to hear further submissions from the parties that incorporate the reasons set out in this decision. This inquiry will be specific to the facts of this case. Therefore, I see no need for the intervenors to remain involved, although I thank them for their contributions to this decision.
B. Bias
An allegation of bias is not a happy occasion for any decision-maker. That is certainly true here, with Liberty Mutual, supported by the IBC, fundamentally challenging the structure of the dispute resolution process at FSCO, a system in which I have been employed for ten years. However, as counsel for the IBC correctly states, my role is not to consider the arguments from a personal perspective. The test is whether an informed person, viewing the matter realistically and practically — and having thought it through — would have a reasonable apprehension of bias.44 I accept that. Nevertheless, for reasons set out below, I conclude that Liberty Mutual has fallen well short of demonstrating bias of any sort.
1. The issues
Bias, particularly institutional bias in the context of administrative tribunals, has been an active topic before Canada’s courts and tribunals in recent years. This may not be surprising given the number and variety of decisions being made by people who are not judges and have a wide range of personal, professional and employment characteristics. A review of the decisions makes it clear that bias allegations come in many shapes and sizes. It is critical, therefore, to clarify what is in issue and what is not.
The focus of Liberty Mutual’s argument is on the use of full-time government employees as arbitrators. In my interim decision, dated July 3, 2001, I summarized its position as follows: “in a system where only insured persons can choose arbitration instead of court, there will be a reasonable apprehension of bias if arbitrators do not have security of tenure and, as a result, have an interest in encouraging insured persons to choose arbitration, and an ability to do so through their decisions.”
Liberty Mutual has largely accepted this formulation. In its supplementary submissions, it sets out the issues as follows, reflecting both the institutional and individual aspects of the argument:
Do the appointment and utilization of full-time FSCO Government employees as arbitrators at FSCO arbitrations raise a “reasonable apprehension of bias” or “reasonable likelihood of suspicion of bias” contrary to the principles of natural justice?
(a) Is Arbitrator Palmer a “full-time FSCO Government employee”?
(b) Does the appointment and utilization of Arbitrator Palmer, a full-time FSCO Government employee, as the arbitrator on this FSCO arbitration, raise a “reasonable apprehension of bias” or “reasonable likelihood of suspicion of bias” contrary to the principles of natural justice?
(c) Was there procedural unfairness and/or an unfair hearing contrary to the principles of natural justice?
The clearest summary of Liberty Mutual’s position is found in paragraph 4 of its supplementary submissions, which states:
In short, the appointment process of FSCO Arbitrators involves the exercise of discretion, with the goal to ultimately have an impartial and independent arbitrator appointed to adjudicate each FSCO arbitration.
a) Where the system allows only one party (the insured) to choose either arbitration or Court, there arises a reasonable apprehension of bias if “full time FSCO Government employee” appointed arbitrators do not have security of tenure. These full-time FSCO arbitrators can be terminated due to “shortage of work.” Their only source of “business” is that brought before it by an election of only one party in the process, the insured and their counsel.
b) These type of arbitrators are concerned about job security and the spectre of declining caseloads. If the “actual arbitration case counts” do not decrease, or in fact increase, the number of FSCO arbitrators will not be reduced.
c) These type of FSCO arbitrators’ ability to work and adjudicate cases is directly tied to the insured’s (and their law firms) willingness to select a FSCO arbitration over the Superior Court.
d) Once selected these type of FSCO arbitrators have the legislated jurisdiction to make Orders that will impact positively on one party, and negatively on another party.
e) As a result, these type of FSCO arbitrators may have an interest in encouraging insured persons to choose arbitration, and an ability to do so through their decisions.
[emphasis in the original]
The IBC supports Liberty Mutual’s contention that the use of full-time government employees results in a reasonable apprehension of bias. The gist of its argument is seen in the following submissions (references omitted):
Pursuant to s. 281 of the Insurance Act, only an insured may refer a dispute for arbitration. An insurer has no power to veto this decision. Consequently, the FSCO arbitrators depend on insureds (and the lawyers who act for insureds) to refer them work. This fact alone would create a reasonable apprehension of bias unless the tenure and remuneration of arbitrators was secure.
Only with security of tenure and remuneration can it be said that FSCO arbitrators will not have an apparent incentive to favour insureds to increase the volume of their work. Since the enabling legislation does not state that arbitrators are to have a lesser degree of independence and impartiality than required by natural justice, it is incumbent on the Ministry of Finance to structure the arbitration system in a way that ensures the security of tenure and remuneration of arbitrators. Unfortunately, the Ministry has failed to fulfill this obligation.
Although not authorized or required by the enabling legislation, the majority of arbitrators are full-time employees of the Ontario Public Service. However, their tenure is not secure. As full-time employees, the arbitrators are vulnerable to staffing cuts if there is insufficient work to occupy them. FSCO arbitrators are fully aware that only insureds and their lawyers can refer a dispute for arbitration.
Beyond these structural arguments, Liberty Mutual and the IBC point to evidence that, in their submission, suggests that arbitrators have faced the prospect of declining caseloads and, as a result, have issued decisions, including this one, that raise a reasonable suspicion that insured persons are being favoured.
For reasons set out below, I find two major weaknesses in these arguments presented by Liberty Mutual and the IBC. First, they do not pay sufficient attention to the legislation and the realistic operational alternatives that it provides. Second, while they assert that arbitrators who are employed full time by the Ontario government lack security of tenure, that simply is not the case. In fact, short of the protections provided to judges, I expect it would be difficult to find administrative decision-makers with greater security of tenure.
2. General principles
The participants all summarized the relevant case law on bias, some in more detail than others. While there was a considerable consensus on the applicable principles, they disagreed about the application of those principles to the situation presented here.
There is little doubt that arbitrators perform a decision-making function at the judicial end of the administrative law spectrum. They serve as an alternative to the courts, deciding issues that can equally be taken to the Superior Court of Justice. As such, the obligation to adhere to the principles of natural justice is clear. One aspect of natural justice is the rule against bias. Parties are entitled to have their claims decided by someone who is independent and impartial, concepts which are distinct, but closely related. The difference is explained by Le Dain J. in Valente v. R., [1985] 2. S.C.R. 673, 1985 CanLII 25 (SCC), 24 D.L.R. (4th) 161 (“Valente”), as follows:
Impartiality refers to a state of mind or attitude of the tribunal in relation to the issues and the parties in a particular case. The word “impartial”, as Howland C.J.O. noted, connotes absence of bias, actual or perceived. The word “independent” in s. 11(d) [of the Canadian Charter of Rights and Freedoms] reflects or embodies the traditional constitutional value of judicial independence. As such, it connotes not merely a state of mind or attitude in the actual exercise of judicial functions, but a status or relationship to others, particularly to the Executive Branch of government, that rests on objective conditions or guarantees. (p. 685)
Liberty Mutual argues both concepts — independence and impartiality — at both an institutional and individual level. I will deal with each in turn. Before doing so, however, let me emphasize that neither Liberty Mutual nor the IBC is claiming actual bias. Clearly, an arbitrator who decides a case based on considerations of personal advantage, rather than the relevant evidence and law, would be acting outside his or her jurisdiction and would be overturned on appeal or judicial review. That is not the allegation here.
This is not to suggest that arguments based on a reasonable apprehension of bias are less important. Perception is a critical component of justice. A decision-maker, such as an arbitrator under the Insurance Act, who is expected to serve as a neutral between the parties to a dispute, will not be able to fulfill that role if he or she is reasonably perceived as lacking sufficient independence and impartiality. As Le Dain J. put it in Valente, “[b]oth independence and impartiality are fundamental not only to the capacity to do justice in a particular case but also to individual and public confidence in the administration of justice.”
My final introductory comment relates to the role of legislation. If there is clarity on one point, this is it. The common law principles of natural justice can be ousted by the Legislature, within constitutional limits. As the Supreme Court of Canada recently stated, unanimously, in Ocean Port Hotel Ltd. v. British Columbia (General Manager, Liquor Control and Licensing Branch), [2002] 2 S.C.R. 781 (“Ocean Port”):
It is well-established that, absent constitutional constraints, the degree of independence required of a particular government decision-maker or tribunal is determined by its enabling statute. It is the legislature or Parliament that determines the degree of independence required of tribunal members. The statute must be construed as a whole to determine the degree of independence the legislature intended . . .
However, like all principles of natural justice, the degree of independence required of tribunal members may be ousted by express statutory language or necessary implication . . . Ultimately, it is Parliament or the legislature that determines the nature of a tribunal’s relationship to the executive. It is not open to a court to apply a common law rule in the face of clear statutory direction. Courts engaged in judicial review of administrative decisions must defer to the legislator’s intention in assessing the degree of independence required of the tribunal in question.
Although the focus in Ocean Port was on independence, its comments about the role of the legislature apply to “all principles of fundamental justice.” In this case, neither Liberty Mutual nor the IBC is challenging the legislation. Therefore, they cannot complain about any lack of independence or impartiality that is founded in the legislation.
3. Independence
Why do we care about independence? As Lamer C.J. held in R v. Lippé, 1990 CanLII 18 (SCC), [1991] 2 S.C.R. 114, it is a means to the broader goal of impartiality. If the decision-maker’s status is not reasonably protected, his or her ability to make impartial decisions will be suspect. In Valente, Le Dain J. quoted the following passage from Sir Guy Green, the Chief Justice of the State of Tasmania, as a comprehensive definition of judicial independence:
I thus define judicial independence as the capacity of the courts to perform their constitutional function free from actual or apparent interference by, and to the extent that it is constitutionally possible, free from actual or apparent dependence upon, any persons or institutions, including, in particular, the executive arm of government, over which they do not exercise direct control.
Independence involves questions of status and relationships.45 The critical dimensions are set out in Valente: (1) security of tenure; (2) security of salary or other remuneration; and (3) administrative independence bearing on the exercise of judicial functions. Applying these factors in the case before them, the Court concluded that the particular judge of the Ontario Provincial Court, was an “independent tribunal,” within the meaning of s. 11(d) of the Canadian Charter of Rights and Freedoms, as were all judges of that court.
It is now clear that many of the Supreme Court’s comments in Valente, and its other decisions dealing with bias, apply to administrative tribunals, although not as rigidly. In Canadian Pacific Ltd. v. Matsqui Indian Band, 1995 CanLII 145 (SCC), [1995] 1 S.C.R. 3, 122 D.L.R. (4th) 129, at p. 159 (“Matsqui”), Lamer C.J. held:
Therefore, while administrative tribunals are subject to the Valente principles, the test for institutional independence must be applied in light of the functions being performed by the particular tribunal at issue. The requisite level of institutional independence (i.e. security of tenure, financial security and administrative control) will depend on the nature of the tribunal, the interests at stake, and other indices of independence, such as oaths of office.
In some cases, a high level of independence will be required. For example, where the decisions of a tribunal affect the security of the person of a party (such as the Immigration Adjudicators in Mohammed, supra), a more strict application of the Valente principles may be warranted. In this case, we are dealing with an administrative tribunal adjudicating disputes relating to the assessment of property taxes. In my view, this is a case where a more flexible approach is clearly warranted.
Matsqui addressed both independence and impartiality and, in my view, illustrates the difference. The challenge was to an appeal panel established under a taxation and assessment by-law passed by an Indian Band under the Indian Act. Canadian Pacific claimed a reasonable apprehension of bias based on the following arguments (paraphrased):
(i) The Band members on the appeal panel have a personal interest in generating high taxes because, as Band members, they will benefit from the tax revenues spent on the reserve, and are themselves tax-exempt.
(ii) The Non-Indian members have an interest in supporting the interests of the Band because they have no guarantee the Band will pay them for their services or appoint them to sit on future appeals.
Lamer C.J. held that the first issue involved impartiality, while the second involved independence: “When the respondents allege an apprehension of bias on the basis of band members sitting on the appeal tribunals, they question the appearance of impartiality of these members. When they point to the lack of security of tenure of tribunal members, and the uncertainty as to whether they will receive remuneration, the respondents are questioning the appearance of independence of these members.”46
The independence problem in Matsqui was that the Band, which had an interest in the outcome of the appeal proceeding, had considerable control, or at least could reasonably be seen as having control, over the tenure and financial security of the panel members. Similar concerns are seen in the other independence cases.47 In each, someone with an interest in the proceedings has a level of control over the adjudicator. Put more bluntly, the question is whether there is a reasonable apprehension that the adjudicator is there to “do the bidding" of someone else, or will pay a price if he or she does not.
I have difficulty fitting the arguments advanced by Liberty Mutual and the IBC into the analytical framework of independence. Insured persons do not determine who will be appointed as arbitrators, or how their appointments will be structured. On the contrary, the Legislature has established an appointment process for arbitrators that involves three levels of responsibility. This process is discussed in more detail below, but briefly stated, a Minister’s Committee recommends people to act as arbitrators under the Insurance Act, the Superintendent of Financial Services maintains a roster of arbitrators that he or she selects from among those recommended by the Committee, and the Director of Arbitrations appoints arbitrators from this roster in individual cases. I heard no suggestion that the Minister’s Committee, the Superintendent or the Director is intruding on the arbitrator’s decision-making function. The concern is based on the perception that arbitrators, for reasons of self-interest, will favour insured persons. In my view, this argument is better framed as a question of impartiality.
To the extent that independence is implicated, the legislation provides the answer. Insured persons have been given an option not extended to insurers. They can choose arbitration instead of court. Therefore, it is fundamental to the legislation that arbitrators will offer an alternative to the court process. In this sense, there is nothing wrong with efforts to make arbitration attractive to insured persons, or to “compete” with the courts, by providing a service they find useful — that is the whole point. This does not mean, however, that arbitrators can misread the legislation, or ignore principles of fundamental justice and fairness. If they do, the legislation provides remedies. Either party can appeal on a question of law, as Liberty Mutual has done here. In addition, the court retains its right to review decisions of arbitrators and appeal adjudicators through judicial review.48
For these reasons, I am not persuaded there is a reasonable apprehension of a bias in this case based on independence at either an institutional or individual level.
4. Impartiality
In cases where structural impartiality is raised, the Supreme Court of Canada has adopted the following approach:49
Step one: Having regard for a number of factors including, but not limited to, the potential for conflict between the interests of tribunal members and those of the parties who appear before them, will there be a reasonable apprehension of bias in the mind of a fully informed person in a substantial number of cases?
Step two: If the answer to that question is no, allegations of an apprehension of bias cannot be brought on an institutional level, but must be dealt with on a case-by-case basis.
Because the lack of impartiality alleged in this case arises out of the use of arbitrators who are full-time government employees, the basis for this practice must be carefully reviewed.
(a) How are arbitrators appointed?
The dispute resolution process, including mediation, arbitration and appeal, originally operated within the Ontario Insurance Commission (“OIC” or “the Commission”). This changed in July 1998, with the creation of Financial Services Commission of Ontario (“FSCO” or “the Commission”), which integrated the OIC, the Pension Commission of Ontario, and the Deposit Institutions Division of the Ministry of Finance. FSCO, in its corporate sense, is composed of a chair and two vice-chairs, appointed by the Lieutenant Governor in Council, the Superintendent of Financial Services, who is appointed under the Public Service Act and is the chief executive officer of the Commission, and the Director of Arbitrations, who is appointed by the Lieutenant Governor in Council.50
The appointment of arbitrators is governed by the Insurance Act. According to s. 7, the Minister of Finance is to appoint committees for various purposes, with one of the committees being given the function of recommending persons to conduct arbitrations. Originally, this was the Accident Benefits Advisory Committee. Later, it became the Minister’s Committee on the Designated Assessment Centre System (“the DAC Committee” or “the Minister’s Committee”), which includes representatives from the insurance industry and consumer groups.51
The role of the Superintendent, according to s. 8(1), is to “establish and maintain a roster of candidates” chosen by him from among the people recommended by the DAC Committee. Appointments in individual cases are the responsibility of the Director of Arbitrations, who is charged under s. 282(2) with ensuring that an arbitrator is appointed promptly when an application for arbitration is filed.
What can be taken from this? First, there are no obvious constraints on the range of people the DAC Committee can recommend.52 Second, the Superintendent does not have to accept everyone recommended by the DAC Committee. However, he cannot include someone on the roster unless that person has been recommended by the DAC Committee. Third, the Director of Arbitrations can only appoint arbitrators who are included on the Superintendent’s roster.
The obvious complication is that arbitrators need to be paid. The legislation is silent on how this is to be done. It does not mandate any particular relationship with the Ministry or FSCO. Unlike other Ontario legislation involving similar decision-makers, the Insurance Act does not make use of Order-in-Council appointments by the Lieutenant Governor in Council for arbitrators. The exception is the Director of Arbitrations, who is involved in appointing arbitrators, but only performs adjudicative functions in respect of appeals and applications for variation or revocation.53 The remaining factor is that, according to s. 8 of the Financial Services Commission of Ontario Act, 1997, the Public Service Act applies to employees of the Commission. Although the evidence on this point was less than definitive, my understanding is that this means both classified (full-time and part-time) and unclassified (contractual) employees. Only fee-for-service arrangements are not covered.54
According to Ms. Sachs, the Commission decided at an early stage that the goals of the legislation would be best served by the use, primarily, of persons employed full time as arbitrators.55 This was based, in part, on the need to ensure that arbitrators were free from any perceived conflict of interest that might apply if they were concurrently engaged in the private practice of personal injury or insurance work, to ensure that all arbitrators possessed a high degree of training and expertise in insurance compensation systems, and to have some measure of quality control. These measures were felt to be necessary to establish and maintain a high degree of credibility among users of the system. It was also considered to be more administratively efficient if arbitrators were employed full time.
This approach has not changed. Since 1990, most arbitration hearings have been conducted by a core group of full-time arbitrators employed by the government. These arbitrators, including Arbitrator Palmer, are employees under the Public Service Act, and are covered by a collective agreement negotiated between their bargaining agent, the Association of Management, Administrative and Professional Crown Employees of Ontario (“AMAPCEO”) and the government of Ontario.56
Arrangements other than full-time employment have also been used: regular part-time employment; time-limited contracts, and fee-for-service (or per diem) agreements. These alternatives, particularly contracts and fee-for-service, have generally been used as a short-term measure to deal with backlogs.57 In 1997/1998, a pilot project was undertaken in which fee-for-service arbitrators conducted pre-hearings and some hearings. One hundred and fifty people applied for this role, and 50 were added to the roster. They received training and were expected to follow the same standards as other arbitrators.58
From the outset, the Commission has taken responsibility for advertising for arbitrators, as necessary. Committee members have put forward names of candidates, but the assessment of those candidates has been done by the Commission. The nature of the process depends on whether the candidate is being considered for a full-time position, or some other arrangement, as required for the Ontario Public Service. In all cases, the name of the candidate goes back to the Committee for its consideration, including the type of arrangement contemplated for that person.59 In practice, the Committee has recommended all those put forward, with one exception.60
(b) Does the legislation contemplate the use of arbitrators who are full-time government employees?
Liberty Mutual and the IBC argue that the legislation does not contemplate arbitrators who are full-time government employees. In support of this position, they point to the different treatment of mediators. Section 9 of the Insurance Act states that “[t]he Superintendent may appoint employees of the Commission or other persons to act as mediators,” while the sections dealing with arbitrators do not mention employees.
In my opinion, this is an overly narrow reading of the legislation. The approach for mediators simply reflects the fact that they do not have to be recommended by a Minister’s Committee or included on a roster. I am not persuaded it reveals an intention to preclude employees from doing arbitrations. If there were concerns about the ability of Commission employees to perform adjudicative functions, it is difficult to understand the broad authority given to the Director of Arbitrations to “appoint employees of the Commission or other persons to hold hearings on his or her behalf,” which would include appeals and applications for variation or revocation.61
Could a different approach have been taken? Probably. The legislation left it open for the Commission to work out the financial arrangements with arbitrators. While I heard little in the way of compelling alternatives, it is not my role to decide whether another model might have been preferable. Nor, strictly speaking, is it my role to review the decision to use full-time government employees as arbitrators — whether this is framed as a decision of the Minister’s Committee, the Superintendent or the Commission.62 The issue before me is whether, in the context of this case, the use of full-time government employees as arbitrators raises a reasonable apprehension of bias at either an institutional or individual level. While my decision could have broader ramifications, my focus is on this case.
(c) Is there a reasonable apprehension of basis based on a lack of impartiality in this case at either an institutional or individual level?
Liberty Mutual submits that the use of full-time government employees as arbitrators raises a reasonable apprehension of bias “on its face.” It then bolsters this argument by claiming that if concrete evidence of the problem is needed, such evidence exists.
I have considerable difficulty with the first contention. Early in this appeal, Liberty Mutual explained its failure to allege bias at the arbitration hearing on the basis that its concerns did not arise until after the decision was released and its lawyers were preparing the appeal. At that point, it found references to declining caseloads and the possibility of layoffs. That is what led to the inclusion of the bias issues in this appeal.63
In any event, I am not persuaded that an informed person, viewing the matter realistically and practically — and having thought it through — would have a reasonable apprehension that a full-time government employee, for that reason alone, could not render an impartial decision. The concerns about self-interest are simply too speculative.
Matsqui provides a good reference. As set out above, the impartiality argument in that case involved an allegation that the Band members on the appeal panel had a personal interest in generating high taxes because, as Band members, they would benefit from the tax revenues spent on the reserve, but would not pay taxes because they were tax-exempt. Referring to the Court’s earlier decision in Pearlman and Manitoba Law Society Judicial Committee, 1991 CanLII 26 (SCC), [1991] 2 S.C.R. 869, Lamer C.J. held that “[t]he concern that these members might be inclined to increase taxes in order to maximize the income flowing to the band is simply too remote to constitute a reasonable apprehension of bias at a structural level.” [Para. 71]
Perhaps more relevant factually is Sethi v. Canada (Minister of Employment and Immigration) (1988), 1988 CanLII 5696 (FCA), 52 D.L.R. (4th) 681, [1988] 2 F.C. 552, leave to appeal to S.C.C. refused 92 N.R. 325. In that case, there was a Bill before Parliament proposing to abolish the Immigration Appeal Board and create a new Immigration and Refugee Board. Members of the old Board would be discharged, with no right to claim compensation notwithstanding any unexpired portion of their appointment, and no assurance that they would be appointed to the new Board. A refugee claimant appearing before the existing Board alleged a reasonable apprehension of bias on the basis that the Board members, given their uncertain future, would be likely to try to please the government by favouring its position in their decisions. The Federal Court of Appeal, overturning the Trial Division, held that the informed observer would know that the passage of legislation was uncertain, and because “the mere expression of a government’s intention toward an administrative tribunal cannot . . . give rise to a probability that the tribunal will react to those intentions in a particular way relative to the decisions it is required to make.” [Para. 15]
Would the informed person suggested by Matsqui and Sethi have a reasonable apprehension that FSCO arbitrators will not act even-handedly in a substantial number of cases? I think not. In my view, it would be just as easy to speculate that arbitrators will tilt in favour of insurers if they are feeling overworked or, as I have heard more than once, that they will be influenced by the fact that FSCO is fully funded by the insurance industry.64
Liberty Mutual’s real allegation is more specific. It claims that, starting in 1998, arbitrators were faced with a declining caseload and, at a meeting in September 1999, were advised that the current complement of 19 arbitrators was expected to be reduced to 11, starting in March 2000. Against this backdrop, Liberty Mutual points to the following in support of a reasonable apprehension of bias:
the three largest special awards ever ordered, including this one, were issued in January (Fimiani), March (Henderson) and June 2000 (Persofsky);
an appeal decision, issued in August 2000, upholding a special award of $10,000, despite the arbitrator’s “detailed and frank indictment of [the insured’s] credibility” (Rocca);65
another large special award issued in March 2001 (Singh);66 and
a number of expense decisions that it views as generous.67
Liberty Mutual notes that the caseload did not continue to decline, but increased in both 2000 and 2001, with the applications in 2001 representing the third highest annual total ever — the suggestion being that these generous decisions were successful in attracting business.
It is difficult to know where to start with this argument. While I accept that Liberty Mutual does not have to prove there is actual bias behind the apprehension of bias, the concerns must be reasonable and based on a fair and complete view of the facts. Let me begin with the suggestion that decisions shifted in favour of insured persons coincidentally with the reduction in caseload. First, the size of the sample is extremely small — seven decisions, three of which, including this one, were issued after the projected March 2000 downsizing did not occur.
Second, the presumption seems to be that these decisions are wrong. Looking at the special award decisions, that is far from obvious. The insurer in Fimiani appealed, but the matter was settled before the appeal was heard. In Henderson, the insurer did not appeal, even though the insured person did, arguing that the special award should be larger. The special award in Singh was upheld on appeal. Finally, in Rocca, the appeal decision was challenged on judicial review, but settled before the application was heard. The only special award that was overturned is this one, suggesting error, not bias. Similarly, of the expense decisions mentioned, only one — Morelli — was appealed, but it was settled before a decision was issued.
At a more general level, no body of decisions will please everyone. Some will feel the decision-makers — whether judges, tribunal members or individual arbitrators — are too liberal, while others will view the decisions as too strict. In my roles at FSCO as an arbitrator, appeals adjudicator and now as Director of Arbitrations, I have heard wildly different opinions about arbitration decisions, usually expressed with great certainty and conviction.
Without wishing to debate which side has done better in arbitration decisions, the accuracy of the picture presented by Liberty Mutual breaks down rather quickly. During roughly the same period, arbitrators ordered at least seven assessments against insured persons under s. 282(11.2) on the basis that their applications were frivolous, vexatious or an abuse of process.68 In six decisions, the maximum of $3,000 was ordered, and in five of these, the insured person was also ordered to pay expenses. In Pires, the Arbitrator — the same Arbitrator who issued the decision in Rocca — ordered the insured person to repay benefits totalling $51,761.86, plus interest, and $16,107.21 for arbitration expenses and the assessment.69 This hardly suggests a concerted effort to curry favour with insured persons.
In my opinion, Liberty Mutual also overstates the arbitrators’ vulnerability. First, there is no indication that any full-time FSCO arbitrator has lost his or her job due to a lack of work. Nor, am I aware of any such situation. Second, while the September 1999 meeting was significant, it occurred because the arbitrators are protected by a collective agreement that includes certain notice requirements. As Ms. Sachs advised the arbitrators, the purpose of the meeting was to give them “advance notice” that some surplus notices might need to be issued in March 2000. Her remarks made it clear, however, that even if the number of positions had to be decreased, the hope was that no current employees would lose their jobs. The Mediation Unit had recently gone through a similar experience, where mediation positions were eliminated, but no mediators lost their jobs.70 The irony of this argument is that protections negotiated by AMAPCEO on behalf of its members are being used in an attempt to prove their vulnerability.
In its written submissions, the IBC asserts that arbitrators have “a complete absence of security of tenure and financial security.” The source seems to be the following subsections from the Public Service Act, cited in Liberty Mutual’s submissions:
- (4) Upon giving written notice to a public servant, a deputy minister may, in accordance with the regulations, release the public servant from employment where he or she considers it necessary by reason of shortage of work or funds or the abolition of a position or other material change in organization.
(4.1) A deputy minister may release from employment in accordance with the regulations any public servant who is employed in a position or class of positions that is designated in the regulations and, when released, the public servant is entitled to reasonable notice of his or her release or to compensation in lieu of such notice, but not to reinstatement.
It is difficult to see how the Commission could have avoided this section. As noted above, FSCO employees are covered by the Public Service Act, whether they are full-time or part-time employees, or hired on a contractual basis. The exception seems to be fee-for-service. While Liberty Mutual endorses this option, the idea of a roster, sufficiently large to deal with approximately 1,500 applications per year, composed of skilled arbitrators knowledgeable in the area of accident benefits, who do not face conflicts of interest, and who do not care how much work they get, strikes me as fanciful.
In any event, the issue before me is not whether there was an alternative that might have provided more security or, as Liberty Mutual might put it, less of an incentive to create work. This point is illustrated in Ocean Port. In that case, the legislation provided that members of the Liquor Appeal Board would “serve at the pleasure of the Lieutenant Governor in Council,” and “receive remuneration set by the Lieutenant Governor in Council.” According to a Treasury Board Directive, appointments could be up to three years, with the possibility of reappointment. At issue were one-year, part-time appointments, where the members were paid only if they were assigned to cases. Clearly there were more secure arrangements available. Nevertheless, McLachlin C.J., speaking for the entire court, rejected the bias argument, stating as follows:
In my view, the legislature’s intention that Board members should serve at pleasure, as expressed through s. 30(2)(a) of the Act, is unequivocal. As such, it does not permit the argument that the statute is ambiguous and hence should be read as imposing a higher degree of independence to meet the requirements of natural justice, if indeed a higher standard is required. It is easy to imagine more exacting safeguards of independence — longer, fixed term appointments; full-time appointments; a panel selection process for appointing members to panels instead of the Chair’s discretion. However, in each case one must face the question: “Is this what the legislature intended?” Given the legislature’s willingness to countenance “at pleasure” appointments with full knowledge of the processes and penalties involved, it is impossible to answer this question in the affirmative. Huddart J.A. concluded that the tenure enjoyed by Board members was “no better than an appointment at pleasure” (p. 91). However, this is precisely the standard of independence required by the Act. Where the intention of the legislature, as here, is unequivocal, there is no room to import common law doctrines of independence, “however inviting it may be for a Court to do so . . .” [Para. 27, emphasis added]
In the case of the Insurance Act, the intention was to have someone other than judges conduct arbitrations. Precisely who is less clear. However, looking at the legislation as a whole, I am not convinced it demanded a different approach.
Arguably, the CUPE case, cited above, represents an alternative view. Beyond the fact that the Supreme Court has granted leave to appeal, I find it distinguishable. CUPE involved a direct challenge to a dramatic change in long-standing labour relations practices, a contentious and highly politicized area in which the Minister of Labour is actively involved. In this case, Liberty Mutual is challenging a model that has been in place for more than 10 years, and has continued during the life of this appeal. The Honourable George W. Adams found, in June 1998, that stakeholders “uniformly believe that both the people and the dispute resolution product are expert, fair and unbiased.”71
Liberty Mutual refers to the finding in the Adams report that arbitrators were concerned about job security. A close reading reveals, however, that this concern related to both decreasing caseloads and the possibility of privatization.72 The second concern does not fit as nicely into Liberty Mutual’s theory. If one were to speculate, it seems to me that arbitrators would be concerned about favouring one side, but would want to find ways to assure both sides that the current system was working.
Answering step one of the Matsqui approach, I am not persuaded that the use of full-time arbitrators raises “a reasonable apprehension of bias in the mind of a fully informed person in a substantial number of cases.” No evidence was presented to suggest that Arbitrator Palmer was particularly vulnerable, or unusually dependent on the volume of cases. The fact that she has been issuing arbitration decisions since 1993 suggests that she has considerable seniority. Consequently, I find no greater apprehension of partiality at an individual level.
IV. APPEAL EXPENSES
Appeal expenses may be awarded to either party. The criteria to be considered are set out in s. 12(2) of O.Reg. 464/96, as follows:73
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.
Absent the bias arguments, this appeal could have proceeded much more quickly and inexpensively. Liberty Mutual was unsuccessful on this issue. Moreover, its approach on both issues was comprehensive in the extreme. In my view, its materials and submissions, both written and oral, were more extensive than necessary. It follows that Mrs. Persofsky should recover a substantial amount for her expenses. If the parties are unable to resolve this issue, I will deal with it as part of the resumption. Similarly, if arbitration expenses have not been resolved, that issue can also be addressed.
January 31, 2003
David R. Draper Director of Arbitrations
Date
* Minor error corrected on February 3, 2003, as authorized by the Dispute Resolution Practice Code and the Statutory Powers Procedure Act.
See also, Young v. Young (1990), 1990 CanLII 3813 (BC CA), 75 D.L.R. (4th) 46 at 83 (B.C.C.A.), varied by the Supreme Court of Canada on a different issue, 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3, in which the Court held where the statute authorized a lump sum maintenance order, the Judge erred in ordering the Respondent to transfer the balance of his equity in the matrimonial home "in the form of lump sum maintenance." The Court held that the Judge was "obliged to fix a sum certain and to fix it with reference to the principles applicable to such an award."
The submissions indicate some confusion in terminology. There is only one roster. Whatever the person's employment status, he or she must have been recommended by the DAC Committee and included on the Superintendent's roster before he or she can be appointed as the arbitrator in a particular case. Although there are references in the material to the pilot project arbitrators as "roster arbitrators," this is simply a means of distinguishing this group from the core of permanent, full-time arbitrators.
Footnotes
- Arbitration decision, p. 5.
- Reg. 672 of R.R.O. 1990, as amended, now entitled the Statutory Accident Benefits Schedule—Accidents Before January 1, 1994.
- They also submitted claims for various supplementary medical and rehabilitation expenses that are not relevant to this appeal.
- Arbitration Exhibit 1, Tab 2.
- Arbitration Exhibit 1, Tab 2.
- Weiler J.A. dissented in part. She held that s. 7(1)(a) should be interpreted as meaning the amount that would have to be paid to retain a professional caregiver, and that, on the facts of the case, Mr. Monachino's parents could be considered to be professional caregivers. Justice Weiler also held that Mr. Monachino could recover the cost of the services provided by his parents under s. 7(1)(b).
- See Arbitration transcript, April 17, 2000, p. 49; and Arbitration Exhibit 1, Tabs 26 and 27.
- Letter from Mr. Sigurdson to the law firm of Fireman Lofranco, dated July 20, 2000 (Appeal Record, Volume 1, Tab 10).
- Confirming letter dated September 22, 2000 (Appeal Record, Volume 1, Tab 15).
- Confirming letter dated September 29, 2000 (Appeal Record, Volume 1, Tab 16).
- Due to the delay, I raised the possibility of bifurcating the hearing, but the parties agreed that all of the issues should be dealt with together.
- Confirming letter dated December 20, 2000.
- Letter dated August 31, 2001.
- Mr. Spiegel subsequently made bias arguments before me on behalf of three clients. I did not find bias: Docoute and Zurich Insurance Company, (FSCO P01-00036, July 29, 2002); Bersteyn and Allstate Insurance Company of Canada, (FSCO P01-00049, July 29, 2002); and Sverdlik and Lombard General Insurance Company of Canada, (FSCO P01-00050, July 29, 2002).
- In Walker v. Allstate Insurance Company of Canada (2002), 2002 CanLII 44970 (ON CA), 59 O.R. (3d) 636, the Court of Appeal considered the use of "lump sum" in the context of the Settlement Regulation (Reg. 664, R.R.O. 1990, as amended by O. Reg. 780/93 under the Insurance Act). Although largely dependent on the legislative context, the Court took a narrow view of the term.
- Insurance Act, s. 282(13) and Rule 65 of the Dispute Resolution Practice Code.
- Without suggesting that it necessarily would have made a difference, I note that the current version of the Dispute Resolution Practice Code includes an additional rule, Rule 65.6, that allows an arbitrator, "at any time," to "clarify a decision or order that contains a misstatement, ambiguity or other similar error."
- Philippe and Royal Insurance Company of Canada, (OIC A-001736, January 24, 1994) [Arbitrator Naylor]; Dugas and Wellington Insurance Company, (OIC A-003517, July 12, 1993) [Arbitrator Mackintosh].
- Rustico and Royal Insurance Company of Canada, (OIC A-002539, February 15, 1994) [Arbitrator Makepeace]; Beiler and Alpina Insurance Company Limited, (OIC A-003051, February 22, 1994) [Arbitrator Sampliner].
- Beiler and Alpina Insurance Company, Limited, (OIC A-003051, August 9, 1994).
- For example, see Murray and Wawanesa Mutual Insurance Company, (OIC A-003224, August 23, 1996).
- Liberty Mutual's Book of Authorities, Tabs 76 and 77; Answers to Undertakings Brief, Tab 21. I also note that seven of the 12 decisions were issued during a 14-month period from December 1997 to January 1999.
- As an example, see R.S. and Royal Insurance Company of Canada, (OIC A-002869, November 30, 1995), where the Arbitrator ordered a special award of $100 on transportation benefits of $85.80.
- Whiten v. Pilot, at para. 36 and 127.
- For a discussion of the need to avoid approaches that stifle the legitimate adjustment of claims, see 702535 Ontario Inc. et al. v. Non-Marine Underwriters, Members of Lloyd's, London, England (2000), 184 D.L.R. (4th) 6876, per O'Connor J.A., at para. 37, leave to appeal refused [2000] S.C.C.A. No. 258.
- In the SABS-1990, this involves simple interest, while the SABS-1994 and the SABS-1996 provide for compound interest.
- I agree with the appeal decision in A.B. and Royal Insurance Company of Canada, (FSCO P99-00049, September 18, 2000), which held that the special award should only be based on the benefits that were unreasonably withheld or delayed, even if other benefits are owing.
- This formula is consistent with the approach in Beiler and Murray, cited above. I do not pretend it is an easy or straightforward calculation, but, in my view, it is what the legislation demands.
- If the benefits and interest cannot be calculated accurately, or at least a reasonable approximation, it may be premature to quantify the special award. The hearing may need to be reopened to determine the amount owing before the special award can be finalized.
- As Director's Delegate Naylor stated in Rocca and AXA Insurance Company, (FSCO P99-00020, August 1, 2000), "it is important that the parties are given an explanation both of the basis of a finding that benefits were unreasonably withheld and the factors taken into account in fixing the amount of the award."
- For example, see U.K. and Canadian Surety Company, (FSCO A97-000834, August 11, 1998), upheld on appeal, (FSCO P98-00041, February 29, 2000); Henderson and Lombard General Insurance Company of Canada, (FSCO A97-001019, March 31, 2000), upheld on appeal, (FSCO P00-00027, January 7, 2002).
- This report was prepared for counsel, and was not shared with Liberty Mutual until much later.
- The difference between these two amounts involves a number of factors, including the percentage award that attaches to Wendy's lost income and the way in which interest is calculated.
- A considerable amount of time was spent on Liberty Mutual's contention that this report was not a proper expert report. In my opinion, however, this has little bearing on whether the order is too vague and, in fact, the opinions expressed by Mr. Wollach assist the argument that the order is not sufficiently precise.
- Fimiani and Liberty Mutual Insurance Company, (FSCO A97-001518, January 11, 2000) and Henderson, cited above.
- The largest special award since Persofsky is $61,829.52, ordered in Singh and Commercial Union Assurance Company, (FSCO A99-001160, September 11, 2001), upheld on appeal, (FSCO P01-00042, June 12, 2002).
- The idea that special awards are akin to punitive damages can be seen in the recent Ontario Court of Appeal decision in Arsenault v. Dumphries Mutual Insurance Company, released January 8, 2002, Docket No. C35942.
- Meyer v. Bright, (1993), 1993 CanLII 3389 (ON CA), 15 O.R. (3d) 129 (Ont.C.A.), leave to appeal to S.C.C. dismissed without reasons, March 31, 1994, [1993] S.C.C.A. 540.
- Statement of the Minister of Financial Institutions, The Hon. Murray Elston, cited in Rafael Hernandez v. Warren Palmer, [1993] I.L.R. 1-2905.
- The fact that a special award is a penalty is reinforced by s. 288 of the Insurance Act. According to this section, the Director of Arbitrations is to review arbitration decisions and may make a recommendation that the Superintendent investigate the business practices of an insurer if he believes that any decision reveals unfair or deceptive business practices. The definition of "unfair or deceptive act or practice" is found in O. Reg. 7/00. It includes "[a]ny conduct resulting in unreasonable delay in, or resistance to, the fair adjustment and settlement of claims." Special awards are reported in the Superintendent's Bulletin as part of the "Monitoring and Enforcement Report."
- The statement of the Minister of Financial Institutions, cited above, suggests this view.
- Whiten, cited above, at para. 71 and 74.
- OTLA prepared a helpful analysis of the special award orders, breaking them down into categories.
- This test was originally formulated by de Grandpré J. in Committee for Justice and Liberty v. National Energy Board, 1976 CanLII 2 (SCC), [1978] 1 S.C.R. 369, at p. 394, and has been followed routinely in later decisions.
- Valente, p. 685.
- Matsqui, p. 152.
- For example, see R. v. Généreux, 1992 CanLII 117 (SCC), [1992] 1 S.C.R. 259, 88 D.L.R. (4th) 110; 2747-3174 Québec (Régie des permis d'alcool), 1996 CanLII 153 (SCC), [1996] 3 S.C.R. 919, 140 D.L.R. 557 ("Régie"); and Ocean Port.
- As Director of Arbitrations, I am aware that approximately 50 FSCO decisions have been reviewed by the Ontario Superior Court of Justice (Divisional Court) under the Judicial Review Procedure Act.
- Matsgui, p. 153, following R v. Lippe, 1990 CanLII 18 (SCC), [1991] 2 S.C.R. 114.
- See, the Financial Services Commission of Ontario Act, 1997, ss. 2 and 4, and the Insurance Act, s. 6.
- Exhibit 5 to the Affidavit of Elisabeth Sachs, sworn November 1, 2001 ("Sachs affidavit").
- In contrast, s. 6(4) of the Financial Services Commission of Ontario Act, 1997 states that in appointing members of the Financial Services Tribunal, the Lieutenant Governor in Council shall, to the extent possible, appoint members "who have experience in the regulated sectors."
- Insurance Act, ss. 283 and 284.
- See, Compendium of Documents of Liberty Mutual Insurance Company, July 8, 2002, Tab 3.
- Sachs affidavit, paragraphs 46 and 47. Also, see the Ministry's Answers to Undertakings, Tabs 7 (a) and (b).
- Sachs affidavit, paragraphs 48 and 49. My understanding is that the collective agreement also applies, at least in certain respects, to part-time employees and those retained through individual contracts.
- Sachs affidavit, paragraph 48.
- Sachs affidavit, paragraph 48; References listed in Liberty Mutual's supplementary submissions, paragraphs 62 - 67.
- For example, see the Ministry's Answers to Undertakings, Tab 7(c), (d), (f) and (g), and Tab 9.
- Sachs affidavit, paragraphs 42-43.
- Insurance Act, s. 6(4)
- At any point since 1990, when the Commission started using full-time employees as arbitrators, Liberty Mutual, or any other interested party, could have challenged this decision directly through judicial review. A recent example of this approach is seen in Canadian Union of Public Employees et al. v. The Minister of Labour for Ontario (2000), 2000 CanLII 16932 (ON CA), 51 O.R. (3d) 417 (C.A.) ("CUPE"), leave to appeal to the S.C.C. granted, [2001] S.C.C.A No. 33, where the union challenged the Minister's decision to appoint retired judges as arbitrators for specific types of arbitration proceedings.
- Persofsky and Liberty Mutual, et al. (FSCO P00-00041, July 3, 2001) – Appeal Order on Motion to Admit Evidence.
- See O. Reg. 11/01, made under the Financial Services Commission of Ontario Act, 1997.
- Rocca and AXA Insurance Company, (FSCO P99-00020, August 1, 2000).
- Singh and Commercial Union Assurance Company, cited above.
- Jimenez and Cumis General Insurance Company, (FSCO A97-001946, September 21, 1999); Morelli and Zurich Insurance Company, (FSCO A97-001997, June 27, 2000); and Sheikh and Canda Life Casualty Insurance Company, (FSCO A98-001038, December 23, 1999).
- Omar and Pafco Insurance Company Limited, (FSCO A98-001140, September 30, 1999); Da Silva and Kingsway General Insurance Company, (A97-002052, November 8, 1999); Kubarska and Coachman Insurance Company, (FSCO A98-000303, February 24, 2000), as corrected; Monney and Dominion of Canada General Insurance Company, (FSCO A98-001146, May 4, 2000); Baird and Pilot Insurance Company, (FSCO A98-001203, April 20, 2000); Hassan and Omar and CIBC Insurance, (FSCO A98-000030, August 4, 2000); Pires and Zurich Insurance Company, (FSCO A97-000110, June 28, 2000).
- Pires and Zurich Insurance Company, (FSCO A97-000110, November 19, 1999), upheld on appeal, (FSCO P99-00066, September 8, 2000).
- See, Ministry's Answers to Undertakings, Tab 26, "Speaking Notes for Arbitration Unit Meeting." See also, Transcript of cross-examination of Elisabeth Sachs, Q. 733 - 740.
- Sachs affidavit, paragraphs 65 and 66, and Exhibit 8, the "Adams Report.".
- Adams Report, pp. 53 and 57.
- These criteria are repeated in Rule 75.2 of the Dispute Resolution Practice Code (Fourth Edition).