Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2004 ONFSCDRS 13 Appeal: P03-00009

OFFICE OF THE DIRECTOR OF ARBITRATIONS

HAI HAN NGUYEN Appellant

and

WAWANESA MUTUAL INSURANCE COMPANY Respondent

Before: David R. Draper

Representatives: Albert Conforzi and Karen Kwan Anderson for Mr. Nguyen Darrell March for Wawanesa

Hearing Date: September 26, 2003, with additional written submissions filed in October 2003.

APPEAL ORDER

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

The appeal is dismissed and the arbitration order, dated February 19, 2003, is confirmed.
The parties will bear their own appeal expenses.

January 26, 2004

David R. Draper Director of Arbitrations

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal involves the rules governing settlements before March 1, 2002. Hai Han Nguyen submits that the Arbitrator’s conclusion that he settled his claim for statutory accident benefits is based on a misinterpretation of the Settlement Regulation.¹ For reasons set out below, the appeal is dismissed.

II. BACKGROUND

The basic facts, as found by the Arbitrator, are straightforward. On August 7, 2000, Mr. Nguyen was a passenger in his brother’s vehicle in the State of New York. They were stopped at a toll booth when their vehicle was rear-ended and pushed into the vehicle ahead. Mr. Nguyen claims that he suffered soft tissue injuries as a result of this accident.

On August 23, 2000, about two weeks after the accident, Mr. Nguyen’s lawyers, Pace Johnson,² filed an application for accident benefits with Wawanesa Mutual Insurance Company (“Wawanesa”). The Underwriters Adjustment Bureau Ltd. (“Underwriters”) negotiated the claim on behalf of Wawanesa. On May 7, 2001, approximately eight months after the accident, Pace Johnson sent a letter to Underwriters confirming Mr. Nguyen’s agreement to settle his claim for $2,500, plus all outstanding medical and treatment expenses.

One month later, on June 7, 2001, Underwriters wrote to Mr. Nguyen’s lawyers, confirming that Mr. Nguyen had accepted the settlement offer, and providing a Disclosure Statement and a Full and Final Release that Mr. Nguyen was asked to sign. No settlement funds were provided.

Instead, the letter advised as follows: “We will exchange the original Release for the settlement draft, and will contact you upon receipt of the settlement draft within 48 hours of receiving the original Release.”

After reviewing the Release, Mr. Nguyen reconsidered and did not sign. No one advised Wawanesa until July 2001, approximately one month later, when Mr. Nguyen applied for mediation. In October 2001, before the mediation took place, Wawanesa notified Mr. Nguyen of its position that he was not entitled to mediation because the matter was settled on June 7, 2001, when the disclosure notice was sent, and was not rescinded according to the legislation.

The mediation went ahead in November 2001, but the dispute was not resolved. Mr. Nguyen then applied for arbitration.

III. THE ISSUE

The version of the Settlement Regulation under consideration applies to settlements reached from January 1, 1994 to February 28, 2002. It provides as follows:

9.1 – (1) In this section, “settlement” means an agreement between an insurer and an insured person that finally disposes of a claim or dispute in respect of the insured person’s entitlement to one or more benefits under the Statutory Accident Benefits Schedule.

(2). Before a settlement is entered into between an insurer and an insured person, the insurer shall give the insured person a written notice that contains the following:

A description of the benefits that may be available to the insured person under the Statutory Accident Benefits Schedule and any other benefits that may be available to the insured person under a contract of automobile insurance.

A description of the impact of the settlement on the benefits described under paragraph 1, including a statement of the restrictions contained in the settlement on the insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act.

A statement that the insured person may rescind the settlement within two business days after the settlement is entered into by delivering a written notice to the insurer.

A statement that the tax implications of the settlement may be different from the tax implications of the benefits described under paragraph 1.

If the settlement provides for the payment of a lump sum in an amount offered by the insurer and, with respect to a benefit under the Statutory Accident Benefits Schedule that is not a lump sum benefit, the settlement contains a restriction on the insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act, a statement of the insurer’s estimate of the commuted value of the benefit and an explanation of how the insurer determined the commuted value.

A statement advising the insured person to consider seeking independent legal, financial and medical advice before entering into the settlement.

(3) A settlement may be rescinded by the insured person, within two business days after the settlement is entered into, by delivering a written notice to the insurer.

(4) If the insurer did not comply with subsection (2), the insured person may rescind the settlement after the period mentioned in subsection (3) by delivering a written notice to the insurer.

(5) A restriction on an insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act is not void under subsection 279(2) of the Act if,

(a) the restriction is contained in a settlement; and

(b) the insurer complied with subsection (2)

Unfortunately, these provisions have resulted in considerable confusion. Judges and arbitrators have had to deal with questions about the contents of the notice required by s. 9.1(2),³ and whether s. 9.1 applies at all to cases in litigation before the courts.⁴ The issue raised in this appeal has also been addressed, but with inconsistent results.

Mr. Nguyen argues that according to the plain wording of s. 9.1(2), the insurer must provide the disclosure notice “before any settlement is entered into between an insurer and an insured person.” The whole purpose of the notice, he submits, is to give the insured person a chance to reflect on the proposed settlement, with all the necessary information, and make a decision at that point. It follows, he argues, that the settlement is not finalized until the insured person confirms the settlement after receiving the notice, and the two day cooling-off period runs from that point.

This is the interpretation adopted by Arbitrator McMahon in Soordhar and Citadel General Assurance Company, (OIC A-006428, December 5, 1995):

I am persuaded on a reading of the section as a whole that the drafters intended that the delivery of the notice be a pre-condition to entering into a settlement. It is my view that the drafters contemplated that the parties would negotiate the basis for a settlement, following which the insurer would prepare the settlement documents including the notice provided for in subsection (2). If, after receipt and review of the disclosure statement, the insured person is still content to dispose of his or her claim on the basis of the settlement proposal, and confirms that intention by notifying the insurer that the settlement proposal is accepted, then and only then does the “cooling-off” commence.

This “three step approach” — (1) negotiate the terms of a settlement; (2) receive and review the disclosure notice; and (3) confirm the settlement — was followed in Turner and Economical Mutual Insurance Company, (OIC A-012411, June 30, 1997); Von Steun and Canadian General Insurance Group, (OIC A96-001516, March 18, 1998); and Craparotta and Canadian General Insurance Group, (OIC A97-000618, March 20, 1998).

The other line of decisions started with Abdulbaki and Royal Insurance Company of Canada, (OIC A-010205, December 12, 1995), a decision released just after Soordhar. Unlike most of the other decisions, Abdulbaki involved an insurer’s attempt to rescind a settlement agreement. In the course of her decision, the Arbitrator described the settlement process as follows: “First, negotiations by the parties result in a tentative settlement, then the insurer will deliver a comprehensive written notice to the insured person. After two business days elapse, an effective settlement will have been achieved.” In other words, the cooling-off period runs from receipt of the disclosure notice.

This interpretation is seen in a number of the more recent arbitration and court decisions: Birjasingh v. Coseco Insurance Co., 1999 CanLII 14888 (ON SC), [1999] O.J. No. 4546; Jiminez v. Markel Insurance Co. of Canada, (2000), 2000 CanLII 22389 (ON SC), 49 O.R. (3d) 402; Dhawan and State Farm Mutual Automobile Insurance Company, (FSCO A00-000031, April 20, 2001), appeal dismissed on other grounds; and Rose and CGU Insurance Company of Canada, (FSCO A01-000988, June 26, 2002). In Birjasingh, Nordheimer J. specifically disagreed with the interpretation in Soordhar:

With respect, that interpretation [the three-step approach] is, in my view, difficult to draw out of the wording of the settlement regulation. First, there is nothing in the settlement regulation which requires notification of the acceptance of the settlement. To the contrary, the settlement regulation is expressly worded to give effect to the settlement unless rescinded by the insured party. Secondly, one is left wondering why a cooling off period would be necessary in the process suggested by Arbitrator McMahon since the insured party has already received, and presumably reviewed, the disclosure statement and taken whatever time he or she might wish before confirming acceptance of the settlement to the insurer. Why then allow another two day period to rescind the settlement?

At arbitration, the parties argued about the correct interpretation. The Arbitrator preferred the approach taken in Birjasingh, concluding as follows:

I find the reasoning in Birjasingh more persuasive. More specifically, I concur with Justice Nordheimer’s ruling that: “The refusal of the resiling party to sign the release cannot be relied upon as invalidating the settlement. If the settlement is found to be enforceable, then the court merely orders that the release be signed as part of the relief granted.” I find that the settlement in this case is enforceable. First, there was an oral agreement on May 7, 2001. That oral agreement was committed to writing on the same day in a letter from Wawanesa to Mr. Nguyen’s counsel.

Wawanesa complied with the requirements of the Settlement Regulation by forwarding disclosure notice and a release on June 7, 2001. Mr. Nguyen had the option of delivering written notice to Wawanesa of his intention to rescind the settlement within two business days after receipt of the settlement documents. He did not do so. I do not accept Mr. Nguyen’s argument that it was not necessary to forward notice of an intention to rescind the agreement as there was no agreement because no release was signed. An agreement between the parties had been concluded to which a signed release was not a prerequisite. [footnote omitted]

Mr. Nguyen appealed, claiming the Arbitrator erred in rejecting the three-step approach. After the appeal hearing, I asked the parties to make written submissions on the recently released arbitration decision in Aboufarah and Allstate Insurance Company of Canada, (FSCO A02-001076, September 30, 2003), currently under appeal. This decision, discussed in more detail below, arguably finds a middle path between the two lines of decisions discussed above.

III. ANALYSIS

The Settlement Regulation must be viewed in context. In 1990, Ontario’s approach to compensating automobile accident victims changed dramatically. The right to sue was restricted and, in exchange, injured persons were given access to an expanded range of accident benefits, payable on a first-party basis regardless of fault. In part, these changes were meant to address the unsatisfactory nature of lump sum compensation, including the expensive and protracted litigation often required to establish liability and damages.⁵ Accident benefits are designed to meet the needs of injured persons as they arise, with any disputes being resolved quickly and less formally through an alternative dispute resolution process that involves mandatory mediation and arbitration as an alternative to the courts.

Since 1990, the legislation has protected access to the dispute resolution process. Subsection 279(2) of the Insurance Act states: “Any restriction on a party's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 is void except where the restriction forms part of a settlement.”⁶ This suggests that the settlement of statutory accident benefits, including settlements on a full and final basis, have been an accepted part of the process from the outset.

In 1994, formal rules were created for settlements. The Act was amended to authorize regulations “governing agreements to settle claims and disputes in respect of statutory accident benefits.”⁷ The resulting Settlement Regulation was clearly introduced as consumer protection legislation. However, it did not prevent or even discourage settlements. Instead, the regulation provided safeguards to ensure that insured persons did not give up their right to claim benefits without understanding the implications of doing so, including a cooling-off period. As Arbitrator Vanderbent held in King and Wawanesa Insurance Company, the purpose was not to create a legislative minefield that would undermine the parties’ ability to enter into an enforceable settlement, but to ensure that the insured person has adequate information to make an informed decision, particularly if he or she is unrepresented.⁸

Like other arbitrators and judges who have considered the Settlement Regulation, I find the wording problematic. Ultimately, however, I agree with the more recent decisions that have rejected the three-step approach. Section 9.1 adds a formal disclosure requirement to protect the insured person; it does not fundamentally alter the common law rules about negotiating settlements. The parties can still negotiate a settlement, as defined in s. 9.1(1), but it will not be “entered into” until the insurer provides the written notice required by s. 9.1(2). Until this notice is provided, and for two business days thereafter, the insured person can rescind the settlement. This is the protection provided by the regulation. I am not persuaded that it necessarily requires a fresh confirmation of the settlement after the notice is provided.

The question in each case is whether the parties reached a settlement at the first step — Was it a final settlement subject to the required notice, or a tentative settlement requiring review and confirmation by the insured person? Legitimate confusions about the Settlement Regulation and the lack of any prescribed forms have complicated this inquiry.⁹ However, even in Soordhar, the Arbitrator considered the nature of the parties’ original agreement, finding that “the Insurer treated the delivery of the written notice as a pre-condition to entering into a settlement” [p. 8].

The recent decision in Aboufarah, cited above, is particularly interesting. In that case, the parties’ representatives agreed to settle all claims on a full and final basis for a certain dollar amount. The next day, Allstate confirmed the settlement in a fax to Ms. Aboufarah’s representative, and provided the notice required by the Settlement Regulation and a release to be completed and returned. Ms. Aboufarah did not sign the release. Nor did she notify Allstate in writing that she was rescinding the settlement until much later, when she challenged the validity of the settlement through a new representative.

The Arbitrator made a number of important factual findings. First, he found that Ms. Aboufarah’s representative had the requisite authority to settle the matter on a full and final basis. Second, he found that the parties agreed on all of the terms of the settlement. Finally, he found that Allstate’s letter was confirmation of a settlement, not simply confirmation of a settlement that would be concluded at some point in the future. Based on these findings, the Arbitrator held that the settlement was not contingent on Ms. Aboufarah signing the release, or on Allstate forwarding the settlement funds.

The Arbitrator then considered the cooling-off period. He reviewed the earlier cases, concluding that the essential concern underlying both lines of decisions was the protection of the insured person. In his opinion, therefore, the point at which the cooling-off period is triggered depends on the particular facts of the case. In some cases, it may be necessary for the insured person to receive, review and formally acknowledge the acceptance of the settlement before the cooling-off period is triggered — “the mere conclusion of an agreement followed by the sending of the required notice may not trigger the cooling-off period if other steps are required to protect the insured.” [p. 14] However, on the facts before him, the Arbitrator found no reason to invoke any additional procedural requirements. He held that the cooling-off period ran from Ms. Aboufarah’s receipt of the settlement documents.

I agree with this focus on the facts of the case. If the parties truly negotiate a settlement, agreeing on all of the terms, the insurer fulfills its obligations by sending the s. 9.1(2) notice. Unless the insured person rescinds the settlement within two business days of receiving this notice, the settlement is “entered into,” and is no longer subject to rescission under the Settlement Regulation. However, if the settlement is made subject to some further step, including the insured person’s review of the disclosure notice, the settlement cannot be finalized until that step is completed.

While perhaps less explicit than Aboufarah, I conclude that the Arbitrator in this case took a similar approach. She found that the parties reached an oral settlement agreement on May 7, 2001, that was confirmed in writing the same day, and was not contingent on Mr. Nguyen signing a release or confirming the settlement in any other manner. She found that Wawanesa fulfilled its obligations by providing the settlement documents on June 7, 2001. I am not prepared to re-visit these findings on appeal. It follows, as the Arbitrator states, that Mr. Nguyen had the option of delivering written notice of rescission to Wawanesa within two business days of receiving the settlement documents. He did not do so and, therefore, the settlement is binding.

IV. APPEAL EXPENSES

Although Mr. Nguyen was unsuccessful in his appeal, he raised an issue of general importance on which there were conflicting decisions. His position was presented clearly and fairly, with no delay. These are factors to be considered under the Expense Regulation,¹⁰ leading me to conclude that the parties should bear their own appeal expenses.