Neutral Citation: 2004 ONFSCDRS 144

FSCO A03-000027

BETWEEN:

JOSEPH OFORI

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

DECISION ON EXPENSES

Before:

John Wilson

Heard:

April 30, 2004 at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Peter Cozzi for Mr. Ofori

Ian D. Kirby for Allstate Insurance Company of Canada

Issues:

The Applicant, Joseph Ofori, was injured in a motor vehicle accident on April 8, 2002. In a decision dated November 20, 2003, I dealt with his claims for statutory accident benefits under the Schedule.¹ I made the following orders, while reserving on the issue of expenses:

Mr. Ofori has not proven the existence of an impairment arising from the accident, and is not entitled to either caregiver or medical benefits. Consequently, his arbitration application is dismissed subject to any claim for expenses.

The issues in this further hearing are:

Is Mr. Ofori entitled to his expenses incurred in respect of the arbitration under section 282(11) of the Insurance Act?
Is Mr. Ofori liable to pay Allstate's expenses in respect of the arbitration under section 282(11) of the Insurance Act?

Result:

Mr. Ofori is entitled to reimbursement of his incurred expenses for his initial expert report responding to the Insurer's allegations of a staged accident.
With the above exception, neither party is entitled to its expenses.

EVIDENCE AND ANALYSIS:

Mr. Ofori's accident benefit claim was never paid by the Insurer. After the usual initial investigation and the taking of statements, the Insurer, for some reason, referred the accident information to a firm which analysed such events and drew conclusions about events and conditions surrounding motor vehicle collisions.

From that point on, the Insurer took the position that there had not been a true motor vehicle accident as that term was used in the Schedule, and that any claimed disability, even if supported by medical evidence, could not give rise to a claim for statutory accident benefits.

I found that:

Mr. Ofori provided the Insurer with prima facie evidence at the time of the claim of an incident involving the two vehicles.
Notwithstanding general credibility issues, which are touched on later, his testimony at the hearing on this issue was corroborated by the physical evidence of the damage to the two vehicles and the statements of eyewitnesses. By any reckoning he met the standard of proof, on a balance of probabilities, that an incident involving contact between the two vehicles took place on April 8, 2002.
Mr. Ofori provided, through his expert's report, a reasonable explanation of how the damage could be consistent with an accident. It is important to note that the Insurer chose not to cross-examine the maker of this report, as was its right. Instead, it chose to attempt to impugn the report by other evidence.
The alternative scenario sketched out by the Insurer, which involved removing the vehicles to another place and battering them to oblivion with blunt objects to simulate accident damage, is too improbable, even if, as alleged, the owners of the vehicles were colluding in some way to create an "accident."
The Insurer did not cross-examine the Applicant's expert, leaving his opinions on the circumstances of the incident uncontradicted, and weakening the credibility of its rebuttal report.
The Insurer, faced with at least prima facie evidence of an incident involving two motor vehicles, did not meet the resulting shift of the "tactical" burden of demonstrating that, in its own words, there was "no accident."
Mr. Ofori was involved in a motor vehicle accident as defined by the Schedule, but has not proven that he suffered any compensable impairment arising from that accident.

Although I found that the Insurer had not proven its case that Mr. Ofori and Mr. Nur conspired to create an "accident" that never happened, I noted that there was conduct during the claims period that could have also disentitled Mr. Ofori from the statutory accident benefits that he has claimed.

This was, specifically, his obfuscation and overall pattern of withholding pertinent evidence about his claimed injuries. I concluded that Mr. Ofori made false statements as part of his claim, that would have also deprived him of the benefit of his right to be indemnified by his insurer.

Counsel for Mr. Ofori suggests that my findings should still give rise to an expense order in the Applicant's favour, since, in his view, the Insurer lost on a critical issue. In such circumstances, he believes that there should be a severe cost sanction for the unproven allegation of fraud raised by the Insurer.

The criteria for an order of expenses are set out in section 75 of the Practice Resolution Practice Code (4^th^ Edition, Updated October 2003). Subsection 75.1 establishes the jurisdiction of an arbitrator to award expenses, while subsection 75.2 reflects the principles for an award, as set out in the Expense Regulation (Regulation 664, R.R.O. 1990, as amended).

The revised Expense Regulation now reads:

(1) The expenses set out in the Schedule are prescribed for the purpose of subsection 282 (11) of the Act, R.R.O. 1990, Reg. 664, s. 12.

(2) An arbitrator shall, under subsection 282 (11) of the Act, consider only the following criteria for the purposes of awarding all or part of the expenses incurred in respect of an arbitration proceeding:

Each party's degree of success in the outcome of the proceeding.
Any written offers to settle made in accordance with subsection (3).
Whether novel issues are raised in the proceeding.
The conduct of a party or a party's representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders.
Whether any aspect of the proceeding was improper, vexatious or unnecessary. O. Reg. 275/03, s. 4.

(3) Upon the request of the insurer or the insured person, the arbitrator shall, for the purposes of awarding expenses, take into account all written offers to settle, if any,

(a) that were made after the conclusion of mediation and before the conclusion of the arbitration; and

(b) that were made in accordance with the rules of practice and procedure applicable to the proceeding. O. Reg. 275/03, s. 4.

(4) If the arbitrator is requested to take into account a written offer under subsection (3), the arbitrator shall have regard to the terms of the offer, the timing of the offer, the response to the offer and the result of the proceeding. O. Reg. 275/03, s. 4.

The Expense Regulation uses the term "expenses" instead of the more usual word "costs" in the context of a reimbursement of legal expenses incurred by a party to an arbitration. While "costs" generally refers to the practice of providing an allowance to a successful party, based on known scales or tariffs, to indemnify him or her for some of the expenses incurred, "expense" seems to have a more simple meaning.

The Canadian Oxford Dictionary describes "expense" as:

Cost incurred; payment of money. 2 a costs incurred in doing a particular job etc. (willpay your expenses). b an amount paid to reimburse this

Clearly, the legislature in using the word "expense" meant to indemnify a party for its actual incurred expenses up to any statutory limit.

Mr. Ofori claims indemnification for his costs in bringing this arbitration, up to the limits provided by the Dispute Resolution Practice Code.

The Applicant bases his claim for expenses on what it views as the Insurer's mixed success in this matter. Out of all the issues raised in matter, the Insurer succeeded on only one, albeit one that had the effect of barring access to benefits.

Counsel for Mr. Ofori also points to the jurisprudence at the Commission that underlines the importance of access to justice as an important element in support of his claim for expenses. He claims that at arbitration, Mr. Ofori raised some important issues that have not been conclusively addressed by either arbitrators or judges.

Director's Delegate Draper in the appeal of Gray and Zurich Insurance Company (FSCO P98-00047, June 11, 1999), examined the role of an arbitrator in awarding expenses subsequent to the implementation of subsection 282(11) of the Insurance Act and the Settlement Regulation.

Arbitrators now have an obligation to consider the legislated criteria, including the result, applying them to both parties. However, I agree with the arbitrator that the criteria do not reflect a move to the kind of results-based approach used by the courts. Success is only one criterion in an open-ended list and, therefore, must be weighed against the other relevant considerations. I also agree with the arbitrator that the criteria, specifically clause 6, leave room for concerns about the access to the dispute resolution system. One aspect of accessibility is that insured persons should have a reasonable opportunity to raise novel issues of interpretation, particularly those of general importance.

There have been significant changes since Gray, however. The Expense Regulation now, constrains the arbitrator with the words "consider only the following criteria" followed by a list that expressly removes the "catch-all clause" "any other matter related to the proceeding that the adjudicator considers relevant."

An award of expenses or costs has a double nature. On one hand, it is some compensation for the expenses incurred by a party in successfully litigating a matter. On the other hand, it may also be, to some degree, a punitive matter, awarded to ensure that an abuse of process or outrageous conduct by a party is appropriately sanctioned.

From a compensatory point of view, I find that the Insurer's position on the substantive issues was upheld on arbitration, and that if costs were to slavishly follow the cause, it would be entitled to compensation in accordance with the expense provisions.

Although Mr. Kirby's conduct at the actual arbitration was beyond reproach, I cannot necessarily say the same about the position taken by his client Allstate with regard to its allegations of fraud. As noted in my earlier decision, the Insurer, early on, raised allegations that Mr. Ofori had staged the accident, allegations that it was unable to sustain at the hearing.

The Insurer clearly lost the battle on the ground it had chosen, that of a "staged accident."

I do not accept, however, Mr. Cozzi's characterization of the outcome of the matter as a split decision. The Insurer submitted that Mr. Ofori's claim should fail. I accepted its submissions as the only reasonable conclusion on the evidence before me and so held.

It is usually irrelevant that the insurer advanced alternative theories in support of its argument, not all of which were relied upon in making my decision. The unsupported accusation of large-scale fraud, however, is a different matter.

As noted, I found that, "By any reckoning he met the standard of proof, on a balance of probabilities, that an incident involving contact between the two vehicles took place on April 8, 2002" and that "the alternative scenario sketched out by the Insurer, which involved removing the vehicles to another place and battering them to oblivion with blunt objects to simulate accident damage, is too improbable, even if, as alleged, the owners of the vehicles were colluding in some way to create an 'accident.'"

Traditionally, the courts have viewed accusations of fraud as a serious matter, not to be entertained lightly or as part of some boiler plate pleading. In a court setting, however, the consequences of such outrageous conduct would usually be an award of solicitor-client costs, something that is not provided for in our enabling legislation.

Nonetheless, court decisions provide a useful guide to the appropriate approaches to an award of costs or expenses when an allegation of fraud is made.

As then Justice Rosenberg stated in ProcorLtd. v. U.S.W.A. (1990) 1990 CanLII 6637 (ON HCJ), 71 O.R. (2d) 410:

Solicitor-and-client costs may be justified where a defendant unjustly accuses a plaintiff of fraudulent and dishonest conduct, (and) persists in those assertions through to and including trial without being able to substantiate them.

More recently, Mesbur J., in Duca Community Credit Union Ltd. v. Giovannoli [2000] O.J. No. 4773, commented:

Allegations of fraud should not be made lightly...Counsel are aware of the risks of alleging fraud, and failing to prove the claim. If they choose not to withdraw the allegations, and they are unproven, they do so at the peril of solicitor/client costs. I echo the reasoning of Winkler J. in Toronto Dominion Bank v. Leigh Instruments, supra, when he stated at page 6: "...the court should not condone the recent trend in commercial cases of alleging fraud, seemingly without regard for the rule that fraud must be strictly pleaded and strictly proved. While parties are free to conduct litigation in this manner, they must remain mindful of the potential cost consequences."

The most significant difference between the above cases and Mr. Ofori's claim is that he was unsuccessful in his substantive claim, notwithstanding his success on the fraud issue.

Under earlier versions of the Schedule, there would be no doubt that he could possibly recover his expenses. Under the present legislative scheme, although the Insurer's conduct in persisting with its theory of a fraudulent accident may have unnecessarily prolonged the hearing, an arbitrator is also enjoined to consider the relative success of the two parties in any expense award.

There are, then, competing policy reasons at play in this matter that could potentially support an award of expenses to either party.

In Toronto Harbour Commissioners v. T.H.C. Parking Inc.² Nordheimer J. awarded costs to a losing party in a situation analogous to that of Mr. Ofori. On consideration of leave to appeal the cost order, Charron J.A.³ found that although it was in the judge's discretion to impose cost consequences to the failure to prove the allegations of fraud, in light of the defendant's conduct and the plaintiff's success, and his observation that "the allegations, although serious in nature, were not the most egregious of their kind", gave leave to appeal but made no cost order, either in first instance or appeal.

While there may be jurisdiction to order costs to a losing party, in Charron J.A.'s opinion, it should be reserved for the most egregious situations, and take into consideration any relevant conduct of that party.

In Polish National Union of Canada v. Dopke [2002] C.C.S. No. 946, J.W. Quinn J. decided that a party whose conduct attracted punitive damages was not entitled to a cost order, despite unsupported accusations of fraud. The appropriate response was to deny costs to both sides.

I agree with J.W. Quinn J.'s approach with the following exception. I find that neither party shall be entitled to expenses, with the exception of the direct disbursements made by Mr. Ofori to commission his own responding report on the issue of the "staged accident" raised by the Insurer, which shall be payable by the Insurer.

The commissioning of the accident reconstruction report set into motion the accusations of fraud which dominated this arbitration. The Insurer, by unnecessarily opening that can of worms, and by raising an issue, supported if at all, only by questionable "expert" evidence took this arbitration through hours of unneeded testimony, and rendered the process both lengthy and acrimonious.

I heard no evidence that the Insurer's action in raising the question of fraud, early in the process was in any way justified by credible information in its possession. Once raised, it had an obligation to withdraw the accusations when faced with the lack of credible supporting evidence. By not doing so it risked the consequences of losing on that issue.

The accident benefits scheme involves a first party relationship. This relationship is characterized by "uberrima fides" - "the most abundant good faith; absolute and perfect candor or openness and honesty."⁴ The arbitration of disputes in this scheme takes place in a forum that is "quicker, less expensive and less formal" than litigation. These goals cannot be maintained if parties raise spurious, unsupported allegations of a nature that brings the very process into disrepute.

There were good reasons for denying all or part of Mr. Ofori's insurance claim, but the evidence does not suggest that an organized conspiracy to fraudulently create accidents was among those reasons.

I find that under the circumstances, it was entirely appropriate for Mr. Ofori to respond as he did and engage experts to examine the Insurer's allegations of fraud and criminal activity. He should be indemnified for the expense of retaining those experts to write the initial report.

With regard to any other claim for expenses advanced by Mr. Ofori, his actions in failing to prove his claim and in obscuring his previous health record disentitle him to such expenses.

Likewise, the Insurer's unproven allegation of a serious fraud, on the part of Mr. Ofori and others deserves a serious sanction - in this case, the denial of its expenses in this arbitration.

If the parties are unable to agree on the exact amount of the expense order, I may be spoken to if contacted within the next 30 days.

September 29, 2004

John Wilson Arbitrator

Date