Neutral Citation: 2004 ONFSCDRS 192

FSCO A03-001063

BETWEEN:

SIVAHARAN KULASEKARAMPILLAI

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before:

Susan Sapin

Heard:

July 19, 2004, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

David S. Wilson for Mr. Kulasekarampillai

Jonathan B. Schrieder for State Farm Mutual Automobile Insurance Company

The Applicant, Sivaharan Kulasekarampillai, was injured in a motor vehicle accident on December 18, 2002. He applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm") payable under the Schedule,¹ in the form of $100 per week for housekeeping services and a $400 per week income replacement benefit. State Farm terminated these benefits on March 25 and May 3, 2003, respectively. The parties were unable to resolve their disputes through mediation, and, on August 5, 2003, Mr. Kulasekarampillai applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The arbitration hearing was scheduled for July 19, 2004. In December 2003, Mr. Kulasekarampillai brought a motion for interim housekeeping benefits and IRBs. The motion was dismissed in a decision dated January 21, 2004.

On July 7, 2004, twelve days before the arbitration hearing, State Farm unilaterally reinstated Mr. Kulasekarampillai's IRBs at a weekly rate of $119.34 and housekeeping benefits at $100 per week.

At the start of the arbitration hearing before me, the parties advised that State Farm conceded Mr. Kulasekarampillai was entitled to ongoing IRBs and housekeeping expenses and these two issues, as well as medical benefits and interest, were no longer in dispute. However, Mr. Kulasekarampillai submitted that his ongoing weekly IRB rate should be $400 per week, and not $119.34 as calculated by State Farm. In addition, the parties were unable to agree on whether Mr. Kulasekarampillai was entitled to an Order for ongoing benefits or a special award. At the hearing, Mr. Kulaskearampillai withdrew his claim for interest on overdue benefits.

I find the issues in dispute before me to be:

Is Mr. Kulasekarampillai entitled to an Order for ongoing housekeeping benefits and ongoing IRBs under section 287 of the Insurance Act?
If Mr. Kulasekarampillai is entitled to an Order for IRBs, should the amount of the weekly IRB be included in the Order?
Is Mr. Kulasekarampillai entitled to a special award?
Is Mr. Kulasekarampillai entitled to his expenses of the arbitration?

Mr. Kulasekarampillai is entitled to an Order for housekeeping expenses of $100 per week up to December 18, 2004 and ongoing IRBs of $400 per week, less any amounts already paid.
Mr. Kulasekarampillai is entitled to a special award of $5,000, inclusive of interest, under subsection 282(10) of the Insurance Act
Mr. Kulasekarampillai is entitled to his reasonable expenses of the arbitration proceeding.

At a pre-hearing conference held on November 6, 2003, the parties identified and agreed upon the issues in dispute, including that Mr. Kulasekarampillai claimed an IRB from May 3, 2003 "ongoing ... at the agreed rate" of $400 per week. The parties also agreed to an arbitration hearing date of July 19, 2004.

Seven months later, on February 24, 2004, State Farm sent Mr. Kulasekarampillai its accountant's report which calculated a weekly IRB of $119.34. State Farm requested repayment of the difference between that amount and the $400 weekly IRB it had paid, and sought Mr. Kulasekarampillai's consent to add the issue of quantum of IRB to the upcoming arbitration, without first applying for mediation.² Mr. Kulasekarampillai refused, and State Farm brought a motion to adjourn the arbitration hearing until the issue of quantum could be mediated. Arbitrator Kominar heard the motion on July 2, 2004 and declined to grant the adjournment,³ as it was not in compliance with FSCO's adjournment policy. He noted the delay in requesting the adjournment, and that State Farm conceded it should have been aware of the quantum issue earlier.

1. Order for ongoing benefits

Section 267 of the Insurance Act requires insurers who wish to reduce the benefits awarded to an applicant by an arbitrator to first apply to the Director of Arbitrations for a variation or appeal of the arbitrator's order. The title of the section, "Protection of benefits," leaves no doubt about its purpose:

An insurer shall not, after an order of the Director or of an arbitrator appointed by the Director, reduce benefits to an insured person on the basis of an alleged change of circumstances, alleged new evidence or an alleged error, unless the insured person agrees or unless the Director or an arbitrator so orders in a variation or appeal proceeding under section 283 or 284.

Mr. Kulasekarampillai submitted that he should not be deprived of the protection afforded by section 287, because he was required to bring an arbitration proceeding in order to obtain his benefits, and State Farm should not be able to pre-empt him from obtaining the protection of an Order, simply by unilaterally reinstating his benefits prior to the hearing.

In Nelson and Liberty Mutual Insurance Company, (FSCO A00-000253, November 8, 2001), a similar case where IRBs were unilaterally reinstated by the insurer prior to an arbitration hearing, I found there were only two ways to obtain an Order for ongoing benefits - 1) after a hearing on the merits; or 2) on the consent of the parties. I held that, in the case where an insurer conceded entitlement and reinstated the disputed benefits prior to a hearing, but refused to consent to an Order for ongoing benefits, there was no reason why a hearing on the merits could not still take place.

This reasoning was upheld by Director's Delegate Makepeace in Allstate Insurance Company of Canada and Simpson (FSCO P01-00057, June 6, 2003) when she held that an arbitrator's decision to make an Order for ongoing benefits without first holding a hearing on the merits was premature and exceeded his jurisdiction.

As State Farm refused to consent to an Order for ongoing benefits, despite conceding that Mr. Kulasekarampillai is entitled to ongoing entitlement to IRBs and housekeeping benefits, the hearing proceeded on the merits. Mr. Kulasekarampillai testified about his accident, injuries, essential tasks of employment and impairment, and was cross-examined. State Farm did not present any viva voce evidence. Exhibits were filed.

I find that, on the merits, Mr. Kulaskekarampillai meets the test of entitlement to IRBs under section 4 and to housekeeping benefits under section 22 of the Schedule. I further find that State Farm concedes that he meets the criteria for eligibility for these benefits. I find therefore that Mr. Kulasekarampillai is entitled to ongoing IRBs, and to housekeeping benefits up to 104 weeks. At that point, housekeeping benefits are no longer available to him under section 22.

For the reasons set out below, I further find that Mr. Kulaskekarampillai is entitled to an Order that specifies a weekly IRB at the rate of $400 as claimed.

2. Quantum of IRB

As the issues of quantum and repayment were not mediated prior to the arbitration hearing before me as required by sections 280 and 281(2) of the Insurance Act, I have no jurisdiction to determine those issues. Consequently, I heard no evidence on those issues.

In my view, the quantum of IRB is $400 per week was identified and agreed to by the parties in the November 6, 2003 pre-hearing letter, and it is not an issue in dispute before me at this time.

The Commission was not advised by either party of any error in the pre-hearing letter. Although I do not accept Mr. Wilson's argument that the issues set out in the pre-hearing letter constitute a "judicial admission" from which State Farm should not be permitted to resile, I remind the parties that the pre-hearing conference is an essential and crucial step in the arbitration process, and the point at which the issues in dispute to be determined by an arbitrator at a hearing are identified and agreed to. Issues raised after the pre-hearing has taken place must first be mediated before an arbitrator can order them to be added to an existing arbitration proceeding.

State Farm argued that it erred in first paying Mr. Kulasekarampillai an IRB of $400 per week instead of $119.34, and that it would be prejudiced if required to pay him an ongoing IRB at the higher rate to which he is not entitled, without being able to dispute it. It further argued that I had no jurisdiction to identify the amount of IRBs in an Order for ongoing benefits, because that would require me to "determine" a "dispute" that was not mediated, which I did not have jurisdiction to do.

I have little sympathy for these arguments. I find State Farm did not become aware of its error and did not inform Mr. Kulasekarampillai of it until February 2004, ten months after it had stopped paying him. I futher find State Farm had ample time to mediate the issues of repayment and quantum and have them added to this arbitration, and simply did not do so because it hoped Mr. Kulasekarampillai would consent to add them, something Mr. Kulasekarampillai is not required to do, and which he indicated he would not do.⁴

State Farm is not without a remedy in this case, as section 284 of the Insurance Act entitles it to apply to the Director of Arbitrations to vary or revoke any order I make.

Finally, it is not open to me, in my view, to make an Order for payment that does not include the amount to be paid on its face. Such an Order would not be enforceable. The only amount I have jurisdiction to order in the case of IRBs is the amount the parties identified and agreed to for the purpose of this arbitration proceeding, which is $400 per week from May 3, 2003 and ongoing, less any amounts already paid.

3. Special Award

Mr. Kulasekarampillai submits he is entitled to a relatively large special award under 282(10) of the Insurance Act because State Farm unreasonably witheld payment of his benefits. He submits State Farm terminated his benefits in May 2003 on the basis of inadequate medical evidence, failed to continue to properly adjust his claim by following up on the evidence of psychological impairment provided by his treating psychologist, ignored medical evidence submitted by his own health practitioners, and that it relied on the opinion of a medical specialist that was clearly at odds with well-known FSCO jurisprudence on chronic pain. He further submitted that State Farm had no new medical basis to change its mind, and that it reinstated his benefits only after its adjournment request was denied, as a strategic measure to avoid an unsuccessful result at arbitration.

I accept State Farm's submission that termination was reasonable given that it had no medical evidence other than a Disabity Certificate to weigh against its own insurer examination (IE) evidence at the time. (OT report of J. Tomlins and othopaedic examination of Dr. Paititch, March 2003). I do not find it was unreasonable for State Farm to rely on this evidence. However, given the absence of insurer medical evidence after termination in the face of medical information on behalf of Mr. Kulasekarampillai that appeared to indicate psychological problems and a possible chronic pain condition, I find it was remiss of State Farm not to either follow up on that information, or to obtain at least a psychological IE.

A review of the correspondence filed in evidence and the tenor of the parties' submissions suggests that both engaged in strategic gamesmanship at certain points.

All things considered, however, I find that State Farm's handling of the file, including the late notice of emerging or underlying issues and failure to act in a timely manner to investigate or resolve them, delayed the eventual payment of benefits. I find a moderate special award, inclusive of the interest specified in subsection 282(10) and based on an IRB of $400 per week and housekeeping benefits of $100 per week, of $5,000 to be appropriate.

EXPENSES:

I find Mr. Kulasekarampillai is entitled to his reasonable expenses of this proceeding. If the parties are unable to agree on the amount of expenses to be paid, either party may make an appointment for me to determine the amount within 30 days of this decision.

December 24, 2004

Susan Sapin Arbitrator

Date