Neutral Citation: 2004 ONFSCDRS 77

FSCO A01-000858

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MARINA BERSHTEYN

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before:

John Wilson

Heard:

January 7, and 8, 2004, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Roland Spiegel for Ms. Bershteyn

Richard F.L. Rose for Allstate Insurance Company of Canada

Issues:

The Applicant, Marina Bershteyn, was injured in a motor vehicle accident on December 21, 2000. Although the accident was not serious enough for her to miss time from work, she applied for statutory accident benefits from Allstate Insurance Company of Canada ("Allstate"), payable under the Schedule.¹ The parties were unable to resolve their disputes concerning the benefits payable through mediation, and Ms. Bershteyn applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

1. Is Ms. Bershteyn entitled to reimbursement of the cost of a disability certificate issued March 7, 2001 by Dr. Nakamura?

2. Is Allstate entitled to its expenses against either or both of Ms. Bershteyn and Mr. Spiegel her representative?

3. Is Ms. Bershteyn entitled to her expenses in this matter?

Results:

1. Ms. Bershteyn is not entitled to reimbursement for the disability certificate.

2. Allstate is entitled to its expenses against the nominal applicant, Ms. Bershteyn which shall be payable by Mr. Spiegel.

3. Ms. Bershteyn is not entitled to her expenses in this matter.

EVIDENCE AND ANALYSIS:

This two-day hearing involved a potential benefit that totalled less than $100. It was the culmination of a series of pre-hearings and hearings, including an appeal to the Director of Arbitrations and allegations of institutional bias. In the mind of the principal architect of this claim, however, this arbitration raised important legal and consumer protection issues relating to Allstate's' refusal to fund a supplementary disability certificate that the Insurer viewed as both inappropriate and of dubious reliability.

Ms. Bershteyn, the nominal applicant in this matter did not take part in the proceedings, and was not present for the hearing of this matter. Indeed, the Insurer raised unanswered questions concerning the validity of her signature on certain documents leading to this hearing. Essentially, this matter was a dispute between Allstate and Mr. Spiegel, a paralegal who, from time to time, represents applicants and treatment providers in this forum.

The dispute being adjudicated constitutes of two parts; the first the payment of the disability certificate, and the second the question of who should bear the costs of the extended litigation in this matter.

The Disability Certificate

Following the motor vehicle accident, Ms. Bershteyn, through Mr. Spiegel provided Allstate with a disability certificate from Dr. Liane Nakamura. This certificate was duly paid for by Allstate. A further certificate provided by Dr. Nakamura was received by fax from Mr. Spiegel.

On March 7, 2001, Allstate wrote to Dr. Nakamura concerning the supplementary disability report. Mr. Gold wrote on behalf of Allstate:

We would appreciate your clarification in that page #2 of the Certificate appears to have been "cut and pasted". Page #3, which you appear to have signed has left blank the Sections dealing with "pre-accident caregiving activities" and "substantially al of his or her normal pre-accident activities" and "pre-accident housekeeping and/or home maintenance activities". These Sections are blank on the page that you appear to have signed yet they appear to have been completed on what appears to be a "cut and pasted" Page#2.

Would you please be so kind as to give us a copy of the document that you did sign.

Neither Dr. Nakamura, nor Ms. Bershteyn, nor her representative ever produced the original copy of the signed disability certificate. Allstate did produce a copy of the faxed certificate, as well as a standard blank form. I accept that there are several significant differences between the format of the blank form and that of the form signed by Dr. Nakamura, differences that would tend to support the questions raised by Mr. Gold in his letter to Dr. Nakamura. Mr. Spiegel argued that any differences could be attributed to the fax machine, but produced no evidence that such a technical problem had ever occurred, nor any plausible explanation of the mechanism for such a unilateral realignment of the form by a machine.

In the same letter of Dr. Nakamura, Mr. Gold raised the matter of Ms. Bershteyn's refusal to participate in a home assessment which related to matters covered by the certificate.

The home assessment in question had been arranged for February 26, 2001, by Allstate, and Ms. Burshsteyn had been advised by letter dated February 9. On February 13, 2001, Mr. Spiegel replied by fax as follows:

This is with reference to your correspondence of February 9/2001 regarding the Insurer's Examination/s schedule for our client on February 26/2001 at Mrs Bershtein (sic) residence please cancel the appointments since our client/s will not be able to attend.

A further letter from Allstate dated February 16, 2001, directed to Mr. Spiegel, stated:

Should your client fail to attend for this assessment she will be noted in non-compliance pursuant to Section 42 of the SABS. Any benefit payable including the cost of your assessments will not be payable unless your client complies with your request.

A further letter, reiterating Allstate's position, and requesting that Ms. Bershteyn re-consider was sent on February 23, 2001.

Although at the hearing, the Insurer did not rely on section 42 of the Schedule as a bar to the claim for reimbursement of the cost of the disability certificate, it introduced the evidence of non-compliance in the context of the overall reasonableness of a certificate in support of a claim that would, necessarily, be barred by the failure to comply with the section 42 request.

Mr. Spiegel claims that the reference to the section 42 problem is irrelevant since no claim for housekeeping benefits has been brought to arbitration, and, in any event, the insurer's obligation to indemnify an insured for the costs of examinations and reports is not a "benefit" as referred to in section 42. According to Mr. Spiegel a report or a certificate is not a benefit, although it may be used in support of one.

Section 42 (8) of the Schedule reads:

If an insured person fails or refuses to submit to an examination required by the insurer under this section or fails to comply with subsection (5),

(a) the insurer may stop payment of the benefit related to the examination until the person submits to the examination or complies with subsection (5) after which time the insurer shall resume payment of the benefit: and

(b) no benefit is payable for the period after the giving of the notice under subsection (1) or the failure to comply with subsection (5) and before the insured person submits to the examination and complies with subsection (5).

Neither the Insurance Act nor the Schedule define the word "benefit".

The Canadian Oxford Dictionary defines it as:

1. Favourable or helpful factor or circumstance;advantage,profit2(often in pl.) Allowance of money etc. to which a person is entitled from a pension plan, government support programs, etc. (unemployment insurance benefits). 3. (often in pl.) An advantage other than a salary associated with a job, e.g. dental coverage, life insurance, etc.

The French version of the Schedule² uses the word "indemnité" for the word "benefit." The French word is much more explicit in its meaning than the English. Harrap's New Shorter French and English Dictionary translates "indemnité" as:

(a) Indemnity, indemnification, compensation (for loss sustained)

(b) penalty ( for delay, non-delivery) (c) allowance, grant.

Other dictionary definitions, including the Petit Robert³ underline the compensatory nature of an indemnité.

Section 24 of the Schedule, which deals with the cost of examinations, including certificate, reports and treatment plans creates an obligation for insurers to pay for certain expenses incurred by or on behalf of an insured person. In essence, it requires the Insurer to indemnify the Insured for any such expenses incurred. As such, it is clearly a benefit or an indemnité, even if a subsidiary one, that derives from the policy of insurance.

The next question to consider is how closely that particular benefit is linked with the missed examination. Section 8(a) of the Schedule refers to a stoppage of the benefit "related to the examination". Allstate's notice of February 9, 2001 states: "This examination relates to the following benefit(s): Medical, Housekeeping and Home Maintenance."

The disability certificate in question, apparently issued March 7, 2001 by Dr. Nakamura, refers to a "difficulty lifting (undecipherable)/grocery bags vacuuming/mopping floors". These difficulties would appear to be related to Ms. Bershteyn's housekeeping entitlement and I so find.

Therefore, a failure to make oneself available for an assessment related to housekeeping entitlement would appear likely to create a bar for reimbursement of any expense related to that housekeeping claim, including the reimbursement of a related section 24 expense.

Even if I am wrong and a section 24 expense is not, strictly speaking, a benefit, Ms. Bershteyn is faced with a further, fundamental challenge to her claim for payment of the associated expenses.

Ms. Bersheteyn's expenses, pursuant to section 24 of the Schedule must be "reasonable" and "incurred on behalf of an insured person for the purpose of this Regulation".

"This regulation" refers to the Schedule, the Statutory Accident Benefits Schedule - Accidents On or After November 1, 1996.

"Reasonable" is not defined in either the Schedule, or the Insurance Act.

The Canadian Oxford Dictionary defines "Reasonable" as follows:

1. Having sound judgement; moderate; ready to listen to reason. 2 in accordance with reason; not absurd. 3 a within the limits of reason; fair, moderate ( a reasonable request) b inexpensive, not extortionate c fairly good, average ( the food here is reasonable).

The concept of reasonableness, although making some intuitive sense, is a minefield for precision. What is fair, moderate, or in accordance with reason is obviously open to personal, cultural and ethical variations in the eye of the beholder. Even a more detailed analysis does little to clarify the amorphous nature of reasonableness. John Gardner, Professor of Jurisprudence at Oxford stated:

A reasonable action is a justified action, a reasonable belief is a justified belief, a reasonable fear is a justified fear, a reasonable measure of care is a justified measure of care, and so on. By that same token, the common law's reasonable person ( I fondly thought) is none other than a justified person, that is, a person who is justified in all those aspects of her life that properly call for justification. She is justified in her actions, her beliefs, her fears, the measure of care she takes, and so on. Thus to say that one's actions or beliefs or emotions or attitudes were those of a reasonable person is merely to say, in a typically roundabout lawyer's way, that one's actions or beliefs or emotions or attitudes were justified ones.⁴

In the context of whether an applicant's actions in obtaining a report and claiming indemnity for its costs, were reasonable and related to the purposes of the Regulation, such an analysis is of little help. They could be justified only if they were reasonable and related to the purposes of the Regulation.

As can be seen the concept of reasonableness can, necessarily, tend to be a bit circular. If an action is reasonable by reason of being in accordance to reason, it is perhaps better to approach the matter from a different direction. It is, perhaps, far easier to identify something that wildly departs from our conception of reasonable; that is patently unreasonable or absurd⁵, than it is to define the essence of reasonableness.

Indeed, the Insurer's argument in this matter could well be summarized as suggesting that the Applicant's claim for indemnity for its costs in providing an assessment, given the facts of this case, is so far removed from reality as to be both unreasonable and absurd, and totally divorced from any connection to the aims of the Schedule.

Director's Delegate McMahon in Aleman & State Farm (FSCO P01-00014, September 21, 2001) found that in addition to the two statutory conditions on section 24 payments, there is a third, implied, condition that there be a necessary link between the expense and the advancement of a claim for benefits available under the Schedule.

In this matter, there is no claim for housekeeping benefits. Indeed, the Applicant was fortunate enough to sustain no serious injury and to be able to return to work right after her motor vehicle accident. It is hard to see how these circumstances could ever generate a bona fide claim for housekeeping.

In fact, the disconnect between the disability certificate, and the subsequent claim for indemnity for its costs, and the ultimate claims put forward in the name of Ms. Bershteyn is striking.

At the time the unrequested certificate was provided there was no claim, no dispute, and, indeed little evidence of a bona fide disability to which it could relate. I find no persuasive evidence that there was any necessary connection between the expense incurred in obtaining a certificate and the claim for substantive benefits under the Schedule. Indeed the only possible claim it could be found to relate to is the claim for indemnity triggered by its own creation. To argue that the provision of an otherwise useless certificate could itself generate the necessary nexus to the "purpose of the Regulation" would be an absurdity.

The purpose of the Regulation in question, The Statutory Accident Benefits Schedule has been outlined in several decisions and judgements. In Meyer v. Bright (1993), 1993 CanLII 3389 (ON CA), 15 O.R. (3d) 129, the court of appeal stated:

The legislation appears designed to control the cost of automobile insurance premiums by eliminating some tort claims. At the same time, the legislation provides for enhanced benefits for income loss and medical and rehabilitation expenses to be paid to the accident victim regardless of fault.

The same court in Gignac v. Neufeld et al. (1999) 43 O.R. (3d.) 741 confirmed the same understanding of the goals of the Schedule.

Gonthier J. in Smith v. Cooperators 2002 SCC 30, [2002] 2 S.C.R. 129 also dealt briefly with the purpose of the Schedule. He summarized succinctly that "(T)here is no dispute that one of the main objectives of insurance is consumer protection, particularly in the field of automobile and home insurance."

Thus it can be seen that the Schedule is about getting benefits to injured and disabled motorists in a timely fashion, regardless of fault. None of these definitions protects, however, a right to obtain indemnity for costs arising from examinations unconnected to either a claim or a matter in dispute between an insured person and an insurer.

I cannot understand how the certificate in question can be seen as advancing any of these enumerated purposes of the Regulation. Such a conclusion is even more inescapable when one considers the nature of the document proposed for reimbursement.

As noted earlier, the Insurer wrote requesting an original copy of the document. This was never produced. Mr. Gold wrote to request an explanation of why the document did not conform to a normal form and structure, but received no response. Mr. Gold's uncontradicted evidence at this hearing, indeed, was that the document had been "cut and pasted" and manipulated for some purpose - most likely deception. As a document it could serve no useful purpose since it was incomplete and lacking in critical components.

I find, therefore, that it is not reasonable to expect an insurer to pay an indemnity for the cost of a document that, on its face is useless, and cannot support any of the purposes of the Schedule.

EXPENSES:

Prior to this arbitration, the Insurer gave notice that it would be claiming its expenses, not only from the Insured, Ms. Bershteyn, but also, her representative, Mr. Roland Spiegel, pursuant to section 282 (11.2). of the Insurance Act.

Rule 75.1 of the Practice Code provides that:

An adjudicator may award expenses to a party if the adjudicator is satisfied that the award is justified having regard to the criteria set out in Rule 75.2 ...

Rule 75.2 sets out various criteria including a party's success, the conduct of an insured or an insurer, whether any position taken by the insured or insurer was manifestly unfounded, and "any other matter related to the proceeding that the adjudicator considers relevant."

Subsection 1.5 of the Practice Code notes that the rules are made pursuant to section 21 of the Insurance Act and section 25.1 of the SPPA. Subsection 282(11) of the Insurance Act provides that:

The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

Jurisprudence at the Commission has generally expressed concerns about preserving access to the dispute resolution process. As Director's Delegate Draper observed in Gray and Zurich Insurance Company (FSCO P98-00047, June 11, 1999):

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.

Consequently, it is not unusual for expense awards at the Commission to consider access issues, rather than to slavishly adhere to the principle of costs following the cause, as outlined in rule 75.2(a) of the Practice Code. Generally in making an expense order, an arbitrator will balance the specific criteria contained in the Expense Regulation with rules 75.2 (d) and (f) of the Practice Code with the view of not unnecessarily discouraging parties from referring significant factual or legal issues to arbitration.

Contrary to Mr. Spiegel's assertions at the hearing, this arbitration is not about an applicant's right to access the dispute resolution system, but whether there are limitations on the ability of counsel to churn a file and generate frivolous expenses in support of an unmeritorious claim.

There has already been a finding made by the Director of Arbitrations that steps taken in Ms. Bersteyn's arbitration unnecesarily prolonged the proceedings. Director Draper stated:

Not surprisingly, Allstate seeks its expenses. If I had authority to award them, I would do so. However, as I held in Castaneda and CGUInsurance Company of Canada, (FSCO P01-00053, December 18, 2001), the Insurance Act does not provide for expenses in respect of bias applications under s. 282(12). That does not mean the bias application must be ignored. It was a step taken in the arbitration process that prolonged the proceeding, within the meaning of the expense regulation. In my opinion, therefore, it is a factor that can be considered when arbitration expenses are eventually determined.

Likewise, Arbitrator Sandomirsky, in dealing with a motion to withdraw the arbitration found:

For the reasons set out by the Director of Arbitrations in the bias decision, I find that Ms. Bersteyn is liable to pay Allstate's reasonable legal expenses. I agree that the bias application was a step taken in the arbitration process that prolonged the proceedings, within the meaning of the Expense Regulation. I also agree with the Director of Arbitrations' conclusion that the institutional bias argument was "manifestly unfounded." Therefore, I order Ms. Bersteyn to pay Allstate's expenses as a condition to her withdrawal of the application for arbitration.

The conclusion that the bias application was "manifestly unfounded" is of some significance. In addition, I have found that the subject matter of this arbitration "could serve no useful purpose since it was incomplete and lacking in critical components" and that "the disconnect between the disability certificate, and the subsequent claim for indemnity for its costs, and the ultimate claims put forward in the name of Ms. Bershteyn is striking."

Lord Blackburn observed in Metropolitan Bank Ltd. et al. V. Pooley (1885) 10 App. Cas. 210:

(T)he Court had inherently in its power the right to see that its process was not abused by a proceeding without reasonable grounds, so as to be vexatious and harassing.

If no reasonable person can possibly expect to obtain the relief requested in an action, a matter may also be characterized as vexatious and an abuse of process.⁶

I find that there was never any reasonable hope of success for this arbitration. The sole claim at issue, the claim for indemnity for the costs of the disability certificate was unsupported by any credible evidence. There was, patently, neither at the time of the issuance of the certificate, nor subsequently, any related claim for it to support. The uncontradicted evidence of the Applicant's own witness was that the document had been tampered with prior to submission.

I find that the bringing of this arbitration and its conduct constitute a clear abuse of process by either the Applicant, or her counsel. Consequently, there is no question about the Insurer's entitlement to indemnity for its reasonable expenses in defending this claim. The only question remaining is by whom.

Traditionally it has been either the Insured or the Insurer who can be found liable for the other's expenses. In this matter, however, there are serious issues about the conduct of the representative, Mr. Spiegel, and his strategies used in pursuit of this claim. Indeed, Ms. Bershteyn has been conspicuous in her absence from this process.

Although the Commission, as an administrative tribunal and a creature of statute, has no inherent jurisdiction, subsection 23(1) of the SPPA grants a mandate to control abuse. In addition, the revised section 282 (11.2) of the Insurance Act, now specifically gives an arbitrator the right to hold a representative liable for costs arising from such abuses.

An arbitrator may make an order requiring a person representing an insured person or an insurer for compensation in an arbitration proceeding to personally pay all or part of any expenses awarded against a party if the arbitrator is satisfied that;

(a) in respect of a representative of an insured person, the representative commenced or conducted the proceeding without authority from the insured person or did not advise the insured person that he or she could be liable to pay all or part of the expenses of the proceeding;

(b) in respect of a representative of an insured person, the representative caused expenses to be incurred without reasonable cause by advancing a frivolous or vexatious claim on behalf of the insured person; or

(c) the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default.

In this matter, Mr. Spiegel was informed very early on in the process that the Insurer would be requesting that expenses be assessed against him. Indeed, at the hearing of this matter, he was specifically given the opportunity to call evidence and to speak to the issue of his own potential liability for any costs order in this matter.

Although specific authority to make an expense order against counsel is relatively new at the Commission, it has long been a feature of the courts, with long roots in the history of courts of equity. This power has also been recognized in the court Rules of Civil Procedure, specifically in Rule 57.07.

Whatever the source of the power to award costs against counsel, the courts have insisted that such awards should not become a matter of course. Indeed, it is clear that there are strong policy reasons for reserving such awards to extraordinary circumstances.

McLachlin J. stated in Young v. Young 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3 (S.C.C.):

The basic principle on which costs are awarded is as compensation for the successful party, not in order to punish a barrister. Any member of the legal profession might be subject to a compensatory order for costs if it is shown that repetitive and irrelevant material, and excessive motions and applications, characterized the proceedings in which they were involved, and that the lawyer acted in bad faith in encouraging this abuse and delay. It is clear that the courts possess jurisdiction to make such an award, often under statute and, in any event, as part of their inherent jurisdiction to control abuse of process and contempt of court. But the fault that might give rise to a costs award against Mr. How does not characterize these proceedings, despite their great length and acrimonious progress. Moreover, courts must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard confidentiality of instructions and to bring forward with courage even unpopular causes. A lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with these fundamental duties of his or her calling.

In Marchand ( Litigation Guardian of ) v. Public General Hospital Society of Chatham [1999] O.J. No. 670, Granger J. further clarified the type of conduct that would attract cost sanctions:

Although "bad faith": is not a requirement to invoking the costs sanctions of Rule 57.07 against a solicitor, such an order should only be made in rare circumstances and such orders should not discourage lawyers from pursuing unpopular or difficult cases. It is only when a lawyer pursues a goal which is clearly unattainable or is clearly derelict in his or her duties as an officer of the court that resort should be had to Rule 57.07.

Returning to section 282 (11.2) of the Insurance Act, it is apparent that the application of this provision, as well, is contingent upon some serious default by the representative of an insurer or an insured. Consequently I find that the principles enunciated in both Young and Marchand should inform any application of section282 (11.2).

In this case, it is clear that Mr. Spiegel was, to a large degree, the controlling mind behind the litigation. Indeed the evidence of Mr. Gold was that the named applicant, Ms. Bershteyn, may not even have signed certain documents issued in her name. Mr. Spiegel's conduct in unilaterally refusing to co-operate with the section 42 examination, and his pursuit of the frivolous bias application underline the disconnect between the reasonable pursuit of this claim and the strategy adopted by Mr. Spiegel.

Although many of the individual actions taken by Mr. Spiegel in the conduct of this case might be defensible in a different context, taken together, the totality of his conduct easily brings this matter into the realm of the extraordinary conduct envisioned by Granger J. in Marchand.

I have found that Mr. Spiegel pursued a claim for payment of a patently useless and incomplete disability certificate without regard to expense. I further find that, given the absence of any evidence of instructions to delay and obfuscate from his client, he embarked on this frolic on his own, and should be held accountable.

Consequently, I order that any expense order made against his nominal client, Ms. Bershteyn, shall be payable forthwith by Mr. Spiegel, personally.

I remain seized of this matter, should the parties be unable to agree on the quantum of the expense order.

Given the wording of section 282 (11.2) of the Act which refers to a representative being ordered to "pay all or part of any expenses awarded against a party" any expense order must, of necessity be made in the name of the appropriate party, in this case, Ms. Bershteyn. However in light of the questionable circumstances of the involvement of the Applicant in this claim, the following caveat is added to any expense order.

Should Allstate wish to enforce any expense order against Ms. Bershteyn herself, it shall first serve her personally with its bill of expenses and a copy of my order, and provide her with an opportunity to make submissions as to her actual role in this matter.

May 28, 2004

John Wilson Arbitrator

Date

Neutral Citation: 2004 ONFSCDRS 77

FSCO A01-000858

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MARINA BERSHTEYN

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Ms. Bershteyn is not entitled to reimbursement for the disability certificate.

2. Allstate is entitled to its expenses against the nominal applicant, Ms. Bershteyn which shall be payable by Mr. Spiegel.

3. Ms. Bershteyn is not entitled to her expenses in this matter.

May 28, 2004

John Wilson Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98, 114/00 and 482/01.
2. 2Both the French and English versions are equally authoritative.
3. 3"Ce qui est attribué en compensation de certains frais"
4. 4The Mysterious Case of the Reasonable Person John Gardner 51 Univ. of Toronto L.J. 273
5. 5The Canadian Oxford Dictionary mentions ludicrous, incongruous and wildly inappropriate among its defintions of "absurd."
6. 6see Lawrance v. Lord Norreys et al. (1888) 39 Ch. D. 213) (see Dreyfus v. Peruvian Guano Co. (1889) 41 Ch.D. 151