Financial Services Commission of Ontario
Commission des services financiers de l’Ontario
Neutral Citation: 2005 ONFSCDRS 104
FSCO A04-002268
BETWEEN:
CHARLENE A. GRAHAM
Applicant
and
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
Insurer
DECISION ON A PRELIMINARY ISSUE
Before: John Wilson
Heard: By written submissions, ending July 12, 2005
Appearances:
Dejan Ristic, law clerk, for Ms. Graham
Angela S. James for State Farm Mutual Automobile Insurance Company
Issues:
The Applicant, Charlene A. Graham, was injured in a motor vehicle accident on May 16, 2001. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule. The parties were unable to resolve their disputes through mediation, and Ms. Graham applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.
At a pre-hearing held on May 24, 2005, State Farm advised that it wished to add a further issue, that of repayment of certain benefits. Although this issue had been mediated, Mr. Ristic, on behalf of Ms. Graham refused to consent to this addition. Mr. Ristic maintained that he could not consent to the addition of a further issue without consultation with the lawyer having carriage of this file, Mr. Derfel.
On June 7, 2005 Mr. Ristic wrote to the insurer and the Commission reiterating his refusal to consent to the additional issue in this arbitration. State Farm requested that I rule on the issue. Consequently, on June 14, 2005, I wrote to the parties requesting submissions on the addition of the overpayment issue.
The preliminary issue is:
- Is State Farm entitled to have the repayment issue added to this arbitration?
Result:
- State Farm is entitled to have the repayment issue added to this arbitration.
EVIDENCE AND ANALYSIS:
Although there are no formal pleadings in the arbitration process, the Application for Arbitration and the Response by Insurer serve much the same function of defining the issues before an arbitrator.
Like a statement of claim, the Application for Arbitration, which includes a description of "each issue to be arbitrated", not only starts the arbitration process but begins the process of defining just what will be referred to an arbitrator for a decision.
Likewise the Response by Insurer should include a response to each issue raised in the Application, together with "a description of any additional issues which the insurer wishes to have arbitrated." Section 282(3) of the Insurance Act provides that "(T)he arbitrator shall determine all issues in dispute, whether the issues are raised by the insured person or the insurer."
Although the circumstances giving rise to the claim for repayment were likely known to State Farm in November 2004, there is no reference to this claim in the Insurer's response.
The Insurance Act, its regulations, and the Dispute Resolution Practice Code are all silent on whether an amendment to pleadings is permissible, and the manner in which any amendment request should be approached.
On a practical basis, amendments occur during arbitrations. Insurers have sometimes filed amended responses, especially when new information has come to them concerning the claims in dispute in an arbitration. Usually any such amendment takes place on consent of both parties, since, presumably, both would recognize the advantage of avoiding a multiplicity of proceedings, and the resultant extra costs to both parties. In this case, consent has been categorically refused.
As a pre-hearing arbitrator, appointed by the Director, from the roster of arbitrators, I have powers set out in section 20(2) of the Act. These include "exclusive jurisdiction to exercise the powers conferred upon him or her under this Act and to determine all questions of fact or law that arise in any proceeding before him or her and, unless an appeal is provided under this Act, his or her decision thereon is final and conclusive for all purposes."
By reason of practice at the Commission, embodied in section 33.5 of the Practice Code, a pre-hearing arbitrator "who presides at a pre-hearing discussion at which parties attempt to settle some or all of the issues in dispute will not preside at the hearing unless the parties consent."1
I have no doubt that the question of adding repayment is an issue in dispute between the two parties and that it is procedural rather than substantive, and should be dealt with by the arbitrator having carriage of pre-hearing matters.
A decision about whether to add issues, and the process to be used should be made in the spirit of the arbitration process. Arbitrators under the Code are given a great flexibility to tailor the arbitration to deal appropriately with the issues before him or her. Thus an arbitrator can sever2 issues, decide on the timing of a hearing, dispense with time-limits set by the Practice Code, or dispense, where appropriate, with any rule set out in the Practice Code3. All of this takes place with an eye firmly on the spirit of arbitration at the Commission as set out by the Practice Code.
These Rules will be broadly interpreted to produce the most just, quickest and least expensive resolution of the dispute.4
While section 282(3) of the Insurance Act provides that "(T)he arbitrator shall determine all issues in dispute whether raised by the insured persons or the insurer." Given section 281(2) of the Act which provides for the pre-condition of mediation to the referral of any issue or dispute to arbitration, 282(3) must be read to mean a determination of all issues properly in dispute before the arbitrator.
In arbitration, the place where those issues crystallize and are referred to an arbitrator are the pleadings which are made up of the Application and the Response. As Swinton J. noted in Foodcor Services Corp. v. Seven-Up Canada Inc. [1998] O.J. No. 2576:
The function of pleadings is to define issues in controversy in the litigation, in order to give the opposing party fair notice of the case to be met and allow him or her to respond, and to assist the court in determining the issues of the case (National Trust Co. v. Furbacher, [1994] O.J. No. 2385 (Gen. Div.) at paragraph 9; Mazzeo v. Kingston (City) O.J. No. 1738 ( Gen. Div.)).
Where a party at arbitration wishes further issues to be considered by an arbitrator, then the appropriate steps must be taken. Either consent to amend is obtained from the other party, or leave must be obtained from the arbitrator having carriage of pre-hearing matters to amend.5In either case, the amending party must have provided full particulars of the proposed amendment so that the issues are clearly understood.
As noted earlier, amendments, either on consent or opposed, are nothing new. In 1996 Arbitrator Bayefsky set out the following comments on considerations when faced with amendments:
In my view, therefore, the following criteria emerge as relevant to an arbitrator's determination of whether to add an issue raised by an insurer:
(1) Has the insurer's issue been mediated?
(2) Does the issue involve a different benefit category from that raised by the applicant?
(3) Is the issue reasonably incidental to the issues raised by the applicant?
(4) Will the inclusion of the issue unduly expand the scope of the inquiry and essentially deprive the applicant of control of the proceeding?
(5) Will the inclusion of the issue benefit both parties by avoiding multiple proceedings?6
Arbitrator Bayefsky's criteria can be usefully compared to the principles outlined by Master Peppiatt in Jennings v. Cummings Signs of Canada Ltd7:
Upon an application for leave to amend there are four principles to be applied:
Unless the opposite party will suffer an injustice, the amendment shall be allowed
The proposed amendment should be prima facie meritorious
The proposed amendment should be a pleading permissible in the first instance and therefore subject to the strictures of R. 139
The proposed amendment must contain sufficient particulars.
It should be noted that Rule 26 which addresses the amendment of pleadings in court matters makes amendment mandatory "unless prejudice would result that could not be compensated for by costs or an adjournment."8 This contrasts with the complete absence of direction in the Dispute Resolution Practice Code.
There is no reason, however, to suspect that the criteria outlined in Carby9 are complete and exhaust the possibilities which may be considered by an arbitrator. Given the mandate of arbitration to be "quicker, less expensive and less formal"10, it would seem that amendments that would unnecessarily complicate or delay the arbitration process should be considered carefully.
In such circumstances, there must be some consideration of the merit of the proposed amendment since otherwise meritless claims could be added as a tactic of delay or harassment, leading to a potential abuse of the arbitration process. Rosenberg J. in Vaiman11 outlined this problem.
Why should the defendant be faced with an amendment and then have to move to strike it out on the grounds that it discloses no cause of action? If the Master is of the opinion that it discloses no cause of action, he should not allow the amendment and state his reasons.
In a time-sensitive system such as arbitration, there is much to commend in Rosenberg J.'s approach. However, the threshold for the examination of merit must, of necessity at this stage be somewhat low, since at the pleading stage parties cannot be expected to fully argue the merits of an issue.
Once again, since the Practice Code does not deal specifically with such an examination reference may usefully be made to the practice in the courts. In many ways a refusal to add a claim because it lacks merit is the equivalent of striking out a claim for demonstrating no reasonable cause of action, since it has the effect of barring the substantive hearing of that issue.
In Nash v. Ontario12 the Court of Appeal commented that it must be plain and obvious that a claim discloses no valid cause of action for it to be struck. It went on to state:
On a motion to strike out a pleading, the court must accept the facts alleged in the statement of claim as proven, unless they are patently ridiculous or incapable of proof, and must read the statement of claim generously, with allowance for drafting deficiencies.
In this matter State Farm has provided detailed background information showing how an overpayment situation could have arisen. That information could, if proven, support a claim for repayment. Both Ms. Graham and her counsel have been put on notice of State Farm's claim.
Ms. Graham has responded through Dejan Ristic, a law clerk at the firm representing her. He has filed a one page letter characterizing the repayment issue as "unmeritorious". He also makes a cryptic reference to the claim being "statutory barred". He has not, however, at any time systematically addressed, any of the criteria canvassed in Carby13, nor has he provided any evidence, by affidavit or otherwise in support of the assertions made in his letter.
That is not to say that there is nothing to consider, and that the relief requested must be granted automatically.
If there are serious shortcomings in the proposed issue, such as a failure to mediate the issue, it should not be added. Likewise if an arbitrator is "of the opinion that it ( the claim for repayment) discloses no cause of action" recognized by the Schedule or the Act, I should refuse to add the claim.
There is no evidence that the issue has not been fully mediated in accordance with the statute. With regard to the second item, section 47 of the Schedule specifically provides for repayment of benefits by insureds.
Mr. Ristic's unsupported allegation that the claim for repayment is "unmeritorious" should not, in itself be grounds to dismiss at this early stage in the process, since the descriptor would appear to be a submission on the merits of the case, which should properly be left to a hearing on the merits.
In any event I find that it is not "plain and obvious" on the material before me that the repayment is so totally devoid of merit that it should be, in effect, dismissed without a hearing.
The comment of "statutory barred" made by Mr. Ristic has been interpreted by the Insurer in its Reply to mean that it is claimed that the time limits set under the Insurance Act and its Schedule have passed and that, consequently, the claim for repayment is barred.
State Farm submits that "(T)here is no provision in the Insurance Act which requires insurers to commence proceedings within two years." While I agree with counsel for the Insurer that the Insurance Act and its subordinate legislation contain no specific, applicable, time-limit, there are other sources for limitation on actions.
The new Limitations Act14, which dates from 2002, provides at section 4 for a default limitation of two years, calculated from the "day on which the claim was discovered." While two years may well have passed, (the accident took place on May 16, 2001) I have no evidence of when the claim for repayment was discovered by the Insurer, or when the limitation period would actually begin.
It is certainly not "plain and obvious" from any of the material filed by Mr. Ristic that any limitation period bars the Insurer's claim for repayment.
If Ms. Graham is asserting that the Insurer's claim is statute barred she has at least the burden of providing prima facie evidence of this assertion, a burden that she has not met.
I find, as well, that there are strong practical and functional reasons for hearing the Insurer's claim for repayment as part of the same arbitration as the other issues raised. There will be a lesser risk of duplication of necessary evidence, a speedier process, and a lower risk of inconsistent decisions in different forums if all the issues are heard together.
While there may well be sound defences to State Farm's claim for repayment, none have been made out here, and there is nothing in the materials so clear and self-evident that it would be an abuse of process to let this claim go forward. Consequently, State Farm shall be permitted to file an amended Response, including its claim for repayment.
Any amended Response should be filed within 30 days of the issuance of this decision.
EXPENSES:
While it is possible, and often appropriate to leave the issue of expenses on a motion to the hearing arbitrator, I am concerned about the stand taken by Ms. Graham on the addition of the repayment issue. While there may be a good reason to refuse to add the claim to this arbitration, Mr. Ristic has done little to bring any such reasons to my attention.
This motion was brought since Mr. Ristic refused the Insurer's request to add an issue at pre-hearing. At that time, Mr. Ristic was unable to articulate strong reasons for the stand he took, but wanted time to consult with the lawyer having carriage of the matter. The passage of a month and more since the pre-hearing has done little to improve Mr. Ristic's argument.
I do not accept that a single letter of three one-sentence paragraphs and one-two sentence paragraph, totally unsupported by evidence of any nature, constitutes an appropriate response to the motion record, including supporting affidavit, submitted by the Insurer.
I find that Mr. Ristic's contumacious refusal to consent to the addition of the repayment issue lacked any apparent merit and served only to delay the arbitration and cause unnecessary additional expense to the Insurer. The Insurer was also successful in its motion. Under the circumstances, since Mr. Ristic, on behalf of Ms. Graham engaged in conduct that tended to prolong and delay the arbitration process without any reasonable cause, I order that Ms. Graham pay to State Farm its expenses, which I will fix at a nominal $250 .
Should State Farm wish that this award be payable by Ms. Graham's representative on this motion, Mr. Ristic, pursuant to section 282 (11.2) of the Insurance Act, it may serve and file the request along with short submissions within seven days of the issuance of this decision. Mr. Ristic, of course, will have the opportunity to respond in a timely fashion.
July 26, 2005
John Wilson Arbitrator
Date
Financial Services Commission of Ontario
Commission des services financiers de l’Ontario
Neutral Citation: 2005 ONFSCDRS 104
FSCO A04-002268
BETWEEN:
CHARLENE A. GRAHAM
Applicant
and
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
Insurer
ARBITRATION ORDER
Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:
State Farm shall be permitted to file an amended Response, including the claim for repayment within 30 days of the issuance of this decision.
I order that Ms. Graham pay to State Farm its expenses, which I fix at $250 .
July 26, 2005
John Wilson Arbitrator
Date
Footnotes
- By "hearing", it is clear that the Practice Code means a complete hearing of the substantive issues, since Rule 33, dealing with pre-hearings, provides for at section 33.1 (d) "dealing with procedural and preliminary issues, and requests for interim relief or interim expenses" during the pre-hearing process.
- Rule 31
- Rule 81
- Section 1 of the Dispute Resolution Practice Code, (4th Edition, May 31, 2001 - Updated October 2003)
- This would normally occur as part of the pre-hearing discussions.
- Carby and Co-operators General Insurance Company, OIC A-950220, January 12, 1996
- Jennings v. Cummings (1983) 35 C.P.C. 83, approved by Rosenberg J. in Vaiman v. Yates (1987) 1987 CanLII 4345 (ON HCJ), 20 C.P.C. (2d) 33
- Rule 26 Rules of Civil Procedure
- Supra
- Dispute Resolution Practice Code, (4th Edition, May 31, 2001 - updated October 2003) Introduction at p.10
- Supra
- (1995) 1995 CanLII 2934 (ON CA), 27 O.R. (3d) 1
- Supra
- Limitations Act 2002 S.O. 2002 c.24. Schedule B