Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 3

Appeal P04-00024

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA

Appellant

and

ESTATE OF SHIRAZ JIWA

Respondent

Before:

Nancy Makepeace

Representatives:

Stanley C. Tessis for Royal

Paul A. Gemmink for Mr. Jiwa

Hearing Date:

October 26, 2004

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 allowed. The arbitration order, dated June 14, 2004, is revoked, and the following is substituted:
Section 44(1)(a) of the SABS-1996 does not apply to settlement payments.
The dispute is beyond the Commission's jurisdiction under sections 279-283 of the Act.
If the parties are unable to agree on appeal expenses, they may request a hearing pursuant to Rule 79 of the Dispute Resolution Practice Code.

January 13, 2005

Nancy Makepeace Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Royal appeals from the Arbitrator's decision, dated June 14, 2004, that it contravened s. 44(1)(a) of the SABS-1996¹ by mailing its settlement cheque to Mr. Shiraz Jiwa's agent, Mr. Sergio Mendez, rather than mailing or delivering it to Mr. Jiwa personally. Mr. Mendez gave Mr. Jiwa only a portion of the money to which he was entitled. Royal submits that s. 44 does not apply to payment of settlement funds, and that the Arbitrator had no authority to hear and determine a dispute about the implementation of a settlement agreement.

For the following reasons, I find that s. 44 governs the payment of benefits, and does not apply to settlement payments. Nor does the Settlement Regulation² address that issue. Since there is no question that Royal mailed its cheque to Mr. Mendez with Mr. Jiwa's authorization, Mr. Jiwa's dispute can only be with Mr. Mendez, not Royal. That is a matter for the criminal and civil courts, not to be resolved pursuant to the dispute resolution procedure under the Insurance Act.

II. BACKGROUND

Mr. Jiwa was injured in an automobile accident on May 15, 1998. Royal paid accident benefits, including medical benefits, but closed its file in January 1999. A week later, Mr. Jiwa retained SM Insurance Claims ("SM") to pursue his claim with Royal. He signed a retainer agreement that included the following:

The undersigned furthermore irrevocably appoints SM INSURANCE CLAIMS as its attorney for purposes of endorsing, negotiation of any cheques payable to the undersigned received from the insurer making payments as a result of said accident.

The undersigned assigns to SM INSURANCE CLAIMS monies which it, or anyone on its behalf, receives from Royal & Sun Alliance.

Mr. Jiwa's claim was handled by Mr. Sergio Mendez of SM. Mr. Mendez sent the retainer to Royal and requested certain documents from Royal's file. Over the next few months, SM pursued certain benefit claims on Mr. Jiwa's behalf and negotiated a settlement of the dispute.

On December 4, 1999, Mr. Jiwa signed a "full and final release" discharging Royal from all present and future claims in consideration of $15,000, "to be paid to Shiraz Jiwa." On the same day, he signed an Acknowledgement of Receipt of a Written Notice ("Disclosure Notice"), as required by s. 9.1(2) of the Settlement Regulation. It is not suggested the Disclosure Notice failed to comply with the regulation.

The Arbitrator described what happened next.

S M Insurance Claims forwarded the Release and Acknowledgement to Royal by fax and mail on December 6, 1999. The fax cover sheet contained the following request: "Kindly advise when the draft is ready for pick-up and we will arrange for a courier to drop-off the originals and pick-up the cheque."A copy of Royal's settlement cheque for $15,000, dated December 10, 1999, was entered into evidence. The front of the cheque confirms that it was made payable to Shiraz Jiwa in respect of his accident of May 15, 1998. The back of the cheque indicates that it was endorsed by "S. Jiwa" and deposited into a bank account held by S M Insurance Claims.³

As Mr. Jiwa died before the arbitration hearing, the Arbitrator relied on the evidence of Mrs. Mumtaz Jiwa (Mr. Jiwa's widow), Mr. Ali Jiwa (his brother), and Constable John Mitchell, who laid the charge against Mr. Mendez.

Mrs. Jiwa testified that the endorsement was not signed by her husband. She testified that he received no money from the settlement until April 2000, when SM gave him four cheques. As her husband had agreed to pay Mr. Mendez 20 per cent of the proceeds of the settlement, plus 7 per cent GST, Mr. Mendez owed him $11,790 plus interest of $471.60, for a total of $12,261.60. However, Mr. Mendez' first two cheques, dated March 30 and April 15, 2000, were returned for insufficient funds.

At that point, Mr. Jiwa turned to his brother, Mr. Ali Jiwa. Mr. Ali Jiwa testified that he approached Mr. Mendez, who then honoured the third cheque, dated May 15, 2000, for $2,947.50, and made two additional $1,000 cash payments, which Mr. Shiraz Jiwa deposited into his own account. Mrs. Jiwa testified her husband did not receive any more money after this. A fourth cheque, dated May 30, 2000, was unsigned. Therefore, the total paid by Mr. Mendez was $4,947.50.

Mr. Ali Jiwa also approached the police, and learned that Mr. Mendez had been the subject of a number of complaints. On April 24, 2001, Mr. Mendez pleaded guilty to 19 counts of "theft over [$5,000]" under s. 334 of the Criminal Code. His sentence included a restitution order in the amount of $135,815.90. According to the Arbitrator, who did not have the advantage of the restitution order, the police officer who testified "thought that Mr. Shiraz Jiwa was probably one of the beneficiaries of this restitution order."⁴ This was confirmed by the order, which was provided to me on appeal.

Mr. Shiraz Jiwa applied for arbitration in early 2003. He claimed that by delivering the settlement cheque to Mr. Mendez, Royal failed to comply with the "method of payment" rules in s. 44 of the SABS. Royal claimed FSCO had no jurisdiction to decide the matter, which was either a debt collection dispute between Mr. Jiwa and Mr. Mendez, or a settlement enforcement dispute.

The hearing was bifurcated by order of the pre-hearing arbitrator, with a preliminary hearing of the jurisdictional issue scheduled for August 26, 2003, and the hearing of the remaining issues scheduled for December 18, 2003. In a preliminary issue decision, dated September 2, 2003, the Arbitrator concluded that all the issues should be heard together in March 2004.

The Arbitrator's decision dealt with two main issues: whether he had jurisdiction over the dispute, and whether s. 44(1)(a) of the SABS-1996 governs payment of settlement funds as well as benefits. He decided both questions in the affirmative. The remaining question was whether Royal was liable to pay the shortfall in payment of Mr. Jiwa's settlement. The Arbitrator concluded he did not have sufficient evidence about the restitution order to determine this question. He stated he would resume the hearing if the parties could not resolve that issue, and the issues of interest and expenses, within 30 days.

Royal appealed. As the arbitration decision is designated a decision on a preliminary issue, I invited the parties' submissions on whether I should acknowledge the appeal under Rule 51.4 of the Dispute Resolution Practice Code, or reject it under Rule 51.2(c). Mr. Gemmink, on behalf of Mr. Jiwa's estate, agreed the appeal should proceed, and accordingly I acknowledged it.

Copies of the certificate of conviction and the restitution order were provided on appeal. The order, under s. 738(1)(a) of the Criminal Code, confirms that Mr. Mendez was ordered to pay $5,895 to "Shiraz Jiwa and Ali Jiwa." Mr. Gemmink advises that neither Mr. Shiraz Jiwa nor his Estate has received any money pursuant to the order. The parties to the appeal agreed that if the appeal is unsuccessful, they will likely be able to agree on the amount Royal must pay to the Estate of Shiraz Jiwa pursuant to the Arbitrator's order.

III. ANALYSIS

C. Method of Payment

The Arbitrator found that by mailing Mr. Jiwa's settlement cheque to SM, Royal contravened s. 44(1)(a) of the SABS, which states:

44(1) An insurer shall pay a benefit under this Regulation,

(a) by mailing or delivering a cheque payable to the person entitled to the benefit to the address where the person ordinarily resides;

Other provisions in s. 44 allow electronic funds transfer to the insured person's account, direct third-party billing, and payment of a benefit into court under s. 271 of the Act. Nothing in s. 44 references delivery to the insured person's agent.

Subsection 65(1) of the SABS states:

The assignment of a benefit under this Regulation, . . . , is void.

None of the exceptions described in s. 65(2) apply in this case.

On behalf of Mr. Jiwa's estate, Mr. Gemmink submits that sections 44 and 65 were intended to avoid the very mischief that occurred here – the misappropriation of insurance proceeds by an unscrupulous third party.

I agree that these provisions are intended to ensure that claimants receive the benefits to which they are entitled, but I find that s. 44 has no application to a lump sum payment made pursuant to a settlement.

Subsection 44(1) applies to "a benefit under this Regulation." The regulation referred to is the SABS. Though Royal had paid Mr. Jiwa benefits under the SABS, its $15,000 payment in December 1999 was not a benefit payment. The payment was made pursuant to a settlement to which the Settlement Regulation applied. The Settlement Regulation says nothing about the method of paying settlement funds.

Mr. Gemmink submits that method of payment rules were omitted from the Settlement Regulation because the legislature assumed that s. 44 applied. He argues that s. 44 governs the payment of accident benefits whether they are paid periodically or in a lump sum pursuant to a settlement agreement. He relies on several court decisions, but the cases, which were cited by the Arbitrator, did not involve statutory accident benefits or settlement payment rules.⁵ Mr. Gemmink also points to subsection (1) of the Settlement Regulation, which states:

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.

Since there is no dispute that the Settlement Regulation governed the parties' agreement, Mr. Gemmink submits it follows that the monies paid were benefits under the SABS, to which s. 44 applies. He relies on the principle that statutory language should be interpreted in context, including reference to related statutes or regulations (legislation in pari materia).

The Settlement Regulation does not purport to be a complete code. It is remedial legislation intended to ensure that claimants have enough information to make an informed choice, and provide a cooling-off period for claimants to reconsider and discuss a tentative settlement with friends, family and advisors.⁶ Subsequent amendments have addressed a third issue – the disposition of settlement funds when the insured person purports to rescind the agreement. The Settlement Regulation simply does not address method of payment, probably because the legislature has not identified any mischief requiring regulatory intervention. It does not necessarily follow that rules governing method of payment are to be found in the SABS – or in any other statute or regulation.

In support of his submission that subsection (1) of the Settlement Regulation incorporates s. 44 by reference, Mr. Gemmink argues that settlement funds would not be deductible from court-awarded damages under s. 267.8 of the Act if they were not "payments made in respect of . . . statutory accident benefits." I agree with the Insurer: settlement funds in relation to accident benefits are deductible because s. 267.8 embraces benefits "received or . . . available," and a settlement attests to what benefits were available.

From a policy point of view, there may be good reasons for applying the same rule to benefit payments and settlement payments relating to accident benefits. As Justice Greer said of the predecessors to sections 44 and 65⁷ in Dineff v. Progressive Casualty Insurance Co. of America (1994), 1994 CanLII 7338 (ON CTGD), 21 O.R. (3d) 67 (Ont. Ct. Gen. Div.), these provisions "were intended to ensure that the insured directly received her or his benefits and that they not be diverted to someone or some entity other than the insured." The applicant in that case argued that requiring benefit cheques to be delivered to her personally interfered with her right to instruct counsel. The judge disagreed. Her concern about assignments underlies her reasons.

This policy argument is Mr. Gemmink's strongest submission, but I am not persuaded that s. 44 applies to lump sum settlement payments.

When the parties reach a final settlement of their accident benefits dispute, as Mr. Jiwa and Royal did in this case, the insured person generally releases the insurer from any future obligation to pay ongoing benefits in exchange for payment of a lump sum. Indeed, subsection (1) of the Settlement Regulation defines "settlement" as an agreement that "finally disposes of' a claim for or dispute about accident benefits, and the disclosure provisions in subsection (2) are intended to ensure that the claimant understands the benefits he is giving up in exchange for the settlement payment.⁸

For these reasons, I am not persuaded that the reference to accident benefits in subsection (1) of the Settlement Regulation incorporates the SABS or any part of it by reference. Nor am I satisfied that the legislature left method of payment rules out of the Settlement Regulation because it intended the rules in s. 44 to apply to settlement funds. I conclude that common law contract principles govern where the Settlement Regulation is silent.⁹ Mr. Jiwa gave Royal written authorization to direct notices and payments to his agents, and, absent any contrary authority, Royal was entitled to do so.

I note that Mr. Mendez' retainer agreement, which was provided to Royal, purported to create an assignment, in contravention of s. 65(2) of the SABS-1996. Royal complied with this section by making its cheque payable to Mr. Jiwa personally. I am not persuaded Royal was required to take the further precaution of delivering the cheque to Mr. Jiwa rather than SM. Royal satisfied its obligations and therefore I have no authority to order it to pay any additional funds.

D. Jurisdiction

The Arbitrator, considering the jurisdiction issue first, concluded that if s. 44(1)(a) applied to settlement payments, the Insurer's purported non-compliance with the method of payment rules would fall within his jurisdiction. Royal conceded this point on appeal, and I agree. Conversely, had Royal mailed a benefit cheque to SM, Mr. Jiwa would have been entitled to commence mediation and arbitration seeking payment of any benefits he did not receive because of the Insurer's non-compliance with s. 44. That issue would fall within the Arbitrator's authority under s. 279(1) of the Insurance Act to resolve disputes about benefit entitlement and the amount of benefits.¹⁰

Was there any other basis for arbitral jurisdiction in this case, given my conclusion that s. 44 does not apply to settlement payments? As stated above, Mr. Gemmink submits that subsection (1) of the Settlement Regulation, which describes the application of the regulation, reiterates the language used in s. 280(1) of the Act, which describes arbitral jurisdiction. The two provisions are repeated here for convenience (emphasis added):

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.

280(1) Either the insured person or the insurer may refer to a mediator any issue in dispute in respect of the insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which the insured person is entitled.

I am not persuaded that subsection (1) of the Settlement Regulation expands the jurisdiction granted by ss. 279-283 of the Act. In my view, it serves only to describe the application of the regulation.

Mr. Gemmink points out that the Commission has considered issues pertaining to settlements in a number of cases. However, on closer review, the basis for the Arbitrator's jurisdiction in each of these cases was the applicant's claim for benefits, in defence of which the insurer relied on a purported settlement. Subsection 279(2) states,

Any restriction on a party's right to mediate, litigate, appeal or apply to vary an order as provided in sections 280 to 284, or on a party's right to arbitrate under section 282, is void except as provided in the regulations.

The validity of any purported settlement therefore falls squarely within arbitral jurisdiction where the insured person asserts a claim for benefits, but the insurer relies on a putative settlement to bar the claim.

In Wood v. Ontario (Insurance Commission), [1999] O.J. No. 5237, the Divisional Court concluded that the Commission erred in law by refusing to accept Mr. Wood's application for mediation on the basis that the dispute had been settled. Mr. Wood argued that the settlement agreement, which precluded access to dispute resolution, contravened an earlier version of the Settlement Regulation.¹¹ The Court concluded: "the issue of whether Guardian has complied with the requirements of the Settlement Regulation has everything to do with Wood's entitlement to SABs and as such falls within the plain common sense meaning of the words 'any issue in dispute in respect of the insured person's entitlement to statutory accident benefits' in ss. 280(1)."¹² In other words, the Commission could not decline jurisdiction with respect to the validity of a settlement agreement raised as a bar to mediation. In contrast, Mr. Jiwa is not asserting a claim for accident benefits or challenging the validity of his settlement agreement with Royal.

The Wood decision is consistent with a number of Commission decisions upholding arbitral jurisdiction where a settlement is raised as a defence. Branchaud and Co-operators General Insurance Company, (OIC P96-00048, May 2, 1997) is the leading decision. That case concerned a settlement that pre-dated the Settlement Regulation. The applicant argued that the agreement should be set aside on the basis that he did not have independent legal advice, the insurer misrepresented the future benefits available to him, and the settlement was unconscionable or obtained by undue influence. The Arbitrator concluded that as a statutory decision-maker, he did not have authority to consider whether the agreement should be set aside because the issue was not directly related to benefit entitlement and because the relief sought was equitable, not statutory.

This was overturned on appeal. Director's Delegate Naylor concluded the arbitrator took "too restricted an approach to jurisdiction."¹³ Following previous Commission case law,¹⁴ she held that an arbitrator "has implicit power to apply equitable principles in the ordinary exercise of his or her statutory jurisdiction,"¹⁵ though not to order an equitable remedy:

The arbitrator had to determine Mr. Branchaud's entitlemnt to benefits. Co-operators raised the settlement as a defence to the claim. Mr. Branchaud argues that the settlement does not preclude his right to further benefits because of the circumstances surrounding its creation. The question whether, and to what extent, the settlement is a full answer to Mr. Branchaud’s claim must be answered in order to determine his entitlement. This may involve a consideration of the effect of any misrepresentation, undue influence or unconscionable conduct.

An arbitrator, of course, cannot grant a remedy outside the parameters of his or her statutory authority. He or she has no jurisdiction, for example, to order specific performance or issue a declaration confirming or setting aside a contract. If that is what the parties want, they must pursue their remedy in court.¹⁶

The decision that supports the Arbitrator’s decision most strongly is Haripersaud and State Farm Mutual Automobile Insurance Company, (FSCO P98-00018, December 17, 1999). Mrs. Haripersaud settled her accident benefit claim about a month after her accident. In exchange for a full and final release, State Farm paid her $800 and agreed to pay her accident-related treatment expenses incurred to date. The expenses at issue were physiotherapy fees of $1,260. After signing the agreement, State Farm investigated further and came to the conclusion that the expenses were not payable, pursuant to s. 75(13) of the SABS-1994, because the treatment was reasonably available through OHIP. State Farm refused to pay the expenses, and Mrs. Haripersaud applied for arbitration. The Arbitrator concluded she had no jurisdiction to hear Mrs. Haripersaud’s claim for physiotherapy expenses because of the settlement agreement.

On appeal, I agreed with the Arbitrator that she had no authority to order specific performance of a contract or damages for breach of contract. However, I understood the issue differently. The insurer was attempting to raise the settlement agreement as a bar to the applicant’s claim, despite reneging on the agreement and refusing to pay the claim. The Insurer had a legitimate concern about the billing practices of the physiotherapy clinic, but the agreement was clear. The Insurer’s conduct left the applicant in a difficult position, engaging the remedial role of the Commission. In addition, the only dispute concerned the defined physiotherapy fees billed by the third-party; there was no issue about the $800 payment made directly to Mrs. Haripersaud. In these circumstances, there was no policy reason for preventing the applicant from proceeding with her claim. In contrast, Royal satisfied its obligations towards Mr. Jiwa, and it was entitled to expect that the dispute was at an end.

Mr. Gemmink also refers to decisions where the arbitrator commented on the insurer’s conduct with respect to a settlement and awarded interest or a special award. He cited Graper and Liberty Mutual Insurance Company, (FSCO A00-000133, July 20, 2001). In that case, the insurer conceded entitlement to benefits and interest shortly before the hearing, leaving only the special award as an issue in dispute. I ordered a special award based on my finding that the insurer unreasonably delayed payment. Though the parties had been in settlement discussions during part of the period of unreasonable delay, I held this had no bearing on the special award enquiry; the insurer could not be faulted for attempting to settle the dispute, but neither could it use the settlement process to shield its conduct from arbitral scrutiny. Implementation of the parties eventual settlement agreement was not in issue in Graper; the issue was the period of delay prior to the settlement.

In Branchaud, the Delegate described the policy reasons for interpreting arbitral jurisdiction broadly where a settlement agreement is in dispute:

This interpretation is consistent with the scheme and objectives of the Act in establishing the option of arbitration. Requiring an insured person to go to court first, before returning to arbitration, deprives him or her of a meaningful choice of process. It encourages multiple proceedings in different forums. It adds substantially to the delay and cost involved in determining the insured person’s right to benefits and renders an ultimate determination less accessible. The argument is all the stronger where, as here, both parties wish the arbitrator to rule on the entire dispute, and all evidence about the agreement has already been heard.

Moreover, the arbitration process must be seen in the context of the broader regulatory framework of which it is a part. Section 288 provides a direct link between the regulation of unfair or deceptive business practices and arbitration. In my view, this reinforces the arbitrator’s jurisdiction to review settlements between insurance companies and consumers and to intervene in the event of misleading or unfair conduct. Tying the arbitrator’s hands in respect of a settlement which a court would consider inequitable to enforce does not make sense in the overall statutory context.¹⁷

I agree with Delegate Naylor’s analysis, and again the essential point is that the insurer in that case raised the settlement as a bar to the application for arbitration. It made no sense to force the claimant to commence a civil action on the validity issue before exercising her election to have her entitlement dispute resolved at the Commission. Different considerations apply in this case. There is no longer any dispute about Mr. Jiwa’s benefit entitlement. Given my finding that s. 44 of the SABS-1996 does not apply to settlement payments, and that Royal complied with its obligations under the Settlement Regulation, Mr. Jiwa must seek his remedy against Mr. Mendez in the civil courts.

For these reasons, the appeal is allowed.

IV. EXPENSES

If the parties are unable to agree on appeal expenses, they may request a hearing pursuant to Rule 79 of the Dispute Resolution Practice Code.