Neutral Citation: 2005 ONFSCDRS 72

FSCO A04-001439

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

HARJINDER P. LEBANA

Applicant

and

ZURICH INSURANCE COMPANY (COMMERCIAL BUSINESS)

Insurer

PRE-HEARING DECISION

Before:

John Wilson

Heard:

May 19, 2005, at the offices of the Financial Services Commission of Ontario in Toronto. Written submissions were received on May 13, 2005.

Appearances:

Mr. Lebana on his own behalf. Eric K. Grossman for Zurich Insurance Company (Commercial Business)

Issues:

The Applicant, Harjinder P. Lebana, was injured in a motor vehicle accident on November 17, 2003. He applied for statutory accident benefits from Zurich Insurance Company (Commercial Business) ("Zurich"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Lebana applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended, on July 9, 2004. The Insurer's Response was faxed to the Commission on August 10, 2004.

Rule 26.1 (a) of the Dispute Resolution Practice Code requires that an Insurer must serve and file a Response by Insurer to an Application for Arbitration within 20 days of the receipt of the Application for Arbitration.

Rule 8.1 of the Practice Code deals with the calculation of time under the Rules, and provides for counting based on calendar days, excluding the day on which the first event happens (the receipt of the Application) and including the day on which the second event happens (date of service of the Response). It also provides for an extension "where the time for doing an act under these Rules ends on a Saturday, Sunday, or a statutory holiday."

By any calculation, the Insurer's Response was not within the 20 days provided for by the Practice Code.

At the resumed pre-hearing discussion of this case held on May 19, 2005, Mr. Grossman on behalf of Zurich brought a motion for an order extending the time for the delivery of the Insurer's Response nunc pro tunc.

The issues are:

1. Is the Insurer entitled to an order nunc pro tunc extending the time for the delivery of the Insurer's Response?

Result:

1. The Insurer is granted an order extending the time for the delivery of the Insurer's Response nunc pro tunc.

EVIDENCE AND ANALYSIS:

This motion involves an examination of the consequences of non-compliance with time limits in the Practice Code, specifically the time set for an insurer to file its Response to an application for arbitration.

The Commission's standard letter which accompanies the copy of the Application sent to the Insurer states: "Insurers who are late filing their responses may not have standing to participate in the arbitration process nor to receive further notice regarding the proceedings."

Although Rules 27.2 and 27.3 of the Practice Code prescribe the consequences for delivery of a deficient Response, or of a Response that exceeds the jurisdiction of the Commission, there is no penalty specifically provided for late delivery of a Response.

Nor is there a specific Rule dealing with noting pleadings closed or for default judgements.

Rule 1.2 of the Practice Code provides that "where something is not specifically provided for in these Rules, the practice may be decided by referring to similar Rules in this Code."

Early on in the Commission's existence, a policy was developed to deal with the failure of an insurer to file a timely Response as required. As early as 1993, Senior Arbitrator Rotter set out the consequences of a failure to file on a timely basis.²

While accepting that the arbitration process should be speedy, informal and "user-friendly", she found that the appropriate consequence of a lengthy delay in responding to the arbitration would be the exclusion of the insurer from the arbitration. In her opinion, "even a user-friendly system cannot allow parties to ignore, with impunity, basic rules and requirements."

That Senior Arbitrator Rotter's position has been accepted as a rule of practice at the Commission is evident from the extract of the current letter sent to all insurers by the Commission.³

In essence, without the filing of a timely Response, the insurer has no status to participate in the arbitration.

Since the time requirements contained in the Practice Code are mandatory, it would appear that a Response filed late would continue to have no status until rectified by an order of an adjudicator extending the time for the filing of a Response, pursuant to Rule 81.

This conclusion stems from some important differences between the arbitration system and litigation in the Courts.

An insured has three options following the failed mediation of a dispute. He or she may proceed to arbitration, file a civil action in the courts, or request a private arbitration.

Each option has its own attributes. Private arbitration may be timely, but also discrete. The decisions of a private arbitrator do not necessarily form part of the public record. Nor is the public entitled to be present at private arbitration hearings. Given the sensitive information that sometimes appears in the context of an accident benefit matter, it is easy to see the attraction private arbitration may hold for some applicants.

Litigation, on the other hand, is a fully public, often ponderous process, that offers the possibility of wide-ranging examinations for discovery, not to mention the possibility of joining wider issues, outside of accident benefits including conduct issues, into a single process.

Arbitration, on the other hand, is strictly limited to accident benefit matters. It is conceived as a "timely, cost-effective and fair dispute resolution service(s)."⁴

Statutory arbitration under the Insurance Act is part of the continuum of the accident benefit process which has been characterized as follows by Cameron J.:

This is remedial legislation. The "no fault" legislation deprived the plaintiff of his common law right to sue for damages for loss of income due to another's negligence. The Regulation provides for prompt payment of an income benefit to replace income lost due to the accident without need to prove fault and in lieu of any amount the plaintiff might have been awarded and recovered at common law.⁵

Likewise Gonthier J., in Smith v. Co-operators General Insurance Co., speaking in connection with an accident benefit matter, stated:

There is no dispute that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance.⁶

It is significant in this context that section 281(1) of the Insurance Act provides that only an insured may bring a proceeding or refer issues in dispute to an arbitrator. Likewise, section 281(3) provides that an insurer "shall pay statutory accident benefits in accordance with the last offer made by the insurer before the failure until otherwise agreed by the parties."

What is clear is that the arbitration process is at the instigation of the insured only. It forms part of the consumer protection envelope⁷ and is aimed at getting benefits to a consumer in a timely and cost-effective manner.⁸ Hence the requirement that, once an application is made to arbitration, an insurer has 20 days to respond to each issue raised by an insured and to raise any issue it intends to add to the arbitration.

It is entirely consistent with the scheme of the Insurance Act that a failure to respond on a timely basis leads directly to what may be seen as default by an insurer.⁹

The question remains, however, at what point in the process does such default occur in the arbitration process, and what are the consequences and potential remedies?

If one is to treat the arbitration process and its Rules as a consistent whole, the answer seems to be that once the deadline for filing the Response is missed, the party is in default. Although this may sound harsh, it is consistent with the nature of arbitration. Indeed, there is no other apparent bright line where such a delay can crystallize as a default.

There are no pleadings in arbitration. The application for arbitration is not served on an insurer by an insured, but is filed with the Commission, which in turn notifies the insurer. Once a matter is set down as an arbitration, the case administrators follow up to set dates for pre-hearings.

Unlike most litigation, the Commission plays an active role in moving matters along. As a simplified process, managed by the Commission, it is unnecessary for a party to note another in default. Default occurs simply through a failure to file a Response or take a necessary step within the time limit specified.

Rule 81, however, gives an arbitrator a very wide discretion to relieve against default, waive time limits or waive the application of a particular Rule to an arbitration process. The Rules, however, provide no road map as to how such relief is to be obtained, or on what grounds.

Although it goes without saying that arbitration is not litigation, one may still make useful comparisons between the two systems.

In the courts, the failure to file a defence within the time allotted in Rule 18 creates the foundation for default proceedings as governed by Rule 19. In the regular stream, a party may request the Registrar to note a defendant in default where no defence has been filed, or it may move for judgement as the case may be. The Rules of Civil Procedure also provide a means of setting aside a default judgement.

If no default judgement has been entered, as a rule a judge may set aside a default on considering such matters as timeliness, the circumstances of the default, and prejudice to the other party. In addition, the availability of a defence on the merits may be relevant to setting aside a default, as it is to setting aside a default judgement.¹⁰ These court Rules should not be applied rigidly where there is a defence on the merits and redress was sought within a reasonable time.

In a case-managed system, a Registrar must simply dismiss an action where no defence has been filed and the proceeding has not been disposed of finally 180 days after the filing of the original process.¹¹

In Hunt v. Brantford (City),¹² E. Macdonald J. conveniently summarized the criteria for setting aside a judgement:

In their factums, both counsel were in agreement that, on a motion to satisfy a default judgement, the defendant is required to show that:

(a) the default was unintentional and provide a valid reason for the default;

(b) the motion was launched forthwith after the judgement came to its attention;

(c) a valid defence on the merits exists; and

(d) full disclosure of all materials(s) facts have been made.

I might add, as well, drawing on Ntana (supra), that it must be shown that, to set aside a default, an applicant will suffer no prejudice that cannot be addressed by either a costs order, an adjournment, or other relief within the jurisdiction of an arbitrator.

It is clear from the jurisprudence, especially in the context of case management, that an order is not granted either automatically or routinely. The result will turn on the facts of each case and the timeliness of the application.

I find that, with the addition of the consideration of prejudice, the principles outlined by E. Macdonald J. should also apply to the setting aside of a default in filing a Response.

In this matter, based on the affidavit of Marisol Torres and the submissions of Mr. Grossman, I accept that Zurich has met the criteria outlined above. In addition, I accept that Zurich made positive efforts, in good faith, to advise the Commission of the delay in responding and, indeed, may have been lulled into complacency by relying upon the information provided by the Commission.

In addition, Mr. Lebana was unable to point to any prejudice that arose to him from the late filing, or the setting aside of the late filing of the Response by Insurer to an Application for Arbitration.

Consequently, I order that, pursuant to Rule 81 of the Practice Code, the time prescribed for the delivery of the Insurer's Response be extended nunc pro tunc, and that the validity of that Response be recognized for the purposes of this arbitration.

EXPENSES:

No expenses having been requested, there will be no order.

May 26, 2005

John Wilson

Arbitrator

Date

Neutral Citation: 2005 ONFSCDRS 72

FSCO A04-001439

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

HARJINDER P. LEBANA

Applicant

and

ZURICH INSURANCE COMPANY (COMMERCIAL BUSINESS)

Insurer

ARBITRATION ORDER

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

1. Pursuant to Rule 81, the time prescribed for the delivery of the Insurer's Response be extended nunc pro tunc, and that the validity of that Response be recognized for the purposes of this arbitration.

May 26, 2005

John Wilson

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2See Ntana and Zurich Insurance Company (OIC A-003279, November 15, 1993)
3. 3See also Pi res and Zurich Insurance Company (FSCO A97-000110, November 19, 1999) in which Arbitrator Joachim noted, "I ruled that I had the discretion to waive the Commission's power to deprive Zurich of standing because of late filing and that I was prepared to exercise my discretion to do so in this case." Presumably the Arbitrator relied on Rule 81 of the Practice Code to found that discretion.
4. 4Introduction to the Dispute Resolution Practice Code (4th edition, Updated October 1, 2003)
5. 5Youden v. Economical Insurance Co. 1996 CanLII 8010 (ON CTGD), [1996] O.J. No. 2044.
6. 6Smith v. Co-operators General Insurance Co. [2002] S.C.R. 129
7. 7It is significant that section 288 of the Insurance Act provides for potential regulatory consequence for an arbitrator's finding of practices that might be considered "unfair or deceptive business practices."
8. 8According to the Practice Code, an insured may reasonably expect a ruling on benefit entitlements in less than a year from the commencement of the arbitration process. Historically, arbitration has been seen as an efficient, time-sensitive alternative to the courts. In 1856, Lord Campbell in Scott v. Avery 5 H.L. Cas. 811, remarked: "Is there anything contrary to public policy in saying that the company shall not be harassed by actions to be brought against them, the costs of which might be ruinous, but that any dispute that arises shall be referred to a domestic tribunal, which may speedily and economically determine the dispute?"
9. 9It is certainly consistent with the spirit of section 281(3).
10. 10See Chitel v. Rothbart [1988] O.J. No. 1197(C.A.)
11. 11[2004] O.J. No. 3451
12. 12Hunt v. Brantford (City) [1194] O.J. No. 1867