Neutral Citation: 2005 ONFSCDRS 96

FSCO A04-001186

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

GRETTA KILPATRICK

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

John Wilson

Heard:

By written submissions from the parties.

Appearances:

Mark S. Grossman for Mrs. Kilpatrick

Nawaz A. Tahir for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Gretta Kilpatrick, was injured in a motor vehicle accident on August 12, 2001. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mrs. Kilpatrick applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

1. Is Mrs. Kilpatrick precluded from proceeding to arbitration because of a failure to adhere to a procedural agreement allegedly entered into at mediation?

2. Should Mrs. Kilpatrick's arbitration be stayed pending compliance with the procedural agreement?

Result:

1. Mrs. Kilpatrick may proceed to arbitration.

2. Mrs. Kilpatrick's arbitration should not be stayed pending compliance with the procedural agreement.

EVIDENCE AND ANALYSIS:

This preliminary issue arises out of a statement contained in the Report of Mediator following the completion of the mediation of her case by FSCO. The report states:

State Farm and Mrs Kilpatrick agreed that the issue will be revisited provided that the accountants of both Mrs. Kilpatrick and State Farm meet to discuss quantum with regards to this issue within a reasonable time from date of this mediation.

State Farm agreed to pay for the reasonable cost of Mrs. Kilpatrick retaining the services of an accountant to deal with this issue, provided that the cost of such a service is pre-approved by the [sic] State Farm.

In addition Mrs. Kilpatrick agreed that she will not proceed to arbitration before a reasonable attempt has been made to resolve this issue as reflected above.

By way of background, the principal issue in dispute is the amount of Mrs. Kilpatrick's income replacement benefits.

Prior to the motor vehicle accident, Mrs. Kilpatrick operated businesses called "Blind Ambitions" and "Solar Tech", in co-operation with her husband. Following the accident Mrs. Kilpatrick claimed income replacement benefits, based on her inability to continue with her pre-accident work.

At the time of the accident the preparation of the financial statements for the two businesses was in the hands of an accountant. State Farm, as well, engaged an accounting firm to assist it in determining Mrs. Kilpatrick's benefit entitlement.

State Farm's accountants worked out IRB amounts from August 2001 to August 2002 that varied from a high of $403.00 to a low of zero. These calculations involved certain assumptions about the value of labour, the attribution of pre and post-accident income, as well as decisions about the interaction of such matters as capital cost allowance and fixed expenses with the post-accident IRB calculation. Mrs. Kilpatrick disagreed with this calculation.

There appear to have been attempts to resolve the dispute by obtaining further information from Mrs. Kilpatrick's accountant, culminating in the agreement at mediation to have the two accountants meet to hammer out a resolution.

For some reason, possibly the deterioration of the relationship between Mrs. Kilpatrick and her accountant outlined at paragraph 3 of her affidavit, the meeting of accountants never took place. Mrs. Kilpatrick, ultimately, did produce a report from different accountants that came up with numbers somewhat higher than those obtained by the Insurer.

The accident took place on August 12, 2001. To protect Mrs. Kilpatrick's right to proceed against State Farm, and to avoid the passing of a limitation period, her lawyers filed an application for arbitration. State Farm objects to this action since they believe that the procedural agreement to have the accountants of both sides meet to discuss quantum was a condition precedent to proceeding to arbitration. It is common ground between the two parties that no such meeting took place.

Assuming that the mediator's report accurately reflects intention of the parties at mediation, it is important to look at just what the agreement actually said. As can be seen, it is divided into three separate paragraphs. The first deals with "revisiting" the issue of quantum, provided that both accountants meet within a reasonable time. The second paragraph provides for State Farm to pay the reasonable costs of an accountant looking at this issue, providing that the expense is first submitted to State Farm for pre-approval. The third records Mrs. Kilpatrick's agreement that she will not "proceed to arbitration before a reasonable attempt has been made to resolve this issue as reflected above."

I accept that the first and second paragraphs are reasonably clear. Without the meeting of accountants, State Farm will not revisit the issue. Nor should it have to pay an accountant if the meeting does not take place or if the cost is not submitted for pre-approval.

The third paragraph, however, is the more difficult challenge. Mrs. Kilpatrick is obliged to make a "reasonable attempt" to resolve the issue by having a meeting of the accountants take place. It does not say that a meeting of the accountants must take place prior to any application for arbitration, merely that there must be some sort of bona fide attempt to arrange one.

This third prong of the agreement gives rise to the Insurer's contention that Mrs. Kilpatrick cannot proceed to arbitrate her dispute.

It is common ground that no face to face meeting of the accountants ever took place, and that the Insurer has not paid any of Mrs. Kilpatrick's accounting expenses.

At paragraph 4 of Mrs. Kilpatrick's affidavit is her statement that her accountants "appeared unable to prepare and arrange for a meaningful meeting with the Insurer's accountants within a reasonable time period."

Mrs. Kilpatrick has since discharged those accountants and hired others who have apparently been more willing to exchange information with the Insurer. Mrs. Kilpatrick notes that since the retainer of the new accountants, the Insurer has, indeed, increased the income replacement benefit based on new information.

What then is the effect of this procedural agreement?

It is clear that both the Insurer and Mrs. Kilpatrick interpret it differently and arrive at different conclusions.

To be effective and enforceable an agreement must meet certain criteria established by law. There must be an offer and an acceptance. There must be sufficient consideration.² There must have been an intention on behalf of both parties to create a legal relation. There must be also an ascertainable meaning to the agreement. At times the ambiguity of the agreement as set out can prevent one from presuming the existence of a contract, notwithstanding any conformity with the formal elements of contract.³

Even if a contract is ascertainable and enforceable, the contractual obligation may be discharged by frustration⁴, breach by another party, agreement, or waiver.⁵

A contract, otherwise valid, may also be unenforceable if it contravenes public policy as expressed in the relevant law.

In this matter, we are concerned about whether there was a valid agreement and, if so, what effect it has, including whether it is enforceable.

I accept that the mediator recorded some sort of agreement between the parties. There is no record of the Applicant writing to object to the terms recorded in the report. Indeed, subsequent correspondence seems to refer to such an agreement.

I do not accept, however, that the parties were ad idem on what the exact legal effect of the agreement would be, if any. The affidavit filed by State Farm makes its understanding clear:

...State Farm and Mrs. Kilpatrick agreed that it would be a pre-condition to commencing an arbitration in this matter that Mrs. Kilpatrick's accountants speak to our accountants in an effort to revisit the issue respecting the quantum of benefits payable in this instance.

Mrs. Kilpatrick and her counsel, in their materials, emphasize the limitations on the promise inherent in the phrase "before a reasonable attempt has been made to resolve this issue as reflected above." In her mind, the attempts she made were reasonable under the unusual circumstances of this case.

My reading of the agreement, as expressed by the mediator, is that, in form and wording, it is more consistent with the approach taken by Mrs. Kilpatrick. At best, there is an agreement to attempt to arrange a meeting between the accountants. That such efforts would precede any application for arbitration is apparent from the mediator's report. Whether this provision is a binding condition precedent to arbitration rather than an attempt to provide time co-ordinates for the discussions is not clear, however.

Throughout this process, Mrs. Kilpatrick has maintained that she has tried to get her accountants to speak to the Insurer. Although hired by Mrs. Kilpatrick, they are third parties not subject to her direct control, and with whom, to judge from the statement of claim filed by the accountants, she is not in good standing.

In any event, I find, on the basis of Mrs. Kilpatrick's uncontradicted affidavit, that she made an attempt to have her then accountants contact the Insurer's accountants. In the context of an obligation to be performed by a third party, and concurrent breakdown of relations between Mrs. Kilpatrick, her counsel and her accountant, I accept that her efforts were reasonable under the circumstances.

It would have served no purpose to have an unwilling, unco-operative accountant meet with another accountant, when the reasonable course for Mrs. Kilpatrick was to retain another, more willing accountant to pass the necessary information on to the Insurer. The latter, apparently, was what happened.

I will also deal briefly with the issue of "consideration" for the agreement. The proposed benefit to Mrs. Kilpatrick for the agreement was the Insurer would look at the issue of the quantum of benefit. Because of the nature of the insurer/insured relationship, the Insurer was already under a duty to consider fairly any relevant information put forward by the Insured.⁶

In the case of Stilk v. Myrick,⁷ Lord Ellenborough found that where there was a pre-existing contractual obligation to do the same act relied upon as a benefit under an agreement, there was no consideration for the new agreement, and it was not enforceable.

I accept that the "re-examination" by State Farm of the issue of the quantum of income replacement benefits was part and parcel of its duties under the existing contract of insurance between Mrs. Kilpatrick and State Farm. Consequently, the procedural agreement fails for lack of consideration.⁸

Having made this finding I will not deal with the waiver issue raised by Mrs. Kilpatrick, except to note that the purpose of the "agreement" appears to have been satisfied by the Insurer's laudable conduct in adjusting Mrs. Kilpatrick's benefit upon receipt of the new information.

Even if the agreement not to proceed to arbitration before making efforts to arrange discussions was enforceable, and it were to be found that Mrs. Kilpatrick's actions were insufficient to fulfill this condition, I would find that the agreement was void for its clear infringement of section 279(2) of the Insurance Act which provides: "any restriction on a party's right to mediate, litigate, appeal or apply or vary an order as provided in sections 280 or 284, or on a party's right to arbitrate under section 282, is void except as provided in the regulations." I am aware of no saving regulations exempting the type of agreement in issue in this preliminary issue hearing.

I note, however, that if Mrs. Kilpatrick were to be found to have unnecessarily delayed the process, through failing to act on an undertaking or to co-operate in providing information to the Insurer, both the Dispute Resolution Practice Code and the Expense Regulation provide specific and appropriate cost sanctions that are less severe than those requested by the Insurer in its motion.

I find that the "agreement" in issue was likely framed in such loose terms precisely because the mediator was aware of section 279(2). What was expressed was merely the goodwill and the intention of both parties to move toward resolution. Given the apparent success of Mrs. Kilpatrick in persuading the Insurer to move on the issue of quantum, I accept, as well, that there would be no practical purpose, and no valid policy reason for enforcing this agreement, even if it were a binding accord.

For the above reasons, the Insurer's motion fails.

EXPENSES:

Given Mrs. Kilpatrick's success in this motion, I exercise my discretion to award Mrs. Kilpatrick her expenses. If the parties are unable to settle the quantum of expenses within 30 days, I may be spoken to on this issue.

July 7, 2005

John Wilson Arbitrator

Date

Neutral Citation: 2005 ONFSCDRS 96

FSCO A04-001186

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

GRETTA KILPATRICK

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:

1. Mrs. Kilpatrick may proceed to arbitration.

2. Mrs. Kilpatrick's arbitration should not be stayed pending compliance with the procedural agreement.

3. Mrs. Kilpatrick is entitled to her expenses as agreed or assessed in this preliminary issue hearing. If the parties are unable to settle the quantum of expenses within 30 days, I may be spoken to on this issue

July 7, 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 Elsee and another v. Gatward 5 Term Rep. 143 in which Grose J. stated: "when a person agrees to do a thing without any consideration, and fails in his promise, no action will lie against him for the non-performance."
3. 3See Raffles v. Wichelhaus (1864) 2 H. & C. 906
4. 4Changed circumstances that alter the fundamental nature of the contract and make it unrealistic to expect the parties to be held to their bargain - See Hirji Mulji v. Cheong Yue Steamship Co. Ltd. 1926 CanLII 523 (UK JCPC), [1926] A.C. 497
5. 5See decision of Denning L.J. in Charles Rickards Ltd. v. Oppenheim [1950] 1 K.B. 616
6. 6As Cumming J. commented in Bullock v. Trafalgar Insurance Co. of Canada [1996] O.J. No. 2566 "the insurer may not treat the insured as an adversary whose interests may be disregarded. This encompasses a duty to settle claims without litigation in appropriate cases: This implies a reasonable and competent investigation to determine whether a claim will be honoured."
7. 7Stilk v. Myrick (1809) 2 Camp. 317
8. 8Likewise for the accounting fees. Even if they constitute part of the same bargain, I do not consider the offer to pay accounting fees "provided that the costs of such a service is pre-approved by State Farm" to be anything more than a promise to consider payment once submitted for pre-approval. State Farm undertook no unconditional obligation to pay such fees.