Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 141

FSCO A03-001063

BETWEEN:

SIVAHARAN KULASEKARAMPILLAI

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before:

Jeffrey Rogers

Heard:

July 24, 2006, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances

David S. Wilson, solicitor for Mr. Kulasekarampillai

Jonathan B. Schrieder, solicitor for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Sivaharan Kulasekarampillai, was injured in a motor vehicle accident on December 18, 2002. He applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule.¹ State Farm terminated income replacement and housekeeping benefits. Mr. Kulasekarampillai disagreed with the decision. The parties were unable to resolve their dispute through mediation, and Mr. Kulasekarampillai applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. The arbitration hearing was held on July 19, 2004. Arbitrator Sapin issued an order on December 24, 2004. State Farm applied for variation or revocation of the order pursuant to section 284 of the Insurance Act and Rule 61 of the Dispute Resolution Practice Code. Mr. Kulasekarampillai objected to the application, submitting that it does not fall within the grounds of section 284 and Rule 61.

The Director of Arbitrations allowed the application to proceed. He concluded that fairness required that the application proceed because Arbitrator Sapin's decision specifically contemplates an application for variation or revocation. The Director deferred the decision on whether the application fell within the grounds of section 284 and Rule 61, to the arbitrator hearing the application. The Director noted that he would ordinarily appoint the hearing arbitrator to hear the application to vary, but because Arbitrator Sapin's new duties as Senior Arbitrator placed considerable demand on her time and there was no reason another arbitrator could not hear the application, another arbitrator would be appointed.

When they appeared before me, the parties indicated that they had agreed that State Farm's application for variation or revocation of the order as it pertains to entitlement to post-104 IRBs would be withdrawn. State Farm also conceded entitlement to expenses on that issue but reserved the right to dispute quantum. The only remaining issue is variation or revocation of the order as it pertains to quantum of IRBs. The parties agreed that I should resolve, as a preliminary issue, the question of whether the application falls within the grounds of section 284 and Rule 61. They phrased the issue as follows:

Is State Farm precluded from proceeding further with its application to vary the arbitration order, on the grounds that Mr. Kulasekarampillai was self-employed at the time of the accident and therefore the quantum of his entitlement to income replacement benefits should be calculated pursuant to section 8(2) of the Schedule and not section 8(1)?

Result:

State Farm is precluded from proceeding further and the application for variation is dismissed.

FACTS:

The parties agreed that the facts are reflected in the documents they filed and I heard no oral evidence. The facts are not in dispute. What is disputed is the consequences of State Farm's conduct and the decisions it made after receiving information about the circumstances of Mr. Kulasekarampillai's employment.

In his application for accident benefits, made in December 2002, Mr. Kulasekarampillai had the choice of describing himself as "employed and working" or "self-employed". He chose "employed and working". State Farm responded in February 2003 with a request for an Employer's Confirmation of Income. Mr. Kulasekarampillai provided that form in March 2003. The form is ambiguous as to his employment status. It provides both information on his choice of a period for calculating his IRB entitlement based on self-employment and information that he was employed as a delivery person at S&R Moving and Delivery. The Employer's Confirmation of Income is signed by Sutherasan Paramasamy, described as a Director of the employer.

State Farm's records show that Tayo Ramdular, the adjuster handling Mr. Kulasekarampillai's file, spoke with Sutherasan Paramasamy at 2:53 p.m on April 17, 2003. Mr. Paramasamy told Ms Ramdular that Mr. Kulasekarampillai was not employed by S&R Transport. She was told that he was hired on assignment as required but worked for himself. State Farm's records show that at 3:10 p.m. on the same day, Ms Ramdular noted that the insured had also submitted an employment letter from TIPS, calculated IRBs, issued an Explanation of Benefits enclosing IRBs for the period December 25, 2002 to April 17, 2003, and requested an Employer's Confirmation of Income from TIPS.

Despite the information she had received from S&R Transport, Ms Ramdular calculated Mr. Kulasekarampillai's IRB entitlement as an employee of S&R Transport. On April 17, 2003, Ms Ramdular also issued a second Explanation of Benefits, terminating benefits effective May 3, 2003, based on an opinion obtained through an insurer's medical examination.

On April 21, 2003, Mr. Kulasekarampillai sent State Farm an Employer's Confirmation of Income from TIPS. Ms Ramdular issued a further Explanation of Benefits on April 29, 2003, increasing Mr. Kulasekarampillai's IRB entitlement on the basis of his employment at TIPS.

Following the termination of his benefits, Mr. Kulasekarampillai applied for mediation and, when the issues were not settled at mediation, he applied for arbitration. State Farm filed a response in September 2003. The response does not raise the question of self-employment or the issue of quantum of IRBs. Quantum was not identified as an issue in dispute at the pre-hearing, held on November 6, 2003. The pre-hearing report notes that Mr. Kulasekarampillai was paid IRBs of $400 per week until May 3, 2003 and he claims ongoing benefits "at the agreed rate". The pre-hearing arbitrator scheduled the hearing to start on July 19, 2004.

The issue of self-employment is first mentioned in the arbitration, in a letter from Mr. Kulasekarampillai's solicitor dated January 26, 2004. He informs State Farm's solicitor that he had written to S&R Transport requesting Mr. Kulasekarampillai's employment records, that S&R Transport was taking the position that Mr. Kulasekarampillai was self-employed, but that Mr. Kulasekarampillai's position was that his relationship with S&R Transport fit all the indicia of an employer-employee relationship.

State Farm addressed the issue of self-employment for the first time about a month later, by letter from its solicitor to Mr. Kulasekarampillai's solicitor dated February 24, 2004. The letter requests repayment of $5,212.23 paid for IRBs, on the basis of an accountant's report State Farm had commissioned, calculating Mr. Kulasekarampillai's IRB entitlement as though he were self-employed. State Farm also sought consent to add this issue to the arbitration. Although the letter does not squarely address the issue of quantum of IRBs, it is implicit that State Farm had changed its position on Mr. Kulasekarampillai's weekly entitlement, some time before February 24, 2004. Mr. Kulasekarampillai's solicitor did not respond.

State Farm's solicitor again asked for consent to add the issue of repayment, by letter of April 13, 2004. By letter of April 26, 2004, Mr. Kulasekarampillai's solicitor replied that his client denied that there had been an overpayment and his client would not agree to add the issue of repayment "in circumstances where the insurer refuses to pay for the disbursements which it undertook to pay".

By letter of May 10, 2004, State Farm's solicitor proposed a solution to the dispute over disbursements and asked Mr. Kulasekarampillai's solicitor to reconsider his position on adding the issue of repayment. He asked for quick answer so that he could initiate mediation proceedings, if necessary. On May 27, 2004, Mr. Kulasekarampillai's solicitor responded that his position was unchanged.

On June 17, 2004 State Farm's solicitor again wrote seeking consent. Quantum of IRBs is mentioned directly for the first time in this letter, almost 5 months after Mr. Kulasekarampillai's solicitor had broached the issue. State Farm's solicitor asked for an immediate answer because, without consent, he may be forced to seek an adjournment so that the issues can be mediated and added to the arbitration.

Mr. Kulasekarampillai did not consent and, with the hearing set to begin on July 19, 2004, State Farm sought an adjournment by letter of June 22, 2004. Both parties provided written submissions and Arbitrator Kominar heard oral argument on July 2, 2004. In its submissions, State Farm characterized the issue as resulting from Mr. Kulasekarampillai's misrepresentation of his employment status at S&R Transport and alleged that it did not know that he was self-employed until February 2004. Mr. Kulasekarampillai responded by placing Ms Ramdular's note of April 17, 2003 before the arbitrator. Arbitrator Kominar noted that, in his submissions, counsel for State Farm conceded that State Farm was, or ought to have been aware of the facts supporting their current position "quite some time ago".

Arbitrator Kominar denied the request for an adjournment. He found that adjourning was not in compliance with the Commission's policy on adjournments and that an adjournment would prejudice Mr. Kulasekarampillai. He acknowledged that it would make sense to deal with the quantum issue as part of the proceeding and left the question of adding the issue to the hearing arbitrator.

Arbitrator Sapin ruled that, because the issues of quantum and repayment were not mediated as required by sections 280 and 281(2) of the Insurance Act, she had no jurisdiction to determine those issues. She found that State Farm "had ample time to mediate the issues of repayment and quantum and have them added to this arbitration, and simply did not do so because it hoped Mr. Kulasekarampillai would consent to add them, something Mr. Kulasekarampillai is not required to do, and which he indicated he would not do."² Arbitrator Sapin then went on to point out that State Farm was not without a remedy because section 284 of the Insurance Act entitles it to apply to vary or revoke any order she made.

ANALYSIS:

Section 284 of the Insurance Act provides as follows:

284(1) Either the insured person or the insurer may apply to the Director to vary or revoke an order made by the Director or an arbitrator appointed by the Director.

(2) If an application is made to vary or revoke an arbitrator's order, the Director may decide the matter or he or she may appoint the same arbitrator or some other arbitrator to determine it.

(3) If the arbitrator or Director is satisfied that there has been a material change in the circumstances of the insured or that evidence not available on the arbitration or appeal has become available or that there is an error in the order, the arbitrator or Director may vary or revoke the order and may make a new order if he or she considers it advisable to do so.

(4) An order made, varied or revoked under subsection (3) may be prospective or retroactive.

Rule 61 of the Dispute Resolution Practice Code sets out the procedure for applying to vary or revoke and order and repeats the grounds. They are:

(a) material change in circumstances of the insured;

(b) evidence not available at the arbitration or appeal has become available; or

State Farm's position is that evidence on Mr. Kulasekarampillai's employment status was not available at the arbitration and there is an error in the order. Mr. Kulasekarampillai submitted that, by its conduct, State Farm has waived any right to claim that he was self-employed and to challenge the quantum of his IRB entitlement. He submitted that, by agreeing at the pre-hearing that the weekly amount of IRBs was $400, State Farm made a "judicial admission" from which it cannot retreat in the circumstances of this case. He further submitted that State Farm has no evidence that was not available at the arbitration. Rather, State Farm was unable to present its evidence at the arbitration because it failed to act diligently to put itself in a position to do so.

Error in the Order

State Farm submitted that the order erroneously awards IRBs of $400 per week. At the arbitration hearing, State Farm submitted that Arbitrator Sapin had no jurisdiction to identify the amount of IRBs in an order for ongoing benefits. Arbitrator Sapin rejected the submission. She found that the only amount she had jurisdiction to award was $400 per week, because the parties identified and agreed to that amount at the pre-hearing.

I find that State Farm's remedy for challenging Arbitrator Sapin's ruling on this issue is an appeal, not an application to vary or revoke her order. As Director's Delegate Naylor noted in Hart and Allstate Insurance Company of Canada, "error in the order" must be construed in its context. It is not intended to duplicate the appeals route and it "does not encompass an erroneous interpretation of the law."³ State Farm's challenge of Arbitrator Sapin's ruling is purely a challenge of her interpretation of the law.

Evidence not Available

State Farm does not seek to rely on any evidence not available to it at the arbitration hearing. It seeks to introduce evidence that the hearing arbitrator refused to consider. Arbitrator Sapin ruled that there was no jurisdiction to consider evidence on quantum and repayment because the issues had not been mediated. The evidence was not "available" at the hearing, simply because of Arbitrator Sapin's ruling. To challenge Arbitrator Sapin's ruling, State Farm's remedy is to appeal. When the issue is viewed in that way, State Farm's application must again fail as an appeal in the guise of an application to vary.

If State Farm's evidence on quantum were viewed as not "available" in the normal sense, State Farm must show that "a diligent party could not have been expected to have presented it at arbitration."⁴ State Farm was not able to present the evidence at arbitration because it failed to take timely steps to mediate. Before me, counsel for State Farm conceded that Ms Ramdular was aware of the quantum issue from the time she made the note about Mr. Kulasekarampillai's employment status on April 17, 2003. Counsel characterised Ms Ramdular's actions as a decision to disregard State Farm's rights. Notably, there is no allegation that Ms Ramdular was mistaken as to State Farm's rights. I find that an analysis of the factors influencing Ms Ramdular's decision and what led to its reversal is required for a determination of whether State Farm acted diligently. State Farm presented no evidence in this regard and offered no explanation.

Counsel submitted that, once he got the file some time before February 2004, State Farm proceeded promptly. I find that the record does not support that submission. Although counsel for Mr. Kulasekarampillai brought the issue into the arena of the arbitration and clearly stated Mr. Kulasekarampillai's position on his employment status in his letter of January 26, 2004, State Farm did not focus on quantum until June 17, 2004. The correspondence before that date only mentions adding the issue of repayment. By then, any hope that Mr. Kulasekarampillai would consent to adding the issue should have been dashed. If faint hope remained when Mr. Kulasekarampillai refused consent on April 26, 2004, "in circumstances where the insurer refuses to pay for the disbursements which it undertook to pay", hope should have been extinguished by his unequivocal refusal of consent on May 27, 2004. That refusal left State Farm ample time to apply for mediation before the hearing. Instead State Farm simply continued to seek consent.

I find that even on June 17, 2004, when State Farm saw no alterative but to seek an adjournment in order to apply for mediation, there might still have been enough time to have the issues mediated on an urgent basis. Even if forced to seek an adjournment in order to complete the mediation process, State Farm should have made the application for mediation, before seeking the adjournment.

Arbitrator Sapin suggested the remedy of an application to vary or revoke her order, but that does not expand State Farm's rights. In fact, Arbitrator Sapin's reasons suggest that such an application would not be successful. She too found that State Farm had ample time to mediate and add the issues.

Other Submissions

Having ruled that State Farm's submissions are not accepted, I find it unnecessary to address Mr. Kulasekarampillai's submissions that State Farm waived its right to challenge his weekly IRB entitlement and that State Farm is bound by an admission that his weekly entitlement is $400.

CONCLUSION

For the above reasons, I find that State Farm's application to vary or revoke Arbitrator Sapin's order cannot succeed. The application is therefore dismissed.

EXPENSES:

The parties agreed that Mr. Kulasekarampillai is entitled to his expenses relating to the issue of post-104 IRBs, but made no other submissions on expenses.

If the parties cannot agree on the remaining expense issues, they may request an appointment in accordance with Rule 79 of the Dispute Resolution Practice Code.

August 23, 2006

Jeffrey Rogers Arbitrator

Date