Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 167

Appeal P05-00029

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ING INSURANCE COMPANY OF CANADA

Appellant

and

IRINA KARPENKO

Respondent

Before:

David Evans

Representatives:

Tullio D'Angela for ING

Oksana Kripak for Ms. Karpenko

Hearing Date:

May 18, 2006

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 dismissed and the arbitrator's decision dated April 1, 2005 is confirmed.
If the parties are unable to agree on the expenses of the appeal, I may be contacted in accordance with Rule 79 of the Dispute Resolution Practice Code.

November 1, 2006

David Evans Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

ING Insurance Company of Canada ("ING") appeals the arbitrator's interim expenses decision of April 1, 2005 requiring it to "pay Ms. Karpenko $150 forthwith in any event of the cause."

II. BACKGROUND

On March 24, 2005, a pre-hearing discussion was held to deal with Ms. Karpenko's application for arbitration regarding various benefits under the SABS-1996.¹ On April 1, 2005, the arbitrator issued her pre-hearing expenses decision, which the insurer appealed. ING filed an appeal (file number P05-00013). On June 14, 2005, I rejected the appeal pursuant to Rule 50.2 of the Dispute Resolution Practice Code:

This is an appeal from a pre-hearing decision in which the arbitrator ordered ING to pay $150 in expenses arising from the pre-hearing. The pre-hearing related to an accident of November 9, 2002. The arbitrator criticized ING's refusal to discuss settlement unless the discussions included issues arising from a second accident on March 5, 2003 accident. The arbitrator found that ING wasted Ms. Karpenko's time at the pre-hearing and awarded $150 payable forthwith and in any event of the cause "pursuant to the expense rules regarding the conduct of a party to prolong or hinder a proceeding."

Upon receipt of ING's appeal, I asked for submissions on whether it should be acknowledged, since Rule 50.2 provides that a party "may not appeal a preliminary or interim order of an arbitrator until all of the issues in dispute in the arbitration have been finally decided," unless the Director or one of his delegates orders otherwise. Similarly, Rule 51.2(c) of the Dispute Resolution Practice Code provides that an appeal may be rejected if "it is from a preliminary or interim order that does not finally decide the issues in dispute."

ING submits that the arbitrator's order is in the nature of a final order and does not form part of the future arbitration. However, although the order is final with respect to this one point, not all of the issues in dispute have been finally decided. I conclude, therefore, that Rules 50.2 and 51.2(c) apply.

Accordingly, I have the discretion on whether to accept or reject the appeal. ING correctly points out that the criteria to be considered include the apparent strength of the appeal, the importance or novelty of the issue raised, and the relative prejudice to accepting or rejecting the appeal.

The appeal raises some novel points, such as whether or not the arbitrator overstepped her authority in requiring a party to negotiate settlement, and whether the power to make an interim award of expenses includes the authority to make an order "forthwith in any event of the cause."

However, the main hearing is scheduled for the relatively near future. I believe Rules 50.2 and 51.2(c) are meant to avoid unnecessarily complicating the proceedings at the Commission. To that end, I conclude that it would be more efficient for the parties to proceed with the main hearing. Any prejudice to ING in these circumstances is minimal. Paying the amount ordered will not interfere with its conduct of the arbitration hearing.

Accordingly, the appeal is rejected, but without prejudice to ING's bringing the appeal again, once all of the issues in dispute in the arbitration have been finally decided. As the appeal has been rejected, ING will not be responsible for the filing fee.

The parties ultimately settled the other issues in dispute, and ING then re-filed its appeal.

The arbitrator described the events at the March 25, 2005 pre-hearing as follows:

Ms. Karpenko was involved in a second accident on March 5, 2003, for which she has made a claim for benefits to ING. The claims, which were denied, have yet to be mediated and were not part of the Application for Arbitration that was being considered at this pre-hearing. There was nothing in ING's Response to indicate that it was considering joining the second accident to be part of the pre-hearing discussions. Nevertheless, when the settlement talks began, ING stated that if Ms. Karpenko did not discuss settlement regarding her second accident, then it refused to have any settlement talks on the issues for arbitration. The tone and attitude taken by ING was, in my view, inappropriate in the circumstances of this case.

The arbitrator noted that a pre-hearing is meant to assist in an early resolution of issues. She cited the statement in the Notice of Pre-Hearing Discussion that the purpose of the pre-hearing discussion is to attempt to settle the dispute and assist the parties to prepare for arbitration, concluding that the main reason why parties are required to appear in person at a pre-hearing discussion is to engage in settlement talks. She stated the following:

While this does not mean that the parties must settle their dispute, it does however mean that, unless there is a valid reason not to have a settlement discussion, e.g. legal defences or production issues, the parties must come with full authority and in good faith to be prepared to engage in settlement talks.

The arbitrator did not consider ING's desire to discuss only a settlement of both accidents one of those valid reasons. She then added:

ING had ample notice of the second accident. If it was the intention of ING not to fully participate in this pre-hearing until the two claims were joined, then it should have asked for an adjournment. It did not do so. As I noted above, there was nothing in ING's Response that would have led the Applicant to know ING would not be fully participating in this pre-hearing unless she agreed to settle the unmediated claims arising from her second accident.

I was impressed with the thoroughness of the preparation by the Applicant's representative and the Applicant's willingness to participate in good faith in a settlement discussion on the issues in her Application for Arbitration. I did not have a similar impression from ING. Although ING engaged in some talks, after I pointed out the cost consequences of their attitude, I did not find their participation was a serious one.

The arbitrator concluded that ING had wasted Ms. Karpenko's time at the pre-hearing and after hearing submissions, awarded her, "to be paid forthwith in any event of the cause, the amount of $150, pursuant to the expense rules regarding the conduct of a party to prolong or hinder a proceeding."

III. ANALYSIS

The basis for awards of legal expenses is set out in ss. 282(11) and (11.1) of the Insurance Act, R.S.O. 1990, c. I.8, as amended. Subsection 282(11) is the general expenses provision, and s. 282 (11.1), enacted in 1993, provides for interim expenses as follows: "The arbitrator may at any time during an arbitration proceeding make an interim award of expenses, subject to such terms and conditions as may be established by the arbitrator."

The general approach to expense appeals was set out in Allison and Markel Insurance Co. of Canada, (OIC P-001231, August 21, 1996):

An award of expenses is a matter within the discretion of the arbitrator, although the discretion must be exercised reasonably. Because the discretion is given to the arbitrator, it should not be interfered with lightly on appeal. The arbitrator is able to consider the evidence in totality, including observing and hearing any witnesses, and usually is in the best position to assess the merits of the case and the way it was handled by the parties. Generally, his or her determination should not be disturbed unless the party appealing the order can point to a serious error in the exercise of the discretion: for example, the arbitrator adopted a wrong approach, based the decision on irrelevant considerations or inadequate evidence, or failed to look at the merits of the individual case by inappropriately fettering his or her discretion.²

ING appeals from the arbitrator's decision on two grounds. The first is that the arbitrator erred in law by requiring ING to negotiate a settlement at the pre-hearing and imposing the additional condition that there had to be valid reasons not to engage in settlement negotiations. The second ground is that she did not have the power to make an interim award of expenses "forthwith in any event of the cause."

With respect to the first ground, the insurer cites several cases where arbitrators have imposed interim expenses sanctions at the pre-hearing stage. Thus, in Ng and Western Assurance Co., (FSCO A03-001444, June 1, 2004), a representative and his client did not attend a pre-hearing, and the arbitrator awarded $500 in expenses thrown away. In Tounian and Citadel General Assurance Co., (FSCO A01-000076, September 26, 2001), the applicant failed to attend two pre-hearings, so the arbitrator imposed expenses of $250 for each pre-hearing (the second being "payable forthwith, in any event of the cause, that is, whether or not Mr. Tounian is ultimately successful in this proceeding"). In Lees and Pilot Insurance Co., (FSCO A03-000421, July 7, 2003), the first pre-hearing was rescheduled because no principal for the insurer attended, and the arbitrator at the second pre-hearing awarded $125 in expenses to the insured person, payable "forthwith, in any event of the cause," noting that none of the intended purposes of the pre-hearing discussion enumerated in the original pre-hearing notice were accomplished at the first pre-hearing. ING submits that there is no precedent in the case law for the arbitrator's decision in this case which — it contends — required the insurer to negotiate a settlement.

The tone of some of the arbitrator's comments — she was "impressed with the thoroughness of the preparation by the Applicant's representative" but "did not have a similar impression from ING" and "did not find their participation was a serious one" — may have concerned ING. However, the arbitrator stated directly that the duty to engage in settlement talks "does not mean that the parties must settle their dispute." I find she did not go so far as to require settlement. Rather, she was entitled to enforce meaningful participation in the pre-hearing process that did not turn on the insurer's expressed desire to include the unmediated claims from the second accident.

ING relied on the following quotation by the Director of Arbitrations from Boniface and Liberty Mutual Insurance Co., (FSCO P02-00008, May 9, 2003) to suggest that the arbitrator erred:

The purpose behind both rules³ is to encourage the parties to engage in frank, non-binding settlement discussions in advance of the hearing. One of the goals of the pre-hearing ... is to resolve the issues in dispute.

However, the Director's reference to the non-binding nature of the settlement discussions does not mean that a party is relieved from engaging in such discussions. Instead, it means that offers made during those discussions do not bind the party if the matter goes to a hearing. I find this quotation does not assist ING. Indeed, the quotation supports the arbitrator's discussion about the goals of a pre-hearing. If settlement is a goal, it follows that the arbitrator is entitled to inquire into why a party is not prepared to pursue that goal through settlement discussions. That is what the arbitrator did in this case. I am not convinced she followed a wrong approach.

I am also not convinced that the arbitrator based her decision on irrelevant considerations or inadequate evidence. Both Ms. Karpenko and Mr. Sebastian Gallagher, the insurer's adjuster, provided affidavits with respect to the events at the pre-hearing. I find the affidavits confirm that the arbitrator had evidence before her to support her decision.

First, Mr. Gallagher's affidavit confirms at several points that he wished to "resolve all issues in dispute arising from the two motor vehicle accidents at the pre-hearing arbitration":

My position was that it would have been odd to settle issues arising from one motor vehicle accident while not settling issues arising from another motor vehicle accident, when those issues were virtually identical.

Second, the affidavits agree on the general outline of events. The applicant initially made an offer regarding the November 9, 2002 accident, about which Mr. Gallagher states: "It was my intention to settle both claims." The parties agree that Ms. Karpenko then made an offer with respect to the issues in dispute from both accidents. Mr. Gallagher then made a counter-offer "on the basis of the medical documentation that was in my possession at the time" but that "[u]nfortunately, no further settlement discussions took place. . . ." Ms. Karpenko states that she considered the counter-offer "an insult having in mind that I have complied with the insurer's requests and co-operated to the best of my ability. . ." and that the insurer was seeking to settle both accidents based only on the documentation for the first accident.

Third, although the parties in their affidavits disagree on the sufficiency of production at that point, they do show there was evidence before the arbitrator. As noted above, the arbitrator accepted that production issues could provide a valid reason not to have a settlement discussion. Mr. Gallagher affirms that at the time of his counter-offer, "pre-accident clinical notes and records and clinical notes and records of treating physicians were not made available to me. . . ." However, Ms. Karpenko affirms that neither Mr. Gallagher nor counsel were "aware of the insurer's assessments and reports on file that were in the insurer['s] possession since opening the claims." As noted above, Ms. Karpenko also considered that she had complied with the insurer's requests. Faced with these competing positions, the arbitrator was not convinced that production issues were a valid reason to prevent discussing settlement of the first accident.

Accordingly, the arbitrator had evidence before her on which to base her decision, and I see no reason to second-guess her.

I will now deal briefly with the insurer's second ground of appeal, namely that the arbitrator had no power to order the expenses payable in any event of the cause. As already noted, the same type of order was made in several of the cases cited by the insurer. The insurer relied on the leading decision with respect to interim expenses, that of Arbitrator Manji in Bernicky and Guardian Insurance Co. of Canada, (OIC A-006268, July 6, 1994), in which she ordered interim expenses for payment of clinical notes and records and for a report. She added: "My decision may be reviewed by the hearing arbitrator and, in his or her discretion, amounts awarded as interim expenses may be ordered to be repaid to Guardian." ING submits that since an interim award is reviewable by the hearing arbitrator, it cannot be made "forthwith in any event of the cause."

I note that, in this case, the point is moot, since the matter has been settled and there will be no further review by a hearing arbitrator. In any event, the interim expenses in Bernicky and the cases that follow it were for expenses aimed at proving the ultimate merits of the case. That is a different issue from the issue in this case. ING's own submissions illustrate the point:

In Afghannawis v. Canadian Surety Co., [FSCO A98-000862, May 27, 1999] the arbitrator exercised discretion to award the insurer interim expenses due to the con-duct of the insured's representative. The arbitrator's exercise of discretion had nothing to do with the merits of the case but the conduct of the representative.

The arbitrator in Afghannawis was Arbitrator Manji — the same arbitrator who had held that the interim expenses in Bernicky were reviewable by the hearing arbitrator. However, she held in Afghannawis that "Mrs. Afghannawis shall pay Canadian Surety its legal expenses, in any event of the cause, fixed in the amount of $300. . . ." The principle that Arbitrator Manji followed is: The final disposition of interim expenses should be left to the hearing arbitrator, where their award related to the merits of the case; where they did not, the arbitrator who awarded the interim expenses may make the final disposition. However, since the point is moot in this case, I will discuss it no further.

In conclusion, I find that the arbitrator committed no error of law in her decision. The appeal is dismissed.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.