Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 96

FSCO A04-002722

BETWEEN:

RAY MCCORMACK

Applicant

and

AVIVA CANADA INC.

Insurer

DECISION ON EXPENSES

Before:

John Wilson

Heard:

By telephone conference call on February 3, 2006.

Appearances:

Dannial E.S. Baker for Gino Isabella

McCormack appeared on his own behalf, assisted by Ed Blaha

Grant R. Dow for Aviva Canada Inc.

Issues:

The Applicant, Ray McCormack, was injured in a motor vehicle accident on February 19, 2003. In a decision dated September 16, 2005, I dealt with the withdrawal of his claims for statutory accident benefits under the Schedule.¹

I made the following orders, while reserving on the issue of who should be responsible for the payment of the expenses of the Insurer in this matter:

Mr. McCormack is entitled to withdraw his Application for Arbitration.
Aviva is entitled to its expenses which I fix at $1,566, inclusive of GST.

A little bit of background is useful before addressing the remaining issue in this hearing:

This expense claim is about who should bear the costs of an unnecessary arbitration proceeding. Neither party disputed that, at some point prior to the pre-hearing, the treatment claim which formed the bulk of the arbitration had been resolved.

Although the Insurer had paid the treatment provider directly, Mr. McCormack, through his agent, Mr. Isabella, applied for arbitration at the Financial Services Commission of Ontario on that same and other issues, since he apparently believed that payment was outstanding.

At the pre-hearing of this matter, Mr. Isabella, the agent acting on behalf of Mr. McCormack, conceded that the account of the treatment provider appeared to have been settled, and stated that his client wished to withdraw his application for arbitration without penalty.

The issue in this further hearing is:

Is Mr. Isabella responsible pursuant to section 282(11.2) of the Insurance Act for the expense order made in favour of Aviva?

Result:

Mr. Isabella shall pay Aviva's fixed expenses of $1,566, inclusive of GST.

EVIDENCE AND ANALYSIS:

In a decision dated September 16, 2005, I dealt with a request by Mr. McCormack that he be permitted to withdraw his application for arbitration, unconditionally. This issue had first been raised at the pre-hearing in this matter, and arose because Mr. Isabella, agent for Mr. McCormack, conceded at that time that there were no issues in dispute to proceed to arbitration.

The Insurer refused its consent to unconditional withdrawal and requested an expense order to compensate it for its costs unnecessarily expended on this arbitration.

The Insurer based its claim for costs on its assertion that its adjuster, Mr. Lau, had taken steps to inform Mr. Isabella that the principal issue in dispute had been resolved prior to the Application for Arbitration, and that the referral of the issue to arbitration was, consequently, unnecessary, and an abuse of process.

As noted in the previous decision, Mr. McCormack did not withdraw his application when his agent was first notified by Mr. Lau that the issue in question was resolved. I noted that if Mr. Lau was correct, and there was no issue to go forward to arbitration, then the application was without merit and could be characterized as frivolous and vexatious or an abuse of process. Either descriptor could attract a cost consequence.

Aviva advanced the theory that this arbitration was totally devoid of merit, since the majority of the issues were settled beforehand. I did not completely agree and cited Mr. Lau's first letter of December 8, 2004, addressed to Mr. McCormack, which stated that "We are paying the two outstanding invoices in a non-prejudice basis."

I found that the phrase "without prejudice" meant clearly that Aviva paid the account without waiving any recourse it might have to reclaim that money from Mr. McCormack. Unless Mr. McCormack was willing to accept that risk, and, indeed, did so, such a payment was not a final resolution of the dispute between Mr. McCormack and Aviva. I found, however, that the profound delay² by Mr. McCormack and his agent in recognizing that there was nothing concrete to justify proceeding with the arbitration, and their failure to withdraw the arbitration in a timely manner and so mitigate the costs to the opposing side, was worthy of sanction.

In his submissions at the previous hearing, Mr. Isabella claimed to have been misled by the failure of the Insurer's Response to mention the settlement, and gave that as a reason for continuing with the arbitration.

I found, however, that at the very least Mr. Lau's letters and the OCF-9's³ issued by Aviva should have prompted a call to the treatment provider by Mr. Isabella to verify that the amounts claimed were still outstanding. Instead, nothing happened until the pre-hearing. I found in my decision that the delay to respond to Mr. Lau unnecessarily prolonged this proceeding.

Given the extraordinary delay between the notification of settlement, and the request to withdraw, I suggested that there were possibly grounds for a finding that Mr. Isabella, "caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay."

Mr. McCormack, writing on his own behalf to the Commission, alleged that any default in the carriage of the matter should be laid at Mr. Isabella's feet and that he should not be responsible for the payment of costs unnecessarily incurred by Mr. Isabella in the conduct of the arbitration.

This position taken by Mr. McCormack, together with my own findings as to serious shortcomings in the handling by Mr. Isabella, led to this second hearing on the issue of whether Mr. Isabella should be personally responsible for the expense award made in favour of Aviva.

Following a period of controversy about the role of non-lawyer in the arbitration process, the Commission has set minimum standards for the conduct of representatives. The Code of Conduct for Statutory Accident Benefit Representatives issued by the Superintendent of Financial Services (November 1, 2003) sets out obligations of honesty, competency, and courtesy, among others. Rule 2.3 recognizes that a representative must have a "reasonable understanding" of the law and procedural requirements involved in a claim.

Likewise, Rule 2.4 sets out a requirement for "adequate skills, attributes and abilities appropriate to each matter." This rule speaks for itself. Failure to meet the minimum standards set by the Commission can result in administrative penalties imposed by the Commission itself. In the context of a single arbitration, such a failure can result in the barring of the individual from appearing at the arbitration pursuant to section 23 (3) of the Statutory Powers Procedure Act (SPPA) or cost consequences.⁴

The revised section 282(11.2) of the Insurance Act, which specifically gives an arbitrator the right to hold a representative liable for costs, reads as follows:

An arbitrator may make an order requiring a person representing an insured person or an insurer for compensation in an arbitration proceeding to personally pay all or part of any expenses awarded against a party if the arbitrator is satisfied that,

(a) in respect of a representative of an insured person, the representative commenced or conducted the proceeding without authority from the insured person or did not advise the insured person that he or she could be liable to pay all or part of the expenses of the proceeding;

(b) in respect of a representative of an insured person, the representative caused expenses to be incurred without reasonable cause by advancing a frivolous or vexatious claim on behalf of the insured person; or

(c) the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default.

McLachlin J. stated in Young v. Young 1993 CanLII 34 (SCC), [1993] 4 S.C.R. 3 (S.C.C.):

The basic principle on which costs are awarded is as compensation for the successful party, not in order to punish a barrister. Any member of the legal profession might be subject to a compensatory order for costs if it is shown that repetitive and irrelevant material, and excessive motions and applications, characterized the proceedings in which they were involved, and that the lawyer acted in bad faith in encouraging this abuse and delay. It is clear that the courts possess jurisdiction to make such an award, often under statute and, in any event, as part of their inherent jurisdiction to control abuse of process and contempt of court. But the fault that might give rise to a costs award against Mr. How does not characterize these proceedings, despite their great length and acrimonious progress. Moreover, courts must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard confidentiality of instructions and to bring forward with courage even unpopular causes. A lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with these fundamental duties of his or her calling.

While Young deals with the conduct of a lawyer, many of the same considerations of confidentiality and undue constraint on the conduct of representatives in a court or tribunal setting apply to an agent or paralegal.

Returning to section 282(11.2) of the Insurance Act, it is likely that the application of this provision is contingent upon some fairly serious default by the representative of an insurer or an insured.

The same principles applied by McLaughlin J in Young and Marchand⁵ would suggest that section 282(11.2) is not meant to be a routine sanction for counsel or representatives whose practices offend an adjudicator, nor a standard sanction for a losing party. It is meant to apply to serious cases where the conduct of a representative, if unchecked, could bring the arbitration system and the administration of justice into disrepute, or where there was an abuse of the process.

While it is clear from Young that aggressive tactics may not alone attract a personal award of costs, incompetence or a failure to abide by the standards of a lawyer or representative could, if the result of the incompetence is delay or increased costs to the other party.

The decision of Pockele J. in Children's Aid Society of Huron County v. T.V.⁶ makes it clear that lengthy and ill prepared argument, prolixity, the lack of serious preparation, and a lack of acquaintance with the applicable law can, together, form the pre-condition for an order of costs against a lawyer.

In Mr. Isabella's case, I have already found that his failure to address the correspondence from the Insurer noting that the benefit had been paid, and his subsequent delay in recognizing that the matter should be withdrawn (until the pre-hearing on June 14, 2005) meant that the Insurer was put to unnecessary expense in defending a pointless arbitration.

I note in passing that at this second expense hearing Mr. Isabella ignored my earlier finding regarding the communications received from the Insurer at the time the arbitration was commenced and attempted to re-litigate my finding that he had either actual or constructive knowledge of the payment of the principal benefit in issue. I find that there is no reason to re-open my earlier decision, and proceed in this decision on the findings made earlier.

Mr. Isabella also argued that if his conduct was unreasonable, the proper recourse would be a court action against him and "let the court decide."

Mr. Isabella chose to file for arbitration on behalf of Mr. McCormack. Having chosen the venue he is ill-placed to argue that the dispute should properly be in the courts. What is at dispute here are a party's costs, and by whom they should be payable. That dispute is part and parcel and follows directly from the claim filed by Mr. Isabella. By enacting section 282(11.2) of the Insurance Act, the legislature has seen fit to make the conduct of litigation by an agent or lawyer the concern of an arbitrator appointed under that Act when expenses are at issue.

Mr. McCormack appeared for himself in this matter and spoke to the issue of who should be liable for any cost award. He was adamant that his involvement in the file was limited to bringing the matter to Mr. Isabella, who, in turn, is alleged to have made extravagant representations about Mr. McCormack's entitlement to benefits. Whatever the truth of these representations, it is clear from Mr. McCormack's testimony that Mr. Isabella had complete carriage of the file, and that Mr. McCormack relied upon his knowledge, advice, and, more particularly, his directions as to the proceedings. As Mr. McCormack stated: "I feel I am not liable for the incurring expenses, as it was not my actions that have delayed this matter."

Given the limited sophistication of the Applicant, an inference could be drawn that Mr. Isabella acted as the prime filter of information being exchanged prior to the pre-hearing stage. There is no evidence that Mr. Isabella informed Mr. McCormack of Aviva's payment of the treatment account, nor of Mr. Lau's attempts to communicate to Mr. Isabella.

Both section 282(11.2) of the Insurance Act and the Expense Regulation impose sanctions for conduct which "caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default."

In this matter, the failure by Mr. Isabella to deal with correspondence and communications stating that the issue had been settled before arbitration resulted in the Insurer being required to retain counsel to file a defence to the arbitration. His further delay in not addressing this issue until the pre-hearing allowed costs to be further incurred without justification.

The time-frame mentioned in my previous decision is from December 22, 2004 to June 14, 2005.⁷

Since the actions complained of occurred when Mr. Isabella was agent of record, I accept that he can be properly the subject of an award pursuant to section 282(11.2) of the Insurance Act.

In this case, I find that Mr. Isabella was the controlling mind behind the litigation. Indeed, the uncontradicted evidence of Mr. McCormack was that he relied totally on Mr. Isabella's advice, and let him proceed with the claim

The sole substantive claim involved a third-party payment. There is no suggestion that Mr. McCormack was intent on enriching himself at Aviva's expense. There was nothing payable directly to Mr. McCormack, except possibly interest, a claim that Mr. Isabella pointedly abandoned. On the face of it, although the claim was Mr. McCormack's in name, it was the treatment provider's account that was in question. Whomever Mr. Isabella was representing, it is clear that he was, in this case at least, not up to the task.

I have found that Mr. Isabella continued a claim for payment of a settled claim without regard to expenses incurred by the Insurer. I further find that, given the absence of any evidence of instructions to ignore the Insurer's protests of payment, he ignored the Insurer's protests at his own peril. Either Mr. Isabella knew the matter was settled or he was wilfully blind to such knowledge.⁸ On the face of it, the failure to address the settlement, and the decision to continue with the arbitration in the face of such knowledge was an abuse of the arbitration process.

Mr. Isabella was given an opportunity to explain his failure to respond to the Insurer's communications, and the subsequent significant delay in reaching the realization that there was nothing in dispute, and nothing to be arbitrated. Instead, he chose to attempt to re-argue my earlier finding that he was or ought to have been aware of the settlement well before the delivery of the Insurer's Response. As mentioned earlier, I decline to re-open that debate.

I find that in failing to respond to the Insurer's communications, and delaying withdrawing the Application until the pre-hearing, he was either intentionally engaging in vexatious practices or, at the very least, in breach of his obligation of competency owed to the public, the Commission, his client and the other parties. Recourse under section 23(3) of the SPPA now would be pointless, the claim having been abandoned, and costs incurred. There is no further hearing from which one might exclude Mr. Isabella. Instead, I accept that the appropriate remedy is in costs or expenses.

Consequently, I find that pursuant to section 282(11.2) of the Insurance Act Mr. Isabella caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default. Mr. Isabella shall be responsible for the Insurer's expenses as assessed in this matter.

Although my findings relate principally to unreasonable delay, I also accept that the failure to withdraw the claim when it was apparent that it had no reasonable possibility of success, meant that it became a frivolous and vexatious claim at that point, a finding that would also attract an expense order. Consequently, Mr. Isabella shall pay Aviva's fixed expenses of $1,566, inclusive of GST.

June 13, 2006

John Wilson Arbitrator

Date