Neutral Citation: 2007 ONFSCDRS 179 FSCO A07-000553

BETWEEN:

ROBERT MACKENZIE Applicant

and

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA Insurer

PRE-HEARING DECISION

Before: David Muir Heard: Written submissions were received on August 3, and September 7, 2007. Appearances: Kevin Wolf for Mr. MacKenzie Nathalie Rosenthall for Royal & SunAlliance Insurance Company of Canada

Issues:

The Applicant, Robert MacKenzie, was injured in a motor vehicle accident on September 25, 2005. He applied for and received statutory accident benefits from Royal & SunAlliance Insurance Company of Canada ("Royal"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. MacKenzie applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

Mr. MacKenzie claims, amongst other benefits, income replacement benefits from January 20, 2006 to date and ongoing.

At the pre-hearing, Mr. MacKenzie requested the production of particulars related to surveillance conducted on behalf of Royal, whether or not Royal intends to rely upon surveillance at the hearing. Royal acknowledges that it has conducted surveillance of Mr. MacKenzie, but has not yet decided whether or not it will rely upon any part of the surveillance. Royal has consented to an order that it make that decision at least 60 days before the hearing scheduled to commence on November 26, 2007. In the event that it does intend to rely upon any part of the surveillance, Royal will comply with Rule 40 of the Dispute Resolution Practice Code and produce all of the surveillance in its possession in accordance with that Rule.

Royal has not formally advised whether any of the surveillance conducted has been shared with any third party such as insurer's assessor or Designated Assessment Centre. In the event that it has done so, the accepted interpretation of Rule 40 is that all surveillance in Royal's possession is producible to Mr. MacKenzie forthwith.

Formally stated, the issue in this pre-hearing decision is as follows:

Is Mr. MacKenzie entitled to an Order requiring the production of particulars related to the surveillance undertaken by Royal irrespective of whether or not the Insurer intends to rely upon it?

Result:

Mr. MacKenzie is not entitled to an Order requiring the production of particulars related to the surveillance undertaken by Royal irrespective of whether or not the Insurer intends to rely upon it.

EVIDENCE AND ANALYSIS

The relevant provisions of the Dispute Resolution Practice Code are set out below.

32. EXCHANGE OF DOCUMENTS BEFORE PRE-HEARING

32.1 At least 10 days before the pre-hearing discussion, each party must:

(a) exchange all documents identified in the Application for Arbitration and the Response by Insurer, or explain why a document has not been provided;

(b) establish reasonable time frames for the exchange of any remaining documents;

(d) file a list of outstanding document requests and identify any disputed items.

32.2 Subject to the time lines under Rule 39, the parties have an ongoing responsibility to ensure the prompt and complete exchange of documents that are reasonably necessary to determine the issues being arbitrated, including updates to the information previously exchanged and any additional documents obtained.

32.3 Subject to Rule 39, an arbitrator may at any time order the production of documents or the giving of information that he or she considers relevant to the determination of the issues in the arbitration, on such terms as he or she considers appropriate.

39. EVIDENCE

39.1 Subject to Rule 39.2, all documents, reports (including experts' reports) and assessments to be introduced at a hearing by either party must be served on the other party at least 30 days before the first day of the hearing.

39.2 In extraordinary circumstances, a party may seek an arbitrator's permission to serve a document, report or assessment on the other party for use at a hearing less than 30 days before the first day of hearing.

39.3 The hearing arbitrator will determine the relevance, materiality, and admissibility of evidence submitted at the hearing, but will not admit evidence at a hearing that:

(a) would not be admissible in a court by reason of any privilege under the law of evidence; or

(b) is not admissible under the Insurance Act; or

(c) was not served on the opposing party in accordance with Rules 39.1 and 39.2, unless the hearing arbitrator is satisfied that extraordinary circumstances exist to justify an exception.

40. SURVEILLANCE EVIDENCE

40.1 If a party intends to rely on any portion of surveillance or investigative evidence, including videotapes, photographs, reports, notes and summaries of surveillance observations or investigations, at least 30 days before the hearing, the party shall provide:

(a) the names and qualifications of the persons who secured the investigative or surveillance evidence, the dates, times and places where any surveillance or investigation was undertaken; and

(b) copies of all videotapes, photographs, investigative reports, notes and summaries taken or prepared in connection with the issues in dispute.

The legal status of the above cited Rules was not canvassed in the parties' submissions. Nor were there any submissions made about the underlying rationale of the Rules and, in particular, the reasons for the apparent special treatment of surveillance evidence. The issue was argued in terms of how these Rules ought to interpreted and applied to the circumstances of this case.

Mr. MacKenzie relied upon a December 2006 arbitration decision in Morgan and Security National Insurance Co./Monnex Insurance Mgmt. Inc. (FSCO A06-000409, December 22, 2006), wherein the arbitrator ordered the production of all surveillance and related documents, reports, etc. within 30 days of the decision and to continue to produce such material on an ongoing basis as it came into Security's possession. This decision is currently under appeal.

Royal relies on an appeal decision in Puljic and Zurich Insurance Company (FSCO P00-00022, June 1, 2000), which it was submitted is directly on point and is binding on me in considering Mr. MacKenzie's request. Royal also referred to recent arbitration decision, Graham and ING Insurance Company of Canada (FSCO A06-001695, February 12, 2007), which considered the question of whether or not the reasoning in Puljic applied to production requests like Mr. MacKenzie's. In that case, the arbitrator considered himself bound by the earlier appeal decision and declined to order the production of surveillance evidence prior to ING having made a decision that it intended to rely upon any part of it.

To my mind the issue boils down to whether or not I am bound by the appeal decision in Puljic or whether it can be distinguished in some way.²

Puljic was an appeal of an arbitrator's order declining to require the production by the Zurich Insurance Company of particulars of surveillance it may have conducted, whether or not it intended to rely upon any at the hearing. Instead, the arbitrator ordered that the insurer produce at least 60 days prior to the hearing only the surveillance upon which it intended to rely.

The Director's Delegate upheld the arbitrator to the extent that there was no Order for production prior to the insurer deciding whether or not it intended to rely on any part of the surveillance evidence, but varied it to clarify that all of the surveillance evidence in the possession of the insurer was producible in the event that it decided to rely on any part of it at the arbitration hearing.

The gravamen of the Director's Delegate's reasoning was that, despite the policy arguments in favour of disclosure of surveillance evidence, the Rules include specific provision for the treatment of surveillance and, in the Delegate's opinion, that provision required the disclosure of all surveillance evidence in the possession of a party, if any was to be relied on, but only where the party (invariably the insurer) had made the decision to rely upon it in the hearing:

There is considerable merit in Mr. Puljic's position. Courts and tribunals have generally been moving toward early and full disclosure, minimizing the ability of a party to "bury" relevant information that might assist the other side. The Commission certainly encourages the early exchange of documents as an important part of the mediation process and to ensure a fair hearing. However the rules governing the exchange of documents are found in the Practice Code, including a specific rule for surveillance evidence. For the reasons that follow, I conclude that the order in this case is consistent with the provisions of the Practice Code and, as a result, find no error of law.

... Mr. Puljic relies on the wording of Rule 32.1, arguing that his production request involves information "reasonably necessary to determine the issues being arbitrated." In my view, the stronger argument may be under Rule 32.4 [now 32.3], as it deals with the giving of information, not just documents. In any event, the problem with Mr. Puljic's position is that the Practice Code includes a specific rule dealing with surveillance evidence:

37.1 If a party intends to rely on any portion of surveillance or investigative evidence, including videotapes, photographs, reports, notes and summaries of surveillance observations or investigations, the party shall provide:

(a) the names and qualifications of the persons who secured the investigative or surveillance evidence, the dates, times and places where any surveillance or investigation was undertaken; and

(b) copies of all videotapes, photographs, reports, notes and summaries taken or prepared by anyone whose evidence the party intends to rely at the hearing.

While it might be argued that this rule deals only with surveillance on which the insurer intends to rely, remaining silent on the disclosure obligations for other surveillance, I am not convinced that is a fair reading. In my opinion, the clear implication of Rule 37.1 is that the insurer's production obligation only arises when it decides "to rely on any portion of surveillance or investigative evidence." There may be reason to question the appropriateness of this rule in a first-party system, but in my view, that is what the rule provides. Similarly, Practice Note 4, referred to in Rule 32.1 addresses surveillance evidence as follows:

Surveillance or investigative evidence a party intends to rely on. The party must provide particulars [etc.] ... where any surveillance or investigation was undertaken. The party must provide copies of all surveillance evidence taken or prepared by anyone upon whose evidence the party intends to rely at the hearing.

To my mind, this decision stands for the proposition that there is no obligation to disclose any surveillance evidence unless and until a decision is made that it will be relied upon at an arbitration hearing. Once that decision is made the obligation is to disclose all of the surveillance in the possession of the party seeking to rely upon it, invariably the insurer.

I find that I am bound by the Puljic decision. Mr. MacKenzie offered no argument that I was not bound and, given that the issue before the Director's Delegate is identical to the one before me, I can find no basis for distinguishing that case from this one, other than the passage of time. In particular, I see no material difference between the language of Rule 37.1 as it then was and the language of Rule 40 as it exists today.

Even if I were not bound by the decision in Puljic, I agree with its interpretation of the relevant Rules. That said, there are significant issues that arise when considering this Rule in the context of a first-party system, however the Rule exists. I think its meaning is plain and straightforward. I do accept the view of the arbitrator in Campeau and Liberty Mutual Insurance Company, (FSCO A00-000522, March 12, 2001), that an arbitrator has considerable flexibility in applying the time limits in the Rules in assisting the parties in resolving their disputes. Accordingly, I like many arbitrators have ordered insurers to make their decision about the use of surveillance earlier than the 30 days before the hearing required by the current Rule. However, I do not take the arbitrator in Campeau as having held that we can read Rules out of the Code. I am also not persuaded, despite Mr. MacKenzie's submissions, that Rule 81 for example, allows me to not apply a Rule just because. There may be circumstances where, despite what I understand the Code provides for, it would nonetheless be appropriate to order an insurer to disclose whether it has conducted surveillance and to produce it forthwith, however there is nothing in the circumstances here that would justify such an Order.

I have considered the reasoning of the arbitrator in Morgan and with respect I do not agree. To my mind, the reference to Rule 39 in Rule 32.3 more likely was intended to operate as a limit on the obligations and opportunities for the parties under Rule 32.3 – that is, there is an ongoing obligation to produce but that everything that is going to be relied upon in the hearing must be produced and served at least 30 days before the hearing. To put it another way, both Rule 32.2 and Rule 32.3 are subject to Rule 39 to reinforce the bottom line requirement that everything that is going to be relied upon be provided to the other side in a verifiable way at the latest 30 days prior to the hearing. To my mind, it does not expand the authority of an arbitrator to order the production of surveillance materials in light of the specific provisions of Rule 40.

Even if this latter analysis is incorrect, I find myself, as indicated earlier, bound by the appeal decision in Puljic and, accordingly, the request by Mr. MacKenzie for the production of particulars related to any surveillance conducted by Royal is denied.

September 20, 2007

David Muir Arbitrator

Financial Services Commission of Ontario