Neutral Citation: 2007 ONFSCDRS 249 FSCO A05-002147

BETWEEN:

ARIF AHMED KHAN Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Arbitrator Denise Ashby Heard: Written submissions were concluded on December 6, 2007 Appearances: No one appearing for Mr. Khan Shirline Apiou for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Arif Ahmed Khan, was injured in a motor vehicle accident on May 30, 2003. He applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ State Farm denied certain medical benefits. The parties were unable to resolve their disputes through mediation, and Mr. Khan 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:

Should Mr. Khan’s arbitration be dismissed without a hearing pursuant to the Dispute Resolution Practice Code?
Is Mr. Khan liable to pay State Farm’s expenses in respect of the arbitration pursuant to subsection 282(11) of the Insurance Act, R.S.O. 1990, c.I.8?

Result:

Mr. Khan’s arbitration is deemed to be withdrawn pursuant to Rule 70 of the Dispute Resolution Practice Code.
Mr. Khan shall pay State Farm’s expenses in respect of the arbitration fixed at $1,000.00, pursuant to subsection 282(11) of the Insurance Act, R.S.O. 1990, c.I.8.

Chronology:

On September 23, 2005, Mr. Khan filed his Application for Arbitration with the Commission. He sought payment of his outstanding medical treatment, in the amount of $2,030.00, received from Optimum Health Clinic Inc.²

On October 25, 2006, a Notice of Pre-hearing was issued, setting Tuesday, April 25, 2006 as the date for the pre-hearing discussion at the Commission’s offices.³

On April 25, 2006, State Farm’s counsel confirmed with Mr. Khan’s representative that the issue of the outstanding medical benefits had been resolved in the amount of $1,600.00 and advised the Commission that the pre-hearing discussion would not be necessary.⁴

On April 26, 2006, counsel for State Farm wrote to Mr. Khan’s representative enclosing a release and the documents necessary to comply with the Settlement Regulation.⁵

On October 5, 2006, Mr. Khan’s representative provided State Farm’s counsel with a release drafted by Mr. Khan personally.⁶

On October 10, 2006 and May 1, 2007, State Farm’s counsel communicated with Mr. Khan’s representative seeking return of the executed documents related to compliance with the settlement regulation.⁷

On July 19, 2007, State Farm requested that the pre-hearing previously scheduled for April 25, 2006, be rescheduled on the basis that the release and materials pursuant to the Settlement Regulation had not been executed.⁸

On July 23, 2007, a Notice of Pre-hearing was issued and sent to the parties.

On August 7, 2007, the Notice dated July 23, 2007, which had been mailed to Mr. Khan, was returned to the Commission.

On August 27, 2007, the pre-hearing was convened before me by teleconference. By letter, of the same date, I ordered Ms. Baghbani removed as Mr. Khan’s Representative of Record on the basis that she had lost contact with her client notwithstanding she had made reasonable efforts to communicate with him. As well, I set dates for the return of State Farm’s motion to have the arbitration dismissed.⁹

There is no evidence on the file that this letter, mailed to Mr. Khan at his last known address, as contained in the records of the Dispute Resolution Group, was returned to the Commission.

On December 6, 2007, having received State Farm’s motion record on October 5, 2007, filed with the Statement of Service and there being no communication from Mr. Khan, I determined that the hearing was concluded.

EVIDENCE AND ANALYSIS:

On the basis of the foregoing chronology, I make the following findings of fact:

Mr. Khan participated in the negotiations giving rise to the cancellation of the pre-hearing scheduled for April 25, 2006.

As Mr. Khan was dissatisfied with the release provided by State Farm, he drafted his own version in or about October 2006.

Mr. Khan’s release was not acceptable to State Farm and there was no further action taken in respect of the proposed settlement.

Mr. Khan unreasonably delayed the progress of the arbitration process by failing to advise the Commission, in November 2006, that he had resiled from the settlement, referred to in the letter of April 25, 2006.

The Notice, in respect of the pre-hearing scheduled for August 27, 2007, dated July 23, 2007 was returned to the Commission. My letter, dated August 27, 2007, and the Motion Record were both sent to Mr. Khan at the same address which was his last known address, as contained in the records of the Dispute Resolution Group. Unlike the July 23rd Notice, the letter of August 27th has not been returned to the Commission. The Motion Record was served by Registered Mail. I have no evidence that it was returned to State Farm’s counsel.

Although, I find that the service of the record and my letter of August 27th complied with the provisions of sub-rule 5.7 of the Dispute Resolution Practice Code (the “Code”) and therefore Mr. Khan had notice of this hearing pursuant to Rule 7, the return of the Notice dated July 23, 2007, raises doubt as to whether Mr. Khan had actual notice.

Rule 68 provides for the dismissal of a proceeding where an adjudicator determines that the proceeding is “frivolous, vexatious or is commenced in bad faith.” Before taking such steps an arbitrator must give written notice to all parties of his or her intention to dismiss the proceeding and provide the parties an opportunity to make submissions in respect of the grounds that the party objects to the dismissal. The Rule 68 test is necessarily high. The Supreme Court has identified the Insurance Act as consumer protection legislation.¹⁰ Therefore, a consumer’s rights should not be extinguished in the name of administrative expediency.

The phrase “frivolous, vexatious or is commenced in bad faith,” is undefined in the Insurance Act, Schedule, Code or Statutory Powers Procedure Act. In considering the meaning of the phrase, I have previously reviewed the definitions found in Blacks Law Dictionary and arbitral decisions. In my view the test requires that Mr. Khan “must wilfully bring an unmeritorious claim, conduct the action deceptively, maliciously or fail to fulfill a duty or obligation in a manner inconsistent with honest mistake.”¹¹

In a number of cases dealing with dismissal without hearing, I have found the provisions of Rule 70 to be of assistance in ensuring that abandoned proceedings are dealt with in the most just, quickest and least expensive fashion.¹² In those cases, I found there had been a constructive withdrawal in keeping with Quattrocchi and State Farm Mutual Automobile Insurance Company.¹³

In this matter, Mr. Khan participated in negotiations which seemed to have resolved the only issue in the arbitration. Mr. Khan chose not to execute the documents necessary to comply with the Settlement Regulation, as is his right. However, in exercising this right, Mr. Khan had a complementary obligation to advise the Commission of his position that there was no settlement. He failed to do so. I am satisfied that Mr. Khan’s conduct establishes that he has abandoned this proceeding sufficient to meet the constructive withdrawal test. But did he bring an unmeritorious claim, conduct the action deceptively or maliciously or fail to fulfill a duty or obligation in a manner inconsistent with honest mistake¹⁴ such that his claim should be dismissed pursuant to Rule 68?

The evidence indicates that State Farm attempted to settle Mr. Khan’s claim. Therefore, I infer that there was merit to his claim. There is no evidence that Mr. Khan engaged in deceptive or malicious conduct. Although, his non-participation supports an inference he abandoned his claim, it is insufficient to establish that Mr. Khan failed to fulfill his duties and obligations in the proceeding in a manner inconsistent with “honest mistake.”

On the basis of the foregoing, I conclude the evidence fails to meet the Rule 68 test and the matter is not dismissed without a hearing. However, I find that Mr. Khan has abandoned his claim such that it shall be deemed to have been withdrawn pursuant to Rule 70 of the Code.

EXPENSES:

I exercise my discretion to award State Farm its expenses incurred in the arbitration fixed at $1,000.00.

December 12, 2007

Denise Ashby Arbitrator

Financial Services Commission of Ontario