Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 71

FSCO A05-001891

BETWEEN:

VALENTINA MARTIKHINA

Applicant

and

RBC GENERAL INSURANCE COMPANY

Insurer

DECISION ON A MOTION

Before:

Arbitrator Lawrence Blackman

Heard:

March 23, 2007, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Mr. Adam J. Ezer for Mrs. Martikhina

Mr. James V. Leone for RBC General Insurance Company

Mr. Robert W. Kerkmann for the Motor Vehicle Accident Claims Fund

The Applicant, Valentina Martikhina, was injured in a motor vehicle accident on September 22, 2004. She initially applied to the Motor Vehicle Accident Claims Fund ("MVAC") for statutory accident benefits payable under the Schedule.¹ Subsequently, RBC General Insurance Company ("RBC") took priority for this claim, by letter dated October 31, 2005.

At the pre-hearing held July 12, 2006, over RBC's objection, I included as an issue in dispute in this proceeding, the question of the Applicant's entitlement to a special award. RBC's submissions, in part, were that MVAC would be responsible for any special award to which the Applicant might be found entitled.

The issues in this motion, clarified in oral submissions, were as follows:

Should the Motor Vehicle Accident Claims Fund be added to this proceeding either as a co-respondent or as a third party?
In the alternative, should Mrs. Martikhina's claim for a special award pursuant to subsection 282(10) of the Insurance Act be struck as an issue in this proceeding?
Is any party to this motion entitled to its legal expenses of the motion and, if so, what is the quantum of those expenses?

The Motor Vehicle Accident Claims Fund should not be added to this proceeding either as a co-respondent or as a third party.
Issue #6 set out in the July 21, 2006 pre-hearing letter is amended as follows:

Is RBC liable to pay a special award pursuant to subsection 282(10) of the Insurance Act because RBC and/or the Motor Vehicle Accident Claims Fund unreasonably withheld or delayed payments to Mrs. Martikhina?

RBC General Insurance Company shall pay the Motor Vehicle Accident Claims Fund its legal expenses of this motion, fixed in the amount of $861.32 and the Applicant her legal costs of this motion, fixed in the amount of $212, both inclusive of GST and both payable forthwith in any event of the cause.

Facts

Mrs. Martikhina submits that she was injured as a result of a motor vehicle accident which took place on September 22, 2004. The motor vehicle accident report indicates that while crossing an intersection, evidently on a bicycle, Mrs. Martikhina was struck by an RBC insured motor vehicle slowing for the stop sign.

By letter dated October 14, 2004, the Applicant, through her counsel, Mazin & Rooz, applied to the Motor Vehicle Accident Claims Fund ("MVAC") for statutory accident benefits. By letter dated October 26, 2004, MVAC indicated they required further information, to which Mrs. Martikhina responded by letter dated December 29, 2004.

The Applicant, through counsel, subsequently applied for mediation. The Report of Mediator, issued July 28, 2005, notes the insurer as MVAC, represented by CGI Information Systems and Management Consultants Inc. ("CGI"). The Report notes resolution of certain issues, including payment of medical and examination expenses, and certain issues remaining in dispute.

By letter dated July 20, 2005, CGI put RBC on notice, pursuant to Ontario Regulation 283/95, Disputes Between Insurers, that Mrs. Martikhina's claim should be put through RBC and that MVAC was seeking reimbursement of any monies paid on RBC's behalf.

On August 22, 2005, the Commission received an Application for Arbitration from the Applicant's counsel naming "CGI Adjusters" as her insurance company. The Application for Arbitration did not include a claim for a special award.

MVAC's Response by Insurer, filed September 20, 2005, submitted that the Applicant was struck by an RBC insured vehicle, there was no evidence RBC was disputing priority and there was no nexus between the Applicant and MVAC. The Response further stated that the Applicant had prematurely applied to MVAC prior to obtaining a police accident report, the report being first obtained by MVAC in or about July 2005.

By letter dated October 31, 2005, Mr. Matt Gibbons, designated in the correspondence as an RBC accident benefits specialist, wrote the Commission advising that "RBC Insurance has taken over priority from CGI on this file. "

RBC's counsel, Mr. Darrell March, filed a Response by Insurer with the Commission on February 21, 2006. RBC did not raise any defence in its Response, or in any correspondence prior to the pre-hearing discussion, that Mrs. Martikhina was not its insured or that RBC had any claim against MVAC. The Response does, however, check off the box that the Applicant's claim constituted an "abuse of process, frivolous or vexatious proceeding."

The pre-hearing discussion herein was held on July 12, 2006. Both the Applicant and an RBC representative attended with their legal representatives. No one attended from MVAC, which was replaced by RBC as the insurer of record in this proceeding immediately following Mr. March's February 21, 2006 letter, as indicated by the Commission Party Contact Sheet of that same date.

At the pre-hearing, Mrs. Martikhina sought to include as an issue in this proceeding entitlement to a special award. She undertook, within sixty days of the pre-hearing discussion, to provide RBC with particulars of this claim as were then within her knowledge and to provide further particulars forthwith as they became known. RBC objected to adding the issue of a special award, submitting that an insufficient basis had been laid for the claim.

As with RBCs claim for its $3,000 assessment (RBC being cognizant that subsection 282(11.2) of the Insurance Act, R.S.O. 1990, c. I.8, had been abolished), I found that both these issues should be added to this proceeding, as long as sufficient notice was provided. My pre-hearing letter indicated that if either claim was found to be frivolous, vexatious, an abuse of the proceeding or simply lacking any merit, that could be addressed by the hearing arbitrator, including an award of legal expenses.

Well into the pre-hearing discussion, RBC submitted for the first time that Mrs. Martikhina was not RBCs insured and sought a preliminary hearing for this issue. Counsel was unable to enunciate the basis for this position, given RBCs admission that it was the insurer of the vehicle which struck the Applicant and given its October 31, 2005 letter acknowledging priority. While including this as an issue in this proceeding, I was not persuaded that the most efficient use of time and expense warranted a separate preliminary hearing for that issue.

Also during the pre-hearing, Mr. March submitted that MVAC was responsible for any special award that might be awarded to the Applicant and, therefore, requested MVAC be added as a party to this proceeding. Specifically due to the absence of any notice to MVAC, I declined to add MVAC as a party and directed counsel to Rule 67 of the Dispute Resolution Practice Code (Fourth Edition, Updated — October 2003) (the "Code") regarding the proper procedure for such motions. In the interim, I set hearing dates of May 14 to 17, 2007 for the substantive issues.

By letter dated November 29, 2006, more than four months later, RBC served a Notice of Motion seeking to add MVAC as a party to this proceeding, as well as its costs on a substantial indemnity basis. The enumerated statutory grounds for the motion were restricted to the Code and section 42 of the Schedule.

MVAC responded to the Motion Record by letter dated December 7, 2006, submitting that the Arbitrator should decline to hear this motion, there being no jurisdiction under the Insurance Act or the Code to hear the matter or order the relief sought.

By letter dated December 15, 2006, I wrote the parties that Rule 67 of the Code required, amongst other things, that a party set out the grounds for the order sought. I noted that section 42 of the Schedule pertained to insurer medical examinations and that I could not see the relevance of that provision to the order sought. Otherwise, the motion record referred only in general terms to the Code and to such further and other grounds as counsel may advise.

Accordingly, I set out a timetable for RBC to serve and file a further motion record setting out the order being sought, the entire grounds for the order and all submissions and documentation, including case law, upon which it was relying, and for the Applicant and MVAC to serve and file a written response to the motion, also including all submissions and documents to be relied upon, including case law.

The submissions were to specifically address, amongst other matters, the jurisdiction of the Commission to hear this motion, and if there was jurisdiction, whether MVAC should be added as a party to this proceeding, as well as entitlement to and the quantum of legal expenses including the jurisdiction to award expenses.

RBC's position

RBC's initial argument was that as all issues in dispute in this proceeding existed prior to RBC's involvement and resulted from MVAC's handling of the file, any pre-judgment interest order or special award were MVAC's responsibility and, hence, MVAC should be added as a party to the proceeding so as not to prejudice RBC.

In its revised Notice of Motion, dated January 5, 2007, RBC submitted, amongst other things, that an arbitrator has jurisdiction to interpret O. Reg 283/95, which pertains to disputes between insurers, and to determine questions concerning section 6 of the Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41, which pertains to statutory accident benefit claims against MVAC.

In the alternative to adding MVAC as a party, RBC argued that the issue of the Applicant's entitlement to a special award should be struck on the basis that it was frivolous and vexatious.

RBC relied on the decision in Govani and MVAC (FSCO A00-000717, January 18, 2002), where MVAC had argued, in part, that it was not obliged to pay benefits to uninsured residents of Ontario when the accident took place outside Ontario. Arbitrator Alves found MVAC to be an insurer and that only by virtue of section 11 of O. Reg 283/95 was it relieved from complying with the requirements of that legislation.

RBC also relied on the recent Ontario Court of Appeal decisions in Allstate Insurance Company of Canada v. Motor Vehicle Accident Claims Fund, (January 31, 2007, Docket: C45063) and Kingsway General Insurance Company v. Ontario (Minister of Finance), (January 31, 2007, Docket: C43414), which determined that MVAC was "an insurer for the purpose of resolving disputes over the payment of accident benefits" and that the prior statement in Kalinkine v. Ontario (Superintendent of Financial Services), 2004 CanLII 48058 (ON CA), [2004] O.J. No. 5138 that MVAC was not an insurer, was incorrect.

In its oral submissions, RBC stated that the issue before me was novel and that notwithstanding a thorough search, it could not find any case addressing whether an insurer which was a party to a FSCO proceeding could add another insurer as a co-respondent or as a third party for contribution or indemnity of any arbitral award. RBC further indicated it was still seeking to dismiss the special award, but provided no evidence or submissions in this regard.

RBC argued that my authority to add MVAC as a party to this proceeding in some capacity was pursuant to Rule 1 of the Code. The latter provides that the Code is to be interpreted to produce the most just, quickest and least expensive dispute resolution of the dispute. RBC argued that in the unique facts of this case, the Commission was the forum of convenience. As a witness from MVAC would have to be called to this hearing in any event, it was more expeditious and less expensive to have them included as a party than to require a separate, expensive, protracted court action in which RBC sought contribution and indemnity from MVAC.

RBC confirmed at the motion that although there was no question it accepted priority, it was still disputing that the Applicant was its insured for any statutory accident benefit claim.

The Applicant's position

In her written material, Mrs. Martikhina maintained that she was not opposing RBC adding MVAC as a party as long as no costs were sought against the Applicant or her counsel. The Applicant opposed RBC's motion to remove the issue of a special award from this proceeding.

At the March 23, 2007 motion, it was agreed that Mrs. Martikhina had failed to comply with her undertaking to provide particulars of her claim for a special award by September 12, 2006 as were then within her knowledge and to provide further particulars forthwith as they came to her attention. The Applicant, therefore, advised at the motion that the basis for her special award claim was that it had been unreasonable for both MVAC and RBC to have withheld benefits, given the medical evidence before them.

The Applicant further clarified her position that RBC was liable for its own conduct and, by assuming responsibility for this file, RBC had stepped into MVAC's shoes and was responsible for MVAC's prior conduct. Mrs. Martikhina, therefore, sought to amend the special award issue to reflect this position.

Mrs. Martikhina further stated, unequivocally, that she did not seek to have MVAC added as a party to this proceeding and that MVAC should not be added as a party. RBC stated it was taken by surprise by this position. The Applicant argued that there was no precedent for adding a third party in a Commission proceeding and that an applicant cannot be forced to add an insurer, which would lead to increased complexity and expenses. She further argued that an insured person should not be drawn into disputes between insurers, especially when an insurer has explicitly accepted priority for the claim.

MVAC's position

Given the recent case law by the Ontario Court of Appeal, MVAC did not dispute that it was an insurer for the purposes of the Schedule, but maintained that it was not the insurer in this case. MVAC argued that Mrs. Martikhina could not be forced to make a claim against MVAC, there being no provision in the Code or elsewhere for adding an entity as a co-respondent, a procedure it submitted did not exist even in the Rules of Civil Procedure.

As to adding an insurer as a third party, MVAC was not aware of any provision in the Code or the Insurance Act permitting an arbitrator to adjudicate a third party claim against any insurer. The role of an arbitrator, it argued, was to determine an insured's entitlement to benefits, interest and a special award, not an insurer's entitlement to indemnity or contribution from another insurer. MVAC argued that RBC, if ordered to pay a special award and/or pre-judgment interest, could seek its reimbursement against MVAC in a court proceeding or by private arbitration under O. Reg. 283/95.

MVAC further argued that this was not a unique, fact driven case; that if an insurer could be added as a third party in this proceeding, the same principle would apply equally to other cases. MVAC further argued that it should not be added as a party because:

there was an insufficient nexus between the Applicant and MVAC. Applying to MVAC in this case was a completely random exercise due to the Applicant's failure to obtain a police report and identify the insurer of the third-party vehicle. MVAC was, emphatically, not a temporary payer of benefits for the interim period until a police accident report is obtained;
as MVAC had never been liable to pay benefits, no entitlement to interest or a special award could arise out of Mrs. Martikhina's special award claim respecting MVAC's alleged conduct;
in any event, as RBC had not paid any benefits, although it assumed responsibility for the claim in 2005, one could presume their position would have existed from the date of the accident; and,
if RBC believed MVAC should reimburse any pre-judgment interest or special award order, under O. Reg. 283/95, it must proceed through private arbitration under the Arbitration Act, 1991, S.O. 1991, c. 17. FSCO arbitrators having no jurisdiction in this regard.

Reasons

At the motion, there was no dispute as to my jurisdiction to hear this matter.

The issue in this case is not, as would be suggested by the case law presented by RBC, whether MVAC is an insurer for the purposes of statutory accident benefits. Rather, the question is whether an insurer can be added to an existing arbitration proceeding as a co-respondent or as a third party upon the motion by another insurer over an applicant's objections. That would hardly be a factual situation unique to the facts of this case.

Regarding adding MVAC as a party, at the motion RBC relied solely on Rule 1 of the Code, submitting that such a result would be just, expedient and cost-efficient.

While such a result might be just, expedient and cost-efficient for RBC, the same could not be said for the Applicant, or for MVAC. For Mrs. Martikhina, it would mean having another party to the proceeding she did not want, expanding and unnecessarily complicating the issues in dispute, adding another counsel to cross-examine her and her witnesses as well as make submissions, lengthening the proceeding, increasing her own legal expenses and adding an exposure to third-party expenses.

Neither would such a result be just, expedient and cost-efficient for MVAC, being drawn into a full arbitration hearing when its exposure to any claim for contribution or indemnity by RBC, at this point, is highly tentative. Whether an insured can claim a special award against an insurer for the actions of another is yet to be decided. Even if the answer is yes, it is still to be determined whether Mrs. Martikhina is entitled to a special award and if so, whether any part of that special award is attributable to MVAC's conduct. Even if the answer to the latter two questions were in the affirmative, RBC's remedies against MVAC, in court or in private arbitration, would still be preserved.

However, more fundamentally, just because a result might be just, expedient and cost-efficient, Rule 1 of the Code, while providing procedural guidance, does not bestow substantive jurisdiction. While it might be just, expeditious and cost-efficient to add to a FSCO arbitration property damage claims, third party tort actions and collateral non-auto insurer claims, FSCO arbitrators do not have the authority to determine same.

FSCO arbitration is a creature of statute. Its duties and powers are prescribed by legislation. The jurisdiction of arbitrators is limited to determining entitlement to and the quantum of statutory accident benefits. The Insurance Act does not contain a provision adding jurisdiction to determine one insurer's right to contribution or indemnity from another in this forum.

It may be argued that such an issue flows naturally and consequentially from the enunciated arbitral powers. The response to that is that the legislative scheme has created arbitration as a dispute resolution forum only insured persons can access. As stated by Arbitrator Alves, in Govani, the case provided by RBC, "one of the key aspects of the Dispute Resolution provisions of the Insurance Act is that insured persons are provided with a choice of forum in which their disputes are to be decided." As also stated by Arbitrator Alves, any dispute as to insurer priority must be determined by a private arbitrator under the provisions of the Arbitration Act, 1991.

Subsection 282(3) of the Insurance Act allows an arbitrator to determine all issues in dispute, whether raised by the insured person or the insurer, once an insured has chosen this forum and has chosen the insurer. The Insurance Act does not give an arbitrator the power to add additional insurers over the insured's objection. To now allow otherwise, in the absence of any statutory authority, would compromise an applicant's right to an expeditious and cost-efficient resolution of his or her claim under the Schedule by complicating matters with an insurer's potential remedies not against the insured person, but against other parties.

The absence of any provision allowing for adding an insurer as a party upon motion by another insurer, as well as the restriction to insured persons accessing arbitration, persuade me that FSCO arbitration is the applicant's forum of convenience, not the insurer's. Therefore, I find that I have no jurisdiction to add MVAC as a party to this proceeding, either as a co-responding insurer or as a third party. RBC's motion in this regard is, therefore, dismissed.

Regarding RBC's motion to dismiss the Applicant's claim for a special award on the basis that it was frivolous or vexatious, I received no evidence or submissions in this regard. Accordingly, this part of the motion is dismissed as well.

The Applicant sought to amend her claim for a special award to include RBC's responsibility for its own actions and those of MVAC. It cannot be said that this request took RBC by surprise, as this is the basis of its motion. It is still more than a month prior to the hearing, and an amendment at this juncture still provides, in my view, reasonable notice to RBC to respond to the claim. Accordingly, the special award claim is amended accordingly.

EXPENSES:

Regarding legal expenses, RBC submitted that the issue before me was novel and that its motion was neither frivolous or vexatious. It further argued that the Applicant's conduct necessitated this motion, specifically its view that Mrs. Martikhina had changed her position regarding adding MVAC as a party.

The Applicant sought $500 for her legal expenses on the basis she had to oppose the motion to maintain her claim for a special award. Counsel for MVAC stated that he had spent approximately eight hours preparing for the motion and three hours in attendance.

At the motion, I noted that subsection 282(11) of the Insurance Act provides that the arbitrator may award to the insured person or the insurer all or part of such expenses incurred in respect of an arbitration hearing as may be prescribed in the regulations. It was, of course, MVAC's position that it was not "the insurer" in this proceeding.

Subsection 282(11.1) of the Insurance Act, however, states that 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. There is no explicit statement in that provision to the award being restricted to the insured person or the insurer.

A slightly different wording is used in subsection 282(11.2) of the Insurance Act, wherein an arbitrator may make an order against a representative of an insured person or an insurer to pay personally any expenses awarded against "a party," in the circumstances enumerated.

The question is, does subsection 282(11.1) merely clarify the arbitrator's ability to make interim expense awards prior to the conclusion of the proceeding, or does this provision expand the breadth of the arbitrator's discretion during the pre-hearing process? My December 15, 2006 letter to counsel specifically asked that they address my jurisdiction to award expenses.

As part of the legislative scheme under the Insurance Act determining resolution of statutory accident benefits disputes, the Code was enacted. Rule 67 of the Code, echoing subsection 282(11.1) of the Insurance Act, authorizes an arbitrator to make preliminary or interim orders within a proceeding, pending a final order. Rule 67.7 (a provision similar to Rule 30.10 of the Rules of Civil Procedure) allows arbitrators to make orders against what are termed "third parties," but which are really "non-parties" as the term is used in the Rules of Civil Procedure.

If a motion against a "third party" is unsuccessful, should this party be entitled to claim its legal expenses? If a motion against a "third party" is successful, should an insured person or an insurer be entitled to claim their expenses against the third party?

My answer to both questions, is yes.

First, it is consistent with Rule 1 of the Code, as a potential remedy by the arbitrator to produce the most just, quickest and least expensive resolution of a dispute by discouraging frivolous, vexatious or bad faith motions, or simply motions where there is no merit, and to discourage unreasonable or non-meritorious refusals by non-parties. However, the authority for such orders does not emanate from that provision.

Rather, subsection 282(11.1) of the Insurance Act provides arbitrators with expense powers unrestricted as to the possible recipient, exclusively as part of interim proceedings. It is during interim proceedings that "non-party" motions, such as for production requests, may arise. As part of the legislative scheme, interim orders involving non-parties and interim expenses regarding non-parties fit together neatly. I am persuaded that subsection 282(11.1) of the Insurance Act, in addition to clarifying arbitral authority to make interim expense orders, expands that authority to cover awards both for and against non-parties who are made "third parties" to a motion as part of the arbitrator's express authority to determine the terms and conditions of any expense order.

Thus, Rule 75 of the Code states that an adjudicator may award expenses to a party. MVAC is a party to this motion. I find MVAC entitled to its reasonable legal expenses from RBC based on:

its success in this motion;
the absence of any argument by RBC based on statutory authority, case law precedent or consideration of the general legislative scheme; and,
MVAC's considered submissions and its assistance in facilitating this motion.

The Applicant had not complied with her undertaking to provide particulars of her claim for a special award. Her initially equivocal position regarding adding MVAC as a party also did not assist matters. However, it was reasonable for the Applicant to oppose RBC's motion to strike her claim for a special award, given that there was no evidence or submissions provided by RBC in that regard. I am persuaded that the Applicant is entitled to two-thirds of her allowable expenses.

As to the quantum of legal expenses, there is no express provision for costs on a "substantial indemnity basis" under the Code. Rule 78 of the Code allows up to $150 an hour for legal fees for an insured person, but restricts legal fees for an insurer's counsel to the hourly rates established under the Legal Aid Services Act, 1998, S.O. 1998, c. 26. There is no specific provision for legal counsel of non-parties. Rule 1.1 of the Code, however, provides that where something is not specifically provided for in the Code, the practice may be decided by referring to similar rules. I find that the cost provisions for insurers' counsel appropriate regarding MVAC's legal costs.

I find the eleven hours claimed by Mr. Kerkmann to be reasonable and warranted in this case. I was not provided with Mr. Kerkmann's experience rating. Accordingly, I allow him eleven hours at the Tier 1 rate of $73.87 per hour, plus GST, for a total of $861.32, payable by RBC forthwith in any event of the cause.

Mr. Ezer is a student-at-law. The legal aid tariff allows for $23 an hour for students-at-law. However, Arbitrator Makepeace, in Olszynko and Dominion of Canada General Insurance Company (FSCO A97-001495, August 27, 1999), stated she had no difficulty with a student's time at $40 per hour. Although not explicitly stated, this was presumably on the basis of Rule 78 of the Code noted above.

Given the passage of time, I find that $50 an hour is certainly justified for a student, especially given the current partial (up to $60 an hour) and substantial (up to $90 an hour) indemnity scales for students under the Rules of Civil Procedure. Two-thirds of six hours of preparation and attendance (which I find appropriate), at $50 an hour, is $212, inclusive of GST. I find that same is payable by RBC forthwith in any event of the cause.

April 13, 2007

Lawrence Blackman

Arbitrator

Date