Neutral Citation: 2008 ONFSCDRS 176

FSCO A07-001692

BETWEEN:

AFRIM UKA Applicant

and

AVIVA CANADA INC. Insurer

DECISION ON A PRELIMINARY ISSUE (MOTION FOR PRODUCTION)

Before: Arbitrator Denise Ashby

Heard: Written submissions concluded on August 29, 2008.

Appearances: Joel E. Timmerman for Mr. Uka Pamela J. Quesnel for Aviva Canada Inc.

Issues:

The Applicant, Afrim Uka, was injured in a motor vehicle accident on October 27, 2005. He applied for and received statutory accident benefits from Aviva Canada Inc. (“Aviva”), payable under the Schedule.¹ Aviva terminated weekly income replacement benefits and housekeeping benefits and denied other benefits. The parties were unable to resolve their disputes through mediation, and Mr. Uka 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:

Is Aviva required to disclose to Mr. Uka information regarding its setting of reserve amounts in respect of Mr. Uka’s claim for accident benefits?
Is Aviva liable to pay Mr. Uka’s expenses in respect of the preliminary issue hearing pursuant to subsection 282(11) of the Insurance Act, R.S.O. 1990, c. I.8?
Is Mr. Uka liable to pay Aviva’s expenses in respect of the preliminary issue hearing pursuant to subsection 282(11) of the Insurance Act, R.S.O. 1990, c. I.8?

Result:

Aviva shall disclose to Mr. Uka information regarding its setting of reserve amounts in respect of Mr. Uka’s claim for accident benefits.
The issue of expenses is deferred to be dealt with by the hearing arbitrator.

SUBMISSIONS AND ANALYSIS:

Mr. Uka seeks disclosure of information regarding Aviva’s setting of reserve amounts in respect of his claim. He submits that the reserve amounts and the process by which they were set are necessary to assist in both determining whether Aviva adjusted his claim in bad faith and to evaluate the amount of a special award.

Mr. Uka claims an income replacement benefit, medical benefits and housekeeping benefits together with interest, a special award and his expenses. As part of his Application for Arbitration, Mr. Uka provided detailed submissions with respect to his claim for a special award and the deficiencies he perceived in Aviva’s adjusting of the file. He submits that the disclosure of the amounts Aviva set as a reserve in respect of his claim is essential to his establishing that Aviva acted unreasonably in terminating some benefits and denying others.

Aviva submits that Mr. Uka has failed to establish the relevance of disclosure of the reserve amounts to his claim for benefits and a special award. Further, disclosure of the reserve amounts would cause Aviva prejudice which is outweighed by the need for disclosure. Aviva submits that reserves by their nature are misleading because they also reflect, inter alia, potential legal costs, the likelihood of success and reinsurance considerations.

Mr. Uka places a great deal of emphasis on the fact that he is seeking a special award which he equates with punitive damages. In Liberty Mutual Insurance Company and Persofsky², the Director of Arbitrations contrasted the similarities and differences between punitive damages as described by Justice Binnie in Whitten v. Pilot Insurance Company³ and special awards as set out in the Insurance Act. The Director concluded that the purpose of a special award like punitive damages “is to punish the insurer for its misconduct and to deter it, and others, from acting similarly in the future.”

In the appeal decision in Allstate Insurance Company of Canada and Al-Obaidi the Director’s Delegate sets out factors to be considered when ordering disclosure of documents. She found that relevance must be weighed against considerations like the sensitivity of the information, the practicalities of compliance and the timing of the request.⁴ However, in Rama and Allstate Insurance Company of Canada the Arbitrator noted that insurers routinely ask for the files of collateral insurers and the first party insurer’s file in respect of any subsequent accident thus it can be seen that the first-party adjusting file is prima facie relevant to the dispute being arbitrated.⁵ In Nigro and State Farm Mutual Automobile Insurance Company the arbitrator held that: “if an applicant demonstrates a reasonable possibility that a document in an insurer’s file is relevant to the issues at arbitration, that is sufficient to allow an arbitrator to order production of the document, subject to any claim for privilege.”⁶

I agree with the approach taken in Nigro. The ambit of production at the pre-hearing stage is necessarily broader than what is required for admission as evidence at the hearing. Thus an applicant’s medical records are disclosed routinely up to one year pre-accident. Notwithstanding those records may contain highly sensitive and irrelevant medical information. Reserves in my view are far more relevant to an insured’s claim to benefits than the insured’s visits to his or her physician for treatment of bronchitis, pneumonia or far more sensitive and potentially embarrassing maladies. Yet, it is well accepted that the release of such medical information is reasonably required to provide the insurer with an accurate picture of the insured’s pre-accident medical condition.

Similarly, the disclosure of reserves and the process by which they were set may give insight into how the adjuster viewed the merits of the insured’s claim and the supporting documentary and medical information. If such information is inconsistent with the adjuster’s denial, termination or withholding of benefits then it would be relevant to the reasonableness with which those decisions were made. As well, the reserve amounts could assist a hearing arbitrator in quantifying the amount of the award to be assessed.

I find that Mr. Uka has established “a reasonable possibility of the relevance” of the reserve information by offering a plausible argument for their relevance. As well, Mr. Uka’s submissions, filed with his Application for Arbitration, referred to medical findings which if accepted might have provided a basis for paying certain benefits. However, benefits were either terminated or denied. If in the face of this, the adjuster chose to increase reserve amounts at a time proximate to the receipt of those reports then such information would support an inference that the file had been unreasonably adjusted. Mr. Uka can only find this out by being provided with the reserve information. Therefore, I find that Mr. Uka has established their relevance.

Having established the relevance of the reserve amounts, I will now consider whether the disclosure of the reserve amounts should be disallowed on other grounds such as privilege, sensitivity of the information or practicality.

In Champaigne and Co-operators General Insurance Company⁷, the Arbitrator considered the decisions in Griscti and Non-Marine Underwriters, Mbrs. of Lloyd’s., Nigro and State Farm Mutual Automobile Insurance Company; Master Dash’s decision in Contos v. Kingsway General Insurance Company and Master MacLeod’s decision, in Rex v. General Accident Assurance Co. of Canada.⁸ The Arbitrator found that the reserve amounts should not be redacted from the disclosure of the adjuster’s file to the date of the application for mediation. He noted that in Griscti the Arbitrator found that the reserve amounts should not be disclosed “at this time.” Therefore, I find that Griscti does not stand for the principle that reserve amounts cannot be disclosed.

In Champaigne the Arbitrator chose to follow his reasoning in Campeau and Liberty Mutual Insurance Company.⁹ In Campeau he found that because arbitration at the Commission is intended to be less expensive and quicker than court based litigation it requires “a more streamlined broad stroke approach regarding production exchange.” Hence he held that, up to the date of mediation, the insurer must establish privilege, sensitivity particular to the claim, or some other reason to exclude production of relevant reserve information.

In Rama, the Arbitrator considered the more recent decision of Master Dash in Mamaca (Litigation Guardian of) v. Coseco Insurance Co.¹⁰and specifically Master Dash’s comments that: “Information about setting a reserve is not relevant to the insurer’s conduct in assessing and responding to the claim absent rare and exceptional circumstances.” He also considered the decision in Osborne v. Non-Marine Underwriters, Lloyd’s of London.¹¹ The Arbitrator found that:

With great respect, I find that it is incumbent on insurers to tell their first-party insureds exactly what they may be entitled to regarding their claims for accident benefits, subject to the express exceptions of solicitor-client or litigation privilege. There is, in a law, a legitimate protected zone of privacy regarding communications with counsel. There is also a legitimate protected zone of privacy regarding litigation. There is no protected zone of privacy for adjusting a first-party insurance file.

I agree that there is no zone of privacy in respect of the first party insurer’s file. Insurer’s, as observed by the Arbitrator, are required to provide an insured person with information regarding the manner in which benefits under the Schedule can be applied for. The Settlement Regulation requires strict disclosure of the benefits which might be available to the insured person. I also agree that the objective of speedy resolution of disputes is more likely to be achieved if restrictions on disclosure are confined to litigation privilege and solicitor and client privilege. Aviva does not provide a rationale pursuant to either privilege for the withholding of the reserve amounts. Therefore, I find that Aviva is required to disclose information regarding its setting of reserve amounts in respect of Mr. Uka’s claim for accident benefits.

EXPENSES:

The parties made no submissions with respect to expenses. I exercise my discretion and defer the issue of expenses to be dealt with as part of the arbitration hearing.

October 31, 2008

Denise Ashby Arbitrator

Date

Financial Services Commission of Ontario