Financial Services Commission of Ontario

Commission des services financiers de l'Ontario

Neutral Citation: 2008 ONFSCDRS 34 Appeal: P06-00024

OFFICE OF THE DIRECTOR OF ARBITRATIONS

RAY MCCORMACK Insured/Respondent

and

AVIVA CANADA INC. Insurer/Respondent

and

ISABELLA & ASSOCIATES INC. Representative/Appellant

BEFORE: David Evans

REPRESENTATIVES: J. Dannial E.S. Baker for Mr. Isabella Grant R. Dow for Aviva Canada Inc. Mr. McCormack did not participate

HEARING DATE: November 13, 2007

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The appeal of the arbitration orders dated September 16, 2005 and June 13, 2006 is dismissed and the orders are confirmed.
If the parties are unable to agree about the expenses of this appeal, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

March 3, 2008

David Evans Director's Delegate

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Isabella, who represented Mr. McCormack, appeals the arbitrator's decision that he personally pay Aviva's fixed expenses of $1,566, inclusive of GST, for costs thrown away prior to the withdrawal of Mr. McCormack's application for arbitration.

II. BACKGROUND

The arbitrator issued two decisions. In the first decision of September 16, 2005, he allowed Mr. McCormack to withdraw his application for arbitration, but determined that Aviva was entitled to expenses thrown away. In his second decision of June 13, 2006, he found Mr. Isabella liable to pay those expenses.

Mr. McCormack was injured in a motor vehicle accident on February 19, 2003. He claimed medical benefits for treatment under the SABS–1996.¹ On December 8, 2004, Mr. Calin Lau, adjuster for the insurer, wrote to Mr. McCormack, copied to Mr. Isabella, that it was paying the claim on a "non-prejudice basis." Mr. Isabella, on Mr. McCormack's behalf, filed an Application for Arbitration dated December 15, 2004 regarding those benefits and also claimed interest, expenses and a special award. Mr. Lau wrote directly to Mr. Isabella on December 22, 2004, notifying him that "the disputed issues stated in the application for arbitration had been resolved" and asked him to withdraw the application "as there isn't any issue in dispute now." Aviva subsequently filed its response, and Mr. Isabella requested an unconditional withdrawal at the pre-hearing. Aviva then sought its expenses.

In his first decision on expenses entitlement, the arbitrator did not accept Aviva's assertion that the arbitration was without merit from the outset, as Aviva had qualified the payment as without prejudice. However, the arbitrator found that by December 22, 2004, Mr. Isabella would have been aware that the treatment expenses had been resolved unconditionally, but nothing happened until the pre-hearing of June 14, 2005. That delay meant Aviva had to file its response and incur the assessment fee. The arbitrator wrote:

At the pre-hearing Mr. McCormack gave notice of his intention to withdraw all issues, including the interest and special award from arbitration, almost six months after first being notified of the resolution of the medical benefit issue.

The arbitrator found that waiting until the pre-hearing to respond to Aviva's request that the application be withdrawn was "conduct of a party or a party's representative that tended to prolong, obstruct, or hinder the proceeding" — one of the factors in determining who is entitled to arbitration expenses as defined by Rule 75 of the Dispute Resolution Practice Code. He found that by the end of January 2005, there was "absolutely no excuse for Mr. Isabella not to have examined the file and replied to Aviva's request to withdraw." He found that the failure of the insurer's Response to mention the settlement was not a reason for continuing with the arbitration, since Mr. Lau's letters and the OCF–9s (Explanation of Benefits forms documenting the payment) "should have prompted a call to the treatment provider to verify that the amounts claimed were still outstanding."

The arbitrator found that Aviva was entitled to fixed expenses of $1,566 for the period from February 1, 2005 to the pre-hearing. However, he also noted that s. 282 (11.2) of the Insurance Act provides for the payment of expense awards by representatives where "the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default." The arbitrator suggested that this provision could apply, given "the extraordinary delay between the notification of settlement, and the request to withdraw." He gave Mr. Isabella, Mr. McCormack and Aviva 30 days to advise the Commission whether they wished to make further submissions on who should pay the expenses.

This led to the second hearing on expenses liability, which proceeded by telephone conference call on February 3, 2006. Mr. McCormack appeared on his own behalf, assisted by Ed Blaha, and Mr. Baker appeared for Mr. Isabella. In his decision of June 13, 2006, the arbitrator summarized his earlier expenses entitlement decision. He then considered the meaning of s. 282 (11.2), and wrote that

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…. [It] 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.

The arbitrator noted that he had already found Mr. Isabella's actions — or failure to act — had put the Insurer to unnecessary expense in defending a pointless arbitration. He rejected Mr. Isabella's attempt to relitigate the finding that he had either actual or constructive knowledge of the payment of the principal benefit in issue. He rejected Mr. Isabella's argument that if his conduct was unreasonable, the proper recourse would have been a court action against him and "let the court decide" because having chosen the venue he was ill-placed to argue that the dispute should properly be in the courts: the dispute about expenses followed directly from the claim filed. The arbitrator considered Mr. McCormack's testimony and found "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."

The arbitrator found that since the actions complained of occurred when Mr. Isabella was agent of record, he could properly be the subject of an award pursuant to s. 282(11.2) of the Insurance Act. He found that Mr. Isabella was the controlling mind behind the litigation. He found that the sole substantive claim involved a third-party payment and that there was no suggestion that Mr. McCormack was intent on enriching himself at Aviva's expense. The arbitrator found that the only possible direct payment of Mr. McCormack's was interest and that Mr. Isabella had abandoned that claim. The arbitrator found that Mr. Isabella continued a claim for payment of a settled claim without regard to expenses incurred by Aviva and that, given the absence of any evidence of instructions to ignore the Insurer's protests of payment, he ignored its protests at his own peril: "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." Accordingly, the arbitrator concluded that "Mr. Isabella caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default" and should be liable to pay the expenses. The arbitrator noted that, while his findings related principally to unreasonable delay, 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.

III. ANALYSIS

Mr. McCormack did not respond to the appeal. At one point, Mr. Baker left telephone messages for Mr. Dow and myself, suggesting that because Mr. McCormack had not responded then Mr. Isabella's appeal should be granted automatically. In addition, the appeal raised the issue of arbitration expenses. I wrote to Mr. Baker on January 31, 2007 as follows:

Mr. Baker, as was the case with Mr. Dow, I have difficulty understanding your telephone message. You seem to suggest that, since Mr. McCormack has not responded, he can be noted in default and your appeal can succeed automatically. However, that is not how matters proceed at tribunals. The Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, only provides that, where a party does not attend at a hearing despite receiving notice, "the tribunal may proceed in the absence of the party and the party is not entitled to any further notice in the proceeding." [S. 7(1)]

You must still proceed with the appeal if you wish to reverse the arbitrator's decision. As for Mr. Isabella seeking arbitration expenses after he asked for a withdrawal without expenses, I remind you that the same expenses provisions — that a representative may be liable for advancing a frivolous or vexatious claim — apply on appeal as at arbitration.

Mr. McCormack did not appear at the appeal hearing, so the hearing proceeded in his absence.

The substance of the appeal was based on a misunderstanding of the arbitrator's reasons. Paragraph 20 of the appellant's submissions states: "The Arbitrator decided that there was no reason for the arbitration to proceed once the December 8, 2004 letter was received." That is incorrect, as the arbitrator in the expenses entitlement decision specifically found that the dispute did not terminate with the receipt of the December 8, 2004 letter:

Aviva considers that this arbitration was unnecessary, since the majority of the issues were settled beforehand. I do not agree. Mr. Lau's first letter of December 8, 2004, addressed to Mr. McCormack, states that "We are paying the two outstanding invoices in a non-prejudice basis." The phrase "without prejudice" means 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 is not a resolution of the dispute between Mr. McCormack and Aviva.

The arbitrator also noted that the issues of a special award and interest had not disappeared automatically with the payment of the overdue benefits:

In Mr. McCormack's case these two important issues remained outstanding and capable of being arbitrated. I therefore do not find that Mr. McCormack was acting in bad faith, in bringing an application for arbitration on December 15, 2004.

Therefore, Mr. Isabella is incorrect in stating that the arbitrator considered the December 8, 2004 letter as definitively ending the dispute. Instead, the arbitrator focused on the December 22, 2004 letter but also gave Mr. Isabella time to react to it. While Aviva sought its expenses throughout, the arbitrator found that, given Aviva's correspondence was faxed just prior to the holiday season, some delay in replying to that letter would be understandable. However, he found that there was no excuse for Mr. Isabella not having taken any steps by February 1, 2005, which is why he awarded expenses for Aviva from then to the date of the pre-hearing.

I see no basis for intervening. Subsection 283(1) of the Insurance Act provides that a party to an arbitration may appeal the order of the arbitrator on a question of law. There is little that could be called a question of law in the submissions. Instead, Mr. Isabella submits that the arbitrator's decision was perverse, or that there was no evidence that he caused expenses to be wasted by unreasonable delay. However, there was evidence for the arbitrator to make those findings. I believe the arbitrator's essential point was that, if Mr. Isabella was prepared to withdraw all claims in May 2005, he could just as easily have done so at the end of January 2005, sparing Aviva the further expense of preparing for and attending at the pre-hearing.

The arbitrator also had evidence that the claim was really being advanced by Mr. Isabella for the benefit of the treatment provider, not Mr. McCormack. There was no error in his accepting that evidence, considering that he heard evidence from Mr. McCormack to that effect, that the sole substantive claim involved a third-party payment, and that, as the arbitrator pointed out, "[t]here was nothing payable directly to Mr. McCormack, except possibly interest, a claim that Mr. Isabella pointedly abandoned."

Given the arbitrator's finding that the claim was really being advanced on behalf of the treatment provider, I do not find the arbitrator placed an unreasonable burden on Mr. Isabella in finding that he should have contacted the treatment provider by the end of January 2005 to confirm the settlement. Therefore, I see no error in the arbitrator's refusal to consider Aviva's Response to Arbitration as somehow misleading Mr. Isabella.

I find the arbitrator did not err in finding that Mr. Isabella as Mr. McCormack's representative "caused expenses … to be wasted by unreasonable delay" pursuant to s. 282(11.2)(c) of the Insurance Act. The arbitrator followed the correct procedure, as s. 282(11.4) provides that "[a]n order under subsection (11.2) shall not be made unless the representative is given a reasonable opportunity to make representations to the arbitrator." Mr. Isabella was given that opportunity in the second hearing. The arbitrator founded his decision on the evidence and clearly set out his reasons.

Accordingly, I have no reason to intervene, the appeal is dismissed, and the arbitrator's orders are confirmed.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code. However, Mr. Isabella should be aware that I too am prepared to consider applying s. 282(11.2)(c) of the Insurance Act.