Financial Services Commission of Ontario

Neutral Citation: 2008 ONFSCDRS 61 FSCO A07-001142

BETWEEN:

EDNA KLIMITZ Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Susan Sapin Heard: March 5, 2008, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Michael Hackl for Mrs. Klimitz Grant R. Dow for Allstate Insurance Company of Canada

Issues:

The Applicant, Edna Klimitz, was injured in a motor vehicle accident on November 7, 2003. She applied for and sought a non-earner benefit of $185 per week from Allstate Insurance Company of Canada ("Allstate"), under section 12 of the Schedule.¹ Allstate denied this benefit and Mrs. Klimitz applied for mediation, and subsequently arbitration to resolve this dispute at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

Mediation via teleconference took place over several days on October 23 and November 8, 2006 and January 10, January 29 and March 5, 2007. The mediator issued his report on March 5, 2007, indicating that the dispute was not resolved.

Mrs. Klimitz maintains that at some point during the mediation proceedings, Allstate offered to settle her claims on a full and final basis, for either $17,000 or $17,500, but that when she attempted to accept the offer in May 2007, some two months after the mediator issued his report, Allstate announced that the offer was withdrawn and replaced by a new offer of $5,000. Mrs. Klimitz submits that there was a valid offer to settle her claim for the higher amount when she purported to accept it in May, and so the parties concluded a binding agreement, from which Allstate now seeks to resile. Allstate maintains there was no meeting of the minds, and so no agreement, or, if there was, the settlement is not enforceable because certain requirements of the Settlement Regulation were not followed.

The preliminary issue is:

1. Was there a valid offer and acceptance to resolve the issues in dispute between the parties, and, if so, did the parties enter into a settlement within the meaning of subsection 9.1 (1) of the Settlement Regulation?

2. If the answer to above is "yes", which party is entitled to expenses of this proceeding?

Result:

1. There was a valid offer and acceptance to resolve the issues in dispute between the parties, and the parties entered into a settlement within the meaning of subsection 9.1 (1) of the Settlement Regulation.

2. Mrs. Klimitz is entitled to her expenses of this proceeding, fixed at $500.

EVIDENCE AND ANALYSIS:

What little evidence there is about the parties' communications and conduct during the settlement discussions is contained in the sworn affidavits of the participants: Barry Goldman —Mrs. Klimitz' solicitor, and Sheryl Storey — the Claims Representative from Allstate, who adjusted Mrs. Klimitz' claim for non-earner benefits. Needless to say, the affidavits differ on key points.

Mr. Goldman states that Ms. Storey made an all-inclusive offer of $17,500 to settle non-earner and future medical benefits at the mediation session that took place on January 29, 2007. Mr. Goldman's handwritten note documenting the discussion indicates that $17,500 was Ms. Storey's "absolute best full and final." Ms. Storey's affidavit, however, does not refer to any offer during that teleconference call, noting only that "given the brevity of the discussion, no record was made of the discussion aside from it being rescheduled to proceed March 5, 2007."

Mr. Goldman states that Mrs. Klimitz neither accepted nor rejected the offer on January 29, 2007, because she had wanted $21,000 for the non-earner benefits only and had not previously considered a "global" (i.e. "full and final") settlement.² A note Ms. Storey made of the earlier November 8, 2006 mediation session confirms that Mrs. Klimitz was not interested in a full and final settlement before January 2007.

Mr. Goldman's evidence is that he next called Ms. Storey on May 3, 2007 to advise that his client would accept Allstate's offer, at which time, to his surprise, Ms. Storey told him the offer had been withdrawn. Mr. Goldman's undated handwritten note of that conversation records that he asked Ms. Storey if they could "split the difference" between $17,500 and $21,000 to settle the matter, she said no, and he then said he would accept the $17,500, at which point Ms. Storey said that offer was withdrawn, and replaced by an offer of $5,000 for future medical treatment only. Mr. Goldman further states Ms. Storey would not explain when or why the offer was withdrawn, and that he found her "rather rude."

In contrast, Ms. Storey's affidavit does not mention any conversation with Mr. Goldman on May 3, 2007, stating only that she exchanged voicemails with Mr. Goldman after she received the mediator's report, dated March 5, 2007. Her version is that she left a voicemail for Mr. Goldman on May 29, 2007, in which she "confirmed that the Insurer's settlement proposal of $17,000 prior to the insurer's last offer at the mediation was no longer available and that the Insurer's final offer for resolution of the Applicant's claim on a full and final basis was $5,000."

Ms. Storey's evidence that she only "exchanged voicemails" with Mr. Goldman, and her vagueness about dates are not convincing in light of Mr. Goldman's clear and detailed recollection, and note, of an actual telephone conversation on May 3, 2007. I accept that an actual telephone conversation took place on that date.

Ms. Storey acknowledges an offer of $17,000 was made at some point in the course of the extended mediation proceedings. Mr. Goldman concedes he may have misheard the amount as $17,500 rather than $17,000; I find the discrepancy under the circumstances not to be significant enough to conclude on that basis that there was no meeting of the minds, and find that Allstate did make an offer of $17,000 to settle Mrs. Klimitz' claims. I accept Mr. Goldman's uncontradicted evidence that the offer was for a settlement on a full and final basis. I further find that Mr. Goldman accepted the offer on behalf of Mrs. Klimitz on May 3, 2007.

There is no evidence before me that Allstate revoked or withdrew its offer at any time before Mr. Goldman advised that Mrs. Klimitz would accept it on May 3, 2007, and it was not argued that there were any conditions to the offer, or that she failed to meet them. Ms. Storey's apparent assumption that her offer on behalf of Allstate no longer existed because "At no time up to the conclusion of the mediation on March 5, 2007 was I advised of any interest by the Applicant in the Insurer's settlement position nor was I requested to maintain a willingness [emphasis added] to resolve the matter in the amount of $17,000" is beside the point. I find it to be no more than an attempt on her part to tailor her evidence to suit the position Allstate advanced at the hearing, that under the Insurance Act, insurer's offers made in the course of mediation proceedings expire by operation of law once the Mediator's Report is issued.

As the Applicant correctly pointed out, it is a trite principle of contract law that an offer not specified to be time-limited remains available for a reasonable period of time, during which there is no obligation on an offeree to request the offeror to "maintain a willingness" to keep the offer open.

What is reasonable depends on the circumstances of any particular case. Given that the actual mediation in this case was conducted over an extended period of four and half months (October 23, 2007 to March 5, 2008), I find the acceptance of the offer on May 3, 2008, some two months later, and in the absence of any communication from Allstate purporting to revoke, rescind or withdraw it, to be reasonable in terms of timeliness.

I do not agree with the arguments advanced by Allstate, that all offers made during mediation lapse by operation of law once the mediator issues his or her report indicating that a mediation has failed.

Allstate bases this argument on subsections 281(3) of the Insurance Act, subsection 22(1)(c) of the Dispute Resolution Practice Code (Fourth Edition) (the "Code"), and the Report of Mediator itself.

Under subsection 281(2) of the Act, an insured person cannot apply for arbitration unless mediation has first been sought and mediation has failed. Subsection 281(3) provides that, "if mediation fails, the insurer shall pay statutory accident benefits in accordance with the last offer of settlement that it had made before the failure . . .".[emphasis added]

Section 22 of the Code provides that the Report of Mediator will record, amongst other things, "the insurer's last offer in respect of any issue that remains in dispute." The reason for this, argues Allstate, is so that a last offer, if in fact one was made, can be enforced. If the last offer is recorded as "0," as it is in the Report of Mediator in this case, then this must mean that that there was no enforceable last offer, and I am invited to further conclude that any offers made during the mediation are automatically extinguished, or expire, once the mediator issues a report indicating the last offer was "0."

There are a number of things wrong with this reasoning. For one thing, the "last offer" referred to in the Act and the Code, is the last offer made in respect of a particular statutory accident benefit in dispute for which mediation has been sought, not an offer made for a full and final release of all claims between the parties, including claims not included in an Application for Mediation. The Report of Mediator is a standard form report which reflects the provisions in the Act and Code; every report lists each statutory accident benefit in dispute at the mediation in a separate section, records the outcome of the mediation with respect to that particular benefit benefit (i.e. whether the parties were able to resolve that particular issue), and contains a heading for "Last Offer" for each individual benefit mediated.

The only statutory accident benefit in dispute between the parties at mediation was Mrs. Klimitz' claim for non-earner benefits. As there is no dispute that Allstate's offer was for a full and final settlement, the "last offer" provisions of the Act and Code do not apply, and the Report of Mediator correctly recorded the last offer to settle non-earner benefits only, as "0."

The Report of Mediator is not intended to provide a summary of the parties' positions on settlement; for example, even a report indicating a matter had resolved was held not to be conclusive of the existence of a settlement at mediation.³ I find Ms. Storey's statement that "In accordance with the provisions of section 281(4) of the Insurance Act, the mediation was concluded with the last offer by the insurer being $0.00" is an attempt to hide behind the Mediator's Report as an excuse not to follow through with its offer of $17,000 to settle Mrs. Klimitz' claims.

The main purpose of a report documenting a failed mediation, is to provide access to the next step in the dispute resolution process, which would be arbitration, private arbitration or court proceeding, or, (rarely), neutral evaluation. A dispute that has been mediated could remain unresolved for a number of reasons, none of which would be identified in the report. One such reason might be the expiration of time limits, for example; a scenario expressly contemplated by the Insurance Act, which provides that mediation can also fail "when the prescribed or agreed time for mediation has expired and no settlement has been reached." (ss. 280(7)). This is consistent with the principles of a dispute resolution scheme committed to the most just, quickest and least expensive resolution of the dispute, as well as administrative efficiency.⁴ It does not follow from this, and nowhere is it stated or implied, that a failed mediation nullifies any settlement negotiations undertaken up to that point, that any offers made during mediation automatically revert to 0, or that an insured person who has not rejected an offer is precluded from accepting it at a later date.

This would be contrary to the purpose of FSCO's dispute resolution scheme, which encourages resolution at every stage of the process. Seventy-five per cent of cases settle fully or partially at mediation, and of those that continue to arbitration, over 90 per cent settle without a hearing. The introduction to the Code reflects the presumption that resolution is an ongoing process, advising that "if the dispute remains unresolved after mediation at the Commission, the insured person has a number of choices. He or she can continue to negotiate directly with the insurance company," or pursue the alternatives noted above.

An insured person has 90 days after the mediator reports to the parties to apply for arbitration, a period in which he or she may well wish to continue to pursue settlement in order to avoid the expense and uncertainty of an arbitration proceeding. Continuing negotiations where all offers have reverted to zero after a failed mediation would be a disincentive to settlement not in keeping with the emphasis on negotiated resolution that underlies the accident benefits regime.

Allstate further argued that the absence of a Settlement Disclosure Notice, release, request for funds, or any written confirmation of a settlement is further proof that there was no settlement in the first place. Alternatively, Allstate submits that the settlement is not enforceable, because no Settlement Disclosure Notice has been signed, as required by the Settlement Regulation.⁵

The language of section 9.1 of the Settlement Regulation is problematic and has resulted in considerable confusion over the years, about what is and what is not required before an enforceable settlement can be said to have been concluded. The view that Allstate puts forward, though, that the delivery of the notice is a pre-condition to entering into a settlement⁶, has been rejected in more recent cases, such as Birjasingh v. Coseco Insurance Co., 1999 CanLII 14888 (ON SC), [1999] O.J. No. 4546 and Nguyen and Wawanesa Mutual Insurance Company (FSCO Appeal P03-00009, January 31, 2003). As stated by Director's Delegate Draper in Nguyen, "Section 9.1 adds a formal disclosure requirement to protect the insured person; it does not fundamentally alter the common law rules about negotiating settlements. The parties can still negotiate a settlement, as defined in s. 9.1(1), but it will not be 'entered into' until the insurer provides the written notice required by s. 9.1(2). Until this notice is provided, and for two business days thereafter, the insured person can rescind the settlement. This is the protection provided by the regulation."

The question in each case is whether the parties reached a settlement at the first step. I have found, on the facts before me, and in accordance with basic common law principles of contract law, that they did. Allstate made an offer for a full and final settlement for which it never communicated a withdrawal, and Mrs. Klimitz accepted the offer within a reasonable time. Having found that the parties entered into a settlement within the meaning of subsection 9.1(1) of the Settlement Regulation, I find that the next step in the process set out in the Regulation has been triggered; namely, the Insurer's obligation to give the insured person the written disclosure notice as required by subsection 9.1(2). To decide otherwise would be to allow an insurer to change its mind and resile from an agreement, simply by failing to take the next required step, which is to provide the Settlement Disclosure Notice. Such an outcome defeats the consumer protection purpose of the legislation.

Much was made of the fact that the parties did nothing to confirm the settlement in writing immediately afterwards, and that the Applicant did not raise the issue of a purported settlement until the pre-hearing. Although it would certainly have been prudent for the Applicant to have raised the matter earlier and to have taken steps to confirm the settlement or pursue the matter once Allstate purported to resile from it, I find, similar to the reasoning in Birjasingh, and Nguyen, that the resiling party cannot rely on its refusal to provide a necessary document, in this case the settlement disclosure notice, to invalidate the settlement. The Applicant's actions, or lack of action in these particular circumstances, do not detract from the Insurer's obligations. This would undermine the purpose of the Insurance Act and especially the Settlement Regulation, which was particularly designed to protect the consumer. In fact it is quite clear from the forty-eight hour "cooling-off" provision of the Regulation that, absent mistake, fraud, or some other legitimate factor, the only party permitted to resile from an agreement properly negotiated in accordance with subsection 9.1(1), is the insured person.

EXPENSES:

I exercise my discretion to award Mrs. Klimitz her expenses incurred in this preliminary issue hearing, fixed at $500.

April 18, 2008

Susan Sapin Arbitrator

Financial Services Commission of Ontario

Neutral Citation: 2008 ONFSCDRS 61 FSCO A07-001142

BETWEEN:

EDNA KLIMITZ Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The parties have concluded a settlement in accordance with subsection 9.1(1) of the Settlement Regulation in the amount of $17,000.

2. Allstate shall pay Mrs. Klimitz her expenses of this proceeding, fixed at $500.

April 18, 2008

Susan Sapin Arbitrator

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2i.e. a "full and final" settlement of the present and future accident benefit claims arising out of the accident that is the subject of the arbitration proceeding, the type of settlement most often entered into at the Commission.
3. 3Mouriopoulos and The Citadel General Insurance Company (OIC A-002166, March 23, 1993)
4. 4Administrative efficiency appears to have been just such a concern, according to Ms. Storey's January 10, 2007 note: "At first, the mediator insisted on failing the mediation as she said she [sic] has to move these cases along. . . FSCO can't hold them indefinitely."
5. 5Ontario Regulation 664, R.R.O. 1990, as amended by O. Reg. 27/03
6. 6See for example, Soordhar and The Citadel General Assurance Company (OIC A-006428, December 5, 2005)