Wawanesa Mutual Insurance Company v. Melchiorre, 2008 ONFSCDRS 66

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2008 ONFSCDRS 66

Appeal P07-00014

OFFICE OF THE DIRECTOR OF ARBITRATIONS

WAWANESA MUTUAL INSURANCE COMPANY

Appellant

and

IRMA MELCHIORRE ON HER OWN BEHALF AND AS ADMINISTRATRIX FOR THE ESTATE OF ALBERTO MELCHIORRE

Respondent

BEFORE:

Delegate Lawrence Blackman

REPRESENTATIVES:

Mr. Ian D. Kirby for Wawanesa Mutual Insurance Company

Mr. Jeremy Solomon for Irma Melchiorre on her on behalf and as Administratrix of the Estate of Alberto Melchiorre

HEARING DATE:

March 28, 2008

APPEAL ORDER

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

1. The Arbitrator’s orders dated December 22, 2006 and April 20, 2007 are confirmed, and the appeal is dismissed.

2. If the parties are unable to agree on the legal expenses of this appeal proceeding, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code (Fourth Edition, Updated – October 2003).

April 25, 2008

Lawrence Blackman Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL AND BACKGROUND

The primary issue in the arbitration proceeding herein was whether the late Alberto Melchiorre, an 87-year old pedestrian, died as a result of an accident, as the latter term is defined in section 2 of the Schedule.¹

In his December 22, 2006 decision, Arbitrator Feldman (the “Arbitrator”) found that the Respondent, Ms. Melchiorre on her own behalf and as Administratrix for the Estate of her late husband, on a balance of probabilities had proven that the operation of a van driven by Mr. Tomasso DeBenedictis directly caused the deceased to fall on December 1, 2002. At the time of this accident, Mr. DeBenedictis was insured under a policy of automobile insurance with Wawanesa Mutual Insurance Company (the “Appellant”).

The Arbitrator further found, on a balance of probabilities, that the injuries sustained by the deceased in the fall resulted in his death. As a result, the Arbitrator found the estate of Alberto Melchiorre entitled to funeral benefits of $6,000, plus interest pursuant to subsection 46(2) of the Schedule, and Ms. Irma Melchiorre, in her personal capacity, entitled to death benefits in the amount of $25,000, together with interest thereon.

In concluding that Mr. DeBenedictis’ van had come very close to or had touched the deceased, causing him to fall backwards and hit his head, leading to his ultimate demise, the Arbitrator considered the following evidence:

1. the statement given to the police by an independent witness, Mr. S. Heng;

2. Mr. DeBenedictis’ oral testimony and his prior statements;

3. the records and oral evidence of the investigating police officers;

4. the postmortem examination conducted by Dr. J.T. Feltis, a pathologist, and his oral testimony;

5. the physical evidence, including the vehicle in question, the deceased’s clothing and the bruises and/or abrasions on the deceased’s body;

6. the hospital and coroner’s records;

7. the ambulance attendants;

8. the testimony of the deceased’s son, Mr. G. Melchiorre, regarding his father’s pre-accident medical and psychological state;

9. Dr. J. Bilbao, a neuropathogist; and,

10. a CT scan conducted after the deceased’s admittance to hospital on December 2, 2002.

The Arbitrator found the Respondent, both in her personal capacity and as Administratrix for the Estate, entitled to a special award pursuant to subsection 282(10) of the Insurance Act, R.S.O. 1990, c. I.8 (as amended), on the basis that the Appellant had unreasonably withheld payment of accident benefits. The Arbitrator made this finding for the following reasons, any one of which he stated was sufficient on its own to justify the granting of a special award:

(1) A first-party insurer must understand the current state of the law in order to ask the right questions and identify the information it requires to properly assess a claim and to correctly apply the law to the facts of the case.

The Arbitrator found that it appeared that the Appellant applied the wrong legal test, the Appellant seemingly “preoccupied with whether or not the van ‘struck’ Mr. Melchiorre.” The Arbitrator held that the analysis should not have stopped there; the real question was whether the van was the direct cause of an impairment that led to the deceased’s death. The van did not have to be the only cause or the most immediate cause, and there need not necessarily have been any contact between the van and the deceased.

(2) A first-party insurer must approach a claim with an open mind and assess it fairly and not as a potential adversary. An insurer must carefully consider all of the available information, giving appropriate weight in a fair and even-handed manner.

The Arbitrator found that the Appellant “made little honest effort to investigate the matter” and that it “ignored information that tended to support the claim.” The Arbitrator found that at the time the Appellant denied coverage, it ignored the police report in its possession which indicated that the van had knocked the deceased to the ground, and chose to rely solely on the hearsay evidence of Mr. DeBenedictis’ children as to what their father had told them about the incident.

(3) A first-party insurer must conduct a reasonable investigation of the information presented to it, identify what additional information may exist that would assist in assessing the claim and notify its insured of any additional information it reasonably required to assess the claim.

The Arbitrator held that the Appellant “came to a hasty decision not supported by any reliable evidence.” The Arbitrator found that the Appellant, through her discussions with Mr. DeBenedictis’ children, was aware there likely existed relevant ambulance, hospital, coroner and police records, including photographs and witness statements, but denied the claim without obtaining this information. The Arbitrator found that at no time did the Appellant suggest that its failure to obtain this information was due to any lack of co-operation by the Respondent.

(4) A first-party insurer must ensure that those assessing an accident benefits claim make their own decision, free from undue influence by others who may not owe the same duty to fairly assess an insured person’s entitlement to the benefits claimed.

The Arbitrator found that the Appellant was primarily concerned with protecting Mr. DeBenedictis, improperly allowing the head of its third-party bodily injury unit to participate in the decision making process, when the latter’s “primary responsibility would be to vigorously defend any tort claim made against Mr. DeBenedictis.”

(5) A first-party insurer must reassess the validity of a claim as new information is received.

The Arbitrator found that the Appellant unreasonably maintained its denial of the claim without reassessing the validity of the claim as new information was received.

In his December 22, 2006 decision, the Arbitrator calculated the maximum potential special award that could be granted as being $12,664.84 in respect of the Estate of Alberto Melchiorre and $52,770.15 in respect of Ms. Melchiorre in her personal capacity. In his April 20, 2007 decision, the Arbitrator determined the amounts of the special award as $10,000 in respect of the Estate and $40,000 in respect of Ms. Melchiorre.

II. SUBMISSIONS

The Appellant does not appeal the Arbitrator’s finding that the deceased died as a result of an accident, as defined, although it submits that the evidence was equivocal, that this was a difficult decision and that the result could have gone either way. Rather, the Appellant submits that the Arbitrator erred in law both in awarding a special award and in the amount of the special award.

The Appellant’s oral submissions critiqued what it termed the Arbitrator’s “complaints” as to its conduct. Respectfully, arbitrators do not issue “complaints.” Rather, as independent adjudicators exercising quasi-judicial powers, they make findings of fact, determine the applicable law and apply that law to the facts of the case as found.

Regarding the Arbitrator’s findings of fact supporting a special award, the Appellant argues that:

1. As to applying the wrong test, the Appellant was only trying to find out what really happened in this case. The evidence was controversial and inconsistent. As an example, the independent witness, Mr. Heng, gave the police four different versions as to what had occurred.

2. As to failing to have an open mind and considering fairly all available information, the Appellant was statutorily obligated to make a decision within thirty days of receiving the benefits application. As Mr. DeBenedictis had limited knowledge of English, the Appellant had no option but to speak to his children. The Appellant was not aware of Mr. Heng’s existence until 2006, and, in any event, his evidence was contradictory.

3. As to failing to conduct a reasonable investigation, the Appellant’s September 22, 2003 Explanation of Benefits stated that its investigation was continuing, and enclosed authorizations for the release of hospital and other records. This evidence, such as the ambulance attendants, was contradictory. It took a court order to obtain the police records. The police audiotape of the interview with Mr. Heng and the original police report were not forthcoming until during the arbitration hearing itself.

4. As to the input of the Appellant’s tort adjuster, there were identical issues of causation and the first-party adjuster was merely asking her colleague what he knew.

5. The Arbitrator’s finding that the Appellant did not reassess the validity of the claim does not take into consideration the Appellant’s difficulty in obtaining information and that it arranged an examination of Mr. DeBenedictus under oath on July 21, 2005.

The Appellant submitted that the Arbitrator, in his second decision, set out as a basis for a special award that the Appellant had not paid the Respondent anything. I agree with the Appellant that this was “an all or nothing case,” as there was a dispute whether there was an “accident” as defined, as well as a question of causation. I do not see that the Arbitrator saw this as otherwise. While the Arbitrator did set out one factor for the size of the award the period of time benefits were delayed, regarding whether a special award was warranted he held that any of the five grounds noted above would suffice.

The Appellant submitted, citing Zurich Insurance Company and C.L., (FSCO P98-00043, March 24, 1999), that benefits cannot “be unreasonably withheld or delayed where the insurer had an acceptable basis for not paying them.” In this regard, the Appellant submits that the evidence as to whether there was an accident, as defined, was equivocal, noting the evidence given by:

(a) Mr. DeBenedictis to the police that the deceased fell without his van touching him;

(b) Detective G. Taylor, that it was quite possible there was no contact between the van and the deceased;

(c) Mr. Heng, which was inconsistent as to whether there had been an impact;

(d) Detective M. George, an accident reconstruction expert, that the physical evidence was equally consistent with a fall or falls that were not the result of a motor vehicle accident;

(e) the available physical evidence, which was equally consistent with there being no impact;

(f) Ms. Gastaldini, an ambulance attendant, that the deceased had fallen and was not hit by a motor vehicle;

(g) Dr. Feltis, who could not exclude the deceased having had fallen earlier that day; and,

(h) Dr. Bilbao, a neuropathologist, who could not say what caused the deceased’s death.

The Appellant submitted that the Arbitrator, himself, acknowledged that the evidence was equivocal, the Arbitrator stating that the question of how the deceased fell was more difficult than how he died, and that the physical evidence, although suggestive of contact between the deceased and the van, was far from conclusive.

Accordingly, the Appellant argued that the Arbitrator erred in awarding a special award:

• notwithstanding that the Appellant had conducted a reasonable investigation into whether or not there had been an accident;

• even though the Appellant’s ability to fully investigate whether or not the deceased was involved in an accident was restricted; and,

• in misapprehending the evidence.

The Appellant submits that the evidence shows that it made every effort to try to determine the truth and that there was nothing more that it could do. The Respondent submits that:

1. The onus is on the Appellant to establish that the Arbitrator made an error in law;

2. The Arbitrator properly followed the established case law and applied the correct analysis. In any event, the Appellant has not argued that the Arbitrator set out incorrect legal principles;

3. As long as there was some evidence supporting the Arbitrator’s findings of fact for a special award, the special award order cannot be overturned. The Arbitrator provided thorough reasons for a special award, which had a factual basis supported by the evidence;

4. The Arbitrator was in the best position to judge the Appellant’s conduct. The Arbitrator saw and heard the witnesses, was able to assess their credibility and thoroughly reviewed the documentary evidence in making determinations of fact regarding the Appellant’s conduct;

5. The Appellant has merely challenged the Arbitrator’s findings of fact, submitting that there is additional, exonerating, evidence;

6. The special award in this case was based on the Appellant’s manner of adjusting this file;

7. In determining the amount of the special award, the Arbitrator correctly applied a proportionality analysis, in a judicious, careful and thoughtful manner, following the correct analysis in determining an appropriate lump sum amount. This amount was based on findings of fact, supported by the evidence, that amongst other things, the Appellant had adopted an adversarial and tactical approach, its conduct being “egregious and highly blameworthy;”

8. Unless the Appellant can establish that there was no basis for these findings of fact, the Arbitrator cannot be found to have erred in law; and,

9. It is not for an appeals officer to substitute his or her view as to what should have been awarded by way of a special award.

III. ANALYSIS

Did the Arbitrator err in law in finding that a Special Award was warranted?

The Arbitrator did not impose a special award in this case because the evidence ultimately

forthcoming at the arbitration was overwhelming and obvious. Rather, the Arbitrator awarded a special award based on the Appellant’s adjusting of this file, that the contemporaneous process for and the basis of its decision to withhold payment of benefits was unreasonable.

The Appellant does not argue that the Arbitrator erred in finding that a special award may be payable based on the manner in which an insurer adjusts a file. The Appellant agreed that a special award may be warranted where an insurer fails to conduct a reasonable investigation of information presented to it, fails to approach a claim with an open mind and assess it fairly, and/or fails to understand or apply the law correctly to the facts of the particular case, these principles being set out by the Arbitrator at page 24 of his December 22, 2006 decision.

Indeed, the Appellant argued that the aforementioned responsibilities were rather passive and that an insurer should take a more proactive adjusting role.

Subsection 283(1) of the Insurance Act restricts appeals of an order of an arbitrator to questions of law. I find that the Appellant’s arguments regarding whether a special award was warranted is essentially about alleged errors in the Arbitrator’s findings of fact.

Delegate McMahon, in Lombardi and State Farm Automobile Insurance Company, (FSCO P01-00022, February 26 2003), distinguished between a finding of fact made in the complete absence of supporting evidence, and a finding of fact made with insufficient evidence. He stated that while in “the first case, the error is properly characterized as an error of law, and hence reviewable . . . [in] the second, it is no more than an error of fact, that is not reviewable.”

The Appellant relies on Delegate Draper’s statement in Zurich Insurance Company and C.L. that he was “not persuaded that benefits can be unreasonably withheld or delayed where the insurer had an acceptable basis for not paying them, even if its second reason was wrong” [emphasis added]. By using the past tense, I find that this decision confirms that it is not sufficient for an insurer to say that it was ultimately vindicated at the arbitration hearing that the evidence was equivocal. It is not a question of hindsight or perfection, as stated in Cripps and AXA Insurance (Canada), (OIC A-013360, February 7, 1997), but whether the initial and ongoing withholding or delay in payment of accident benefits was reasonable at the time in question.

Section 33 of the Schedule specifically allows an insurer to obtain information reasonably required to assist it in determining an insured person’s entitlement to a statutory accident benefit. The insurer’s reciprocal obligation, under subsection 32(2) of the Schedule, is to provide its insured with information to assist that person in applying for such benefits. The aim of first-party adjusting is not to find reasons, however flimsy, to deny a claim.

The purpose of a special award is to deter first party insurers from unreasonably withholding or delaying payments, reinforcing their duty of uberrimae fides, that is, utmost good faith, towards their own insureds. As stated by Arbitrator Palmer in Brait and Allstate Insurance Company of Canada, (OIC A96-000786, July 23, 1997), a special award addresses behaviour falling “short of the sound and moderate approach” expected of a first party insurer. If the Appellant had done a thorough, fair, complete and objective investigation of this claim, and then refused payment on the basis that the cumulative evidence was equivocal, it would be extremely difficult to see any basis for a special award.

The Respondent in this case is, in law, the Appellant’s first party insured. The Appellant had the same duty of utmost good faith to this Applicant as any other first-party applicant. The first question to be answered in this appeal is whether there is a complete absence of evidence to support the Arbitrator’s findings of fact supporting the imposition of a special award.

The Appellant’s very brief December 11, 2003 letter of denial accompanying its Explanation of Benefits, signed by Ms. C. Pontieri, Senior Field Adjuster, stated that:

We wish to advise you that based on the information we have on file and our investigation into this matter, we have concluded that there was no accident with our insured and/or his vehicle. In addition, there was no physical evidence.

Regrettably, we are also advising you that we are denying the spousal benefit and the funeral expenses based on our investigation.

The Application for Accident Benefits was date stamped September 10, 2003 by the Appellant. The Appellant’s initial Explanation of Benefits, dated September 22, 2003, stated that it would determine whether a benefit was payable once its current investigation was completed, enclosed authorizations for the release of medical records and requested the coroner’s report.

The Appellant’s subsequent December 11, 2003 letter did not set out the specifics of the evidence it had considered in refusing the accident benefits claim. Giving meaningful reasons is important, so that an insured person can determine whether there are any errors in an insurer’s information or in its analysis. The letter did not make any reference to the thirty-day time limit under section 41 of the Schedule as a reason for the decision being made at this point in time (some seven weeks late), nor did the letter indicate that there was any continuing investigation.

On October 5, 2006, Ms. Pontieri, the Appellant’s adjuster who was handling this accident benefits file, testified at the arbitration hearing. Different stenographers attended the arbitration

proceedings and transcripts of the oral evidence were filed at the Appeal.

Subsection 22(3) of the Insurance Act provides that the evidence and proceedings in any matter before an arbitrator may be reported by a stenographer who has taken an oath to report the evidence and proceedings faithfully.

The transcript for the first day of the arbitration hearing, August 14, 2006, notes that the Arbitrator swore in a court reporter, Ms. M. Locke, from Atchison & Denman. On October 5, 2006, the date Ms. Pontieri testified, a different court reporter from Atchison & Denman attended. The transcript provided for that day fails to note the Arbitrator administering the oath to this reporter.

The Appellant ordered the arbitration transcripts for this appeal. It relied upon them in its submissions, including the transcript for October 5, 2006. The Appellant has the onus in this appeal of establishing an error of law. Whatever the precise status of the October 5, 2006 transcript, I find that Ms. Pontieri’s examination therein is consistent with the Arbitrator’s findings of fact, and negates any argument that there was a complete absence of evidence supporting the Arbitrator’s findings of fact forming the basis for a special award. Ms. Pontieri’s oral evidence, combined with the Appellant’s adjusting notes, included the following:

1. When Ms. Pontieri sent the December 11, 2003 refusal letter, the only information before her was a copy of the police report (which said there had been impact between the van and the deceased) and the hearsay evidence from Mr. DeBenedictis’ son and daughter;

2. At no time did Ms. Pontieri speak to Mr. DeBenedictis himself. She was not sure why. In re-examination she had to be reminded, by a leading question, “Did you ask me to arrange an examination under oath of Mr. DeBenedictis to find out detail directly from him what happened?” Her answer was “I believe we did.” This examination was July 21, 2005, eighteen months after the letter of denial;

3. Although Ms. Pontieri knew from her conversation with both of Mr. DeBenedictis’ children, on September 19, 2003, that there was an independent witness, at no time did she try to speak to him. The adjuster did not know why she failed to speak to the witness;

4. Ms. Pontieri did not try to speak to any one of the police officers nor to anyone else who arrived in the immediate aftermath of the accident;

5. Ms. Pontieri’s log notes note that the police took a taped statement from Mr. DeBenedictis, yet she did not try to get a copy of that statement. When she was ultimately in receipt of the police statements, she did not do any comparison of those statements with her own notes of what Mr. DeBenedictis’ children had communicated to her;

6. She did not know to what she was referring when she stated in her December 11, 2003 letter that there was “no physical evidence” of an accident;

7. Ms. Pontieri did not go to see the van, send anyone to look at it or make any attempt whatsoever to confirm that there were no markings or smudge marks on the van, as stated by Mr. DeBenedictis’ son. She was not aware if the Appellant had anyone else look at the van;

8. On December 5, 2003 (six days prior to her December 11, 2003 denial letter), on the instructions of her supervisor, Ms. S. Kirshner, Ms. Pontieri spoke to Mr. K. Jones, the Appellant’s Bodily Injury supervisor. She did this notwithstanding that she had agreed that an insurer is obliged to separate the third-party tort and first party accident benefits portions of a claim;

9. When asked in cross-examination what Mr. Jones said to her, she confirmed what is noted in her log notes: “To proceed with the denial. There was no accident.” She further testified that: “this is what he instructed me to do” and “I spoke to Kevin [Jones] where he told me to proceed with the denial.” She subsequently testified that “I spoke to Kevin [Jones], and he indicated, ‘Proceed with the denial. There was no accident.’” While Ms. Pontieri further testified that Ms. Kirshner told her what to put in the denial letter and that she decided jointly with Ms. Kirshner not to pay the claim, there was no retraction of her evidence regarding the initiating instructions from Mr. Jones;

10. Ms. Pontieri agreed that at all points in time she referred to the deceased as the “third party;”

11. On cross-examination, Ms. Pontieri was asked: “Did you at any point in time revisit your denial of the claim after you received any additional information from anywhere?” Her answer was “No.” She further testified that she did not do anything after the December 11, 2003 letter. Upon being reminded she had reviewed the police statements, she stated that she “didn’t do anything with it,” notwithstanding the police noted Mr. DeBenedictis saying he saw the deceased fall over, yet Mr. DeBenedictis’ son had told Ms. Pontieri that when his father first saw the deceased, he was already lying on the ground.

I am not persuaded that there was a complete absence of evidence (or even insufficient evidence) supporting the Arbitrator’s findings of fact that the Applicant (1) made little honest effort to investigate the case (2) came to a hasty decision not supported by any reliable evidence (3) was primarily concerned with protecting Mr. DeBenedictis and (4) unreasonably maintained its refusal without reassessing the validity of the claim as new information was received. This is not a case of an insurer merely making “a wrong or poorly supported decision,” using the words of Arbitrator Palmer in Brait. Nor is this, in any sense, a case of an insurer making every effort to determine the truth and that there was nothing more it could do.

The Arbitrator found that any of his five findings of fact warranted a special award. The Appellant did not argue otherwise, disputing only the basis of his findings of fact. I am not persuaded that the Arbitrator erred in law regarding the Appellant being liable to a special award. Therefore, the Appellant fails on this aspect of its appeal.

Did the Arbitrator err in law in the amount of the Special Award he gave?

The amount of the special award imposed is a matter of arbitral discretion. There is a danger in completely unfettered discretion. As stated, perhaps with somewhat excessive oratory, by Lord Camden (quoted in Barak, A., Judicial Discretion, New Haven: Yale University Press, 1989, at page 15):

The discretion of a Judge is the law of Tyrants.

Hence restrictions have been set on the exercise of discretion, as stated by the British Columbia Court of Appeal in Pugh v. Pugh, 1979 CanLII 766 (BC CA), 17 B.C.L.R. 14 (C.A.):

. . . this Court does not have an independent discretion and should only interfere with the exercise of discretion by the trial judge when clearly of the opinion that he acted on a wrong principle, or wrongly exercised his discretion in not giving sufficient weight to relevant considerations, or that, on other grounds, the decision might result in injustice.

The purpose of appeals is not to fine tune a discretionary order or merely substitute its own exercise of discretion in the absence of a finding of an error of law. As stated in Standards of Review Employed by Appellate Courts, (Edmonton: Juriliber, 2006) “[i]t is no part of our tradition that reviewing judges are somehow superior, as judges, to first judges.

Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 was a case wherein the Supreme Court of Canada reinstated a $1 million punitive damage award assessed by a jury. In his decision, Binnie J. stated that:

In the case of punitive damages, the emphasis is on the appellate court’s obligation . . . to ensure that the award is the product of reason and rationality. The focus is on whether the court’s sense of reason is offended rather then on whether its conscience is shocked.

If the award of punitive damages, when added to the compensatory damages, produces a total sum so “inordinately large” that it exceeds what is rationally required to punish the defendant, it will be reduced or set aside on appeal.

An award that is higher than required to fulfill its purpose is, by definition, irrational . . .

Regarding the amount of the special award, the Appellant argued as follows.

1. The Arbitrator misapplied subsection 282(10) of the Insurance Act by calculating the maximum special award based on double interest. Hence, the Arbitrator erred in awarding a total special award of $50,000, when the maximum possible award was $31,538.08;

I am not persuaded that the Arbitrator erred in law. Subsection 282(10) of the Insurance Act states that:

If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the No-Fault Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule. [emphasis added]

The Arbitrator followed the procedure set in Liberty Mutual Insurance Company and Persofsky, (FSCO P00-00041, January 31, 2003), which followed, in part, what Director Draper referred to as the “Beiler formula.” In Beiler and Alpine Insurance Company, Limited, (OIC A-003051, August, 9, 1994), released almost a decade before, Arbitrator Sampliner held that the maximum special award in any case was 50% of:

benefits awarded + two per cent simple interest under the Schedule + two per cent compound interest

Director Draper noted that Beiler had been adopted in other decisions. The Appellant did not provide any case law supporting its interpretation of subsection 282 of the Insurance Act. Regarding the formula’s calculation of interest both under the Schedule and under the Insurance Act, I agree that is what the provision provides. It is a fundamental tenet of statutory interpretation that words are intended to have effect. As stated in Sullivan and Driedger on the Construction of Statutes, Fourth Edition (Ottawa: Butterworths, 2002), at page 158:

It is presumed that the legislature avoids superfluous or meaningless words, that it does not pointlessly repeat itself or speak in vain . . . Every word in a statute is presumed to make sense and to have a specific role to play in advancing the legislative purpose.

The words in subsection 282(10), “interest on all amounts then owing to the insured (including unpaid interest),” cannot be simply ignored. ²

2. The Appellant further argued that the Arbitrator erred in failing to follow the principle set out in Bibby and Pilot Insurance Company, (OIC A-009742, December 22, 1995) that the “maximum amount [for a special award] should be reserved for the most serious cases where the insurer shows flagrant misconduct or bad faith.” The Arbitrator also erred in failing to follow the principle in Rudar and Lombard General Insurance Company of Canada, (OIC A97-000629, June 12, 1998), that where an insurer’s conduct was found to be “unreasonable but not flagrant or in bad faith,” a special award “at the lower end of the scale is more appropriate in the circumstances.” The Appellant submitted that the amount of the special award in this case was “well in excess of any inappropriate action or inaction” on the Appellant’s part.

I am not persuaded that the Arbitrator erred in the exercise of his discretion. The Arbitrator found the amount of the special award justified because:

(a) The benefits of $31,000 had been outstanding for more than three years;

(b) The testimony of the Appellant’s adjuster made it clear the Appellant had little interest in “actually gathering or considering the available evidence in this case or in taking any other steps that would be reasonable in the adjusting of these claims.”

(c) The Appellant appeared more interested in protecting its own interests and those of Mr. DeBenedictis than in properly adjusting these claims;

(d) The Appellant was willfully blind to the evidence that supported these claims, failing to gather or to consider information available to it;

(e) The Appellant failed to treat the Respondent fairly; it adopted an adversarial, tactical approach to the handling of these claims and adopted “an immoderate, stubborn and inflexible attitude throughout the handling of the claim,” exemplified by:

• ignoring the police accident report that stated that the van driven by Mr. DeBenedictis had struck Mr. Melchiorre, knocking him to the ground;

• failing to interview witnesses with first-hand information or to obtain and/or give due consideration to statements such witnesses gave to the police;

• failing to obtain opinions from any of the experts involved, such as the police investigators or the pathologist;

• allowing the head of its Bodily Injury Unit to influence the decision as to whether accident benefits would be paid; and,

• refusing to reconsider its position as new information was received after the initial denial of these claims;

(f) The Appellant flagrantly breached its obligations under the Schedule, which merited “the granting of a substantial special award;”

(g) The Appellant’s claims handling was “egregious and highly blameworthy” and there was “virtually nothing redeeming about [the Appellant’s] handling of this file;”

(h) The Appellant denied the claims, “at least in part, on improper considerations;”

(i) The lack of any mitigating factors other than the absence of malice;

(j) The Special Award lump sums of $2,500 and $5,000 suggested by the Appellant were “unlikely to have the deterrent effect” intended by subsection 282(10) of the Insurance Act. The need for deterrence was “an important consideration in this case. Where a special award is warranted, it must be large enough to deter [this insurer] and other insurance companies who become aware of the decision, from engaging in similar conduct in the future;” and,

(k) The Arbitrator was unsure whether “even the maximum permissible special awards in this case would actually serve as a financial deterrent to Wawanesa or any other insurer. Too small an award will amount to little more than a ‘slap on the wrist’ or, even worse, a license to engage in similar conduct in the future.”

Accordingly, comparing special awards granted in other cases, the aggravating factors set out above, the absence of mitigating factors other than the absence of malice, the need for deterrence and the principle of proportionality set out in Persofsky, the Arbitrator held that the special award in this case should approach the maximum, the blameworthiness of the Appellant’s conduct in this case being exacerbated by “willful blindness, by its immoderate, stubborn and inflexible attitude and by the adversarial, tactical approach it adopted in the handling of these claims.”

The Arbitrator provided thorough and extensive reasons regarding his exercise of discretion. I am not persuaded, addressing the considerations in Pugh, that the Arbitrator acted on a wrong principle, failed to give sufficient weight to relevant considerations, or that his decision resulted in an injustice. Further, to paraphrase Binnie J. in Whiten, at paragraph 128, I find that:

. . . the award is within the rational limits within which [an adjudicator may] operate. The award was not so disproportionate as to exceed the bounds of rationality. It did not overshoot its purpose . . .

I also find that the Arbitrator’s decision followed the principles of rationality and proportionality, as set out in Whiten, and as followed in Persofksy, wherein Director Draper stated:

Rationality refers to the need to relate the particular facts of the case to the underlying purposes of the legislation. In other words, what amount is large enough to further the goals of punishment and deterrence, but no larger than is needed to serve that purpose? . . . Proportionality refers to the need to ensure that the consequences imposed on the insurer are rationally related to the misconduct at issue.

The Arbitrator properly related the facts of this case to the underlying legislative purpose of deterring unreasonable first-party withholding or delay in paying benefits. In addition, he endeavoured to determine a monetary amount large enough to meet that purpose, the special award not being so small as to amount to countenance similar conduct in the future. Most importantly, the Arbitrator strove to ensure that the monetary consequences were rationally related to the misconduct at hand, namely, a first party insurer denying benefits in the absence of reliable evidence and without conducting a proper investigation, making that decision with the improper consideration of potential third party liability and maintaining its denial without reassessing the validity of the claim as new information was received.

I am not persuaded that the principle of proportionality means that an arbitrator must look only to the percentage award in exercising his or her discretion, without any consideration whatsoever of the absolute lump sum amount. As an example, when the maximum permissible special award is relatively small or insufficient to meet the legislative intent, it may be appropriate to assess a larger lump sum special award at or close to the maximum. In other words, if two different insurers in two different cases withhold benefits for identical unreasonable reasons, and the maximum potential special awards in the two cases (solely due, legislatively, to the quantum of the benefits awarded) are $100,000 in the first and $10,000 in the second, just because a special award of $50,000 is ordered in the first, that does not mean, necessarily, that $5,000 must be ordered in the second.

In this case, I am not persuaded that the Arbitrator erred in law in his exercise of discretion as to the lump sum monetary amount of the special award. Accordingly, the Appeal is dismissed.

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 (Fourth Edition, Updated –

October 2003).

April 25, 2008

Lawrence Blackman Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2The “Beiler formula” was amended on a different point in Royal Insurance Company of Canada and A.B., (FSCO P99-00049, September 18, 2002), in which Delegate Naylor stated that “the words ‘a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing...,’ is not readily understandable and is capable of more than one meaning.” Delegate Naylor proceeded to narrow the benefits included in the calculation to those that had been unreasonably withheld. She based this interpretation on there being “a strong suggestion that it is intended to capture those benefits in respect of which the insurer has acted unreasonably.” This approach was followed in Persofsky. This interpretation may be questionable. However, in this immediate case, all of the benefits awarded were held to have been unreasonably withheld, and this particular point was, therefore, not argued.