Unifund Assurance Company v. Vladimir Danilov, 2009 ONFSCDRS 178

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2009 ONFSCDRS 178

Appeal P09-00023

OFFICE OF THE DIRECTOR OF ARBITRATIONS

UNIFUND ASSURANCE COMPANY

Appellant

and

VLADIMIR DANILOV

Respondent

and

ECONOMICAL MUTUAL INSURANCE COMPANY

and the INSURANCE BUREAU OF CANADA

Intervenors

BEFORE:

Delegate Lawrence Blackman

REPRESENTATIVES:

Mr. Daniel Strigberger for Unifund Assurance Company

Mr. Alon Rooz for Mr. Vladimir Danilov

Ms. Nathalie V. Rosenthall for Economical Mutual Insurance Company

Ms. Philippa G. Samworth for the Insurance Bureau of Canada

HEARING DATE:

Written submissions were due December 7, 2009

APPEAL ORDER

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

1. The Appellant’s request for a stay of the Arbitrator’s June 15, 2009 Order is denied.

2. The legal expenses of this interim decision are deferred to the final determination of this appeal, subject to any further or other order of an appellate officer.

December 30, 2009

Lawrence Blackman Director’s Delegate

Date

REASONS FOR DECISION

I. BACKGROUND

The Respondent, Mr. Vladimir Danilov, was injured in a November 29, 2005 motor vehicle accident and applied to the Appellant, Unifund Assurance Company, for statutory accident benefits payable under the Schedule.¹

The July 14, 2009 Notice of Appeal herein requested, in part, a stay of the June 15, 2009 order of Arbitrator Bujold (the “Arbitrator”) on the ground that “the Order disposes of Danilov's possible claims against Economical.” The Arbitrator found that the Appellant was the first insurer to receive the Respondent’s completed Application for Accident Benefits pursuant to section 2 of O. Reg. 283/95 (the “Disputes Between Insurers Regulation”). Section 2 provides that:

The first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits under section 268 of the Act.

My October 6, 2009 decision noted that subsection 283(6) of the Insurance Act, R.S.O. 1990, c. I.8, provides that an appeal does not stay an arbitrator's order unless decided otherwise and, as stated in Guardian Insurance Company of Canada and Armstrong, (FSCO P00-00037, July 20, 2000), a stay “is the exception rather than the rule.” Canadian Home Assurance Company and Scavuzzo, (OIC P-000626, May 18, 1992) sets out the following criteria for whether a stay should be granted:

1. the bona fides of the appeal;

2. the substance of the grounds for appeal; and,

3. the hardship to the respective parties if the stay is granted or refused.

I found that there was no issue as to the bona fides or the substance of the grounds for the appeal. I noted, however, my statement in Chen and Kingsway General Insurance Company, (FSCO A97-000931, November 10, 1998), that “[t]he purpose of O. Reg. 283/95 includes ensuring that a claimant will receive benefits pending the resolution of a priority dispute.” It was unclear who would be responsible for responding to any claim for benefits by the Respondent if a stay were granted. The request for a stay was declined pending clarification.

Subsequently, in setting time lines for submissions regarding the stay request, I asked for confirmation whether any order other than that of June 15, 2009 was sought to be stayed, and if a stay was granted, who would be responsible for payment of benefits pending this appeal.

II. SUBMISSIONS AND ANALYSIS

The Appellant confirms that the June 15, 2009 Order is the only order it seeks to stay. However, there was an arbitration expense hearing scheduled for November 20, 2009 and a four-day arbitration hearing set for June 10, 2010. The Appellant submits that both these hearings would be redundant if its request for a stay was declined and it was ultimately successful on appeal.

The Appellant agrees that the purpose of section 2 of O. Reg. 283/95 is to ensure that a claimant receives timely benefits while insurers dispute priority. However, the Appellant submits that it is a victim of fraud and there is no legal basis for ordering it to pay the Respondent benefits before there is a final resolution as to whether it was the first insurer to receive the application. The Appellant relies on the Ontario Court of Appeal in Kingsway General Insurance Co. v. Ontario (Minister of Finance), [2007] I.L. R. I-4580, and Arbitrator Rogers’ decision in Valauskas and Motor Vehicle Accident Claims Fund and Wawanesa Mutual Insurance Company (FSCO A05-001749, June 20, 2007), upheld on appeal, (FSCO P07-00021 and FSCO P07-00023) that:

If the Fund is not an insurer under section 268 for the purpose of this arbitration, an arbitrator has no jurisdiction to order it to pay benefits to Mr. Valauskas.

The Appellant submits that there is no connection between it and the Respondent, “other than the purported relationship created by the fraudulent pink slip,” as found by the Arbitrator.

The Appellant further argues it would experience hardship if a stay is refused. If it is ultimately successful and Economical Mutual Insurance Company (“Economical”) is found responsible for honouring this claim, the Appellant would have no means of recovering any benefits it pays to the Respondent as the Commission has no jurisdiction to order one insurer to reimburse another and the Appellant is unable “to pursue recovery under O. Reg. 283/95 because the timelines to do so have long passed.” There is also an issue whether the Appellant “could even avail itself of the priority regulation if it is ultimately found that it is not an ‘insurer’ under section 2” therein. The Appellant would also suffer hardship in incurring expenses if the entitlement issues proceed to a hearing.

The Appellant submits that there is no evidence that the Respondent would experience hardship if a stay is granted. The Respondent’s initial decision not to oppose the Appellant’s request for a stay “clearly demonstrated that he would not experience any hardship if a stay was granted.” The Respondent is not claiming ongoing benefits and the main stakeholder in the outcome of this matter is a clinic “whose interests in timely payment pending the appeal should not be a factor when considering the stay issue.” There is no evidence that the Respondent has funded any treatment or assessments or has avoided taking any assistance or treatment as a result of the priority dispute. Nor is there any evidence that “an award of interest at the end of the day would be an insufficient remedy to make up for any delays as a result of a stay.”

In summary, the Appellant submits that “it would be contrary to the plain wording of section 2 of O. Reg. 283/95 and the jurisprudence to force it to pay any benefits until the nexus issue is finally decided.”

The Respondent submits that the prejudice to him is obvious, having not received any benefits or reimbursement in the four years since the 2005 accident, and that he has not conceded otherwise.

Economical submits that:

… Unifund is responsible for paying benefits to Mr. Danilov pending this appeal. However, Unifund has failed to do so. Should this matter be appealed further by one of the parties, Mr. Danilov conceivably could continue to be prejudiced in his right to accident benefits on an ongoing basis if Unifund is not ordered to pay benefits immediately.

Respectfully, the issue before me is not whether to order the Appellant to pay specific benefits to the Respondent immediately. Rather, the issue is whether I should stay the Arbitrator’s order, following a motion hearing, determining that the Appellant was the first insurer to receive the Respondent’s completed Application for Accident Benefits.

The Appellant does not seek a stay of any order regarding a specific arbitration hearing date. My November 16, 2009 letter thus referred counsel to Rule 72 and Practice Note 9 of the Dispute Resolution Practice Code (Fourth Edition, Updated – October 2003) pertaining to adjournments and the appropriate arbitrator should any arbitration adjournment be sought.

In Valauskas, upon which the Appellant relies, Delegate Evans stated on appeal that:

It may be that the Priority Regulation seeks to balance the concern that insured persons do not get caught between warring insurers and the concern that they in turn not abuse the system.

In this case, the Arbitrator noted that the facts were not in dispute. It was agreed that the Appellant had no evidence that the Respondent was complicit in a fraud whereby the police report noted a pink slip for the vehicle the Respondent was driving showing the Appellant as insurer when the Appellant had never issued such a policy.

As noted by the Insurance Bureau of Canada (the “IBC”), Director Draper, in Vieira and Royal & SunAlliance Insurance Company of Canada, (FSCO P04-00016, February 15, 2005), also stated that “[t]he Priorities Regulation was introduced to ensure that the payment of accident benefits is not delayed due to a dispute over which insurer should pay.”

The IBC also cites a September 2006 government consultation paper entitled “Disputes Between Insurers, Possible Changes to Regulatory Environment,” that expresses the concern that:

… there is a lack of clarity over what constitutes the “first insurer” and what constitutes a “completed application.” This can result in claimants receiving no benefits until the dispute is resolved or applications for benefits being inappropriately directed to the MVACF [Motor Vehicle Accident Claims Fund].

The March 31, 2009 Five-Year Review by the Superintendant of Financial Services released pursuant to section 289.1 of the Insurance Act to recommend any improvements in the effectiveness and administration of the regulations, also cited by the IBC, under the heading “Disputes Between Insurers” states that:

One key objective of Ontario’s no-fault accident benefit system is to meet claimants’ immediate needs following an automobile accident and provide prompt payment of benefits without regard to fault. Without a system of prompt payments, claimants could be left without the ability to pay for ongoing household and living expenses and medical and rehabilitation costs resulting from an accident.

The Five-Year Review notes that despite the priority rules set out in the Insurance Act:

… difficulties have emerged in resolving disputes between companies over which insurer was liable to pay and these disputes were often addressed in the FSCO dispute resolution system. Often, claimants who were entitled to accident benefits received no benefit payments until the resolution of this dispute.

To remedy the situation, Ontario Regulation 283/95 was introduced in 1995 to ensure claimants receive accident benefits in a timely fashion, while these disputes are being resolved. The Regulation sets out a mandatory process for private arbitration of all disputes between insurers regarding which insurer is liable to pay accident benefits.

Over the years, a number of disputes, court cases, and differences in interpretation have emerged that have led to delays in the payment of claimants’ benefits. These delays often have detrimental effects on injured accident victims. Some insurance companies have refused to respond to applications on the basis that the person making the application is not an “insured person.” They maintain that there was no existing policy in place at the time of the accident (e.g., policy had expired, been cancelled or never existed) or that the claimant was not covered by a policy (e.g., the claimant was not a dependant of one of their policyholders). As well, insurers have indicated that they receive incomplete accident benefit applications and do not have enough information to determine if they are the insurer required to pay benefits. In some cases, claimants submit more than one application to different insurers when they are unsure which company is obligated to pay. Some court decisions have criticized insurance companies for the way they handle these claims.

Stating that the Commission has concluded that “there is a lack of clarity over what constitutes the ‘first insurer’ and what constitutes a ‘completed application,’” the Superintendent recommended that:

Regulation 283/95 should be amended to make it more difficult for insurers to deflect claims and to ensure that claimants receive accident benefits while the issue of liability for a claim is resolved.

The Ontario Court of Appeal stated in Kingsway General, also relied upon by the Appellant, that:

Insurers cannot avoid their obligation under section 2 by claiming that another insurer should pay or that an insurance policy was cancelled shortly before the accident. If they could deny an application for accident benefits on either of these grounds, section 2 would be rendered meaningless. Thus, arbitrators and the courts have developed a nexus test for triggering an insurer’s obligation under section 2. As long as there is some nexus – some connection – between the insurer receiving an application for benefits and the insured, the insurer must pay pending the determination of its obligation to do so.

The Appellant’s submissions refer to the “nexus test” as “infamous.” Regardless, the Court of Appeal states that it is the law in Ontario. In this case there is not simply a claimed nexus. Rather the Arbitrator, after full argument, found that a sufficient nexus existed.

The Legislature provided O. Reg. 283/95 as a means of resolving insurer priority disputes while endeavouring to balance various interests. The Appellant chose not to avail itself of that process, evidently on the principle that it was not an insurer, but rather, a victim of fraud.

Economical states that:

It is respectfully submitted that if anyone should be pitied in this case, it is Mr. Danilov, not Unifund. Unifund had every right to initiate a priority dispute against Economical but never pursued this course of action. It has missed the limitation period to initiate a priority dispute against Economical. Economical submits that Unifund has brought this issue before the Financial Services Commission of Ontario so as to circumvent the Regulation as a last ditch attempt to absolve itself of any responsibility in this matter.

The Appellant’s silent, but implicit, answer to my question as to who is responsible for responding to the Respondent’s claims for statutory accident benefits pending the resolution of this dispute between insurance companies is that no one is responsible. I am not persuaded that the Respondent, having waited four years for consideration of his claim for benefits and notwithstanding a first level determination, must continue to wait until the final resolution of this issue, whenever and at whatever quasi-judicial or judicial level that might be.

Whatever monies may be ultimately owing in this case, in part, to a third party clinic, the claim herein is still that of the Respondent. Section 2 of O. Reg. 283/95 does not provide for a case by case analysis as to which insured persons merit the protection of the legislation by having established both sufficient and superior hardship if their claim is not addressed in a timely manner. The Regulation deems delay to be a hardship to insured persons. If the Legislature had been content to remedy delay of payment in these priority disputes purely with an award of interest, it would not have enacted O. Reg. 283/95.

I am not persuaded that a stay, which is an exceptional remedy, is appropriate as requested in this appeal. Granting such relief would thwart the plain wording of O. Reg. 283/95 and the Legislature’s clear intent that the payment of accident benefits is not delayed due to a dispute over which insurer should pay, as reinforced by the case law, the 2006 government consultation paper and the Superintendant’s 2009 Five-Year Review.

Accordingly, the Appellant’s request for a stay of the Arbitrator’s June 15, 2009 decision is denied.

III. EXPENSES

The legal expenses of this interim decision are deferred to the final determination of this appeal, subject to any further or other order of an appellate officer.

December 30, 2009

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.