Darlene Crooks v. State Farm Mutual Automobile Insurance Company, 2009 ONFSCDRS 60

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2009 ONFSCDRS 60

FSCO A07-000838

BETWEEN:

DARLENE CROOKS

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before: Joyce Miller

Heard: Written submissions received by January 23, 2009

Appearances: Barry Munro for Ms. Crooks

Robert S. Franklin for State Farm Mutual Automobile Insurance Company

Issues:

The issue in this hearing is:

Is State Farm entitled to its expenses incurred in respect of Ms. Crooks’ withdrawal of her arbitration?

Result:

State Farm is not entitled to its expenses in respect of Ms. Crooks’ withdrawal of her arbitration.

BACKGROUND

The Applicant, Darlene Crooks, was injured in a motor vehicle accident on May 19, 2004 and applied for and received statutory accident benefits under the Schedule.¹
On August 27, 2004, State Farm wrote to Ms. Crooks wherein it stated:

This represents a first and final payment for income replacement benefits as previously indicated that no further benefits are payable beyond September 8, 2004, per the Grade II Whiplash Guidelines of the Statutory Accident Benefits Schedule for accidents after April 14, 2004.

On February 28, 2005, State Farm wrote to Ms. Crooks advising her that in the light of new information supplied to the chartered accountants it was adjusting the quantum of income replacement benefits payable to September 8, 2004. In his letter, the adjuster stated:

I again note that in the absence of any documentation confirming your eligibility and entitlement to a Short-Term Disability Benefit, and conversely, your eligibility and entitlement to an Income Replacement Benefit pursuant to Section 7 of the Statutory Accident Benefits Schedule, you may be required to repay the revised sum of $4,985.55 in regard to the Income Replacement Benefit State Farm had issued to you, as per Section 47(1)(c) of the Schedule.

On April 13, 2005, State Farm’s adjuster wrote to Ms. Crooks wherein he stated:

In the future should you be awarded Long Term Disability Benefits, the amount of your Income Replacement Benefit paid to you by State Farm will have to be readdressed. Please be sure to keep State Farm abreast of any news pertaining to your Long Term Disabiility (sic) coverage.

On May 10, 2005, State Farm’s adjuster wrote to Ms. Crooks wherein he stated:

Please be advised that State Farm Insurance has been notified of your discharge from treatment by Peterborough Physiotheraoy (sic) and Sports Injury.

Please contact me if you have further expenses related to your claim that you wish to pursue.

If we do not receive a response from you within 14 days, we will assume that you have no further claims, and will close your file.

On May 19, 2005, Ms. Crooks’ representative wrote to State Farm’s adjuster stating:

Further to your correspondence dated May 10, 2005, please be advised that there is an IRB claim still outstanding, therefore it is premature to close your file in 14 days if you do not receive a response.

On June 11, 2006, Ms. Crooks applied for mediation on the issue of income replacement benefits and quantum.
On January 17, 2007, State Farm wrote to Ms. Crooks the following:

Please provide us with an update, to the status, of your claim for income benefits through your extended health coverage plan.

On February 9, 2007, mediation was held. At the mediation State Farm raised a preliminary issue pursuant to subsection 51(1) of the Schedule, alleging that Ms. Crooks was precluded from proceeding to mediation as she was out of time. Mediation failed. A report was issued on March 21, 2007.
On April 18, 2007, Ms. Crooks applied for Arbitration.
On September 25, 2007 a pre-hearing was held. At the pre-hearing a date was set for January 29, 2008 for a preliminary issue hearing to determine whether Ms. Crooks had failed to apply for arbitration within two years of State Farm’s refusal to pay income replacement benefits.
On November 27, 2007, Ms. Crooks’ counsel wrote to State Farm’s counsel, wherein he stated:

Please be advised that we recently settled the Long Term Disability matter … After careful review and consideration of the current issues in Arbitration and in relation to the settlement of the Long Term Disability matter, it appears that anything that our client would have been entitled to from State Farm with respect to the income replacement benefit would be offset by the amount she received from her Long Term Disability carrier. Therefore, we are seeking your consent to withdraw the current issues in Arbitration on a without cost basis.

On December 20, 2007, State Farm’s counsel responded to Ms. Crooks’ counsel letter of November 27, 2008 wherein he stated:

My client is reluctant to agree to withdrawal of the arbitration issue on a without costs basis. The problem is, there was no merit in the first place to your client’s claim. It is barred by a limitation defence.

State Farm eventually agreed to the cancellation of the preliminary issue, which was cancelled on January 25, 2008 and the cancellation of the arbitration on May 5, 2008. The issue of costs, however, remained outstanding. State Farm maintains it is entitled to its expenses for its preparation for arbitration. State Farm claims $6,088.65 for legal fees and disbursements.

SUBMISSIONS

Both parties provided in-depth submissions on their position as to why each believed they would have been successful on the limitation issue. In my view, these submissions are moot. On consent of both parties the preliminary issue hearing on the limitation issue was withdrawn, except for the issue of costs. The only issue that I have the jurisdiction to decide is whether

Ms. Crooks is required to pay State Farm’s expenses for its preparation for the preliminary issue hearing. Accordingly, I have not summarized the parties’ arguments on the limitation issue.

State Farm’s Submissions

State Farm submits that it was entirely successful in this arbitration as Ms. Crooks withdrew her claims. State Farm submits that Ms. Crooks had a weak case from the onset which should not have been pursued. State Farm submits that on more than one occasion it advised Ms. Crooks that it had a strong limitation defence. State Farm submits that Ms. Crooks “had not worked as a lawyer since November 27, 2003, thus impacting on her entitlement to income replacement benefits, and she failed to file for disability benefits as mandated by the SABS.” State Farm submits that “[t]hese and various facts amount to the Plaintiff’s very weak position, to which the Plaintiff and her solicitor finally succumbed, leading to the Plaintiff’s withdrawal of all claims.”

Ms. Crooks’ Submissions

Ms. Crooks submits that no costs should be awarded with respect to the preliminary issue hearing and the arbitration hearing since her claim was not frivolous or vexatious or for an improper purpose. Ms. Crooks submits that her claim for income replacement benefits was not without merit, as there was a valid dispute concerning when and whether her claim was properly denied by State Farm.

Ms. Crooks submits that the preliminary issue and arbitration hearings were ultimately withdrawn not, as the State Farm suggests, due to the “Plaintiff’s very weak position [with respect to the limitation period], to which the Plaintiff and her solicitor finally succumbed,” but because Ms. Crooks had reached a settlement with her long-term disability carrier, rendering her claim for income replacement benefits moot.

Ms. Crooks submits that she acted as expeditiously as possible in moving the proceeding forward, when on November 27, 2007, as soon as she had reached a settlement with her long-term disability carrier, she notified State Farm that the arbitration with respect to her claim for income replacement benefits would no longer be necessary. Ms. Crooks notes that this notice was given to State Farm two months before the date for the preliminary issue hearing. Accordingly, Ms. Crooks submits that State Farm was aware of her intention well in advance of the hearing date and therefore any preparation should have been ceased or at least been minimal.

THE LAW

Subsection 282(11) of the Insurance Act provides that:

The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

The criteria for determining entitlement to expenses of an arbitration proceeding are enumerated in section 12(2) of Ontario Regulation 664, R.R.O. 1990, as amended. The criteria are:

Each party’s degree of success in the outcome of the proceeding.
Any written offers to settle made in accordance with subsection (3).
Whether novel issues are raised in the proceeding.
The conduct of a party or a party’s representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders.
Whether any aspect of the proceeding was improper, vexatious or unnecessary.
Whether the insured person refused or failed to submit to an examination as required under section 42 of the Schedule or refused or failed to provide any material required to be provided under subsection 42(10) of the Schedule.

ANALYSIS AND FINDINGS:

For the following reasons, I find that State Farm is not entitled to its expenses.

Where an insurer raises a defence to a claim for accident benefits an applicant has a right to dispute this claim. In the present case this is what Ms. Crooks did when State Farm raised the limitation issue. She had a basic right to do so.

In deciding not to award State Farm its expenses, I rely on the fact that two months prior to the preliminary issue hearing, Ms. Crooks advised State Farm that she was withdrawing her claim for benefits and would not be proceeding with the preliminary issue hearing. Her reason for withdrawal was not because she believed she had a weak case and was going to loose the arbitration as State Farm submits. Her reason, as her letter of November 27, 2007 stated, was that the settlement she received from her long term disability insurer would offset any income replacement benefits that she could potentially be entitled to under the Schedule. In my view,

I find that this is a good and sufficiently valid reason not to proceed either with the preliminary issue or the arbitration.

Although State Farm was informed by the letter of November 27, 2007 that Ms. Crooks was withdrawing her arbitration, it is only on December 20, 2008, that State Farm indicated to

Ms. Crooks that it was reluctant to her withdrawing the preliminary issue on a without costs basis.

While State Farm has every right to ask for the issue of costs to remain open as a condition of agreeing to the withdrawal of the arbitration, I find it was not expeditious or reasonable that State Farm would wait three weeks after receiving Ms. Crooks’ letter to express its position on the issue of withdrawal while incurring further costs. Moreover, in my view, any expenses which State Farm incurred in its preparation for the preliminary issue could easily have been avoided.

State Farm’s Bill of Costs shows that on October 22 and 23, 2007 State Farm’s counsel had discussions with Ms. Crooks’ counsel in respect of “LTD settlement.” This would indicate that State Farm was aware that there were settlement talks going on with the long term disability carrier. Nevertheless, on October 24, 2007, three months before the preliminary issue hearing State Farm’s counsel began an in-depth preparation for the hearing. In the circumstances of this case, I question whether there should have been such early in-depth preparation for a case that could have been, and eventually was, resolved several months before the preliminary issue hearing.

While State Farm expressed confidence that it would succeed at the preliminary issue hearing, a review of the evidence as outlined in the Background above indicates that Ms. Crooks had a credible position to dispute the State Farm claim.

Succinctly, I find that Ms. Crooks had a basic right to dispute State Farm’s limitation defence.

I find Ms. Crooks had a valid reason for withdrawing from the preliminary issue. I find that

Ms. Crooks gave timely notice to State Farm that she was withdrawing her arbitration. Accordingly, for all these reasons I find that State Farm is not entitled to its expenses in respect of the withdrawn preliminary issue hearing.

May 22, 2009

Joyce Miller

Arbitrator

Date