Financial Services Commission of Ontario

Commission des services financiers de l'Ontario

Neutral Citation: 2009 ONFSCDRS 99

Appeal P08-00001

OFFICE OF THE DIRECTOR OF ARBITRATIONS

SECURITY NATIONAL INSURANCE CO./MONNEX INSURANCE MGMT. INC. Appellant

and

WAKEEL QAZI Respondent

BEFORE: David Evans

REPRESENTATIVES: David L. Silverstone / Melisa P. Gust for Security National No one appearing for Mr. Qazi

HEARING DATE: September 16, 2008, and December 1, 2008

APPEAL ORDER

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

Paragraph 1 of the arbitrator's order dated January 8, 2008, is rescinded and replaced with:
1. Security National shall produce to Mr. Qazi its adjusting records, excluding reserves, up to the date on his application for mediation.
There shall be no costs payable by either party in respect of the appeal.

July 16, 2009

David Evans Director's Delegate Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This case deals with whether or not an insurer's reserves should be revealed in statutory accident benefits claims under the SABS–1996.¹

II. BACKGROUND AND ANALYSIS

Following a July 23, 2007 pre-hearing involving Mr. Qazi's statutory accident benefits claims under the SABS–1996, the pre-hearing arbitrator considered Mr. Qazi's request for production of Security National's adjusting file to the date of the pre-hearing. The arbitrator ordered Security National to produce its complete adjusting notes, including reserves, to the date Mr. Qazi filed for mediation. Security National appeals the order to disclose reserves.

I am releasing three decisions simultaneously dealing with the topic of reserves. The first arbitration decision being appealed is Rama and Allstate Insurance Company of Canada, (FSCO A06-002177, October 23, 2007). Subsequently, the decision in this case, Qazi and Security National Insurance Co./Monnex Insurance Mgmt. Inc., (FSCO A07-000109, January 8, 2008) was issued, which relied in part on Rama. Next, the decision in Uka and Aviva Canada Inc., (FSCO A07-001692, October 31, 2008) was issued, which also followed Rama. The parties in this case made further submissions about reserves in light of Uka.

It is for this reason that I am releasing all three decisions at the same time. In the following section, I will set out the law regarding reserves, which is repeated in all the decisions, and then deal with the particulars of this case.

III. ANALYSIS

(a) Law Regarding Reserves

The position taken by the arbitrators in the cases under appeal is that reserve information is relevant regarding the insurer's investigation and assessment of a claim and therefore should be produced. Indeed, in Uka, the arbitrator applied a very broad test of relevance, namely whether there was a reasonable possibility of the relevance of the reserve information, which she found was met when the insured offered a plausible argument for their relevance.

The decisions then held that there is no "zone of privacy" in a first-party insurer's file, so there was no reason to withhold relevant information. Furthermore, the arbitrators indicated that consumer protection suggested that the reserves should be provided. In Rama, the arbitrator went as far as stating that this principle meant the provisions of the SABS actually require disclosure of reserves.

However, arbitrators have also found otherwise.² For instance, arbitrators have held that reserves can confuse applicants while not expediting their receipt of benefits. In Ouimet and Wawanesa Mutual Insurance Company, (FSCO A05-001491, May 11, 2006), the arbitrator concluded that "Reserves are estimated amounts assigned by an insurer to account for the total possible future payout of a person's claims arising from an accident" and that "evidence about total claims serves little to advance an insured person's claim for the specific benefits, while offering potential to sidetrack the disability or treatment issues."

The courts have generally taken the same position as set out in Ouimet. For instance, most of the decision in Osborne v. Non-Marine Underwriters, Lloyd's of London (2003), 2003 CanLII 7000, 68 O.R. (3d) 770, (ON S.C.) is devoted to the essential immateriality of reserve information. The court agreed with observations that "the setting of reserves per se does not have a semblance of relevance."³ In Mamaca (Litigation Guardian of) v. Coseco Insurance Co., 2007 CanLII 9890 (ON SC), [2007] O.J. No. 1190, Master Dash commented that "absent rare and exceptional circumstances" information about setting a reserve is not relevant to an insurer's conduct in assessing and responding to the claim. MacDonald J. stated in the subsequent appeal decision Mamaca (Litigation Guardian of) v. Coseco Insurance Co., 2007 CanLII 54963 (ON SC), [2007] O.J. No. 4899, that "while the Master held that litigation privilege does not apply to documents described as addressing the appellant's reserve position, the Master permitted the appellant to delete references to its reserve figures. The Master clearly was correct in this regard."

I see no reason why arbitral case law should differ from the courts in this area.

I find that providing irrelevant information to an insured does not serve the purpose of consumer protection, or that the provisions of the SABS require their production. Blair R.S.J. in Osborne stated that a plaintiff would have an unfair advantage in knowing how much an insurer estimates a claim is worth and might have a feeling of entitlement to a settlement in that amount, especially since the reserve is nothing more than an intelligent estimate of the risk as a whole. As I see it, the court was concerned whether an insured would be confused into thinking that the amount of the reserves equal the amount of the benefits payable.

The arbitrator in Qazi relied on Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, for the proposition that the insurer's duty of good faith outweighed the same concerns about unreasonable expectations and negotiation advantages. However, I agree with the comment in Osborne that none of the factors set out in Whiten for ordering production "mandates the production, or suggests the relevance, of information relating to the setting of reserves" [par. 17].

I am not persuaded that there is no "zone of privacy" with respect to the first-party insurer's file. As stated in Allstate Insurance Company of Canada and Al-Obaidi, (FSCO P99-00009, May 2, 2000), the relevance of the production request must be weighed against considerations like the sensitivity of the information, the practicalities of compliance and the timing of the request. As noted in Griscti and Non-Marine Underwriters, Mbrs. of Lloyd's, (FSCO A01-000471, October 5, 2001), "reserve information is confidential and should generally be protected from disclosure to promote settlement and business efficiency." And MacDonald J's comment in Mamaca that the Master "clearly was correct" to allow the deletion of the reserve figures necessarily implies a zone of privacy.

In conclusion, the courts have stated that, except in rare and exceptional circumstances, reserves should not be required to be disclosed. Such circumstances might arise where the setting of a reserve actually had an impact on the adjusting of a file, not, as in the cases under review, where the adjusting of the file allegedly had an impact on the setting of the reserves. I am not persuaded that production of the reserves under the guise of consumer protection serves any useful purpose. I am also not persuaded that arbitral jurisprudence should be different from that of the courts regarding the production of reserve information. Accordingly, I find that the arbitrator erred in law and the order cannot stand.

(b) Issues specific to this case

The arbitrator ordered production of the reserves when he was not asked to do so. Mr. Qazi and his counsel did not participate in this appeal because of the agreement reached with Security National. In minutes of settlement, filed, Mr. Qazi indicated that he did not oppose Security National's appeal of the order or its stay. He stated that he did not request or make submissions for an order requiring Security National to produce any of its reserve information. He stated that he did not oppose the relief sought by Security National, and he did not plan to file any responding materials or to appear at the hearing. Finally, he agreed to an order directing that the appeal of this matter be held together with the Rama appeal.

I accepted the appeal and stayed the order. I also ordered that the two appeals be heard together, since the issues were the same, and the arbitrator had relied on the Rama case.

The arbitrator stated that Security National had not provided him with any case precedent supporting its contention that reserve amounts are protected by litigation privilege. However, he did not discuss other arbitration cases that held otherwise, including his own decision in Ouimet, cited above.

I find that the arbitrator erred in ordering production of the reserves. First, that information had not even been requested. There may be cases where an arbitrator could make a unilateral production order, but this is not it. The arbitrator was not ordering production of some long-settled matter that should have been anticipated by the parties, nor could Security National have provided case law to support its position when it did not even know that the issue of its reserves was at issue.

Second, reserves should almost never be ordered produced.

The parties agreed that the arbitrator's expense order stands and that there shall be no costs payable by either party in respect of the appeal.