Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2011 ONFSCDRS 107

FSCO A10-003016

BETWEEN:

JULIAN HOTCHKISS

Applicant

and

KINGSWAY GENERAL INSURANCE COMPANY

Insurer

Before: Arbitrator John Wilson

Heard: By written submissions

Appearances: Gregory Neinstein for Mr. Hotchkiss

R. Shawn Stringer for Kingsway General Insurance Company

Issues:

The Applicant, Julian Hotchkiss, was injured in a motor vehicle accident on July 20, 2007. He applied for and received statutory accident benefits from Kingsway General Insurance Company (“Kingsway”), payable under the Schedule.¹

The parties were unable to resolve their disputes through mediation, and Mr. Hotchkiss applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

At the commencement of the arbitration hearing on October 17, 2011, Mr. Hotchkiss brought a motion to exclude counsel for the Insurer, Mr. Darrell March, on the basis of a conflict of interest. Mr. March’s firm already represented Mr. Hotchkiss in a concurrent tort matter arising from the same accident.² Counsel for Mr. Hotchkiss had already raised this issue with Mr. March prior to the commencement of the hearing.

Mr. Hotchkiss was successful in his motion. However, one of the consequences of its success was that the hearing had to be adjourned to permit Kingsway to retain new counsel.

Mr. Hotchkiss requested that any adjournment be short and that it be subject to conditions. These conditions included full payment of Mr. Hotchkiss’ expenses thrown away by the adjournment, and payment of arrears and ongoing benefits. He also requested that I confirm that, the hearing having commenced, no further documentary evidence could be filed without leave.

I granted an adjournment sine die and requested written submissions from the parties as to the proposed conditions to the adjournment

The issues on this motion are:

Is Mr. Hotchkiss entitled to interim benefits as a condition of the adjournment?
Is Mr. Hotchkiss entitled to be indemnified for his expenses thrown away by the adjournment?

Result:

Kingsway (Jevco) shall pay a non-earner benefit of $185 weekly from the time the hearing was adjourned until such time as a final decision is rendered in this matter or this order is otherwise amended.
Kingsway (Jevco) shall pay an attendant care benefit of $5,910.80 per month in accordance with the Form 1 issued on July 20, 2009, from the time the hearing was adjourned until such time as a final decision is rendered in this matter or this order is otherwise amended.
Kingsway (Jevco) shall pay to Mr. Hotchkiss its expenses in the adjournment which I fix at $11,938.29, payable forthwith, in any event of the cause.

EVIDENCE AND ANALYSIS:

The background details of this motion are important.

On October 13, 2011, Mr. Neinstein, counsel for Mr. Hotchkiss, wrote to Mr. March, with a copy to FSCO, stating that “It has just come to our attention this morning that Beard Winter is presently defending Julian Hotchkiss in an ongoing tort matter.”

On October 14, Mr. Neinstein, in turn, wrote to FSCO, with a copy to Mr. March stating:

Further to our correspondence of October 13, 2011, Mr. Hotchkiss has been apprised of Mr. March’s conflict of interest. He is extremely distraught over the fact that his law firm is acting for and against him out of matters arising from July 20, 2007. At no time did anyone ask his consent to waive this conflict. … As such, we have instructions to bring a preliminary objection on Monday removing Mr. March from representing Jevco [Kingsway] in this matter.

Jevco still has the opportunity to have their former counsel or new counsel present on Monday to represent them.

At the commencement of the arbitration hearing on Monday, October 17, Mr. March appeared as counsel for Kingsway. As promised, Mr. Neinstein then raised an objection to his presence in that capacity due to what he described as a clear conflict of interest.

Based on the plethora of information Beard Winter has in defending Mr. Hotchkiss, this is a clear conflict of interest to have the same firm represent Mr. Hotchkiss in an ongoing tort claim and to assign the same firm to act adverse in interest in his AB matter.

Mr. March responded on the same date acknowledging Mr. Neinstein’s letter, but only requesting “further details as to the ‘clear conflict’ alleged in your letter.”

Mr. Neinstein responded on the same day that “It must be patently obvious that your firm cannot act for and against Mr. Hotchkiss.”

Following a hearing on the issue, I ordered that Mr. Darrell March and his law firm, Beard Winter, withdraw forthwith from this matter as counsel of record, and that Kingsway retain new counsel, should it wish to continue to defend this arbitration.

I also ordered that the arbitration be adjourned sine die, with conditions. This decision deals with those conditions.

Mr. Hotchkiss had requested the payments of benefits and arrears and his expenses (costs) as a condition of any adjournment. Recognizing Kingway’s position at the hearing as to adjournment, I did not ask for full particulars of either the costs or benefits to be requested. Rather, I requested therefore that the parties provide written submissions as to the conditions to be attached to the adjournment and the duration of same.

From the point of view of Mr. Hotchkiss, counsel urges me to note that he was ready to proceed as scheduled, and that he had done all his witness preparation. In his mind, the arbitration should have been completed in the time it took him to present his evidence, since he believed that Kingsway would not have been in a position to call witnesses or file documentary evidence due to its failure to comply with the Dispute Resolution Practice Code (4th Ed., Updated August 2011), (the “DRPC”).

By now, in his estimation, he would have been entitled to a decision in his favour.

More importantly, by failing to address the issue of conflict promptly when put on notice, Kingsway effectively obtained the adjournment that they had just been refused, and thus circumvented an arbitral order.

In that context, counsel for Mr. Hotchkiss also asked me to note the absence of Kingsway’s adjustor on the first day of hearing notwithstanding that he had been summonsed for that day. He reiterated that counsel for Kingsway had been advised that the adjustor would have been Mr. Hotchkiss’ first witness. The inference to be drawn was that Kingsway had no intention of proceeding with the arbitration that day notwithstanding Arbitrator Muzzi’s refusal of the adjournment request.

Section 279(4.1) of the Insurance Act gives arbitrators the discretionary authority to make interim orders pending the final order in any matter.

As well, Rule 72.4 of the DRPC provides that: “An adjudicator may adjourn a proceeding on his or her own initiative, or at the request of a party, on such terms he or she considers just.”

There are cogent reasons for applying conditions to this adjournment. Firstly, the adjournment arises directly from the inappropriate actions of the Insurer and its previous counsel in forcing this adjournment. They should not be rewarded for impropriety.

Secondly, the hearing dates in arbitrations are set on consent. It is expected that once a date is chosen, parties will have the right to expect it to go ahead on that date, and to finish within the time set out for the hearing. This is consistent with the preamble to Practice Note 9 of the DRPC, which deals with adjournments:

The Commission has an obligation to conduct arbitrations efficiently and speedily. Parties are contacted and agree to pre-hearing and hearing dates well in advance of the dates set. Therefore, adjournments are granted only sparingly once dates have been set.

Unlike the traditional rule in the courts, the arbitration system is designed to work on strict time discipline. Hearing dates are set on the consent of both parties, and are subject to revision only in cases of personal emergencies, the prospect of imminent settlement, the unforeseen unavailability of critical evidence, or the involvement of counsel in an ongoing proceeding that was scheduled to conclude before the time scheduled for the arbitration.

Barring the occurrence of circumstances such as those described above, they are expected to be able to proceed within the agreed time-frame. This is consistent with a system that is designed to be “quicker, less expensive and less formal”³ than the courts.

In Ontario a wide range of conditions have been applied to adjournments. In disability insurance cases, including accident benefit matters, an order for some sort of interim benefits is not unheard of.

In Dempster v. Mutual Life,⁴ Marshall J., relying on his authority under Rule 37.13(1) to “adjourn the motion, in whole or in part and with or without terms”, decided that an insurer should continue its disability payments pending an adjournment solely as a condition of the adjournment and without consideration of the rules surrounding mandatory injunctions.⁵

In the above matter, the Divisional Court⁶ only had the brief endorsement of Marshall J. to deal with on appeal. It examined the general power to make such an order, and found that such an order was not the equivalent of a mandatory injunction restoring the policy to full force, but of a reasonable condition upon adjournment. The court dismissed the appeal and found the judge within his jurisdiction to make the interim order. It stated:

The term imposed was not the equivalent of a mandatory injunction restoring the policy to full force. It was clearly an interim step to ease the problem created for the plaintiff by the request for a lengthy adjournment.

In its full reasons the Divisional Court elaborated:

He put the defendant upon terms to redress the situation created by the request for the adjournment, that is, that the plaintiff would be further delayed in having a judicial determination of a matter of great importance to him: the stoppage of his income by the act of the defendant. That was a matter requiring the exercise of discretion in less than ideal circumstances. These very circumstances occur daily in our Court and discretion as to adjournments is of necessity exercised with a less than complete appreciation of the facts and without detailed consideration of the law. In spite of this handicap, Marshall J. responded appropriately.

Likewise in Hussein v. De Marco,⁷ Lane J., sitting as a single judge of the Divisional Court, noted in an application for leave to appeal such an order:

Counsel for the Applicant concedes that Dempster v. Mutual Life holds that an insurer may be ordered to make such payments as a term of the adjournment, to the extent that the payment responds to the impact of the adjournment on the insured.

While conditions on an adjournment are meant generally to address the prejudice suffered by one party or another due to the consequences of an adjournment, a simple request for interim benefits by itself entails a very different evaluative process.

While I believe that the entitlement to interim benefits in this matter is best expressed as part of the adjournment conditions in accordance with Dempster,⁸ I will also briefly examine the requirements for such an award as a “free-standing” interim benefit.

Section 279.14 of the Insurance Act provides the foundation for interim orders. It provides for no statutory pre-condition other than the existence of an arbitration, the appointment of an arbitrator and presumably, the willingness of the arbitrator to exercise his or her jurisdiction.

Since the provision was first enacted, arbitrators have struggled to define its meaning and to create an appropriate procedure.

Arbitrator Bayefsky has outlined the role of an interim benefit order in the arbitration system:

In my view, an order of interim benefits is designed to address the personal situation of the applicant in light of a preliminary determination of the merits of the case. It does not set in motion any process with respect to ongoing benefits, particularly when the nature and scope of such benefits can only be determined after a full arbitration hearing.⁹

Likewise, Arbitrator Allen in Harkness and Economical Mutual Insurance Company attempted to summarize what she considered to be early criteria for interim benefits applications:

... to consider limited issues on a prima facie basis; to affect a limited period of time -- often the period between the date of the interlocutory and the final order; and to hear matters where time considerations are a factor.¹⁰

However, in deciding an interim order under section 279(4.1), an arbitrator has discretion to consider many different factors some of which have already been addressed in arbitral jurisprudence. Arbitrator Manji in Ioannidis¹¹ thought that an interim benefit decision should address the following concerns:

The existence of an element of necessity or urgency.
A blatant disregard by the insurer of the Schedule or Act.

The similarity of these considerations to injunctive relief have been frequently noted. In that context, Lord Denning has suggested a sensible approach for requests for mandatory relief. According to him:

the right course for a judge is to look at the whole case. He must have regard not only for the strength of the claim but also the strength of the defence, and then decide what is best to be done ... the remedy by interlocutory injunction is so useful that it should be kept flexible and discretionary. It must not be made the subject of strict rules.¹²

Mr. Hotchkiss has a case that is far from frivolous. Indeed, given the irregularities in the Insurer’s filing of both the documentary evidence, and the witness lists, it is likely, without a clear ruling in its favour, that the Insurer will have some difficulty in responding to his case. Without more than a passing look at the supporting materials in Mr. Hotchkiss’ case, one can conclude that, on the balance, he has a reasonable claim to success.

More importantly, looking at the apparent strengths of the Applicant and the Insurer as presented in this motion, as suggested by Lord Denning, the analysis would favour Mr. Hotchkiss, since, as noted above, there are irregularities alleged in the timing of the service of the documents and witness lists.

Looking at some of the other suggested elements, the Insurer has a certain disregard for the arbitration process. As such, I would reference Arbitrator Muzzi’s order refusing an adjournment and the law concerning conflict of interest.

An element of necessity can be inferred from Mr. Hotchkiss’ condition and status, aggravated by the further delay entailed by the adjournment.

Although, from the point of view of a stand-alone request there would be support for an order, as mentioned earlier, the prime reason in making such an order at this time is to address the prejudice to Mr. Hotchkiss arising from the adjournment that he did not want.

While costs are undoubtedly part of the equation in addressing prejudice, this matter calls for something more. In my mind that something is the request for interim benefits.

While Mr. March’s conduct in forcing an adjournment did not necessarily constitute contempt, the Insurer’s overall conduct certainly has the ring of inappropriateness.

As touched on earlier, the transfer of the file to Mr. March in the run-up to the hearing is unexplained, yet it gave rise to significant consequences. It should have been apparent that the transfer would have resulted in delay. Indeed, shortly after having been retained, Mr. March requested an adjournment, which was refused.

As Mr. Neinstein suggested, one would have expected Mr. March to do some due diligence¹³ upon being requested to take the file and ascertain as to whether there was a conflict. The fact that Mr. Hotchkiss was actively represented by another member of the Beard Winter firm should have been apparent after a simple review for conflict.

The rules with regard to conflict are widely known in the legal profession. A glance at the Rules of Professional Conduct alone should have set off the alarm bells concerning conflict, unless one chose to ignore the jurisprudence and brazenly stand one’s ground.

Indeed, ignore and minimize is what Mr. March did, even after being advised by Mr. Neinstein that a clear conflict existed. He turned up on the first day of the hearing, having done nothing to rectify the conflict, and unprepared to either argue the conflict motion or to proceed with the arbitration.¹⁴ As noted earlier, by so doing he effectively avoided the order of Arbitrator Muzzi refusing to adjourn the arbitration.

As Finlayson J.A. has stated: “In an adversarial process, the rules of court must be observed, and certainly orders of the court must be obeyed.”¹⁵ Arbitrator Muzzi’s refusal of an adjournment, in effect ordering on the Insurer, should have been respected. While I am not prepared to infer any complex conspiracy to prevent this matter from being heard, there were actions that, if taken in a timely manner could have avoided an adjournment.

Firstly, there was the failure of due diligence. Secondly, there was the willful blindness to the existence of any conflict once it was pointed out, and the consequent failure to retain new counsel.¹⁶ Thirdly, there was the failure to prepare to address the conflict motion of which the Insurer and the counsel of record had been advised.

Mr. Hotchkiss requested that his arrears in accident benefits be paid up and that ongoing payments commence. His principal benefits claimed are an attendant care benefit and a non-earner benefit. Although I have found that, procedurally, Mr. Hotchkiss may have the upper hand, and that there may be a solid foundation to his claim for benefits, that is far from ruling that his claim will succeed come what may. Consequently, I refuse to order payment of any arrears in benefits.

Rather, concentrating on the extent that the proposed payment responds to the impact of the adjournment on the insured, I will order ongoing, temporary, non-earner and attendant care benefits.¹⁷ These would at least partially address the Applicant’s expectations that the arbitration would now have been completed, with a finding in his favour, had it gone ahead as scheduled.

Being neither a full payment of benefits, nor a lump sum, and being payable until the hearing and decision process is completed, it will provide both sides an incentive to move ahead promptly with the balance of the hearing.

G.D. Lane J., in Belair Insurance Co. v. McMichael,¹⁸ citing Kennelly v. Wawanesa Mutual Insurance, noted “the statutory goal of prompt payment for necessary services.”¹⁹ The order will also be consistent with the goals of the accident benefit scheme by allowing for a “fair and adequate income stream to those who are injured and disabled from work”²⁰ for the period when the arbitration remains pending.

It is also of a relatively short duration, an interim step to ease the problem created for the Applicant by the forced adjournment.

In accordance with the jurisprudence on interim benefits, all payments (except expenses) made under this interim order shall be repayable at the request of the Insurer in the event that Mr. Hotchkiss is not successful in his claim against the Insurer.

EXPENSES:

Just as there are different potential foundations for an award of interim benefits in this matter, the imposition of costs or expenses on a party can be approached from quite divergent positions. Although, normally, the imposition of costs is seen to be compensatory (indemnifying a party for expenses incurred in an action), there also remains a punitive aspect if the costs are imposed in an attempt to deal with an abuse of the process of a court or tribunal.

Lane J. in Walsh explained the dichotomy between the inherent power of the court to control its own process in which punishment is an objective, and the compensatory nature of costs stating: “One must be sure what jurisdiction is being invoked.”²¹

In this matter, I am primarily invoking Section 23 of the Statutory Powers Procedure Act, which is akin to the court’s inherent jurisdiction to control its process and to prevent abuse.

Since Laskin J. stated in Khimji v. Dhanani Estate: “Under our modern Rules non-compensable prejudice plays a pivotal role in deciding whether to grant an amendment or an adjournment”, a finding of prejudice in an adjournment request invites an analysis of just how that prejudice can be addressed through a compensatory order.

Mr. Hotchkiss has doubtlessly incurred serious expenses in preparing for the arbitration hearing and in having counsel address the issues of conflict and the adjournment. He can rightly look for indemnity for those expenses when an adjournment is granted against his wishes through no fault of his own, and indeed through the misconduct of the Insurer.

Counsel for Mr. Hotchkiss has filed a complete Bill of Expenses. The totals claimed involve some $22,239.12 for hearing preparation and counsel fees.

While this is not an extraordinary amount, it is not apparent what, if any preparation may be carried forward to the adjourned hearing. If the adjournment turns out to be short, then it would seem that a significant proportion of expenses might not be re-incurred.

Rather than engage in conjecture and, keeping in mind the need to sanction conduct while remaining within a compensatory framework, I prefer to simply fix expenses at an amount that reflects the counsel fees for Mr. Neinstein and his colleague, Ms. Sonia Leith, both of whom have been in attendance throughout. That amount would be $11,938.29.

While I will make that amount payable forthwith and in any event of the cause, the expense award may still be considered in the context of any request for Mr. Hotchkiss’ global expenses for the hearing, should that remain in issue.

November 23, 2011

John Wilson Arbitrator

Date