Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2011 ONFSCDRS 21

Appeal P09-00025 and P09-00025C

OFFICE OF THE DIRECTOR OF ARBITRATIONS

MANOKAR ARUNASALAM

Appellant (Respondent on Cross-appeal)

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Respondent (Appellant on Cross-appeal)

BEFORE:

David Evans

REPRESENTATIVES:

Robert A. Zigler for Mr. Arunasalam

Robert S. Franklin for State Farm Mutual Automobile Insurance Company

HEARING DATE:

June 3, 2010

APPEAL ORDER

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

The appeal on behalf of Mr. Arunasalam of the Arbitrator’s order dated June 25, 2009 is allowed. The cross-appeal on behalf of State Farm Mutual Automobile Insurance Company is dismissed. Paragraph 1 of the Arbitrator’s order is revoked, and the following substituted:
1. Mr. Arunasalam is entitled to receive a weekly income replacement benefit in the amount of $394.54 from July 25, 2007 to August 25, 2008 pursuant to section 4 of the SABS, plus interest in accordance with section 51. Mr. Arunasalam’s entitlement to further weekly income replacement benefits after August 25, 2008 shall be determined in a separate hearing.
The appeal of the Arbitrator’s order dated December 11, 2009 is allowed. Paragraph 1 of the Arbitrator’s order is revoked, and the following substituted:
1. State Farm shall pay Mr. Arunasalam’s expenses of the arbitration fixed in the amount of $46,844.33, inclusive of GST.
An appeal legal expense hearing shall be requested within thirty days of the date of this decision, accompanied by a Bill of Costs and written submissions, as set out below.

March 2, 2011

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Arunasalam appeals the order of Arbitrator Rogers dated June 25, 2009, limiting his claim for income replacement benefits (IRBs) to March 31, 2008 and cancelling a further hearing scheduled to determine post-104 week IRB entitlement, as well as his order of December 11, 2009, disallowing 65 per cent of the legal fees claim. State Farm Automobile Insurance Company cross appeals the refusals of the pre-hearing and hearing arbitrators to include the additional issues of wilful misrepresentation and IRB quantum.

II. BACKGROUND

Manokar Arunasalam was injured in a motor vehicle accident on August 31, 2006. He applied to State Farm for statutory accident benefits under the SABS–1996¹ and received IRBs until they were terminated on July 24, 2007. The issue in arbitration was IRB entitlement from July 25, 2007 to August 25, 2008, 104 weeks after the accident.

Mr. Arunasalam had left one job before the accident and allegedly had started at another. The first question before the hearing arbitrator, then, was which job to use to determine both entitlement to and quantum of IRBs under the SABS. This question is also an element of the cross-appeal, in this sense: State Farm submits it was prevented from providing relevant evidence to show that Mr. Arunasalam had not started that other job. If State Farm were successful in adding the issues of wilful misrepresentation and IRB quantum to the hearing, that would potentially throw into doubt all the Arbitrator’s findings about entitlement and quantum that are set out below.

To return to the first question, then, if an insured is working at the time of an accident, entitlement to IRBs is based on that employment [s. 4(1)1]. If not, it is based on the employment in which the insured person spent the most time during the 52 weeks before the accident [s. 4(1)2.iv], assuming the other criteria of s. 4(1)2 are met. Mr. Arunasalam had been employed by Frisco’s Brasserie. He claimed to have left that job several weeks before the accident for health reasons after allegedly finding a job with a temporary placement agency, A&T Manpower Services Inc. Although not working on the day of the accident, he claimed to have been working as a shipper and receiver on assignment for A&T at a company called Zimmcor. He submitted that IRB entitlement should be based on his work at Zimmcor, and State Farm submitted that it should be on the Brasserie job.

The dispute about the Zimmcor employment was the subject of several orders just before the scheduled hearing date of June 23, 2008. On May 27, 2008, the pre-hearing arbitrator, Arbitrator Bujold, ordered A&T and Zimmcor to produce documents about Mr. Arunasalam’s employment with them. Then, shortly before the scheduled hearing, Arbitrator Bujold held a conference with the parties to address State Farm’s request to add the issues of quantum of IRBs and wilful misrepresentation and to adjourn the hearing. The Arbitrator noted that it was “unfortunate that, as of the date of the motion, A&T Manpower and Zimmcor had not produced their records, notwithstanding my order.” Nonetheless, these requests were refused in a letter order dated June 17, 2008. This letter order is under appeal as part of the cross-appeal brought by State Farm.

State Farm submits that representatives of A&T Manpower and Zimmcor were served with a Summons to Witness, but failed to attend the arbitration hearing on June 23, 2008, and did not produce any of the documents ordered.

The hearing did not proceed in any event because Dr. Garber, the psychologist retained by the Insured, had not produced his notes and records to that date. The hearing arbitrator, Arbitrator Rogers, wrote to the parties on June 25, 2008, noting that because the hearing was now proceeding after the two-year anniversary of the accident, post-104 week IRBs² would also be in issue. He also noted that State Farm intended to renew its request to add quantum as an issue and to take the position that it was entitled to pursue wilful misrepresentation as a defense, without the necessity of adding this as a separate issue.

Prior to the hearing resumption, the Insurer brought an application before the Superior Court of Justice to enforce the order of Arbitrator Bujold. This was heard November 24, 2008, and resulted in A&T Manpower, its principal Sam Asokan, and Zimmcor being found in contempt of court. State Farm submits that following the contempt order, Mr. Asokan produced further evidence relevant to the issues of wilful misrepresentation and the quantum of IRBs, but that the Arbitrator took the position that the hearing had started in June 2008 and that no further evidence regarding wilful misrepresentation would be allowed. In his decision, the Arbitrator stated that he “ruled that State Farm would not be allowed to pursue the issue because, by renaming it, State Farm was simply attempting to revisit Arbitrator Bujold’s decision.” In its cross-appeal, State Farm seeks an order that there is no formal requirement to add wilful misrepresentation as an issue to an arbitration and that the issues of wilful misrepresentation and quantum of IRBs be added to the arbitration of this matter at a new hearing.

Ultimately, regarding the issue of Mr. Arunasalam’s employment for the purposes of the IRBs, Arbitrator Rogers found that the Insured had had an ongoing relationship with A&T prior to the accident and that he had been working as a shipper and receiver on assignment at Zimmcor. He concluded that Mr. Arunasalam’s entitlement to IRBs should be based on the A&T job.

The parties also disagreed on the extent of Mr. Arunasalam’s accident-related impairments. For the first 104 weeks of disability, “an income replacement benefit is payable during the period that the insured person suffers a substantial inability to perform the essential tasks of the employment in respect of which he or she qualifies for the benefit.” [s. 5(1)] With respect to Mr. Arunasalam’s pre-accident condition, he left the Brasserie because his right leg problems interfered with stair climbing and the job aggravated his asthma. The Arbitrator found that these were problems specific to the Brasserie. He found that pre-accident the Insured was capable of engaging in the essential tasks at Zimmcor, which he found included prolonged standing and repetitive lifting and carrying of weights between twenty and fifty pounds.

With respect to Mr. Arunasalam’s post-accident condition, his principal complaints were neck, back and right shoulder pain and stiffness accompanied by frequent debilitating headaches. While Mr. Arunasalam had also been diagnosed with depression, the Arbitrator found there was no suggestion that he was disabled from working solely as a result of psychological illness.

The Arbitrator rejected State Farm’s submission that Mr. Arunasalam’s reported symptoms were not credible. Instead, he wrote, “I find that the existence of objective evidence to support significant, accident-related injury to Mr. Arunasalam’s right shoulder, completely undercuts State Farm’s suggestion of fabrication and exaggeration.” The Arbitrator noted that a large and almost complete tear in the supraspinatus tendon in his right shoulder was not diagnosed until almost two years after the accident, on April 21, 2008. The Arbitrator found this tear was connected to the accident, as the medical history was “replete with Mr. Arunasalam’s immediate and persistent complaints of right shoulder pain to both those who treated Mr. Arunasalam and those who assessed him on State Farm’s behalf.”

The Arbitrator found that the objective verification of Mr. Arunasalam’s complaints regarding his right shoulder bolstered the credibility of his complaints about other symptoms. Accordingly, he accepted Mr. Arunasalam’s evidence and found that in addition to right shoulder and arm pain, he continued to suffer significant lumbar and cervical pain and stiffness and frequent debilitating headaches. He found that Mr. Arunasalam continued to be substantially unable to perform the essential tasks of his employment at A&T when State Farm terminated IRBs on July 24, 2007.

The Arbitrator found that Mr. Arunasalam was not entitled to IRBs after March 31, 2008. However, as will soon be discussed in excruciating detail, this was not based on any amelioration in the Insured’s condition. Indeed, as just noted two paragraphs above, the Arbitrator found that Mr. Arunasalam was disabled from working due to that tear in the right shoulder tendon that was only diagnosed on April 21, 2008, three weeks after the termination date set by the Arbitrator. I can only take this to mean that the Arbitrator found the Insured was still disabled due to the accident even after the termination date he set. In fact, the Arbitrator made no finding that Mr. Arunasalam’s accident-related condition – which included the tear – had improved prior to the two-year mark. Accordingly, I conclude the Arbitrator found that the Insured was disabled through to that point.

However, the Arbitrator stated that since the accident, “Mr. Arunasalam has been diagnosed to be diabetic and suffering from high blood pressure and an unspecified heart condition.” This, he wrote, was reported by Mr. Arunasalam to Dr. Joseph Garber, psychologist, who as noted above, assessed him at his counsel’s request. The Arbitrator found it “reasonable to limit his entitlement to further IRBs to March 31, 2008, which is shortly before he reported his limitations to Dr. Garber.” The Arbitrator thus cancelled the hearing originally scheduled for September 14, 2009 to determine Mr. Arunasalam’s entitlement to post-104 week IRBs. Accordingly, he did not deal with Mr. Arunasalam’s claim for those post-104 week claims.

Mr. Arunasalam appeals these orders, seeking among other things that he be granted IRBs after March 31, 2008 and ongoing to the 104-week point³ and that the post-104 week entitlement hearing be rescheduled.

In the subsequent expense hearing, where disbursements were not disputed, Mr. Arunasalam sought legal fees of $52,723.13 and was granted $18,663.75. Among the grounds for Mr. Arunasalam’s appeal is that this award, based on a 3:1 ratio of preparation time to hearing time, only included the former and not the latter.

III. ANALYSIS

Main Appeal

Mr. Arunasalam appeals the Arbitrator’s order that he was not entitled to further benefits after March 31, 2008 and so was not entitled to a hearing to determine his entitlement to post-104 week IRBs. The Arbitrator reached these conclusions in the following two paragraphs:

Since the accident, Mr. Arunasalam has been diagnosed to be diabetic and suffering from high blood pressure and an unspecified heart condition. There is no evidence that any of these conditions or Mr. Arunasalam’s reaction to being diagnosed with them, have any foundation in his accident-related injuries. Mr. Arunasalam testified that Dr. Chan has advised him to be cautious about his activities because of his heart condition. He testified that he avoids moving his right arm because he knows that this might cause him to have a stroke, given his heart condition. I did not receive evidence as to exactly when these diagnoses were made. The record does show that Mr. Arunasalam reported them to Dr. Joseph Garber, who assessed him at his counsel’s request in January 2008.⁴ He also reported that he had been “advised by his physician to refrain from excessive activity”.

Given the extent of Mr. Arunasalam’s perceived limitations as a result of his ailments that are unrelated to the accident, it is difficult to imagine that he would have continued to be able to meet the heavy demands of his job at A&T beyond the date of their diagnosis, even if the accident had not happened. Without a precise date of diagnosis, I find it reasonable to limit his entitlement to further IRBs to March 31, 2008, which is shortly before he reported his limitations to Dr. Garber.⁵ I have therefore ordered State Farm to pay further IRBs from July 25, 2007 to March 31, 2008. Given this finding, I have cancelled the further hearing, scheduled to determine entitlement to post-104 IRBs.

Mr. Arunasalam submits that the Arbitrator erred in applying rules of natural justice, in applying the law, and in making findings essentially in the absence of evidence and based on conjecture. He submits in part that, given the extremely minor role the alleged heart condition played in the arbitration, the Arbitrator should have noted his concerns in that regard and allowed submissions on it, especially since the Arbitrator focused on “Mr. Arunasalam’s perceived limitations” and not the actual effect of these limitations. He submits that the issue of causation for unrelated intervening events deserved more than a one-sentence analysis. He also submits that, at best, the Arbitrator’s finding was conjecture, as no evidence could reasonably support it.

I find that there is merit to these submissions, considering the limited evidence about the alleged conditions and their diagnoses. While the Arbitrator stated that “The parties filed 10 briefs containing several hundred documents,” he nonetheless “did not receive evidence as to exactly when these diagnoses were made.” The only evidence about the alleged heart and blood pressure conditions – which are the ones referred to as causing Mr. Arunasalam to limit his activities – came from Mr. Arunasalam himself. Dr. Garber in his report attaches a number of caveats when reciting what Mr. Arunasalam told him about his limitations, noting that “it actually remains unclear as to whether Mr. Arunasalam may have in fact be misunderstanding certain comments being offered by other health care providers.”

The clinical notes and records of Mr. Arunasalam’s family physician contain no reference to a heart condition. He took his blood pressure in 2006 at 120/100 and after that it remained unchanged at 130/80. There is no reference to anything pointing to a heart condition, no referral to a specialist for a heart condition, and no evidence of heart attack, angina, or other such symptoms. Furthermore, the Arbitrator set a termination date even though he did not know when the diagnoses were made – assuming they were even made, despite the lack of any such medical evidence.

As for the case presented by the parties, the Insurer’s submissions at arbitration focused almost exclusively on Mr. Arunasalam’s credibility, aside from one brief mention of the heart condition reported to Dr. Garber. Furthermore, as I will now discuss, terminating benefits because an unrelated post-accident condition would have also disabled the person is hardly a straightforward legal matter, particularly in relation to statutory benefits. For that reason alone, the Arbitrator should have sought submissions if he was going to rely on the alleged diagnoses.

However, because the Arbitrator applied a wrong principle of law, it is not necessary for me to consider whether he made conjectural findings or failed to provide natural justice.

To reiterate, the Arbitrator stated the law as follows: “Given the extent of Mr. Arunasalam’s perceived limitations as a result of his ailments that are unrelated to the accident, it is difficult to imagine that he would have continued to be able to meet the heavy demands of his job at A&T beyond the date of their diagnosis, even if the accident had not happened.”

However, Mr. Arunasalam had real and not just perceived accident-related limitations, as the Arbitrator had already found. Indeed, the Arbitrator relied on the objective determination of the shoulder tendon tear that was made after the termination date imposed by him.

Accordingly, nothing changed one day to the next, between March 31 and April 1, 2008, in Mr. Arunasalam’s real accident-related limitations. To go back to what the SABS says in s. 4(1)1, the insurer shall pay an insured person who sustains an impairment as a result of an accident an IRB if the insured person suffers a substantial inability to perform the essential tasks of that employment. Since, as I have already discussed, the Arbitrator found that Mr. Arunasalam continued to suffer a substantial inability to perform the essential tasks of his job due to the accident, in that he relied on the diagnosis of that tear that was diagnosed in April 2008, it follows that according to the terms of s. 4(1)1 the Insured was still entitled to receive his IRBs after March 31, 2008.

The parties provided me with limited case law dealing with the post-accident onset of an unrelated disability. Mr. Arunasalam refers to cases dealing with material contribution, such as Levey and Traders General Insurance Company, (FSCO P98-00035, February 25, 1999). In that case, the insurer argued that the insured would have developed a movement disorder (torticollis) whether or not she was in the accident at issue. As the Director’s Delegate noted in that case, “Many decisions, including some of mine, have held that the accident need not be the sole or even the principal cause of the insured person’s condition. If the accident materially contributes to the impairment, leaving the person unable to perform the essential tasks of his or her employment, weekly benefits are payable.”

State Farm submits that there is no need to apply the material contribution test, as there is no dispute that the Arbitrator found the tear in the tendon in Mr. Arunasalam’s shoulder was caused by the accident. It submits that the only relevant test is the “but for” test that should be applied in all circumstances unless there is a specific reason the test is unworkable, relying on such cases as Athey v. Leonati, 1996 CanLII 183 (SCC), [1996] 3 SCR 458 and Resurfice Corp. v. Hanke, 2007 SCC 7, [2007] 1 SCR 333.

However, both before and after March 31, 2008, the Arbitrator’s findings mean that “but for” the accident Mr. Arunasalam was disabled from working. The only change was that the Arbitrator arbitrarily selected that date as the one as of which Mr. Arunasalam was also disabled due to his perceived heart problems. It was on that basis that he terminated benefits. That is an error in law, since Resurfice has not changed the law that there can be more than one cause to a disability, a point I will return to. Perhaps part of the problem is that there is some confusion in the use of the term “material contribution.” It has a specific meaning in tort cases, as set out in Resurfice, but in cases at the Commission it means that a cause of the disability – injuries arising from a motor vehicle accident – is materially contributing to the disability despite other causes, whether they arose before or after the accident. I will first discuss this principle as set out in FSCO case law, and then return to Resurfice.

The most analogous case I can find to the one at hand, in that it deals with a disability arising post-accident, is Worku and Co-operators General Insurance Company, (OIC A-002172, August 29, 1996). Ghenet Worku was injured in a motor vehicle accident on July 28, 1990, and received statutory accident benefits from her insurer. Approximately two weeks after her car accident Ms. Worku was assaulted and robbed at her workplace. She received Worker’s Compensation benefits in respect of injuries sustained in the assault and robbery. The arbitrator noted that, unlike judges within the tort system, arbitrators do not have the flexibility to apportion damages between two or more contributing causes, or to adjust the amount of benefits to reflect the extent to which a car accident may have contributed to injury – a situation that has not changed. The arbitrator concluded that both the car accident and the assault made significant contributions to Ms. Worku’s condition. The arbitrator found that the applicant was entitled to statutory benefits until her accident-related disabilities had abated to the extent that she no longer met the disability test, noting that “the Insurer is not responsible for continuing difficulties that I have found to be more probably connected to the robbery than to the motor vehicle accident.”

Worku contains the necessary analysis missing in the arbitration decision in this case. Furthermore, and crucially, unlike in Worku, the Arbitrator made no finding that Mr. Arunasalam’s accident-related disabilities had abated when he terminated benefits, but rather found that they were ongoing after March 31, 2008.

State Farm submits that the case of Jobling v. Associated Dairies Ltd., [1981] UKHL 3, [1982] A.C. 794, as discussed in Athey regarding independent unrelated post-accident events, should apply. State Farm submits that in Jobling, the plaintiff suffered an injury at work that reduced his ability to earn income. He started a lawsuit. However, after the workplace accident but before trial, he developed an unrelated back condition and became completely unable to work. The House of Lords held that compensation for loss of income for the workplace injury in the lawsuit should only be available to the plaintiff up to the date that he was rendered unable to work by his unrelated back problem that developed after the work accident.

In Athey, the plaintiff had been in two accidents and then suffered a herniated disc while stretching. The Supreme Court overturned a lower court decision that had apportioned damages between the tortious and non-tortious events. It drew a distinction with Jobling on the basis that the accidents caused or contributed to the disc herniation and so was not an independent intervening event. Major J. nonetheless approved of the first principles as set out in Jobling, noting as follows:

The essential purpose and most basic principle of tort law is that the plaintiff must be placed in the position he or she would have been in absent the defendant’s negligence (the “original position”). However, the plaintiff is not to be placed in a position better than his or her original one. It is therefore necessary not only to determine the plaintiff's position after the tort but also to assess what the “original position” would have been. It is the difference between these positions, the “original position” and the “injured position,” which is the plaintiff's loss. In [Jobling], the intervening event was unrelated to the tort and therefore affected the plaintiff's “original position.” The net loss was therefore not as great as it might have otherwise seemed, so damages were reduced to reflect this.

However, both Jobling and Athey were tort cases, and that basic tort principle of returning a plaintiff to an “original position” does not apply in SABS cases. Either a person receives IRBS or does not, unless the SABS itself sets out an apportionment based on post-accident income, for instance, or a “ramp-down” on the basis of age over 65.⁶

To return to Jobling, the decision was not an easy one for the court in any event. Lord Wilberforce noted that the ensuing illness gave rise to a greater degree of incapacity than that caused by the accident. After discussing the problems of trying to determine whether or not the plaintiff would be overcompensated, depending on what other insurance might be payable, he concluded that “no general, logical, or universally fair rules can be stated which will cover, in a manner consistent with justice, cases of supervening events whether due to tortious, partially tortious, non-culpable or wholly accidental events. The courts can only deal with each case as best they can in a manner so as to provide just and sufficient but not excessive compensation, taking all factors into account.”

Furthermore, Lord Edmund-Davies drew a clear distinction between benefits under a statutory benefit scheme and the compensation sought in a tort claim. He referred to the Court of Appeal decision in Harwood v. Wyken Colliery Co. [1913] 2 K.B. 158, noting it was “a case brought under the Workmen’s Compensation Act 1906, where a miner, who had for some months been paid compensation for a personal injury by accident arising out of and in the course of his employment, was later disabled for work by heart disease in no way attributable to the accident.” The trial judge found that compensation ceased to be payable when the heart condition would have prevented the miner from working anyway. This was reversed on appeal. As Lord Wilberforce put it,

Hamilton L.J. stressed that the 1906 Act compensated workmen “in a new and statutory manner in respect of a wholly statutory right,” markedly different from that operating in the common law assessment of damages, the latter necessitating regard being had to contingencies such as “... the possibility of future diminution or loss of earnings arising independently of the cause of action, from increasing age, from accident or illness in future, and so forth.” Hamilton L.J. explained (at p. 170):

The compensation for workmen under the Act is very different… It is based on what the workman has earned, not on what he will be prevented from earning… Redemption of weekly payments by a lump sum is on the basis of an annuity, calculated by expectation of life and not by expectation of immunity from further accident or from growing age and infirmity.

Hamilton L.J. further pointed out that, whereas damages are calculated so as to put the victim of tort in as good a position as he was before the wrong, the Act “is not founded on indemnity, and the ideas of retribution for wrong doing and of restitutio in integrum are foreign to it.”

Thus, the House of Lords approved the principle that, even where an actual heart condition arises after an accident, a person receiving statutory benefits like worker’s compensation – or statutory accident benefits – would still be entitled to receive them. That would seem to be even more so in the case of a person with only a perceived limitation. In any event, the very case cited by State Farm confirms the point made in Worku that arbitrators in the statutory accident benefit system do not apportion damages or adjust benefits.

Jobling also provides the answer to another submission of State Farm, namely, that cases such as Levey are distinguishable because they dealt with issues with respect to pre-existing conditions rather than an independent and subsequent intervening event. The same point was raised in Jobling, to which Lord Edmund-Davies replied that “the distinction drawn … is in principle irrelevant and in practice capable of creating great confusion.” Rather, the distinction, as pointed out in Athey, is “between the way in which courts deal with alleged past events and the way in which courts deal with potential future or hypothetical events.”

As noted above, State Farm refers to Resurfice in emphasizing the “but for” test as being the primary test for causation, particularly in multi-cause injuries. At para. 21 of Resurfice, the Chief Justice said:

First, the basic test for determining causation remains the “but for” test. This applies to multi-cause injuries. The plaintiff bears the burden of showing that “but for” the negligent act or omission of each defendant, the injury would not have occurred.

However, in special circumstances, the law has recognized exceptions to the basic “but for” test, and applied a “material contribution” test. Broadly speaking, the cases in which the “material contribution” test is properly applied involve two requirements.

First, it must be impossible for the plaintiff to prove that the defendant’s negligence caused the plaintiff's injury using the “but for” test. The impossibility must be due to factors that are outside of the plaintiff's control; for example, current limits of scientific knowledge. Second, it must be clear that the defendant breached a duty of care owed to the plaintiff, thereby exposing the plaintiff to an unreasonable risk of injury, and the plaintiff must have suffered that form of injury. In other words, the plaintiff's injury must fall within the ambit of the risk created by the defendant's breach. In those exceptional cases where these two requirements are satisfied, liability may be imposed, even though the “but for” test is not satisfied, because it would offend basic notions of fairness and justice to deny liability by applying a “but for” approach.

Obviously, there is nothing impossible about proving that the motor vehicle accident caused Mr. Arunasalam’s disability. The “material contribution” test in the technical Resurfice sense is not even at issue here. What is at issue is whether an insurer can be excused from paying further benefits when another cause contributes to an insured’s disability, even when the injuries from the motor vehicle accident are still a material cause of the disability. However, as Major J. stated in Athey, “Apportionment between tortious and non-tortious causes is contrary to the principles of tort law, because the defendant would escape full liability even though he or she caused or contributed to the plaintiff's entire injuries.”⁷ The analogy in the no-fault benefit system is between causes arising from the motor vehicle accident and other causes. As set out in Worku, arbitrators do not have the power of apportionment between these causes. Apportionment would also be contrary to the principles of the SABS, because then the insurer would escape full liability even though the motor vehicle accident materially contributed to the applicant’s injuries.

Furthermore, the Ontario Court of Appeal in Monks v. ING Insurance Company of Canada, 2008 ONCA 269, noted that there has been “a long line of arbitral decisions in which this [material contribution] test has been utilized to resolve causation issues in accident benefits disputes, including in cases where the benefits claimant suffered from a pre-existing condition prior to the accident in question.⁸ Before this court, ING offers no authority to support its assertion that the material contribution test does not apply to statutory accident benefits cases.” I believe in that case, the Court of Appeal was using the term “material contribution” in the way it has been used in cases such as Worku and not in the technical Resurfice sense. And, as noted by Lord Edmund-Davies in Jobling, there is no relevant or practical distinction between pre-existing conditions and those arising independently after the accident.⁹

The Court of Appeal has also had to deal with the confusion about the meaning or the application of the term “material contribution” in Frazer v. Haukioja, 2010 ONCA 249 (April 15, 2010), and Cartner v. Burlington (City), 2010 ONCA 407 (June 7, 2010).

In Frazer, the plaintiff suffered a real injury – a major fracture in his right ankle – but his treating physician, the defendant Dr. Haukioja, vastly underreported it. While there was no permanent injury to the ankle, the underreporting led to Mr. Frazer believing Dr. Haukioja had deliberately tried to harm him and that he harmed himself when he walked on the ankle after the doctor told him that “pain was a necessary part of recovery and that he had to work through it.” He developed an anxiety disorder with features of panic disorder and intermittent depressive, emotional states. The Court noted that the trial judge “found that the psychiatric diagnosis of Mr. Frazer was totally as a result of Dr. Haukioja’s failure to properly treat his patient.”

Damages were assessed at $1.75 million, with an additional $930,000 in costs. The Court noted that the trial judge had erred in first applying the “but for” test and then considering the material contribution test. As the Court noted, “the difficulty of proving causation in cases of psychiatric harm does not always amount to impossibility,” so the impossibility requirement of the tort material contribution test was not met. Nonetheless, the court found that each of the causative factors – the misdiagnosis, the belief that the doctor meant to cause him harm, and the belief that he harmed himself – met the “but for” test. This case illustrates the difference between “material contribution” in the tort sense as opposed to simply asking if one of two causes of a disability continues to cause that disability in a material way.

That second sense of “material contribution” was essentially at issue in Cartner. In that case, the plaintiff suffered a severely broken leg when she slipped and fell on a sidewalk in Burlington while walking to work. The trial judge found that Mrs. Cartner’s fall “was caused when her leg twisted and slid out from under her as she slipped on a muddy concrete slurry substance that had pooled on the sidewalk.” The slurry was caused by two store owners, but the pooling was caused by the City’s failure to keep the sidewalk repaired, and liability was apportioned 80/20. The City appealed its 20% apportionment, partly on the basis that the trial judge had incorrectly concluded that the material contribution test applied, at least to some extent. The Court dealt with that submission as follows at paras. 43-45:

Concerning the trial judge’s reference to the material contribution test, as I read the impugned paragraph, it does nothing more than reinforce the trial judge’s earlier correct statement that in order to satisfy the “but for” test, a particular cause need only be “a cause” of the injury; it need not be the sole cause.

The impugned paragraph reads as follows:

This is not to say that there is no scope in this case for a partial application of “material contribution” concepts within the strictures of the principled approach to causation mandated by Resurfice in determining whether either or both of these defendants are liable to the plaintiffs. This follows since nothing in Resurfice, or the strong authorities that preceded it, prevents liability from being found against a defendant where the defendant’s negligence is found to be “a cause” of injury on a balance of probabilities, even if not the ultimate cause. While the Supreme Court reaffirmed that “the basic test for determining causation remains the ‘but for’ test” and that it applies to multi-cause injuries, in doing so it also specifically reaffirmed its decisions in Athey v. Leonati and Snell v. Farrell. [Emphasis added.]

Although I agree that the trial judge’s reference to the material contribution test is misplaced, his central point, namely, that a particular cause need only be “a cause” of an injury in order to satisfy the “but for” test, is correct: see Athey v. Leonati, 1996 CanLII 183 (S.C.C.), [1996] 3 S.C.R. 458, at paras. 17-20.

Thus, the Court of Appeal has reaffirmed that the sense of “material contribution” used in the case law at the Commission – namely, that the motor vehicle accident need only be a cause of the disability and not the sole cause – continues to be good law.

In summary, I am not persuaded that the “but for” test assists State Farm. Mr. Arunasalam suffered an accident-related disability, and but for the accident that disability would not have occurred. The Arbitrator found that he continued to suffer from those same disabilities after March 31, 2008, so regardless of whatever perception the Insured may have had about any alleged heart problem, the accident continued to be a material cause of his ongoing disability. Only if his disability had lessened to the level that he no longer met the disability test, as in Worku, would the accident cease to be a material cause of his disability. Accordingly, I find the Arbitrator erred in law in misapplying the principles of causation in finding that the IRBs should be terminated as of March 31, 2008.

Accordingly, Mr. Arunasalam is entitled to IRBs to August 25, 2008, the 104-week mark after the accident, which was the issue at arbitration. Furthermore, on that basis, Mr. Arunasalam is not precluded from proceeding with his claim for post-104 week benefits.

Cross-Appeal

As noted above, both Arbitrator Bujold’s letter order dated June 17, 2008 and Arbitrator Rogers’ decision are under appeal. In the letter order, Arbitrator Bujold refused to add the issues of quantum of IRBs and wilful misrepresentation to the arbitration or to allow an adjournment. He wrote that, due to “the lack of particulars regarding the wilful misrepresentation and quantum issues; their speculative nature; the delay investigating the issues; the fact that Mr. Arunasalam did not materially contribute to any delay; the fact that an adjournment may not result in any further evidence on these issues; the delay to the hearing itself (which could be significant); and, the financial hardship to the applicant,” he declined State Farm’s requests. Arbitrator Rogers refused to let State Farm pursue the issue of wilful misrepresentation as a defence without having it formally added as an issue.

State Farm submits that the issue of wilful misrepresentation is analogous to the issue of a special award and so can also be added at any point in a proceeding. However, State Farm presents no case law to the effect that wilful misrepresentation and a special award are essentially two sides of the same coin. The criteria regarding wilful misrepresentation are set out in s. 48 of the SABS. Under that section, an insurer may terminate payment of a benefit if an insured person has wilfully misrepresented material facts with respect to an application for the benefit [s. 48(1)]. Subsection 48(2) provides that “The insurer shall not terminate payment under subsection (1) unless the insurer provides the insured person with notice of the reasons for terminating payment.”

By way of contrast, under s. 282(10) of the Insurance Act, an arbitrator shall award a lump sum if the arbitrator finds that an insurer has unreasonably withheld or delayed payments. I agree with Mr. Arunasalam that the provisions are not at all analogous. For instance, case law has long established that there is no requirement for bad faith – let alone fraud – on the insurer’s part for a payment to have been unreasonably withheld. Thus, an arbitrator’s decision pertaining to a plaintiff’s claim for a special award does not decide the same issue as a bad faith claim presented by a plaintiff in court,¹⁰ whereas wilful misrepresentation necessarily includes an element of bad faith or fraud.

However, that is really beside the point, since the issue of a special award cannot be simply tacked onto a hearing anyway. An arbitrator considering a special award where the issue has not already been raised by the insured has to be fair to the insurer by, for instance, allowing further evidence to be called or submissions to be filed: see Royal Insurance Company of Canada and Clark, (OIC P97-00008, September 26, 1997) and Royal Insurance Company of Canada and A.B., (FSCO P99‑00049, September 18, 2000). More importantly, the addition of the issue of misrepresentation to a hearing is restricted by the notice provisions of s. 48(2) of the SABS, a point to which I will now turn.

State Farm submits that wilful misrepresentation need not be formally added as an issue as it is a “defence.” I presume by that it means that another basis for terminating the benefits as of 2007 was wilful misrepresentation. Certainly, it has been the law for some time that an insurer is not limited to the reasons for denying the claim set out in its initial notice of denial: Aleman and State Farm Mutual Automobile Insurance Company, (FSCO P01-00014, September 21, 2001). The insured has a right to know the case to be made by the insurer and the defences to be raised, so as stated in Aleman “The decision to allow or refuse the insurer’s request to rely on a new reason for denying the claim must be made on a case-by-case basis. The overriding factor must be fairness. In most cases, the decision will turn on whether or not the insured person will be unduly prejudiced by the new defence.”

It follows that an insurer may present evidence relating to the new ground. The arbitrator in Nunes and St. Paul Fire & Marine Insurance Company, (FSCO A00-000501, August 15, 2001), after noting that an insurer is not limited to its initial reasons for denial, stated that “Restricting a party’s evidence denies effective presentation of their case. While in some cases a party might be surprised by a changed position and consequently unable to develop responsive evidence, this can be dealt with far less drastically through an adjournment to allow the party to address the new evidence or position.”¹¹

However, the issue here is really about notice. I disagree with State Farm that in the case of misrepresentation they do not have to follow the criteria of s. 48(2), namely, provide the insured person with notice of the reasons for terminating payment. As noted above, Arbitrator Bujold specifically found there was a lack of particulars regarding the wilful misrepresentation and quantum issues.

This is not to say that issues dealing with misrepresentation cannot be added at a later date once proper notice has been given. For instance, in Chau and Guarantee Company of North America, (FSCO A02-001650, December 17, 2003), the issue was whether under s. 48 Mr. Chau was disentitled to benefits on the basis that he wilfully misrepresented material facts with respect to his application for benefits. The arbitrator found that proper notice was eventually given in the Response to the Application for Arbitration, so there could be a preliminary issue hearing on that point even though the notice requirements of s. 48 had not earlier been followed.

I disagree with Mr. Arunasalam’s submission that issues such as wilful misrepresentation and quantum of benefits can only be added to an arbitration proceeding after they have been mediated. Certainly, as set out in Carby and Co-operators General Insurance Company, (OIC A-950220, January 12, 1996), one of the criteria for considering the addition of an issue is whether or not it was mediated, but it is not necessarily determinative. The other criteria listed include whether the issue involves a different benefit category from that raised by the applicant, is reasonably incidental to the issues raised by the applicant, does not unduly expand the scope of the inquiry and essentially deprive the applicant of control of the proceeding, and benefits both parties by avoiding multiple proceedings.

For instance, repayment on the basis of wilful misrepresentation was added as an issue to a hearing despite there being no mediation in Downey and State Farm Mutual Automobile Insurance Company, (FSCO A01-001603, April 4, 2003), where the Carby criteria were applied. Among other things, the arbitrator found that the insurer’s repayment claim based on wilful misrepresentation arose naturally and consequentially from the IRB entitlement and quantum issues that were presently before him, and the repayment issue was also intertwined with the insurer’s challenge to the applicant’s credibility as to whether she was in fact employed at the time of the accident.

Furthermore, Arbitrator Manji in Colussi and General Accident Assurance Company of Canada (OIC A‑009880, March 11, 1996) held that she had discretion to permit a new issue which is properly before her to be raised at any time during the course of the arbitration hearing. Similarly, in McRitchie and Allstate Insurance Company of Canada, (FSCO A04-001359, March 5, 2007), in the middle of the arbitration hearing, the arbitrator changed his own ruling in light of the testimony and after considering Aleman and Nunes. The insurer was ultimately permitted to raise defences in regard to the applicant’s alleged employment and her status as a student prior to her motor vehicle accident after the applicant’s own testimony about her work and student status raised doubts as to whether she validly fell within the provisions of the SABS.

In this case, while Arbitrator Bujold did not specifically refer to Carby, he did note that his

Order of May 29, 2008 against A&T Manpower and Zimmcor to produce Mr. Arunasalam’s employment records was issued in the hope that their production would shed light on whether there was a reasonable foundation for the quantum and misrepresentation issues that State Farm sought to add to the arbitration. If a reasonable basis were uncovered, then that, and any arguments against duplication of proceedings and the overriding requirement for a full and fair hearing, could be weighed against other factors possibly mitigating against adding the issues at this late stage such as the length of any delay; any prejudice that could not be adequately compensated by costs or an adjournment; and, whether it would unnecessarily complicate the hearing to add the new issues.

Although State Farm submits that it does not need a reasonable foundation for an issue in order to raise it, I see the Arbitrator’s finding more as a way of dealing with the fundamental issue of fairness as discussed in Aleman. Thus, I am not persuaded that Arbitrator Bujold erred in law in refusing to add the requested issues to the hearing, even aside from the issue of s. 48(2).

I am somewhat more concerned by Arbitrator Rogers’ treatment of the issue at the resumption of the hearing. He stated that State Farm was simply seeking to revisit the decision of Arbitrator Bujold. However, as the hearing arbitrator, he was not bound by a ruling of a pre-hearing arbitrator. Furthermore, revisiting the issue was precisely what Arbitrator Bujold suggested the Insurer could do when he wrote

State Farm may still wish to further pursue A&T Manpower and Zimmcor for their records, and there is an order that best efforts be used to provide tax returns and notices of assessment, as filed. If and when State Farm has further and better evidence that would warrant challenging quantum, and it is in a position to particularize the alleged wilful misrepresentation, then it may seek whatever remedies are available to it at that time.

As noted above, State Farm pursued the companies for their records and obtained a contempt order against Zimmcor.

Arbitrator Rogers’ statement also supports State Farm’s submission that he refused to consider new evidence obtained after the initial hearing date. Aside from apparently fettering his own discretion, the Arbitrator ignored the direction given to State Farm by Arbitrator Bujold to go out and get new evidence to support its request to add the issues to the hearing. Furthermore, it follows that if an arbitrator has the discretion to add new issues during a hearing, depending on the circumstances, then the party successfully raising the issue has to be able to produce evidence that may not have been foreseen at the start of the hearing, let alone 30 days before its start, a point to which I already alluded.

Certainly Rule 39 of the Dispute Resolution Practice Code – whether at the time of the hearing or as updated September 2010 – limits what documentary evidence may be presented at a hearing, since Rule 39.1 provides that “all documents, reports (including experts’ reports) and assessments to be introduced at a hearing by either party must be served on the other party at least 30 days before the first day of the hearing.” Even so, Rule 39.3(c) provides that evidence not meeting those strictures may nonetheless be admitted if “extraordinary circumstances exist to justify an exception.” By apparently making the order he did, the Arbitrator specifically fettered his discretion under Rule 39.3(c) to admit any documents arising from the contempt order and from the fact that the evidence had not even started to be heard in June, but only months later.¹² Furthermore, the Rule does not apply to viva voce evidence, and while Rule 41 requires the names of witnesses to be provided 30 days before a hearing, there is no requirement of “extraordinary circumstances”¹³ to allow the witness to testify despite non-compliance with the Rule. Thus, the Arbitrator had an even greater discretion to let State Farm produce Mr. Asokan to testify about the work relationship.

All that being said, however, even in order to rely on misrepresentation as a defense, State Farm still had to comply with the notice provisions of s. 48(2) of the SABS. There is no evidence that it did so, since it took the position that it was not required to do so. Accordingly, on that narrow ground, the appeal to add misrepresentation as an issue is denied.

Furthermore, the issue of quantum is so closely tied to the misrepresentation issue that it cannot stand alone. State Farm takes the position that the quantum should be based on a different job because Mr. Arunasalam misrepresented which job he had. The appeal to add quantum as an issue is also denied.

In any event, I will comment in passing that Arbitrator Bujold noted that the difference in salary between the Brasserie and the Zimmcor jobs was minimal. Arbitrator Rogers spent a considerable amount of time reviewing the evidence about the Zimmcor job, including a T4 and cheque stubs from A&T, as well as other corroborating evidence. State Farm also extensively cross-examined Mr. Arunasalam. Thus, it is hardly self-evident that adding these issues would have meaningfully changed the result.

Expense appeal

At the expense hearing, Mr. Arunasalam claimed expenses totalling $74,682.46, comprised of $52,723.13 for legal fees at $150 an hour, plus disbursements of $21,959.33. Neither the disbursements nor the hourly rate were disputed by State Farm, rather just the total amount of legal fees.

By way of background, Mr. David Wilson initially represented Mr. Arunasalam. The hearing was adjourned in June 2008 “because,” as the Arbitrator noted in his expense decision, “the notes and records of Dr. Garber, who Mr. Arunasalam had retained to provide a medico-legal opinion, had not been produced.” As a result, and because Mr. Wilson was not available for all the rescheduled dates, Mr. Robert A. Zigler was retained, “who was not familiar with the case and would necessarily have duplicated work that Mr. Wilson had already done in preparation for proceeding in June 2008.”

The Arbitrator noted that s. 12(2) of the Expense Regulation sets out the criteria an arbitrator must consider in determining entitlement to expenses, and that s. 3(2) of the Schedule to the Expense Regulation requires an arbitrator to consider the same criteria in determining the number of hours for which legal fees are to be awarded. He found criteria 2 and 4 to be relevant, namely, “Each party’s degree of success in the outcome of the proceeding” and “[T]he conduct of a party or a party’s representative that tended to prolong, obstruct or hinder the proceedings, including a failure to comply with undertakings and orders.”

Under criterion 2, the Arbitrator found Mr. Arunasalam was successful. Under criterion 4, he found that the circumstances of the adjournment suggested a lower ratio for preparation to hearing time, in that it was occasioned by Mr. Arunasalam’s intransigence on the production issue. This was counteracted “by State Farm’s dogged, unsuccessful pursuit of the idea that Mr. Arunasalam fabricated information about his employment on the date of the accident” and by the settlement of the other issues, which would have otherwise lengthened the hearing.

Mr. Arunasalam objects to the way the Arbitrator arrived at and applied the ratio of preparation time to hearing time. The Arbitrator had decided on using the ratio approach, stating

This approach is established by a long line of Commission decisions, often traced to the decision in Henri and Allstate Insurance Company of Canada.¹⁴ The applicable ratio is not static. A reasonable ratio is informed by the particulars of the case, including the amount of the claim, the complexity of the issues, the conduct of the parties that tended to either prolong or shorten the proceedings and their degree of success. [Emphasis added.]

He then derived the ratio and applied it in the following way:

Counsel docketed 39.5 hours of hearing time. That time does not include submissions, but it includes preparation and travel time. The inclusion of preparation and travel time compensates for the fact that a reasonable time for submissions was not included in the docketed hearing time. I will therefore use 39.5 hours as the length of the hearing, including submissions.

Mr. Wilson docketed 6 hours for his appearance on June 23, 2008 and about 1.1 hours for his telephone conference calls on June 24 and 25, 2008. He docketed a further 219.2 hours, or about eight 40-hour work weeks. Mr. Zigler docketed a total of 108.5 hours, including 24.55 hours for preparation and review of written submissions. These numbers appear excessive, by any standard. The ratio of preparation time to hearing time is about 7.7 to 1. Even at the modest hourly rate recoverable under the Dispute Resolution Practice Code, the amount claimed for fees significantly exceeds the principal amount in dispute.

In these circumstances, where both parties contributed to prolonging the process, but the hearing itself was shortened because the parties agreed to settle some of the issues, I find a ratio of 3:1 to be reasonable… Applying that ratio, Mr. Arunasalam is entitled to 39.5 x 3 x $150 for legal fees, plus 5% GST. His total entitlement is $18,663.75 for fees, plus $21,959.33 for disbursements.

Mr. Arunasalam submits that the Arbitrator improperly referred to the amount of the legal fees significantly exceeding the principal amount in dispute. The Insured notes that paragraph 12.2 of the Expense Regulation provides that an arbitrator “shall, under subsection 282 (11) of the Act, consider only the following criteria for the purposes of awarding all or part of the expenses incurred in respect of an arbitration proceeding” and that the amount of the claim is not among those criteria. I agree that, given the right circumstances, a small claim might be worthy of expenses significantly exceeding the amount in dispute if an important principle is being litigated. Nonetheless, there is an overriding principle of reasonableness, as set out in Henri. In any event, the Arbitrator determined the ratio based on both parties prolonging the process but settling some of the issues, and his remark had no bearing on the ratio he determined.

Mr. Arunasalam submits that the Arbitrator erred in determining that the time spent by his counsel was excessive while taking no regard of whatever hours were spent by counsel for State Farm, citing Hutchinson v. Security National Insurance Company, (FSCO A03-001712, A05-000327, November 26, 2007), which in turn relied on United States v. Yemec (2007), 2007 CanLII 65619 (ON SCDC), 225 O.A.C. 116, 85 O.R. (3d) 751 (Ont. Div. Ct.). However, as Arbitrator Rogers pointed out, in Yemec it was noted that opposing counsel’s bill can only be some measure of what was expected regarding a reasonable bill and not determinative. Furthermore, as he also pointed out, even in the absence of opposing counsel’s bill, the court in Yemec found the amount claimed unreasonable. I would add that in the Code the only party required to submit an account of expenses is the party awarded them: Rule 79. Requiring a party that is not seeking its legal expenses to file its own account would be hardly likely “to produce the most just, quickest and least expensive resolution of the dispute,” as mandated in Rule 1.1.

Mr. Arunasalam submits that the Arbitrator erred in not examining the fees in accordance with the categories set out in the Regulation. Subsection 3(1) of the Schedule to the Expense Regulation provides that the legal fees payable may be awarded as follows:

For all services performed before an arbitration … hearing.
For the preparation for an arbitration … hearing.
For attendance at an arbitration … hearing.
For services subsequent to an arbitration … hearing.

For instance, Mr. Arunasalam submits that the Arbitrator did not distinguish between services performed before and preparation for an arbitration hearing, categories 1 and 2. However, to go back to Henri, the ratio referred to both categories 1 and 2. It was not necessary for the Arbitrator to separate out those two types of services in calculating the ratio.

Mr. Arunasalam also submits that the Arbitrator failed to take into account category 4, services subsequent to the arbitration, referring in particular to the written submissions that Mr. Arunasalam was required to provide at the Arbitrator’s request. However, the Arbitrator did take them into account. He noted that the 39.5 hours of docketed hearing time did not include submissions but did include preparation and travel time. He found that the inclusion of those times compensated for the fact that submissions were not included in the hearing time. He also referenced the written submissions in commenting on the 108.5 hours docketed by Mr. Zigler.

I find that the Arbitrator erred in law by failing to allow for category 3, the actual hearing time. To reiterate, he found that a ratio of 3:1 of preparation to hearing time to be reasonable, that the hearing time was 39.5 hours, and that the Insured was “entitled to 39.5 x 3 x $150 for legal fees.” I accept Mr. Arunasalam’s submission that the Arbitrator’s calculation awarded only preparation time and no actual hearing time. That is, he multiplied the hearing hours by three to obtain the preparation hours but neglected to include the hearing hours themselves in the calculation. By way of contrast, I note that the Arbitrator in the Henri case determined the fee in this manner: “On balance, I find that an award of 134 hours, in addition to 33.5 hours for hearing attendance (a ratio of four hours preparation for every hour of attendance), recognizes the Applicant’s reasonable legal expenses. In summary, the Applicant is entitled to his legal fees for 167.5 hours…” [Emphasis added.] That is, if x = the total hearing hours, and y = the ratio, then the total legal fee = y(x) + x. Mr. Arunasalam is entitled to a further 39.5 hours for legal fees at the $150 rate for attendance at the hearing.

The order will be amended as in the table below to add the additional 39.5 hours at $150 an hour for legal fees, plus 5% GST. HST does not apply because the services were provided prior to its enactment.

Hearing time 39.5

Preparation time allowed at 3:1 ratio 118.5

Total hours allowed 158.0

Hourly rate: $150.00

Total fee: 158 x $150 $23,700.00

GST at 5% 1,185.00

Total legal fees allowed inclusive of GST $24,885.00

Disbursements 21,959.33

Total legal fees and disbursements $46,844.33

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an appeal legal expense hearing shall be requested within 30 days of the date of this decision in accordance with Rule 79 of the Dispute Resolution Practice Code (Fourth Edition, Updated – September 2010).

The request shall be accompanied by a Bill of Costs describing the expenses claimed, the services received and the costs, as well as submissions regarding entitlement to and/or the quantum of such expenses.