State Farm Mutual Automobile Insurance Company v. Nicholas Leone, 2012 ONFSCDRS 121

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2012 ONFSCDRS 121

Appeal P12-00004

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Appellant

and

NICHOLAS LEONE

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

Eric K. Grossman for State Farm Mutual Automobile Insurance Company

Alexander Voudouris for Mr. Leone

HEARING DATE:

June 18, 2012

APPEAL ORDER

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

1. The appeal of the Arbitrator’s order dated February 10, 2012 is dismissed, and the decision is affirmed.

2. If the parties are unable to agree on the legal expenses of this appeal, an expense hearing shall be requested pursuant to the Dispute Resolution Practice Code (Fourth Edition − Updated August 2011), but as set out below and within sixty days of the date of this decision.

July 31, 2012

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

These findings by Arbitrator Jeffrey Rogers, in his decision dated February 10, 2012, allowed Mr. Leone to proceed to arbitration:

• The mediation Mr. Leone sought failed because the prescribed time for mediation had expired and no settlement had been reached.
• The agreement to extend the time for mediation was invalid because the prescribed time for mediation had already expired beforehand.
• The requirement under the DRPC¹ for Mr. Leone to attach a report of mediator to his Application for Arbitration was unreasonable in the circumstances and should be waived.

State Farm Mutual Automobile Insurance Company (State Farm) appeals the arbitration order and seeks an order staying the arbitration until mediation occurs.

II. BACKGROUND

This case turns on determining when Mr. Leone’s application for the appointment of a mediator was filed.

Pursuant to the Act, the 1996 SABS² and the DRPC, the date of filing for the appointment of a mediator is significant in determining when mediation fails. Mediation must fail before insureds can refer disputes about their claims for statutory accident benefits to an arbitrator or the courts: Insurance Act, ss. 281(1) and (2).

Subsection 280(1) of the Act allows a party to refer a dispute about the entitlement to or quantum of an accident benefit to a mediator. To start the process, “The party seeking mediation shall file an application for the appointment of a mediator with the Commission”: s. 280(2). Furthermore, “The Director shall ensure that a mediator is appointed promptly”: s. 280(3). The mediator’s duties are to “enquire into the issues in dispute and attempt to effect a settlement of as many of the issues as possible within the time prescribed in the regulations for the settlement of the type of dispute in question”: s. 280(4). The time prescribed is in s. 10 of Regulation 664, R.R.O. 1990:

10. A mediator is required, under subsection 280 (4) of the Act, to attempt to effect a settlement of a dispute within sixty days after the date on which the application for the appointment of a mediator is filed.

These provisions are echoed in the DRPC, as Rule 12 deals with filing an application, Rule 13.1(b) states that “On receipt of a completed Application for Mediation … a mediator will be appointed promptly,” and Rule 19.1 states that, subject to any agreed extension of time for mediation, “mediation must be concluded within 60 days of the filing of an Application for Mediation, completed in accordance with the requirements of Rule 12.”

Pursuant to s. 280(7), mediation can fail in one of three ways: 1) when the mediator has given notice to the parties pursuant to s. 280(6) that in his or her opinion mediation will fail, 2) when the prescribed time for mediation has expired and no settlement has been reached, or 3) when the agreed time for mediation has expired and no settlement has been reached. The Act prescribes that the mediator shall prepare and issue a report of mediator after that failure, regardless of how mediation failed:

Report

(8) If mediation fails, the mediator, in addition to any notice required to be given, shall prepare and give to the parties a report,

(a) setting out the insurer’s last offer and the mediator’s description of the issues that remain in dispute;

(b) containing a list of materials requested by the parties that have not been produced and that, in the opinion of the mediator, were required for the purpose of discussing a settlement of the issues;

Same

(9) The mediator may give his or her report to … an arbitrator conducting an arbitration under section 282.

I will now turn to how the law was applied to the facts in this case.

Mr. Leone was injured in a motor vehicle accident on September 11, 2009. Disputes arose about his claims for statutory accident benefits from his insurer, State Farm. On September 28, 2010, he submitted an application for the appointment of a mediator to the Financial Services Commission of Ontario (FSCO).

FSCO’s Mediation Support Unit assigned a mediation file number. Its October 8, 2010 letter confirmed receipt of the application on September 30, 2010, and informed Mr. Leone that “we are currently experiencing an increase in processing time. Complete applications are taking longer to be assigned to a mediator as a result of the large volume of applications which we continue to receive.”

On March 14, 2011, with no mediator yet appointed to his case, Mr. Leone submitted an Application for Arbitration to FSCO. From that point on he reiterated his position that the prescribed 60 days had elapsed since the filing of the Application for Mediation and therefore mediation had failed, entitling him to seek arbitration.

FSCO initially rejected the Application for Arbitration at intake on the basis that there had not been a failed mediation as required under s. 281(2) of the Act. However, in August 2011, both the mediation and arbitration applications were processed. FSCO only then sent a copy of the application for the appointment of a mediator to State Farm.

With respect to mediation, on August 18, 2011, Mr. Leone was advised by a mediator that his Application for Mediation had been assigned to her. She indicated that she would try and resolve the issues in dispute within 60 days from the date of her appointment, namely by October 17, 2011. On August 24, 2011, she wrote the parties that as they had agreed to extend the closing date of the mediation, she would set up a conference call for the mediation on October 28, 2011.

On August 31, 2011, counsel for Mr. Leone indicated that in his opinion mediation had already failed 60 days after the filing of the Application for Mediation, that he would not be participating in any further mediation matters, and that it was through inadvertence that his assistant had agreed to extend the closing date for mediation.

On October 28, 2011, the mediator issued a report that she had “determined that mediation did not take place” and was closing the file. She added: “Should you have an issue in dispute in the future, you may apply for mediation again,” and she pointed out the time limitation, in the Act and in the SABS, that a mediation proceeding under s. 280 of the Act shall be commenced within two years after the insurer’s refusal to pay the amount claimed.

With respect to arbitration, on August 16, 2011, Mr. Leone’s Application for Arbitration, even though it had initially been rejected by FSCO at intake, was registered and served on State Farm. In its response to the application, State Farm raised the jurisdictional issue that as there had been no mediation Mr. Leone was barred under s. 281(2) of the Act from proceeding to arbitration. By letters dated September 19, 2011 and November 1, 2011, Mr. Leone requested a hearing to deal with this jurisdictional issue on a preliminary basis. Arbitrator Rogers heard the matter on January 16, 2012.

In his decision dated February 10, 2012, the Arbitrator found that Mr. Leone had filed a completed Application for Mediation by September 30, 2010. Therefore, he found that mediation was deemed to have failed before Mr. Leone commenced arbitration.

With respect to the alleged extension of time for mediation, the Arbitrator found that

the assistant’s agreement could be binding because she had the apparent authority to make it. However, when the assistant agreed to extend the time, mediation had already failed because a mediator had not attempted “to effect a settlement… within sixty days after the date on which the application for the appointment of a mediator is filed.” The assistant’s agreement could not confer jurisdiction to mediate in these circumstances.

Finally, the Arbitrator exercised his discretion under the DRPC to excuse Mr. Leone from having to file a report of mediator as the DRPC requires.

I note that the issue with respect to the deemed failure of mediation was considered in two court cases, Cornie v. Security National et al, 2012 ONSC 905, and Younis v. State Farm, Endorsement of DiTomaso, J. dated February 21, 2012, where FSCO refused to issue reports of mediator in similar circumstances on the basis that mediation had not yet occurred. The courts reached the same conclusion as the Arbitrator with respect to the deemed failure of mediation. The issue of whether the parties can agree to extend the time limit for mediation was not before the courts.

III. ANALYSIS

When was the Application for the Appointment of a Mediator “filed”?

The date an application for the appointment of a mediator is filed determines the time allotted for the completion of mediation. Mr. Leone submits that “the only real issue at bar is the plain and ordinary meaning of the word filed, with either a precise and objective meaning, or a random and discretionary meaning as defined or employed by FSCO from time to time.”

Mr. Leone submits that his application was filed when he delivered his completed application to FSCO in September 2010. State Farm submits that his application was not filed until the mediator was appointed 11 months later.

The Arbitrator noted that, while “file” is not defined in s. 280(2) of the Act or in s. 10 of the Regulation, it is defined in the DRPC.³ Rule 4.1 defines “file” as meaning “to file with the Dispute Resolution Group.” Rule 6 prescribes that, where the Rules require a document to be filed, the document must be delivered to the DRG by one of the permitted methods and within the time frames of Rule 7. Rule 12.2 requires a party to file a completed application (as defined by the DRPC), and Rules 12.3 and 12.4 provide that an incomplete application may be held in abeyance for 20 days and ultimately rejected.

The Arbitrator found that Mr. Leone delivered his Application for Mediation to the DRG no later than September 30, 2010. He found there was no evidence that Mr. Leone’s application was incomplete, so therefore a completed application was filed by September 30, 2010. In a footnote, the Arbitrator added that, while there may be cases in which the date FSCO acknowledges receiving the application differs from the date it was received or delivered, that issue was not critical in this case. He also did not purport to decide that the date FSCO acknowledges receipt is the date of filing, nor the date when an application is filed, if it is in fact incomplete on the date that it is delivered.

The Arbitrator found no merit to State Farm’s submission that the Application is not filed until a mediator is appointed. He found that the definition of “file” suggests the 60 days commence before a mediator is appointed because both the Act and the DRPC treat filing to appoint a mediator [in s. 280(2) and Rule 12] and appointing a mediator [in s. 280(3) and Rule 13] as separate events.⁴

The Arbitrator thus found no jurisdictional barrier to Mr. Leone filing his Application for Arbitration, as the prescribed time for mediation had expired. He found this consistent with the scheme and intent of the Act, the SABS and the DRPC: to encourage prompt benefit payment and speedy dispute resolution. He also noted that otherwise there is no fixed time for completing mediation, rendering meaningless the requirement for the prompt appointment of a mediator.

On that last point, both parties agree that appointing a mediator months after FSCO received the Application for Mediation was not ensuring “that a mediator is appointed promptly.” I concur.

However, while there is merit to State Farm’s submission that a substantive objective of the legislation is that mediation actually occur, this case illustrates the tension between that objective and the objective of concluding the mediation process within the prescribed time limit of 60 days.

In that regard, I agree with Mr. Leone’s submission that “the entire legislative scheme provides that the filing or delivery of the Application for Mediation commences the 60 days to run. Thereafter, FSCO must promptly … determine its completeness, advise the other party and appoint a Mediator, whose authority expires on the 60th day after the filing. In FSCO’s early years, all of this was easily and efficiently carried out…”

One need only look at Couraud and Co-operators General Insurance Company, (OIC A‑006346, October 31, 1994) as an example of that last statement. Mr. Couraud filed an application for the appointment of a mediator on August 30, 1993. On September 1, 1993, the mediator who was appointed wrote to the Applicant and his counsel requesting that they telephone him as soon as possible because the 60 day period for attempting to settle would expire on October 29, 1993 – exactly 60 days after August 30, 1993.

I can sympathize with FSCO’s position that some time is needed to determine if an application is complete. Item 3 under the heading General Information Concerning the Time Lines for the Services of the Dispute Resolution Group in the Preamble to the DRPC states:

3. An Application for Mediation in FORM A, completed in accordance with the requirements of Rule 12.2, will be registered and assigned to a mediator within 3 weeks of its receipt.

However, the following currently appears under that item:

Due to a backlog that resulted from the significant increase in applications, FSCO is currently unable to meet the timelines for assigning completed applications to a mediator. FSCO has implemented a number of initiatives to ease the situation, however, the current pressure is expected to continue into 2012. FSCO is working to apply additional measures to reduce the backlog.

Thus, FSCO is not even meeting the extra time it has given itself to appoint a mediator. In this case, the 3 weeks stretched to 46, which is untenable. This did, indeed, render meaningless the requirement for the prompt appointment of a mediator.

I also agree with Mr. Leone’s submission that a plain reading of s. 10 of Regulation 664 supports his interpretation. It refers to “sixty days after the date on which the application for the appointment of a mediator is filed,” not “sixty days after the date on which the mediator is appointed.” It is circular logic to say that an application is only filed when a mediator is appointed.

In conclusion, I agree with the Arbitrator that filing an application for the appointment of a mediator and appointing a mediator are separate events. Therefore, I agree that the sixty days started to run when Mr. Leone filed a completed application and not when the mediator was appointed. The Arbitrator found that the Application for Mediation was complete and was filed by September 30, 2010. Therefore, mediation was deemed failed by November 29, 2010, unless the parties could agree to extend the time for completion of mediation and did so.

Could the parties by agreement extend the time for completion of mediation after the prescribed 60-day period has expired?

The Arbitrator found that, once the 60 days from filing the application for the appointment of a mediator had passed, there was no jurisdiction for the parties to agree to extend the time. This was an error. The 60-day time limit in s. 10 of the Regulation is not absolute, as s. 280(5) of the Act allows the parties to agree to extend the time for mediation:

Extension of time

(5) The parties may by agreement extend the time for the completion of the mediation process, even if the time for completion has expired. [Emphasis added.]

The Act is silent on the method of extending the time for completion. The DRPC in Rule 19.3 provides that, where the parties have agreed to extend the time limit, they must provide the mediator with written confirmation of the dates agreed upon for the extension. In this case, the mediator sent out sign-back letters for the parties to confirm their agreement. Mr. Leone did not sign back the letter. Instead, his counsel immediately rescinded the agreement, effectively ending it. Therefore, there was no binding extension of time.

Had the extension been done in accordance with Rule 19.3, I would have found that the time for completion of mediation was extended by the parties and mediation did not fail, despite the expiry of the 60-day prescribed time limit.

While the extension of time provision in s. 280(5) is not determinative in this case, it is important to those cases still in the mediation system. As discussed, s. 280(5) means that the parties can agree to mediation despite the expiry of the 60-day period. Therefore, those parties who have filed completed Applications for Mediation where the 60 days have passed may continue to seek mediation if they so desire. Otherwise, if the Arbitrator were correct, it would mean that such parties would be unable to do so and would have to proceed to arbitration or the courts.⁵ This would be contrary to the intent of the legislation to encourage mediation and discourage litigation.

Was Mr. Leone Required to File a Report of Mediator?

Where mediation fails, the mediator is required to issue a report of mediator: s. 280(8). Rule 25.2 requires a person applying for arbitration to file a copy of the report of mediator along with the application. The Arbitrator excused Mr. Leone from attaching one to his application. The Arbitrator held that it would be unreasonable to apply that Rule where mediation is deemed to have failed and no report of mediator is available to Mr. Leone. Accordingly, he exercised his discretion under Rule 81.1(b), which allows an arbitrator to decide that any Rule does not apply in respect of a proceeding, to waive compliance with Rule 25.2.

State Farm submits that the Arbitrator had no jurisdiction to do so. However, as Mr. Leone submits, the Arbitrator did not excuse the mediator from creating the report of mediator, but simply excused Mr. Leone from having to attach one to the Application for Arbitration. I agree, and the Arbitrator had the discretion to do so under Rule 81.1(b). While a waiver of procedural requirements under Rule 81.1 is “Subject to the requirements of the Insurance Act and the Statutory Powers Procedure Act,” nothing in the Act required Mr. Leone to attach a copy of the report of mediator to his Application for Arbitration. He did comply with the Act by applying for the appointment of a mediator, so it is not as if the Arbitrator excused him from that fundamental requirement.

Rather, the Act mandates that it is the mediator who shall prepare the report, so it is up to FSCO to provide the report as needed. As Sloan J. stated in Cornie:

There does not appear to be any reason why a mediator could not issue a report at the request of either of the parties simply stating that the mediation failed because the prescribed time period in which the mediation was to be held has expired.

Since both parties will have filed an application and response, the mediator could set out (if necessary) the last offer of the insurance company, a description of the issues, the materials that should be produced, if any, and a note stating whether s/he felt the issues should be referred for an evaluation under s. 280.1.

Now, in this case, State Farm was not notified of the dispute until August 2011, despite Rule 13.1(a), which requires the DRG “On receipt of a completed Application for Mediation … [to] deliver a copy of the completed Application … to the other party.” However, as the Arbitrator noted, the potential breach by FSCO of its obligations under Rule 13.1(a) should not have a bearing on whether or not Mr. Leone can proceed to arbitration. Furthermore, even if the DRG is not strictly complying with this Rule, I take judicial notice of FSCO’s Dispute Resolution Case Directory (DRCD), available at its web site. As is stated at p. 2322 on the site, the DRCD

is designed to provide insurers with fast and easy access to basic information on their open applications for Mediation, Arbitration or Appeals at DRS [Dispute Resolution Services]. Insurers retain exclusive, password-protected access to its directory of files in which it was the named party in the dispute. In late summer 2010, DRS implemented several enhancements to its DRCD in response to feedback from its stakeholders.

Accordingly, even without the notice under Rule 13.1(a), insurers have access to information about all mediation applications that have been filed. Therefore, if an insured requests a report of mediator where mediation has not occurred but 60 days have passed since the application was filed, the fact of the application for mediation should not surprise the insurer, as the insurer would have had access to the basic information about the claim, and the report of mediator can reflect the basic information available.

The report of mediator is also important with respect to the limitation period alluded to by the mediator. Under s. 281.1(1) of the Act, a mediation proceeding or a court proceeding or arbitration shall be commenced within two years after the insurer’s refusal to pay the benefit claimed. Each of these steps has to be taken within the requisite period, but there is an extension of time for commencing arbitration or a court action under s. 281.1(2)(b). This provides that, despite s. 281.(1), and if there is no neutral evaluation, a court proceeding or arbitration may be commenced “if mediation fails … within 90 days after the mediator reports to the parties under subsection 280 (8).” Thus, the report of mediator allows for the extension of the limitation period.

The issue of the effect of the report of mediator on the limitation period was not addressed by the Arbitrator, although it was considered in Cornie. One of the submissions before Sloan J. in Cornie was that if the actual mediation does not take place it undermines the limitation periods set out in ss. 281.1(1) and 281.1(2)(b) of the Act. Sloan J. found:

This does not appear to be the case. The section simply allows for the extension of the limitation period beyond two years as set out in section 281.1(1) in circumstances described in section 281.1(2)(b).

I agree. Thus, I am not persuaded by State Farm’s submission that the deemed failure after 60 days necessarily results in a “deemed” report of mediator being issued. State Farm submits that if there is a deemed failed report of mediator at 60 days of receipt, the extension of the limitation period set out at s. 281.1(2)(b) would then automatically expire 150 days after the insured person submits their application for mediation, so this could potentially deprive applicants of pursuing their claims due to the expiration of the time limit.

However, since s. 280(5) allows the parties to agree to an extension of time both before and after the expiration of the 60 days, no failed report of mediator is necessarily deemed issued, and as I said above, the parties can continue with mediation once a mediator is appointed if they so wish. Presumably, where an application for the appointment of a mediator has been on file for more than 60 days, the mediation rests in an indeterminate state until either mediation is set up by agreement of the parties to extend the time for mediation or, as happened in this case, the applicant advises FSCO that the prescribed time has expired and he or she wishes a report of mediator to be issued.

I say this in an attempt to deal with a section that presumes a mediator is promptly appointed to attempt to settle the disputes set out in the application for the appointment of a mediator before the 60 days expire.

Furthermore, as Sloan J. noted, the extension for the report of mediator “simply requires the plaintiff’s lawyer to track two potentially different limitation periods.” If the limitation period is about to expire, then the applicant can either request the report of mediator and automatically get the additional 90 days to commence arbitration or a court proceeding, or simply commence an arbitration or court proceeding.

State Farm also submits that, in the absence of a report of mediator, the limitation period may never expire and could run indefinitely. Again, Sloan J. dealt with this:

This argument does not seem to take into account the two year limitation period set out in section 281.1 and the fact that the insurance company can request the mediation. In the unlikely event that a mediator would refuse to give a mediation report where one is required for the purposes of s. 281.1(2)(b), the insurance company may need to proceed by way of a mandamus or other application.

I agree with the approach adopted by Sloan J.

To conclude on this point, I agree with the Arbitrator that Mr. Leone did not need to attach the report of mediator to his Application for Arbitration where mediation has failed by statutory definition but no report of mediator is available. Subsection 280(8) can still be complied with, but it is up to FSCO to comply. Mr. Leone should not be prevented from proceeding to arbitration where through no fault of his own s. 280(8) has not been complied with.

For the reasons set out above, the appeal is dismissed, and the Arbitrator’s decision is affirmed.

IV. EXPENSES

If the parties are unable to agree on the legal expenses of this appeal, an expense hearing shall be requested within sixty days of this decision. The request shall be accompanied by a Bill of Costs describing the expenses claimed, the services received and the costs, as well as written submissions regarding entitlement to or the quantum of these expenses, or both, as are in dispute.

July 31, 2012

David Evans Director’s Delegate

Date

Footnotes

1. 1The Dispute Resolution Practice Code, Fourth Edition − Updated August 2011.
2. 2The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
3. 3Pursuant to s. 21 of the Act, “the Director may make rules for the practice and procedure to be observed in mediations under section 280…” Under the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, “A tribunal may make rules governing the practice and procedure before it” (s. 25.1(1)), and the rule-making power “is in addition to any power to adopt rules that the tribunal may have under another Act” (s. 25.1(6)).
4. 4Further, as Sloan J. stated in Cornie, “Nowhere in the DRPC does it state that the 60 days referred to in Rule 19.1 does not commence to run until a mediator is appointed.”
5. 5In that regard, I note that Rule 12.5 states: “A party may not reapply for mediation of any dispute that has been mediated and, according to the Report of Mediator, the dispute was not resolved.”