Neutral Citation: 2012 ONFSCDRS 33 FSCO A10-003694

BETWEEN:

LIANNA FERRILL Applicant

and

PILOT INSURANCE COMPANY Insurer

PRE-HEARING DECISION

Before: Arbitrator John Wilson Heard: Written submissions received by February 22, 2012 Appearances: Alexander Voudouris for Ms. Ferrill Pamela Quesnel for Pilot Insurance Company

Issues:

The Applicant, Lianna Ferrill, was injured in a motor vehicle accident on February 28, 2008. She applied for statutory accident benefits from Pilot Insurance Company (“Pilot”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Ms. Ferrill applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The Application for Arbitration was filed on November 29, 2010 and received by the Insurer on November 30, 2010.

The letter advised that in accordance with the Dispute Resolution Practice Code (Practice Code), Pilot had 20 days to serve and file its Response.

No response was received from Pilot. Subsequently, on April 18, 2011, a case administrator contacted Pilot again enquiring as to the absence of a Response.

Ultimately, some 5½ months after the expiry of the deadline, Pilot retained counsel, who, in turn, filed a Response on behalf of Pilot on May 31, 2011.

It was clear on the face of the Response that it was not filed within the time limit set out in the initial letter to Pilot nor within the parameters set out in Rule 26.1(a) of the Practice Code.

Pilot has now brought a motion for an order nunc pro tunc extending the time for delivery of its Response.

The issues are:

Should Pilot’s default in filing its Response beyond the period set in the Dispute Resolution Practice Code be set aside and the time limits for the filing of its Response retroactively waived?

Result:

Pilot shall have an order nunc pro tunc permitting it to serve and file its Response beyond the 20-day period prescribed by the Dispute Resolution Practice Code.

EVIDENCE AND ANALYSIS:

The arbitration process at the Commission is a form of litigation conceived for the insurance consumer as a way of resolving disputes between insureds and insurers over statutory accident benefits. Unlike recourse to courts, only an insured can commence an arbitration. As the court of appeal noted in Fernandes², the insured has control of the choice and timing of the arbitration process.

While over time there have developed a plethora of time restrictions, ensuring that the insured engages in the arbitration on a timely basis, there are fewer such limits placed on the insurer, who is both a contractual and a statutory party to any arbitration.

One of the few time limits imposed on insurers is that created by Rule 26.1(a) of the Practice Code, which requires that an insurer serve and file a Response by Insurer to an Application for Arbitration within 20 days of the receipt of the Application for Arbitration.

Although the Practice Code does not provide a specific consequence for a failure to file a Response within the time set out in the Practice Code, jurisprudence at the Commission and, indeed, the letters sent to all insurers along with the completed Application for Arbitration, indicate that default could result in the matter proceeding on an uncontested basis without the participation of the insurer.

The Commission’s standard letter which accompanies the copy of the Application sent to the Insurer states: “Insurers who are late filing their responses may not have standing to participate in the arbitration process nor to receive further notice regarding the proceedings.”

The absence of a specific default provision in the Practice Code is not surprising. Although the Practice Code provides guidance for the sometimes complex litigation between parties, it remains an outline of procedure and does not deal directly with every possible procedural issue that can arise between an insurer and its insured. Rather, it leaves a lot up to common sense and the discretion of an arbitrator.

When examining the consequences of a failure to file a Response, it is important to look at the meaning of a Response itself. A Response is the opportunity of an insurer to indicate whether or not it agrees with or accepts the claims put forward by its insured.

If there is a true dispute between the parties then a Response allows the insurer to indicate the areas of disagreement and to provide particulars of any allegations, matters or conduct it relies upon in rejecting its client’s claims.

Once again, the particularity of this form of statutory arbitration should be underlined. Unlike the general run of disputes which find their way into the courts, the parties to an accident benefit dispute are bound by contractual and legal obligations of good faith towards each other.

An insured may be obliged to issue an application for arbitration to protect time limits in a claim that has dragged on. One cannot assume that in every claim an insured and his or her insurer are irretrievably at odds with each other.

Provided that an insurer has been given due notice of an application for arbitration, a failure to reply in a timely matter can give rise to the inference that the insurer has no interest in disputing the claim put forward by the applicant. Like most inferences, this would be rebuttable in the event that positive evidence were brought forward showing the contrary.

Timeliness is important in the accident benefit forum. Indeed, it is fundamental.

As Cameron J. observed in Youden v. Economical Insurance Company:

The Regulation provides for prompt payment of an income benefit to replace income lost due to the accident without need to prove fault and in lieu of any amount the plaintiff might have been awarded and recovered at common law.³

Time limits are not provided in a vacuum. It is presumed that they have force and have consequences. Moreover, it is presumed that they should be obeyed.

Time requirements laid down by the Court, both pursuant to the Rules and by order, are not merely targets to be attempted. Such are to be observed, both because delay may cause prejudice and because litigation must come to a timely conclusion.⁴

Senior Arbitrator Rotter in Ntana recognized the nature of time limits in a consumer-based system.

In keeping with the spirit of this process, Zurich was repeatedly reminded and invited to file its response and assessment fee, well after the due date for doing so had expired. However, even a user-friendly system cannot allow parties to ignore, with impunity, basic rules and requirements.⁵

The Senior Arbitrator then drew a logical inference from the failure to undertake a mandatory first step in arbitration for an insurer and found:

The language of both sections is mandatory. I conclude, therefore, that if an insurer fails to pay its one thousand dollars in respect of the arbitration, and fails to file its response, it cannot be considered a party, for the purpose of receiving notice of the hearing.

If the insurer cannot take the trouble to indicate that it formally disputes the claims contained in the Application for Arbitration in a timely manner, then there is no reason for it to participate further in the process.

Senior Arbitrator Rotter’s reasoning in Ntana cannot be faulted. It fits with the consumer protection nature of the accident benefit system and provides a simple and elegant solution to avoiding unnecessary delays. Indeed, it would be absurd to provide a mandatory time limit without accepting that the default of that limit has consequences.

I note also that such a result is consistent with the written notice sent to each insurer along with the Application for Arbitration. As such, the consequence was something that a frequent participant to accident benefit arbitrations, such as Pilot, would have known and anticipated.

What was appropriate from a consumer protection standpoint almost two decades ago remains so in 2012. As Sloan J. noted in a recent case concerning delays in mediation:

Given the differences in resources between the plaintiffs and the Insurance Companies the prejudice to the plaintiffs if they can’t access their accident benefits in a timely manner would far outweigh any prejudice to the insurance companies not being able to force the plaintiffs into mediation after 60 days.⁶

Unlike the situation of Zurich in Ntana however in this matter, Pilot has not waited until after the hearing in the matter to address the problem caused by its default in filing a very late Response. It has now brought a motion to have the time limits for its Response waived and its default in timely response set aside.

Pilot has suggested that I may make an order pursuant to Rule 34.1 of the Practice Code (which deals primarily with orders and agreements regarding timelines relating to production). The range of outcomes outlined in section 34.1, however, makes no sense in the context of a failure to file such a fundamental document as a Response, which gives both voice and standing to an insurer in the arbitration process. Rather, jurisdiction for any curative order should be found in section 20(2) of the Insurance Act and Rule 81.1 of the Practice Code.

While I agree with Senior Arbitrator Rotter that the timelines in the Practice Code are mandatory, the same Code at Rule 81 recognizes the discretionary jurisdiction of arbitrators to amend, or suspend such time limits, where it is appropriate. Rule 81.1 reads as follows:

81.1 Subject to the requirements of the Insurance Act and the Statutory Powers Procedure Act, the adjudicator may on such terms as he or she considers just:

(a) set aside any time limit set out in these Rules for doing any act, serving any notice, filing any document or holding any hearing.

(b) decide that any Rule does not apply in respect of a proceeding

In Hunt v. Brantford (City)⁷, E. Macdonald J. conveniently summarized the criteria for setting aside a default judgement. While this matter has not reached the stage of a final order being registered as a result of a party’s default in responding to a claim, the criteria he outlines are useful in considering the exercise of discretion to set aside default:

In their factums, both counsel were in agreement that, on a motion to satisfy a default judgement, the defendant is required to show that:

(a) the default was unintentional and provided a valid reason for the default;

(b) the motion was launched forthwith after the judgement came to its attention;

(d) full disclosure of all material(s) facts have been made.

In Lebana, I added a further comment to the criteria:

I might add, as well, drawing on Ntana (supra), that it must be shown that, to set aside default, an applicant will suffer no prejudice that cannot be addressed by either a costs order, an adjournment, or other relief within the jurisdiction of an arbitrator.⁸

Pilot has provided affidavit evidence suggesting that its person designated to handle incoming applications somehow neglected to respond to Ms. Ferrill’s application, and that it was always the intention of Pilot to respond and file the appropriate Response. It was a case of oversight and human error.

Arbitration is supposed to be an expeditious process, with pre-hearings and hearings available on relatively short timelines. In theory at least, had the timelines in the Practice Code been adhered to, Ms. Ferrill may have been in a position to already have her claim either settled or adjudicated. Although given the significant delay in responding to the Application for Arbitration some prejudice to Ms. Ferrill might be inferred, her counsel has quite properly, consented to this application.

From the Response filed, Pilot appears to have a defence to this claim that is not frivolous. I also note that Pilot may have been somewhat lulled into complacency in this matter. In spite of the failure to respond, no action was taken by the Commission other than follow-up letters some months afterward.

Notwithstanding section 282(2)of the Insurance Act, which provides that the Director “shall ensure that an arbitrator is appointed promptly”, no arbitrator was appointed in this matter until over a year following the Application for Arbitration, leaving a jurisdictional vacuum when a decision needed to be made on the manner in which this arbitration should proceed.

In addition, according to the affidavit material filed in the Motion, Commission staff may have provided misleading or incorrect information as to the status of the Insurer’s Response.

Given the above, I am content to make an order nunc pro tunc permitting Pilot to serve and file its Response beyond the 20-day period prescribed by the Dispute Resolution Practice Code.

The dates for the arbitration hearing in this matter have already been tentatively agreed upon by the parties. Those dates are now confirmed and made peremptory to Pilot.

EXPENSES:

I have received no submissions on expenses, and indeed do not feel that this matter is appropriate for an interim expense order. I do note, however, that the Insurer’s delay in delivering the Response may be properly considered as a factor in awarding expenses in the context of any final expense order.

March 14, 2012

John Wilson Arbitrator

Financial Services Commission of Ontario