Neutral Citation: 2013 ONFSCDRS 15 FSCO A09-002596

BETWEEN:

NAVARATHY CHANDRABABU Applicant

and

TD HOME AND AUTO INSURANCE COMPANY Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Robert A. Kominar Heard: July 16, 2012, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Robert Zigler for Mrs. Chandrababu Riva Minhas for TD Home and Auto Insurance Company

Issues:

The Applicant, Navarathy Chandrababu, was injured in a motor vehicle accident on October 3, 2007. She applied for statutory accident benefits from TD Home and Auto Insurance Company ("TD"), payable under the Schedule.¹ TD terminated various accident benefits. The parties were unable to resolve their disputes through mediation, and Mrs. Chandrababu applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

Is Mrs. Chandrababu precluded from proceeding to arbitration because of a settlement reached by the parties.

Result:

Mrs. Chandrababu is currently precluded from proceeding to arbitration. The arbitration is stayed pursuant to the terms set out in my Order below.

BACKGROUND:

The preliminary issue question here arises out of a disagreement between the parties over the proper interpretation of written Minutes of Settlement which they entered into in order to resolve the substantive issues in dispute in this arbitration. Important to note at the outset is that, in actuality, the parties resolved ALL of the disputed substantive issues in the course of their settlement. The sole lingering point of contention² is whether Mrs. Chandrababu can still proceed to a hearing in order to put evidence before a hearing arbitrator with the sole purpose of having an arbitral order issued for ongoing income replacement benefits. In many ways this question is as much the product of the dispute resolution provisions of the Insurance Act along with the current dispute resolution process and practice at the Financial Services Commission of Ontario (FSCO), as it is the result of any substantive dispute between the parties. It is an example of how process has the potential to generate problems in its own right.

Some procedural background is necessary to understand the context of this disagreement. Mrs. Chandrababu filed an Application for Arbitration with FSCO, dated October 6, 2009. In that application she claimed entitlement to income replacement benefits, particularized as follows:

By Report of Mediator dated February 12, 2009, the insurer agreed to pay a weekly income replacement benefit in the amount of $333.82 per week from September 12, 2008 and ongoing, so long as the insured remains entitled to receive the said benefit in accordance with the provisions of the SABS. Although the insured does continue to be entitled to receive said benefit, the insurer advised her that the benefit would be stopped effective October 6, 2009. Accordingly, the insurer is in breach of the said agreement.³

In addition to income replacement benefits the Applicant claimed interest, expenses and a special award. Ms. Minhas, counsel for TD, filed a Response to the Application for Arbitration, which it is fair to characterize as alleging that Mrs. Chandrababu did not meet the disability test for income replacement benefits or other relief based on a number of grounds. The parties consented, at some point in time, to add additional issues into the arbitration including: attendant care benefits, medical benefits, housekeeping benefits and various costs of examination.

The arbitration hearing was originally scheduled to commence on July 18, 2011. In the normal course of preparing, both counsel discussed the possibility of resolving the issues without need for a hearing, a practice which is very strongly and appropriately encouraged by FSCO. However, they were unable to reach a settlement themselves and so requested the assistance of an arbitrator to participate in their ongoing settlement negotiations, once again a normal practice encouraged by FSCO. Still, no settlement was reached. Notwithstanding this failure to overcome their differences, both counsel continued to communicate about possible framework of an agreement. The Insurer ultimately made a formal written offer to settle the arbitration on July 14, 2011.

From the evidence before me, it seems that there was, from the beginning of their discussions, little substantive difference in the content of the parties' positions on substantive claims. In effect their disagreement centred on Mrs. Chandrababu's insistence that any settlement agreement be converted into an arbitral order confirming her ongoing entitlement to income replacement benefits. Although TD was willing to pay all accumulated arrears of income replacement benefits, other claimed benefits, interest, expenses, and to reinstate the income replacement benefits going forward, it was not willing to consent to the issuing of an order for ongoing entitlement. For those not familiar with the arcana of accident benefit law this might seem to be a minor concern, given that the Insurer was in fact reinstating payment of the income benefit. However, there is a significant difference between an insurer paying accident benefits pursuant to an arbitral order and paying those benefits either unilaterally or pursuant to a contractual settlement agreement.

Initially, the Applicant was intransigent on the point of requiring an order as part of any settlement. TD was equally adamant that it would never consent to settlement terms that included such a provision. To their credit, despite what seemed to be an impasse in their negotiations, the parties continued communicating.

July 18, 2011 was the scheduled first day of the arbitration hearing. Not atypically, the parties advised the hearing arbitrator at the beginning of the proceeding that they believed they could benefit from further settlement talks. The arbitrator excused himself and allowed them time to continue their negotiations. These discussions were conducted by Mr. David Wilson on behalf of Mrs. Chandrababu, and Ms. Minhas, Mr. Frank⁴ and Ms. Peggy Jacobs on behalf of TD. Eventually the parties came to an agreement and entered into Minutes of Settlement. They then jointly advised the hearing arbitrator that they had reached a "partial" settlement of the issues in dispute, but that they wished to adjourn the arbitration to deal with a potential future termination of income replacement benefits. The evidence of Ms. Jacobs is that there was some discussion with the hearing arbitrator about how to record just what this settlement was and what issue was still in dispute. Whatever communication took place before the arbitrator, the result was that he adjourned the arbitration for approximately one year, to July 16-19, 2012.

After the hearing was adjourned, Mr. Wilson requested that a further memorandum of agreement be signed by the parties, confirming that they had mutually agreed to the adjournment to July 16, 2011 [sic]⁵ and further that TD would pay the Applicant's costs and disbursements to date as agreed to or assessed. The parties did execute this agreement. Subsequently TD reinstated Mrs. Chandrababu's income replacement benefit and ultimately issued payment for all of the income replacement arrears as well as for outstanding housekeeping, attendant care, medical expenses, cost of examination expenses, interest, legal expenses and a special award.⁶

Once the parties had resolved the details of the payment owing by TD to Mrs. Chandrababu, the file saw no further significant action until May 31, 2012 when Mr. Wilson wrote to Ms. Minhas to advise that, in his view, the only issue still pending in the upcoming arbitration was the order for ongoing income replacement benefits. Ms. Minhas responded that, in TD's view, there was no basis to continue with an arbitration hearing as they had reinstated Mrs. Chandrababu's income replacement benefits, as agreed, and they had not stopped them or ever suggested that a stoppage was being contemplated. In effect, Ms. Minhas put to Mr. Wilson that there were no longer any "issues in dispute" in this arbitration and consequently holding a hearing was unreasonable and without purpose. She advised Mr. Wilson that TD was not open to renegotiating the terms of the settlement entered into in 2011 and observed that the Applicant always had the right to commence a new dispute resolution process in the event that income replacement benefits were ever terminated.

The parties attempted to deal with this new disagreement through a resumed pre-hearing, but ultimately TD requested that the matter be specifically addressed through a Preliminary Issue Hearing, TD's view being that no further hearing on this arbitration should proceed and Mrs. Chandrababu's view being that she was still entitled to request an order for income replacement benefits notwithstanding the reinstatement of those benefits and the fact that they were still being paid by TD.

ANALYSIS

As I noted above there is a reason which explains why parties might dispute whether an arbitral order should issue in these circumstances or not. It arises out of section 287 of the Insurance Act, which reads:

An insurer shall not, after an order of the Director or of an arbitrator appointed by the Director, reduce benefits to an insured person on the basis of alleged change in circumstances, alleged new evidence or an alleged error, unless the insured person agrees or unless the Director or an arbitrator so orders, in a variation or appeal proceeding under section 283 or 284. [Emphasis added]

In effect, this section mandates that, once an arbitrator⁷ makes an order for benefits, an insurer may not decrease those benefits below the level which the arbitrator ordered, without first obtaining a new order authorizing the change. As well, this new order must emanate from a variation/revocation proceeding. The significance of the reference to variation/revocation proceedings arises out of section 284(3) of the Insurance Act, which reads:

Powers on variation.

If the arbitrator or Director is satisfied there has been a material change in circumstances of the insured or that evidence not available at the arbitration or appeal has become available or that there is an error in the order, the arbitrator of Director may vary or revoke the order and may make a new order if he or she considers it advisable to do so.

Thus there are only three grounds for granting a new order in a variation/revocation proceeding: a material change in circumstances of the insured person; the discovery of evidence not available at the original hearing; or the need to correct an error in the original order. In effect, this processual change creates a de facto shift in the burden of proof. In a "normal" arbitration hearing, the applicant bears the burden of proving his or her case for benefits on a balance of probabilities. However, in a variation/revocation hearing, where the grounds are a material change in circumstances of the insured, the Insurer takes on the burden of establishing that such a change has occurred. I note that a "material" change in circumstances is not simply "any" change in circumstances.⁸

Contrast this with the normal adjusting process contemplated by the Insurance Act and the SABS where an insurer, once it has what it regards as reliable information that an insured no longer meets the relevant test for a specific benefit, typically from an independent assessment, can notify the insured and within a short period of time terminate payment of the benefit, subject always to the insured person's right to engage the dispute resolution processes provided for in the legislation.

Therefore, if the parties simply entered into an oral or written agreement for an insurer to reinstate income replacement benefits, the insurer would have maintained the right to continue to use its normal file adjusting processes to deal with those benefits on a going forward basis; such as sending the insured for reasonable independent assessments and potentially terminating benefits if it came to believe that the insured no longer met the disability criteria for entitlement to any specific benefit. However, if income replacement benefits were being paid pursuant to an arbitral order from FSCO⁹, then TD would have had to first obtain another order in a variation proceeding from FSCO to terminate or reduce those benefits, otherwise it had to continue to comply with the initial arbitrator's order. One might describe this as an analogue to the "pay pending" provisions of Bill 164¹⁰, an earlier version of the SABS.

An initial order for benefits from a FSCO arbitrator would only have been properly made if the arbitrator had been convinced, on a civil burden of proof, that the applicant met the relevant tests of entitlement to such benefits. If one reflects on it, there would be no reasonable grounds for an insurer to stop paying those benefits ordered unless or until something relevant changed in the applicant's status after the hearing. If an insurer disagreed with an arbitrator's decision to grant benefits on legal grounds, then an appeal would have been the proper recourse, not an application for variation/revocation. The issue of the insured's entitlement to the benefits in question would have been adjudicated and that adjudication would have "ended" the dispute, subject to appeal or judicial review. Subject to appeals and judicial reviews, there is no procedural mechanism to reargue the merits of the matter as res judicata sets in. The only reason for an arbitral tribunal to vary an order would have to arise out of an allegation that something new and "material" has occurred subsequent to the original order.¹¹ It stands to reason that, if this is the case, the insurer must rationally bear the burden of proof in establishing that material change. A variation/revocation hearing is a process designed to address such circumstances, providing that, as a condition precedent to any new adjudicative order being made, a material change in circumstances must be first demonstrated. Otherwise one would face the possibility of inconsistent rulings and multiple hearings simply because one party was unhappy with a decision and wanted to reargue it, potentially generating inconsistent results. New hearings would be inconsistent with the logic of common law adjudicative dispute resolution. Once again, I observe, that our system does not welcome invitations to decide hypothetical or moot issues.

But it may be that a party is not only or specifically concerned with this shifting burden. There is also pragmatic concern that relates to the way the dispute resolution process actually works at the present time. It is common knowledge that there is a significant caseload backlog that FSCO has experienced in the last few years, particularly in mediation, which is the mandatory gatekeeper process that parties must access before they can proceed to any form of adjudicative determination of their dispute. Although the backlog problem, some call it a crisis, has recently begun to be addressed administratively at FSCO, and the access to justice implications of the backlog have been dealt with by arbitrators and the courts,¹² it is evident to me in this case that both parties seriously contemplated what would be involved in bringing the matter back in front of an arbitrator at FSCO if they needed to do so and this concern is what largely colours their current disagreement.

The Minutes of Settlement executed by the parties provide the following:

The Insurer will agree not to require the Insured to attend for Insurer Examinations for a period of four months from the date of acceptance of this offer and that the effective date of termination is not to be prior to July 18, 2012.

All other terms of the settlement are in accordance with the letter dated July 16, 2012, from Devry Smith Frank LLP to David Wilson Barrister and Solicitors amended on July 18, 2011 attached hereto.

The arbitration hearing will be adjourned to a date to be set by Arbitrator Lee and agreed to by the parties.

The amended letter, dated July 18, 2011, referenced in Paragraph 2 of the Minutes of Settlement provides, in relevant part, the following:

The Insurer will agree to reinstate weekly income replacement benefits at the rate of $333.83 per week, including arrears owing for said benefit, plus applicable interest from October 7, 2009, and ongoing, so long as the Insured remains entitled to receive said benefits in accordance with the provisions of the SABS.

More specifically, the Insurer will not agree to an Order for ongoing income replacement benefits at the rate of $333.83 per week, nor agree that any future adjustment(s) made to the amount of the weekly benefit or any future termination of the Insured's weekly income replacement benefits done in accordance with the provisions of the SABS are subject to the requirement to bring an application for variation/revocation.

The remainder of this letter details various benefits which Mrs. Chandrababu claimed for housekeeping, attendant care, medical treatment, costs of assessment, legal expenses and disbursements that the parties also resolved at the time. In effect, every issue in dispute at the arbitration was resolved by the parties, and from what I understand, that amounted to every outstanding dispute related to accident benefits between the parties at the time being resolved. Certainly, every dispute which had been mediated and included as an arbitration issue was resolved. Specifically salient to this proceeding is that TD reinstated the ongoing payment of income replacement benefits to Mrs. Chandrababu and, so far, has done nothing to stop them.

The common law tradition has always eschewed adjudicating hypothetical, moot or purely academic issues. An actual dispute is a pre-condition for engaging the authority of courts and tribunals. Additionally, civil matters come before judges and arbitrators voluntarily; there is no public power to compel parties to have their civil disputes resolved through litigation, arbitration or any other third-party dispute resolution process. Our civil system is party driven. This context helps explain the support that legal disputing processes give to promoting, acknowledging and enforcing settlements which the parties craft themselves to resolve their specific differences. Certainly the current trend is to be more proactive in encouraging settlement rather than solutions imposed by third-party adjudicators if possible.

Although there is no doubt that, had this matter proceeded to an arbitration hearing and if Mrs. Chandrababu had been able to provide evidence that persuaded an arbitrator of her entitlement to ongoing income replacement benefits, an arbitral order for those benefits would have resulted and, once such an order issued, the variation/revocation process outlined above would have been needed to amend that order before any reduction in benefits. The question here is whether an applicant has a right to "claim" such an order without actually presenting evidence in a hearing to an arbitrator that would warrant a decision in his or her favour. Absent consent of the parties, arbitrators and judges cannot make orders without evidence adduced in a hearing. Arbitrators specifically have authority that is limited by the statutory authority they are given. They have no general jurisdiction or broad discretion such as Superior Court Justices have in many situations.

So, even if one acknowledges that after a typical arbitration hearing an order will issue, can one reasonably infer that a party is therefore entitled to have an order made in every instance where an Application for Arbitration has been commenced?

In my view, parties are entitled to such orders after hearings. In fact, the Insurance Act mandates that FSCO arbitrators shall render their decisions in the form of orders. But these orders are to be made either on consent or after hearings. In this case, the settlement of all issues eliminated the need for any hearing. In fact, it is difficult to understand what any ongoing hearing could reasonably have dealt with. It is theoretically possible that the Applicant might have wanted to conduct an actual hearing, putting evidence before a hearing arbitrator, just as she might have done had no settlement been reached beforehand. However, that would raise the spectre of the Applicant not being able, for some reason, to meet the burden of proof and thus a decision being made by the arbitrator that was inconsistent with the settlement the parties had negotiated between themselves. It seems absurd to me that parties acting in good faith would ever want to put themselves into such a situation. If an inconsistent order was made, one wonders whether the Applicant at that point could apply to have the settlement agreement enforced as opposed to the inconsistent arbitral order? Clearly such uncertainty is not anything that should be promoted by our dispute resolution system, even on a theoretical basis. There is no process logic or advantage to it.

In addition, the burden shifting aspects of the variation/revocation proceedings are intended to be triggered after an arbitrator holds a hearing on the merits, or at least after the parties have consented to such an order being made. Mrs. Chandrababu's argument that she is entitled to ask for an order in these circumstances is not neutral on its face or procedurally benign. If such an order were made, as TD argues, the burden shifting involved would add significantly to the agreement thereby altering the substance of what the parties had negotiated.¹³

In effect, the routine granting of such orders after settlements, simply because an Applicant might feel more comfortable and secure with an order than without one, would effectively transfer a significant amount of the day-to-day responsibility and authority for the insurance adjusting process from insurance companies to FSCO. This would be, in my view, completely chaotic. Such a view has been recently noted and endorsed in a decision of Mr. Justice Reid of the Superior Court in Riseborough v. Co-operators General Insurance Company.¹⁴ The facts of the case are relevantly similar though not identical to the current situation. In Riseborough, the Plaintiff sought a declaratory order from the court for ongoing benefit entitlement based on an inference she drew from an adjuster's offhand comment that he regarded the case as being "minor." The Plaintiff wanted peace of mind and to know that the insurer could not reduce, or cut off benefits without first obtaining the court's imprimatur through a variation process analogous to FSCO's. Justice Reid held that while declaratory orders were within the court's jurisdiction to make, the present situation did not warrant one as it was clearly premature given that no dispute actually existed between the parties at the time of the request. Since there was no actually existing disagreement between the parties, there was "no reasonable cause of action" disclosed in the case and therefore he struck out the Plaintiff's pleadings and ended the litigation. In the course of his reasons for judgement, Justice Reid addressed the issue of the unreasonableness in asking the courts to indirectly take over the day-to-day burdens of the insurance adjusting process. In the specific FSCO context, given the concern expressed by many stakeholders about backlogs and the challenge of getting matters dealt with expeditiously, which is the policy purpose of this alternative of litigation, surely it is inappropriate to add this potential responsibility to arbitrators and appeals delegates. In addition, if settlements were automatically entitled to be confirmed by arbitral orders, the net effect would likely be that insurers would be much less inclined to settle cases on the basis of reinstatement of benefits. This cannot be to the advantage of applicants and does not reflect the consumer protection aspect of accident benefit law.¹⁵

So what is the solution?

On the evidence before me, I am fully satisfied that the parties addressed their minds to the issue of whether an order should issue or not. In fact, I find that this was the only substantial disagreement which they had. Mr. Wilson's position is that the adjournment was granted to allow for the possibility of an order issuing later. I am not satisfied that that was the case. In my view, it is clear that the parties were only contemplating that TD might want to have Mrs. Chandrababu attend for post-104 insurer exams shortly after the settlement was entered into. In the event that such examinations provided TD with reason to believe it could discontinue benefits, neither party wanted to face the prospect of it taking years to get back into position to have the matter adjudicated again. I find this to be a reasonable position for the parties to have adopted in the circumstances. However, I also must note that much of the delay in setting hearing dates at FSCO relates as much to unavailability of counsel, as it does to lack of hearing times. Therefore, I find that the adjournment here was requested, on consent, in order to allow for a reconvening of the hearing if TD chose to cut Mrs. Chandrababu off of income replacement benefits. The concession which Mrs. Chandrababu extracted from TD was that she was to be provided with significantly more notice than the minimum required before the benefits could be reduced or stopped. It is not insignificant that the time frames agreed to by the parties to deal with Mrs. Chandrababu's ongoing entitlement to income replacement benefits seem to map directly onto the adjournment period which the parties agreed to. From this I infer that their agreement was in effect meant to be time limited.

However, that is not the end of the story. As it turns out, no post-104 insurer examinations were conducted during the term of the adjournment and now the parties are in dispute about whether Mrs. Chandrababu should attend at such examinations. I have no information about why they were not done, or whether they even should be done. I do know, however, that no such examinations were conducted before the settlement, and frankly this situation is largely what motivated TD to settle on the terms it did. Both parties acknowledge this in their evidence. Whether TD had no grounds to do post-104 assessments, or through inadvertence, or for some other reason did not do them are questions I have no answer to.

Given the above, the remaining question is what the proper and just result is here. I do not believe that the arbitration hearing should proceed at this point in time as there is no "issue in dispute" and proceeding in such a context would be useless, needlessly costly to all parties, wasteful of the Commission's time, and potentially could lead to mischief. However, if I were to dismiss the arbitration on the basis of its being frivolous, vexatious or an abuse of process at this time, it would not recognize that the parties wanted to keep the FSCO arbitration process alive in the event that they did crystallize a dispute about ongoing income replacement benefits. In these circumstances, I choose to adopt a middle road and to stay the arbitration pending either party demonstrating that there is an active dispute about post-104 income replacement benefits. I will remain seized on this issue.

However, I also find that it is not to anyone's benefit to keep this file open indefinitely. Thus a term of the stay shall be that, if neither party persuades me within twelve months of the date of my order herein to schedule a new arbitration date, this arbitration shall be dismissed. After that the parties will have no option but to access the full dispute resolution process for disputes, including the requirement to mediate, etc. I further order that the term of the agreement that Mrs. Chandrababu be given five months' notice of TD's intention to stop income replacement benefits be continued to January 23, 2014. Finally, given the parties' mutual concern about the delay in process at FSCO, both parties shall make themselves available for an expedited hearing on income replacement benefits if necessary. This will be the case even if the parties need to arrange for other counsel to cover such a hearing. I am aware that both counsel have abilities to make such arrangements where necessary.

The arbitration is therefore stayed pending further order.

EXPENSES:

I strongly encourage the parties to settle any issue of legal expenses between themselves. If the parties cannot resolve the issue of expenses related to this Preliminary Issue hearing an expense hearing may be arranged through the case administrator.

January 25, 2013

Robert A. Kominar Arbitrator

Financial Services Commission of Ontario