Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2013 ONFSCDRS 30

Appeals P12-00042A and P12-00042C

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Appellant / Cross-Respondent

and

JIULIANA MORELLI Respondent / Cross-Appellant

BEFORE: Delegate Lawrence Blackman

REPRESENTATIVES: Ms. Heather L. Kawaguchi for the Appellant/Cross-Respondent, State Farm Mutual Automobile Insurance Company Ms. Samia M. Alam for the Respondent/Cross-Appellant, Ms. Jiuliana Morelli

HEARING DATE: February 13 and 28, 2013 by telephone conference call Additional documentation received March 4, 2013

PRELIMINARY APPEAL ORDER

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

Pursuant to Rule 52.2 of the Dispute Resolution Practice Code (Fourth Edition, Updated – August 2011), the time for requesting the cross-appeal is extended to January 31, 2013.
Pursuant to subsection 283(6) of the Insurance Act, R.S.O. 1990, c I.8, the Arbitrator’s November 7, 2012 interest order is stayed pending the resolution of these appeals, subject to any further or other order of an appellate officer.
The legal expenses of this preliminary issue decision are deferred to the conclusion of these appeals, subject to any further or other order of an appellate officer.

March 8, 2013

Lawrence Blackman Director’s Delegate Date

REASONS FOR DECISION

I. BACKGROUND

Ms. Jiuliana Morelli (the “Respondent”) was injured in a January 29, 1997 motor vehicle accident. Pursuant to the Schedule¹ she submitted an October 11, 2006 Application for Determination of Catastrophic Impairment to her first-party automobile insurer, State Farm Mutual Automobile Insurance Company (the “Appellant”).

The Appellant determined that the Respondent was not catastrophically impaired.

In response, the Respondent submitted a rebuttal report completed by AssessNet Inc. The rebuttal report agreed that the Respondent was not catastrophically impaired. The cost of the report was $16,896.64.

The Appellant denied payment of the rebuttal report on the basis it was provided, contrary to paragraph 42.1(3)3 of the Schedule, more than 80 business days after the Appellant had given its determination that the Respondent was not catastrophically impaired.

In his November 7, 2012 decision, Arbitrator Richards (the “Arbitrator”) found that on March 19, 2007 the Appellant gave the Respondent a valid determination that triggered the 80 business day timeline within which the Respondent was required to provide a rebuttal report. The Arbitrator held that the Respondent was well outside the 80 business day time limit when she delivered her rebuttal report on October 29, 2007.

Subsection 31(1) of the Schedule provides that a person’s failure to comply with a time limit in Part X does not disentitle the person to a benefit if the person has a reasonable explanation. Paragraph 42.1(3)3 is found within Part X of the Schedule.

The reason given for the late rebuttal report was that the occupational therapist chosen to conduct a portion of the Respondent’s examination had family issues precluding her from conducting her assessment until August 2007. The Arbitrator found the excuse reasonable. He further held that the Appellant had not suffered any prejudice by the delay that would outweigh the hardship to the Respondent if she had to pay the cost of the rebuttal report herself.

The Appellant argued that the assessors’ times, rates and qualifications for the rebuttal report were not provided. The Arbitrator found that the Appellant had not disclosed the cost of its own catastrophic impairment assessments or what amount it thought would be reasonable, nor was there evidence on industry standards as to the appropriate cost. The Arbitrator found $16,896.64 for four assessors to complete a comprehensive catastrophic impairment assessment reasonable.

Accordingly, the Arbitrator ordered that the Appellant pay the Respondent the cost of the September 27, 2007 rebuttal report, plus interest.

The parties raise two preliminary appeal issues.

One is the Respondent’s request that the time for her cross-appeal be extended pursuant to Rule 52.2 of the Dispute Resolution Practice Code (Fourth Edition, Updated - August 2011) (the “Code”). The second is the Appellant’s request that the Arbitrator’s November 7, 2012 order be stayed pursuant to subsection 283(6) of the Insurance Act, R.S.O. 1990, c. I.8.

I will address these preliminary appeal issues in turn.

II. EXTENDING THE TIME FOR THE CROSS-APPEAL

By letter dated January 14, 2013, the Respondent requested leave to cross-appeal.

Rule 55.1 of the Code provides:

55.1 If the respondent intends to appeal the arbitration order, a separate Notice of Appeal must be completed and the time periods for appeal, as set out above, apply.

Rule 52 states:

52.1 Subject to Rule 52.2, the appellant must file the Notice of Appeal within 30 days of the date of the arbitration order.

52.2 The Director may extend the time for requesting an appeal on such terms as he or she considers appropriate, either before or after the 30-day time limit, if he or she is satisfied there are reasonable grounds for granting the extension.

The Cross-Appeal, dated January 29, 2013, was received January 31, 2013. The Respondent argues, in part, that as the Appellant never made a valid determination under subsection 40(5) of the Schedule to trigger the limitation period, the Arbitrator erred in finding that the Respondent did not submit her rebuttal report within the prescribed time period.

The Respondent submits that given the Arbitrator’s ultimate decision was in her favour, it was not the Respondent’s initial intention to appeal the Arbitrator’s decision. The Appellant’s November 30, 2012 Notice of Appeal, she states, only appealed those portions of the Arbitrator’s order favourable to the Respondent. Underlying, however, the Appellant’s position is the Arbitrator’s finding as to when the limitation period was triggered.

The Respondent submits that as she was served the Appellant’s Notice of Appeal on December 3, 2012, she had insufficient time to prepare her cross-appeal within the 30-day period to cross-appeal. As the parties are still in the early stages of the appeal, the main written submissions having not yet been exchanged, there is no prejudice in extending the timeline to cross-appeal.

The Appellant opposes the time extension. It submits that the cross-appeal is 53 days late. As it filed its appeal four days before the deadline, the Respondent had four days to prepare her Cross-Appeal or request a time extension. The Appellant submits that it is prejudiced as the appeal is being delayed. As well, the Respondent’s concession that she had no initial intention of appealing indicates a lack of bona fides. The Appellant further argues that the cross-appeal addresses questions of fact, not law, contrary to subsection 283(1) of the Insurance Act.

Oral submissions regarding whether to extend the time for the cross-appeal were heard February 13, 2013. Oral submissions on the requested stay were put over to February 28, 2013, at the Appellant’s request. I provided my oral decision regarding the requested extension of the time to cross-appeal on February 13, 2013, confirmed by letter later that day.

On February 13, 2013, I raised the question whether a party can appeal an arbitrator’s order where they were entirely successful but disagree with part of the reasons. In Saliba and Allstate Insurance Company of Canada and Progressive Casualty Insurance Company of Canada, (FSCO P01-00031, July 24, 2001), Delegate McMahon held:

The right of appeal is founded in the Insurance Act, R.S.O. 1990 ch. I.8, as amended, which provides in section 283(1) that “A party to an arbitration under section 282 may appeal the order of the arbitrator to the Director on a question of law”[emphasis added]. Beyond the statutory linkage of the right of appeal to the “order,” there is a long standing principle that an appeal is taken from the order of the adjudicator, not from her reasons. In that regard, I quote with approval the following passage from Sopinka and Gelowitz, The Conduct of an Appeal, 2nd ed. (Toronto: Butterworths), at p.6.

It is a fundamental premise in the law of appellate review that an appeal is taken against the formal judgement or order, as issued and entered in the court appealed from, and not against the reasons expressed by the court for granting the judgement or order. Although the appellate court will frequently discover in the reasons for judgement errors of law that ultimately ground the reversal of the judgment or order, it is the correctness of the judgement or order that is in issue in the appeal, and not the correctness of the reasons.

The Divisional Court, in Mamaca v. Coseco Insurance Company, 238 O.A.C. 56, 2008 CanLII 30312, [2008] O.J. No. 2508, stated that “[i]t is important in the appeal process, and especially in dealing with interim orders, to recognize that appeals are taken against decisions rather than reasons, although wrong reasons often give rise to wrong decisions.”

Regardless of whether a completely successful party is required to deliver a separate cross-appeal that appeals not an arbitrator’s order but, rather, the arbitrator’s reasons, Welsh and Economical Mutual Insurance Company, (FSCO P02-00024, April 23, 2003) confirms an appellate officer’s broad discretion to grant a time extension to file an appeal. Addressing whether to amend an existing appeal, Delegate McMahon held:

The expiry of the time for initiating an appeal is not determinative;
The major factor to be considered is the existence or absence of potential prejudice, that is, prejudice that cannot be addressed by expenses or other relief;
Other considerations are whether a question of law is raised, the length of the delay and any excuse for the delay; and,
The overriding principle is Rule 1.1 of the Code, that these “Rules will be broadly interpreted to produce the most just, quickest and least expensive resolution of the dispute.”

In this case, the 53 day delay in delivering the Cross-Appeal (the request for leave to Cross-Appeal being received 39 days after the deadline) is part of a larger context:

This dispute has been ongoing for more than five years, the rebuttal report having been found to have been delivered in October 2007.
There have been delays in the appeal process itself by the Appellant, including not setting out as complete as possible, as required by the Notice of Appeal form, its reasons for the requested stay.
Rule 54.2 of the Code extends the time for written submissions if transcripts are to be received. Transcripts were received January 17, 2013. Three days earlier, the Respondent requested leave to cross-appeal. The Notice of Cross-Appeal was delivered 12 days after the receipt of the transcript. The Appellant acknowledges, at paragraph 13 of its stay submissions, “that the substance of several of the grounds for appeal may only be known once the transcripts are obtained and fully reviewed so that the Director can determine whether there was proper evidence on which the Arbitrator could come to his decision.”

I find that extending the time for the cross-appeal would result in minimal, if any, prejudice in delaying this appeal. As timelines for the main substantive written submissions had not yet been set, extending the time for the cross-appeal would result in minimal, if any, duplication of legal work. I further find:

The Respondent chose initially not to appeal a decision where she had been successful in the overall outcome. I am not persuaded that the Respondent’s failure to initially appeal the Arbitrator’s decision indicated any lack of bona fides in her subsequent cross-appeal.
Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, held that “questions of law are questions about what the correct legal test is; questions of fact are questions about what actually took place between the parties; and questions of mixed law and fact are questions about whether the facts satisfy the legal tests.”

The Respondent submits that subsection 40(4) of the Schedule obliges an insurer to send its report and its determination to the insured person and the health practitioner who prepared the application for determination of catastrophic determination. The Respondent argues that the Arbitrator erred in finding that the Appellant complied with subsection 40(8) of the Schedule regarding whom it was to serve notwithstanding his finding of fact that the Appellant did not send its determination to both the insured and the health practitioner as required under subsection 40(4).

The Respondent further argues that the Arbitrator erred in finding that the Appellant had provided a valid determination of catastrophic impairment as required under subsection 40(5) of the Schedule to trigger the 80 business day timeline to provide a rebuttal report.

The Appellant submits that these issues are “red herrings.” Nonetheless, applying the criteria in Welsh, I am persuaded that the Respondent has raised questions of law regarding the correct legal tests.

Further applying Welsh, I am persuaded that extending the time for the cross-appeal will produce the most just, quickest and least expensive resolution of the dispute by addressing at the same time related issues raised by the parties.

I am further persuaded that any prejudice that does exist to the Appellant can be remedied by (1) the timelines set below, and (2) possible legal expenses, which I defer to the conclusion of these appeals, subject to any further or other order of an appellate officer.

Accordingly, pursuant to Rule 52.2 of the Code, I am satisfied that there are reasonable grounds for any necessary extension of the time for filing the cross-appeal to January 31, 2013 (correcting, pursuant to Rule 65.6 of the Code, my February 13, 2013 decision referencing the date of the Cross-Appeal).

III. STAY OF THE ARBITRATOR’S NOVEMBER 7, 2012 ORDER

The Appellant submits that the Arbitrator erred in law in his decision, including finding that the Respondent had a reasonable excuse (that was not her excuse but rather that of a third party) for her delay in providing the rebuttal report, and that the cost of the report was reasonable. The Appellant requests an interim appeal order staying the Arbitrator’s order that it pay the Respondent $16,896.64 for the rebuttal report, plus interest. In the alternative, the Appellant asks that a stay of the interest component of the Arbitrator’s order be granted.

Subsection 283(6) of the Insurance Act provides that an appeal does not stay the order of an arbitrator, unless decided otherwise. In Guardian Insurance Company of Canada and Armstrong, (FSCO P00-00037, July 20, 2000), Delegate McMahon adopted the following criteria in determining whether a stay should be granted:

the bona fides of the appeal;
the substance of the grounds for appeal; and,
the hardship to the respective parties if the stay is granted or refused.

The Appellant submits that this appeal is brought in good faith, there is substance to the appeal and there is no hardship to the Respondent if a stay is ordered. The Respondent has not paid for the report. Rather, it was billed directly to the Appellant. There are no benefits hinging on the determination of this appeal, nor are there any other disputes between the parties.

The Appellant submits that there is hardship to itself in having to pay more than $16,000 for the rebuttal report as well as interest that is now more than double the cost of the report itself.

The Respondent responds that the onus is on the party seeking a stay to establish that the pre-decision status quo ought to be preserved. The central concept of automobile insurance of protecting the flow of urgently needed benefits to consumers applies equally to assessments.

The Respondent cites Armstrong that the “fact that a stay is the exception rather than the rule, suggests … that the drafters of the legislation recognized that the insurer is in a much better position than the insured person to bear the risks inherent in not staying the arbitrator’s order.”

The Respondent does not challenge the bona fides of the main appeal. Rather, she submits, in part, that the Arbitrator’s decision is entitled to deference as the Arbitrator took into account all of the relevant evidence in making a finding of fact that the cost of the rebuttal report was reasonable. The Arbitrator recognized that there are no prescribed costs for a catastrophic assessment report and that the cost of the report was reasonable given it took several assessors to complete a comprehensive assessment respecting catastrophic impairment.

The Respondent submits that Sorokin v. Wawanesa Mutual Insurance Company, 2009 ONCA 152, held that the clear policy intent of the interest provision is compensatory, not punitive. She further argues that the Appellant has not raised a legitimate concern that it would not recover any monies paid pursuant to the Arbitrator’s order in the event it is successful on appeal. Rather, if a stay is not granted and the Appellant loses the appeal, it will have saved itself additional interest that is accruing at 2% per month, compounded monthly, for which the Respondent herself is ultimately responsible.

I am not persuaded that there is any reason to question the bona fides of either appeal.

I am persuaded that both parties have raised questions of law.

The deciding factor in this case whether to issue a stay of the Arbitrator’s November 7, 2012 order, in full or in part, is the hardship to the respective parties if the stay is granted or refused.

The cost of the rebuttal report is $16,896.64. The accrued interest is now well over $40,000. The Appellant concedes that if its request for a stay is granted, interest will continue to accrue on the principal sum. Interest on interest will also continue to accrue in accordance with Sorokin. Paying the award now would end the accrual of interest and the accrual of interest on interest. The Appellant, however, states that this is not the only consideration.

On the other hand, while the Appellant submits that the interest component of the Arbitrator’s order belongs to the Respondent, the Respondent’s counsel argues that the entire interest component, as well as the principal, belongs to AssessNet. It is the Appellant who argues consumer protection in this case, that if a stay is not granted and the Appellant is successful on appeal, the Respondent, not AssessNet, is liable to pay the Appellant back, out of the Respondent’s own pocket, some $60,000.

These questions were raised on February 13, 2013. At the February 28, 2013 resumption, the Respondent’s counsel advised that she had obtained AssessNet’s undertaking to pay back the monies it receives in the event that the Respondent is unsuccessful on appeal. The Appellant undertook to provide a copy of the undertaking to the Respondent. The parties were to advise as to whether I should receive this document.

I agree with the general proposition stated by Director Draper in Tanzos and State Farm Mutual Automobile Insurance Company, (FSCO P01-00017, October 22, 2002), expressed in the context of access to the dispute resolution process, that “the dispute resolution process is for disputes between insured persons and insurers … It is not meant to serve the needs of creditors, including service providers, who want to collect their accounts.” Consistent with that, Armstrong speaks of the respective hardship to the parties, not the hardship to third party clinics.

AssessNet’s Auto Insurance Standard Invoice (OCF-21), dated December 18, 2006 (marked as Exhibit 14) states that the “insurer,” not the Respondent, shall pay interest on overdue outstanding balances as required by the Schedule. Dr. A. Persi, the clinic director of AssessNet, testified, at page 92 of the transcript, that he was aware of the 80 business day deadline for the rebuttal report. At pages 96 to 97 he testified that the delay in submitting the rebuttal report was due to his office. Notwithstanding that one of the assessors had a family crisis, it was still thought to be most appropriate that this assessor be assigned to this case.

The arbitration order in question does not pertain to necessities of life such as weekly benefits or necessities of treatment or rehabilitation. It pertains to a rebuttal report that concurs with the insurer and that was submitted late, on my present understanding, due to the clinic’s decision, a decision that may ultimately prevent the Respondent’s recovery of the cost of the report.

If the Respondent is unsuccessful in this appeal, in full or in part, she, not AssessNet, will be responsible for any repayment order. She will further be personally liable for any legal expenses awarded in favour of the Appellant. The Respondent would also be personally liable for any legal expenses charged by her own counsel whether she is ultimately unsuccessful, or successful, on appeal.

As I presently understand the submissions of the Respondent’s counsel, AssessNet, which is seemingly a cause, if not the cause, of the Respondent’s present dilemma, is entitled to the entire principal and interest, presently amounting to more than $60,000 for its 42-page report, if the Respondent is successful on appeal and is entitled to sue the Respondent for the entire principal and interest under the Schedule if the Respondent is unsuccessful on appeal. In the interim, any monies received by the Respondent under the Arbitrator’s November 7, 2012 order belong to AssessNet.

On March 4, 2013, on the consent of both parties, I received correspondence indicating that Dr. Persi, on behalf of AssessNet, confirmed an undertaking that if the Appellant is successful on appeal any amounts received by AssessNet pursuant to the Arbitrator’s order would be repaid to the Appellant. The correspondence is otherwise silent.

In Armstrong, Delegate McMahon noted that an appropriate disposition may be a partial stay. In the circumstances of this case, I am presently persuaded to stay the Arbitrator’s November 7, 2012 interest order. Accordingly, the Appellant remains liable to pay to the Respondent, as ordered, the principal sum of $16,896.64 in respect of the rebuttal report.

IV. FURTHER PROCEDURAL STEPS ON APPEAL

On February 13, 2013, I set the following timeline, as agreed by the parties:

(1) Amending Rule 53 of the Code, as allowed by Rule 81, the Appellant shall, by March 8, 2013, serve and file its Response to the Respondent’s Cross-Appeal.

(2) Amending Rule 54.1, the Appellant shall, by April 2, 2013, serve and file its written submissions on its own appeal.

(3) Amending Rule 54.1, the Respondent shall, by April 2, 2013, serve and file her written submissions on her Cross-Appeal.

(4) Amending Rule 54.3, the Respondent shall, by May 7, 2013, serve and file her written submissions on the Appellant’s appeal.

(5) Amending Rule 54.3, the Appellant shall, by May 7, 2013, serve and file its written submissions on the Respondent’s Cross-Appeal.

(6) Oral submissions are to be heard on September 10, 2013, at 10:00 a.m., in Hamilton Ontario, at a location to be confirmed.

V. EXPENSES

The parties agree that the legal expenses of this preliminary appeal decision should be deferred to the conclusion of these appeals. I presently concur. Accordingly, the legal expenses of this preliminary appeal decision are deferred to the conclusion of these appeals, subject to any further or other order of an appellate officer.