State Farm Mutual Automobile Insurance Company v. Iram Ansari, 2016 ONFSCDRS 201

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2016 ONFSCDRS 201

Appeal P16-00006

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Appellant

and

IRAM ANSARI

Respondent

BEFORE:

Richard Feldman

REPRESENTATIVES:

Sheila Morris for the Appellant

Supriya Sharma for the Respondent

HEARING DATE:

By written submissions received by July 15, 2016

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 as it read immediately before being amended by Schedule 3 to the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, and Regulation 664, R.R.O. 1990, as amended, it is ordered that:

1. Paragraph 2 of the Order of November 9, 2015 (in File No. A12-004303) is rescinded.

2. The issues of whether the Respondent is entitled to a Special Award and the amount of any such award are remitted back to arbitration. These issues are to be decided by an arbitrator other than the one who issued the November 9, 2015 decision that is the subject of this appeal, upon the existing record and upon such further evidence and submissions, if any, as may be permitted by the arbitrator to whom this matter is referred.

July 22, 2016

Richard Feldman Director’s Delegate

Date

REASONS FOR DECISION

I. BACKGROUND

The Respondent, Mrs. Iram Ansari (“Mrs. Ansari” or “the Respondent”), was involved in a motor vehicle accident on October 8, 2010. The vehicle she was operating was rear-ended. The impact apparently caused no damage to her vehicle. At the time, however, Mrs. Ansari was suffering from impairments (including degenerative disc problems, fibromyalgia and sleep apnea) that were caused or aggravated by a serious T-bone type accident in which she was involved in February 2008.

Following the October 8, 2010 accident, Mrs. Ansari applied for and received some accident benefits from the Appellant, State Farm Mutual Automobile Insurance Company (“State Farm”, “the Insurer”, or “the Appellant”). Disputes arose concerning certain accident benefits. Eventually, those disputes proceeded to arbitration. Mrs. Ansari claimed: non-earner benefits; various medical and rehabilitation benefits; attendant care benefits; housekeeping and home maintenance benefits; interest on overdue benefits; and legal expenses related to the arbitration proceeding.

After a lengthy hearing (8 days plus written submissions), Arbitrator Patrick N. Bowles (the “Arbitrator”) issued a decision dated December 24, 2014, in which he awarded to Mrs. Ansari:

1. Non-earner benefits of $185.00 per week from April 8, 2011 onwards;

2. Approximately $2,000.00 in medical benefits;¹

3. Interest; and

4. Her expenses (in an amount to be agreed upon or adjudicated).

The Arbitrator also indicated in his order that he would permit Mrs. Ansari to “bring an application for a Special Award.” All of her other claims were dismissed. For example, her claims for attendant care benefits and housekeeping and home maintenance benefits were dismissed because, as had been argued by State Farm, there was no evidence that Mrs. Ansari actually incurred any expenses related to attendant care or housekeeping services.

The Respondent then advised the Arbitrator that she required adjudication of the following issues:

1. The amount of arbitration expenses to which she was entitled; and

2. Whether she was entitled to a Special Award and the amount of any such award.

The parties were permitted to make written submissions concerning these issues. Those submissions were completed by August 5, 2015.

On November 9, 2015, the Arbitrator issued the following Order:

Under section 282 of the Insurance Act, R.S.O., c. I.8, as amended, it is ordered that:

1. State Farm is to pay the Applicant’s expenses in the amount of $28,415.06 plus HST.

2. State Farm is to pay a Special Award including interest in the amount of $13,000.00.

II. NATURE OF THE APPEAL

The Insurer appeals paragraph 2 of the Order of November 9, 2015 (i.e., the Insurer does not challenge the expenses awarded, but does challenge the Special Award). During a teleconference with the parties’ representatives on June 30, 2016, the parties advised me that they did not seek an opportunity to make oral submissions and that they both preferred that this appeal be decided on the record.

Original Submissions of the Parties

The arguments in support of a Special Award advanced by the Respondent in its written submissions to the Arbitrator can be summarized as follows:

• Until March 2011, the Insurer unreasonably and stubbornly treated Mrs. Ansari as if her impairments came within the Minor Injury Guideline (“MIG”);

• The Insurer continued to refuse to pay attendant care benefits even after it determined that her impairments fell outside of the MIG;

• The Insurer suspended payment of attendant care benefits when the Applicant failed to attend an insurer’s examination and never subsequently reinstated those benefits;

• The Insurer refused to pay attendant care benefits even after it received duly completed Assessment of Attendant Care Needs forms (Form 1s);

• Later, the Insurer insisted on proof that expenses were “incurred” within the meaning of section 3(7)(e) of the new Statutory Accident Benefits Schedule (i.e., the “SABS” that came into effect on September 1, 2010) and this demand resulted in an unreasonable refusal of housekeeping and home maintenance benefits and attendant care benefits;

• Despite the fact that no attendant care benefits were awarded by the Arbitrator to Mrs. Ansari, the Insurer’s handling of her claims “cannot be ignored” and is deserving of a Special Award.

In its responding submissions to the Arbitrator, the Insurer argued that:

• with respect to the substantive benefits claimed, Mrs. Ansari was only successful in obtaining an order for payment of non-earner benefits (plus approximately $2,000.00 in medical benefits) and that none of the Applicant’s allegations of unreasonable conduct on the part of the Insurer in any way relate to the payment (or delay in payment) of non-earner benefits;

• there could not be an unreasonable withholding or delay in payment of attendant care benefits or housekeeping and home maintenance benefits, as alleged by Mrs. Ansari, because the Arbitrator found that the Insurer was correct in its position that section 3(7)(e) of the new SABS applies in this case and, given Mrs. Ansari’s failure to prove any attendant care or housekeeping expenses were incurred by her, it was determined by the Arbitrator that she is not entitled to any such benefits;

• non-earner benefits were initially suspended based upon Mrs. Ansari’s failure to attend an insurer’s examination and then, when she did attend, these benefits were terminated (in September 2012) based upon the report that resulted from that examination and an earlier one; the opinions contained in the December 2011 report by Ms. Yeung (occupational therapist) and the August 2012 report by Dr. Khaled, G.P. were not “rebutted” until Mrs. Ansari delivered two new medical reports (by Dr. Zarnett and Dr. Mula) in April 2014, approximately two months prior to the arbitration hearing;

• if any special award ought to be granted with respect to the Insurer’s handling of the Mrs. Ansari’s claims for non-earner benefits and medical benefits (which is not admitted), Mrs. Ansari provided no cogent arguments as to why it is appropriate in this case to grant the maximum amount permitted and Mrs. Ansari referenced no cases where an award of the magnitude claimed by Mrs. Ansari was given under similar circumstances.

Counsel for Mrs. Ansari then advised the Arbitrator that, in July 2015, the Insurer paid approximately $46,000 (in benefits plus interest) to satisfy the Order of December 24, 2014. Mrs. Ansari argued that she ought to be awarded 50% of that amount as a Special Award.

Ultimately, Mrs. Ansari was granted a Special Award in the amount of $13,000.00 or approximately 28% of the amount awarded to her (including interest) in the Order of December 24, 2014.

Reasons Given for the Special Award

The Arbitrator’s reasons with respect to this issue consist of approximately one and a half pages.

The Arbitrator found that there was an unreasonable delay in “moving the file out of the Minor Injury Guideline status.” He also faulted the Insurer, when confronted in April 2014 with new medical evidence, for not reassessing its position. The Arbitrator held that the Insurer’s Offer to Settle, made one month before the hearing, was “indicative of an unrealistic appraisal of the Applicant’s case.” The Arbitrator criticized the Insurer’s litigation strategy of questioning the credibility of Mrs. Ansari and her spouse.

As for the amount of the Special Award, the Arbitrator implies that the delay by the Insurer until July 2015 in paying the amounts ordered in December 2014 is an aggravating factor and a relevant consideration in deciding the amount of the appropriate Special Award.

Submissions of the Parties on Appeal

The Appellant repeats and relies upon many of the submissions it made before the Arbitrator, none of which were actually addressed by the Arbitrator in his reasons. Amongst its numerous grounds for appeal, the Appellant submits that the Arbitrator erred in law by:

• granting a Special Award in the absence of any, or sufficient, reasons to justify a finding that payments of non-earner benefits (or the treatment plans that were found to be reasonable and necessary) were unreasonably withheld or delayed;

• granting a Special Award in the absence of any finding as to the amount of benefits that were unreasonably withheld and the duration of time during which they were unreasonably withheld;

• awarding a Special Award based on irrelevant considerations (i.e., considerations other than the unreasonable withholding or delay in payment of benefits to which Mrs. Ansari was entitled), such as: the Insurer’s handling of claims for benefits to which Mrs. Ansari was unable to prove entitlement; the decision by Insurer’s counsel to challenge at the hearing the credibility of Mrs. Ansari and her spouse; and the content and timing of an Offer to Settle from the Insurer;

• considering as an aggravating factor the timing of the Insurer’s payment of the amounts ordered in the December 24, 2104 decision when Mrs. Ansari did not allege that any such delay ought to be considered to be an aggravating factor and when the Arbitrator failed to provide to either party an opportunity to adduce evidence or make submissions concerning why this payment was made by the Insurer in July 2015.

The Respondent cites numerous cases setting out the test for granting a Special Award, the rationale for a Special Award and the relevant mitigating and aggravating factors that are typically considered in determining the amount of a Special Award. The Respondent then points out parts of the two orders of the Arbitrator in which he finds that the Insurer’s adjusting of the claims “took on the appearance of inflexibility and unreasonableness” and in which the Arbitrator criticizes the Insurer’s decision to proceed to arbitration (in light of the new medical reports of April 2014) and the Insurer’s decision to challenge the credibility of Mrs. Ansari and her spouse. The Respondent submits that there were ample grounds to justify the awarding of a Special Award in this case and requests that this appeal be dismissed.

III. ANALYSIS

Special Awards are authorized under s. 282(10) of the Insurance Act, which (at the relevant time) provided as follows:

282. (10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including Financial Services Commission of Ontario unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time benefits first became payable under the Schedule.

The proper approach to analyzing a claim for a Special Award was confirmed in the appeal decision of Director Draper in Liberty Mutual Insurance Company and Persofsky (“Persofsky”),² which requires that an arbitrator do the following:

1. Determine the benefits owing to the insured person, including interest calculated under the applicable version of the SABS;

2. Decide whether the insurer unreasonably withheld or delayed the payment of these benefits. If so, the insurer will be ordered to pay a lump sum amount in addition to the benefits and interest calculated in #1;

3. If the insurer did not act unreasonably in respect of all the benefits owing under #1, determine the amount of the benefits that were unreasonably withheld or delayed, and the interest payable on these benefits under the applicable version of the SABS.

4. Determine the maximum special award that can be awarded under s. 282(10), or at least a reasonable approximation. This is done by taking the amount in #1 or #3, whichever is applicable, and adding the additional interest component in s. 282(10) — two per cent per month, compounded monthly. To be clear, this calculation includes interest on the unpaid SABS interest. The maximum special award is 50 per cent of this total. Expressed as a formula, the calculation is as follows:

Maximum special award = 50% x (benefits that were unreasonably withheld or delayed + interest on these benefits calculated under the SABS + compound interest calculated according to s. 282(10))

5. Consider all relevant factors to determine an appropriate lump sum special award, not a percentage, that responds to the facts of the case and bears a reasonable relationship to other special awards, and does not exceed the maximum.

6. Provide reasons for concluding that the special award is payable, and for the amount of the award.

7. In the order, express the special award as a specific, lump sum amount. No interest is payable on this amount, except as part of the enforcement process.

To be successful on this type of claim, an applicant must prove not just that an insurer was wrong to have withheld or delayed a payment to which an applicant was entitled – an applicant must prove that an insurer has unreasonably withheld or delayed payments. Where this is proven, the maximum amount of such an award is 50% of the amount to which the person is entitled at the time of the award together with interest payable under s. 282(10) of the Insurance Act (“special award interest”). Then, exercising discretion in choosing an amount between zero and the maximum amount permitted, an arbitrator will need to consider any mitigating and aggravating factors, the need for deterrence and the amount of special awards that have been given in other cases.

State Farm correctly points out that, in the present case, the type of analysis that is described in Persofsky (and that has consistently been utilized in decisions since Persofsky), is entirely missing in the reasons to the Order currently under appeal. The very brief reasons that are provided by the Arbitrator fail to adequately explain how a Special Award can be justified under s. 282(10) of the Insurance Act or how the amount of $13,000.00 was decided upon.

I find that the reasons provided by the Arbitrator for this Special Award are also rife with recitation of facts that are irrelevant to this issue. Examples of irrelevant considerations by the Arbitrator include his reference to the following decisions of the Insurer: (1) to make an Offer to Settle approximately one month before the hearing; and (2) to challenge, at the hearing, the credibility of Mrs. Ansari and her spouse.

Offers to settle can specifically be considered when determining the issue of expenses but both the timing and the substance of an Offer to Settle are irrelevant to the issue of a Special Award. There was no finding that the Offer made by the Insurer one month before the hearing in any way resulted in the unreasonable delay or denial of payment of benefits. In fact, in order to prevent the possibility that an offer might influence an arbitrator’s determination of a substantive issue, pursuant to Rule 77.3 of the Dispute Resolution Practice Code (the “Code”), upon being advised that a party seeks to have an Offer to Settle or Response to an Offer to Settle considered in connection with an award of expenses, the adjudicator is supposed to determine ALL issues in dispute except expenses and issue a decision on all such issues before examining the Offer to Settle or Response to an Offer and proceeding to decide the issue of expenses. Thus, the Arbitrator was entitled to consider the Insurer’s Offer in the analysis of the expenses claimed by Mrs. Ansari but he ought not to have been aware of or have considered that Offer until after he released his decision on the Special Award.

Similarly, the decision of the Insurer or its legal representative to challenge, at the hearing, the credibility of Mrs. Ansari and her spouse may be relevant to the issue of expenses (if it can be shown that this strategy unduly prolonged the hearing or otherwise resulted in unnecessary expense to Mrs. Ansari); it is questionable, however, whether this has any relevance to the issue of Mrs. Ansari’s entitlement to a Special Award.

Also, the Arbitrator seems to have considered the Insurer’s approximate six-month delay in paying the amounts required by his order of December 24, 2014 as an aggravating factor in deciding the quantum of the Special Award. Mrs. Ansari made no such submission. Since this appears to have been an idea introduced by the Arbitrator himself (following receipt of Reply submissions from counsel for Mrs. Ansari), I find that natural justice required that the Arbitrator give both parties an opportunity to adduce evidence and/or make submissions concerning this delay and its relevance, if any, to the claim for a Special Award.

Pursuant to subsection 283(1) of the Insurance Act, a party may only appeal an order of an arbitrator to the Director of Arbitrations (or his delegate) on a question of law. Errors of law in the context of proceedings at FSCO include (but are not limited to): procedural errors that result in a denial of natural justice; erroneous interpretation or application of provisions of the Insurance Act or regulations thereunder; and, failing to provide reasons (or sufficient reasons) to explain the basis of an arbitrator’s decision(s). On the issue of sufficiency of reasons, the Supreme Court of Canada has said:

The simple underlying rule is that if, in the opinion of the appeal court, the deficiencies in the reasons prevent meaningful appellate review of the correctness of the decision, then an error of law has been committed.³

The Respondent’s submissions, though extensive, are not actually responsive to the Appellant’s arguments. The essence of the Respondent’s submissions on this appeal is that the Insurer has acted badly and should be punished. The Respondent’s submissions, however, are full of conjecture as to what may have been the Arbitrator’s reasons for granting a Special Award; it can only be conjecture since cogent reasons are not actually provided within the Order that is under appeal.

Although the Arbitrator (at page 9 of his reasons) baldly states that “the conduct of the Insurer in denying Non-Earner and Medical Benefits was unreasonable”, he does not actually provide reasons that explain this conclusion. To the extent that the Arbitrator found unreasonable conduct on the part of the Insurer, it related to a delay of a few months (until March 2011) in taking Mrs. Ansari out of the MIG and there is no finding that this resulted in an unreasonable delay or denial of payment of non-earner benefits (to which Mrs. Ansari would not be eligible, in any event, until April 2011 -- six months after the accident of October 8, 2010). It is also not clear from the reasons given whether the Insurer’s delay until March 2011 in taking Mrs. Ansari out of the MIG resulted in an unreasonable withholding or delay in payment of the medical benefits that were ultimately awarded to her – there is no specific finding to this effect in either of the Arbitrator’s decisions.

The Respondent, in its submissions on this appeal, has been unable explain how the Arbitrator decided the quantum of the Special Award or point to any discussion by the Arbitrator in his reasons of the reasonable relationship of this Special Award ($13,000.00) to awards that have been granted in other cases.

In the present case, I find that the Arbitrator erred in law:

(1) by considering the timing of the Insurer’s payment in July 2015 of the amounts ordered in December 2014 without providing the Insurer an opportunity to know that this was being considered as relevant to anything other than evidence of the calculation of the total amount of benefits plus interest that were owing to Mrs. Ansari as a result of the Order of December 24, 2014 and without providing the Insurer an opportunity to adduce evidence or make submissions with respect to the issue of the timing of its payment to Mrs. Ansari – I find that this constituted a denial of natural justice;

(2) by misdirecting himself in the interpretation and application of subsection 282(10) of the Insurance Act;

(3) by failing to provide sufficient reasons to explain how a Special Award was justified on the facts as he found them; and

(4) by considering the Insurer’s Offer to Settle in his analysis of Mrs. Ansari’s claim to a Special Award.

In accordance with Persofsky, a proper analysis in this case would include the following:

• With respect to non-earner benefits:

  • a determination as to whether the Insurer acted unreasonably, based upon the information available to it at that time, in suspending payment of non-earner benefits from approximately February 2012 through August 2012 (when Mrs. Ansari apparently failed to attend an insurer’s examination with Dr. Khaled) -- this determination must contain an explanation as to how this conclusion was reached (i.e., not just why the Insurer was wrong but why its conduct was unreasonable);

  • a determination (with explanation) as to whether the Insurer acted unreasonably in terminating non-earner benefits (effective September 19, 2012), following its receipt of the reports from Ms. Yeung and Dr. Khaled, with consideration of the information available to the Insurer at that time;

  • if the Insurer was not unreasonable when it denied payment of non-earner benefits (in or about September 2012), whether its continued denial of non-earner benefits at some specified later date became unreasonable based upon new information that became available to the Insurer (for instance, in April 2014, when the Insurer was provided by Mrs. Ansari with the two new medical reports);

• With respect to the medical benefits awarded (approximately $2,000):

  • a determination (with explanation) as to whether the Insurer acted unreasonably, based upon the information available to it at that time, in keeping Mrs. Ansari under the MIG until March 2011 and, if this was unreasonable, whether this conduct resulted in an unreasonable denial of these specific medical benefits (i.e., the medical benefits awarded in the Order of December 24, 2014);

  • a determination (with explanation) as to whether the Insurer’s continued denial of these benefits was unreasonable once the Insurer conceded that Mrs. Ansari’s impairments did not fall within the MIG, based upon the information available to the Insurer at that time;

  • a determination (with explanation) as to whether the Insurer’s continued denial of these benefits at some specified later date became unreasonable based upon new information that became available to the Insurer;

• a determination of the amount of non-earner benefits, medical benefits or any other payments to which Mrs. Ansari was entitled that were unreasonably withheld or delayed, the length of time they were unreasonably withheld or delayed, the total amount of interest on overdue payments for the period(s) during which they were unreasonably withheld or delayed, and the amount of “special award interest” due under s. 282(10);

• a calculation of the maximum possible special award pursuant to s. 282(10);

• a determination of the appropriate Special Award, based upon a consideration of the maximum award possible and all the circumstances of this case including any relevant mitigating or aggravating factors, and an analysis of the relationship between the amount the arbitrator finds to be appropriate in this case and amounts that have been awarded in other cases.

While reasons ought not to be held up to some ideal standard of perfection, they must explain, especially to the losing party, how the arbitrator reached his or her conclusions and be sufficient to permit for meaningful review on appeal. I find that the Arbitrator’s reasons in this case are conclusory rather than explanatory and are so deficient with respect to the issue of the Special Award that this constitutes an error of law.

For all of these reasons, the Arbitrator’s decision on this issue cannot stand. It is conceivable, however, that upon a fresh review of the facts of this case, Mrs. Ansari will be able to establish that the non-earner benefits or the medical benefits awarded on December 24, 2014 were unreasonably withheld or delayed for specified periods of time, which may justify the granting of a Special Award. I shall rescind Paragraph 2 of the Order of November 9, 2015 (the part dealing with the Special Award) and remit the issue of Mrs. Ansari’s entitlement to a Special Award back to arbitration, to be decided by an arbitrator other than the one who issued the Order that is the subject of this appeal.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

July 22, 2016

Richard Feldman Director’s Delegate

Date

Footnotes

1. 1$947.72 for outstanding amounts per treatment plans by Dr. Mark Train of Metro Rehabilitation Center dated October 8, 2010 and November 9, 2010 and $1,050.24 for the outstanding cost of an attendant care assessment and preparation of a Form 1 by Iryna Lipka (November 5, 2010).
2. 2(FSCO Appeal P00-00041, Jan. 31, 2003) at pages 24 and 25.
3. 3R. v. Sheppard, [2002] 1 SCR 869, 2002 SCC 26.