ACE INA Insurance v. Wayne Pearson, 2018 ONFSCDRS 137

Financial Services Commission of Ontario / Commission des services financiers de l'Ontario

Neutral Citation: 2018 ONFSCDRS 137

Appeal P16-00079

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ACE INA INSURANCE Appellant

and

WAYNE PEARSON Respondent

BEFORE: David Evans

REPRESENTATIVES: Jason R. Frost and Michael Jarvis for ACE INA Insurance Michael Sloniowski and Aron Zaltz for Mr. Wayne Pearson

HEARING DATE: November 10, 2017, with further submissions received by June 19, 2018

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. The appeal is dismissed and the Arbitrator's order of September 26, 2016 is affirmed.

2. 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.

August 20, 2018

David Evans Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

ACE INA Insurance appeals the Arbitrator's order that Mr. Wayne Pearson's election out of the worker's benefit scheme was not made primarily for the purpose of claiming statutory accident benefits, so his claim for such benefits was not barred.

However, the Arbitrator held that both the objective evidence and the subjective evidence argued in favour of a positive finding for Mr. Pearson's primary purpose in making the election. These are factual findings, and I have no reason to intervene. The appeal is therefore dismissed.

II. BACKGROUND

Mr. Pearson was involved in a motor vehicle accident in North Carolina on October 26, 2011. Mr. Pearson alleged that an unidentified driver cut him off, causing the accident. There was no contact with the other vehicle. Mr. Pearson was charged but not convicted in relation to the accident. His employer also suspended his driving privileges based on their conclusion that he bore some liability for the accident.

Mr. Pearson claimed that the injuries he sustained in the accident prevented him from returning to work. Mr. Pearson was entitled to claim payment for loss of earnings under the Workplace Safety Insurance Act, 1997¹ ("WSIA") because the accident occurred in the course of his employment as an independent long haul truck driver. Since a claim under the WSIA is the primary source of compensation for an inability to work, Mr. Pearson could not pursue a tort action or a statutory accident benefits claim under the SABS–2010² unless he opted out of the WSIA.

Mr. Pearson initially made a claim under the WSIA for lost earnings to the Workplace Safety and Insurance Board (WSIB). After retaining a lawyer and receiving legal advice, Mr. Pearson opted out of the WSIA benefits system pursuant to s. 30 of the WSIA. He then claimed statutory accident benefits from his insurer ACE INA and commenced a tort claim. As provided in s. 61(2) of the SABS, when an insured person elects to bring an action by opting out of the WSIA benefits, they are entitled to claim statutory accident benefits if their election "is not made primarily for the purpose of claiming benefits under this Regulation."

The practical effect of the specific wording of the provision is to require the applicant to demonstrate that they brought the action in good faith for a primary purpose other than for the purpose of claiming benefits under the SABS – that is, that they had a bona fide claim: Hayward v. Royal & Sun Alliance Insurance Company, 2015 ONSC 433.

The Arbitrator noted that in Sumal and American Home Assurance Company, (FSCO P07-00029, June 25, 2008), Delegate Blackman found that a trier of fact is to consider the timing and merit of the tort action in determining the bona fides of the accident benefit claim.

ACE INA submitted that the tort action had no merit and so the election was not bona fide because the governing North Carolina law likely barred the tort action. North Carolina provides two possible bars to a tort action involving an unidentified driver in a non-collision event. First, it is a "1%" state, meaning that the law bars a tort claim if the plaintiff is at least 1% contributorily negligent. Second, in a non-collision event, a plaintiff can pursue an action only against an identified and insured third party: the law bars an action involving an unidentified vehicle.

As to fault, ACE INA relied on an expert legal opinion by Matthew Georgitis, a North Carolina lawyer. Mr. Georgitis opined that, since the accident report found Mr. Pearson was contributorily negligent for the accident due to inattention, North Carolina law barred his tort claim.

Mr. Pearson testified that while the investigating officer charged him for inattention, there was no conviction. The Arbitrator also noted that Mr. Pearson strenuously denied being even 1% at fault for the accident and claimed the other driver was 100% at fault. The Arbitrator found that Mr. Pearson provided his evidence in a straightforward manner, had a strong recollection of the facts, and came across as credible. The Arbitrator found that neither the police report nor the legal opinion from North Carolina assisted him in finding that Mr. Pearson knew he was at fault for the accident at the time he made his election.

As to the identity of the other driver, the Arbitrator noted that Mr. Pearson testified that at the time of the election, he contemplated that the other driver would be identified. The Arbitrator also noted that Mr. Pearson's counsel made multiple attempts to identify the driver from November 23, 2011 to October 22, 2013 and beyond, including the exchange of 17 distinct communications by telephone and letter email.

ACE INA also submitted that the evidence showed Mr. Pearson did not diligently pursue his tort claim, which supported a finding that the primary purpose for the election was to pursue accident benefits. For instance, ACE INA submitted that it was only after it raised the s. 61 defense that Mr. Pearson served the "tort notice" letter,³ and that neither the earlier retainer nor the WSIB election form reflected any intent to commence a tort action.

However, Mr. Pearson submitted to the Arbitrator that the statement of claim was issued on October 23, 2013, examinations for discovery took place on February 19, 2015 and November 5, 2015, and undertakings continued to be completed at the time of the arbitration hearing. Mr. Pearson also relied on the fact that, after the election, a person is not entitled to commence a tort action unless they have applied for statutory accident benefits.⁴ Thus, in order to maintain compliance with the WSIA, Mr. Pearson applied for statutory accident benefits prior to commencing an action in tort.

The Arbitrator accepted this testimony and found that Mr. Pearson pursued his tort case in the normal course. He noted that counsel for Mr. Pearson provided a chronology of all the steps taken to date, including starting to obtain information and investigating the identity of the "at -fault" driver within days of the retainer. He found that the redacted Retainer Agreement supported Mr. Pearson's evidence that he retained counsel to pursue a tort claim. He found that there were numerous examples from the testimony of Mr. Pearson that persuaded him that the purpose of his election at the time of the election was to pursue a tort claim.

Accordingly, the Arbitrator found that Mr. Pearson's election out of the WSIA was not made primarily for the purpose of obtaining statutory accident benefits, so his claim was not barred by s. 61 of the SABS.

III. ANALYSIS

After the appeal hearing in this matter, the Divisional Court issued two decisions that I thought were relevant. The parties provided further submissions on those cases.

In the first, Belair Direct Insurance Company v. Green, 2018 ONSC 2782, the Court reversed a decision of a Director's Delegate upon which ACE INA relies in its submissions. It submits that in Green and Belair Direct Insurance Company, (FSCO P15-00007, November 16, 2016), it was determined that an error of fact becomes an error in law where, on appeal, it is determined that the arbitrator made a palpable and overriding error in coming to a factual conclusion. ACE INA then refers to that palpable and overriding test at several points in its submissions.

However, the Divisional Court specifically stated that this was not a correct statement of the law:

The "palpable and overriding error" standard is the deferential test applicable on appeals where the appeal court or tribunal is entitled to review decisions for errors of fact or mixed fact and law. No case law allows an appellate body, whose jurisdiction is limited to reviewing errors of law, like the Director's Delegate, to review errors of fact. It can be an error of law to find a fact based on a misapplication of a legal principle or with no supporting evidence as noted above. But an appeal court or tribunal whose jurisdiction is limited to reviewing errors of law is decidedly not entitled to review findings of fact just because it believes the findings to be palpably and overridingly wrong unless the tribunal committed an identified error of law.

The Court went on to find that the Delegate erred by re-weighing evidence and by disagreeing with inferences drawn by the arbitrator. It found that none of that analysis was properly undertaken by the Director's Delegate because there was evidence before the arbitrator that only he was entitled to weigh.

Most of ACE INA's submissions essentially ask me to re-weigh the evidence and to disagree with inferences drawn by the Arbitrator, which is not my role.

For instance, ACE INA goes into detail about the timing of events, such as when Mr. Pearson made the election and when his counsel commenced the tort claim. It submits that the proper inference should be that no tort claim was foreseen at the time of the election and that the tort claim was filed only as an automatic reaction to ACE INA raising the s. 61 defence. It also submits that the commencement of a tort action in direct response to a s. 61 defence should lead a trier of fact to draw an adverse inference and conclude that the motive of commencing the action was to protect the accident benefits claim.

However, the Arbitrator did consider ACE INA's submissions on that point, but he preferred the evidence showing that Mr. Pearson's counsel had taken steps to pursue the tort claim, and he was not prepared to draw the inferences that ACE INA sought. Pursuant to the Divisional Court decision in Green, it is not my role to re-weigh the evidence and disagree with inferences drawn or not drawn by the Arbitrator.

ACE INA submits that the redacted retainer agreement does not show any intent to commence a tort claim. However, the unredacted portion under "Fees on Tort Claim" shows that Mr. Pearson acknowledged that fees for the tort claim would be payable to Preszler Law Firm. The Arbitrator therefore had evidence to support his finding that Mr. Pearson retained counsel to commence a tort claim.

Now, ACE INA does submit that the Arbitrator erred in his characterization and application of the correct legal tests to be applied to the facts. Thus, as stated in Sumal, cited above, determining Mr. Pearson's motivation in commencing a legal action required considering both objective and subjective factors. However, ACE INA in its submissions focuses almost exclusively on the "objective" factors and essentially ignores the subjective factors. It also goes too far in submitting that Mr. Pearson must outright prove his tort claim is viable.

For instance, it submits that in Coseco Insurance Co./HB Group/Direct Protect and Gebru, (FSCO P01-00043, January 7, 2002), Director Draper confirmed that the insured must show that he had a reasonable belief that the tort action was viable and bona fide, even if mistaken. Several factors to be considered are the credibility of the testimony, the timing of the commencement of the action, procedural barriers, the medical evidence, as well as whether there is a deductible barring significant recovery.

However, in that case, the arbitrator whose decision was under appeal accepted that Ms. Gebru might have mistakenly concluded that she proceeded on a green light where persuasive evidence suggested it was red, but nonetheless concluded that her election was bona fides simply because of her belief. With respect to the test, the Director stated:

Quite properly, [the Arbitrator] did not focus exclusively on the viability of Ms. Gebru's court action. The regulation makes it clear that the issue is the insured person's reason for making the election. While arbitrators must consider "objective" factors in evaluating the insured person's motivation, including the strength of the court action, the steps taken to pursue the claim, and any advantages that might have led the insured person to prefer accident benefits over workers' compensation, it is difficult to see how the test itself can be "objective." [Emphasis added.]

Put another way, as was stated in Sumal, while an insured's motivation in proceeding with the tort claim is subjective, the determination of that motivation may include objective evidence.

With respect to the 1% law of North Carolina, ACE INA submits that the Arbitrator failed to consider the charges against Mr. Pearson, his suspension from work, and the legal opinion of Mr. Georgitis. It submits that Mr. Pearson could not reasonably have formed the belief that he was not negligent in light of this "uncontested" evidence, and the Arbitrator's failure to conduct any analysis of this is a reversible error of law.

However, the Arbitrator did consider Mr. Pearson's evidence, which did contest the other evidence, and weighed it against that other evidence, as he was entitled to. He was not required to accept the police report or the legal opinion from North Carolina as "objective" evidence over his own findings about Mr. Pearson's credibility. He found Mr. Pearson credible and accepted his belief that he was not liable for the accident. In other words, he did the same as the arbitrator in Gebru, and I have no basis to intervene.

With respect to the no contact law of North Carolina, ACE INA submits that the Arbitrator never turned his mind to this issue. However, that is not correct. At p. 14 of his decision, the Arbitrator found that Mr. Pearson elected out of the WSIB in order to pursue a tort action. Over the next couple of pages, he sets out the factors leading him to that conclusion. Included in those pages is his reference to the evidence from Mr. Pearson that he believed his lawyers would make efforts to identify the other driver, and the evidence of those attempts. In the context of the decision, this means that the Arbitrator found these attempts reflected a bona fide belief the other driver would be identified.

With respect to the intent to find a tortfeasor, ACE INA submits that most of the steps taken by counsel to identify the other driver were at its behest, as part of productions. However, I have no basis to interfere with the Arbitrator's inference that these steps also showed evidence of a bona fide belief that the other driver would be identified.

ACE INA submits that the fact the other driver has never been identified shows that Mr. Pearson's action will never be viable because of the no-contact rule and so must ultimately fail. It is at this point that I will refer to the second Divisional Court case on which I received submissions, S.H. and H.S. v. Northbridge Personal Insurance Corporation, 2018 ONSC 1801.

Northbridge is something like an extension of the facts in Gebru. In Gebru, the arbitrator found that the tort claim would likely be dismissed. In Northbridge, the tort claim was actually dismissed. However, as stated in that case, the ultimate disposition of the tort action on its merits is outside the scope of relevance and is not the type of later event that should reasonably be taken into account in determining an insured's purpose at the time of their election. In this case, the Arbitrator found that Mr. Pearson had a belief in the viability of his claim at the time of the election, and in light of the Court's conclusion in Northbridge, I have no reason to intervene merely because the other driver has never been identified, so any tort claim would likely be dismissed under North Carolina law.

ACE INA submits that the failure to commence a tort action at the time of the WSIB election may be evidence that the WSIB election was not bona fide. Indeed, as also discussed in Northbridge, delay in bringing an action or failure to prosecute it are likely to undermine a claimant's accident benefits claim. However, this was not a case where Mr. Pearson waited for years to commence his tort claim. Further, as noted above, he had to make his claim for statutory accident benefits before starting his tort action, and he had to serve notice of his intention to make a tort claim within 120 days of the accident, which he also did. In those circumstances, I do not find the Arbitrator failed to consider and apply any relevant principles.

ACE INA submits that pursuant to s. 267.1, Mr. Pearson had to meet a threshold to pursue a tort claim and that the blank hole in the record about this issue is glaring, palpable and overriding. However, aside from the fact that s. 267.1 of the Act only applies to accidents between January 1, 1994 and October 31, 1996, this issue was not before the Arbitrator. Northbridge also gives guidance on that point. In that case, a new issue was raised that the Respondents had not taken steps to obtain WSIA benefits after the dismissal of the tort action. However, that topic had not been raised below and was therefore not the subject of evidence before the Adjudicator. Similarly, the topic of any verbal threshold was not raised below either, so it too was not the subject of evidence before the Arbitrator. Therefore, I am in no position to deal with it.

Ultimately, the Arbitrator made a finding of fact on the evidence before him from which there is no appeal. The Divisional Court in Hayward discussed this, where the arbitrator in that case found that the insured had not discharged the onus on him to prove that his action was not commenced primarily for the purpose of claiming statutory accident benefits:

In reaching this conclusion, the Arbitrator held that the objective evidence did not assist in weighing the merits of the civil action and that the subjective evidence surrounding his claim argued in favour of an adverse finding on the applicant's primary purpose in commencing the action. These are factual findings of the Arbitrator based on the evidence before him.

In this case, the Arbitrator held that the objective evidence did assist in weighing the merits of the civil action and that the subjective evidence, including his findings about Mr. Pearson's credibility and the steps taken to identify the other driver, argued in favour of a positive finding for his primary purpose in commencing the action. These are factual findings, and I have no reason to intervene.

Accordingly, the appeal is dismissed and the Arbitrator's order is affirmed.

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.

August 20, 2018

David Evans Director's Delegate

Date

Footnotes

1. 1S.O. 1997, c. 16, Sch A.
2. 2The Statutory Accident Benefits Schedule — Effective September 1, 2010, Ontario Regulation 34/10, as amended.
3. 3Paragraph 258(3)(b) of the Act required Mr. Pearson to serve notice of the intention to commence an action on the defendants within 120 days after the incident.
4. 4Paragraph 258.3(1)(a) required Mr. Pearson to apply for statutory accident benefits prior to commencing the tort action.