Financial Services Commission of Ontario

Neutral Citation: 2018 ONFSCDRS 70 FSCO A13-007981

BETWEEN:

ADELE LUTZER Applicant

and

THE GUARANTEE COMPANY OF NORTH AMERICA Insurer

EXPENSE DECISION

Before: Charles Matheson

Heard: By written submissions completed on March 27, 2018

Appearances: Dr. J. Palmer, lawyer, participated for Ms. Lutzer Ms. K. Figliomeni lawyer, participated for The Guarantee Company of North America

Issues:

The Applicant, Ms. Adele Lutzer, was injured in a motor vehicle accident on August 15, 2011. She applied for and received statutory accident benefits from The Guarantee Company of North America ("Guarantee"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Ms. Lutzer, through her representative, applied for arbitration at the Financial Services Commission of Ontario ("FSCO") under the Insurance Act, R.S.O. 1990, c. I.8, as amended.

The issues in this hearing are:

1. Is Guarantee entitled to an award of expenses?

2. If so, what is the quantum of expenses payable by the Ms. Lutzer?

Result:

1. The Insurer is entitled to pursue its claimed expenses.

2. The Applicant is liable to pay the Insurer its reasonable expenses of $20,000.00, inclusive of H.S.T. and disbursements.

Background:

The series of events leading up to this expense hearing is as follows:

• June 17, 2013 — the Applicant for arbitration is filed, non-earner benefit ("NEB"), interest and costs were claimed;
• December 16, 2013 — a second failed mediation report was issued, for a disputed treatment plan or OCF-18;
• January 20, 2015 — the first pre-hearing is held, and a two day arbitration is set to commence on October 28, 2015;
• October 14, 2015 — the parties settled the accident benefit claim for an all-inclusive full and final settlement for $7,630.00;
• November 11, 2015 — Applicant's counsel informed the Insurer that the Applicant refused to execute the settlement documents;
• March 4, 2016 — a second pre-hearing was held where Applicant's counsel was removed from the record;
• July 29, 2016 — new counsel for the Applicant communicated same to the Insurer. The Insurer confirmed its previous offer of settlement is still open;
• November 29, 2016 — a settlement conference failed to resolve the matter;
• January 17, 2017 — at the third pre-hearing, the Applicant raised a preliminary issue that the Schedule was contradicting the Ontario Human Rights Code,² the preliminary issue timelines were set;
• October 30, 2017— at the fourth pre-hearing, the Ministry of the Attorney General attended and the Applicant also filed a notice of constitutional question. The arbitration was scheduled to commence on January 23-26, 2018;
• December 7, 2017 — at the fifth pre-hearing, Applicant brought a motion in regards to the attendance of the Applicant to a s. 44 examination. The Applicant attended the examination which made the motion moot.
• December 13, 2017 — by correspondence, the Applicant gave notice that she was seeking a special award, and that she had a total of 19 witnesses for the pending hearing;
• December 21, 2017 — the Applicant accepted the Insurer's offer of settlement, and then almost immediately rescinded the insurer's offer of settlement;
• January 11, 2018 — the parties arrived at an agreement that the constitutional issue and the special award would not be included in the arbitration unless the Applicant was successful in her claim for a non-earner benefit;
• January 23, 2018 — the arbitration commenced;
• January 25, 2018 — on the third day of the hearing the parties reached a settlement on a full and final, all-inclusive basis for $10,000.00 contingent on the Applicant withdrawing all the issues for arbitration including the Special Award and the constitutional issue. The full and final release confirmed that, if the settlement was revoked, an expense hearing would commence;
• January 27, 2018 — Applicant's counsel advised the Insurer that the Applicant has rescinded the settlement;
• February 13, 2018 — a sixth pre-hearing was heard which confirmed the necessity of the expense hearing and the timelines for it. It was confirmed that the withdrawn issues could not be revived, and that Applicant's counsel had explained this to the Applicant.

Arguments

The Insurer argues that through the Dispute Resolution Practice Code³ (the "Code") Rule 75, 78 and Section F of the Expense Regulation sets out what items should be considered and the amounts to be awarded by an arbitrator when making an expense hearing award.

The relevant sections of the Expense Regulation found in Section F of the Code reads as follows:

75.2 The adjudicator will consider only the criteria referred to in the Expense Regulation found in Section F of the Code. These criteria are:

a. Each party's degree of success in the outcome of the proceeding;

b. Any written offers to settle made in accordance with Rule 76;

c. Whether novel issues are raised in the proceeding;

d. The conduct of a party or a party's representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders;

e. Whether any aspect of the proceeding was improper, vexatious or unnecessary;

f. Whether the insured person refused or failed to submit to an examination as required under section 42 of Ontario Regulation 403/96 (Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996), made under the Act, or refused or failed to provide any material required to be provided by subsection 42 (10) of that regulation; and

g. Whether the insured person refused or failed to submit to an examination as required under section 44 of Ontario Regulation 34/10 (Statutory Accident Benefits Schedule — Effective September 1, 2010), made under the Act, or refused or failed to provide any material required to be provided under subsection 44 (9) of that regulation.

The Insurer relies upon P.B and State Farm Mutual Insurance Company,⁴ which establishes the standard 1:1 to 4:1 ratio in preparation time to hearing attendance time, and the broad stroke approach to a global assessing of expenses. However, the Insurer also relies upon West and Aviva Canada Inc.,⁵ which also allows an arbitrator to go out side the standard ratio, (as high as 10:1), if applicable and reasonable in the circumstances. The Insurer relies upon State Farm Mutual Insurance Company and Jazey,⁶ to support its argument of a higher ratio can be considered, as Director's Delegate Blackman refused to apply the standard ratio as it was not practical under that case's circumstances.

In regards to criteria a) above, the Insurer submits that it was entirely successful in the outcome of the proceeding. After two days of direct and cross-examination of the Applicant, her family physician, her occupational therapy expert and physiatry expert, the Applicant withdrew all claims including the Special Award and Constitutional question on a "with prejudice" basis.

In regards to criteria b) above, the Insurer argues that the arbitration of this matter was not necessary. The offers made and initially accepted by the Applicant were better than the outcome of the arbitration of this matter. It would have been more reasonable for the Applicant to have accepted the previous settlement offers in October 2015 or December 2017. Settlement at either stage prior to the hearing would have provided the Applicant with a positive monetary outcome and would have saved the costs of all stages of litigation that followed including the arbitration and the subsequent written expense hearing.

The Insurer submits that nothing changed for the Applicant in between the time she accepted the settlement in October 2015, with her previous counsel and the end of the arbitration with her current counsel. The only thing which was achieved during that period were significant expenditures incurred in an attempt to establish the validity of her claims, which the Applicant ultimately abandoned. In the same vein, the expense hearing of this matter was not necessary. Had the Applicant maintained the settlement reached on the third day of the arbitration the parties agreed that no costs would be sought. Therefore the Insurer submits that it is entitled to all costs of the proceedings, in particular the expenses incurred following the revocation of the first settlement offer, including the costs for preparing for this expense hearing.

In regards to criteria c) above, the Insurer acknowledges that the issues initially in dispute (NEB, OCF-18, interest and expenses) were not overly complicated or novel. The Insurer submits that the matter became much more complex than was necessary after the failure of the settlement conference in November 2016, ie., the introduction of a Human Rights challenge, a subsequent Constitutional question, the late introduction of a Special Award,, a significant increase in the number of anticipated witnesses and an unnecessary motion.

As a result of the greatly increased complexity of the Application, the Insurer argues it was forced to conduct additional research, undertake additional written submissions and spend a great deal more time defending the Application. Thus the Applicant's position that the ramp-down provisions of the Schedule were a breach of either the Ontario Human Rights Code, or the Charter were novel issues that were raised by the Applicant solely for the purpose of attempting to increase the value of the non-earner benefit claim from the maximum ramp down amount of $25,974..00 to some other number..

The Insurer further argues that the Human Rights issue was determined by FSCO through a preliminary hearing in the spring of 2017, the Constitutional question was not "added" to the hearing until notice was provided on October 26, 2017, 32 days prior to the commencement of the arbitration in November 2017. The Insurer is not arguing that the Applicant was out of time to raise the issue, but it did require the Insurer to prepare for the additional aspect of the hearing. It was not until January 10, 2018 that the Applicant confirmed in writing that the Constitutional question would not be argued at the January 2018 hearing.

On this point, the Insurer argues that it should be awarded its expenses related to the preparation of all aspects of the arbitration, regardless of whether they were argued at the arbitration.

In regards to d) and e) above the Insurer argues that its position set out with respect to criteria b) above, is that the Applicant has put the insurer to extraordinary expenses that could have been avoided had the Applicant not raised unnecessary arguments or positions.

Finally the Insurer argues, in part, that it has not claimed any time related to the moot motion in its Bill of Costs (as no costs were awarded), but it believes that this issue should be taken into consideration when determining what ratio for preparation/arbitration attendance time ought to be used. The Insurer proposes using a higher ratio than the standard 4: 1. The complete costs expended by the Insurer have been set out in the Bill of Costs for consideration (10:1 ratio for all preparation costs) along with a 6.5:1 ratio which represents the writer's costs of preparing for the arbitration, all of which have been adjusted in accordance to the Legal Aid Services Act. Therefore the Insurer requests an award of $41,745.66 for legal fees and an added $5,581.17 for its disbursements for a total of $47,326.83.

The Applicant argues that none of the criteria found in Rule 75(2) entitle the Insurer to their costs. In the alternative, the Insurer has claimed disproportional and excessive amounts for their expenses.

The Applicant argues that at least one of the criteria in Rule 75(2) must be met before reasonable expenses can be awarded, after the withdrawal.

The Applicant argues that the relevant criterion in establishing an expense claim are found in Rule 75(2) are: a) through to e) only, as stated by the Insurer.

In regards to criteria a), the Applicant argues that there has not been a successful outcome from this proceeding by either party. No findings were made. The Applicant chose to withdraw the issues in dispute on a with prejudice basis. A negotiated settlement which paid out the Applicant cannot be described as a successful outcome. Finally the Applicant argues that an award of expenses does not necessarily flow from the withdrawal, and relies on Khan and State Farm⁷ for this argument. Therefore the Applicant argues that this criterion does not assist either party.

In regards to criteria b), the Applicant argues that no offers were exchanged in accordance with Rule 76 of the Code, as the offers to settle were withdrawn prior to the commencement of the hearing. Hence no offers were in the form prescribed by Rule 76. The Applicant relies upon Jazey⁸ and Hung and Allstate Insurance Company⁹ which the Applicant argues stands for the proposition that a full and final settlement offers are not what is contemplated by Rule 76 of the Code, because an outcome of an arbitration is focused on discrete issues and not on a comprehensive all-inclusive future entitlement amounts.

In regards to criteria c), the Applicant argues that the only novel issue left between the parties was the Constitutional question, which was not argued at the arbitration hearing. No materials were exchanged or prepared for the hearing with regard to the Constitutional question, therefore any expenses associated with this issue would be marginal at best. The other novel issue was a preliminary issue of whether Schedule s. 12(5) contravened the Human Rights Code. In this matter the Insurer was successful but the arbitrator did not award costs to either party. The Applicant argues that the Applicant should not be penalized for fully exploring her rights at this late stage.

In regards to d), the Applicant argues that there were no outstanding undertakings at the commencement of the hearing, the parties agreed upon a set of Joint Document Briefs and no evidence was objected to at the hearing. As such there is no basis for an award of expenses against either party using this criteria.

In regards to criteria e), the Applicant argues that neither party acted in an improper or vexatious manner. The Applicant urges me to reject the Insurer's argument that somehow a rejection of an offer to settle by the Applicant is evidence that the hearing on its merits was unnecessary. In this instance, the Applicant called witnesses to testify who had direct knowledge of the Applicant's condition. The expert reports were generated on behalf of the Applicant in response to the Insurer's expert reports. Therefore, the Applicant submits that no aspect of the hearing was improper, vexatious or unnecessary, and criteria e) has no relevance to this expense hearing.

In its reply submissions the Insurer relies, in part, upon Naqvi and TD General Insurance Company.¹⁰ Where the arbitrator in that case took the "with prejudice" withdrawal into consideration when determining the parties' success and held that the Insurer "experienced a complete success in the sense that the Applicant did not proceed with any of her claims sought in the Arbitration".

The Insurer also relies upon the Ontario Superior Cout decision Risorto v. State Farm Mutual Automobile Insurance Company¹¹, which held that allegations of excess on the quantum of costs "are no more than an attack in the air", when responding counsel's Bill of Costs are not submitted for comparison in support of their excessive arguments.

Finally, the Insurer argues that the Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron International Corp.,¹² has determined that "without prejudice" discussions are inadmissible. Therefore all such references to what transpired between the parties during without prejudice negotiations should be disregarded by the Commission in their entirety.

Decision

In my view, the clear agreement of the parties was that the Insurer would agree to the withdrawal of the Application without seeking its expenses on condition that the Applicant agreed to settle all future claims on a full and final basis for a payment of $10,000.00. If the Applicant rescinded from the settlement offer, the Insurer could seek its costs of defending the Application.

The undisputed fact is the Applicant did rescind from the offer to settle. For these reasons, I find that the Insurer is able to pursue their expenses in this matter.

As my jurisdiction in this matter is established by the agreement of the parties, I note Rule 70(3) of the Code which reads as follows:

70.3 Where a party does not agree to the withdrawal, an adjudicator may:

(a) permit the withdrawal on such terms and conditions as he or she considers just;

(b) award expenses to either party as permitted by Rule 75 and following.

In my view, it is undisputed that the Applicant has rescinded many offers of settlements on many occasions over the life of the Application. These constant rescissions demonstrate an abuse of the dispute resolution process, rather than access to and an effective use of that process.

In my view, Rule 70(3) is permissive in that I "may" execute a) or b) or both. In this case, I am electing to exercise my discretion under a) and place such terms and conditions as I consider just in these circumstances, as I have permitted the withdrawal of the Application.

I note that the Applicant did not dispute the hourly rates or the disbursements being charged by the Insurer other than to say they were "excessive".

In my view a broad stroke approach is appropriate in the circumstances, and a 4:1 ratio for preparation time to hearing time is also reasonable.

I am unpersuaded that Insurer's preparation expenses were entirely "thrown away" each time a settlement offer was agreed to and subsequently rescinded by the Applicant.

I remain conscious that the Insurance Act is consumer protection legislation and that the Applicant is 81 years old.

Therefore, for the above reasons, I find that the Insurer is entitled to its reasonable expenses of $20,000.00, inclusive of H.S.T. and disbursements.

April 3, 2018

Charles Matheson Arbitrator

Date

ARBITRATION ORDER

Under section 282 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 Ontario Regulation 664, as amended, it is ordered that:

1. The Insurer is entitled to pursue its claimed expenses.

2. The Applicant is liable to pay the Insurer its reasonable expenses of $20,000.00, inclusive of H.S.T. and disbursements.

April 3, 2018

Charles Matheson Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule – Effective September 1, 2010, Ontario Regulation 34/10, as amended.
2. 2RSO 1990, Chapter H.19, as amended.
3. 3Dispute Resolution Practice Code, Fourth Edition, January 2014
4. 4(FSCO A09-003232, April 22, 2015)
5. 5(FSCO A08-000170, March 15, 2010)
6. 6(FSCO P14-00046, July 29, 2016)
7. 7Khan and State Farm Mutual Automobile Insurance Company (FSCO A13-014868, February 26, 2016)
8. 8See footnote 6, supra.
9. 9(FSCO A09-001602, May 16, 2012)
10. 10(FSCO A15-004848, February 28, 2018), page 6
11. 112003 CanLII 43566 (ON SC), [2003] O.J. No. 990 (S.C.J.) paragraph 10
12. 122013 SCC 37, [2013] 2 S.C.R. 623, paragraphs 13 to 17