Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2018 ONFSCDRS 73

Appeal P17-00058

LISA KNOTT Appellant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Respondent

BEFORE: Delegate Jeffrey Rogers

REPRESENTATIVES: Mr. Robert N. Kostyniuk, solicitor for Ms. Knott Mr. Mohamed Hashim Jr., solicitor for State Farm

HEARING DATE: Heard by written submissions, completed on March 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:

This appeal is dismissed.
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.

April 10, 2018

Jeffrey Rogers Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Ms. Knott appeals the Arbitrator’s decision of August 25, 2017. The Arbitrator ruled that the parties did not enter into a binding settlement of Ms. Knott’s claims for accident benefits. Ms. Knott seeks to reverse the Arbitrator’s ruling. She also seeks a special award, claimed for the first time on appeal. For the reasons that follow, I conclude that the Arbitrator correctly ruled that the parties did not enter into a binding agreement to settle. The question of a special award is therefore moot.

II. BACKGROUND

Ms. Knott was injured in two automobile accidents on November 23, 2012 (1^st accident) and on December 5, 2012 (2^nd accident). She applied for arbitration regarding both accidents after mediation did not resolve disputes about accident benefits she claimed from State Farm. An arbitration hearing was scheduled to start on July 4, 2017. The parties entered into settlement discussions on June 22, 2017 and, not long after that, they agreed that State Farm would pay Ms. Knott $18,000 in full and final settlement of her claims arising from both accidents. The parties did not discuss how the settlement funds would be apportioned between the two accidents. The Arbitration hearing was adjourned to August 29, 2017, because the parties believed that they had reached a settlement.

State Farm sent Mr. Knott a Settlement Disclosure Notice and a Release in which it allocated most of the settlement funds to the 2^nd accident. Ms. Knott is pursuing a tort claim regarding the 1^st accident and not the 2^nd. Her position is that her injuries were caused by the 1^st accident, with minor exacerbation by the 2^nd accident. Ms. Knott refused to sign the Release because allocating the funds as State Farm proposed would prejudice her recovery in her tort claim. The allocation would also benefit State Farm because it is the insurer for the tort defendant.

The parties entered into negotiations regarding the allocation but they could not agree. Ms. Knott did not sign the Settlement Disclosure Notice and the Release. State Farm then rescinded its offer to settle and Ms. Knott brought a motion to “enforce” the settlement. The Arbitrator ruled that, since there was no agreement on allocation of the funds, there was no settlement.

The only relevant facts are the ones I have cited. The Arbitrator based his decision on those facts. Without seeking leave to do so, State Farm filed an affidavit along with its written submissions, setting out additional allegations of fact. I have not considered the additional allegations for two reasons. First, fresh evidence is only admitted on appeals, with leave. Second, the allegations contained in the affidavit are irrelevant.

III. ANALYSIS

State Farm’s position is that the appeal should be dismissed because an Arbitrator lacks jurisdiction to enforce a settlement, or, in the alternative, the appeal should be dismissed because the Arbitrator correctly ruled that the parties did not enter into a binding agreement to settle. I reject State Farm’s submission regarding jurisdiction, but I agree that the Arbitrator correctly ruled that there was no binding settlement.

The Arbitrator had jurisdiction

State Farm raised the issue of jurisdiction in its Response to Appeal, but made no written submissions on this issue. Nevertheless, I will address it briefly, because jurisdiction cannot be conferred by agreement between the parties. The question is not whether an arbitrator has jurisdiction to enforce a settlement, as State Farm framed it. The question is whether a valid settlement exists. It has long been established that arbitrators have jurisdiction to decide that issue.

Delegate Naylor ruled to that effect in Branchaud and Co-operators General Insurance Company.¹ Delegate Makepeace reached the same conclusion in Haripersaud and State Farm Mutual Automobile Company.² There, Delegate Makepeace also noted that the Divisional Court resolved the issue of jurisdiction in its unreported decision in Wood v. Ontario Insurance Commission, Guardian Insurance Company of Canada, and Attorney General of Ontario [Ontario Divisional Court (O’Driscoll, Kurisko and Belch JJ.), dated November 9, 1999, Court File No. 474/98.] The Court stated:

The fact is that a dispute exists concerning matters relevant to whether Guardian has complied with the Settlement Regulation. If there has been compliance, Wood is not entitled to require the Mediation Unit to mediate his claims for SABs and he may very well be stymied from taking any further proceedings by reason of the limitation in ss. 281(2). If there has not been compliance, Wood is entitled to rescind the settlement, as he has purported to do, and apply for the appointment of a mediator, as he has done. At the conclusion of the mediation the limitation in ss. 281(2) would not be applicable.

Clearly the issue of whether Guardian has complied with the requirements of the Settlement Regulation has everything to do with Wood’s entitlement to SABs and as such falls within the plain common sense meaning of the words “any issue in dispute in respect of the insured person’s entitlement to statutory accident benefits” in ss. 280(1).

No enforceable settlement

For a valid settlement, there has to be a meeting of the minds between the parties, and they have to comply with the Settlement Regulation.³ The Settlement Regulation required State Farm to give Ms. Knott a signed disclosure notice, in a form approved by the Superintendent of Insurance. Details of the amounts paid in settlement are required in the disclosure notice. The Settlement Regulation also gave Ms. Knott the right to rescind the settlement “within two business days after the later of the day the insured person signs the disclosure notice and the day the insured person signs the release”.

I reject State Farm’s submission that there was no valid settlement simply because Ms. Knott did not sign the Disclosure Notice and the Release. Had the parties agreed to all of the terms required for a valid settlement, State Farm could not avoid its obligations by failing to provide a Disclosure Notice or Release that complied with the agreed terms. Those were the circumstances in Shadd and Prudential of America General Insurance Co.⁴ In Shadd, the arbitrator ruled that it makes sense that insured persons can avoid a settlement where insurers fail to comply, since the Settlement Regulation is designed to protect insured persons. However, the same principle does not apply where insurers seek to avoid a settlement by relying on their own failure to comply. The arbitrator found that the parties in that case had agreed to all of the terms necessary for a final settlement. Therefore, the settlement was not voided by the insurer’s failure to provide a Release.

Despite Ms. Knott’s submission to the contrary, Shadd does not lead to a reversal of the Arbitrator’s conclusions in this case. Unlike Shadd, the parties in this case did not agree to all of the terms necessary for a valid settlement. There was no meeting of the minds. The parties agreed to settle the claims from both accidents for $18,000. The Arbitrator found that the parties did not agree on how the funds were to be allocated between the accidents. He noted that the parties did not discuss allocation during settlement discussions. The dispute about allocation did not arise until State Farm sent the Disclosure Notice and the Release. The parties continued to negotiate regarding this issue, but they could not agree. Allocation of the funds is a necessary term of the Disclosure Notice. Without it, there could be no valid Disclosure Notice and therefore no valid settlement.

Ms. Knott does not challenge the Arbitrator’s finding that allocation was not discussed. Rather, the thrust of her submissions is that she was willing to agree to a reasonable allocation, given her position regarding the cause of her impairments. She argues that State Farm was not reasonable. She notes that State Farm must have known her position on causation, that State Farm did not warn that it intended to allocate anything to the 2^nd accident, and that she offered various solutions to resolve the impasse. However, the parties could not agree.

For a valid settlement, there had to be agreement between the parties. That is what the Arbitrator had to decide. It was not up to the Arbitrator to determine whether the parties acted reasonably. The Arbitrator could not impose terms of what he considered to be a reasonable settlement. The Arbitrator correctly ruled that there was no meeting of the minds, and therefore no valid settlement.

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.