ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO: CV-11-425069
DATE: 2012-09-25
B E T W E E N:
Her Majesty the Queen in Right of Ontario as Represented by the Minister of Finance Plaintiff
- and -
Zurich Insurance Company Ltd. and Fahmeeda Begum Defendants
John Friendly, for the Plaintiff
Elizabeth Wilson, for the Defendant, Zurich Insurance Limited
HEARD: July 16, 2012
GOLDSTEIN J.:
[ 1 ] The Motor Vehicle Accident Claims Fund (“ the Fund ”) brought an action against Zurich Insurance (“ Zurich ”) notwithstanding that it also sent to Zurich a Notice of Dispute under the automobile insurance arbitration process.[^1] Is the Fund permitted to do so? Although the policyholder provided incomplete and misleading information, causing the Fund to spend time and resources investigating, the Fund also failed to follow up in a timely manner, putting itself outside the time limits in the arbitration process. Zurich now brings a motion for summary judgment on the grounds that once the Fund has commenced the arbitration process it cannot then decide to litigate instead. I agree with Zurich. For the reasons that follow, summary judgment is granted.
FACTS
[ 2 ] In November 2008 Fahmeeda Begum was walking in the vicinity of Jones Avenue and Danforth Avenue in Toronto when she was struck by a vehicle. On April 14, 2009, she submitted, through her solicitor, an application for benefits from the Fund. Ms. Begum claimed that she was not covered under any other insurance policy. The Fund initially rejected the application but since it turned out that the driver was uninsured the Fund paid benefits to Ms. Begum. On May 11, 2009, the Fund retained an insurance adjuster to adjust the claim and determine whether or not Ms. Begum had other insurance coverage.
[ 3 ] In June and July 2009, a private investigator hired by the Fund’s adjuster carried out surveillance of Ms. Begum. In addition to observing that she may not have been as badly injured as she claimed, the surveillance associated vehicles parked at her home with a numbered Ontario company. The numbered Ontario company appeared to have an insurance policy with McLarens Canada, an insurance broker. As a result, the Fund’s adjuster wrote to McLarens on July 24, 2009, indicating that Ms. Begum appeared to have access to benefits through McLarens’ principal. The Fund’s adjuster wrote: “Please consider this our formal Notice of Dispute.” Ontario Regulation 283/95 (“ the Regulation ”) made under the Insurance Act sets out a process for arbitrating disputes between insurers as to which is responsible for the payment of benefits.[^2] The arbitration process commences with a Notice. The arbitration process is at the heart of this motion.
[ 4 ] Further investigation and surveillance by the Fund’s private investigator in August 2009 revealed that Ms. Begum appeared to be employed at Empire Car and Truck Rentals (“ Empire ”), which was the operating name of the numbered company associated with the vehicles parked in her driveway.
[ 5 ] In January 2010, the Fund’s adjuster contacted McLarens as there had been no communication between them after the July 24, 2009 letter. It appeared that McLarens either never received or misplaced the July 24, 2009 letter indicating a Notice of Dispute. The Fund’s adjuster re-sent the letter to McLarens. The adjuster’s letter stated that Ms. Begum may have been an employee of Empire, and may have had access to insurance under a Zurich policy issued to Empire. The letter requested confirmation from McLarens.[^3]
[ 6 ] On January 20, 2010, McLarens wrote to Ms. Begum’s solicitor requesting confirmation as to whether or not Ms. Begum was an employee of Empire. The letter made it clear that McLarens was attempting to determine which insurer should be the highest priority with regard to paying benefits. Ms. Begum’s solicitor responded promptly with a statutory declaration. The statutory declaration reiterated the facts of the accident and attached a copy of the accident report and some clinical notes. There was no information provided regarding Ms. Begum’s relationship, if any, to Empire. McLarens subsequently sent a copy of the solicitor’s letter to the Fund’s adjuster. On March 24, 2010, Ms. Begum’s solicitor wrote to McLarens and advised that Ms. Begum did not have a driver’s licence at the time of the accident, was not an employee of Empire, and did not have access to any of Empire’s vehicles. It should be noted that all of the information provided by Ms. Begum through her solicitor or by way of the statutory declaration was completely true, and utterly useless.
[ 7 ] On July 16, 2010, McLarens wrote to the Fund’s adjuster indicating that its own investigation had not revealed any connection between Empire and Ms. Begum. As a result, Zurich was not in a position to respond to the claim. The letter of March 24, 2010, from Ms. Begum’s solicitor was attached.
[ 8 ] On July 24, 2010 the one-year time period for commencing the arbitration after the receipt of a Notice of Dispute expired. It should be noted that after the Fund’s adjuster wrote to McLarens on July 24, 2009 the Fund made no attempt to actually commence the arbitration although there was some evidence connecting Ms. Begum to Empire. The only action taken by the Fund’s adjuster was the follow-up letter written in January 2010, to which McLarens responded on July 16, 2010, only a few days prior to the expiry of the time period.
[ 9 ] Further investigations conducted by the Fund after July 2010 revealed that Empire was the operating name of the numbered company associated with the vehicles parked in Ms. Begum’s driveway. The Fund’s investigation further revealed that Mohammed Gulzar Raja was the principal of Empire and that he resided at the same address as Ms. Begum. This information was provided to McLarens. In October 2010, McLarens confirmed that it still had no information regarding a connection between Empire and Ms. Begum. In March 2011, McLarens indicated to the Fund that the information was still insufficient to establish that Ms. Begum had any access to benefits under a Zurich policy.
[ 10 ] In April 2011, the Fund issued a statement of claim against Zurich and Ms. Begum. The Fund pleaded that Ms. Begum was entitled to benefits under the Zurich policy issued to Empire. The Fund also pleaded that Ms. Begum had failed to provide sufficient information to permit resolution of the question as to who was responsible for the payment of benefits. Zurich admitted in its defence that the policy relating to Empire was in force but pleaded that the Fund was prohibited from proceeding since the arbitration process had commenced. Ms. Begum defended and cross-claimed against Zurich on the basis that she was entitled to benefits as she was the spouse of Mohammed Gulzar Raja. She denied that she had failed to provide the required information. In June 2011, Ms. Begum sued Zurich in a separate tort action on the basis that she was entitled to benefits under the Empire policy.
[ 11 ] It is now common ground that Ms. Begum had access to benefits through the Zurich policy issued to Empire. In an affidavit sworn on June 15, 2012, Ms. Begum indicated that her separate tort action against Zurich had been settled with an $80,000 payment. She claimed that when she first applied for benefits from the Fund she did not understand that her husband’s insurance would pay. She blamed her failure to provide full information on the fact that she did not speak English and that her son was assisting her with the affidavit.
[ 12 ] I have a great deal of difficulty with Ms. Begum’s explanation. Between April 2009 and June 2012 there was nothing to indicate that Ms. Begum could not speak English. She has had the same solicitor throughout the process. That solicitor prepared the initial application for benefits submitted to the Fund. That application form does not ask which insurance company pays. Part 4 of the form states:
“In order to determine which automobile insurer is responsible for paying benefits, it is necessary to know whether you have your own policy or whether you are covered by somebody else’s insurance policy. To help make that determination, please complete the following:”
[ 13 ] The form then asks whether the applicant is covered by any of the following policies:
• Your own policy
• Your spouse’s policy
• The policy of any person on whom you are a dependent
• A policy that lists you as a driver
• Your employer’s policy (e.g. a company car) or spouse’s employer’s policy
• A policy insuring long-term rental cars (for rentals exceeding 30 days)
[ 14 ] The form is simple, the questions are simple, and Ms. Begum had a lawyer to help her. The information that would have later clarified whether she was covered under Empire’s policy was simple and within her knowledge: whether or not she was married to Mohammed Gulzar Raja and whether or not he owned Empire. I think it would be open to a trier of fact to find that her actions were deliberate and wilful. Although it is not necessary for me to go that far, I do find as a fact that she failed to provide accurate and truthful information in a timely manner.
[ 15 ] I also find that the Fund had enough information in its possession to commence the arbitration process in July 2009, but failed to follow up in a timely manner. The Fund let the one-year time limit under the arbitration process lapse without taking action.
ANALYSIS
[ 16 ] The crux of the legal dispute between Zurich and the Fund revolves around whether this is a proper case for the Fund to seek restitution through the courts rather than through the arbitration process. Zurich’s position is that once the Fund began the arbitration process by way of a Notice of Dispute, it is bound to accept that process. The Fund cannot also bring an action in the Superior Court. Ms. Wilson, for Zurich, argues that there was enough information available to the Fund prior to the expiry of the one-year time period to commence the arbitration process. Accordingly, Zurich argues that this is a proper case for summary judgment and that the Fund’s action should be dismissed.
[ 17 ] The Fund’s position is that I can apply Rule 20.04(4) and determine the issue as a question of law. Mr. Friendly, for the Fund, argues that since Zurich now accepts that it is responsible for Ms. Begum’s claim, the only issue is whether it is entitled to sue in the courts rather than proceed by way of arbitration.
[ 18 ] After reviewing the evidence in detail, I am satisfied that the record is sufficient for me to obtain a full appreciation of the evidence and the issues raised in the case: Combined Air Mechanical Services Inc. v. Flesch (2011), 2011 ONCA 764, 108 O.R. (3d) 1, [2011] O.J. No. 5431 (C.A.). The facts are not generally in dispute. The issue in the case is essentially a legal one, and therefore suited to the summary judgment process.
[ 19 ] The Fund was set up in 1947 to provide benefits for accident victims who were injured by those without automobile insurance. The insurance industry, the legal framework for accident benefit claims, and the regulatory scheme have evolved and changed over the years, but the Fund’s main purpose has, for the most part, not changed. Currently, when someone is injured, he or she may seek benefits from an insurer and the insurer is required to pay. Section 268 of the Insurance Act (“ the Act ”) sets out the priority for the payment of claims, and, as a result of the Statutory Accident Benefits Schedule, casts an extremely wide net. To put it very broadly, anyone who might conceivably be connected to an insurance policy through a family member or employment has a right to benefits. The Regulation sets out a process for mandatory arbitration among insurance companies in order to determine who should ultimately be responsible for the payment of benefits.
[ 20 ] Prior to the Court of Appeal’s short endorsement in Kalinkine v. Ontario (Superintendent of Financial Institutions) (2004), 2004 48058 (ON CA), 17 C.C.L.I. (4th) 2, [2004] O.J. No. 5138 (C.A.) it was an open question as to whether the Fund was an insurer for the purposes of the Regulation. Kalinkine decided that it was not. Prior to Kalinkine the Fund had taken the position that where it had paid benefits and the victim actually had a policy, it could choose to either sue in court or initiate the arbitration process as it saw fit. The Court of Appeal reversed Kalinkine in 2007 in Allstate Insurance Co. of Canada v. Motor Vehicle Accident Claims Fund (2007), 2007 ONCA 61, 84 O.R. (3d) 401, [2007] O.J. No. 292 (C.A.). The Court decided that the Fund was, in fact, an insurer, and that Kalinkine was wrongly decided. Thus, the Fund was bound to use the arbitration process, except in rare cases.
[ 21 ] The Court of Appeal dealt with the circumstances under which the proper case exception would apply in Ontario (Minister of Finance) v. Progressive Casualty Insurance Co. of Canada (2009), 2009 ONCA 258, 95 O.R. (3d) 219, 309 D.L.R. (4th) 490, [2009] O.J. No. 1216 (C.A.). The Fund chose to sue Progressive for benefits that it had paid out to the occupant of a motor vehicle who was seriously injured in an accident. After a comprehensive review of the purposes of s. 268 of the Act and the Regulation, Doherty J.A. stated:
39 Having regard to the purpose of the provisions, the nature of s. 268 disputes, and the ongoing relationship of the parties to those disputes, the "proper case" exception exists for those cases where the merits of the dispute cannot be reached through the Dispute Regulation and there is no prejudice caused to the defending party by addressing those merits in the context of a restitution claim. Without laying down any hard and fast rules, I suggest that the answer to the two questions posed below will assist in identifying those cases that constitute a "proper case" to permit a party to proceed by way of a restitution claim:
Were the ultimate parties to the s. 268 dispute engaged in a dispute over payment of benefits within the time limits set out in s. 3 of the Dispute Regulation and did the parties, either expressly or by implication from their conduct, choose not to proceed under the Dispute Regulation?
Was arbitration in accordance with the process set out in the Dispute Regulation no longer possible when objection was first taken to a party proceeding by way of a restitution claim?
40 If the answer to both questions is yes, a common law action for restitution provides the only way that the dispute can be resolved according to the priority scheme established in the Act. The choice is between permitting a restitution action in which the merits of the claim can be addressed, and potentially sanctioning the imposition of the burden of the s. 268 benefits on a party other than the party who should bear that burden under the terms of the Act. If the first choice can be made without irreparable prejudice to the defending party, the interests of justice warrant treating the case as an exception to the general rule requiring arbitration pursuant to the Dispute Regulation.
In my view this is not one of those cases where the exception should apply.
[ 22 ] The ultimate parties to the dispute were not fully known within the time limits set out in the arbitration process, although there was enough information for the Fund to serve its Notice of Dispute on McLarens. McLarens resisted acknowledging that its principal, Zurich, was liable. In my view this is the type of dispute that the arbitration process was designed to address. Although this state of affairs was created by Ms. Begum’s lack of cooperation, the real problem was that the Fund simply failed to follow up. The Fund expressly chose to use the arbitration process by serving a Notice of Dispute. Although the Fund could never determine with certainty that Ms. Begum was insured, there was enough information available to the Fund that it could have proceeded under the arbitration process to resolve the issue. Ms. Wilson, for Zurich, argues that the Fund is attempting to compensate for its own failure to pursue the arbitration process. I agree with Ms. Wilson.
[ 23 ] The regulatory scheme set out in the Act and the Regulation is meant to facilitate resolution among sophisticated parties. As Doherty J.A. said in Progressive:
38 The Dispute Regulation targets a very specific kind of dispute that arises where insurers or the Fund have competing views as to who should bear the responsibility of paying those benefits. The injured person's entitlement to the benefits is not in issue in these disputes. The insurers and the Fund, the usual participants in a s. 268 dispute, are members of a small community of well-informed, sophisticated entities. These entities routinely interact on a variety of automobile insurance matters and regularly address the kinds of problems that give rise to s. 268 disputes. When a s. 268 dispute arises, the insurers and the Fund are not parties engaged in a one-off piece of litigation. Rather, they are stakeholders in the ongoing operation of the multi-million dollar automobile insurance industry. That industry is carefully regulated. Insurers and the Fund play a significant and ongoing role in formulating those regulations. The interest of the Fund and the insurers goes well beyond success or failure in a specific dispute. Their interest is in maintaining the ongoing effective operation of the regulatory scheme which they have played a significant role in organizing. That scheme includes the resolution of priority disputes under s. 268. As described above, the ultimate goal of s. 268 and the Dispute Regulation is to distribute the cost of paying the benefits among insurers and the Fund according to the priorities established in s. 268 and elsewhere in the Act: see, for example, s. 275. The Fund and the insurers have a common interest in seeing that goal achieved.
[ 24 ] In Allstate, Laskin J.A. stated that the Fund could not “have it both ways” by choosing when to pursue arbitration and when to pursue litigation. Laskin J.A. also stated that the circumstances under which the Fund will not be required to do so will be rare. It seems to me that those circumstances should not include the Fund’s failure to pursue arbitration because it has missed a time limit through its own inaction.
DISPOSITION
[ 25 ] Summary judgment is granted with costs. If the parties are unable to agree on costs, Zurich may submit, within 14 days, a brief costs submission (not exceeding 2 pages). The Fund may submit, within 10 days after that, a brief costs submission (also not exceeding 2 pages) in reply. I am grateful to both counsel for their very professional submissions.
GOLDSTEIN, J.
DATE: September 25, 2012
COURT FILE NO: CV-11-425069
DATE: 20120925
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
Her Majesty the Queen in right of Ontario as Represented by the Minister of Finance Plaintiff
- and -
Zurich Insurance Company Ltd. and Fahmeeda Begum Defendants
JUDGMENT
GOLDSTEIN J.
Released: September 25, 2012
[^1]: Although I refer to the Fund throughout, the actual party is Her Majesty in Right of Ontario.
[^2]: In these reasons I refer to the dispute settlement mechanism set out in the Regulation as “ the arbitration process ”.
[^3]: The facts relied on by the Fund are contained in an affidavit of Lorie Gillespie, a claims administrator. In her affidavit Ms. Gillespie refers to an adjuster’s report of January 10, 2012, but it is clear from the date on the report and from the general chronology of events that the appropriate date is January 10, 2010. This is obviously just a typographical error.