Court File and Parties

Court File No.: CV-19-620128-0000 Date: 20230821 Ontario Superior Court of Justice

Re: WAWANESA MUTUAL INSURANCE COMPANY, Appellant -and- MOTOR VEHICLE ACCIDENT CLAIMS FUND, Respondent

Before: Shin Doi J.

Counsel: Damien Van Vroenhoven, for the Appellant Sharon Warden, for the Respondent

Heard: May 30, 2023

Endorsement

[1] On May 30, 2023, I dismissed the appeal by Wawanesa Mutual Insurance Company (the “Appellant”) and upheld the decision of arbitrator Sampliner (the “Arbitrator”) dated April 16, 2019. I also ordered costs payable to the Motor Vehicle Accident Claims Fund (the “Respondent”) in the sum of $15,000.00 as agreed between the parties. These are my reasons.

[2] The Appellant appeals the Arbitrator’s decision on a reimbursement claim made by the Appellant against the Respondent. The Appellant paid benefits to Jeremy Bragdon who was in a catastrophic snowmobile accident. Mr. Bragdon sought coverage under his Mother’s motor vehicle insurance policy with the Appellant. The Appellant subsequently learned that the snowmobile was uninsured. The Appellant sought reimbursement from the Respondent of the benefits paid to Mr. Bragdon because the Respondent is responsible for coverage of uninsured vehicles. The parties agreed to an arbitration proceeding on the issue of reimbursement and costs. The Arbitrator partially denied reimbursement to the Appellant and ordered the Appellant to pay the Respondent’s legal expenses, adjuster’s fees, and administrative costs.

[3] In reviewing the Arbitrator’s decision and record, I agree with the Respondent that the Arbitrator applied the correct law to the facts and circumstances and in doing so made no palpable and overriding error.

Background Facts

[4] The Respondent, which pays claims to victims of motor vehicle accidents where no insurance is available, accepted priority of insurance coverage for Mr. Bragdon’s accident benefits claim. There were three significant time periods:

(1) March 22, 2014 (date of accident) to December 11, 2014 (date of withdrawal of criminal charge against Mr. Bragdon);

(2) December 12, 2014 to March 30, 2016 (date of Mr. Bragdon’s admission that he did not have insurance on the snowmobile and was aware that it was not insured at the time of the accident); and

(3) after March 30, 2016.

[5] The Appellant requested reimbursement from the Respondent of the sum of $944, 408.18 in benefits it had paid to or on behalf of Mr. Bragdon since March 22, 2014. The Respondent reimbursed the Appellant the amount of $865,662.00 for the second time period which was after the withdrawal of the criminal charge and before the admission that the snowmobile was not insured. The Respondent declined reimbursement of the amount of $78,746.18 for the first time period and third time period on the grounds that the Appellant did not pay benefits in accordance with the Statutory Accident Benefits (“SABS”) provisions. The Respondent reimbursed the Appellant defence costs in the amount of $39, 161.49 which the Appellant had incurred in relation to various proceedings initiated by Mr. Bragdon, and interest in the amount of $32,036.48.

[6] The parties proceeded to arbitration given the Respondent did not fully reimburse the Appellant.

Arbitration Agreement

[7] The parties entered into an Agreement to Arbitrate (Priority) (the “Arbitration Agreement”) pursuant to Ontario Regulation 283/95 Disputes between Insurers. Section 7 (1) of Ontario Regulation 283/95 provides that if insurers cannot agree as to who is required to pay benefits, the dispute shall be resolved through an arbitration under the Arbitration Act, 1991 initiated by the insurer paying benefits or any other insurer against whom the obligation to pay benefits is claimed.

[8] The Arbitration Agreement set out the scope of the arbitration and jurisdiction of the Arbitrator, as follows:

1. The parties nominate and appoint Fred B. Sampliner as the Arbitrator, who shall determine all matters between the parties arising out of priority dispute for indemnification of Statutory Accident Benefits paid under ________________(claim number) to or on behalf of the SABS claimant; Jeremy Bragdon, arising out of a motor vehicle accident that occurred on or about March 22, 2014.
2. The Arbitrator shall have the power to grant any and all relief appropriate to the facts and circumstances that would be within the powers and jurisdiction of a Judge of the Ontario Superior Court of Justice at a trial.

[9] Section 7 of the Arbitration Agreement provides that any party may appeal the Arbitrator’s decision on a point of law or mixed point of law and fact to a Judge of the Ontario Superior Court of Justice. Pursuant to that provision, the Appellant appeals the decision of the Arbitrator to this court.

Standard of Review

[10] The Appellant has raised questions of law and questions of mixed fact and law. The Appellant argues that the Arbitrator erred in law when denying the claims for reimbursement and ordering payment of the Respondent’s costs and expenses. The Appellant further submits that the Arbitrator failed to consider relevant facts under the correct legal tests. The Respondent argued that the Arbitrator applied the correct law to the facts and circumstances and in doing so made no errors of law or palpable and overriding errors. The Respondent argues at paragraph 33, that “this is principally a case where the factual matrix is so particular that the alleged errors raised by the Appellant are questions of mixed fact and law and, as such, subject to review only where there is a palpable and overriding error.”

[11] As held in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 SCR 653, where a court is hearing an appeal from an administrative decision in considering questions of law, including questions of statutory interpretation and those concerning the scope of a decision maker’s authority, the appellate standard for review is correctness. Where the appeal includes questions of fact, the appellate standard of review for those questions is palpable overriding error as it is with respect to questions of mixed fact and law where the legal principle is not readily extricable (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, para 8).

[12] The court has confirmed that appeals of arbitration decisions under Ontario Regulation 283/95, Disputes between Insurers are to be determined using that appellate standard (Continental Casualty Co. v. Chubb Insurance Co. of Canada, 2022 ONCA 188 at para 46; Allstate Insurance Co. v. Ontario (Minister of Finance), 2020 ONSC 830 at para 19).

Not Insured

[13] The Arbitrator found that the Appellant failed to re-consider entitlement to benefits after the March 30, 2016 evidence of Mr. Bragdon that “reliably established the snowmobile was not insured.” The Arbitrator pointed to the Appellant’s letters to the Respondent between March 31, 2016 and July 2016 demanding that the Respondent assume priority for coverage because there was no available motor vehicle insurance policy.

[14] The Arbitrator found that the Appellant grossly mishandled its adjusting responsibility in accordance with SABS s. 31(1)(c). SABS s. 31(1)(c) stipulates that the insurer is not required to pay an income replacement benefit, a non-earner benefit or a benefit under section 21, 22 or 23, in respect of an occupant of an automobile at the time of the accident who knew or ought reasonably to have known that the driver was operating the automobile without the owner’s consent.

[15] The Arbitrator states at pages 2, and 7-8 of his decision,

The parties acknowledge that the burden of proof rests with the Fund to establish that Wawanesa’s claimed SABS payments were the result of gross mishandling and/or bad faith….

Basic principles have emerged from past arbitration decisions dealing with bad faith and gross mishandling. Bad faith or gross mishandling can be clearly shown where payments are made that are not covered under the Schedule or are found excessive. Perfection is unrealistic in insurance adjusting, and hindsight is limited. Insurers should heed the “red flags” indicating incorrect or false information. I recognize that adjusters must be accorded discretion in weighing the intrinsically difficult decisions they often face in these complex situations. (Citing: Economical Mutual Insurance Company and Echelon General Insurance Company (P. Samworth, December 7, 2017) at 12; Royal & Sun Alliance Insurance Company and Wawanesa Mutual Insurance Company, (L. Samis, April 17, 2012); and Progressive Casualty Insurance Company and Markel Insurance Company of Canada, (S. Malach, 2017).)

[16] The Arbitrator correctly applied the law and the test of bad faith and gross mishandling. The Arbitrator was also correct that the burden of proof rested with the Respondent to establish that the Appellant’s claimed SABS payments were the result of gross mishandling and/or bad faith.

Criminal Charge

[17] The Arbitrator states at page 6 that the Appellant failed to adjust the SABS benefits in accordance with SABS subsections 31(1) and 31(3) which is entitled, “Circumstances in Which Certain Benefits Not Payable”:

31. (3) The insurer shall hold in trust any amounts payable as an income replacement benefit, a non-earner benefit or a benefit under section 21, 22 or 23 to a person who sustains an impairment as a result of an accident if,

(a) at the time of the accident, the person was engaged in, or was an occupant, of an automobile that was being used in connection with, an act for which the person is charged with a criminal offence …

(5) In this section, “criminal offence” means,

(a) operating an automobile while the ability to operate the automobile is impaired by alcohol or a drug or a combination of alcohol and a drug,

[18] The Arbitrator held that the Appellant was grossly negligent in failing to withhold the subject benefits in trust at the outset of the claim in accordance with s. 31(3) of the SABS. The Arbitrator held that the term “shall” in the statute is obligatory and the Appellant was required to hold in trust the amounts payable.

[19] The Arbitrator notes that the evidence demonstrates that the Appellant had repeatedly received Mr. Bragdon’s denial he was criminally charged, but he did not provide the records or any authorization allowing the Appellant to have access. Mr. Bragdon stated in his declaration that he was told that he did consume alcohol prior the time of the accident. Mr. Bragdon’s counsel did state on June 12, 2014 that Mr. Bragdon was not charged. On June 13, 2014, the Appellant sent Mr. Bragdon notice that he had violated his G2 licence by consuming alcohol and advised erroneously that Mr. Bragdon was ineligible to receive excluded benefits. The Arbitrator continued to note that there were “red flags” that Mr. Bragdon had given false information about the criminal charge but the Appellant continued to adjust and pay Mr. Bragdon full SABS benefits throughout the remainder of 2014. On December 11, 2014, the impaired driving charge against Mr. Bragdon was withdrawn at court.

[20] The Arbitrator concluded that, “ignoring the ‘red flags’ resulted in Mr. Bragdon receiving full benefits during pendency of his criminal charge, and contravened its section 31 (3) responsibility to hold the subject benefits in trust following the accident.”

[21] The Arbitrator correctly applied the law and there was no palpable and overriding error made in his determination that the Appellant should have held in trust amounts payable to Mr. Bragdon until December 11, 2014 when Mr. Bragdon was criminally charged.

Legal Expenses and Disbursements, Administrative Costs, Adjusting Costs

[22] The Appellant argues that while the Arbitrator found that the Appellant was the “overwhelming successful party”, the Arbitrator ordered that the Appellant pay the Respondent’s legal expenses, disbursements, and administrative and adjusting costs. The Appellant submits that in doing so, he incorrectly relied on s. 2.1(7) of Regulation 283/95 which states:

2.1 (7) An insurer that fails to comply with this section shall reimburse the Fund or another insurer for any legal fees, adjuster’s fees, administrative costs and disbursements that are reasonably incurred by the Fund or other insurer as a result of non-compliance.

[23] The Appellant further argues that the application of s. 2.1(7) for cases of “deflection” and the Appellant did not deflect. The Respondent argues that s. 2.1(7) is not just confined to situations of deflection and that claims for administrative and adjusting costs are within the equitable jurisdiction of the Arbitrator. The Respondent then relies on the general law of costs in Ontario which preserves discretion in the trier of fact to determine whether costs should be awarded and the quantum of costs.

[24] It is important to consider the full context of the Arbitrator’s decision on expenses. In his decision at pages 15 and 16, he states,

Subsection 9(1) of Regulation 283/95 provides for the unsuccessful party to pay the costs of the successful party along with the costs of the arbitration unless otherwise ordered by the arbitrator. The Fund accepted priority through this arbitration process and voluntarily reimbursed Wawanesa $865,662 out of the $944,408 claimed. Although the Fund has succeeded in disallowing claims for $25,767 visitor expenses, $17,229 income replacement benefits, a portion of the $7,189 housekeeping and home maintenance, plus $37,105 SABS legal expenses, its monetary success is relatively minor compared to Wawanesa's success on priority and reimbursement. Wawanesa is the overwhelming successful party here, and I find that the Fund bears the responsibility for the costs of this arbitration.

Subsection 2.1(6) of Regulation 283/95 holding insurers accountable to pay in accordance with the SABS provisions is followed by subsection 2.1(7), which states: An insurer that fails to comply with this section shall reimburse the Fund or another insurer for any legal fees, adjuster's fees, administrative costs and disbursements that are reasonably incurred by the Fund or other insurer as a result of the non-compliance. My findings have established that Wawanesa did not pay in accordance with the SABS provisions over two extensive time periods, and the situation highlights the importance of encouraging prudent claims management practices where another insurer or the Fund are potentially responsible. In accordance with the arbitral discretion provided in section 65 of the Arbitration Act and subsection 9 of Regulation 283/95, I deny Wawanesa's claim for its legal fees, disbursements, adjusting and administrative costs, and find that the Fund is entitled to its legal fees, disbursements, administrative and adjusting costs in this matter.

[25] First, the Arbitrator found that the Appellant was the successful party and then ordered the Respondent to pay the costs of the arbitration. I find that the Arbitrator correctly applied section 9 (1) of Regulation 283/95 in awarding the legal costs of the arbitration to the Appellant as the successful party. Moreover, the parties had agreed in the Arbitration Agreement that the Arbitrator would have sole discretion for the costs of the arbitration.

[26] Second, the Arbitrator relied on subsection 2.1(7) as well as his arbitral discretion in the Arbitration Act and subsection 9 of Regulation 283/95 to deny the Appellant’s claim for legal fees, disbursements, adjusting and administrative costs, and award the Respondent its legal fees, disbursements, administrative and adjusting costs.

[27] The Appellant argues that the Arbitrator was not correct in citing section 65 because there is no section 65 in the Arbitration Act. The Respondent submitted that the Arbitrator made a typo and submitted that the reference should have been to section 56. Section 56, however, deals with the assessment of costs and it is not clear that that section was intended by the Arbitrator. Absent the typo, the Arbitrator referred correctly to his arbitral discretion in law. The Arbitration Act, 1991, grants power to arbitrators to order equitable remedies (s. 31 of the Arbitration Act, Dufferin Mutual Insurance Company v. Aviva Insurance Company of Canada). “Adjusting fees are recoverable in priority disputes based on unjust enrichment and they are recoverable.” Moreover, the Arbitration Agreement, sections 1 and 2, as noted above, gave the Arbitrator broad scope and jurisdiction to make the findings and awards.

[28] Accordingly, for the above reasons, I uphold the Arbitrator’s decision and dismiss the appeal by the Appellant. I order the Appellant to pay costs in the sum of $15,000 to the Respondent, as agreed between the parties.

Shin Doi J. Date: August 21, 2023