Page 1 Case Name: Panou v. Zurich North America Canada Between: Jeremy Panou, applicant, and Zurich North America Canada, insurer [2002] O.F.S.C.I.D. No. 140 File No. FSCO A01-000882 Ontario Financial Services Commission D.J. Evans, Arbitrator Heard: July 11, 2002 Decision: September 23, 2002 (44 paras.) Appearances: Theodore P. Charney, for Mr. Panou. Richard Levin, for Zurich North America Canada. Issues: DECISION ON A PRELIMINARY ISSUE 1 The Applicant, Jeremy Panou, was injured in an accident on September 17, 1995. He eventually applied for statutory accident benefits from Zurich North America Canada ("Zurich"), payable under the Schedule. 1 However, Zurich has never paid him any benefits, alleging that it was not the first insurer to receive a completed Application for Accident Benefits and so is not required to pay benefits. (Zurich also alleges that it has never in fact received a completed application.) The parties were unable to resolve their disputes through mediation, and Mr. Panou applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8, as
Page 2 amended. 2 At the pre-hearing of this matter on December 17, 2001, the parties identified the following preliminary issue: Result: 3 EVIDENCE AND ANALYSIS: Background: 1. Does Zurich have an absolute defence to the claims advanced by Mr. Panou on the basis that Lumbermens Mutual Casualty Insurance (now Western Assurance, hereafter "Lumbermens") first received a completed application for no-fault benefits in late 1995 or early 1996 and failed to respond to that application in toto, notwithstanding Zurich's subsequent provision of an application package to Mr. Panou in 1997? 1. Zurich does not have an absolute defence to Mr. Panou's claims. Mr. Panou may proceed to arbitration. The motion is dismissed. 4 In his opening submissions, counsel for Zurich noted that Mr. Panou was in a "serious motor vehicle accident" on September 17, 1995 that caused him "serious and lasting injuries" for which "accident benefits should be paid, likely on many levels." 5 However, in its Notice for this hearing Zurich alleges that the Regulation, Disputes Between Insurers, 2 provides it an "absolute defence" to Mr. Panou's claims. 6 The Regulation in s. 1 provides that all disputes as to which insurer is required to pay statutory accident benefits under s. 268 of the Insurance Act shall be settled in accordance with that Regulation. Section 2 provides that the "first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits..." 7 The Regulation is at issue because of the confusion regarding which insurer first received an Application for Benefits. 8 As noted in Practice Note 10, Process for Settling Disputes Between Auto Insurance Companies, "the Regulation cannot operate properly without a clear record as to which insurer first receives an application for benefits." As set out below, case law holds that I have jurisdiction to consider and decide the issue of first receipt. Unfortunately, Commission practice precluded Mr. Panou from mediating the issue with both insurers. Mr. Panou elected to mediate with Zurich, and
Page 3 now Zurich says Lumbermens was the Insurer of first receipt, leaving Mr. Panou in a difficult - and completely unnecessary - quandary. 9 The muddle about first receipt in turn stems from the Applicant's initial confusion about which insurer should pay him benefits. 10 At the time of the accident, Mr. Panou was living with his mother, who was insured with Lumbermens. However, he did not own a car nor was he a named insured under the Lumbermens or under any other policy of insurance. When he was injured, he was a passenger in a friend's car. Accordingly, he could possibly claim benefits from Zurich, as the insurer of his friend's car, or from Lumbermens, if he was a "dependant" of a Lumbermens insured. Mr. Panou's grandmother, Doreen Stewart, was the named insured and his mother, Deborah Panou, was the principal driver. 11 Deborah Panou presented her son's claims after the accident, including eventually filing an Application for Benefits with Zurich on his behalf in September 1997. 12 Mrs. Panou testified, but her evidence was vague, as she had a poor memory of events. As counsel for Zurich aptly noted in his submissions, despite the fact that Deborah Panou's examination "went on interminably, it appears that the best we get is a firm I don't recall.'" This case thus turns more on the documentary record. 13 The documentary record shows that Zurich was put on notice very early. 14 Barry Constable, Zurich's adjuster, who did not testify, summarized the initial notice to Zurich in his note of February 6, 1996. He received a notice of loss on September 26, 1995 (nine days after the accident), first attempted to contact Mr. Panou on September 28, and finally contacted the family on October 6, when Deborah Panou advised him that there was no other insurer. Other notes show that on October 11, 1995, he talked with Mr. Panou's parents, who indicated that the Applicant had no auto insurance or medical coverage. On October 13, 1995, Mr. Constable issued an accident benefits package to Mr. Panou, and he set reserves based on a discussion with the Applicant on October 16, 1995. At that time, he made the following prescient note: "Employment appears very sketchy with poor documentation. Wait & see what [claimant] is able to provide as proof." 15 Consistent with this wait-and-see attitude, the next entry did not relate to any assignment to an adjuster or any interview or investigation of Mr. Panou's claim. Rather, the next entry was made on January 15, 1996, when Mr. Constable was advised by Mr. Panou that he would be seeking benefits from Lumbermens, as he had been interviewed on behalf of that company. Mr. Constable closed his file. 16 Mrs. Panou testified that she had initially planned to pursue her son's claims from Zurich, but then Zurich's insured person suggested she go to Lumbermens. This testimony and the documentary record - Mrs. Panou's diary and the initial adjusting report to Lumbermens by Joan McKinlay of
Page 4 Precision Adjusting - suggest that Lumbermens was put on notice after Zurich. 17 Regarding notice to Lumbermens, Mrs. Panou's diary contains as its first reference to Lumbermens the entry "talk to Les Telch from Lumbermens Oct. 26." As for Ms. McKinlay's report of November 6, 1995, it shows that on October 27, 1995, Mr. Telch (who was also not summonsed to testify) assigned Ms. McKinlay to interview Mr. Panou. I find that Mr. Telch assigned the task shortly after Mrs. Panou advised him of her son's claim. Ms. McKinlay's report goes on to say that she met the family on November 1, 1995, provided an Application for Accident Benefits, and took statements. Then, in her report, she noted that the Insurer's records showed a date of loss of October 17, 1995 and suggested amending the records. I find this a further indication that the initial notice occurred after October 17, 1995; I find it unlikely that a loss date would accidentally be set in the future. 18 Accordingly, I find that Lumbermens was only advised of the accident after October 17, 1995, and most likely on October 26, 1995. Thus, by the time Lumbermens was even notified of the accident, Zurich's adjuster had already sent out an accident benefits claim form and set reserves. 19 Lumbermens took its next steps in January 1996, when Mr. Telch advised Mr. Constable that in his view, based on Ms. McKinlay's report, Mr. Panou was not a dependant and therefore the claim was Zurich's. 20 There was as yet no indication that Lumbermens had received an Application for Benefits. 21 Mr. Constable assigned Christine Easson of McAdam Insurance Adjusters Limited to investigate. She reported to him on February 27, 1996 that the application had been submitted directly to Lumbermens and wrote: "To conclude, the claimants were absolutely furious at the lack of attention their claim has been given. Apparently paperwork was filed shortly after the accident." 22 However, the Lumbermens file obtained by counsel for Mr. Panou does not contain an Application for Benefits; it merely contains a Health Practitioner's Certificate. This is consistent with Mrs. Panou's diary entry of a conversation with Les Telch on February 26, 1996: "They stated they only received the doctor's papers not the work claim or clothing claim and Jeremy is not dependent on grandmother. Zurich will be handling it." 23 Mrs. Panou testified that she could not recall: providing the information to Ms. Easson that an application had been provided to Lumbermens; being "absolutely furious" with Lumbermens; or filing paperwork with Lumbermens. My notes show a typical exchange between counsel for Zurich and Mrs. Panou: "Q: If you can't remember then it may be possible? A: I'll say it's possible but I cannot remember." At most, she testified, she remembered talking on the telephone with Lumbermens but she did not know if that could be called a claim: "When I phone the insurance company I'm starting a claim, am I not?" She just knew that the "calling back and forth was making me mad."
Page 5 24 The next reference to an application with Lumbermens is in Mr. Constable's note of May 16, 1996, where he indicates that Mrs. Panou said she had submitted an application to Lumbermens. Mrs. Panou testified that she did not recall her conversations with Mr. Constable. At most, she agreed that it was a reasonable interpretation that Mr. Constable wrote down what she told him. However, she then testified that "when I say a claim I mean phoning Lumbermens." She never testified that she actually submitted an Application for Benefits to Lumbermens. 25 I find that Mrs. Panou's testimony does not support the allegation that she filed an application with Lumbermens. 26 Mr. Constable eventually wrote to Mr. Telch on July 5, 1996, indicating that Lumbermens would have to respond as it was the first to receive an application. In response, Mr. Telch left a message for Mr. Constable on July 15, 1996, denying that accident benefits forms had been received. 27 Finally, approaching the two-year mark, Mrs. Panou filed an application with Zurich in September 1997. Findings: 28 The Applicant's position is that Zurich received the first completed Application for Accident Benefits. However, Zurich has brought this motion seeking an order discontinuing Mr. Panou's "action against the Insurer, Zurich Insurance Company" on the basis, as set out in its Notice, that "documentary evidence" indicates that Lumbermens "was the first insurance company who received a completed application for no fault benefits in late 1995 or early 1996..." 29 Zurich also states in its Notice of Preliminary Issue that Lumbermens "not only failed to respond to the application but also failed to commence an arbitration to determine priority between itself and Zurich within one year of giving notice to Zurich." The Regulation sets out the procedure that the first insurer to receive an application must follow to dispute its obligation to pay benefits, including seeking a resolution through private arbitration if the insurers cannot agree on who must pay benefits. 3 30 Mr. Panou in turn argued that s. 7 abolishes my jurisdiction to even consider the issue of first receipt. However, neither party cited the appeal decision in Mohamed, 4 which sets out the law on that point. In that case, the current Director of Arbitrations wrote of the Divisional Court ruling in Brown 5 that the Brown decision is important for two reasons. First, it holds that an insurer can argue before an arbitrator that it is not subject to arbitration because it was not the first insurer to receive a completed application. Second, the Court suggests that this issue should be decided on notice to any other insurance companies that might be affected by the outcome.
Page 6 31 Accordingly, I do have a jurisdiction redivivus to consider the matter, but the procedure to date troubles me. In particular, I note that although Zurich served Lumbermens with its Notice of Preliminary Issue Hearing, it did not summons anyone at Lumbermens to testify, and Lumbermens did not appear or apply to intervene. Furthermore, Lumbermens is not a party to this proceeding: counsel for Mr. Panou advised that the Commission did not permit him to mediate with both insurers, so he chose the one that in his view received the application first. 32 In Mohamed, the Director quoted the following from Brown: In this case where each of the four parties alleges it does not provide coverage it is essential that all four parties be included in the court or arbitration proceedings to determine whether any of them provided coverage - i.e., is an "insurer." Economy of time and fairness to the parties in such a case dictate that all should participate in one proceeding. [Emphasis added.] 33 I believe that economy of time and fairness to the parties would have been better served if mediation and eventually arbitration had proceeded against both Lumbermens and Zurich. However, I must deal with the matter as it stands before me. 34 Although I agree with and in any event am bound by Mohamed, I find that significant differences from the Mohamed case lead to a different result. 35 In Mohamed, American Home - the alleged first insurer in Mohamed and the insurer that was in fact found to be the first insurer - conceded that it had received the first completed application. However, the documentary evidence shows that Lumbermens never conceded receiving an Application for Benefits from Mr. Panou. As already noted above, on July 15, 1996, Mr. Telch left a message for Mr. Constable indicating that no accident benefits forms had been received. On September 16, 1997, Mr. Telch again confirmed to the Zurich adjuster then handling the file that Lumbermens had never received an application. Almost two years after that, on May 7, 1999, Lumbermens issued an emphatic Explanation of Assessment by Insurance Company: "We have never received an Application for Accident Benefits." 36 The documentary evidence in Zurich's favour is hearsay, based as it is on what was allegedly said by Mr. Panou and by his mother to Mr. Constable and Christine Easson - and neither of the Panous in their testimony supported this evidence. Mr. Panou testified that he was not active in pursuing his claims because of his injuries. Mrs. Panou merely testified that "it's possible I may have and possible I may not have" filed an application with Lumbermens before she applied to Zurich. Accordingly, I place very little weight on the hearsay comments. 37 Second, Mr. Mohamed did not even attempt to proceed with mediation against both insurers; as noted above, counsel for Mr. Panou did make the attempt but was rebuffed. The alleged first
Page 7 insurer in Mohamed also intervened at the appeal level; here, Lumbermens elected not to appear. I consider the absence of Lumbermens from this hearing highly relevant. The consequences of a finding in favour of Zurich would likely have very serious consequences for Mr. Panou, not only regarding expenses but also regarding time limitations. 38 Furthermore, if I found in favour of Zurich, I would be affecting Mr. Panou's rights while essentially finding that Lumbermens had consistently misrepresented the facts both to Zurich and to counsel for Mr. Panou. Even if Mrs. Panou's viva voce evidence had been stronger in Zurich's favour, I would have been reluctant to make such a finding without hearing from Lumbermens. However, in light of the weakness of Zurich's evidence, Lumbermens' absence does not affect the outcome of this hearing. 39 I find that Zurich has unsupported hearsay evidence in its favour. I find that both hearsay and direct documentary evidence from Lumbermens refute Zurich's evidence. I find that Zurich has failed to meet its burden of proof. 40 Accordingly, I find that Zurich received the first completed application for no fault benefits. 41 I will also briefly dismiss Zurich's alternative argument that by early 1996 Lumbermens had enough information to constitute an Application for Benefits. I find that there is no hint of this alternative argument set out in its Notice. Accordingly, I find that Lumbermens was not put on notice of this argument and therefore I shall not consider it. In any event, the argument lies very poorly in Zurich's mouth when - with apparently the same amount of information as Lumbermens - it insists that it still has not received a completed application. 42 In addition, I determined above that Zurich first adjusted the claim. This relates back to the "deflection analysis" discussed in the Mohamed decision - the argument that an insurer cannot avoid its obligations by deflecting the claim to another company. The Director doubted that the deflection analysis still applies in light of the Regulation, although he did consider it. I find that, if the deflection analysis still applies, then when Zurich first adjusted the claim by forwarding an application to Mr. Panou and setting reserves, it assumed an obligation that it cannot now deflect. 43 Accordingly, the motion is dismissed. I leave the matter of expenses to the hearing arbitrator. ARBITRATION ORDER 44 Under section 282 of the Insurance Act, R.S.O. 1990, c. I.8, as amended, it is ordered that: qp/i/nc/qlamc 1. The motion is dismissed. Mr. Panou may proceed to arbitration.
Page 8 1 The Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended by Ontario Regulations 635/94, 781/94, 463/96 and 304/98. 2 O.Reg. 283/95 (as amended by O. Reg. 305/98). 3 Subsection 7.(1) provides: If the insurers cannot agree as to who is required to pay benefits or if the insured person disagrees with an agreement among insurers that an insurer other than the insurer selected by the insured person should pay the benefits, the dispute shall be resolved through an arbitration under the Arbitration Act, 1991. 4 State Farm Mutual Automobile Insurance Company and Mohamed and American Home Assurance Company (Intervenor), (FSCO P-002213, December 1, 1999). 5 Allstate Insurance Co. v. Brown et al. (1998), 40 O.R. (3d) 610 (Div. Ct.).