Page 1 Indexed as: Rano v. Commercial Union Assurance Co. Between: Teresa Rano, applicant, and Commercial Union Assurance Company, insurer [1999] O.F.S.C.I.D. No. 134 File No. FSCO A97-001056 Ontario Financial Services Commission Dirk VanderBent, Arbitrator July 30, 1999 (21 paras.) Appearances: Ted Charney, for the applicant. Walter Scodeller, for the insurer. Issues: DECISION ON A PRELIMINARY ISSUE 1 The Applicant, Teresa Rano, was injured in a motor vehicle accident on December 30, 1996. She applied for and received statutory accident benefits from Commercial Union Assurance Company ("Commercial Union"), payable under the Schedule. 1 The parties were unable to resolve their disputes through mediation, and Mrs. Rano applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8, as amended. 2 The preliminary issues are: 1. Is Mrs. Rano permitted to withdraw her application for arbitration?
Page 2 2. If permission is granted, is either party entitled to their expenses of this arbitration proceeding as a condition of the withdrawal? Result: 3 EVIDENCE AND ANALYSIS: Facts: 1. Mrs. Rano is permitted to withdraw her Application for Arbitration. 2. Neither party is entitled to their expenses. 4 The relevant facts are as follows. Mrs. Rano was involved in a motor vehicle accident on December 30, 1996. At that time, she was working as a driver delivering automotive parts for a parts dealership. She applied for and began receiving income replacement benefits. On January 27, 1997, Commercial Union received correspondence from Mrs. Rano's employer indicating that, as of November 30, 1996, Mrs. Rano drove her own vehicle when delivering parts. A dispute then arose respecting payment of housekeeping and acupuncture expenses. Mrs. Rano filed an Application for Arbitration with the Commission on June 9, 1997, requesting adjudication of her claims for these expenses. 5 Commercial Union subsequently terminated payment of Mrs. Rano's income replacement benefits in August 1997, on the basis that she no longer satisfied the test for disability. A pre-hearing discussion was held on December 8, 1997, at which time Mrs. Rano's claim for income replacement benefits was added to the list of claims referred for adjudication. In April 1998, Commercial Union first raised a defence under subsection 30(2) of the Schedule, asserting that Mrs. Rano had intentionally failed to notify Commercial Union of a change in the risk material to the contract. Commercial Union maintains that Mrs. Rano never provided notification that she was using her vehicle in the course of her employment. Mrs. Rano opposed Commercial Union's request to add this claim for adjudication at the hearing. The issue was argued before me on October 8, 1998, and I granted Commercial Union's request to refer this issue for adjudication. At that time, Mrs. Rano's counsel argued that if the Insurer was successful in establishing that the exclusion under subsection 30(2) applied, Mrs. Rano would have no recourse but to claim relief from forfeiture pursuant to section 129 of the Insurance Act. Mrs. Rano's counsel indicated that she would be forced to withdraw her application for arbitration and commence a civil proceeding in order to obtain this relief, as an arbitrator does not have jurisdiction to grant relief from forfeiture. On December 30, 1998, Mrs. Rano issued an action in the Ontario Court (General Division), in which she named Commercial Union as a defendant, and requested that her claims for accident benefits be adjudicated by the court. Analysis:
Page 3 6 If Commercial Union is successful in establishing its defence, Mrs. Rano would be excluded from receiving weekly benefits, and housekeeping expenses, pursuant to subsection 30(2) of the Schedule. Mrs. Rano argues that the relief of forfeiture provision under section 129 of the Insurance Act can be applied, if it is found that it would be inequitable that she should be excluded from receiving benefits. Section 129 provides: Relief from forfeiture 129. Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just. 7 Mrs. Rano reiterates that she has no choice but to withdraw her application for arbitration and proceed with the civil action in order to obtain this relief, as an arbitrator does not have jurisdiction to grant relief from forfeiture. 8 Commercial Union argues that their claim under subsection 30(2)(a) of the Schedule was properly raised within this arbitration proceeding. This section provides: 30(2) The insurer is not required to pay an income replacement benefit, a non-earner benefit or a benefit under section 20, 21 or 22,... (a) in respect of any person... who intentionally failed to notify the insurer of a change in the risk material to the contract; 9 This subsection only applies to an insured person who intentionally fails to notify the insurer. Commercial Union argues that the relief of forfeiture provision does not apply to intentional acts. Accordingly, there is no need to redirect the issues in dispute before the courts, and therefore there is no reason to justify withdrawal of the arbitration proceeding. Permission to withdraw: 10 While Commercial Union argues that this legal remedy is not available at all, counsel candidly agreed with my observation that I am without jurisdiction to decide this issue. Only a court can determine whether relief from forfeiture is an available remedy in the circumstances of this case. I might have decided differently if this question had been conclusively addressed by the courts.
Page 4 11 However, counsel agreed that there was no definitive case law on point. Commercial Union referred me to one decision where a trial level court has held that relief from forfeiture is not available to remedy acts or omissions which occurred prior to a loss. 2 However, this case did not address an exclusion clause under one of the accident benefit Schedules, nor is it necessarily binding on other judges. Consequently, Mrs. Rano has an arguable issue to advance, which I cannot adjudicate. Accordingly, I granted her permission to withdraw her disputes from the arbitration process. In further support of my conclusion, I note that arbitrators have not denied permission to withdraw where the request was only motivated by the desire to obtain a perceived tactical advantage by advancing the claim in court. Arbitrator McMahon provided a useful summary of the decisions in this area in Richard and Lombard General Insurance Company of Canada. 3 He noted that applicants have been permitted to withdraw from the arbitration process in favour of a court proceeding, even at a very late stage. 12 While Mrs. Rano made her request to withdraw just a few weeks prior to the hearing, it must be noted that Commercial Union did not raise their exclusion clause defence until several months after the initial pre-hearing conference, and the addition of this issue was not formally resolved until my order was issued in October 1998. In addition, there was a workers' compensation issue which had the potential of obviating the need to proceed with the arbitration, and this issue was not resolved until a hearing was conducted by a workers' safety appeals tribunal in early 1999. Accordingly, I find that Mrs. Rano's request to withdraw, although late, was not unreasonably late given the circumstances of this case. 13 Finally, I note that Mrs. Rano's civil proceeding includes a tort action arising from the same accident, and will share related questions. As Arbitrator McMahon observed in Richard, a court action comprising both claims would be more comprehensive, a factor frequently identified by the courts on applications to stay one proceeding in favour of another. Conditions which attach to the withdrawal: 14 Both parties claimed payment of their expenses to date in proceeding with this arbitration, as a condition of the withdrawal. For reasons cited below, I have denied both claims. 15 I again refer to Arbitrator McMahon's decision in Richard 4 In that case, he ordered that the insured person pay the insurer's expenses in proceeding with the arbitration, but this did not include the insurer's filing fee. He noted that the claim is not being abandoned altogether, where a civil proceeding had been initiated. He found that time spent by counsel in conducting the aborted arbitration proceeding were costs thrown away in the sense that they were avoidable, and a complete waste. He further observed that if expenses were not dealt with at the time of the withdrawal, the insurer would have no means of recouping them. He found that this was a matter related to the proceeding which was relevant to the issue of expenses and justified an award in favour of the insurer. 16 Arbitrator McMahon also addressed the issue of whether expenses thrown away should also
Page 5 include the substantial filing fee paid by the insurer. He concluded that the general power to award expenses under Rule 73 of the Commission's Dispute Resolution Code (the Code) did not include the power to award this specific expense, as the filing fee was not included in the schedule of allowable expenses. He also considered whether the filing fee could be recouped under Rule 67.3(c) [award of the insurer's filing fee where permission to withdraw has been granted], or pursuant to section 282(11.2) of the Insurance Act [general statutory power to award repayment where there has been an abuse of process, or the proceeding is frivolous or vexatious]. He concluded that Rule 67.3(c) must be read so as to be harmonious with the Insurance Act, and cannot expand the basis for awarding the insurer's filing fee beyond the criteria set forth in section 282(11.2). When applying section 282(11.2) to award the filing fee as a condition of withdrawal, he concluded that he must look to the circumstances which existed at the time the Application for Arbitration was filed, not when the withdrawal request was advanced. He stated that a subsequent decision to withdraw an application is insufficient to trigger the section, unless it is part of a larger course of improper conduct tied to the commencement of the arbitration. 17 I agree with Arbitrator McMahon' analysis and conclusions. However, applying these principles to the somewhat unique circumstances of this case, does not produce the same result. Mrs. Rano's claim for expenses: 18 I first note that, in Richard, the insured person did not claim expenses. However, an arbitrator does have authority to award expenses to either party, pursuant to Rule 67.3(c) of the Code. In order to exercise my discretion in favour of Mrs. Rano, I find that she must establish that the Insurer's conduct has unnecessarily prompted the need to withdraw the arbitration, thereby resulting in costs thrown away which could have been reasonably avoided. 19 Mrs. Rano argues that she should be entitled to an award of expenses in her favour, because Commercial Union did not raise its exclusion clause defence until four months after the initial pre-hearing conference. She emphasizes that Commercial Union received the employer's confirmation letter (which alerted Commercial Union to this defence) in January 1997, long before she commenced her Application for Arbitration. She asserts that she could have avoided expenses in pursuing arbitration, if she had known that she would be facing this defence. Because Commercial Union has insisted in pursuing this defence, she has been forced to abandon the arbitration process and pursue a civil proceeding. While there is some merit to these submissions, they ignore two important considerations. First, I received no evidence to suggest that the basic facts giving rise to the exclusion defence were not within Mrs. Rano's possession at the time she added her claim for income replacement benefits. Consequently, she certainly should have considered the potential that this defence might be raised. Secondly, while I accept that the Insurer's decision to pursue the exclusion defence has prompted her withdrawal request, this defence is supported by some evidence, and is not based on mere allegation. I do not find that Commercial Union's conduct in raising a legitimate defence can be properly characterized as unnecessarily prompting the need for this withdrawal. Mrs. Rano argued that she should not face an adverse award of expenses, because
Page 6 her decision to advance a claim for relief from forfeiture was reasonable. In my view, Commercial Union's decision to assert its exclusion defence is just as reasonable, and cannot justify an award of expenses in favour of Mrs. Rano. Insurer's claim for expenses: 20 There is no evidence to suggest that Mrs. Rano's decision to pursue a claim for relief from forfeiture is either frivolous, vexatious or an abuse of process. There was no suggestion that the initiation of her Application for Arbitration was unreasonable. However, Commercial Union argued that the inquiry into this aspect of the claim should focus on the circumstances at the time the withdrawal request is made. I have not accepted this submission, adopting instead Arbitrator McMahon's analysis on this issue. Even if I did, Mrs. Rano's decision to raise a claim for relief from forfeiture is legitimate. Accordingly, I find that Commercial Union is not entitled to its claim for an award equal to its filing fee, either pursuant to the Rules of the Code, or section 282(11.2) of the Insurance Act. I have also declined to grant Commercial Union's claim for other allowable expenses of this proceeding. On the facts of this case, Commercial Union had the information on which it bases its exclusion defense, long before Mrs. Rano commenced her Application for Arbitration. As already noted, Commercial Union did not raise this defense until four months after the initial pre-hearing when Mrs. Rano's claim for income replacement benefits was added as an issue for adjudication. As stated in Richard, an award of expenses is warranted where they were avoidable, and a complete waste. In my view Commercial Union's conduct in raising its exclusion defense later in the proceeding, means that it must accept some responsibility for the initiation of this unproductive arbitration process. I have already held that Mrs. Rano should have contemplated Commercial Union's exclusion defense at the time she raised her additional claim for income replacement benefits. Similarly, I find that, at the time Commercial Union raised its exclusion defense, Commercial Union should have contemplated that Mrs. Rano might assert a claim for relief from forfeiture. Furthermore, it cannot be said that her request to change forums is entirely arbitrary, as she cannot pursue this remedy in the arbitration process. Consequently, I find that Commercial Union bears equal responsibility for the events which have given rise to the withdrawal of this arbitration. For this reason, I find that Commercial Union has no better claim for expenses than does Mrs. Rano. ARBITRATION ORDER 21 Under section 282 of the Insurance Act, R.S.O. 1990, c. I.8, as amended, it is ordered that: qp/e/nc/mxp 1. Mrs. Rano is granted permission to withdraw her Application for Arbitration. 2. Neither party is granted their expenses of the proceeding to date as a condition of this withdrawal.
Page 7 1 The Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96 and 551/96 and 303/98. 2 Prentice v. Co-operators, 184 ILR 1-1784 3 (FSCO A97-001526, April 29, 1998) 4 As in Richard, the current rules respecting expenses applies to Mrs. Rano's proceeding, as she filed her Application for Arbitration after November 1, 1996.