As the sun begins to set on FSCO, Director’s Delegate Blackman rendered a Preliminary Issues Appeal order in Waldock v. State Farm (FSCO Appeal P15-00068, March 18, 2016) which serves as a helpful reminder to those who descend into the dispute resolution arena, be they insurers, applicants or adjudicators, that there is a requirement for procedural fairness and due process.

Many will remember reading Arbitrator Henry’s “Decision on Expenses” in Waldock (FSCO A13-001725, November 16, 2015) and wondering how it was possible for such significant awards to be made against an insurer (particularly in an Expense Hearing):

  • $361,520.30 for past Attendant Care and Housekeeping Benefits;
  • Interest on overdue benefits at 2% per month compounded monthly commencing July 7, 2010;
  • Expenses in the amount of $125,435.00 based on a “substantial indemnity” rate of $750.00 per hour;
  • $45,824.52 for disbursements (including Expert Reports at $2,500.00, $4,225.00 and $13,000.00);
  • A Special Award of $108,456.09; and,
  • Interest thereon at 2% per month compounded monthly from July 7, 2010,

when the only substantive issue decided in the Arbitrator’s November 10, 2014 Preliminary Issue decision was that Mr. Waldock had sustained a catastrophic impairment.

Unfortunately, following the “Decision on Expenses”, there was a rush to judgement against the insurer with numerous articles and blogs (including those of Mr. Waldock’s counsel) railing against the insurer for egregious conduct, reliance on flawed reports and failing to treat their insured fairly and now having to suffer the consequences of its egregious conduct.

Delegate Blackman’s decision sets the record straight and confirms and reaffirms that fairness in the dispute resolution process is a two-way street. Specifically, fairness and due process were owed by the Arbitrator to the insurer at all stages of the adjudication process.

Delegate Blackman, in staying three out of four parts of the Arbitrator’s “Decision on Expenses” and reducing expenses and disbursements substantially, determined that the insurer’s appeal raised substantive and substantial questions of law including procedural fairness.

Neither the Application for Mediation nor the Application for Arbitration nor the Pre-Hearing Report referred to Housekeeping or Attendant Care being issues in dispute between the parties. Mr. Waldock, from a procedural perspective, simply sought a declaration of catastrophic impairment. Delegate Blackman cited the Ontario Court of Appeal in Liu v. 1226071 Inc. to remind the Arbitrator that “simply meeting the statutory definition of catastrophic impairment does not automatically mean entitlement to payment of benefits; it will still remain for claimants to prove their damages…” Furthermore, the Arbitrator’s own Preliminary Issue decision did not issue an order on Attendant Care or Housekeeping Benefits or entitlement to or quantum of a Special Award.

Delegate Blackman cited s. 6 of the Statutory Powers and Procedure Act which provides that parties to a proceeding shall be given reasonable notice of the Hearing by the Tribunal. In this regard, the only notice the parties were given was that an Expense Hearing had been scheduled. Delegate Blackman accepted that neither the Arbitrator nor any other ADR Chambers staff gave the insurer notice that entitlement to Attendant Care and Housekeeping Benefits was to be determined by the Arbitrator. (The Delegate noted this to be entirely consistent with the insurer not providing any argument on Housekeeping or Attendant Care claims at the Expense Hearing or in its written submissions).

Not surprisingly, Delegate Blackman did not accept Mr. Waldock’s submission that in setting a timeline for written submissions “on expenses claimed by the applicant, this meant submissions on Attendant Care and Housekeeping Benefits plus interest”.

Delegate Blackman’s decision reveals that both the Arbitrator and Mr. Waldock were well aware that $298,353.52 in Attendant Care Benefits plus $191,247.35 in interest and $30,200.00 in Housekeeping Benefits plus $14,906.17 in interest had been paid by the insurer prior to the “Expense Hearing”. Despite this payment, the Arbitrator made his order that the insurer pay $361,520.30 for Attendant Care and Housekeeping Benefits.

On the basis of the strong substantive arguments toward error of law (in addition to there being no arguable hardship to Mr. Waldock in not having in excess of $300,000.00 in benefits paid a second time) the Arbitrator’s award with respect to Housekeeping and Attendant Care Benefits together with interest thereon was stayed.

With respect to the Special Award claim, both the insurer and Waldock confirmed that neither party had made any argument with respect to a Special Award claim during the Arbitration itself and that the Arbitrator did not address the Special Award within that decision.

Once again, Delegate Blackman found that neither the Arbitrator nor any ADR Chambers staff gave notice to the parties that the Arbitrator was going to determine at the “Expense Hearing” the issues of entitlement to and quantum of a Special Award. (Once again, the Delegate noted this to be entirely consistent with the insurer’s lack of submissions on this issue.)

Again, on the basis of the substantive error of law arguments and procedural fairness, the Arbitrator’s order determining entitlement to and quantum of a Special Award, together with interest thereon, was stayed.

With regard to the Expenses order, Delegate Blackman noted that while the DRPC set a maximum of $150.00 per hour for insured’s counsel, the Arbitrator allowed rates from $225.00 to $750.00 per hour. Similarly, while the DRPC allowed for a maximum of $1,500.00 for preparation of an Expert Report, the Arbitrator allowed amounts higher than $1,500.00 for Expert Reports. Furthermore, neither of these awards conformed to the criteria for expenses set out in the DRPC.

Once again, on the basis of the strong substance of the error of law arguments, the Arbitrator’s award of Expenses in excess of those at the prescribed rates of $150.00 per hour and $1,500.00 per report was stayed.

Although the insurer was required to pay Arbitration expenses, the insurer was awarded the appeal expenses.

Presumably the cost to the insurer in having to proceed by way of appeal was significantly more than the $2,500.00 awarded in appeal expenses. What is more problematic than the cost to the insurer to right the procedural wrongs, was the fact that such a proceeding was even necessary. Parties to the dispute resolution process should be able to take for granted that due process and procedural fairness will be afforded to them.

Unfortunately, there are other examples of Arbitrators failing to afford procedural fairness to the parties. Recall in Scarlett v. Belair (FSCO Appeal P13-00014, November 28, 2013), Delegate Evans found that the Arbitrator raised his own arguments, conducted his own research and reached his own conclusions without providing counsel the opportunity to provide submissions. The Arbitrator cited sections of the Insurance Act which both parties agreed were not applicable. Delegate Evans found the Arbitrator’s unilateral application of the section affected his assessment of the insurer’s expert evidence.

Delegate Evans properly noted that FSCO was an expert tribunal where one of the advantages for the parties is that they do not have to educate adjudicators about the system and Arbitrators may be more sensitive to issues and more prepared to raise them than a judge. Nonetheless, if an adjudicator makes key findings based on materials or research which the parties had no opportunity to make submissions on, as happened in that case, a new Hearing is required to ensure the proceeding is fair.

It is truly unfortunate that Director’s Delegates are required to remind Arbitrators of their adjudicative responsibilities, including the obligation to afford procedural fairness and due process to the parties. The absence of procedural fairness and due process will ultimately cause the administration of the tribunal to fall into disrepute.

With the advent of the LAT process for Accident Benefits disputes, the commitment to procedural fairness and due process will come under scrutiny. The stated mission of the LAT is to deliver administrative justice in a fair, independent and timely manner. The process and the legislation already deprives the parties of their rights to access the courts.

The LAT process provides for three streams of cases with in-person hearings reserved for “the most serious cases”. Many hearings will be in writing, without the “opportunity to be heard”. Timelines are tight with the vast majority of cases being completed within six months. It is not clear how and whether this transformation of the adjudicative process will result in the parties being afforded the procedural fairness and due process required to preserve the integrity of adjudication of Accident Benefits disputes. Perhaps the saving grace will be the provision for “reconsideration” if the Tribunal violates the rules of natural justice or procedural fairness. It will be interesting to see how often this is invoked.

What is clear is that adjudicator education with regard to the tenant of due process and fundamental knowledge of the governing legislation will be critical so as to avoid further unfortunate decisions like the “Expense Decision” in Waldock.