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FSCO mediation ruling could cost $300M: lawyer

|Written By Marg. Bruineman

An Ontario Court of Appeal decision finding the Financial Services Commission failed to mediate a number of accident claims within a 60-day time limit could mean up to $300 million in costs that insurance companies will pass on through premiums, a lawyer estimates.

'Both sides of the case believe that there should be timely mediation as dictated to by the timelines in the Insurance Act,

“If you assume an average of $10,000 in legal fees to defend each of the cases that would have been settled at mediation using a 75-per-cent or even a 60-per-cent settlement rate, insurers are likely spending $300 million or more to fight cases that would have been settled at mediation if the mediators were to have been appointed in a timely fashion,” says Eric Grossman, a partner at Zarek Taylor Grossman Hanrahan LLP who acted for State Farm Mutual Automobile Insurance Co.

“This has huge, huge implications,” says Ralph Palumbo, Ontario vice president of the Insurance Bureau of Canada. His organization was an intervener in Hurst v. Aviva Insurance Co.

The decision means thousands of backlogged insurance claims may proceed to court or arbitration. “As Justice Juriansz points out, this clearly has an impact on insurance premiums for everybody,” says Grossman.

Hurst involved four cases combined under one appeal that asked the same question under the province’s no-fault auto insurance system: when can insured people start court actions against their own insurers to claim benefits under the statutory accident benefits schedule?

The four claimants all suffered serious injuries in a crash. In each situation, they applied to FSCO for mediation after a dispute arose over statutory accident benefits. Under the schedule, mediation must precede court action or arbitration.

FSCO failed to appoint a mediator within the 60-day period during which, the claimants believed, mediation was to take place. They asked FSCO for a mediator’s report indicating the 60 days had passed and the mandatory mediation had failed. But FSCO refused, replying that the clock didn’t start ticking until it had assessed the application for mediation and found it to be complete, something that hadn’t yet happened.

The claimants sued their insurers over the disputed accident benefits. The insurers’ motions to strike or stay the actions failed and they took the issue to the Court of Appeal to determine exactly when the clock for mediation starts and when the 60-day period has passed and the claimants can therefore pursue their claims in court.

The insurers argued the statutory scheme for resolution would fall apart if court action could start before FSCO had a chance to initiate mediation. They pointed to FSCO’s success rate in resolving 75 per cent of its cases through mediation.

“No doubt, it is an important purpose of the legislative framework to make mediation mandatory. That, though, is not the whole story,” wrote Justice Russell Juriansz on behalf of the three-member panel in the decision dated Nov. 29.

“The purpose of the legislative scheme of dispute resolution is to mandate a speedy mediation process, conducted and completed on a strict timetable, in order to settle disputes quickly and economically.”

Speedy mediation, Juriansz wrote, allows claimants the benefits they have a right to without delay. At the same time, the appeal court dismissed “the premise on which the appellants’ entire argument is based.” The appeal panel concurred with the motions judge that the only prescribed time for mediation that applies is 60 days. It didn’t accept the argument that the clock starts running after FSCO has assessed an application as complete.

“Such an interpretation, which would allow FSCO to accumulate a backlog of any length, would ignore the legislative purpose of providing a speedy mediation process,” the court stated.

The appeal court also disagreed with the suggestion that the 60-day time limit isn’t mandatory. It found that not keeping to the time limit amounts to a technical or procedural breach.

Lawyer Bruce Kelly of personal injury law firm Morell Kelly in Kitchener, Ont., who launched the lawsuit on behalf of the four claimaints, says the issue comes down to consumer protection. In his view, his clients didn’t receive the attention they deserved in a timely manner.

Although FSCO had yet to refer more than 21,000 cases to mediation earlier this year, Kelly expects many will reach a resolution. Other cases, however, may still end up in court.

“Now we’ve already started setting them up for trial,” says Kelly.

“The insurance industry is going to take a bit of a whack clearing up the backlog.”

In response, FSCO stated that it would follow the court order but is encouraging claimants to stay in mediation. In a statement, Tom Golfetto, director of arbitrations at FSCO, said the backlog should “quickly decrease” with the help of an external dispute resolution service provider assisting with the caseload by taking on an additional 2,000 mediations monthly. That’s in addition to the files handled by FSCO’s own mediators.

“The Financial Services Commission of Ontario will apply the court ruling immediately by allowing parties to either agree to extend the time for mediation or receive a failed report of mediator,” says FSCO spokeswoman Kristen Rose.

Talaal Bond, a partner at Miller Thomson LLP who works in insurance defence, says the decision is far-reaching because a finding that mediation has failed doesn’t require a positive act by FSCO.

“I would expect lawyers who practise in this area to have some, at least one case,” he says.

The same day the Court of Appeal released its decision in Hurst, the same panel made a different finding on a related case. In Younis v. State Farm Mutual Automobile Insurance Co., the panel found Nebal Younis jumped the gun in going to court and didn’t wait out the 60 days for mediation to occur. “Insured persons cannot commence civil actions until mediation has failed. To conclude otherwise would allow all insured persons to immediately commence civil actions knowing that the insurers’ motions to stay are not likely to be heard until after the expiration of the 60-day time period,” wrote Juriansz.

But the appeal court’s ruling in Hurst could have significant implications. In finding that mediation had failed in those matters, Juriansz cited some of the statistics presented to the Court of Appeal. Last year, FSCO received 36,492 applications for mediation. As of this past April, it had failed to refer 21,023 of 26,240 active applications to mediation within 60 days.

“If it doesn’t take action to resolve as many of these outstanding claims as possible, the number of cases proceeding to court or arbitration could be in the thousands,” says Palumbo. “If they’re not settled . . . think of the transaction costs. If claims costs increase, insurance premiums are going to go up.”

In the Court of Appeal ruling, Juriansz said that if all of the claims that would have otherwise gone to mediation end up in arbitration, the cost to the insurance industry from the additional filing fees alone could amount to $83 million. But Grossman suggests that’s a vast underestimate.

“Both sides of the case believe that there should be timely mediation as dictated to by the timelines in the Insurance Act,” he says.

“The biggest frustration stems from the fact that FSCO is a regulatory agency of the minister of finance which gets 100 per cent of the funding for the services it provides from the regulated sectors it administers.”

For more, see "FSCO in hot water over mediation delay" and "FSCO seeking to outsource mediations."

  • Lynn
    As a Claimant who spends each day sitting on a sofa, without wheelchair access to my home or my van, I'm thrilled to hear there's "new" routes available to claimants who suffer at the hands of Insurers who pile denial on top of denial. I know only too well the effects the current process has on clients; it's happening to me. it's been almost two years since ANY claim has been approved and that includes the wheelchair accessibility I need. I've become a prisoner in my own home thanks to Insurers gifts of denial. As a claimant I've often felt I need a Law degree in order to gain access to what I rightfully deserve. But then again, it's pretty hard to work towards that degree if I can't walk or stand for long, or have the ability to bring my wheelchair with me. I guess that's the point isn't it? I can't. It's sad when Claimants have to consider their own law degree to gain access to care. Denials can easily create prisons. I live in one.

    Where's my Bruce Kelly?
  • Chris Jackson
    Insurers have no one but themselves to blame for this situation. They knew of the backlog at FSCO and the possible exposure that they faced if the Court of Appeal ruled the way it did. Accident benefits insurers have, in many cases, taken an adversarial approach in their handling of claims. They certainly have had (and continue to have) the ability to try to resolve the disputes outside of the FSCO system.
  • Brian
    The CSME President wrote in 2011that amateurism, bias and fraud" have long been "tolerated" in the Ontario auto insurance IME/IE assessments. "Tolerated" by whom? The lawers? If so - why? Is this mediation backlog partly due to wrongful accusations of fraudulent malingering contained in "biased and/or fraudulent" assessments? Why don't the lawyers (on both sides) purge the rogue medico-legal experts from the system? Or do the rogue experts create the need for more litigation than would otherwise be required? What is the penalty for proffering fraudulent accusations of opportunistic fraud? There isn't one - is there?
  • Brian
    Law Times has outdone itself this time painting the lawyers as victims in this lament of the FSCO mediation wait times. Alas, the poor lawyers are now forced to pay themselves (how much of) $300 million to litigate all these failed mediations. OMG - how terrible!And the poor insurers are forced to raise premiums - again. How awful it must be for them. Did Law Times think to to ask what caused this backlog? Did it think to explore wrongful MIG catagorization by hardball adjusters as a causal variable? Law Time doesn't care what caused this backlog or that adjusters are making medical decisions. It only care that it will mean a winfall for lawyers.
  • JJ
    It's heartening to know that the first resort of the insurance industry when faced with the end of a situation that was to THEIR ADVANTAGE will be to raise premiums.

    What happened to all of those realized after September 1, 2010? I guess the "fraud" was not as rampant as the government was duped into believing now was it?
  • Gordon Harris
    I have been practicing in Personal Injury Law in Ontario, exclusively, since 2004. I have settled one case at mediation in over 8 years. This is nonsense. cases settle because of arbitration, not because of mediation.
  • Ona
    How like the insurance industry to lay blame everywhere but at their own feet. Insurance providers have cut benefits so severely and in the process denied many legitimate claims, that injured accident victims are lined up by the tens of thousands - what did they expect? This is what happens when you fail to consider that these long wait times have an adverse affect on injured MVA victims who must wait for treatment. And lets not forget that neither the insurer or plaintiff lawyer do not need a mediator to come to settlement - just pick up the phone. Consumers are not going to take kindly to an increase in premiums because the insurance industry is willing to spend $10,000 to save money by refusing to pay for treatment for those that need it. The insurance industry ought to 'take a bit of a whack' when it is their own denial rate that has caused the backlog. Next time, when negotiating coverage limits there should be better studies that could have predicted this colossal mess.
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