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.
“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."