Is arbitration between hospital and union the only remedy? Court quashes insurance suit

Judge: Provisions of collective agreement were ‘strange’, ‘unique,’ but arbitration is faster, more cost effective

Is arbitration between hospital and union the only remedy? Court quashes insurance suit
Aron Zaltz

The courts will stay out of a long-term disability dispute arbitrated between a hospital and union — even with an insurer involved in the dispute, a recent decision from Ontario’s Court of Appeal maintains.

But a lawyer who worked on the case says the ruling, Hutton v. The Manufacturers Life Insurance Company (Manulife Financial), 2019 ONCA 975, is “not a good place to leave the state of the law.” 

“It’s really a matter of that I think is a lot of interest to those who are practising in the sector: everything from long-term disability law to representing management in hospital-sector collective bargaining and, obviously, it’s of also great interest to labour relations practitioners,” says Aron Zaltz of Preszler Injury Lawyers, who has requested leave to appeal to the Supreme Court of Canada.

“It’s an issue that the jurisprudence documents incredible frustration with on the part of hospitals, who are both paying premiums on insurance that they expect a third party to provide — and then being stuck in the outcomes of arbitrations as having to pay those claims themselves.” 

The dispute between appellant Leisa Hutton and respondent Manulife Financial centres on a 2011 car crash that broke Hutton’s back. After 17 months, Manulife nixed her eligibility for LTD benefits — so Hutton filed a grievance, which was settled, with her employer, Quinte Healthcare Corporation.

Meanwhile, Hutton, represented by Zaltz, had also started action against Manulife. The settlement of her grievance with the hospital and the union, Ontario Public Service Employees Union, allowed Hutton to go forth with her claim against Manulife.  

Hutton claimed that QHC was responsible for providing the benefit plan and paying a portion of the premium — whereas, Manulife was responsible for payment of claims. But the court found that Hutton’s disability entitlements were under “arbitral jurisdiction” and dismissed the claim against Manulife, upholding the lower court’s decision.

“In my view, the provisions of the collective agreement are ‘strange’ and ‘unique’ because the employer has contractually bound itself to provide employees with the coverage . . . and to resolve coverage disputes by arbitration, even though the LTD coverage itself is provided by a third party,” wrote Chief Justice George Strathy in the decision, with justices Robert Sharpe and Lois Roberts concurring. 

Like the agreement in Campos v. Sun Life Assurance Company of Canada, 2009 CanLII 43186 (ON SC), Strathy said that, while provisions of the collective agreement may be described as “strange” and “unique,” he could understand why the union may have negotiated the way it did.

“It permits disabled employees to resolve their LTD disputes by grievance and arbitration with their employer, rather than by litigation against the insurer. The arbitration process is faster, more cost effective and engages the experience of expert arbitrators.” 

Hutton had “no entitlement to resort to the court for additional compensation from the insurer,” the panel of appeal court judges ruled.

“[T]he true substance of her dispute is a disagreement with her employer over her entitlement to LTD benefits as outlined in the collective agreement,” wrote Strathy. ”Here, the dispute was resolved through the appeals and grievance process stipulated in the agreement.” 

Deborah Anschell, an arbitrator and mediator at ADR Chambers in Toronto, who was not involved in the case, says she wasn’t surprised by the Court of Appeal’s decision, noting that Strathy’s reasoning was “sound.” 

“It’s really not a new issue. It’s something that’s been already dealt with more than once by the Supreme Court of Canada with respect to LTD benefits — saying that the labour arbitration regime has exclusive jurisdiction,” she says.  

“Yes, the plaintiff has been precluded from proceeding with this action in the courts. But still, there was relief available to her.”

But Zaltz says that the reality facing clients like his has changed in the years since the Supreme Court last addressed the issues in Hutton’s case. 

“Paths to justice existed between the implementation of this arbitration clause in 1981 and the implementation of the exclusive model of arbitral jurisdiction as a matter of the labour relations regime in the 1995 Supreme Court of Canada decision. And, so, in the interim, you have complaints by the hospitals that this is unfair in a contractual sense that they’re both having to pay the premiums but also liable to have these claims enforced against them by way of arbitration,” he says. 

“But the issue becomes one that is fatal to access to justice for union members after the implementation of the exclusive jurisdiction model because, in that scenario, the union members are forced to seek recourse against the hospitals.”

He says that, because arbitrators have jurisdiction only over the parties to the collective agreement, they can’t bind third-party insurers and any remedy that the arbitrator grants against the insurer isn’t going to be enforceable. (Manulife declined to comment to Canadian Lawyer on the ruling).

“You have this access-to-justice conundrum,” he says. “After the denial of her long-term disability benefit claim by the insurer, she goes to her union steward and asks, ‘What do I do?’ The union steward says, ‘Well, you have to commence a grievance and proceed through to arbitration.’ 

“So that’s what she does. She shows up at the bargaining table represented by her union . . . and they say, ‘Well, let’s settle this on the basis that the essence of your claim is that it is against a third-party insurer.’” 

When the claim by the insurer also could not move forward — because of that grievance process — Zaltz argued that his client was “wholly deprived of remedy.” 

“The adequacy of arbitration as a dispute resolution forum is going to be predicated on the tools that arbitrators have to enforce the proper remedies,” he says.

Anschell, however, questioned whether the case presented an access-to-justice issue, noting that Hutton received a settlement less than a year after Manulife’s final decision on benefits.

“Ms. Hutton had already accessed her remedies provided in the collective agreement,” notes Anschell. “Ms. Hutton filed a grievance with her employer following the grievance procedure set out in the collective agreement. Her grievance with her employer was settled.”

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