April 28, 2014

SABS Update – Insurer Ordered to Pay Costs for Failing to Provide a Representative with Authority at a Pre-Hearing

For the week of April 28 to May 2, 2014

Anna Dabrowska v. Aviva Canada Inc. (FSCO A13-007793)

Anna Dabrowska was injured in a motor vehicle accident on January 13, 2012. She applied for statutory accident benefits from Aviva Canada Inc. (“Aviva”). When she was denied benefits, she applied for arbitration at the Financial Services Commission of Ontario.

Prior to the arbitration, a pre-hearing was scheduled to allow the parties an opportunity to discuss the file with the arbitrator. The pre-hearing was held on February 27, 2014. At that time, counsel reached a tentative agreement, settling the accident benefits claim. Unfortunately, the Aviva representative could not agree to the settlement without receiving authority. In addition, the representative was unable to contact anyone with authority at Aviva either by telephone or e-mail. After a significant wait, the pre-hearing was adjourned.

ISSUES

(1)
Was Aviva in breach of the Insurance Act by failing to make someone available who was fully authorized to bind the insurer?

(2)
If so, what should be the consequences?

DECISION

The Insurance Act requires insurance representatives to be authorized to bind the company. Aviva was found to have knowingly refused to provide a representative with requisite authority. Aviva was ordered to pay Ms. Dabrowska for her legal costs associated with the pre-hearing.

The arbitrator found that “authorized to bind” in the Insurance Act means that the representative has authority without the need to seek instructions.

IMPLICATIONS

The involvement of an authorized representative at a pre-hearing facilitates settlement in numerous ways including serving an educational purpose, acquainting the parties with the nature of the arbitration process, removing unrealistic expectations or mistaken pre-conceptions, and notably, allowing for the free exchange of information. When insurers flout their statutory obligation by failing to produce an authorized representative, it can delay settlement and increase legal costs.

The reality is that insurers will often produce representatives without authority and/or the produced representative will need to seek authority by telephone. Neither option is consistent with the Insurance Act.

Counsel are encouraged to seek costs when an insurer fails to produce an authorized representative; however, it is unlikely that often meager cost awards will attract enough attention to change the way insurers operate. One way or another, insurers must be made to recognize that pre-hearings stand to benefit all parties and should not be disregarded. If the tools currently available to arbitrators are insufficient to evoke change, legislative change in the form of harsher penalties for non-compliance may be required.

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