FSCO Fails to Force Facilities to Face Forbearance for Fraud

March 29, 2012

A FSCO arbitrator has denied an insurer’s request to stay 15 arbitration proceedings while it pursues fraud claims against notorious clinics at the Superior Court.

There are 15 unrelated arbitration matters with a common denominator: the involvement of Assessment Direct Inc., Osler Rehabilitation Centre Inc. and Metro Rehabilitation Centre Inc. The insurer concluded that these Facilities are related to each other and that many of the claims submitted by the Facilities are of dubious merit and that the Facilities have engaged in conduct that was deliberately intended to unjustly enrich the Facilities. In some cases, the Insurer believes that it can prove that the Facilities made misrepresentations to the Insurer.

In the summer of 2011, the insurer commenced an action in the Ontario Superior Court (Court File No. CV-11-428030) against the Facilities and their principals for, among other things, $15,000,000 in general and punitive damages and a declaration that insurer need not pay any future or outstanding amounts to the defendants. That action is at an early stage, as the insurer is still in the process of serving the Statement of Claim upon some of the defendants.

The insurer’s claims against the Facilities stemmed from 218 insured persons. Fifteen of those insured persons were denied accident benefits by the Insurer and have chosen to have those disputes adjudicated at FSCO. In light of the pending Superior Court action, the insurer sought to stay the FSCO proceedings.

In all 15 cases, the arbitrator referred to the three-part test for a stay, pursuant to the Supreme Court of Canada’s decision in RJR-MacDonald. The insurer established, and the 15 applicants conceded, that the insurer’s allegations against the Facilities were not frivolous (Part 1). The applicants argued that there would be relative prejudice to them if a stay was granted (Part 3), but the thrust of their argument was that the insurer had failed to prove that it would suffer irreparable harm if a stay was not granted (Step 2).

In denying the insurer’s motions, the arbitrator found that the insurer had not met the second part of the RJR-MacDonald test. The arbitrator wrote that the only evidence before him was the affidavit of the Director of Accident Benefits for the insurer. Essentially, the Director stated that, if a stay was not granted, the insurer would be put to “excessive expense and time.” However, the arbitrator noted that the Supreme Court of Canada in RJR-MacDonald held that monetary loss would not usually amount to irreparable harm in private law cases.

He also held that the insurer had failed to adduce sufficient evidence to prove that the cost of defending this application would be unrecoverable or that the possibility of additional expense constitutes irreparable harm

Finally, the arbitrator held that the insurer’s sought remedy (a stay) was extraordinary, especially since it was alleging misconduct on behalf of non-parties (the Facilities) and not the Applicants.

Although one division of FSCO has made it clear that insurers have “rights and responsibilities” to challenge questionable or abusive claims (see Auto P&C Bulletin No. A-02/11), we query whether another division of FSCO is making it more difficult for insurers to exercise those rights and responsibilities.

The decisions are available on the FSCO Web site, with subscription.


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