Tuesday, 4 December 2012

Appeals Court Confirms Mediations Are Deemed Failed If No Mediator Assigned After 60 Days

Last week a decision was released by the Court of Appeal for Ontario, Hurst v.Aviva Insurance Company (2012 ONCA 837), which upheld the lower court decision that Applications for Mediation received by FSCO that have not been mediated within 60 days are deemed failed.  The lower court ruled that in cases where mediation has been deemed to fail because of the timeline, a mediator's report is not required for an insured to commence litigation.

The decision involves a number of insureds who wanted to begin litigation without a mediator's report indicating that mediation has failed.  In each case their Applications for Mediation had been filed at FSCO and the 60-day limitation period had lapsed because of the siginificant backlog of mediation applications.

The insurers involved in the case argued in court that mediation had not failed because the 60-day limitation didn’t apply in these situations, in line with FSCO’s view. 

FSCO has always taken the position that the time limit does not start until an Application for Mediation had been marked as "complete".  This technicality has allowed a backlog of cases to build up.  Early this year the backlog was estimated to be approximately 36,000 although it has since likely dropped down to under 20,000.

A lower court judge dismissed those motions by the insurers, who appealed to the Court of Appeal and ultimately led to last week's decision.

FSCO's arbitrators have ruled similarly.  On February 10, 2012, in Leone and State Farm, a FSCO arbitrator ruled that mediation was deemed to have failed because it did not take place within 60 days of an application being filed and that the parties could not extend the time limit on consent once 60 days had expired.  On July 31, 2012, a decision​ was released by the director’s delegate that upheld the 60-day deemed failure.  

Section 281(2) of the Insurance Act prevents insureds from initiating any action against their insurer unless they first sought mediation at FSCO.  Section 280(4) requires the mediations to be conducted within the "prescribed time".  Section 280(7) states that mediations have failed when the mediator has given notice to the parties that the mediation will fail or when the prescribed or agreed time for mediation has expired and no settlement has been reached.  Section 10 of the Dispute Resolution Practice Code prescribes the time to be 60 days.

So what does this mean for insureds, insurers and FSCO?

Decisions regarding the 60-day limitations have been consistent - mediation is deemed to have failed once the timeline has expired. In addition, a mediator's report is not needed to move on to arbitration or litigation.  That means that thousands of backlogged mediation cases are deemed failed and free to file for arbitration or go to court.  The quickest route might be small claims court which is an option for many insureds with smaller claims.

FSCO has closed almost 8,000 mediation files as failed in the first nine months of 2012.  However, it appears that the files may all have been failed with the agreement of the parties.  The recent decision will likely make the number of failed mediations once again increase considerably. It may also require additional resources to handle the increase in arbitration files.  They has partially been addressed by the contract with ADR Chambers.  However, the limit of 500 files in the contract may not be sufficient.  The current wait times in arbitration are six to eight months and will likely worsen.  The alternative approach may not be any better.  A large number of cases going to the courts will flood that system too.

FSCO is informing parties who filed applications for mediation with FSCO more than 60 days ago should submit a form to FSCO indicating that they either jointly agree to extend the time for mediation or that either party wishes to receive a failed Report of Mediator. If FSCO does not receive this form from parties, by default, their applications will remain in queue for assignment to a mediator.
Applications for Arbitration that were filed without a Report of Mediator and have been held in abeyance, pending the Court of Appeal matters, will proceed to arbitration. Upon request, FSCO will issue Reports of Mediator for these cases.

As for insurers, the large number of files leaving the mediation system will likely increase their operating costs. Each application costs an insurer $3,000 and that does not include legal and preparation time in the event the application proceeds to a pre-hearing or hearing.

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