Ontario – Vavilov standard applies to statutory insurance arbitration but not private commercial arbitration

In Allstate Insurance Company v. Her Majesty the Queen, 2020 ONSC 830, Madam Justice Breese Davies held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 altered judicial intervention on appeals from insurance arbitration mandated by legislation.  Davies J. held that legislation which includes a statutory appeal mechanism signals legislative intent that courts are to perform an appellate function in respect of the administrative decision and apply appellate standards of review. Davies J. distinguished between appeals of statutory arbitrations and private commercial arbitrations, the latter being seen as autonomous, self-contained process in which courts should “generally” not intervene.

The application before Davies J. involved a dispute between an insurer and Ontario’s Motor Vehicle Accident Claims Fund (“Fund”) over benefits payable under Statutory Accident Benefits Schedule – Accidents on or After November 1, 1996, O Reg 403/96 (“SABS”), a regulation issued under the Insurance Act, RSO 1990, c I.8

The insurer considered that, due to termination based on non-payment of the premium despite valid prior notice, the insured’s policy was not in effect when the accident occurred.   The insurer resisted the Fund’s demand for reimbursement of SABs the Fund paid to the insured.  The insurer and the Fund engaged in arbitration as required by the applicable and aptly-named Disputes Between Insurers, O Reg 283/95 (“Regulation”).  The latter expressly subjected that insurance arbitration to the provisions of Ontario’s Arbitration Act, 1991, SO 1991, c 17.

Section 7(1) If the insurers cannot agree as to who is required to pay benefits, the dispute shall be resolved through an arbitration under the Arbitration Act, 1991 initiated by the insurer paying benefits under section 2 or 2.1 or any other insurer against whom the obligation to pay benefits is claimed”.

An award issued which determined that (i) the insurer’s notice of termination was defective and (ii) the insured was still insured at the time of the accident. The insurer appealed to the court under section 45 of the Arbitration Act.

Davies J. was quick to note early in her reasons, albeit in a footnote, that her comments distinguished between private commercial arbitrations and insurance arbitration:

Footnote “[6] In the context of private commercial arbitrations, there was the added rationale that the parties to the arbitration expressly elect to have their dispute resolved by an arbitrator, not by the courts. In that context, arbitration is seen as an autonomous, self-contained process in which the courts generally should not intervene: Inforica Inc. v. GCI Information Systems & Management Consultants Inc., 2009 ONCA 642 at para. 14 and Creston Moly Corp v. Sattva Capital Corp, 2014 SCC 53 at para. 104 – 106. This rationale does not apply to insurance arbitration where regulation mandates the parties to resolve any dispute through arbitration. In the context of disputes between insurers, resort to arbitration is required. It is not a deliberate choice by the parties to engage a process independent of the court”.

Davies J. observed that the recent Supreme Court of Canada decision in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 might have reset the standards for judicial intervention on appeals of statutory arbitrations under Ontario’s Insurance Act.  At paras 12-23, Davies J. set out her analysis on whether those standards had changed and, if so, in what manner.  To begin, she first identified the current standards which “[u]ntil very recently” were as follows:

[12] Until very recently, insurance arbitration decisions dealing with priority disputes were generally reviewed on a reasonableness standard. The reasonableness standard applied even if the appeal involved an “extricable question of law regarding SABS.” It was only if the appeal raised a jurisdictional issue or a constitutional question or a general question of law of central importance to the legal system that is outside the arbitrator’s area of expertise that a correctness standard would apply”.

She noted the source for framing those standards as Intact Insurance Company v. Allstate Insurance Company of Canada, 2016 ONCA 609 para. 53:

[53] In general, an appeal to the Superior Court from an insurance arbitration regarding a priority dispute will engage questions of mixed fact and law that must be reviewed for reasonableness. Even if the appeal involves an extricable question of law regarding [Statutory Accident Benefits Schedule – Accidents on or After November 1, 1996, O Reg 403/96], a reasonableness standard of review will still generally apply. In the unlikely scenario that the issue before the insurance arbitrator is an “exceptional” question (one of jurisdiction, a constitutional question, or a general question of law that is both of central importance to the legal system as a whole and outside the adjudicator’s specialized area or expertise), a correctness standard of review may be applicable”.

Next, she explained how “[i]n the past”, courts had determined the standard of review in insurance arbitration decisions and the rationale for that standard.  Davies J. then introduced the recent decision by Supreme Court in Vavilov and how it ushered in a new framework, excerpting from paras 36-37 of Vavilov. 

[36] We have reaffirmed that, to the extent possible, the standard of review analysis requires courts to give effect to the legislature’s institutional design choices to delegate authority through statute. In our view, this principled position also requires courts to give effect to the legislature’s intent, signalled by the presence of a statutory appeal mechanism from an administrative decision to a court, that the court is to perform an appellate function with respect to that decision. Just as a legislature may, within constitutional limits, insulate administrative decisions from judicial interference, it may also choose to establish a regime “which does not exclude the courts but rather makes them part of the enforcement machinery”: Seneca College of Applied Arts and Technology v. Bhadauria, 1981 CanLII 29 (SCC), [1981] 2 S.C.R. 181, at p. 195. Where a legislature has provided that parties may appeal from an administrative decision to a court, either as of right or with leave, it has subjected the administrative regime to appellate oversight and indicated that it expects the court to scrutinize such administrative decisions on an appellate basis. This expressed intention necessarily rebuts the blanket presumption of reasonableness review, which is premised on giving effect to a legislature’s decision to leave certain issues with a body other than a court. This intention should be given effect. As noted by the intervener Attorney General of Quebec in its factum, [translation] “[t]he requirement of deference must not sterilize such an appeal mechanism to the point that it changes the nature of the decision-making process the legislature intended to put in place”: para. 2.

[37] It should therefore be recognized that, where the legislature has provided for an appeal from an administrative decision to a court, a court hearing such an appeal is to apply appellate standards of review to the decision. This means that the applicable standard is to be determined with reference to the nature of the question and to this Court’s jurisprudence on appellate standards of review. Where, for example, a court is hearing an appeal from an administrative decision, it would, in considering questions of law, including questions of statutory interpretation and those concerning the scope of a decision maker’s authority, apply the standard of correctness in accordance with Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 8. Where the scope of the statutory appeal includes questions of fact, the appellate standard of review for those questions is palpable and overriding error (as it is for questions of mixed fact and law where the legal principle is not readily extricable): see Housen, at paras. 10, 19 and 26-37. Of course, should a legislature intend that a different standard of review apply in a statutory appeal, it is always free to make that intention known by prescribing the applicable standard through statute”.

Following those two (2) paras, the Supreme Court promptly stated at para. 38 of its reasons that “[w]e acknowledge that giving effect to statutory appeal mechanisms in this way departs from the Court’s recent jurisprudence”.  Davies J. remarked that the new framework rested on a “starting point” which provided that there could be “circumstances in which the presumption of reasonableness will be rebutted”.

One of those circumstances involves whether the review results from an appeal provided by statute. As a result, Davies J. held that Vavilov required courts to revisit appeals provided by the statute imposing the arbitration.

Davies J. noted that the arbitration agreement in issue did provide for appeals “on a point of law or mixed point of law and fact to a Judge of the Ontario Superior Court of Justice, without leave of the Court”.  She affirmed limits on party autonomy to impact the court’s intervention and added the following footnote which, itself, referred to Vavilov at para. 45. Footnote “[20] The fact that the legislation allows the parties to agree on the scope of an appeal from an arbitration award does not change the fact that this appeal arises out of a statutory appeal mechanism and, as a result, the appellate standard applies”.

For ease of reference, Vavilov at para. 45 set out the following:

[45] That there is no principled rationale for ignoring statutory appeal mechanisms becomes obvious when the broader context of those mechanisms is considered. The existence of a limited right of appeal, such as a right of appeal on questions of law or a right of appeal with leave of a court, does not preclude a court from considering other aspects of a decision in a judicial review proceeding. However, if the same standards of review applied regardless of whether a question was covered by the appeal provision, and regardless of whether an individual subject to an administrative decision was granted leave to appeal or applied for judicial review, the appeal provision would be completely redundant — contrary to the well-established principle that the legislature does not speak in vain: Attorney General of Quebec v. Carrières Ste-Thérèse Ltée, 1985 CanLII 35 (SCC), [1985] 1 S.C.R. 831, at p. 838”.

Having established the standard of review post-Vavilov for insurance arbitrations imposed by statute, Davies J. turned to the insurer’s grounds in appeal, Davies J. stated that some issues raised questions of law and some raised questions of mixed fact and law.  She applied, respectively, a standard of correctness and palpable and overriding error.

[22] Some of the issues raised by Allstate are questions of law. For example, the arbitrator’s interpretation of the regulation governing the content of a notice of termination is a question of law. The appropriate standard of review in relation to that issue is correctness.

[23] Other issues raised by Allstate involve questions of mixed fact and law. For example, the question of whether the notice generated by Allstate in this case met the statutory requirements for a notice of termination is a question of mixed fact and law. This question involves applying the legal test to the facts, as found by the arbitrator. Assuming the arbitrator did not err in his interpretation of the regulation, the arbitrator’s conclusion that the content of the notice was deficient should not be set aside absent a palpable and overriding error”.

Based on the updated standard of review which now imposed an appellate standard, at paras 24 -41 Davies J. applied that standard to the questions raised by the insurer and, having done so, dismissed the insurer’s appeal.

urbitral note – First, regarding Davies J.’s comments at footnote 6, she appears to present the distinction between private commercial arbitration and statutory arbitration as one which existed in the past, using the tense “was” and not asserting that the distinction, post-Vavilov, should continue.  That said, she also did not assert that post-Vavilov, the distinction did not continue for private commercial arbitration.

For a recent illustration of competing conclusions on the role of Vavilov, see “Alberta & Manitoba – courts take different paths to different outcomes following same S.C.C. case”. In Cove Contracting Ltd v. Condominium Corporation No 012 5598 (Ravine Park), 2020 ABQB 106, Mr. Justice Grant S. Dunlop held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 had not changed the standard of review for commercial arbitrations from reasonableness to correctness and denied leave to appeal.  In Buffalo Point First Nation et al. v. Cottage Owners Association, 2020 MBQB 20, Mr. Justice Chris W. Martin held that Vavilov had changed the standard and granted leave to appeal. 

Second, when Davies J. held that statutory appeal mechanism does not alter the court’s duty to undertake an appellate function, she echoed the first of the Supreme Court’s three (3) points, stated at para. 50 of its reasons in Vavilov:

While the existence of a leave requirement will affect whether a court will hear an appeal from a particular decision, it does not affect the standard to be applied if leave is given and the appeal is heard”.

Third, section 8(3) and 8(4) provides that the decision of an arbitrator made under the Regulation “must be made public”.

Fourth, section 8(2) stipulates certain procedural steps which address common disagreements which often delay an arbitration from proceeding in a prompt timeframe:

– an insurer which does not respond to the notice within 30 days is deemed to have accepted the jurisdiction of the arbitrator proposed in the notice’;

– a pre-arbitration hearing must be scheduled and take place no later than 120 days after the arbitrator’s appointment;

– once a date for the arbitration is scheduled, the arbitration must be conducted on that day but may be adjourned by the arbitrator on such terms as she/he considers appropriate, but only if there is “cogent and compelling evidence of the reasons” why the hearing cannot proceed on that date;

– unless all parties consent, the hearing must be completed within two (2) years after the commencement of the arbitration.

Fifth, section 9(1) imposes payment of the “cost of the arbitrator” on “the unsuccessful parties to the arbitration”.