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Insurance - Umpire Appraisals [s.128] (3). Arvanitopoulos v. Wawanesa Mutual Insurance Co.
In Arvanitopoulos v. Wawanesa Mutual Insurance Co. (Div Court, 2024) the Divisional Court dismissed a JR against an IA s.128 umpire "appraisal hearing and outcome", here on procedural fairness grounds:[3] In the fall of 2022, the parties participated in an appraisal proceeding under s. 128 of the Insurance Act, R.S.O. 1980, c. I.8. The purpose of an appraisal is to help the parties fix the value of the insured claims. In the appraisal, the parties sought to agree upon or fix the values of the damage to the house and contents, and to determine the alternative living expenses reasonably incurred by the applicants due to the insured fire event.
[4] In Intact Insurance Co. v. Laporte (c.o.b. Warrior Gear), 2024 ONCA 454, the Court of Appeal recently described an appraisal process in this way:[4] A s. 128 settlement process is meant to be an easy, expeditious, collaborative, and cost-effective way of settling disputes about appraisals: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128, 467 D.L.R. (4th) 480, at para. 36. It begins with each party appointing an appraiser of their own. If the appraisers cannot resolve the matter between them, an umpire whom they have appointed will determine the matter. ....
Preliminary Note
[6] The applicants submit that this multi-day appraisal, that took multiple years in its establishment, was anything but the easy, expeditious, collaborative process it was supposed to be. Rather, they say they and their witnesses were bullied by an overly aggressive appraiser for the insurer. They submit that they were subjected to a most unfair resolution in which the umpire decided the key values based on his own site visit and ignoring the evidence and submissions of both parties.
[7] I have nothing good to say about the behaviour of the insurer’s appraiser John Valeriote. He did not deny the evidence that he threatened the livelihood of the applicants’ expert witness. He weakly contests the evidence that he acted as an unrestrained bully throughout the hearing.
[8] On the facts of this case, for the reasons that follow, I do not find that that Mr. Valeriote’s misconduct deprived the applicants of procedural fairness. Despite that conclusion, umpires should understand their right and, indeed, their obligation to ensure that all appraisal participants behave with respect and decorum befitting a legal proceeding - especially one that is supposed to embody a collaborative process.
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[14] In an application for judicial review, the court will consider whether the proceeding under review was conducted in accordance with the principles of procedural fairness with reference to the factors discussed by the Supreme Court of Canada in Baker v. Canada (Minister of Citizenship and Immigration), 1999 CanLII 699 (SCC), [1999] 2 S.C.R. 817, paras. 23-28.
[15] In addition, on an application for judicial review, the court exercises a supervisory role. Rather than looking to correct substantive errors on an appeal, the court’s role on judicial review is to ensure that the decision maker performed his or her statutory assignment properly – both reasonably and fairly.
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Procedural Fairness
[21] The essence of natural justice, and its progeny doctrine of procedural fairness, is that each party to a proceeding has the right to know the case they have to meet and to adduce the evidence and argument necessary to do so. The formality of the process for hearing from the parties required for procedural fairness can vary such as simple discussion or an exchange of letters, all the way to a formal trial subject to the rules of evidence with all of its strictures and procedural glory.
[22] In this case, despite the conduct of Mr. Valeriote, as the representative of the insurer, the evidence of the applicants and their expert witness is that they knew the issues and had the opportunity to present truthfully the evidence they wished to present. At paras 23-41 the court walks through their assessment of the evidence substantiating this conclusion. The court continues:[55] While the award does not provide any detail at all as to how the umpire came to his final conclusion, it is self evident that he reduced the agreed value of the goods by a factor of more than 50% to reflect his finding on the salvageable state of the goods or as a compromise of the parties’ positions. The insurer’s appraiser agreed and signed the appraisal.
[56] Appraisers appointed by parties are generally not lawyers. They bring valuation expertise to the insurance claim. If the appraisers cannot agree, they appoint an umpire who is empowered to bring the appraisers to a resolution that he and at least one of them accept. The umpire is expected to have expertise and to bring it to bear. Here, the umpire did nothing unilaterally. He told the appraisers of his concern and invited them to attend with him. He then told them of his finding and invited submissions. He explained the process in his award. This was as it should be.
The Building Loss Value
[57] There was competing evidence brought by the appraisers to the umpire. The applicant provided a detailed current costing. The insurer relied on reports obtained shortly after the fire, remediation estimates, amounts actually paid, and an engineering report written in 2022 as a result of site visits ordered by the court. The insurer submitted it had fully indemnified the applicants by paying $312,038.04 toward the building claim.
[58] It is apparent from the award that the umpire accepted the insurer’s position.
[59] The values determined are questions of fact. The applicants seem to be arguing that because only they submitted an up-to-date costing, the umpire was bound to accept their position. That is not the law however. The umpire was entitled to accept as fact the more limited scope of work and other materials submitted by the insurer.
[60] Judicial review is generally not available on facts unless the decision maker fundamentally misapprehends the evidence or fails to take into account relevant evidence before it. The court is not to reweigh the evidence: see Vavilov, at paras. 125-126. I see no basis to reweigh the evidence in this case. . Arvanitopoulos v. Wawanesa Mutual Insurance Co.
In Arvanitopoulos v. Wawanesa Mutual Insurance Co. (Div Court, 2024) the Divisional Court dismissed a JR against an IA s.128 umpire "appraisal hearing and outcome", here on procedural grounds. Here the court considers the JR SOR (and expectations) applicable:[19] Case law provides that umpires are not required to provide reasons for their valuation decisions. The decisions are not necessarily judicial in nature. They involve expertise, judgment, and compromise. However, they remain subject to judicial review. In the absence of reasons, the court will consider the evidentiary record and relevant circumstances to try to understand the decision maker’s reasoning process.
[20] If a lack of reasons prevents a court from being able to follow the sense of the decision maker’s line of reasoning, the decision may well be set aside under the Vavilov standard of review.
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Application of Vavilov Standard of Review
[64] For the reasons discussed above, I find that each of the values determined by the majority of the appraisal panel was justifiable, transparent, and intelligible. I can trace the panel’s logic without finding any fatal flaw. Moreover, the appraisal did what it was supposed to do under s. 128 of the Insurance Act. It resolved disagreements between the parties about the cash and replacement values of the applicants’ insured losses as claimed. And it did so in a process that was detailed, intensive, and procedurally fair.
[65] In all, I find no basis to interfere with the decision in this case. The application is therefore dismissed . Intact Insurance Company v. Laporte
In Intact Insurance Company v. Laporte (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal against an earlier JR quashing of a s.128 insurance umpire decision "of the actual cash value (“ACV”) of a business premises that had been partially destroyed in a fire".
Here the court explains basics of the IA s.128 umpire appraisal system, and illustrates an example of it's procedures:[4] A s. 128 settlement process is meant to be an easy, expeditious, collaborative, and cost-effective way of settling disputes about appraisals: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128, 467 D.L.R. (4th) 480, at para. 36. It begins with each party appointing an appraiser of their own. If the appraisers cannot resolve the matter between them, an umpire whom they have appointed will determine the matter.
[5] The umpire appointed in this case conducted a site visit where he had the opportunity to observe the location and structure of the business as well as the damage and the partial repairs that had been effected. It would have also been obvious to him that approximately 16 months after the fire, Mr. Laporte was continuing to operate his business in a limited capacity.
[6] The parties’ respective appraisers provided the umpire with briefs outlining their positions. Intact proposed an ACV based on a market value of $265,000, suggesting that a higher valuation of ACV would be an error in principle. Mr. Laporte argued that replacement value minus depreciation, a sum of $2,093,046, was the proper ACV. The umpire ultimately proposed an ACV of $886,000.
[7] Neither party agreed with the ACV proposed by the umpire. So, the umpire invited the parties to resubmit proposed ACV amounts and advised them that he would choose between the amounts they proposed, an approach that is contemplated in Campbell, at para. 36. Intact proposed an ACV of $390,000 based on an income approach appraisal that it had described in its initial brief as “not ideal”. Mr. Laporte proposed an ACV of $1,084,000. The umpire chose Mr. Laporte’s proposal and assigned $1,084,000 as the ACV.
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[18] Finally, I do not find the umpire’s ACV award to be arbitrary. The majority found it to be so because, unlike Intact’s proposed ACV that was supported by an income approach appraisal, the $1,084,000 award could not be quantified using available information, and differed from and exceeded the umpire’s own ACV appraisal of $886,000. In my view, this finding, and the call for such precise quantification, overlooks two crucial considerations.
[19] First, s. 128 does not call for a scientific identification of value but provides instead for an easy, expeditious, collaborative, and pragmatic dispute resolution mechanism. After his proposed ACV was rejected, the umpire chose to select from the two proposed awards, as he was entitled to do. This was a permissible tactic designed to encourage the parties to be reasonable. In this context, it was not arbitrary for him to accept what he considered to be the most suitable of the two offerings, even though the precise quantum he awarded differs from his proposal or may resist precise, objective validation. Courts reviewing appraisals made under s. 128 cannot insist on precise quantification without destroying the pragmatic dispute settlement role that process plays.
[20] Second, appraisal is not a science. It is an art that operates based on best estimates of myriad factors, which is precisely why appraisers are given discretion to consider context and to draw on their expertise. The majority did not defer to the umpire when it should have done so. . Aviva Insurance Co. of Canada v. Freedman
In Aviva Insurance Co. of Canada v. Freedman (Div Court, 2024) the Divisional Court dismisses an insurer's JR against an Insurance Act s.128 umpire appraisal award, here relating to a fire in a commercial building.
Here the court considers the insurer's argument that the appraisers acted beyond their Insurance Act jurisdiction:[2] The appraisal arose from the respondents’ claim under their insurance policy with Aviva, following a fire in the commercial building where the respondents’ dentistry practice was located. The claim was for smoke and water damage to the office equipment used in the dentistry practice.
[3] The respondents sued Aviva under the policy after it rejected the respondents’ claim for the equipment’s replacement cost. Aviva’s position was that the amount payable under the policy should be based on the cost to clean rather than replace the equipment.
[4] The appraisal was conducted by appraisers appointed by each side together with a jointly appointed umpire. The Appraisal Award determined the equipment’s replacement cost and its actual cash value. The umpire and the respondents’ appraiser signed the Appraisal Award. Aviva’s appraiser did not.
[5] Aviva submits that the appraisal panel exceeded its jurisdiction by determining the amount of the respondents’ loss to contents based on the cost to replace rather than clean the office equipment. Aviva says that by doing so, the panel usurped the court’s function and acted unreasonably by making what amounts to a coverage decision. Aviva also submits it was denied procedural fairness.
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II. Factual background
[7] In August 2020, there was a fire on the main floor of the commercial building where the respondents’ dentistry practice was located. Aviva insured the respondents under an “all risks” policy. The policy provided for a limit for loss or damage to contents of $1,695,000.
[8] The respondents made an insurance claim for smoke and water damage to dental and IT equipment in the respondents’ third-floor clinic and basement storage space. The respondents sought replacement of the equipment on the basis that it was irredeemably contaminated by smoke. Aviva did not agree that the equipment needed to be replaced. In November 2020, Aviva obtained an estimate to clean rather than replace the equipment for a cost of $58,400.
[9] The respondents retained a firm of public adjusters to assist with their claim. With the adjusters’ assistance, the respondents submitted a sworn Proof of Loss dated January 6, 2022 to Aviva, together with supporting documents, including an unsworn schedule of loss and suppliers’ estimates. The Proof of Loss made a claim for loss or damage to contents in the amount of $1,695,000, being the policy limit. The amount specified in the Proof of Loss for “Total Loss or Damage” to contents was $2,349,689.22, being their “Replacement Cost”. Aviva rejected the respondents’ claim, maintaining its position that the equipment did not need to be replaced.
[10] By Statement of Claim dated August 18, 2021 (served in January 2022), the respondents commenced a legal action against Aviva under the policy.
[11] In March 2022, the respondents invoked Statutory Condition 11 under s. 148 of the Insurance Act by providing Aviva with notice of their intention to proceed with an appraisal under s. 128 of that Act. Statutory Condition 11 (which is deemed by s. 148 to be part of the insurance policy) provides:Appraisal
11. In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefor is made in writing and until after proof of loss has been delivered. [12] Section 128 of the Insurance Act provides in part:Contracts providing for appraisals
128(1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.
Appraisers, appointment
(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.
Appraisers, duties
(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters. [13] As required by s. 128(2), each side appointed an appraiser (Steven B. Sobel by the respondents, John Valeriote by Aviva). The two appraisers appointed Stephen Agnew as the umpire. There is no dispute about the appraisal panel’s valuation expertise for insurance claims of this nature.
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[29] Reviewing courts have accorded a considerable degree of deference to appraisal decisions, given the nature of the appraisal process. In Campbell v. Desjardins General Insurance Group, 2022 ONCA 128, 467 D.L.R. (4th) 480, at paras. 36-38, the Court of Appeal for Ontario described the appraisal mechanism as follows:The purpose of the appraisal scheme under the Insurance Act is to provide an easy, expeditious, and cost-effective means for the settlement of claims for indemnity under insurance policies.... It is designed to be collaborative and not adjudicative…. To fulfil the purposes of the appraisal scheme outlined above and to facilitate a collaborative process, an appraiser must attempt, in good faith, to reach a compromise with their fellow appraiser ... .
If the appraisers are nevertheless unable to agree and therefore appoint an umpire to resolve their disagreement, then the umpire becomes the tie breaker. At that point, the umpire becomes the ultimate decision maker, who must necessarily be impartial and make a binding determination... While the appraisal process is not subject to the [Statutory Powers Procedure Act, R.S.O. 1990, c. S.22], it is subject to judicial review for denial of procedural fairness at common law from the moment of the umpire's involvement…. It is the umpire who bears the responsibility for ensuring that the process is fair.
The content of procedural fairness in the appraisal process is modest and flexible, and will depend upon the exigencies of the particular case…. There is no requirement that reasons for decision be provided…. To that end, the umpire enjoys considerable discretion. Courts afford the umpire's choice of procedure considerable deference and will be reluctant to interfere unless there is proof of fraud, collusion, bias, or partiality on the part of the umpire, or the umpire or the appraisers exceed their jurisdiction under the Act…. [Citations omitted.] V. Appraisal panel’s jurisdiction
[30] Did the appraisal panel exceed its jurisdiction in determining the Appraisal Award?
[31] As noted above, Aviva submits that the appraisal panel exceeded its jurisdiction by determining the respondents’ loss to contents based on the cost to replace rather than clean the office equipment. Aviva says that by doing so, the panel usurped the court’s function and acted unreasonably by making what amounted to a coverage decision.
[32] In support of its position, Aviva relies on the decision of the Saskatchewan Court of Appeal in Shinkaruk Enterprises Ltd. v. Commonwealth Insurance Co. (1990), 1990 CanLII 7738 (SK CA), 71 D.L.R. (4th) 681 (Sask. C.A.).[1] In Shinkaruk, at p. 688, the court set aside an appraisal award on the basis that the umpire went beyond the appraisal panel’s limited authority to determine “the value of the property insured, the property saved or the amount of the loss” by purporting to determine “disputed legal issues”. The court confirmed that all issues other than valuation “are reserved for settlement by negotiation or for determination by litigation in an ordinary action under the policy”: see also Madhani v. Wawanesa Mutual Insurance Co., 2018 ONSC 4282, [2019] I.L.R. para. I-6082 (Div. Ct.), at para. 20, in which the court confirmed that “[i]ssues such as legal entitlement under the policy and the validity of the claim – for example, where there is a question of fraud – do not form part of the appraisal process”.
[33] In Shinkaruk, at p. 690, the Saskatchewan Court of Appeal went on to find that the umpire erred in considering his role to be “that of an adjudicator or arbitrator who had before him conflicting testimony that required balancing and a resolution, all with a view of making a final disposition of the controversy between the parties.”
[34] Aviva also relies on Aviva Insurance Co. of Canada v. Cunningham, 2022 ONSC 6331, 30 C.C.L.I. (6th) 150, at para. 32, in which the application judge stated that “issues of causation and coverage are not for the umpire to decide but rather are matters for this Court to determine.” In that case, the court dismissed an application to the Superior Court of Justice to intervene in insurance appraisals then in progress. Among other things, the court rejected as premature the insured’s concern that the appraisal panel would exceed its jurisdiction by determining disputed legal issues: see Cunningham, at para. 86.
[35] Applying the above principles, Aviva submits that the umpire erred in determining the respondents’ loss to contents based on the cost to replace rather than clean the office equipment. Aviva argues that consistent with the statutory purpose of the appraisal process, the umpire should have asked the parties to submit separate valuations for cleaning and for replacing the damaged equipment. Aviva says that the ultimate decision as to whether the equipment should be cleaned or replaced should be left to the court in the parties’ litigation, since that decision went beyond a valuation determination within an appraisal’s scope.
[36] I disagree. While there is some dispute between the parties about factual issues relating to the appraisal, I am satisfied, on the evidence before this court, that the umpire together with the respondents’ appraiser acted within the authority provided by the insurance policy and the Insurance Act in making the Appraisal Award.
[37] The appraisal panel was limited (by Statutory Condition 11) to determining “the value of the property insured, the property saved or the amount of the loss” (emphasis added). Both parties provided the arbitration panel with extensive evidence about the extent to which the equipment was damaged, and the extent to which the equipment could be salvaged (or “saved”). The insured respondents provided evidence that the equipment in question was sufficiently damaged to necessitate replacement. Aviva provided evidence that the equipment was damaged to such a limited extent that it need only be cleaned (that is, it could all be salvaged). These were questions of “the amount of the loss” and “the property saved”. They were the questions that the appraisal panel was charged with determining, and about which the parties provided significant expert and other evidence. The Appraisal Award also determined the “value of the property insured” by fixing the equipment’s “Actual Cash Value”.
[38] Contrary to Aviva’s submissions and consistent with the case law Aviva cited, these determinations did not involve disputed legal issues or questions of coverage or entitlement under the insurance policy, which would be within the court’s purview. Unlike in Shinkaruk, the umpire did not inappropriately adopt a quasi-judicial role “with a view of making a final disposition of the controversy between the parties.” By confining themselves to valuation issues under Statutory Condition 11, the umpire together with the respondents’ appraiser did not exceed their jurisdiction or act unreasonably in making the Appraisal Award.
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