Insurers must reassess reports to avoid special awards in arbitration

Insurers not wishing to be vulnerable to special awards in arbitration must be prepared to reassess new information contradicting reports upon which the denial of a claim is based.
In Sanmuganathan Elaiathamby and State Farm Mutual Automobile Insurance Company, Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), overturned an arbitrator’s initial finding that a claimant was not entitled to a special award.
The arbitrator initially ruled the insurer had not acted “unreasonably” in denying benefits, because it had based its denial of the claim primarily on an engineer’s report.
Elaiathamby suffered personal injuries when his 1990 Toyota Camry was allegedly struck by a 1993 Honda Prelude on Jan. 15, 2006.
State Farm withheld benefits on the basis that “the accident did not occur as alleged based on the [engineering] expert report of Gordon Jennish.”
At the original arbitration, the Jennish report found discrepancies concerning the time of the accident, travel direction and street name, as well as a lack of towing records.
But on appeal, FSCO director’s delegate David Evans noted that throughout the arbitration, evidence came to light that cast doubt on information contained in the engineer’s report. For example, Jennish did not send a sample of the blue paint scrape on the Camry bumper [the Prelude was blue] for analysis, but later admitted the colour transfer from one car to another did in fact suggest an accident.
“The weight given to the report [by State Farm] and the evidence about it that came out at the hearing leads me to another principle regarding special awards: the duty to reassess,” Evans wrote. “The arbitrator failed to consider the insurer’s duty to reassess.”
By not reassessing the contents of its engineer’s report – even as some of its contents were later found to be unsubstantiated – State Farm was acting “unreasonably” in denying the claim, Evans found. That opened State Farm up to the possibility of having a special award made against it.