Silvio Derman v. State Farm Mutual Automobile Insurance Company, 1997 ONICDRG 21

Office of the Director of Arbitrations

Neutral Citation: 1997 ONICDRG 21 Appeal: P-009521

Appellant: Silvio Derman Respondent: State Farm Mutual Automobile Insurance Company

Before: David R. Draper, Director's Delegate

Counsel: Carolyn V. Amendola (for Silvio Derman) Dana Hanson (for State Farm)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that, subject to Silvio Derman's right to proceed with his alternative argument, as set out in the reasons for decision:

1. The appeal is dismissed and the arbitration decision, dated September 12, 1995, is confirmed.

2. No appeal expenses are payable.

January 29, 1997

David R. Draper Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by Silvio Derman from an arbitration order, dated September 12, 1995, that he cannot proceed to arbitration on his claim for additional weekly benefits. He submits that the arbitrator erred in concluding that his application for arbitration is time-barred because it was not commenced within two years after State Farm Mutual Automobile Insurance Company ("State Farm") refused to pay further weekly benefits.

II. THE DISPUTE

The dispute is about the timeliness of Mr. Derman's application for arbitration. Section 281(5) of the Insurance Act establishes a two-year time limit for applying for arbitration:

281. • (5) A proceeding in a court or an arbitration proceeding in respect of statutory accident benefits must be commenced within two years after the insurer's refusal to pay the benefit claimed or within such longer period as may be provided in the Statutory Accident Benefits Schedule.

Section 26 of Ontario Regulation 672, Statutory Accident Benefits Schedule - Accidents Before January 1, 1994 ("the Schedule"), as amended, modifies the time limit as follows:

26.-(1) A mediation proceeding under section 280 of the Insurance Act in respect of benefits under the Regulation must be commenced within two years from the insurer's refusal to pay the amount claimed in the application for statutory accident benefits or, if the person has attended school or accepted, or returned to, an occupation or employment, as permitted by section 16, within two years of the insurer's refusal to pay further benefits.

(2) Despite subsection (1), an arbitration or court proceeding under section 281 of the Insurance Act may be commenced within 90 days after the mediator reports to the parties under subsection 280(8) of the Act.

Following an accident on August 10, 1991, Mr. Derman applied to State Farm for accident benefits, stating he was unemployed at the time of the accident. He received some benefits, including weekly benefits under section 13 of the Schedule for two weeks (August 17 - 31, 1991).

On August 12, 1994, Mr. Derman applied for arbitration, claiming additional weekly benefits. By this time, his claim had changed. He maintained that he was on a temporary lay-off at the time of the accident and, as a result, was entitled to weekly income benefits under section 12 of the Schedule at $512 per week from August 17, 1991 until he returned to work in October 1992.

State Farm took the position that Mr. Derman was notified of its refusal to pay further weekly benefits in an Assessment of Claim, dated January 9, 1992, and, therefore, his application for arbitration was out-of-time. Mr. Derman claimed that the Assessment of Claim was ambiguous and State Farm continued to request medical information, indicating that there was no final refusal until much later. The final refusal, in his submission, did not come until April 12, 1993, after State Farm reviewed the medical report of Dr. Guy-Bernard Proulx, a psychologist. Mr. Derman claimed, therefore, that his application for arbitration on August 12, 1994 was well within two years of State Farm's refusal to pay further weekly benefits.

The dispute was heard as a preliminary issue. The arbitrator was given an affidavit from each party setting out the background and providing relevant documentary evidence. Each party also made both written and oral submissions.

The arbitrator concluded that on January 9, 1992, State Farm notified Mr. Derman of its refusal to pay further weekly benefits and, therefore, the limitation period ran from that date. Because Mr. Derman did not apply within two years of the refusal, the arbitrator ordered that he could not proceed to arbitration.

III. THE APPEAL

Mr. Derman submits that the arbitrator erred in fact and in law in concluding that his application for arbitration is time-barred. For the following reasons, I find no reason to interfere with the arbitration decision.

The leading case on this issue is Zeppieri and Royal Insurance Company of Canada, (February 17, 1994, OIC File No. A-005237, affirmed on appeal, December 22, 1994, OIC File No. P-005237). Mr. Derman and State Farm accept the two-step approach developed in the arbitration decision in Zeppieri and applied in later decisions. First, the arbitrator must determine if and when the insurer provided notice of its clear and unequivocal refusal to pay the benefits claimed. Second, the arbitrator must ask if the insurer is estopped from raising the limitation period because the insured person reasonably relied on its actions to his or her detriment.

Mr. Derman submits that the arbitrator erred in law in not applying the two-step test established in Zeppieri. If he had, Mr. Derman contends that he would have found that State Farm failed both parts of the test. First, the Assessment of Claim did not make it clear that his benefits were terminated. Rather, it suggested that the claim was allowed, not refused. Second, the Assessment of Claim and State Farm's actions induced Mr. Derman into a false sense of security about the limitation period.

Although the arbitrator does not refer explicitly to the Zeppieri decision, I find that he took the same approach by examining the adequacy of the notice of refusal provided to Mr. Derman, and asking whether State Farm's actions somehow misled him about the limitation period. He concluded that State Farm met both parts of the test:

1. On January 9, 1992, State Farm "discharged its obligation to notify Mr. Derman of the refusal to pay weekly income benefits past August 31, 1991." (p.5) Even if the Assessment of Claim was ambiguous, "Mr. Derman's actions after January 1992 loudly proclaim that he and his counsel understood State Farm's decision to deny his claim for additional weekly benefits." (p.5)

2. There was no evidence of any "implied or actual misrepresentation of State Farm's position in the written record which could have misled Mr. Derman or his counsel."(p.5)

Not only did the arbitrator approach the issue properly, there was sufficient evidence to support his conclusions. In my view, the record clearly shows that by January 1992, Mr. Derman and his lawyers were well aware that State Farm refused to pay weekly benefits beyond August 31, 1991. As noted by the arbitrator, they responded to the Assessment of Claim by applying for mediation on the basis that State Farm refused to pay further weekly benefits. State Farm's willingness to consider additional information is to its credit. The fact that it was willing to reconsider its decision did not negate the fact that a decision had been made to refuse further weekly benefits. It did nothing to waive the limitation period, or to mislead Mr. Derman or his lawyers.

I will now deal more specifically with Mr. Derman's submissions.

A. "Refusal to Pay the Benefits Claimed"

Mr. Derman's principal submission is that the Assessment of Claim, dated January 9, 1992, was not a clear and unequivocal refusal and, therefore, the limitation period cannot run from that date. The alleged ambiguity is that the form includes a check mark in the box marked "claim accepted in its entirety." I agree with the arbitrator, however, that when the context is considered, it is difficult to accept that there was any doubt about State Farm's refusal to pay weekly benefits after August 31, 1991.

The Schedule establishes a procedure for accident benefits claims. The insured person is to give initial notice of the claim to the insurer, in writing, within 30 days of the accident and submit a completed application for accident benefits within 90 days of giving the initial notice (s.22(1)). These time limits can be extended if the insured person has a "reasonable excuse" for the delay "so long as there is compliance within two years." Where the application includes a claim for weekly benefits, the insured person must provide a medical certificate unless the insurer waives that requirement (s.23(1)).

Once a properly completed application is received, the insurer is obliged to respond. Weekly benefits become overdue if they are not mailed or otherwise delivered within 10 days of receiving the completed application and at least once every two weeks thereafter (s.24). If the insurer refuses to pay a benefit claimed, it is required to "give written notice to the insured person giving the reasons for the refusal" (s.24(8)).

Mr. Derman's application for accident benefits is dated September 9, 1991, although it appears from the record that he did not sign it until October 1991. It was accompanied by a medical form completed by Dr. J. David Giddens on August 28, 1991. In Dr. Gibbons' opinion, Mr. Derman would likely be able to return to work in one week if he had been employed at the time of the accident.

On October 11, 1991, Mr. Derman's lawyers sent State Farm another medical form. This one was completed on October 4, 1991 by Dr. Steven M. Grossman. Dr. Grossman recommended that Mr. Derman start an intensive physiotherapy program, and stated that it was "currently unknown" when he would be able to return to work or his normal activities.

State Farm's claims representative wrote to Mr. Derman's lawyers on November 29, 1991, stating as follows:

We understand that both or your clients' [sic] with their infant went on a trip to Milan, Italy on August 31, 1991 and stayed there until September 27, 1991.

We are prepared to pay your client's accident benefits until the date they embarked on their planned holiday.

Both of your clients have neglected to complete Section 5 of the Application for Accident Benefits. Therefore, we at a loss as to what essential tasks normally engaged in they are substantially unable to perform.

Mr. Derman's lawyers responded on December 24, 1991, as follows:

I would ask that you provide payment of my clients' accident benefits to date. I have reviewed with Mr. & Mrs. Derman your comments as set out in your letter of November 29, 1991. They have advised me that they both continue to be totally disabled notwithstanding the fact that they did go to Milan, Italy. I have asked that they obtain further medical documentation to confirm this ongoing disability and I expect to be in possession of this shortly.

On January 9, 1992, State Farm sent an Assessment of Claim to Mr. Derman's lawyers. As noted above, the box is checked for "claim accepted in entirety." The form states that State Farm will pay $185 per week from August 17, 1991 to August 31, 1991. The following explanation is given:

As per initial med. report and resumption of regular Activities (ie - trip to Italy Aug. 31, 1991) - Benefits discontinued Aug. 31, 1991.

The arbitrator accepted State Farm's explanation that based on Dr. Giddens' assessment and the fact that Mr. Derman was able to travel to Italy on August 31, 1991, they felt this was a time-limited claim that was paid in its entirety. Further, the arbitrator found that the actions of Mr. Derman and his lawyers made it clear they understood that State Farm refused to pay weekly benefits beyond August 31, 1991.

There was ample evidence to support these findings. As noted by the arbitrator, the most telling evidence is that within a month of receiving the Assessment of Claim form, Mr. Derman applied for mediation, stating:

Claimant continues to be totally disabled resulting from accident of August 10th, 1991. Because claimant left for a trip to Italy on August 31st, 1991, the insurer has refused to pay benefits beyond that period notwithstanding medical documentation that confirms ongoing disability. [emphasis added]

The dispute was not resolved during the mediation. In his report, dated March 19, 1992, the mediator stated that the parties still disagreed about whether Mr. Derman was entitled to weekly benefits after August 31, 1991:

1. The insurers paid the insured $185.00 per week pursuant to s.13 benefits from August 17-31, 1991, at which time benefits were terminated.

2. Both parties continue to disagree as to the extent and nature of the insured's medical condition and whether benefits should be reinstated from August 31, 1991, and if so on what time basis.

Based on this evidence, I find no reason to interfere with the arbitrator's conclusion that on January 9, 1992, State Farm provided clear and unequivocal notice of its refusal to pay further weekly benefits and, therefore, the limitation period ran from that date.

Mr. Derman submits that the Assessment of Claim could not have been a final refusal because at the time it was issued, State Farm was still unaware of his essential tasks. I do not accept this argument. The onus was on Mr. Derman to establish his claim. He cannot rely on his own failure to provide information to prevent State Farm from making a decision and relying on the limitation period.

In my view, the situation is simple. Mr. Derman applied for weekly benefits and State Farm refused to pay them beyond August 31, 1991. He received notice of the refusal on or about January 9, 1992 and, therefore, the limitation period began to run. The option available to him, which he took, was to proceed to mediation in a timely manner and then, if necessary, apply to court or for arbitration. There is no suggestion in the record that Mr. Derman was prevented from following these steps because State Farm had not yet made a final decision.

B. Mr. Derman's Position at Arbitration

Mr. Derman submits that the arbitrator misunderstood his position, undermining the decision. At page 5 of the decision, the arbitrator states the Mr. Derman claimed he and his lawyers "did not firmly understand State Farm's position before the February 17, 1993 communication." Mr. Derman contends, however, that his position at the arbitration was that the limitation period should run from April 12, 1993, not February 17, 1993.

The record provides some support for Mr. Derman's argument. The Affidavit of Alfred M. Kwinter (Exhibit 2) states that:

In the letter, dated November 4, 1994, to Ms. Sally J. Baker, I explained that it is our position that the insurer left open the issue of entitlement until it considered Dr. Proulx's report. It did not reach a decision with respect to Dr. Proulx's report until the insurer's letter of April 12, 1993. As a result, I state that it is my position that this matter should properly proceed to arbitration. (paragraph 36)

I am not persuaded, however, that it makes any difference. The arbitrator's conclusions were not based on when State Farm finally closed its file. He concluded that on January 9, 1992, State Farm refused to pay Mr. Derman any additional weekly benefits, and that its willingness to consider further evidence did not prevent the limitation period running from that date. It is of little consequence whether State Farm remained willing to consider additional medical evidence until February 17, 1993 or April 12, 1993.

C. Ongoing Negotiations

Mr. Derman claims that by leaving its file open, agreeing to consider new medical evidence and arranging its own assessments, State Farm lulled him into believing that no final decision was made until April 12, 1993, after it reviewed the report of Dr. Proulx. I find little merit in this argument. In my view, it is based on a mistaken view, summarized in paragraph 20 of Mr. Derman's written submissions:

20. Arbitrator Sampliner states at page 5 that throughout the remainder of 1992, the parties were attempting to negotiate a settlement. If benefits had in fact been terminated by the assessment of claim form, dated January 9, 1992, there would be nothing left to negotiate.

As noted by State Farm, there are good reasons why an insurer would keep its file open and continue to negotiate after it refused benefits. For example, it may want to try to avoid the expense of further proceedings. If the applicant applies for arbitration, the insurer must pay an assessment of $2,000 and unless the arbitrator finds the claim frivolous, vexatious, or an abuse of process, it likely will be required to pay the applicant's arbitration expenses. This creates an ongoing incentive for the insurer to settle, even if it continues to deny the applicant's entitlement.

Claimants would also be poorly served by a system where insurers simply close their files after denying benefits. Insurers decide claims on the basis of the available evidence. If new evidence becomes available, it should be considered. This does not change the fact, however, that the claim was refused and the time limit runs from the refusal. As the arbitrator in Zeppieri (cited above) said:

Insurance companies are responsible for investigating new information provided after benefits are terminated and must fairly re-evaluate an applicant's claim in light of the new information provided. The re-evaluation of claims on an ongoing basis is integral to a system of periodic benefits, and is a continuing obligation owed to an applicant.

The fact that an insurance company reconsiders a prior decision to terminate benefits (as it must do) does not mean that a refusal of benefits only can take place at the completion of that process. To interpret the language of s. 281(5) in this manner would largely deprive it of meaning.

I also do not find the facts of this case particularly compelling. Although State Farm indicated its willingness to consider additional evidence, Mr. Derman was slow in providing it. By May 1992, State Farm was aware that Mr. Derman had been seen by Dr. Proulx. It made repeated requests for information about Dr. Proulx's opinion, indicating a willingness to pay for him to prepare a report. Mr. Derman apparently did not obtain a report from Dr. Proulx until January 1993, nearly nine months after his assessment, and did not send it to State Farm until late February 1993. State Farm paid for Dr. Proulx's report and reviewed it, but did not change its decision. On April 12, 1993, State Farm advised Mr. Derman's lawyer that its "assessment of Jan. 9, 1992 stands."

In my view, an applicant cannot expect to extend the limitation period indefinitely while he or she attempts to document the claim. There may be good reasons to continue negotiating after mediation fails, but before applying to court or arbitration. However, the limitation period will run unless the insurance company has agreed not to rely on it, or has misled the applicant in some material way about the limitation period. As stated above, I find ample evidence for the arbitrator's conclusion that State Farm did nothing to preclude it from relying on the limitation period.

Finally, I note that on April 12, 1993, when State Farm told Mr. Derman that its assessment of January 9, 1992 "stands," he had nearly nine months before the limitation period expired. On September 9, 1993, still within the limitation period, his lawyer advised State Farm that "as soon as the employment documentation is received, the arbitration application will be filed." No application was made, however, until Mr. Derman applied for mediation in March 1994.

D. Alternative Argument - Rolling Time Limit

On appeal, Mr. Derman raised an alternative argument. Relying on the arbitration decision in Kirkham and State Farm Mutual Automobile Insurance Company, (August 15, 1996, OIC File No. A96-000141), he submitted that the limitation period in section 281(5) of the Insurance Act only precludes claims for weekly benefits for periods ending more than two years before the application for arbitration is filed. If this approach were accepted, his claim would only be precluded for periods ending before August 12, 1992. State Farm objected to this submission, arguing that it had not been raised at the arbitration or in the appeal material.

I advised the parties that I was not prepared to prevent Mr. Derman from making this argument. However, it was adjourned for two reasons. First, State Farm was not given adequate notice. Second, I had heard appeal submissions in the Kirkham case and my decision was pending.

The appeal decision in Kirkham has now been released, rejecting the "rolling time limit" argument. If Mr. Derman wants to proceed with his alternative argument, he must advise the Commission within 15 days of receiving this decision.

IV. EXPENSES

Mr. Derman's appeal essentially involved a challenge to the arbitrator's factual finding that on January 9, 1992, State Farm clearly refused his claim for additional weekly benefits. He was unsuccessful in demonstrating any significant error in the decision. In the circumstances, I am not persuaded that this is an appropriate case for expenses.

State Farm submitted that its assessment of $1,000 for responding to Mr. Derman's application for arbitration should be refunded because the arbitrator had no jurisdiction to proceed. I addressed this argument in my recent decision in Kirkham and State Farm Mutual Automobile Insurance, (January 27, 1997, OIC P96-00069), at page 10:

I take no position on the return of State Farm's assessment. This is an administrative matter handled by the Registrar. Mr. Kirkham applied for arbitration, asserting a claim for additional weekly income benefits. State Farm responded by arguing that his application was time-barred. The arbitrator held a hearing to determine that issue. On appeal, I reviewed the arbitrator's decision, concluding that Mr. Kirkham was precluded from proceeding to arbitration. It is not obvious to me that this is a question of jurisdiction, as opposed to a successful defence to Mr. Kirkham's claim.

For the same reasons, I make no order in this case for the return of State Farm's assessment.

January 29, 1997

David R. Draper Director's Delegate

Date