Neutral Citation: 1997 ONICDRG 83

OIC A96-000775

BETWEEN:

CHARLES FERENCZI

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

The Applicant, Charles Ferenczi, was injured in a motor vehicle accident on February 15, 1991. He applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under Ontario Regulation 672.¹ State Farm alleges that Mr. Ferenczi has applied for arbitration out of time. The parties were unable to resolve their disputes through mediation and Mr. Ferenczi applied for arbitration under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issue in this preliminary hearing is:

Did Mr. Ferenczi commence his arbitration proceeding within the time limits prescribed under section 281(5) of the Insurance Act, and section 26 of the Schedule?

Mr. Ferenczi commenced his arbitration proceeding in time, and is not barred from proceeding with this arbitration proceeding pursuant to section 281(5) of the Insurance Act, and section 26 of the Schedule.

The hearing on the preliminary issue was held in North York, Ontario, on March 18, 1997, before me, Fern Kirsch, Arbitrator.

Present at the Hearing:

Applicant:

Charles Ferenczi

State Farm's

Harry P. Brown

Representative:

Barrister and Solicitor

State Farm's

David Bailey

Officer:

The hearing was transcribed by Cheryl Hunt from Professional Court Reporters.

Witnesses:

Bruce K. Johnston

Charles Ferenczi

Exhibits:

24 exhibits were filed in this proceeding.

A brief of authorities was filed by the Insurer.

The Law:

section 281(5) of the Insurance Act states:

A proceeding in a court or an arbitration proceeding in respect of no-fault 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 No-Fault Benefits Schedule. 1990, c.2 , s. 65, part.

[emphasis added]

The limitation period is also dealt with in section 26 of the Schedule which states:

26.-(1) A mediation proceeding under section 280 of the Insurance Act or an arbitration or court proceeding under section 281 of the Act in respect of benefits under this 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 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.

[emphasis added]

Section 24(8) of the Schedule prescribes the manner in which Allstate must communicate its refusal to pay benefits. It states:

If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.

[emphasis added]

In the case of Zeppieri and Royal Insurance Company,² with which I agree, Senior Arbitrator Naylor outlined a two-step process to determine whether the limitation period applies in a certain case. First, the arbitrator must determine if and when the insurer communicated notice of its clear and unequivocal refusal to pay the benefits claimed. The time period starts to run from the time that the refusal to pay benefits has been communicated in writing to an applicant. Second, the arbitrator must ask whether the insurer may rely on a limitation period that runs from the date of the refusal.

Evidence and Findings:

The Applicant Charles Ferenczi was injured in a motor vehicle accident on February 15, 1991. He applied for Accident Benefits on June 7, 1991, including weekly income benefits.³ State Farm prepared an Assessment of Claim by Insurer dated June 26, 1991.⁴ Under section 3 entitled "Assessment of Claim(s)," the form indicates as follows:

The insurer has reviewed your application for no fault benefits and has assessed your claim below. Where the Insurer has denied a benefit claim entirely or in part, this is a notice to you of denial of a claim. [pre-printed on form]

Weekly Income Benefits

[ ] Not Applicable [ ]Claim Accepted in Entirety [ ]Portion of Claim Denied [ ]Entire Claim Denied

The insurer will pay the amount of $____ per week for the period 2/22/91 through _____ .

Explanation: Based on the last 4 wks or 52 weeks before m.v.a. the insured has not lost any income.

Mr. Ferenczi applied for Mediation on November 23, 1992.⁵ Mediation occurred between November 26, 1992 and January 25, 1993.⁶ While mediation was ongoing, State Farm completed a further Assessment of Claim by Insurer dated December 11, 1992.⁷ This form contained an "x" in the box marked "Entire Claim Denied." State Farm provided the following explanation as to why the claim was denied:

The insured has worked since the accident on a continual basis.

Mr. Ferenczi was represented at mediation by a law clerk. The mediation report states, under the heading Issues Resolved, "Weekly Income: "

The parties agree the insurer is entitled to deduct 80% of any income earned subsequent to the accident, pursuant to O. Reg. 273/90 PART IV Section 15. 80% of the insured's earnings are greater than any benefit to which he may be entitled, and therefore the insured is not entitled to Weekly Benefits.

Mr. Ferenczi applied for a further mediation which was held between February 1, 1996 and April 23, 1996.⁸ Mr. Ferenczi was unrepresented at this second mediation. He claimed entitlement to income replacement benefits at this mediation as well. The mediation report indicated that as the matter of Mr. Ferenczi's weekly benefits had been previously mediated, the mediator did not have jurisdiction to mediate the issue again.

Mr. Ferenczi applied for Arbitration on May 21, 1996.

State Farm submits that Mr. Ferenczi received written notice of its denial of weekly income benefits in its Assessments. It claims that these notices are clear and unequivocal, set out reasons for denying weekly income benefits to Mr. Ferenczi, and were communicated to him. It submits that Mr. Ferenczi's application for arbitration dated May 21, 1996, was brought outside the two year limitation period from the date of their refusal, and accordingly, Mr. Ferenczi should be barred from proceeding to arbitration.

Mr. Ferenczi testified at this proceeding. He was unrepresented, and indicated that he did not wish to retain counsel for the purposes of this proceeding, despite being given the opportunity to do so. Mr. Ferenczi testified, and in my view, clearly understood the issue despite his filing of numerous documents which had little relevance to the preliminary issue before me.

Were the assessments of claim by insurer dated June 26, 1991 and December 11, 1992 in writing, clear and unequivocal and communicated to the Applicant?

In order to be successful, State Farm must prove that its refusal was a clear and unequivocal denial of benefits, contained reasons for the refusal, and was communicated to Mr. Ferenczi in writing. In addition, I must determine whether the Insurer may rely on a limitation period that runs from the date of the refusal.

I find that the alleged refusal of benefits dated June 26, 1991 was not clear and unequivocal, nor did it contain reasons for State Farm's refusal to pay Mr. Ferenczi weekly income benefits. State Farm failed to tick the box indicating that his benefits were denied. This is sufficient reason for me to find that this assessment did not contain a clear and unequivocal refusal of benefits. In addition, the "explanation" contained in the document gives insufficient reason why State Farm has denied the claim. For these reasons, I find that this assessment does not trigger the running of the limitation period.

I also find that this Assessment was not communicated to Mr. Ferenczi. Mr. Johnston, a claims examiner with State Farm testified that he had hand written this assessment and envelope, and had placed it into State Farm's internal mail system, in its Mississauga office. I heard no evidence as to where the document went after entering this internal mail system. Mr. Johnston testified that there were no unopened, returned envelopes in Mr. Ferenczi's file. State Farm asks me to conclude that since there were no unopened letters in Mr. Ferenczi's file, Mr. Ferenczi received this letter.

I rely on the Appeal decision of Director's Delegate Sachs in the case of Wiggan,⁹ where she stated: "I am not saying an insurer must prove actual receipt of a notice, but a claimant must have knowledge of the refusal." In this case as in Wiggan, there was no evidence that the assessment had left the offices of the Insurer. I received no evidence of any enclosure letter which was sent noting the date it was sent, nor was I provided with any adjuster's notes indicating that the document had actually been forwarded to Mr. Ferenczi. There was a log note which indicated that an Assessment of Claim form should be used when Mr. Johnston declined payment,¹⁰however there were no notes of the document actually being prepared and being sent out to the Applicant.

Furthermore, Mr. Johnston's evidence in this regard must be given limited weight. I found his testimony concerning the history of this file vague. He testified in generalities and misquoted the contents of the initial Assessment of Claim form, stating that the form indicated that no payments would be made "under Mr. Ferenczi's weekly income benefits." I find his recollection of the balance of the file equally suspect, as he did not have the benefit of notes or enclosure letters to assist his memory.

The second Assessment of Claim by Insurer dated December 11, 1992 was somewhat clearer. State Farm "ticked off the box under "Weekly Benefits" indicating that "the Entire Claim is denied."At first glance, State Farm appears to have provided a clear refusal by ticking off this box. Nevertheless, section 24(8) of the Schedule requires that State Farm provide Mr. Ferenczi not only with an indication that his benefits are being refused, but also give the reasons for the refusal. In order for the refusal to be clear and unequivocal, the reasons given for the refusal must be taken into account.

State Farm's explanation given for the denial of Mr. Ferenczi's weekly income benefits was that the "insured has worked since the accident on a continual basis." I find this reason insufficient and incomplete. An insured may have worked since the accident on a continual basis, but might still be entitled to weekly income benefits. State Farm ought to have indicated why working since the accident made Mr. Ferenczi ineligible for weekly income benefits. If the reasons are insufficient, the refusal is not clear and unequivocal. Accordingly, I find that the "explanation" given by State Farm in the second assessment was insufficient and incomplete, and does not meet the requirement under section 24(8) to provide reasons. In all the circumstances, I find that this assessment does not contain a clear and unequivocal refusal of benefits and does not trigger the running of the limitation period.

The question arises whether State Farm can rely upon the explanation provided in the mediation report dated January 25, 1993¹¹ as part of its "reasons" under section 24(8) for denying Mr. Ferenczi's benefits. I find it likely that Mr. Ferenczi was made aware of State Farm's refusal to pay benefits and its reasons for its refusal pay benefits in the first mediation. However, I find that State Farm may not rely on the mediation proceeding or the information contained in the mediation report to remedy its own failure to provide Mr. Ferenczi with a clear and unequivocal refusal to pay benefits. It is State Farm's obligation, and no one else's, to provide this notice to the Applicant. Accordingly, the fact that Mr. Ferenczi may have become aware of State Farm's refusal to pay benefits and its reasons, through the process of mediation, is irrelevant to the issue before me.

In addition, I find that this second assessment was not communicated to Mr. Ferenczi. State Farm sent a letter to the Ontario Insurance Commission ("OIC"), dated December 9, 1992, which advised the mediator that a copy of the assessment of claim form was being sent to Mr. Ferenczi.¹² There is no indication that State Farm sent the assessment to Mr. Ferenczi as promised. In addition, the letter to the OIC was not copied to Mr. Ferenczi.

Mr. Johnston testified that although State Farm had indicated it would send it directly to Mr. Ferenczi, it waited until mediation to give it to his lawyer. Later, Mr. Johnston testified that he had no recollection of actually giving the second assessment to Mr. Ferenczi or his lawyer. When questioned in this regard, he stated that "it was four years ago, I believe this is what happened." In addition, Mr. Ferenczi testified that he was convinced that he had not seen the December 11, 1992 assessment until he actually received it from Mr. Gearing (his former lawyer) when he started preparing for this arbitration.¹³ Accordingly, I find that Mr. Ferenczi was not aware of this document or its contents until it was communicated to him by his lawyer in 1997. In all the circumstances I find that this assessment similarly does not trigger the running of the limitation period pursuant to the Schedule.

Accordingly, in all the circumstances, I find that State Farm did not provide Mr. Ferenczi with a clear and unequivocal notice that it was denying Mr. Ferenczi's weekly income benefits, nor was the notice communicated to him. Accordingly, the time period did not start to run. In the circumstances, Mr. Ferenczi has commenced his arbitration proceeding in time, and is not barred from proceeding to Arbitration on the issue of weekly income benefits.

Mr. Ferenczi advised me that he has incurred no expenses to date and is not seeking payment of any expenses of this hearing. Accordingly, no expenses are ordered.

Order:

Mr. Ferenczi commenced his arbitration proceeding in time, and is not barred from proceeding with this arbitration proceeding pursuant to section 281(5) of the Insurance Act, and section 26 of the Schedule.

May 23, 1997

Fern Kirsch

Arbitrator

Date

Footnotes

Prior to January 1, 1994, Ontario Regulation 672 was called the No-Fault Benefits Schedule. After that date it became the Statutory Accident Benefits Schedule — Accidents On or Between June 22, 1990 and December 31, 1993. In this decision, the term "Schedule" will be used to refer to Regulation 672.
(February 17, 1994), OIC A-005237
Exhibit 1
Exhibit 3
Exhibit 4
Exhibit 7--Report of Mediator dated January 25, 1993.
Exhibit 6
Exhibit 12--Report of Mediator dated April 23, 1996.
Wiggan and Simcoe Insurance Company and Erie Insurance Company (October 14, 1993), OIC P-004204
Exhibit 2
Exhibit 7
Exhibit 5
Exhibit 16

Charles Ferenczi v. State Farm Mutual Automobile Insurance Company, 1997 ONICDRG 83

Case Summary

Present at the Hearing:

Witnesses:

Exhibits:

Other Documents before the Arbitrator:

The Law:

Evidence and Findings:

Were the assessments of claim by insurer dated June 26, 1991 and December 11, 1992 in writing, clear and unequivocal and communicated to the Applicant?

Order:

Footnotes