Neutral Citation: 1998 ONFSCDRS 27

FSCO A97-000029

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

SAMI BOUASSALI

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Issues:

The Applicant, Sami Bouassali, was injured in a motor vehicle accident on April 22, 1993. He applied for and received statutory accident benefits from Zurich Insurance Company ("Zurich") payable under the Schedule¹. Zurich paid Mr. Bouassali weekly income benefits under section 12(1) of the Schedule from April 30, 1993 until April 27, 1994 at the rate of $329.53. On August 29, 1995, Mr. Bouassali applied for mediation. The Report of Mediator was issued on December 11, 1995. On December 23, 1996 Mr. Bouassali applied for arbitration at the Financial Services Commission of Ontario² under the Insurance Act, R.S.O. 1990, c.I.8 (the "Act"), as amended.

In his Application for Arbitration, Mr. Bouassali claimed entitlement to weekly income benefits at the rate of $494.30 per week from April 28, 1994 and ongoing.

At the pre-hearing discussion held in this case on June 11, 1997 Zurich took the position that Mr. Bouassali is precluded from commencing arbitration proceeding for two reasons: 1) his Application for Arbitration is time-barred because it was not filed within two years after Zurich's refusal to pay the benefits he claimed, and 2) his claim for entitlement to weekly income benefits after April 27, 1994 was not mediated.

On September 9, 1997, Mr. Bouassali filed another mediation (the second mediation) with respect to the same accident. The Report of Mediator was issued on November 27, 1997.

The preliminary issue in this case is :

Is Mr. Bouassali precluded by the operation of subsections 281(2) and (5) of the Act and subsection 26(1) of the Schedule from commencing arbitration proceedings with respect to the merits of his claim for weekly income benefits after April 27, 1994?

Hearing:

Details about those proeset at the hearing and the list of witnesses and exhibits are set out in the Appendix to this Decision.

Result:

1. Mr. Bouassali's Application for Arbitration is not time-barred. The hearing on the merits of his claim may proceed.

2. Mr. Bouassali is entitled to his expenses incurred in respect of the arbitration.

Evidence and Findings:

Background

I heard testimony from Ms. Lynn Parker, the senior staff adjuster at Zurich who handled Mr. Bouassali's claim; Ms. Gloria Morris, the dispute resolution specialist who represented Zurich in the first mediation; Mr. William Garay, Mr. Bouassali's lawyer and Ms. Donna Robinson, Mr. Garay's litigation clerk. Mr. Bouassali did not testify. A number of documentary exhibits, including correspondence between the parties, notes made by Ms. Parker and Ms. Robinson, and the Reports of Mediators were filed into evidence.

The pertinent evidence may be summarized as follows:

Notice of Refusal

Mr. Bouassali is a taxi-driver by occupation. Prior to the accident of April 22, 1993, Mr. Bouassali had been off work for about six months as a result of injuries he sustained in an accident that occurred on October 26, 1991(the first accident). Zurich, which was also the Insurer in the first accident, paid him weekly income benefits until May 1, 1992, when they were stopped. At the time of the accident at issue in this arbitration, Mr. Bouassali had resumed driving a taxi on a full-time basis; however, he continued to dispute the calculation of his benefit in the first accident.

Zurich started paying Mr. Bouassali weekly income benefits in respect of the accident of April 22, 1993, at the rate of $329.53 per week. Mr. Bouassali claimed benefits at a higher rate. In October 1993, he retained Mr. William Garay, Barrister & Solicitor, to represent him in a tort action and statutory accident benefit claims arising from both accidents.

Mr. Bouassali's claim was handled, at the outset, by Garneau &Associates, independent adjusters retained by Zurich. Ms. Parker, Zurich's in-house senior adjuster, did not have much involvement with Mr. Bouassali's case until March, 1994 when she received surveillance and medical information that caused her to question Mr. Bouassali's entitlement to further weekly income benefits. At that time, Mr. Bouassali had returned to work on a part-time basis, but his position was that he was entitled to benefits because he could not work on a full-time basis. Zurich's surveillance was conducted to gather information about how much time he was working. Ms. Parker was still awaiting the medical report.

On April 28, 1994, Ms. Parker telephoned Ms. Robinson, and, according to her notes, she wanted to speak to her regarding two outstanding issues: the calculation of Mr. Bouassali's weekly income benefits, and "when he could return to work on a full-time basis." Ms. Parker and Ms. Robinson had previously settled at least 15 cases and had developed a good rapport with each other. Ms. Parker testified that she telephoned Ms. Robinson because she knew that she was involved in the file and had dealt with Garneau & Associates regarding Mr. Bouassali's claim.

Ms. Parker testified, and her notes indicate, that during the discussion, she told Ms. Robinson that Mr. Bouassali was ineligible to receive any further weekly income benefits because surveillance and medical evidence showed that he was capable of returning to full-time work. Ms. Parker's notes indicate that Ms. Robinson agreed, based on what Ms. Parker told her, "that Mr. Bouassali was able to return to work and therefore will not have to send out a Notice of Assessment" confirming Zurich's refusal to pay benefits and the reasons for the refusal.

Ms. Parker stated that during the discussions, there were no settlement proposals; however, she testified that in order to be fair to both sides, they agreed that Zurich would not pursue its claim for repayment of post-accident employment income that should have been deducted from Mr. Bouassali's benefits, and in return, Mr. Bouassali will not be given the usual two weeks of benefits as notice of termination of benefits. Ms. Parker testified that she considered Mr. Bouassali's benefits terminated at the time of the discussion.

In cross-examination, Ms. Parker testified that at the time of their discussion Ms. Robinson did not have the evidence that Zurich was relying on, nor did she ask to review the documents or to speak to Mr. Garay before she agreed with the termination and waived the written notice. She stated that she knew Ms. Robinson was not a lawyer; however, she stated :"[Ms. Robinson] is an experienced person - she did not want to see the documents - that's how she always worked." She stated that she had similar arrangements with Ms. Robinson in other cases where they agreed that a written notice of termination would not be sent out.

Ms. Parker testified that in April 1993, Zurich's policy required that a written notice of refusal be issued when benefits are refused and she followed this policy in the cases she handled; however, in this case, she departed from the policy because Ms. Robinson told her she did not need a written confirmation of the refusal. Ms. Morris, Zurich's dispute resolution specialist, confirmed that Zurich's policy in 1993 was to send written notice of refusal with reasons in every case where benefits are refused, in order to comply with arbitration decisions and the regulations. She confirmed that Zurich has never issued a written notice of refusal in this case

Ms. Robinson testified that she had no independent recollection of the conversation with Ms. Parker on April 28, 1994. However, referring to the notes she made at the time of the discussion, Ms. Robinson confirmed that Ms. Parker told her that she had proof that Mr. Bouassali was working full-time and as far as she was concerned he was "cut off" as of April 28, 1994, and Zurich was not going to seek a repayment of any overpayment. Ms. Robinson was unable to confirm or deny the rest of Ms. Parker's testimony.

Ms. Robinson agreed that it was possible that she might have told Ms. Parker not to send a written notice of refusal since at that time "we were not totally cognizant of the forms required under the legislation." However, Ms. Robinson was adamant in her statement that she would not have agreed to the termination of Mr. Bouassali's benefit, as Ms. Parker testified, because she had no such authority and only Mr. Garay could reach an agreement on behalf of his client. She explained her role as a litigation clerk was to assist Mr. Bouassali by interviewing clients, gathering evidence, and conducting investigations.

While there is no documentary evidence that Ms. Parker called Ms. Robinson with the specific intention of advising her that Zurich had decided to terminate Mr. Bouassali's weekly income benefits, I accept Ms. Parker's uncontradicted testimony and her contemporaneous notes that during the conversation on April 28, 1994, she told Ms. Robinson that Zurich would not be paying any further benefits and that Ms. Robinson told her it was not necessary to send a written notice of refusal. Considering Ms. Robinson's lack of independent recollection of the discussion, and the specific reference in Ms. Parker's note, I also accept Ms. Robinson probably agreed that Mr. Bouassali had returned to work, but not necessarily to full-time work. However, I am not persuaded on the evidence that Ms. Robinson told Ms. Parker that she agreed Mr. Bouassali's benefits should be terminated on April 28, 1994.

Mediation

The first mediation regarding the issues arising from the accident of April 22, 1993 was conducted in December 1995, at the same time as the issues arising from the accident of October 26, 1991 were mediated.³. Ms. Morris represented Zurich at both mediations. The second mediation took place in mid-November 1997.

While Zurich does not agree that Mr. Bouassali's entitlement to weekly income benefits after April 27, 1994 was part of the first mediation, it does not dispute that this issue was mediated and failed in the second mediation.

Mr. Garay testified that he referred to the first mediation the issues of both quantum and entitlement to benefits after April 28, 1994. Ms. Gloria Morris testified that the only issue in the mediation was quantum.

The "Schedule" attached to the Application for Appointment of Mediator in the first mediation states:

The insured's claim is for the payment of weekly income benefits as a result of a motor vehicle accident, which occurred April 22, 1993 in the amount of $600.00 per week less weekly income benefits actually paid. The insured's entitlement to weekly income benefits was wrongfully assessed by the insurer at $329.53 per week, despite the insured having provided evidence establishing a gross weekly income of $3,955.00."

I find nothing in the above wording to suggest that Mr. Bouassali was claiming entitlement to weekly income benefits after April 28, 1994.

The only issues listed in the Report of Mediator, dated December 11, 1995 are the amount of weekly income benefits and interest. The report indicates that those issues were resolved on the following terms:

Mr. Bouassali claimed entitlement to weekly income benefits at the rate of $600.00 per week from April 30, 1993 and ongoing. Mr. Bouassali and Zurich agreed that Zurich will pay Mr. Bouassali weekly income benefits at the rate of $500.00 per week from April 30, 1993. Mr. Bouassali and Zurich agreed that Zurich will pay Mr. Bouassali $5,050.00 in respect of weekly income benefits owing for the period April 30, 1993 to April 27, 1994 (taking into consideration both the income benefits already paid by Zurich, and Mr. Bouassali's post-accident income.

The report also indicates that Mr. Bouassali and Zurich agreed that Zurich will pay Mr. Bouassali $450 in respect of interest on overdue weekly benefit payments. The report does not list any issues that remained in dispute.

Following the conclusion of the mediation, Ms. Morris sent a letter dated December 22, 1995, to Mr. Garay as a follow-up of the agreements reached at the two mediation. She enclosed two cheques, in the sum of $10,309.65 and $5,500.00, representing the settlement of the quantum issues in the October 26, 1991 and April 22, 1993 accidents, respectively. However, the cheque for the second accident was marked "Full & Final release of A/B claims." Ms. Morris testified that this was a clerical error.

Mr. Garay testified that the issue of entitlement after April 28, 1997 was left in abeyance on the basis of a "side agreement" between Ms. Morris and himself that they would deal with the issue "personally" outside the mediation process, and if they failed to resolve it, Mr. Bouassali may proceed to arbitration directly and Zurich would not raise the objection the issue was not mediated.

Ms. Morris did not acknowledge such an agreement existed; however, she testified that Zurich was prepared to consider any evidence that Mr. Bouassali would present and address settlement, without prejudice to its refusal. In her letter of December 22, 1995, Ms. Gloria had stated that she was looking forward to receiving further medical information from Mr. Garay regarding Mr. Bouassali's "ongoing disability in order that we may discuss resolution of that matter."

By letter dated July 1, 1996, addressed to Ms. Morris, Mr. Garay sent Zurich financial documents and medical reports. However, he advised that Mr. Bouassali was not "in a position to enter into settlement negotiations with Zurich ( given that we have a tort claim outstanding) but must arbitrate or litigate." Mr. Garay wrote:

You will recall that we mediated and had an agreement with respect to quantum and payment to April 27, 1994. The issue is therefore, simply one of entitlement based on $500.00 per week (total disability) less a deduction for monies actually paid.

In the circumstances, we will wish to arbitrate as soon as possible unless you wish to enter into negotiations to pay benefits to date (based on proper calculation) and your agreement to continue making payments given that Mr. Bouassali is still only able to work on a part-time basis. We would also appreciate your confirmation that we have mediated the issues and that we are now permitted to arbitrate or litigate the issue of "entitlement".

Mr. Garay testified that no one at Zurich responded to this letter, either in writing or verbally. Ms. Morris testified by then she had left Zurich and that there was no indication in the file that anyone at Zurich had responded to Mr. Garay's inquiry.

Having received no response to his letter from Zurich, Mr. Garay applied for arbitration in mid-November 1996.

Mr. Garay testified that when he wrote the July 1, 1996 letter, he was not concerned about time limits. He was in no great rush to arbitrate the case. As far as he was concerned, the last payment with respect to the 1993 accident was made in December 22, 1995, and he had plenty of time to file for arbitration.

Having carefully considered the evidence, I find that Mr. Bouassali's claim for entitlement to weekly income benefits after April 28, 1994 was not an issue in the first mediation. I find that while the parties agreed to resolve the issue following mediation, such agreement was not as a result of the mediation.

Analysis and Conclusion:

Notice of Refusal

Subsection 279(1) of the Act provides that all disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled shall be resolved in accordance with section 280 to 283 of the Act and the Schedule.

Subsection 281(5) of the Act states that an Applicant must commence his or her arbitration proceeding concerning a dispute about statutory accident benefits within two years of an insurer's refusal to pay the benefit claimed or within such longer period as may be provided in the Schedule.

Subsection 26(1) of the Schedule 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 further benefits. (emphasis added)

Subsection 24(8) of the Schedule provides that 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 reasons for the refusal.

The parties agree in this case that Zurich has never issued a written notice refusing to pay Mr. Bouassali weekly income benefits and giving the reasons for the refusal. Mr. Bouassali's position is that since there has been no such notice, the two-year limitation period under the Act and the Schedule has not been triggered.

Therefore, the specific issue I must answer is whether Zurich is required to give written notice of its refusal to pay benefits in order to invoke the limitation period under section 281(5) of the Act and section 26 of the Schedule.

On behalf of Zurich, Ms. Crabtree argued that it is the refusal to pay the benefits claimed and not the notice of such refusal that triggers the statute of limitation. She submitted that Zurich refused to pay Mr. Bouassali further weekly income benefits on April 28, 1994, when Ms. Parker verbally communicated the refusal to Ms. Robinson. She indicated that although the rate of Mr. Bouassali's weekly income benefits was adjusted at the first mediation and he was paid in arrears, Mr. Bouassali has not received such benefits in respect of any period of time after April 27, 1994. She argued that both Mr. Bouassali and his solicitor knew that Zurich had refused to pay benefits after April 28, 1994, and the limitation period started running from that date.

Ms. Crabtree argued that the requirement of a written notice under the section 24(8) of the Schedule applies only to unrepresented applicants. She argued that since there is no provision in the regulations that requires giving notice to a representative of the insured, notice may be given to such person verbally and the verbal notice will be binding on the insured. She submitted that the limitation period for filing mediation or arbitration proceedings expired on April 28, 1996.

In my view, the principle that the limitation period under section 281(5) of the Act is triggered by a written notice of refusal is well established in a long line of arbitration decisions. While none of the arbitration decisions that I am aware of or cited to me by the parties dealt with cases where the insurer gave no written notice of refusal, arbitrators have consistently stated that a finding that the notice of refusal to pay benefits satisfies the requirements of subsection 24(8) of the Schedule is a prerequisite to any inquiry about the application of time limitations under the Schedule or the Act.⁴

In the appeal decision Kirkham and State Farm Automobile Mutual Insurance Company,⁵Director's Delegate David Draper commented on the historical background of the limitation provisions in subsection 281(5) of the Act and the Schedule as follows:

In 1990, the Insurance Act was amended substantially, limiting the right to sue, enhancing the role of statutory accident benefits, and establishing a dispute resolution system. The amendments included a differently worded limitation period for pursuing accident benefits claims (s.281(5)). The time limit was extended from one to two years, and the triggering event changed. It no longer ran from the date the insured person's "cause of action" arose. Instead, it runs from the "insurer's refusal to pay the benefit claimed."

In my opinion, section 281(5) reflects a change in the nature of the limitation period. It states that the two-year time limit runs from the insurer's refusal to pay the benefits claimed. The refusal is the triggering event, not the insurer's failure to pay or the existence of a cause of action. Not only is this the plain and ordinary meaning of the section, it is consistent with the Act and the Schedule read as a whole.

With regard to the relationship between subsection 281(5) of the Act and section 26 of the Schedule, the Director's Delegate stated that "the insurer's obligation to give written notice and reasons for its refusal to pay benefits is a clear link to the time limits in section 281(5) of the Act and section 26 of the Schedule"and that "if the insurer refuses to pay benefits, it must give written notice to the Applicant with reasons for the refusal," under section 24(8) of the Schedule.

In the leading case Zeppieri and Royal Insurance Company of Canada,⁶ Senior Arbitrator Susan Naylor (as she was then known) stated:

The refusal relied on must be clear and unequivocal, and must be communicated to the applicant. Section 24(8) of the regulations indicates that the notice must be in writing, and provide reasons for the refusal. The onus is on the insurer to establish that an applicant has received the proper notice.

In Wilson and Wellington Insurance Company,⁷ Arbitrator Shemin Manji found that "in order for there to have been a proper notice of refusal to pay benefits, there must be compliance with section 24(8) of the Schedule."

I find no basis in the relevant legislation to support Ms. Crabtree's argument that notice of refusal must be in writing only when the insurer gives notice directly to the insured, but if the insurer gives notice to the insured through his solicitor, oral notice is sufficient and constitutes proper notice. While written notice sent to the insured's solicitor may be considered as if it was notice sent to the insured person; in my view, neither the Act nor the Schedule warrant the interpretation suggested by Ms. Crabtree.

Ms. Crabtree argues in the alternative that Mr. Bouassali is estopped from raising the issue of a written notice because Zurich properly relied on the apparent authority of Ms. Robinson who waived the requirement for such notice. I do not agree. Based on the particular facts of this case, I find that Ms. Robinson did not have the authority, apparent or real, to bind Mr. Bouassali. Ms. Robinson agreed to waive the written notice in the absence of any knowledge on her part about the requirements of the Schedule and the possible legal ramifications on Mr. Bouassali's case. Zurich's policy, which was in place at the relevant time, required that a written notice be issued in every case where there is a refusal to pay benefits. Ms. Parker acknowledged that this policy was introduced to comply with the requirements of the law and the arbitration decisions. An obvious reason for such a requirement would be to eliminate the uncertainty of oral communication and the dispute about who said what to whom and when.

Several arbitration and appeal cases as well as court cases have held that legislation that curtails or interferes with rights, such as a limitation defence, must be strictly construed since it denies the Applicant the opportunity to have his/her claim adjudicated.⁸

I find no reason why I should depart from the interpretation that the limitation period starts to run from the date when the insurer provided the insured a clear and unequivocal written notice of its refusal to pay the benefits claimed. In this case, Zurich has not given a written notice of its refusal and, therefore, it has failed to comply with section 24(8) of the Schedule. Accordingly, it cannot rely on the provisions of subsection 281(5) of the Act and subsection 26(1) of the Schedule to invoke the statute of limitation.

Mediation:

Subsection 281(2) provides that no person may refer the issues in dispute to an arbitrator unless mediation has been sought and failed.

I have found above that the issue of Mr. Bouassali's entitlement to weekly income benefits was not part of the first mediation. Ordinarily, a finding that an issue was not mediated would preclude the inclusion of that issue in arbitration. However; in the circumstances of this case, there is no dispute that the issue was mediated in November 1997 and that mediation has failed.

Given my conclusion that Mr. Bouassali's Application for Arbitration and his second Application for Mediation are not time-barred, the finding that the issue of entitlement was not part of the first mediation is not fatal to Mr. Bouassali's case. As an arbitrator, I have the discretion under subsection 282(3) of the Act to determine all issues in dispute in the arbitration, as long as those issues have been mediated and mediation failed. In this case, I allow Mr. Bouassali to proceed with the arbitration of the issue of his claim to ongoing entitlement to weekly income benefits, despite the fact that the mediation took place subsequent to the filing of the Application for Arbitration. In my view, it would be more appropriate to allow him to continue this arbitration than to require him to file a new application solely for the purpose of correcting the chronological irregularity.

In summary, I find that Zurich has failed to demonstrate that it has complied with the requirement of a written notice of refusal under subsection 24(8) of the Schedule. Zurich cannot rely on the oral communication of April 28, 1994 to invoke the limitation provisions of the Act and the Schedule. Mr. Bouassali is not precluded from proceeding with the arbitration of the merits of his claim.

Expenses:

Zurich has not succeeded in its motion. I have exercised my discretion under section 282(11) of the Act to award Mr. Bouassali his expenses in respect of the hearing on the preliminary issue.

Order:

1. Mr. Bouassali's Application for Arbitration is not time-barred. The hearing on the merits of his claim may proceed.

2. Mr. Bouassali is entitled to his expenses incurred in respect of the arbitration.

August 28, 1998

Asfaw Seife

Arbitrator

Date

Appendix

Hearing:

The hearing was held in Ottawa, Ontario, on May 21, 1998, before me, Asfaw Seife, Arbitrator. The proceeding was recorded by Barb Nellsberg of Gellespie Reporting Services.

Present at the Hearing:

The Applicant did not appear at the hearing.

Mr. Bouassali's

Brian Carroll

Representative:

Barrister and Solicitor

Zurich's

Donna M. Crabtree

Representative:

Barrister and Solicitor

Witnesses:

Lynn Parker, Claims Manager

Gloria Morris, Dispute Resolution Specialist

Donna Robinson, litigation clerk

William Garay, Barrister and Solicitor

Exhibits:

Exhibit 1

Letter from Donna Robinson to Garneau & Associates dated November 23, 1993

Exhibit 2

Typewritten note of L. Parker dated April 29, 1994

Exhibit 3

Letter from Donna Robinson to Zurich dated September 8, 1994

Exhibit 4

Letter from Donna Robinson to Zurich dated December 21, 1994

Exhibit 5

Commission Letter to Zurich dated Sept. 13, 1996 re: Application for Appointment of a Mediator

Exhibit 6

Handwritten notes of Gloria Morris dated December 11, 1995

Exhibit 7

Mediator's letter dated December 11, 1995 and Report of Mediator

Exhibit 8

Letter from Gloria Morris to Mr. Garay dated December 22, 1995

Exhibit 9

Letter from Mr. Garay to Gloria Morris dated July 1, 1996

Exhibit 10

Facsimile of Zurich cheques to Applicant

Exhibit 11

Handwritten notes of Donna Robinson

Exhibit 12

Application for Appointment of a Mediator for October 26, 1991 accident

Exhibit 13

Application for Arbitration dated November 11, 1996

Exhibit 14

Report of Mediator dated November 24, 1997

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents On or Between June 22, 1990 and December 31, 1993, Regulation 672 of R.R.O. 1990, as amended by Ontario Regulations 660/93 and 779/93.
2. 2Effective July 1, 1998, the Ontario Insurance Commission was changed to the Financial Services Commission of Ontario, pursuant to the Financial Services Commission of Ontario Act, S.O. 1997, c.28.
3. 3All issues arising from the first accident were settled at mediation.
4. 4See for example Zeppieri and Royal Insurance Company of Canada (OIC A-005237, February 17, 1994), Harris and Royal Insurance Company of Canada (OIC A95-000267, March 7, 1997), Lambropoulos and State Farm Mutual Insurance Company (A95-000693, February 18, 1997)
5. 5(OIC-P96-00069, January 27, 1997)
6. 6supra, note #4
7. 7(OIC-A-96-000119, May 16, 1997)
8. 8See Wiggan and Simcoe and Erie General Insurance Company (OIC P-004204, June 12, 1996); and Coates-Boyce and Zurich Insurance Company (OIC A-951333, January 13, 1997); see also court cases cited in Coates-Boyce and Zurich.