Neutral Citation: 1998 ONFSCDRS 37

FSCO A97-001481

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

ANGELA GARISTO

Applicant

and

HALIFAX INSURANCE COMPANY

Insurer

DECISION on a PRELIMINARY ISSUE

This is a motion brought by the Insurer for an order that the Applicant is time-barred from proceeding to arbitration with respect to the parties' dispute about the amount of the Applicant's weekly benefits. The parties filed written statements of fact and submissions, and made oral submissions before me on August 6, 1998 at the offices of the Financial Services Commission of Ontario. Ms. Janice Duggan, Barrister and Solicitor, appeared for the Insurer. Mr. Steven Sieger, Barrister and Solicitor, appeared for the Applicant. Having considered both parties' written and oral submissions, I gave the following order by telephone conference on August 14, 1998.

Order:

The Applicant's Application for Appointment of an Arbitrator with respect to her claim for benefits at a rate greater than $185.60 per week is barred pursuant to subsection 281(5) of the Insurance Act (the "Act") and s. 26 of the Statutory Accident Benefits Schedule - Accidents On or Between June 22, 1990 and December 31, 1993.¹

My reasons are as follows.

The Law:

The limitation period for statutory accident benefit proceedings is set out in subsection 281(5) of the Act, which requires an insured person to apply for mediation of any dispute "within two years after the insurer's refusal to pay the benefit claimed or within such longer period as may be provided in the [Schedule]."

The Schedule confirms the two-year limitation period, but uses slightly different language: the application must be commenced "within two years from the insurer's refusal to pay the amount claimed in the application for statutory accident benefits."

This motion is about the application of the limitation period in cases where the Insurer reduces the amount of benefit payable but continues to pay benefits at the lower rate, and continues to investigate the amount of benefit payable.

Background and Issues:

The Applicant was injured in a motor vehicle accident on October 18, 1993. The Insurer paid weekly income benefits under section 12 of the Schedule between October 25, 1993 and October 18, 1996. The Insurer gave Notice of Termination on October 2, 1996 on the basis of an Insurer Medical Examination. The Insurer does not dispute the timeliness of the Application for Appointment of an Arbitrator with respect to the Applicant's claim for ongoing weekly income benefits after October 18, 1996.

The only issue in this motion is whether the Applicant's claim is time-barred with respect to the parties' dispute about the amount of benefits payable. The Insurer initially paid benefits of $600 per week, based on an Employer's Confirmation of Income form stating that the Applicant earned a gross weekly salary of $800 a week before the accident as General Manager of a food importing company, Di Lauro Foods Inc. ( Di Lauro"). The Applicant's Application for Accident Benefits form did not set out a weekly income amount, but indicated she was self-employed through Di Lauro. The Insurer submitted that it began investigating the Applicant's pre-accident financial situation in November or December 1993, but I received no evidence about these enquiries.

By letter of July 15, 1994, the Insurer advised the Applicant's counsel that benefits would be reduced to the minimum of $185.60 per week based on the May 16, 1994 report of a chartered accountant, Mr. Oleh Hrycko. The Insurer also requested repayment of $4,144 in overpaid benefits, and asked for counsel's response as to whether the repayment should be made by lump sum payment or a suspension of benefits. A letter was sent to the Applicant the same day, followed by an Assessment of Claim form dated July 18, 1994.

The Insurer submitted that these notices were a refusal to pay the benefit or amount claimed, and therefore that the Applicant's application for mediation, filed almost three years later in March 1997, is untimely and the arbitration cannot proceed. The Applicant submitted that the limitation period did not begin to run until December 1995, when the Insurer confirmed its refusal to pay more than $185.60 in benefits, based on Mr. Hrycko's second report of November 13, 1995.

Facts:

The parties have continued to discuss the appropriate benefit rate since the Insurer's first notices in July 1994. The following facts were not in dispute.

After receiving the Insurer's letter of July 15, 1994, the Applicant's counsel requested a copy of Mr. Hrycko's report in letters dated August 3, August 17, and September 29, 1994. The Insurer wrote to Mr. Hrycko on October 17, requesting a copy of the report. It was finally provided to the Applicant's counsel by letter dated November 11, 1994. Mr. Hrycko concluded that the Applicant was entitled to weekly benefits of $150.55 to January 31, 1994 (the last date for which he had financial information), based on the minimum rate of $185.60 per week, less 80% of her post-accident income. Mr. Hrycko questioned the legitimacy of some of the documentation provided. His two major concerns were an alleged $10,000 additional labour cost, only $1,200 of which was documented, and the Applicant's greater draw on the company's earnings, despite statements by her co-owner (her brother) that they were equally active in the company.

On November 16, 1994, the Applicant's counsel sent Mr. Hrycko's report to Mr. Ivan Ayala, a Registered Professional Accountant retained by Di Lauro. Mr. Ayala's brief December 15, 1994 letter, setting out his questions and comments, was forwarded to the Insurer on January 30, 1995. Receiving no response, the Applicant's counsel followed up with letters dated March 24 and May 5, 1995, the latter indicating that the Applicant would file for mediation if a response were not received within 14 days. The Insurer responded by following up with Mr. Hrycko on May 11, 1995, advising that the Applicant's counsel "in protecting the best interest of her client has indicated that she will file for mediation in 14 days from her May 5, 1995 letter if she does not have a response."

The Applicant did not file for mediation. On May 15, 1995, the Insurer advised the Applicant's counsel that Mr. Hrycko wished to address Mr. Ayala's concerns by going back to Di Lauro Foods Inc., and [doing] a further update." The Insurer suggested that "to expedite this matter, it would be easier to have both your office and his [Mr. Hrycko's office] coordinate the timing of his review/update."

Mr. Hrycko wrote the Applicant's counsel on May 29, 1995 requesting an opportunity to re-attend at Di Lauro, and by letter of May 30, 1995, the Applicant's counsel advised that she had no objection and suggested that Mr. Hrycko contact Mr. Ayala directly to arrange an attendance together.

Mr. Hrycko's next letter, dated June 20, 1995, indicates that Mr. Ayala had been unable to locate Di Lauro's business records and had agreed to advise when he located them. It appears that little happened until September 13, 1995, when Mr. Hrycko met with the Applicant, and she agreed to provide certain financial information by September 27, when they would meet again at Mr. Ayala's office.

On December 4, 1995, the Insurer issued another notice to the Applicant and her counsel confirming that her benefits would remain at $185.60 and that the Insurer would seek recovery of the overpayment. This was based on Mr. Hrycko's report of November 13, 1995, which updated the previous report to August 31, 1995. Based on the additional information, Mr. Hrycko now calculated the benefit rate at $110.72 per week, and the repayment at $7,220.68. Mr. Hrycko reiterated his earlier questions about the legitimacy of the information provided.

The Applicant's counsel sent Mr. Ayala a copy of the report, and his response of December 15, 1995 was forwarded to the Insurer. The letter was sent to Mr. Hrycko, who, in response, reiterated his position.

On December 21, 1995, the Insurer advised Applicant's counsel that it would not seek repayment of overpaid benefits, and that future benefits would continue to be paid at $185.60 per week.

At some point, the Applicant retained Price Waterhouse to give an opinion about her benefit rate. A September 26, 1996 letter from Price Waterhouse to the Applicant's counsel requested basic financial documents and noted that the Applicant had failed to respond to the accounting firm's previous requests for information in November 1995 and March 1996. John Siegel, a Chartered Accountant with that firm, gave his report on February 26, 1997. It was his opinion that the Applicant was entitled to a base benefit rate of $329.70 per week and that the total of benefits payable to February 28, 1997 (after deduction of 80% of post-accident income) was $48, 171. The Applicant's counsel sent the report to the Insurer with a cover letter noting that the Applicant's unpaid benefits totalled $22,573.20.

The Applicant applied for Appointment of a Mediator with respect to the benefit rate and other issues in dispute on March 10, 1997.

At the Insurer's request, Lee Fast, a Chartered Accountant with Hrycko & Associates, requested updated financial documentation by letter of July 25, 1997. A follow-up letter was sent on August 8, 1997.

The parties' ongoing communications about the benefit rate issue are at the heart of this case.

Reasons:

Subsection 24(8) of the Schedule is as follows:

If the insurer refuses to pay an amount claimed in an application for no-fault benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.

In Zeppieri and Royal Insurance,² Senior Arbitrator Susan Naylor (as she then was) 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.

I agree with these principles, which have been followed consistently in many arbitration decisions.

I find that the Insurer's letters and Assessment of Claim dated July 15 and 18, 1994, taken together, were "clear and unequivocal" notice of benefit reduction, except that Mr. Hrycko's report was referred to but not provided.³ It was finally sent to the Applicant's counsel on November 11, 1994.

In my view, where an insurer relies on an expert's report in terminating or reducing benefits, the report will normally form part of the "written notice to the insured person giving the reasons for the refusal," as required by subsection 24(8), because the insured person otherwise has no basis for deciding whether to commence mediation with respect to the insurer's decision.⁴

Accordingly, I find that the Insurer's July 1994 notices to the Applicant and her counsel, when combined with Mr. Hrycko's May 1994 report, provided "clear and unequivocal" notice to the Applicant as of November 11, 1994.

The Applicant's counsel attempted to characterize Mr. Hrycko's second report as his "final report," implying that the first report was so preliminary that it could not have been intended to support a final decision to reduce the Applicant's benefit rate. I do not accept this view. Much of the subsequent work done by Mr. Hrycko and his firm was directed at updating post-accident income information in order to adjust the benefit rate. I found both of Mr. Hrycko's reports to be detailed assessments based on significant documentation, and the reports came to substantially identical conclusions.

However, this does not end the matter, since the Applicant submits that the Insurer waived the limitation period or is estopped from relying on it by continuing or reopening its investigation of the benefit rate issue after July of 1994.

The Applicant relied on subsection 281(5) of the Act, which says that the limitation period begins to run when the insurer refuses "to pay the benefit claimed." In Coates-Boyce and Zurich Insurance Company,⁵ Arbitrator Allen said:

In my opinion, the benefit claimed" refers to the type or category of benefit rather than the amount of benefit. By its July 14 letter, Zurich reduced benefits thereby refusing to pay a higher amount. Zurich's refusal is not a refusal to pay a certain category of benefit and, therefore, the July 14 letter is not a "refusal to pay the benefit claimed" within the meaning of section 281(5) of the Act.

Arbitrator Allen went on to consider subsection 26(1) of the Schedule, which starts the clock ticking with "the insurer's refusal to pay the amount claimed in the application for statutory accident benefits/' She found that since the applicant's application for benefits did not specify a benefit rate, the Arbitrator did not need to consider the application of subsection 26(1).

The language of subsection 26(1) is curious because nowhere on the Application for Accident Benefits form is the insured person asked to claim a specific amount of weekly benefits, although the form asks for income information on the basis of which the Insurer will set the benefit rate. I received no submissions on this point. In this case, the Applicant gave no income information on her application form, but I find that by her silence she adopted Mr. Tauro's representation that she earned a gross pre-accident salary of $800 per week. At no time in the course of the claim has the Applicant wavered from her claim for $600 per week, which I find is the amount claimed."

Turning to subsection 281(5) of the Act, I find that while "the benefit" refers to the type or category of benefit (weekly income benefits, in this case), "the benefit claimed" means a certain amount of a given benefit. I accept that the Act and the Schedule are ambiguous on this point, but I find that the ambiguity is resolved by considering the underlying legislative objective of expedited dispute resolution. Whether the weekly income benefit paid is $185.60 or $600 per week is of direct financial concern to an insured person and an insurer. In my view, the drafters of the Act and the Schedule intended insured persons and insurers to be able to access mediation and arbitration in order to resolve benefit rate disputes whether or not they have any dispute about the insured person's entitlement to a benefit of that type or category.

The language of "refusal" found in subsection 281(5) of the Act and subsection 26 of the Schedule does not necessarily fit well with the accident benefit scheme, which involves periodic benefit payments, requires ongoing assessment and investigation of claims by insurers, and promotes informal dispute resolution in the interest of a long-term relationship between the parties.⁶ In attempting to make sense of these provisions, Arbitrators have ultimately preferred the values underlying all limitation provisions - the need to ensure certainty and finality, limit the admission of fresh evidence, and promote due diligence in making claims.⁷ Arbitrators have also considered that insurers would be disinclined to respond to an insured's request for reconsideration of a claim if taking action nullified a prior termination notice. The leading case is Zeppieri:⁸

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.

Senior Arbitrator Naylor recognized in Zeppieri that "[i]n some cases, where there is a protracted and continuous process of negotiations, it may be difficult to determine when the insurer refused to pay benefits." This is not that case, in my view. It is not a case where the insurer reduced benefits to the minimum while simultaneously inviting further discussion or asking the insured person to provide documentation in support of a higher benefit level. Rather, the Insurer made a considered determination following upon an accountant's assessment and report. The Insurer's response to the comments of the Applicant's counsel and accountant was to refer the matter back to Mr. Hrycko for his further consideration. Ultimately, the Insurer agreed not to pursue its earlier claim for repayment of benefits overpaid, but it never wavered from its position, first expressed in July 1994, that the Applicant was entitled to benefits only at the minimum level of $185.60 per week. I do not accept that the Insurer's change in position on the overpayment issue in late December 1995 set aside the clear and unequivocal notice it had given of the change in benefit rate more than a year earlier. I find that the Insurer acted appropriately in accordance with its obligations under the Act and the Schedule. I do not find any waiver of the limitation period - express or implied - in its doing so.

With respect to estoppel, I find no representation, express or by conduct, as indicated above. Moreover, I find that the Applicant did not rely on any understanding that the limitation period had stopped running. She was represented by counsel at the time of the Insurer's July and November 1994 notices, and her counsel threatened mediation as early as May 1995. That counsel did not carry through is no fault of the Insurer's. I am also unimpressed by the Applicant's counsel's submission that time was needed to investigate the matter through Mr. Ayala and eventually Mr. Siegel. I heard no evidence why these investigations could not have been completed within two years of the refusal. Moreover, nothing prevented the Applicant from filing for mediation and arbitration while awaiting the results of the investigation, in order to preserve her rights. Similarly, any delay on Mr. Hrycko's part in responding to Mr. Ayala's questions and comments could easily have been remedied if the Applicant's counsel had carried through with her statement that she would file for mediation in May of 1995. Given these findings, I reject the Applicant's submission that she was misled or deceived by the insurer's actions."

The proceeding is time-barred with respect to the benefit rate issue only, and may proceed on all other issues in dispute.

Expenses:

I heard no submissions as to expenses in this matter. I remain seized in case the parties are unable to agree on the expenses payable.

Order:

The Applicant may not proceed to arbitration of the weekly benefit rate issue. The hearing may proceed on the other issues in dispute, including her claim for ongoing weekly benefits after October 18, 1996.

September 17, 1998

Nancy Makepeace Arbitrator

Date

Footnotes

1. 1Prior to January 2, 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.
2. 2(OIC A-005237, February 17, 1994); confirmed on appeal: (OIC P-005237, December 22, 1994)
3. 3I note, as well, that the Insurer's letter to the Applicant and Assessment of Claim sent to the Applicant did not refer to Mr. Hrycko's report and did not set out the amount of the overpayment. Considered on their own, these would not have sufficed for clear and unequivocal notice". However, the Insurer's letter to the Applicant states: "We have advised your lawyer directly of the results of the Independent report by the Chartered Accountant. An overpayment has arisen, and the details of such are provided to your lawyer. We suggest that you contact your law firm as soon as possible." The Applicant did not question the adequacy of this notice and I find that in this case, the Insurer gave adequate notice to the Applicant through her counsel.
4. 4See Grout and Pilot Insurance, (OIC A-004805, May 4, 1995)
5. 5(OIC A-951333, January 13, 1997)
6. 6The same difficulty has been noted in the "rolling time limit" cases: State Farm and Kirkham (OIC P96-00069, January 27, 1997).
7. 7See Senior Arbitrator Naylor's comments in Zeppieri, supra note 2, about M(K) v. M(H) (1992), 1992 CanLII 31 (SCC), 3 S.C.R. 6 (S.C.C.).
8. 8Supra, note 2