Financial Services Commission of Ontario

Neutral Citation: 1998 ONICDRG 78, 1998 ONFSCDRS 78 FSCO A97-001159

Between:

Sigfried Hau Applicant

and

State Farm Mutual Automobile Insurance Company Insurer

Decision

Issues:

The Applicant, Sigried Hau, is the father of Derek Hau, who was tragically killed in a car accident on May 19, 1992. At the time of the accident Derek was a full time university student. Mr. Hau claims that Derek was a dependant at the time of the accident, and seeks a death benefit of $10,000 under section 11(1)(d) of the Schedule.¹

State Farm makes three arguments against Mr. Hau's claim. First, it submits that he did not claim the benefit within the time limits set out in Section 22(2) of the Schedule. Alternatively, it argues that Derek was not a dependant of Mr. Hau at the time of the accident. Finally, it submits that Derek's mother received a similar benefit under a separate policy, precluding payment of a second death benefit to Mr. Hau.

The issues in this hearing are:

1. Is Mr. Hau precluded from arbitration because he failed to comply with the time periods set out in section 22 of the Schedule?

2. Was Derek Hau a dependant of Sigfried Hau at the time of the accident?

3. If so, is Mr. Hau entitled to receive a death benefit of $10,000 from State Farm?

Mr. Hau also claims interest on any amounts owing and his expenses incurred in the hearing.

Result:

1. Mr. Hau is precluded from arbitration because he failed to comply with the time periods set out under section 22.

2. Derek Hau was not a dependant of Sigfried Hau at the time of the accident.

3. As Derek Hau was not a dependant of Mr. Hau, it is not necessary to consider whether Mr. Hau was otherwise entitled to receive a death benefit from State Farm.

4. Mr. Hau is entitled to his reasonable expenses of the hearing.

Those present at the Hearing and Exhibits filed are set out in the Appendix to this decision.

Evidence and Findings:

1. Is Mr. Hau precluded from applying for arbitration because he failed to comply with the time periods under section 22?

Section 22 of the Schedule provides that an applicant must give his insurer notice of a claim within 30 days of the accident, and provide a "completed application for statutory benefits" within 90 days following notice. Failure to comply with these time limits "does not invalidate a claim if the claimant has a reasonable excuse and so long as there is compliance within two years of the accident." Section 25 of the Schedule provides that where an applicant has not complied with the time limits in section 22, he is precluded from commencing a mediation proceeding. As mediation is a prerequisite for arbitration, this effectively precludes an applicant from arbitration as well.

In this case, Mr. Hau verbally notified State Farm within 30 days of the accident that he wished to make a claim arising out of his son's death. However, he never provided an application for statutory benefits. Mr. Hau raises three arguments in support of his position that he is not barred from arbitration.

First, Mr. Hau argues that he achieved practical compliance with section 22 because he filed a Statement of Claim in the General Division. The defendants in that action include State Farm and Zurich insurance companies, along with the driver of the other vehicle involved in the accident. Mr. Hau suggests that this Claim, issued on May 17, 1993, and therefore within a two-year period following the accident, satisfies section 22(2), provided he can demonstrate a reasonable excuse for any delay beyond 90 days. I disagree. Section 22(1) requires a "completed application for statutory benefits." This is distinct, in my view, from a Statement of Claim. In any case, the Statement of Claim filed by Mr. Hau does not refer to death benefits, but deals exclusively with a claim for underinsured coverage. It therefore fails to fulfill the purpose of section 22, which is to alert an insurer that accident benefits are being claimed.

In the alternative, Mr. Hau argues that he was not able to comply with section 22 because State Farm did not provide him with the necessary forms, as required under section 35 of the Insurance Act. This provision requires the Insurer to provide an applicant with "forms upon which to make the proof of loss required under the contract," no later than 60 days following receipt of notice of loss.

Mr. Hau testified that he notified State Farm by telephone approximately one week following the accident of May 19, 1992. A few weeks later he was contacted by Rick Fleury, an adjustor with State Farm, who made arrangements to visit Mr. Hau at his home on June 5th. Shortly after Mr. Fleury arrived at Mr. Hau's apartment, it became apparent that he was attempting to tape record their conversation. Mr. Hau, grieving over the recent loss of his son, found this behaviour highly insensitive, and expressed his indignation to Mr. Fleury. According to Mr. Hau, Mr. Fleury then became upset by Mr. Hau's reaction, and left shortly thereafter.

Mr. Hau insists that Mr. Fleury never provided him with any forms for signature or review. I have no reliable evidence to contradict Mr. Hau on this point. Mr. Fleury did not testify in this proceeding, which troubles me. State Farm advised that he left their employ under adverse circumstances, and therefore would not likely be a sympathetic witness. Nevertheless, they know of his whereabouts and could have subpoenaed him, but chose not to. As Mr. Fleury would be the most direct and obvious witness on this point, I draw an adverse inference from State Farm's failure to call him.

State Farm referred to several notations in its file which allegedly demonstrate that Mr. Fleury delivered an application to Mr. Hau. They include: "No forms received yet;" "So far we have not been presented with claim;" "Still nothing received from insured;" and, finally, "Nothing received from insured. Suggest we close [file]."

State Farm suggests that it is unlikely that Mr. Fleury would have made such notes unless he had delivered an application to Mr. Hau. I am not so convinced. I note that Mr. Fleury was careful to document what he did not receive from Mr. Hau, but never confirmed what he allegedly delivered to him. If Mr. Fleury had delivered an application to Mr. Hau, why wasn't that confirmed in writing, through a letter to Mr. Hau? What better way to ensure there was no misunderstanding later on?

Diane Prendergast, currently employed as a senior claims representative with State Farm, testified that it was normal procedure for adjustors to hand an application form to an insured during the first meeting. She stated that Mr. Fleury, who was a very experienced adjustor, likely followed the same procedure. However, Ms. Predergast did not become involved with this file until the later part of 1997. She has no direct knowledge of what took place between Mr. Fleury and Mr. Hau. I therefore give little weight to her evidence on this point.

State Farm suggests that Mr. Hau is mistaken about what occurred during the meeting because he was in emotional turmoil over the death of his son. I prefer Mr. Hau's evidence on that point, to the effect that because these events figured so significantly and painfully in his life, he has a precise memory of them. As this was the only such meeting Mr. Hau ever had in his lifetime, its details were most likely strongly impressed upon him. By contrast, Mr. Fleury, who had by then worked for over 25 years as an insurance adjustor, would have attended countless such meetings, and may not have had as detailed a memory of each one. In any case, as I noted above, we do not have the benefit of Mr. Fleury's evidence on this point, because State Farm did not subpoena him.

On the basis of the evidence before me, I have some doubts as to whether Mr. Hau was provided with an application form as mandated by section 135 of the Act. The question is what consequence that should have. Mr. Hau argues that the Insurer's failure to deliver an application form absolves him from his obligation to comply with section 22. He relies on section 135(2), which states that an insurer who does not furnish the required forms is guilty of "an offence," and may not avail itself of section 136 as a defence to an action brought for monies payable under the contract of insurance. Section 136, in turn, stipulates that an insured may not bring an action under a contract until the expiry of sixty days following the loss. Section 136 appears to contemplate actions distinct from claims for accident benefits, and therefore is not relevant in this case. Moreover, as section 135 specifies the penalty that follows an insurer's failure to produce the necessary forms, it is arguably exhaustive on that point, and I have no authority to impose the further penalty sought by Mr. Hau.

State Farm's failure to comply with section 136 may have been a relevant factor under section 22(2), which forgives a late application if the claimant has a "reasonable excuse." Conceivably, if Mr. Hau was not provided with the necessary forms, that might have delayed his notification to the Insurer. But that exemption is only available where the applicant complied with the notice requirements within two years of the accident, which did not occur in this case. On this point, I agree with the following comments made by Arbitrator Makepeace in Robertson and Royal Insurance Company of Canada:²

In my view, the only natural reading of section 22 is that an insured person who fails to comply with the 30-day and 90-day time limits set out in section 22(1) may still have a valid claim, if he has a reasonable excuse and complied within two years: otherwise, his claim is invalidated. The Applicant offered no alternative reading of section 22(2). I can think of no other interpretation which gives meaning to the word "invalidated" and the clause "so long as there is compliance within two years of the accident." It is, of course, a basic principle of statutory interpretation that each word and section of a statute or regulation must be given a meaning.

That leaves Mr. Hau’s third argument as to why section 25 does not prohibit his claim. Mr. Hau asserts that he is entitled to relief from forfeiture under section 129 of the Insurance Act. That section states:

Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.

Arbitrator Makepeace provided a very helpful analysis of this provision in Robertson. I agree with her conclusion that section 129 does not relieve an applicant of the time limits set out in section 22(1), and adopt her reasoning:

...I find that section 129 gives power to "the court" to grant an equitable remedy. An arbitrator is not a "court" within the meaning of the Courts of Justice Act (or the Constitution Act, 1867). Rather, an arbitrator is a "tribunal" as defined by the Statutory Powers Procedure Act ("SPPA "), a creature of statute. The Insurance Act distinguishes between a court and an arbitrator throughout. Section 279(1) of the Act provides that statutory accident benefit disputes "shall be resolved in accordance with section 280 to 283 of the Statutory Accident Benefit Schedule." If the drafters had intended section 129 of the Act to further qualify section 22 of the Schedule, they could easily have said so.

Arbitrator Makepeace noted numerous prior arbitration decisions that found that section 22(2) provides the only relief from forfeiture in respect of the time limits set out in section 22(1). Since her decision, other arbitrators have come to the same conclusion.³

I conclude that Mr. Hau is precluded from proceeding to arbitration against State Farm because he failed to apply for accident benefits within two years of the accident.

Although this decision makes it unnecessary to consider any remaining issues, in the event that my conclusion is incorrect, I have provided a decision on the issue of dependancy, with brief reasons only.

2. Was Derek Hau a dependant of Sigfried Hau at the time of the accident?

At the time of the accident Derek was a full-time university student, living with his mother. His parents divorced three years before this accident. Pursuant to their separation agreement, Mr. Hau paid Mrs. Hau $250 per month in child support. She provided room and board to Derek free of charge.

Mr. and Mrs. Hau both testified that they shared all of Derek's other expenses equally. This included tuition, books, clothing, travel, dental bills, and various miscellaneous expenses. They also shared his transportation costs, including the purchase, maintenance and insurance of his car.

In the summer before the accident, Derek earned $8,674.84 working as a waiter. His income tax return also shows investment income of $10,000, as a result of an income split created to defer taxes from his parents.

The term "dependant" is defined in section 3(2) of the Schedule:

For the purposes of this Regulation, a person is a dependant of another person if the person is principally dependent for financial support on the other person or the other person's spouse. [emphasis added]

The phrase "principally dependent for financial support" has been examined in numerous Commission cases.⁴ Arbitrators have consistently stated that in order for an individual to be found dependent he must chiefly or for the most part derive his financial support from another person. In other words, an applicant must be more financially dependent on the other person (and/or his or her spouse) than on any other source, including himself.

Consequently, in order for Mr. Hau to recover a death benefit, he must establish that Derek was more dependent on him than on any other sources combined, including Mrs. Hau; as she and Mr. Hau were no longer spouses at the time of the accident, Mr. Hau gets no credit for any reliance that Derek had upon his mother. Quite the opposite: Derek's reliance upon Mrs. Hau is one of many other sources of support which must be added together to determine how they compare to the support given by Mr. Hau.

On the evidence before me, I cannot find that Derek was more dependant on Mr. Hau than on any other sources. To begin with, Mr. and Mrs. Hau split all expenses equally, suggesting that Derek was equally dependant on each of his parents. This does not satisfy the term "principally dependent." The problem is compounded because Derek received employment and investment income in addition to parental support, which tilts the scale even further away from Mr. Hau as the principal provider. Even if one excludes the investment income as a mere tax saving device, Mr. Hau has still not demonstrated that Derek depended more on him than on Mrs. Hau and/or his employment income.

Mr. Hau relies on the decision in McDonald and State Farm Insurance Companies.⁵ In that case, Mr. and Mrs. McDonald were both killed in a car accident. Their three children claimed two death benefits, one for each parent. State Farm argued that a person can only be "principally dependent for financial support" on one person at any time, and therefore the children could not collect the death benefit twice. Arbitrator Draper concluded that if the children were principally dependent on either Mr. or Mrs. McDonald for financial support, or on both of them jointly as a single source, they are dependants of both insured persons and entitled to payment of a death benefit for each. His decision was upheld on appeal.⁶

This case can be distinguished on two bases. First, State Farm conceded that the three children were principally dependent for financial support on Mr. McDonald, or perhaps jointly on Mr. and Mrs. McDonald. This is unlike the present case, where State Farm argues, and I have found, that Derek was not principally dependant on his father for financial support. Second, and perhaps most importantly, Mr. and Mrs. McDonald were spouses at the time of the accident, unlike the Haus, who were divorced. Because they were divorced, Mr. Hau cannot treat himself and Mrs. Hau as a single source upon whom Derek was dependant. The legislation allows a child to consider his or her parents as a single source only if they were spouses at the time of the accident. This distinction makes sense, given that after a divorce most households divide into two, resulting in separate sources of income or support.

The recent Commission case of Harris and Liberty Mutual Insurance Company⁷ also considered a claim by a child, Tommy, whose parents were divorced at the time of the accident. In that case, Mr. Harris received death benefits from his own insurer. The parties agreed that Mr. Harris provided most of the child's financial support, and that Tommy was not principally dependent for financial support upon his mother. Arbitrator Sampliner found that Mrs. Harris was also entitled to death benefits from her insurer. Again, this case can be distinguished. The Schedule in place at the time of the accident had enlarged the meaning of a "dependant" to include persons who were principally dependent for "care." Arbitrator Sampliner found that Tommy received a higher level of emotional care from his mother than from any other person, including his father. He therefore concluded that Tommy was principally dependent for care on his mother, and accordingly qualified as a "dependent."

In this case, I have concluded that Derek was not a dependent of Mr. Hau at the time of the accident. In view of my conclusion on this issue, it is unnecessary to consider whether Mr. Hau was otherwise entitled to receive a death benefit from State Farm.

Expenses:

Mr. Hau seeks his expenses of the arbitration. State Farm argued that the claim was unmerited and wasteful, in view of the existing case law. It submitted that Mr. Hau should not only be denied his expenses, but should be compelled to return the Insurer’s assessment fee.

I do not agree with State Farm's position. Mr. Hau found himself in a novel situation due to a tragic accident. The hearing was completed in a day and his counsel submitted his case expeditiously. He is entitled to his reasonable expenses of the arbitration.

Order:

1. Mr. Hau's claim against State Farm for accident benefits is dismissed.

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

November 16, 1998

Deena Baltman Arbitrator

APPENDIX

Hearing:

The hearing was held at the offices of the Financial Services Commission of Ontario in North York, Ontario, on August 4, 1998, before me, Deena Baltman, Arbitrator.

Present at the Hearing:

Applicant: Sigried Hau

Mr. Hau's Representative: Howard L. Shankman Barrister and Solicitor

State Farm's Representative: Samantha Simpson Barrister and Solicitor

Witnesses:

Mr. Sigfried Hau Ms. Marina Hau Ms. Diane Prendergast Mr. Jay Balson

Exhibits:

Exhibit 1 Document Brief No. 1

Exhibit 2 Document Brief No. 2

Exhibit 3 Three 1991 T4 Statements

Exhibit 4 Letter dated May 26, 1992 from York University

Exhibit 5 Letter dated April 10, 1997 from State Farm

Exhibit 6 Letter dated January 16, 1997 from Ms. Simpson

Exhibit 7 Documents from Zurich file (33 pages)

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. 2(OIC A96-000361, July 11, 1996), p. 10
3. 3Bodo and Royal Insurance Company, (OIC A96-001102, October 23, 1997); Elfeki and Lloyds, (OIC A-006978, July 14, 1997)
4. 4Raffoul and State Farm Mutual Automobile Insurance Company, (OIC P-004476, April 25, 1996); McDonald and State Farm Mutual Automobile Insurance Company, (OIC P-001347, September 29, 1995); Najem and Axa Insurance (Canada) and Economical Mutual Insurance Company, (OIC A-003115/A003116, July 27, 1993)
5. 5(OIC A-001347, March 11, 1993)
6. 6(OIC P-001347, September 29, 1995)
7. 7(OIC A95-000037, March 3, 1998)