Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 1998 ONFSCDRS 84

Appeal P98-00039

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ZURICH INSURANCE COMPANY

Appellant

and

SAMI BOUASSALI

Respondent

Before:

Susan Naylor, Director's Delegate

Counsel:

Donna M. Crabtree (for Zurich Insurance Company)

Bryan A. Carroll (for Sami Bouassali)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The appeal is dismissed and the arbitration order dated August 28, 1998 is confirmed.
Mr. Bouassali is entitled to his reasonable appeal expenses.

November 20, 1998

Susan Naylor Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

The issue in this appeal is straightforward. Was the arbitrator correct in ruling that Mr. Bouassali's application for arbitration is not time-barred under the two-year limitation period in s. 281(5) of the Insurance Act, R.S.O. 1990, c. I-8, as amended, ("the Act") and s. 26(1) of the Statutory Accident Benefits Schedule - Accidents before January 1, 1994, R.R.O. 1990, Reg. 672, as amended by O. Reg 779/93, ("the Schedule")

Zurich terminated Mr. Bouassali's weekly income benefits as of April 27, 1994. It provided oral, but not written, notice of its decision. Mediation and arbitration proceedings were commenced more than two years later. The outcome turns on whether an insurer's refusal to pay benefits must be in writing, and, if so, whether the doctrine of estoppel applies to relieve Zurich Insurance Company ("Zurich") from a failure to provide written notice of its refusal. The arbitrator answered the first question in the affirmative and the second in the negative. Zurich appeals this decision and consequential order that Mr. Bouassali may proceed to a hearing to determine his entitlement to weekly income benefits. The main arbitration hearing is scheduled to commence on December 7, 1998.

Section 281(5) of the Act and s. 26 of the Schedule provide as follows:

S. 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.

S. 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.

(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. O.Reg.779/93, s.5.

S. 281(5) is found in that part of the Act setting up a mandatory dispute resolution process for dealing with disputes over accident benefits. Section 279(1) mandates that disputes over an insured person's entitlement to statutory accident benefits or their amount must be resolved in accordance with ss. 280 to 283 and the Schedule. Sections 281 (1) and (2) bar anyone from accessing adjuducation until they have gone through mediation first.

Under s. 47.2 of the Commission's Dispute Resolution Practice Code, only appeals from preliminary orders that end the case are allowed as of right. Although Zurich's appeal did not involve that type of order, I exercised my discretion to hear the appeal at this stage because it was the most sensible and efficient way of proceeding.

II. BACKGROUND

The facts surrounding the termination of Mr. Bouassali's benefits were set out in detail in the arbitrator's decision. They are largely undisputed on appeal, and except for the discrete areas I refer to on page 11, are amply supported on the evidence. A summary follows.

Mr. Bouassali, who is a taxi-driver, was involved in two automobile accidents, the first on October 26, 1991 and the second - the subject of these proceedings - on April 22, 1993. In both cases, Zurich was responsible for his statutory accident benefits. By the time of the second accident - indeed well before then - Mr. Bouassali was back at work on a full-time basis, although he and Zurich later disagreed over the rate at which his benefits should have been paid.

Mr. Bouassali was forced to stop working again as a result of his injuries in the second accident. He received weekly income benefits for about a year, up to April 27, 1994, although at a lower rate than he claimed. Zurich knew that Mr. Bouassali had returned to work on a part-time basis, but it then received surveillance evidence and medical information suggesting that he was able to drive his taxi-cab full-time. This led to a telephone conversation on April 28, 1994, between Lynn Parker, Zurich's in-house senior staff adjuster who initiated the call, and Donna Robinson, a litigation clerk in the law office of William Garay, Barrister & Solicitor, the law firm that represented Mr. Bouassali at all relevant times. At page 6 of his decision, the arbitrator made the following key findings of fact about what transpired:

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 that Ms. Robinson probably agreed that Mr. Bouassali had returned to work, but not necessarily to full-time work.
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.

A mediation took place in December 1995, within two years of the stoppage of benefits. The parties fundamentally disagreed over what transpired at the mediation but the arbitrator accepted Zurich's version. He held that this mediation only dealt with the rate at which Mr. Bouassali's benefits should have been paid for the first accident and for the period up to April 27, 1994 following the second accident; it did not involve the issue of Mr. Bouassali's entitlement to weekly income benefits after that date. The arbitrator found that "while the parties agreed to resolve the issue following mediation, such agreement was not as a result of the mediation (p.9).

More than a year and a half later, on September 9, 1997, Mr. Bouassali re-applied for mediation, this time specifically in respect to benefits after the cut-off date. By this time, he had already filed for arbitration (as of December 23, 1996). The arbitrator found that neither the application for mediation nor the application for arbitration was out-of-time, because the time had never started to run due to the lack of written notice.

III. ANALYSIS AND CONCLUSIONS

A. Does s. 281(5) require written notice of a refusal to pay benefits to trigger the two-year limitation period?

The main issue in this appeal is whether an insurer's refusal to pay benefits must be in writing before it triggers the limitation period set out in s. s. 281(5) of the Act and s. 26(1) of the Schedule.

Zurich submits that oral notice is sufficient, provided, as it argues is the case here, the refusal is clear and unequivocal. It cites well-established principles of statutory interpretation in support of its construction: that statutory language should be given its ordinary, grammatical meaning, that limiting words should not be inserted, and that the principles of consistent expression and implied exclusion apply, i.e. specific reference to a requirement of written notice elsewhere in the Act¹ precludes its implication in s. 281(5).

If only the Act is read, Zurich's contention has considerable strength. However, in my view, when the Act and the Schedule are read together, as they must be, they justify the alternative view adopted by this arbitrator and in other Commission decisions.

Contractual entitlement to accident benefits is determined by s. 268(1) of the Act. Under this provision, it is the Schedule that sets out the benefits to be provided and the "terms, conditions, provisions, exclusions and limits" that apply. This provision is complemented by the regulation-making power in s. 121(1), which allows the Lieutenant Governor in Council to set the benefits and the terms, conditions, provisions exclusions and limits relating to them [ss.(1) 9], as well as time-limits in respect of mediation, arbitration and other Commission proceedings [ss.(1) 25].

Although regulations are subordinate to legislation, it is permissible under general principles of statutory interpretation to use the former as an interpretative tool in construing the latter. Dreidger on the Construction of Statutes² states, that:

"Because regulations are a subordinate form of legislation, usually made after the enabling Act has been passed, they have limited value in interpreting provisions of the Act. In appropriate circumstances, however, where the Act and the regulations are closely meshed so as to form an integrated scheme, provisions from both are interpreted in the light of that overall scheme.

Several cases have emphasised the integrated nature of the accident benefit scheme and the importance of the role left to regulation. In Warwick v. Gore Mutual Insurance Co. (1997), 1997 CanLII 1732 (ON CA), 32 O.R. (3d) 76, and the companion judgement in Gore Mutual Insurance Co. v. Co-Operators General Insurance Co. (1997), 1997 CanLII 1203 (ON CA), 32 O.R. (3d) 88, the Court of Appeal expressed the view that ss. 268(1) and 121(1) 9 of the Act reflect a legislative intent to delegate to the Lieutenant Governor in Council the authority to determine entitlement to statutory accident benefits by regulation.³

Therefore, s. 281(5) must be viewed in light of the regulatory scheme as a whole, and particularly the Schedule. It provides a minimum, base-line, two-year limit, which may be extended, but not reduced, in the Schedule. This is reinforced by s. 272(2) which provides:

Every proceeding against any insurer under a contract in respect of insurance provided under section 268 must be commenced within the limitation period specified in the contract, but in no event shall the limitation period be less than the period described in subsection 281 (5).

Section 26 of the Schedule enacts time-limits for the commencement of mediation. It also re-produces, but in a slightly different form, the language of s. 281(5) in respect of arbitration and litigation and extends the time limit for adjudication in certain circumstances. However, this provision is preceded by s. 24(8) which 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)

The Schedule sets out a step-by-step process for accident benefit claims. Under s. 22, an insured must give initial notice of a claim within 30 days of the accident, if practicable, and submit a completed, standardised, application form within 90 days after that. Delay beyond these time-frames may be excused provided there is compliance within two years of the accident. Section 23 requires someone claiming weekly benefits to provide a medical certificate confirming his or her condition unless the insurer waives the requirement. It also allows insurers to require medical examinations. Section 25 stipulates that an insured cannot access mediation unless and until he or she complies with the rules on claiming benefits.

Once a properly completed application form has been submitted, the insurer must respond to it.

Section 24 is entitled "Payment of Claims, Refusal to Pay". Benefits must be paid on time, or they attract a high interest rate. Weekly benefits must be paid (i.e. mailed or delivered) within ten days after receipt of the completed application form and at least once every second week thereafter. All other benefits must be paid within 30 days of receipt of the application form. The stipulated interest rate (2% per month), which is well above the bank rate, indicates the importance given to prompt, reliable payments.

Section 24(8) addresses the steps an insurer must follow if it refuses the amounts claimed in the application. It must forthwith, i.e. immediately,⁴ give notice to the insured in writing, giving the reasons for the refusal. The provisions of s. 26 stipulating time-limits for commencing mediation and adjudication then follow.

There is no doubt that s. 24(8) imposes a clear obligation on insurers to provide written notice of a refusal to pay, giving the reasons for the decision. The only question is the consequences of a failure to comply. Section 24(8) tracks the language of s. 26(1). It says "if the insurer refuses to pay an amount claimed in an application for statutory accident benefits [s. 26(1) says "the" amount claimed in "the" application"] then it immediately must take certain steps. While s. 24(8) is capable of being construed as seperating the act of refusing an amount claimed from the obligation to provide notice with reasons, this construction largely strips the requirement of any effect. In contrast, construing the requirement of written notice and reasons under s. 24(8) as part-and-parcel of a refusal of a claim as contemplated by the legislation, gives coherence to the frame-work of the regulations and is consistent with the objectives of the legislative scheme. In State Farm Mutual Automobile Insurance Company and Kirkham (OIC P96-00069, January 27, 1997), Director's Delegate Draper found that s. 281(5) changed both the event triggering the limitation period and the period of time running from it; it did not merely incorporate the concepts of the old law using different language. The limitation period set out in s. 281(5) is not a stand-alone provision, but forms part of an integrated package of rules governing entitlement to statutory accident benefits. The statutory provisions indicate that the scheme's objectives include clarity of process and a clear definition of the obligations of insurers and insureds to each other. Requiring insurers to provide written notice of a decision to deny benefits with a simple explanation, as a precondition to the running of a limitation period which may extinguish an insured's right to benefits, is consistent with these objectives and by no means onerous.

This interpretation has been adopted in previous Commission decisions, although the requirement of writing was not directly in issue. In an early arbitration decision, Zeppieri and Royal Insurance Company of Canada, (OIC A-005237, February 17, 1994), upheld on appeal, ( P-005237, December 22, 1994): I stated:

The refusal relied on must be clear and unequivocal, and must be communicated to the applicant. S. 24(8) of the regulations indicates that the refusal must be in writing, and provide reasons for the refusal. The onus is on the insurer to establish that the insurer has received the proper notice.⁵

In Kirkham, which dealt with whether s. 281(5) incorporated a "rolling time limit, Director's Delegate Draper concluded that the insurer's obligation to give written notice and reasons for its refusal to pay benefits was "a clear link to the time limits in section 281(5) of the Act and section 26 of the Schedule" (p. 9). He went on to comment that an insurer that fails to provide written notice of its refusal may not able to rely on the limitation period. I do not take the adjudicator, in choosing this language, to suggest that a refusal need not be in writing to trigger the time-limits, as Zurich maintains, but rather to leave open the possibility of an argument, for example, based on estoppel, for relieving a party of the consequences of a failure to comply with the rules.

Kirkham was upheld by the Divisional Court on judicial review.⁶ The Court held that the words in s. 281(5) were "precise and unambiguous . Zurich argues that this supports its case. I do not think it does. The Court's comments were in relation to the issue at hand, not to the requirement of written notice. I note that the decision expressly contemplates that an insurer must provide notice of a refusal to pay, although it was not necessary on the facts to deal with the form of the notice since written notice was given.

I am not persuaded by anything I have heard in this case that the approach adopted in Zeppieri and followed in other cases, in which the provisions of the Act and Schedule have been construed as requiring written notice, is wrong.

B. Is Mr. Bouassali estopped from raising Zurich's failure to give written notice?

Zurich argues, in the alternative, that Mr. Bouassali is estopped from relying on its failure to provide written notice, having waived the requirement.⁷

Whether a party is prevented from relying on the strict requirements of the policy is a question of fact and law, based upon the particular circumstances of the case. The onus is on the party pleading an estoppel to establish that it applies. Usually, estoppel is raised by insureds in response to an insurer's reliance on a limitation period. Here, unusually, it is being raised by an insurer as a response to an insured's assertion that it cannot rely on the time-limit.

Estoppel is essentially grounded in fairness. It protects reasonable reliance. Without ruling out its application in cases such as this one, I would say that the case for such relief must be clear-cut.

I agree with the arbitrator, although for different reasons, that Zurich did not meet its onus. The arbitrator found that Ms. Robinson, an experienced law clerk, was not knowledgable about the law, and did not have actual or ostensible authority to waive written notice on Mr. Bouassali's behalf. I agree with Zurich that this reasoning is dubious, both from an evidentiary and legal perspective. I also agree that the arbitrator misstated Zurich's policy as of April 1994, as requiring written notice in every case. However, I do not think these problems matter in the end result. Nor is it necessary for me to address Mr. Bouassali's other arguments against the operation of an estoppel in the circumstances here. Zurich must prove that it relied on Ms. Robinson's representation in order to have any prospect of successfully advancing an argument in estoppel. Moreover, it must show continued reliance on this representation. In the same way, an insured who is initially unrepresented but who retains a lawyer before the expiry of a limitation period, may have difficulty showing that he or she relied on the insurance company to safeguard his or her rights.⁸ The evidence of such reliance is lacking here.

Ms. Parker testified that she did not send out a Notice of Assessment form not only because Ms. Robinson told her it was not necessary but because Ms. Robinson agreed with Zurich's position that Mr. Bouassali was not entitled to further benefits. Ms. Parker's belief as to this agreement was critical. She testified that Zurich's then-policy, which she followed, was to issue a Notice of Assessment if an insured disagreed with the stoppage of benefits, but not to do so if the insured agreed with the company's position.

Ms. Parker was clear that if an insured changed his or her mind and no longer agreed with the stoppage of benefits, Zurich's policy was to send out the Notice of Assessment form at that point.

Subsequent correspondence between the parties indicates that Zurich was informed that Mr. Bouassali's position, as Ms. Parker understood it, had changed. By this time, Ms. Parker was no longer handling the file. On September 8, 1994, Ms. Robinson wrote a letter to the attention of Steve White at Zurich. The "re" line on the letter referenced the April 22, 1993 date of loss, i.e. the second accident. The opening paragraph states:

We have been dealing with Lynn Parker and there have been ongoing discussions with regard to the proper amounts to be paid and whether or not Mr. Bouassali remains totally disabled.

(Emphasis added)

The letter then went on to address the amounts payable in respect of the first accident on October 26, 1991, and to request a waiver of the limitation period in respect of that accident. Ms. Parker testified that the letter should have prompted contact with the client and then issuance of a Notice of Assessment form in accordance with Zurich's policy. She reiterated this view, when presented with a follow-up letter dated December 21, 1994. Her evidence in this regard was uncontradicted.

In light of this evidence, it cannot be said that Zurich continued to rely on Ms. Robinson's agreement to forgo written notice, once Ms. Robinson had communicated Mr. Bouassali's disagreement with its position on benefits. On Ms. Parker's own evidence, it appears that Zurich's policy required written notice at that point, but that the policy was not followed.

Zurich argues that the September 8, 1994 letter relates only to the first accident, which was not handled by Ms. Parker, and that therefore there is no basis to conclude it should have triggered written notice in respect of benefits from the second accident. However, the letter expressly references the second accident and refers to ongoing discussions about disability, that could only reasonably relate to Mr. Bouassali's condition arising from that accident. Moreover, precisely who at Zurich, at that time, was involved in Mr. Bouassali's case, and in respect of what, was unclear. Zurich cannot expect to be given the benefit of doubt on the evidence. It has the onus of showing why Mr. Bouassali should be prevented from raising an otherwise legitimate defence to the operation of a limitation period, that would end his claim. It has not discharged that onus.

Therefore, the appeal fails.

IV. EXPENSES

Mr. Bouassali has been successful in resisting Zurich's appeal and is entitled to his appeal expenses.