Neutral Citation: 1999 ONFSCDRS 100

FSCO A98-001495

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MARY STECH

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

David Leitch

Heard:

April 22, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Henry Goldentuler for Mrs. Stech

William J. McCorriston for Zurich Insurance Company

Issue:

The Applicant, Mary Stech, was injured in a motor vehicle accident on June 12, 1996. She applied for and received statutory accident benefits from Zurich Insurance Company ("Zurich"), payable under the Schedule.¹ Zurich terminated weekly income replacement benefits on August 27, 1996. The parties were unable to resolve their disputes through mediation, and Ms. Stech applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

Is Ms. Stech precluded from proceeding to arbitration in respect of her claim for income replacement benefits because her application for arbitration was filed beyond the two-year limitation period set out in subsection 281(5) of the Insurance Act and subsection 72(1) of the Schedule?

Result:

Ms. Stech is not precluded from proceeding to arbitration in respect of her claim for income replacement benefits.

EVIDENCE :

Following her motor vehicle accident of June 12, 1996, Ms. Stech claimed both income replacement and caregiver benefits.² In keeping with the Schedule,³ the Insurer required Ms. Stech to elect one benefit or the other but, while waiting for her to do so, informed her by letter dated August 30, 1996 that she was "entitled to disability benefits from June 19 to July 25, 1996."⁴

On receipt of Ms. Stech's election to claim income replacement benefits⁵ and a health practitioner's certificate⁶ stating that she had returned to work on August 27, 1996, the Insurer informed her by letter dated October 17, 1996 that she was "entitled to benefits covering a ten-week and five-day period,"⁷ that is, from June 19 to August 27, 1996. The Insurer's letters of August 30 and October 17, 1996 said nothing about Ms. Stech's entitlement to benefits beyond the periods specified or about her right to dispute a refusal or reduction in benefits.

Ms. Stech was the only witness called at the hearing. She acknowledged that she received the Insurer's letter of October 17, 1996 soon after it was sent. She testified that she understood that the Insurer refused to pay income replacement benefits beyond August 27, 1996. Ms. Stech also testified that she informed the Insurer both over the telephone and by letter that she had not returned to work. However, her letter to the Insurer was dated January 1997 and only stated "I don't know when I will be able to return to work."⁸ A letter from her doctor to the Insurer, also sent in January 1997, stated that she had returned to work part time in September and October 1996 but had not worked since November 1996.⁹

In February 1997, the Insurer informed Ms. Stech that it was "investigating [her] entitlement to further disability benefits"¹⁰ and that it would "review [her] entitlement if any to further disability benefits" after she was evaluated by a doctor of its choice.¹¹ On receipt of the medical evaluation, the Insurer informed Ms. Stech by letter dated April 14, 1997 that she did "not qualify for further benefits beyond the previous advisement we forwarded to you on October 17th, 1996 [where] we advised you benefits would cease as of August 27, 1996."¹² This letter again said nothing about Ms. Stech's right to dispute a refusal or reduction of benefits.

By letter dated June 24, 1997, the Insurer informed Ms. Stech that should she disagree with its decision that she was "not substantially disabled [from] the above M.V.A.," she had the right to "mediate [this] decision."¹³ Ms. Stech retained counsel in August 1997¹⁴ and proceeded to mediation on November 10, 1997. One of the issues in dispute was the Insurer's denial of income replacement benefits after August 27, 1996.¹⁵

By letter dated December 16, 1997, the Insurer forwarded Ms. Stech a written notice "as required under section 64 of the Regulation" and indicated its intention to schedule a Disability Assessment.¹⁶

Ms. Stech's application for arbitration was received by the Commission on December 11, 1998.¹⁷

The Law:

The limitation period governing the result in this case is set out in section 281(5) of the Insurance Act as extended by sections 72(1) and (2) of the Schedule. These sections read as follows:

Limitation period

(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. R.S.O. 1990, c. I.8, s. 281 (5); 1993, c. 10, s. 1.

Time Limit for Proceedings

72.-(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 a benefit under this Regulation shall be commenced within two years from the insurer's refusal to pay the amount claimed or, if the person has engaged in an employment as permitted by section 14 or has returned to elementary, secondary or post-secondary education as permitted by section 17, 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 ninety days after the mediator reports to the parties under subsection 280(8) of the Act.

The case also requires consideration of whether this limitation period is affected by the application of sections 71 and 64 of the Schedule which read as follows:

Right to Dispute

If an insurer refuses to pay a benefit that a person has applied for under this Regulation or reduces the amount of a benefit that a person received under this Regulation, the insurer shall inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act.

Stoppage in Weekly Benefits

(1) An insurer shall not stop payment of weekly benefits under Part II, section 15, Part IV, or Part V on the ground that the insured person no longer suffers from a disability as a result of the accident in respect of which weekly benefits are paid, except in accordance with this section.

(2) The insurer may give notice to the insured person that the insurer will stop paying benefits on a date specified in the notice and the notice shall provide the information contained in subsections (3) to (7) and the reasons for the stoppage in payment.

(3) The insurer may stop payment of the weekly benefits on or after the date specified in the notice unless the insured person gives the insurer written notice that he or she wishes to be assessed in accordance with subsections (5) and (6).

(4) The insurer shall not specify a date for stopping payment under subsection (3) earlier than 14 days after the insured person receives the notice mentioned in subsection (2).

(5) If the insured person gives a notice under subsection (3) and if, within 100 kilometres of the residence of the insured person, there is no designated assessment centre that is authorized to assess impairments of the type sustained by the insured person, the insurer and the insured person shall endeavour to agree on one or more people, at least one of whom shall be a health practitioner, to conduct the assessment.

(6) If there is a designated assessment centre within 100 kilometres of the residence of the insured person or if, within 14 days after the insurer received notice under subsection (3), the insurer and the insured person cannot agree under subsection (5) on who shall conduct the assessment, the designated assessment centre nearest to the residence of the insured person shall conduct the assessment.

(7) If, before the assessment has commenced, the designated assessment centre nearest to the residence of the insured person has disclosed to the insurer and the insured person that it has a conflict of interest with either of the parties within the meaning of that term in the guidelines established by the accident benefits advisory committee under subsection 38 (2),

(a) the designated assessment centre or another centre shall conduct the assessment, if the parties agree; or

(b) the designated assessment centre that is next nearest to the residence of the insured person shall conduct the assessment, if the parties do not agree under clause (a).

(8) If a designated assessment centre is required to conduct the assessment,

(a) the insurer shall, within 15 days, notify the designated assessment centre; and

(b) the centre shall promptly notify the insured person and arrange for the assessment.

(9) For the purpose of the assessment,

(a) the insured person and the insurer shall provide the person or persons who conduct the assessment with such information as is reasonably necessary; and

(b) the insured person shall submit to such reasonable, physical, psychological and mental examinations as are requested by the person or persons who conduct the assessment.

(10) After conducting the assessment, the person or persons who conducted the assessment shall prepare a report and provide a copy of the report to the insurer, the insured person and the insured person's health practitioner.

(11) If the report states that the insured person is no longer suffering from a disability resulting from the accident in respect of which the weekly benefits are paid, the insurer may stop paying the benefits.

(12) If the report states that the insured person continues to suffer from a disability resulting from the accident in respect of which the weekly benefits are paid, the insurer may dispute the obligation to pay benefits in accordance with sections 279 to 283 of the Insurance Act, and, pending the resolution of the dispute, the insurer shall pay the benefits.

(13) Nothing in this section prevents an insured person from disputing a stoppage in the payment of weekly benefits in accordance with sections 279 to 283 of the Insurance Act and, if it is finally determined that payment of the benefits should not have been stopped, the insurer shall,

(a) resume payment of the benefits; and

(b) pay the benefits that were not paid.

(14) If the insured person does not submit to an assessment that he or she requests under subsection (3) or does not comply with the requirements of subsection (9), the insurer may withhold payment of the weekly benefits until the person submits to the assessment or complies with subsection (9) respectively, after which time the insurer shall,

(a) resume payment of the benefits; and

(b) pay the benefits that were not paid if the assessment report determines that benefits should continue to be paid.

Arguments:

Insurer's counsel argued that his client's letter of October 17, 1996 constituted a clear and unequivocal refusal to pay income replacement benefits beyond August 27, 1996, that Ms. Stech understood it as such and that the limitation period therefore started to run more than two years prior to her application for arbitration dated December 11, 1998. Counsel further argued that the running of the limitation period was not suspended by his client's investigation of Ms. Stech's medical condition in 1997. He submitted that arbitrators should not discourage insurers from re-evaluating claims by fixing the completion of re-evaluations, rather than original refusals, as start dates in adjudicating limitation period defences. Finally, counsel urged me to find that section 64 has no application to this case because his client reasonably believed that Ms. Stech had returned to work and, therefore, that its refusal to pay income replacement benefits would not give rise to the kind of dispute about disability which section 64 was intended to resolve.

Applicant's counsel argued that the Insurer's letter of October 17, 1996 was based on misinformation about his client's return to work, that it did not contain a clear and unequivocal refusal to pay and did not inform her of her right to dispute a refusal of benefits. Counsel submitted that the Insurer's communications to his client in early 1997 indicated that it was still reviewing her entitlement to benefits and that the earliest the Insurer clearly communicated its refusal to pay was through its letter to his client dated April 14, 1997, less than two years prior to her application for arbitration. In any event, counsel further argued, the refusal was based on the Insurer's view that Ms. Stech no longer suffered from a disability as result of the accident and the Insurer was, therefore, required to give her notice under section 64 of the Schedule before terminating benefits. He submitted that the Insurer's failure to give such notice until December 16, 1997 meant that it was not permitted to stop or to refuse to pay income replacement benefits until sometime after that date.

Analysis and Conclusions:

Section 64 applies in a return-to-work situation:

The argument that section 64 does not apply when the insurer reasonably believes that the insured person has returned to work has common sense appeal. Both the insurer and the insured person have good reason to hope that a return to work signals the end of the period of disability and eliminates the need to resolve disputes about disability. Moreover, it is not self-evident why the insurer should be obliged to continue paying benefits through the minimum 14-day notice period when the insured person has already returned to work.¹⁸ But common sense and hope cannot remove my duty to base my decision on the facts as I find them and the law as written.

Section 64(1), as written, clearly indicates that the whole section is intended to cover situations in which an insurer who is paying disability benefits seeks to stop doing so "on the ground that the insured person no longer suffers from a disability as a result of the accident in respect of which weekly benefits are paid." Since these words do not identify or restrict the reason(s) the insurer may or must have for believing that the insured person is no longer disabled, they do not exclude situations in which the insurer's reason for believing that the insured person is no longer disabled is his/her return to work.

It is true that an insured person who makes a complete recovery and returns to work will have no reason to access the dispute resolution mechanism created by section 64. Again, however, the words creating this subsection do not identify or restrict the reason(s) why the dispute about disability may or must have developed. They do not, therefore, exclude situations in which the insured person has not, contrary to the insurer's reasonable belief, returned to work or has only returned to part-time or modified work or has tried unsuccessfully to return to work. In these situations, the insurer's reasonable belief that there has been a return to work does not eliminate the potential for dispute about whether the insured person still suffers from a substantial inability to perform the essential tasks of his/her employment.¹⁹ In my view, the dispute resolution mechanism provided by section 64 should remain accessible in these situations assuming, of course, that they do not arise after benefits have already been terminated in accordance with section 64. For this to be so, however, the insurer must first be required to give notice under section 64 when it relies upon the insured person's return to work as its ground for believing that he/she no longer suffers from a disability. Seeing nothing in the language of section 64 to prevent its applying in this way, I find that it does.

In this case, I find that in October 1996 the Insurer formed a reasonable belief that Ms. Stech was no longer suffering from a disability because she had returned to work in August 1996 but failed to give her notice before terminating her benefits on that ground as required under section 64.

The issue then becomes the interface between the limitation period relied upon by the Insurer and my finding that it failed to give notice as required under section 64.

Section 64 circumscribes the limitation period defence:

I agree with the reasoning and decision in the case of Francis and Allstate Insurance Company of Canada.²⁰ The arbitrator held that an insurer's refusal to pay an amount claimed "is circumscribed by the provisions of section 64," if applicable, and that the limitation period does not, therefore, commence until the section 64 dispute resolution process, properly initiated and followed, is completed.

In this case, since the Insurer did not issue a section 64 notice to Ms. Stech until December 1997, her application for arbitration, filed in December 1998, was well within the two-year limitation period.

Refusal not clear and unequivocal:

In the event either part of my section 64 analysis is wrong, I am not satisfied that the Insurer's letter of October 17, 1996 constituted a clear and unequivocal refusal²¹ of income replacement benefits after August 27, 1996.

I find that the Insurer's letter of October 17, 1996, like its previous letter of August 30, 1996, did nothing more than inform Ms. Stech that she was being paid to a certain date. It did not state, as did the Insurer's letter of April 14, 1997, that the Insurer would not pay benefits beyond the specified date. In fact, the Insurer did pay benefits after the date specified in its August 30, 1996 letter.

In her testimony, Ms. Stech acknowledged that she understood that the Insurer refused to pay income replacement benefits beyond August 27, 1996. However, her testimony did not establish that she acquired this understanding from the letter of October 17, 1996 as opposed to the subsequent correspondence she received from the Insurer. Even if it did, her understanding of the October 17, 1996 letter cannot be determinative of the issue because that would make the test entirely subjective and permit an insured person to argue that a refusal was not clear simply because he/she did not find it to be clear.

Finally, I find that it was not until its letter of June 24, 1997 that the Insurer attempted to comply with its obligation under section 71 to inform Ms. Stech of her right to dispute a refusal or reduction of benefits. Since I find for the reasons already given that the October 17, 1996 letter did not constitute a clear and unequivocal refusal, I leave for another day the question of whether a refusal which fails to comply with section 71 can nevertheless start the limitation period running under section 72.

EXPENSES:

I exercise my discretion to award Mrs. Stech her expenses incurred in this preliminary issue hearing.

June 3, 1999

David Leitch Arbitrator

Date