Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 1999 ONFSCDRS 106

Appeal P99-00014

ALLSTATE INSURANCE COMPANY OF CANADA Appellant

and

MURIEL FRANCIS Respondent

Before: David R. Draper, Director's Delegate

Counsel: John P. Pavoni (for Allstate Insurance) Mark S. Grossman (for Muriel Francis)

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 January 26, 1999 is confirmed.
Muriel Francis is entitled to her reasonable appeal expenses, payable by Allstate Insurance Company of Canada.

June 11, 1999

David R. Draper Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by Allstate Insurance Company of Canada ("Allstate") from a preliminary arbitration decision dated January 26, 1999, concluding that this claim is not time-barred. The issue is whether the two-year limitation period for applying for mediation runs from the insurer's notice that benefits will be discontinued, or from the report of the Designated Assessment Centre ("DAC").

II. ANALYSIS

The dispute resolution process is established in Part VI of the Insurance Act, R.S.O. 1990, c.I.8, to deal with disputes about the insured person's entitlement to accident benefits or the amount payable.¹ Although mediation is the first step in the process, there is a two-year time limit for commencing a court or arbitration proceeding:

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.

The date of Ms. Francis accident means that her entitlement to accident benefits is determined under O. Reg. 776/93, as amended, the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996 ("the SABS-1994"). Section 72 of the SABS-1994 provides as follows:

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 . . .

(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.

This section extends the limitation period in the Insurance Act to allow for mediation. As long as the mediation is commenced within two years of the insurer's refusal to pay benefits, the dispute can be taken to arbitration or court within 90 days after the mediator reports on the outcome of the mediation. The question is when the clock starts running - what is the insurer's "refusal to pay the amount claimed?"

Section 64 of the SABS-1994 is the key provision in this case. It establishes rules for stopping the payment of weekly benefits, including caregiver benefits, where the insurer contends that the insured person no longer meets the relevant disability test. The first step is for the insurer to give the insured person notice that it will stop paying weekly benefits on a specific date, not earlier than 14 days after he or she receives the notice.² The notice must include reasons for the stoppage and inform the insured person of his or her right to request a DAC assessment.³ If the insured person asks to be referred to a DAC, the insurer must continue paying benefits pending the results of the assessment.⁴ If the DAC report states that the insured person no longer meets the disability test, the insurer can stop paying.⁵ However, if the report concludes that he or she continues to be disabled, the insurer must continue paying benefits.⁶ If either party disagrees with the DAC assessment, the matter can be pursued through the dispute resolution process, with the DAC report determining whether benefits must be paid in the interim.⁷

Allstate claims that the limitation period runs from the insurer's notice under s.64(2) that it will stop paying benefits on a specific date. In its submission, this is the "insurer's refusal to pay the benefit [or amount] claimed," within the meaning of s.281(5) of the Insurance Act and s.72 of the SABS-1994. The other provisions in s.64, it contends, do not affect the refusal, but only determine whether benefits are to be paid pending the resolution of any dispute arising from the refusal.

Ms. Francis disagrees, arguing that the clock does not start running until the insurer is allowed to stop paying benefits. If the insured person requests a DAC assessment, this is not until the DAC reports that he or she no longer meets the relevant disability test.

The facts are not contested. Muriel Francis was injured in an automobile accident on September 29, 1994. As a result, Allstate paid her accident benefits, including caregiver benefits.⁸Approximately one year later, relying on a recent medical report, Allstate concluded that she no longer met the disability test. It prepared an Explanation of Assessment by Insurance Company form on August 9, 1995, stating that it was providing 14 days notice that her caregiver benefits would be discontinued on August 24, 1995. Allstate also prepared a covering letter to her lawyer, Mr. Basil McDonald. The letter repeats the termination date, but also advises that she can request a DAC assessment.

The Explanation of Assessment and covering letter were sent to Mr. McDonald by courier on August 17, 1995. That same day, Ms. Francis received a copy from Mr. McDonald. This was only seven days before her benefits were to be stopped - less than the 14 days required by s.64(4).

In a letter dated August 29, 1995, received by Allstate the next day, Mr. McDonald asked Allstate to schedule a DAC assessment and bring the benefits up to date. Although this request was made shortly after Allstate said it was discontinuing benefits, an assessment was arranged. However, Ms. Francis was not paid any caregiver benefits pending the results.

The DAC report is dated October 12, 1995, but Allstate did not receive it until October 25, 1995. It states that Ms. Francis is not substantially prevented from performing her pre-accident activities as a caregiver. As a result, Allstate concluded that no further caregiver benefits were payable. It notified Ms. Francis of its position by way of a second Explanation of Assessment form, dated October 27, 1995.

Almost two years later, Allstate received a letter from Mr. Mark Grossman, dated October 4, 1997, stating that he was now representing Ms. Francis. On October 10, 1997, Ms. Francis filed an application for mediation, contesting the termination of her caregiver benefits. Allstate responded, arguing that the claim was time-barred. When the mediation failed, Ms. Francis applied for arbitration.

Ms. Francis applied for arbitration within 90 days of the Report of Mediator. Therefore, the question is whether she applied for mediation within two years from Allstate's refusal to pay the amount claimed. The answer depends on when the clock starts running. If, as Allstate contends, it runs from the date of its first Explanation of Assessment, or the termination date specified in that form, the application is outside the two-year limitation period. However, if the clock does not start until the DAC report is issued, or some time later, there is no time problem.

An arbitration hearing was scheduled to deal with this preliminary issue. It proceeded based on an agreed statement of facts and supporting documents, with no witnesses. In a decision dated January 26, 1999, the arbitrator preferred Ms. Francis' interpretation, concluding that the time limit runs from the insurer's receipt of the DAC report. As a result, he held that the claim was not out-of-time and, therefore, the arbitration could proceed.

In case his analysis was wrong, the arbitrator went on to consider Ms. Francis' contention that Allstate should not be allowed to rely on the time limit because its initial notice of termination was deficient. However, he did not find in her favour. The arbitrator was satisfied that the Explanation of Assessment and covering letter provided sufficient notice that Ms. Francis' caregiver benefits would not continue beyond August 24, 1995. While he suggests that the notice might not have adequately set out her option, he found that she was not prejudiced by any deficiency because she was aware of her right to request a DAC assessment and receive benefits pending the results.

Following the release of the arbitrator's decision, Allstate paid caregiver benefits for the period from the termination until the second Explanation of Assessment (August 24, 1995 - October 27, 1995). It also appealed, claiming the arbitrator erred in his interpretation of the time limit.

Because the arbitrator's order is a preliminary order, Allstate did not have a right to appeal. Rule 46.2 of the Dispute Resolution Practice Code provides that a party may not appeal a preliminary or interim arbitration order until all issue in dispute have been decided, unless the Director orders otherwise. However, after considering the written submissions filed by counsel, I concluded that the appeal should be allowed to proceed. Not only did it raise important questions of interpretation, but it was possible to conclude the appeal before the arbitration hearing was scheduled to resume in September 1999, eliminating concerns about delay.

For reasons that follow, I agree with the arbitrator's conclusion, although I would approach the analysis somewhat differently.

The two-year time limit is triggered by the "the insurer's refusal to pay the benefit [or amount] claimed."⁹ It runs continuously from this date, not separately from each non-payment of weekly benefits.¹⁰ As a result, the refusal date is extremely important. With one exception,¹¹ the SABS-1994 provisions relating to each type of benefit have a similar section dealing with the insurer's refusal to pay benefits:

For Supplementary Medical Benefits - s.39.1(6)
For Rehabilitation Benefits - s.45.1(6)
For Attendant Care Benefits - s.50.1(5)
For weekly benefits (Income Replacement Benefits, Education Disability Benefits, Caregiver Benefits and Other Disability Benefits) - s.62(8)
For Education Disability Benefits (lump sum), Death Benefits, Funeral Expenses and Compensation for Other Pecuniary Losses - s.67(4)

Each of these sections requires the insurer to give notice of its reasons for refusing to pay the benefits claimed. According to section 94 of the SABS-1994, the notice is to be in a form approved by Superintendent - the Explanation of Assessment by Insurance Company. I accept that this form generally triggers the running of the two-year time limit. The question, however, is the relationship between these refusal-to-pay sections and the stoppage provisions in s.64.

The refusal-to-pay sections require the insurer to provide notice of its refusal within 14 days of receiving the application or medical certificate (if applicable), or by the date on which the next weekly benefits would be paid:

62.- (8) If the insurer refuses to pay weekly benefits under Part II, section 15, Part IV or Part V, it shall give the insured person notice of the reasons for the refusal,

(a) within 14 days after receiving an application for the benefits, if the refusal occurs before the application is approved;

(b) by the day on which it would have paid the next weekly benefit, if the refusal occurs after the application is approved.

This section clearly deals with both initial refusals and stoppages. However, s.64 establishes detailed procedures for stopping the payment of weekly benefits "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." In my opinion, this creates a separate process for one type of termination. If the insurer is paying weekly benefits and concludes that the insured person no longer meets the relevant disability test, it must give notice under s.64(2), not s.62(8). If the insurer decides to stop paying weekly benefits on any other, non-disability grounds, the termination is dealt with under s.62(8).

The notices under the two sections are different, involving different time periods and information. Unlike s.62(8) and the other termination provisions, there is no authorized form for the notice under s.64(2). Therefore, while there may have been nothing wrong with Allstate using the Explanation of Assessment form, it was not a refusal under s.62(8).

This leaves the question of which step in s.64 is the "insurer's refusal to pay." Allstate claims it is the notice under s.64(2), the point at which the insurer takes the position that the insured person no longer qualifies for weekly benefits. Like the arbitrator, I find this interpretation plausible, but not convincing. It would strain the ordinary meaning of the s.64, read as a whole, to say that an insurer can "refuse to pay" benefits that the legislation requires it to pay. In my view, the notice under s.64(2) is better viewed as notice of the insurer's intention to stop paying benefits, contingent on the insured person's response. The refusal comes when the insurer is authorized under the section to stop paying benefits and confirms its decision to do so.

The alternative approach argued by Allstate has some troublesome implications. For example, the parties agree that if the insured person asks for a DAC assessment, s.71.1(b) of the SABS-1994 prevents him or her from commencing mediation until the assessment has been conducted. If the clock starts when the initial notice is sent, as Allstate suggests, this would mean that the time limit starts running before the insured person can apply for mediation. I agree with the arbitrator that this is a good reason to question this interpretation.

Looking at s.64, the insured person has three options when he or she receives a notice under s.64(2):

(1) Do nothing. In that case, the insurer can "stop payment of the weekly benefits on or after the date specified in the notice."¹²

(2) Apply for mediation without requesting a DAC assessment. In that case, as in the first option, the insurer can stop payment of the weekly benefits on or after the date specified in the notice. If it is finally determined that the benefits should not have been stopped, the insurer is required to resume paying benefits and pay the benefits that were not paid.¹³

(3) Give the insurer written notice that he or she wants to be assessed by a DAC. In that case, the insurer must continue paying benefits pending the results of the assessment.¹⁴ The DAC is required to provide a report in an approved form.¹⁵ If the report states that the insured person no longer meets the relevant disability test, the insurer is allowed to stop paying benefits.¹⁶However, if the reports states that the insured remains continues to be disabled, the insurer can dispute this conclusion through the dispute resolution process, but must pay benefits pending the outcome.¹⁷

If the insured person chooses the first or second option, the clock starts on the date the insurer decides to stop paying, as authorized by s.64(3). This can be on or after the date specified in its s.64(2) notice. While it might be argued that the time should not start running until the insured person is notified, there is no clear requirement of any further notice.

If, as here, the insured person takes the third option, requesting an assessment, the insurer must continue paying benefits, generally beyond the termination date specified in the notice. Once the DAC releases its report, the insurer can stop paying if the report states that the insured person no longer meets the relevant disability test. This, in my view, is the refusal to pay benefits that starts the time limit. Consequently, Ms. Francis' application for mediation was filed within the two-year time limit.

The only remaining question is when, specifically, the clock starts running – from the date of the DAC report, the date it is received by the parties, the date of the insurer's confirmation that it is terminating benefits, the date that confirmation is received by the insured person, the date of termination set out in the insurer's confirmation, or some other date? Although not essential to his decision, the arbitrator held that the time limit started running when Allstate received the DAC report. I agree with Allstate that it is not obvious why this is the critical point. Subsection 64(11) gives the insurer authority to stop paying benefits if the DAC report says the insured person no longer meets the disability test. However, the clear intention of the section is to protect the flow of weekly benefits until the DAC provides its opinion. In my view, this suggests that once the DAC report is released, the insurer can refuse to make the next payment of weekly benefits, starting the clock.

My conclusion on the interpretation of s.64 makes it unnecessary to consider the consequences of Allstate's failure to give Ms. Francis 14-days notice of its intention to terminate her caregiver benefits.

III. APPEAL EXPENSES

Considering the outcome and the legal issues involved, I have no hesitation in awarding Ms. Francis her reasonable appeal expenses.