Neutral Citation: 1999 ONFSCDRS 162

FSCO A97-002130

BETWEEN:

CHRISTOPHER GOHEEN

Applicant

and

ROYAL INSURANCE COMPANY OF CANADA

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Shemin N. Manji

Heard:

June 29, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

The parties filed an Agreed Statement of Facts.

Appearances:

Andrew R. Kerr for Mr. Goheen

Karen Howe for Royal Insurance Company of Canada

The Applicant, Christopher Goheen, was injured in a motor vehicle accident on January 30, 1996. He applied for and received statutory accident benefits from Royal Insurance Company of Canada ("Royal"), payable under the Schedule.¹ Royal stopped paying Mr. Goheen weekly income replacement benefits on March 18, 1996. Mr. Goheen applied for mediation in July 1998 in respect of his claim for ongoing weekly income replacement benefits after March 18, 1996.

The parties were unable to resolve this dispute through mediation, and Mr. Goheen applied for arbitration. Mr. Goheen's application for arbitration was received by the Commission on December 21, 1998.

Royal submits that Mr. Goheen's applications for mediation and arbitration cannot proceed as they were filed after the two-year limitation period prescribed in the Insurance Act, R.S.O. 1990, c.I.8, as amended, and Schedule.

The preliminary issue in this proceeding is:

Whether Mr. Goheen is precluded from referring the dispute in respect of his entitlement to further weekly income replacement benefits first to a mediator under section 280 of the Insurance Act and subsequently to an arbitrator under section 281 of the Insurance Act because he did not apply for mediation within two years of Royal's termination of benefits.

Mr. Goheen is not precluded from proceeding to mediation and arbitration in respect of his claim for further weekly income replacement benefits.

Background and Issue:

Mr. Goheen suffered a head injury in the motor vehicle accident of January 30, 1996. Since the accident, his complaints include severe fatigue, memory loss, inability to concentrate and emotional lability. At the time of the accident, Mr. Goheen was self-employed as the owner and operator of a muffin and coffee shop called "Minnegan's Muffins."

Mr. Goheen submitted an Application for Accident Benefits to Royal dated February 5, 1996. Royal sent Mr. Goheen an Explanation of Assessment by Insurance Company ("Assessment form") dated March 6, 1996, advising him that it was paying him weekly income replacement benefits from February 6, 1996 to March 18, 1996. Royal submits that this Assessment form is also the document that advises Mr. Goheen of Royal's refusal to pay income replacement benefits after March 18, 1996.

Mr. Goheen did not apply for mediation in respect of his entitlement to further income replacement benefits until sometime towards the end of July 1998.² The mediation took place on October 23, 1998 and failed. At mediation, Royal took the position that "under Section 72 of the SABS [Mr. Goheen] is out of time and is barred from proceeding to mediation." Mr. Goheen applied for arbitration on December 21, 1998.

Royal seeks an order prohibiting Mr. Goheen from proceeding to arbitration because of his failure to apply for mediation within two years of March 18, 1996.

The limitation periods invoked by Royal are found in subsection 281(5) of the Insurance Act and section 72 of the Schedule. Subsection 281(5) of the Insurance Act provides that an insured person may only refer issues in dispute to an arbitrator 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. Section 72 of the Schedule requires that a mediation, as well as an arbitration proceeding, must be commenced within two years from the insurer's refusal to pay the amount claimed. It also extends the time limit for commencing an arbitration proceeding. As long as a mediation proceeding is commenced within two years of the insurer's refusal to pay benefits, the dispute can be referred to arbitration within ninety days after the mediator reports to the parties on the outcome of the mediation.

Royal has raised a limitation period defence which must be strictly construed, because the result is to deny Mr. Goheen the opportunity to have his claim adjudicated. The words "the insurer's refusal to pay the benefit claimed" in subsection 281(5) of the Insurance Act have been interpreted strictly by arbitrators in numerous decisions starting with Zeppieri and Royal Insurance Company of Canada³ to require that the refusal be clear and unequivocal. The decisions have also stated that the burden of proof is on the insurer to establish that it provided the insured person with a clear and unequivocal refusal. I agree with these decisions.

In this case, I find that Mr. Goheen is not precluded from proceeding to mediation and arbitration in respect of his claim for income replacement benefits after March 18, 1996 for the following reasons: (1) There has been no clear and unequivocal refusal to pay these benefits by Royal to date; and (2) There has been no refusal to pay these benefits because Royal has failed to give Mr. Goheen the requisite notice under subsection 64(2) of the Schedule.

No Clear and Unequivocal Refusal

Royal submits that it is clear from the Assessment form dated March 6, 1996 that it was refusing to pay income replacement benefits after March 18, 1996. I disagree.

The Assessment form on which Royal relies is commonly used by insurers to advise insured persons of their decisions regarding benefits claimed. The form states, in part, under the heading Explanation of Assessment by Insurance Company:

We have assessed your claim for accident benefits. This form tells you how we calculated your benefits. If you disagree with our assessment, please contact us immediately.

Below this statement, under a section entitled "Part 2: Weekly Benefits," the categories of weekly benefits are listed, i.e., income replacement benefits, education benefits, caregiver benefits and other disability benefits. Under each category of weekly benefits, there are three boxes: Eligible, Not Eligible and Benefit Refused. Under the income replacement benefit category, there is also a larger box entitled "Notes on calculating your income replacement benefit, including income or payments from other sources." At the end of Part 2 there is a box entitled "Reasons benefit(s) refused and other information."

In this case, under Income Replacement Benefits, Royal checked the box marked "Eligible." In the box entitled "Notes on calculating your income replacement benefit, including income or payments from other sources," Royal wrote that Mr. Goheen was getting paid a total of $1,110 in weekly income benefits to cover the period February 6, 1996 to March 18, 1996 (six weeks) at the minimum rate of $185 per week. Royal also wrote that it "need(ed) further wage documents to calculate weekly benefits." In the box entitled "Reasons benefit(s) refused and other information," Royal wrote that it "also need(ed) Health Practitioner's Certificate to pay further weekly benefits."

I am not able to find, based on a reading of this Assessment form, that Royal provided Mr. Goheen with a clear and unequivocal notice of refusal to pay weekly benefits after March 18, 1996. In the form, Royal does not state unequivocally that it will not be paying weekly benefits after March 18, 1996. The check mark next to the box marked "Eligible" appears to qualify the comments in the box entitled "Reasons benefit(s) refused and other information" such that I believe that Mr. Goheen could have reasonably concluded that there was no refusal to pay further weekly benefits and that these benefits would be paid on submission by him of a Health Practitioner's Certificate.

Royal's actions after this Assessment form was sent to Mr. Goheen appear to confirm that this form was not intended as a refusal to pay further weekly benefits.

After the Assessment form of March 6, 1996 was sent to Mr. Goheen, a Health Practitioner's Certificate dated April 10, 1996, completed by Dr. Bruce McTurk, was forwarded to Royal. In the Certificate, Dr. McTurk stated his opinion that Mr. Goheen had suffered a closed head injury with cognitive impairment and a mild myofascial neck strain as a result of the accident. It was also his opinion that Mr. Goheen could only return to part-time work for at least "2 more months."

Two further Assessment forms, both dated April 30, 1996, were sent to Mr. Goheen from Royal. Although both Assessment forms appear to deal with Mr. Goheen's claim for income replacement benefits, Royal submits that only one does. Royal submits that there is a typographical error in the other form and that form only deals with Mr. Goheen's claim for reimbursement of expenses. In the form that Royal says deals with Mr. Goheen's claim for further weekly income replacement benefits, there is no indication that Royal is refusing to pay further weekly income replacement benefits. Under "Part 2: Weekly Benefits, Income Replacement Benefits," again the box marked "Eligible" is checked. In the box entitled "Notes on calculating your income replacement benefit, including income or payments from other sources," Royal wrote "(i)n order to determine your eligibility for income replacement benefits we are awaiting the accountants reports." The box entitled "Reasons benefit(s) refused and other information" was left blank.

In May 1996, Royal retained Hrycko & Associates Inc. ("Hrycko"), an accounting firm, to calculate the amount of the weekly income replacement benefits payable to Mr. Goheen after the accident. Hrycko sought from Mr. Goheen financial documents in support of his income before and after March 18, 1996 (the date when Royal stopped paying income replacement benefits). In its calculation of the weekly income replacement benefit payable to Mr. Goheen, Hrycko & Associates considered post-accident income and expenses to May 31, 1996.

Royal submits that the word "eligible" does not mean the same as the word "entitled." An insured person may be eligible for certain benefits, however, he or she would only be entitled to those benefits if he or she meets the test to qualify for those benefits. Royal submits that thus, when it checked the box marked "Eligible" on the Assessment forms it sent to Mr. Goheen, it was not saying that Mr. Goheen was entitled to the benefits.

I do not believe that any ordinary person could reasonably be expected to understand the distinction that Royal is making between the words "eligible" and "entitled." In any event, there is no box on the Assessment forms for "Entitled." As noted above, under each category of weekly benefits, there are only three boxes: Eligible, Not Eligible and Benefit Refused. It would have been quite simple for Royal to indicate in its Assessment forms, in particular the Assessment form dated April 30, 1996, that it was refusing to pay Mr. Goheen's claim for income replacement benefits after March 18, 1996 by checking the box marked "Benefit Refused" instead of the box marked "Eligible."

Royal submits that no evidence was presented at the hearing to the effect that Mr. Goheen did not understand from the Assessment forms that Royal would not be paying income replacement benefits after March 18, 1996.

While it would have been helpful if Mr. Goheen had been present at the hearing to testify as to what he understood from his reading of the Assessment forms dated March 6 and April 30, 1996, his evidence on the issue would not have been determinative of the issue. I agree with Arbitrator Leitch in Stech and Zurich Insurance Company⁴ that the test is more of an objective one and an insured person's understanding of an alleged notice of refusal 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."

In respect of Royal's actions after the Assessment form dated March 6, 1996 was sent to Mr. Goheen, Royal submits that these actions should not negate its refusal. It submits that arbitration decisions such as Zeppieri (Supra) and Abdi and Wawanesa Mutual Insurance Company⁵indicate that even after a refusal of a claim there is an ongoing obligation on an insurer to re-evaluate the claim.

The situation in this case is not similar to that in Zeppieri or Abdi where the insured person was asking the insurer to consider new evidence brought forward by the insured person or engage in discussions or negotiations or further investigate the claim for reconsideration of an initial decision to deny benefits. In this case, Royal, on its own initiative, sought a further Health Practitioner's Certificate from Mr. Goheen. Royal, on its own initiative, retained an accounting firm to calculate the amount of the income replacement benefits payable to Mr. Goheen before and after the termination of benefits and advised Mr. Goheen that it was waiting for the results to determine his eligibility for further income replacement benefits. It is clear from Royal's conduct subsequent to March 6, 1996 that Mr. Goheen's claim for income replacement benefits was under active consideration and that this was not a case where Royal was reconsidering its decision to terminate benefits as in Zeppieri.

Royal submits that Mr. Goheen retained solicitors to act on his behalf fifteen months prior to expiration of the limitation period. The solicitors were aware of the termination of benefits. Royal submits that it was their responsibility to ensure that his interests were protected within the limitation period.

As noted earlier, under subsection 281(5) of the Insurance Act and section 72 of the Schedule, the limitation periods start to run two years after the insurer's refusal to pay the benefit or amount claimed. The simple act by Royal of stopping or terminating Mr. Goheen's weekly benefits as of March 18, 1996 is not necessarily a refusal to pay under these provisions. Royal must establish that there has been a clear and unequivocal refusal to pay income replacement benefits after March 18, 1996. I have found that in this case Royal has failed to do this. In the circumstances, the limitation periods in subsection 281(5) of Insurance Act and section 72 of the Schedule have not started to run.

No Notice under subsection 64(2)

In any event, whether or not my finding that there has been no clear and unequivocal refusal is correct, I further find that the limitation periods found in subsection 281(5) of the Insurance Act and section 72 of the Schedule have not started to run because Royal has not provided Mr. Goheen with the requisite notice under subsection 64(2) of the Schedule.

It appears from the Assessment form dated March 6, 1996 that Royal only paid Mr. Goheen income replacement benefits until March 18, 1996 because it was not satisfied that he continued to suffer a substantial inability to perform the essential tasks of his pre-accident employment after this date. I infer this from Royal's statement on the form that it "also need(ed) (a) Health Practitioner's Certificate to pay further weekly benefits."

Where an insurer contends that an insured person no longer meets the relevant disability test for the payment of weekly benefits, including income replacement benefits, it can only stop payment of these weekly benefits in accordance with the rules set out in section 64 of the Schedule. Subsection 64(1) provides that "An insurer shall not stop payment...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." The procedure for stopping benefits under section 64 was summarized by Director's Delegate David Draper in Allstate Insurance Company of Canada and Francis⁶ as follows:

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 [subsections 64(2) and (4)]. The notice must include reasons for the stoppage and inform the insured person of his or her right to request a DAC assessment [subsection 64(2)]. If the insured person asks to be referred to a DAC, the insurer must continue paying benefits pending the results of the assessment [subsection 64(3)]. If the DAC report states that the insured person no longer meets the disability test, the insurer can stop paying [subsection 64(11)]. However, if the report concludes that he or she continues to be disabled, the insurer must continue paying benefits [subsection 64(12)]. 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 [subsections 64(11) - (13)].

In Francis, Director's Delegate Draper found that the limitation periods in subsection 281(5) of the Insurance Act and section 72 of the Schedule were subject to or qualified by the provisions of section 64 of the Schedule. He held that the refusal can occur only when the insurer is authorized under section 64 to stop paying benefits. An insurer is not authorized to stop paying benefits under section 64 of the Schedule where the insured person has not received notice of the insurer's intention to stop weekly benefits in accordance with the requirements of subsection 64(2). When the limitation period starts to run will depend on the option the insured person selects when he or she receives the requisite notice under subsection 64(2).⁷

In this case, I find that there has been no refusal because Mr. Goheen has not received the requisite notice under subsection 64(2) of the Schedule. There is nothing in either of the Assessment forms dated March 6, 1996 and April 30, 1996 that informs Mr. Goheen of his right to request a DAC Assessment and advises him of the DAC process and that if he requests a DAC he will continue to receive benefits until the report of the DAC says that he no longer meets the disability test.

Royal submits that Mr. Goheen has presented no evidence that the DAC information was not provided to him by Royal in any other form.

As I noted at the outset, the burden of proof in this case rests with Royal and not Mr. Goheen. It is Royal's responsibility, not Mr. Goheen's, to establish, by adducing evidence, that it gave Mr. Goheen the requisite notice under subsection 64(2) of the Schedule.

Mr. Goheen submits that the limitation periods in subsection 281(5) of the Insurance Act and section 72 of the Schedule are also subject to or qualified by section 71 of the Schedule. Section 71 provides as follows:

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.

Since I have found that the limitation periods found in subsection 281(5) of the Insurance Act and section 72 of the Schedule have not started to run in this case, I need not deal with this issue.

EXPENSES:

I heard no submissions in respect of expenses. If the parties are unable to agree on this issue, I may be spoke to.

August 25, 1999

Shemin N. Manji Arbitrator

Date