Neutral Citation: 2000 ONFSCDRS 118

FSCO A99-001031

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

RAJINDER SANDHU

Applicant

and

CAA INSURANCE COMPANY (ONTARIO)

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

David Leitch

Heard:

May 10, 2000, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Ron E. Folkes for Mr. Sandhu

Lee Samis for CAA Insurance Company (Ontario)

Issue:

The Applicant, Rajinder Sandhu, was injured in a motor vehicle accident on March 7, 1995. He applied for and received statutory accident benefits from CAA Insurance Company (Ontario) ("CAA"), payable under the Schedule.¹ CAA terminated weekly income replacement benefits on February 25, 1997 and takes the position that Mr. Sandhu is precluded from claiming benefits beyond that date by reason of his failure to commence a mediation proceeding within the statutory limitation period. The parties were unable to resolve their disputes through mediation, and Mr. Sandhu 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:

1. Is Mr. Sandhu precluded from proceeding to arbitration because his application for mediation was filed beyond the two-year limitation period imposed by subsection 72(1) of the Schedule?

Result:

1. Mr. Sandhu's application for mediation was filed within the two-year limitation period set out in subsection 72(1) of the Schedule and he is not, therefore, precluded from proceeding to arbitration.

The Law:

Subsection 72(1) of the Schedule imposes the following limitation period:

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 ...

The Facts:

An agreed Statement of Facts filed by the parties establishes some, but not all, of the pertinent facts. There is no dispute that the claim arises out of a motor vehicle accident on March 7, 1995 and that CAA accepted Mr. Sandhu's entitlement to income replacement benefits from March 15, 1995 to October 23, 1996. CAA proposed to terminate benefits after receiving insurer medical examination ("IME") reports indicating that Mr. Sandhu was able to return to work. In a letter to Mr. Sandhu dated October 3, 1996,² CAA referred to these reports and stated that "no further benefits will be paid for periods after October 23, 1996." Nevertheless, CAA's letter also properly referred to section 64 of the Schedule and informed Mr. Sandhu that if he disagreed with the opinion of the IME, he could request an examination at a Designated Assessment Centre ("DAC") within 14 days.

CAA was informed of Mr. Sandhu's request for a DAC examination by letter dated October 16, 1996³ from his lawyer, Mr. Folkes.⁴ In that same letter, Mr. Folkes questioned the reliability of the IME opinion, alleging that it was based on surveillance of Mr. Sandhu's brother-in-law, not Mr. Sandhu, and asking for a copy of the video so that it could be reviewed "with our client."

CAA responded to Mr. Folkes by letter dated November 4, 1996,⁵ with a copy to Mr. Sandhu. This letter indicated, again properly in my view, that the DAC would be informed of Mr. Folkes' concerns about the surveillance material and that Mr. Sandhu's benefits would be continued "pending the outcome of the DAC assessment." The DAC assessment was conducted in late January/early February, 1997 and a Summary dated February 14, 1997⁶ was addressed to CAA.

The evidence and statements as to whether Mr. Sandhu received this Summary, or a copy of the full DAC report, are conflicting. On the one hand, the Summary indicates in its text that "a copy of the report has been forwarded to Mr. Sandhu;" there is an indication on the last page that a carbon copy of the Summary was being sent to Mr. Sandhu "c/o" Mr. Folkes, and, on cross-examination, Mr. Sandhu admitted that he thought he had received a copy of the DAC report within two weeks of the assessment. On the other hand, Mr. Folkes stated in his opening (this statement did not, of course, constitute evidence) that the DAC report was not received until November 13, 1997 and, on re-examination, Mr. Sandhu testified that the assessments took place at three different locations, and that he never received a report from the address indicated on the Summary. I find it unlikely that Mr. Sandhu received more than one report from the DAC. I find it more likely that he received either the DAC report or the Summary within two weeks of the assessment, as suggested by the correspondence indicators in the Summary, and as he admitted on cross-examination.

A copy of the full DAC report was not submitted into evidence before me. The Summary stated the assessors' opinion that Mr. Sandhu was not restricted, physically or psychologically, from resuming his pre-accident activities, including work. In a letter dated February 20, 1997⁷ to Mr. Sandhu, CAA referred to and repeated this opinion and stated "as such, you are no longer entitled to an Income Replacement Benefit." The letter enclosed the "last disability benefit payment" for the period February 12 to 25, 1997 and informed Mr. Sandhu that "no further benefit are [sic] payable for periods after February 25, 1997." There is no dispute that this letter was sent to Mr. Sandhu by regular mail.⁸

As with the DAC report, there is conflicting evidence as to whether Mr. Sandhu received this letter. Mr. Sandhu testified that he never received it and that he only became aware of its existence much later, at his lawyer's office. It is agreed by the parties that the cheque enclosed in the letter was never cashed, but CAA did not concede that this proves that Mr. Sandhu never received the letter. Rather, it called as a witness Albert Cesario, the adjuster on the file, to testify that despite CAA's return address being clearly marked on all its envelopes,⁹ Canada Post never returned either the letter in question or two other letters he sent to Mr. Sandhu enclosing cheques which the parties also agreed were never cashed. However, in his testimony, Mr. Sandhu denied receiving these two latter letters,¹⁰ as well as the letter of February 20, 1997, and there is no evidence before me that the forty or more other cheques Mr. Cesario sent to Mr. Sandhu remained uncashed. I, therefore, find that, on the balance of probabilities, Mr. Sandhu did not receive the letter of February 20, 1997.

Mr. Cesario testified that despite sending no further benefit cheques after the letter of February 20, 1997, he received no correspondence or telephone calls on Mr. Sandhu's file.

On cross-examination, Mr. Cesario acknowledged his earlier correspondence with Mr. Folkes and agreed that, in view of the importance of the letter of February 20, 1997, it would have been a "good precaution" for him to have sent a copy to Mr. Folkes. He maintained, however, that he was only obliged to correspond with Mr. Sandhu. A similar position was taken by Laurel Cutting, CAA's "AB Team Leader," in her letter of September 9, 1999¹¹ to Mr. Folkes in which she wrote: "As per the Insurance Act, our obligation is to send correspondence to the insured at the insured's latest post office address as notified to the insurer. This was satisfied."

After the letter of February 20, 1997, Mr. Cesario next corresponded with Mr. Sandhu by letter dated October 2, 1997.¹² This letter reads, in its entirety, as follows:

We have not had any significant file activity in the last 6 months. From this we must assume that you do not continue to suffer an impairment that gives rise to an entitlement to Statutory Accident Benefits.

Please confirm whether any further Accident Benefits losses are anticipated, or if any losses have been incurred and are outstanding, by contacting the undersigned, or by submitting the expenses for consideration.

If nothing is heard or received within 30 days of your receipt of this notice, we will assume that no further claim will be forthcoming, and the file will be closed.

On cross-examination, Mr. Sandhu acknowledged that this letter indicated to him that there was "still something left over for me" and that until he received this letter, he did not think the insurer would be sending him additional benefits.

Mr. Folkes responded to Mr. Cesario's letter of October 2, 1997 on October 31, 1997.¹³ The first paragraph of Mr. Folkes' letter reads as follows:

Further to your letter of October 2nd, 1997, directed to Mr. Ranjinder [sic] Sandhu, we are surprised that you are attempting to close his file when there is an outstanding claim for income replacement benefits from February 12, 1997. Mr. Sandhu has yet to receive a letter denying benefits to him as required by the Insurance Act.

Mr. Cesario wrote back to Mr. Folkes by letter dated November 4, 1997,¹⁴ alleging that "Mr. Sandhu was indeed provided a letter denying benefits" and enclosing a copy of his letter to Mr. Sandhu of February 20, 1997.

Mr. Sandhu's application for mediation was forwarded to the Financial Services Commission by Mr. Folkes' office on May 19, 1999.¹⁵

The Insurer's Arguments:

The Insurer argued that its letter of October 3, 1996 to Mr. Sandhu communicated a clear and unequivocal written refusal to pay income replacement benefits after October 23, 1996. The Insurer acknowledged that this refusal started "the DAC process" but it maintained that, having received the DAC's opinion that he was no longer disabled, Mr. Sandhu was not misled about the outcome of this process.

In the alternative, CAA argued that its letter of February 20, 1997 to Mr. Sandhu constituted a clear and unequivocal written refusal and that, having been sent by regular mail, it became effective on the fifth day after the date of mailing in accordance with Rule 7 of the Dispute Resolution Practice Code, also more than two years prior to May 19, 1999. To be fair to counsel, he supported this argument with the companion submission that, on the balance of probabilities, Mr. Sandhu received the letter of February 20, 1997.

But the Insurer's main argument was that I should consider "the entire circumstances" of the case, not just the existence or sufficiency of a written refusal of benefits. The arbitrator's decision in Lambropoulos and State Farm Mutual Automobile Insurance Company¹⁶ was cited in support of this proposition. Applying it to this case, counsel submitted that even if I found, as I have, that Mr. Sandhu did not receive the letter of February 20, 1997, I could still find that he acquired "actual notice" of the insurer's refusal when, as I have also found, he received the DAC's opinion that he was no longer disabled and his benefits stopped. To use counsel's expression, Mr. Sandhu "understood his claim was over" in February, 1997 and admitted as much at the hearing. In support of this argument, counsel also cited the following sentence from the Director's Delegate's decision in the case of Allstate Insurance Company of Canada and Francis¹⁷: "...once the DAC report is released, the insurer can refuse to make the next payment of weekly benefits, starting the clock."

Analysis and Conclusion:

It is settled law that the onus is on the insurer to establish that its refusal of benefits was clear and unequivocal and that its refusal was received by the insured person.¹⁸

In my view, CAA cannot rely on either its letter of October 3, 1996 or its letter of February 20, 1997 to satisfy this onus.

Its letter of October 3, 1996 was clearly intended to meet its obligation under 64 of the Schedule to inform Mr. Sandhu of its proposed termination of benefits and of his right to request a DAC assessment of his eligibility while continuing to receive benefits. In Allstate Insurance Company of Canada and Francis, the Director's Delegate rejected the Insurer's argument that a refusal to pay could be communicated through such a letter. He wrote:

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 section 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.

As for CAA's letter of February 20, 1997, I have found that Mr. Sandhu did not receive this letter and its contents cannot, therefore, assist the Insurer. However, had I found that Mr. Sandhu did receive this letter, I would not have permitted the Insurer to rely upon it to defeat Mr. Sandhu's claim for two reasons.

First, this letter was not sent or copied to Mr. Folkes despite CAA's knowledge from previous correspondence that Mr. Folkes was Mr. Sandhu's lawyer.¹⁹ As the Director's Delegate stated in the case of Simms and Markel Insurance Company of Canada²⁰: "...where an insured person has retained a lawyer to act on his behalf, it is appropriate for the insurer to communicate through the lawyer, not directly with the insured person...Once a lawyer is involved, direct communication with the insured person can be seen as interference in the lawyer-client relationship."

Second, this letter did not comply with section 71 of the Schedule which reads as follows:

71. 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.

Sections 279 to 283 of the Insurance Act are also referred to in section 64(13) of the Schedule and thus permit an insured person to dispute a stoppage in benefits following a DAC assessment. Of course, an insured person who is represented may be entitled to obtain information about dispute resolution procedures from his/her counsel. But where the insurer only communicates its refusal to the insured person and its communication fails to comply with section 71, that communication cannot, in my opinion, start the limitation period running under section 72.

This leaves the Insurer's argument that despite my finding that Mr. Sandhu did not receive written notice of the Insurer's refusal, I should infer from the entire circumstances of the case that he acquired actual notice of the refusal by February, 1997, more than two years prior to his application for mediation. This argument was open to the Insurer because while the previous Schedule required the insurer to give written notice and reasons for its refusal,²¹ the Schedule applicable in this case does not require that a post-DAC refusal be in writing. Section 64(10) only requires that the DAC provide a copy of its report to the insurer, the insured person and the insured person's health practitioner and I have found that Mr. Sandhu did receive a copy of the DAC report or Summary sometime in February, 1997. Moreover, there is no dispute that the DAC's opinion was that Mr. Sandhu was no longer disabled, that his benefits stopped around the same time and that he did not think the insurer would be sending him additional benefits.

I nevertheless reject the Insurer's argument. In my view, an insurer cannot satisfy its onus to establish a clear and unequivocal refusal by proving the insured person's receipt of a DAC report, the stoppage of benefits, the insured person's subjective belief that benefits had ended, or any combination of these factors. Evidence of this kind may be consistent with a refusal, but it does not establish a clear and unequivocal refusal by the insurer.

A DAC report is written by, and is supposed to be sent to the insured person by, the DAC, not the insurer. It may deal with complicated medical or multiple entitlement issues and be anything but clear and unequivocal to the insured person. Even if, in this case, Mr. Sandhu received the Summary which set out the DAC's opinion clearly, it remained for CAA to communicate to Mr. Sandhu its decision, as the Insurer, to act upon that opinion and refuse, clearly and unequivocally, to pay him further benefits. As stated by the Director's Delegate in the Francis decision quoted earlier: "The refusal comes when the insurer is authorized under the section to stop paying benefits [on receipt of a DAC report supporting its proposed termination] and confirms its decision to do so." (my emphasis)

The only kind of confirmation the Insurer can point to in this case is the stoppage of benefits but that is not enough. As the arbitrator in the case of Jakovljevic and Commercial Union Assurance Company²² wrote:

The Insurer submits that the stoppage of benefits is sufficient to trigger the running of the two-year time limit. I reject this. I find that in order to establish that an applicant is statute-barred from proceeding to arbitration, an insurer must show more than that benefits were simply stopped; an insurer must clearly establish when the applicant received notice of the refusal of benefits.

I agree. An insured person may stop receiving benefits for a variety of reasons: computer error, problems with mail delivery, recovery of overpayment, or refusal of benefits. Unless the insurer identifies refusal of benefits as the reason for the stoppage, how is the insured person supposed to know this and when is he/she supposed to know it? I reject the submissions that Mr. Sandhu was supposed to know this through receipt of the DAC report and that he was supposed to know it when his next benefits cheque did not arrive. These pieces of information, even together, could have only permitted Mr. Sandhu to think, as opposed to know, that CAA had decided to refuse him further benefits and to guess at, as opposed to be informed of, the date on which the Insurer refused benefits and the limitation began to run.

As for Mr. Sandhu's subjective belief that he would not be receiving further benefits, I repeat what I wrote in Stech and Zurich Insurance Company:²³ "[the insured person's] 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." In fact, precisely such an argument was made in the case of Stringer and Zurich Insurance Company²⁴ issued just after my decision in Stech. In Stringer, the insured person's counsel submitted:

...that Ms. Stringer "understood the termination letter on the face of it but was not aware of the process." He stated: "The letter may be clear and unequivocal to others but not to Ms. Stringer." He stated that Ms. Stringer is an unsophisticated individual who relied on others to guide her. He stated that she had limited education, a language barrier and mental health problems which she suffered as a result of the accident.

Despite my desire as an arbitrator to avoid an "entirely subjective" test, I must acknowledge that subjective elements may have to be assessed in a case like Stringer, but only after the insurer has first established that it met its obligation to provide a clear and unequivocal refusal. In the instant case, I find that Mr. Sandhu's subjective belief that he would not be receiving further benefits does not assist the CAA to establish that it met this obligation. Any question of Mr. Sandhu's subjective understanding of a clear and unequivocal refusal does not, therefore, arise.

I, therefore, conclude that the limitation period created by section 72 of the Schedule should not be applied in the circumstances of this case to defeat Mr. Sandhu's claim.

EXPENSES:

I exercise my discretion to award Mr. Sandhu his expenses incurred in this preliminary issue hearing.

June 28, 2000

David Leitch

Arbitrator

Date

Neutral Citation: 2000 ONFSCDRS 118

FSCO A99-001031

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

RAJINDER SANDHU

Applicant

and

CAA INSURANCE COMPANY (ONTARIO)

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Mr. Sandhu's application for mediation was filed within the two-year limitation period set out in subsection 72(1) of the Schedule and he is not, therefore, precluded from proceeding to arbitration.

June 28, 2000

David Leitch

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended by Ontario Regulations 635/94, 781/94, 463/96 and 304/98.
2. 2Exhibit 1, Tab 35.
3. 3Exhibit 1, Tab 36.
4. 4This was not Mr. Folkes' first involvement in the file; there is reference to correspondence between him and CAA in June, 1996, see Exhibit 1, Tab 28.
5. 5Exhibit 1, Tab 37.
6. 6Exhibit 3.
7. 7Exhibit 1, Tab 43.
8. 8Exhibit 1, Tab 47.
9. 9A sample envelope was entered into evidence as Exhibit 2.
10. 10In particular, Mr. Sandhu denied receiving the letters (and enclosed cheques), copies of which are found at Exhibit 1, Tabs 25 and 41. CAA reissued these cheques, see Exhibit 1, Tab 48. Mr. Sandhu also denied receiving a fourth cheque for which there is no corresponding letter in the material before me but, according to CAA's records, this cheque was cashed and was not, therefore, reissued, see Exhibit 1, Tabs 45 and 47.
11. 11Exhibit 1, Tab 51.
12. 12Exhibit 1, Tab 44.
13. 13Exhibit 1, Tab 45.
14. 14Exhibit 1, Tab 46.
15. 15Exhibit 1, Tab 49.
16. 16(OIC A95-000693, February 18, 1997).
17. 17(FSCO P99-00014, June 11, 1999).
18. 18Zeppieri and Royal Insurance Company of Canada, (OIC A-005237, affirmed on appeal, December 22, 1994).
19. 19This fact distinguishes the instant case from the Lambropoulos and State Farm Mutual Automobile Insurance Company decision relied upon by the Insurer. In the latter case, it was a series of communications from the insurer to the insured person's lawyer which the arbitrator found to constitute a clear and unequivocal refusal.
20. 20(FSCO P99-00002, September 20, 1999).
21. 21Section 24.—(8) of the Statutory Accident Benefits Schedule before January 1, 1994, Ontario Regulation 672/90, as amended by Regulations 600/93 and 779/93 reads as follows: 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.
22. 22(FSCO A98-001163, July 26, 1999)
23. 23(FSCO A98-001495, June 3, 1999).
24. 24(FSCO A99-000104, July 22, 1999).