Neutral Citation: 2000 ONFSCDRS 164

FSCO A99-000366

BETWEEN:

DANIEL COLE

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Judith Killoran

Heard:

July 6, 2000, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Adam Wagman for Mr. Cole

Ian Kirby for Allstate Insurance Company of Canada

The Applicant, Daniel Cole, was injured in a motor vehicle accident on June 17, 1995. He applied for and received statutory accident benefits from Allstate Insurance Company of Canada ("Allstate"), payable under the Schedule.¹ Allstate terminated weekly income replacement benefits on February 3, 1996. The parties were unable to resolve their disputes through mediation, and Mr. Cole applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended (the "Act").

The preliminary issue is:

Is Mr. Cole precluded from proceeding to arbitration because his application for arbitration was filed beyond the two-year limitation period set out in subsection 281(5) of the Act and section 72 of the Schedule?

Mr. Cole is not precluded from proceeding to arbitration.

Limitation Period:

The limitation period which is being relied on in this case is set out in subsection 281(5) of the Act as extended by section 72 of the Schedule. Subsection 281(5) of the Act states:

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.

Section 72 of the Schedule states:

(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 of 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.

Background:

On June 17, 1995, Mr. Cole was travelling on Highway 5 in Oakville when a car crossed the highway and hit his vehicle head on. Mr. Cole was taken by ambulance with members of his family to Oakville-Trafalgar Memorial Hospital, where he was admitted for approximately two weeks.

Mr. Cole sustained a possible fractured skull, as he was observed to have bleeding from his ears. He fractured his jaw and broke his nose. Also, he suffered from a fracture to his left clavicle, a strain of his left acromioclavicular joint and facial fractures and lacerations.²

Mr. Cole was a machine operator at Northern Telecom for 15 years prior to the accident. After his accident he received benefits from his employer which were supplemented by Allstate. On October 27, 1995, Mr. Cole received permission from Dr. Kennedy, his family doctor, to return to work on a graduated basis.³

On September 1, 1995, Functional Rehabilitation performed a job site evaluation of the physical demands of Mr. Cole's job as a machine operator. Under the heading "Task Analysis," the physical demands identified were standing; walking, lifting, carrying, pushing, pulling, reaching forward, reaching overhead, bending and dexterity. Particularly noteworthy are the observations that all job tasks are performed while standing; occasional lifting and carrying of weights up to 25 pounds is required; and reaching overhead is an essential requirement of the job.⁴

On October 1, 1995, a job evaluation was conducted by Functional Rehabilitation to gather information about the cognitive and perceptual demands of Mr. Cole's former position. The following were listed as functional demands of the machine operator position: problem solving, sequencing, attention, concentration and perception.⁵

In his Insurer's Medical Report dated November 20, 1995, Dr. D'Angelo specified that Mr. Cole should be restricted to lifting 10 to15 pounds maximum at work and should avoid any activity which required lifting the elbows above shoulder height.⁶

Mr. Cole received from Allstate an Explanation of Assessment dated December 13, 1995⁷ (the "First Explanation of Assessment") which advised him that his family doctor "has released you to return to work which was scheduled for 12/11/95. If you do not comply, your benefits will be discontinued 12/27/95 per section 64(1) of the Insurance Act. See Attached letter."

The attached letter dated December 14, 1995 advised that Mr. Cole's return to work was arranged for December 11, 1995, according to the restrictions indicated by the physiotherapist and family doctor. The letter gave Mr. Cole notice that if he did not return to work, his weekly disability benefits would be discontinued within 14 days as specified by subsection 64(1) of the Insurance Act. The letter also informed Mr. Cole that if he disagreed with Allstate's position, he must advise them within 14 days so that an independent assessment could be arranged at a DAC.⁸

On December 19, 1995, Mr. Cole returned to work as part of a plan devised by Functional Rehabilitation to increase his hours to five hours per day on January 8, 1996 and then to six hours on January 15, 1996, with a full shift starting on January 22, 1996. However, Mr. Cole did not return to his position of machine operator but rather, to a position of grade 5 repair/update operator. According to a physical demands analysis from Northern Telecom, most of the tasks are performed while seated with a minor amount of standing and walking. Also, the majority of the work is light assembly with electronic components and printed circuit boards using hand tools such as a soldering iron, desoldering iron, pliers, skinners and sidecutters.⁹

On January 18, 1996, a work site assessment by Functional Rehabilitation concluded that Mr. Cole could perform the job of grade 5 repair/update operator with no restrictions. However, the report states:

The union representative said there are no quotas and few pressures on the job. Although all employees take their 1/2 hour lunch break together, these repair operators are free to get up, stretch and move around without fear of reprisals. If they are experiencing pain or discomfort they are able to visit the Occupational Health Unit.¹⁰

Despite the above observation, Ms. Barbara Weatherston, the ergonomist, concluded that: "In comparing Mr. Cole's functioning on the job to the physical demands of the job that he did at the time of the accident, I feel that Mr. Cole would be fully capable of performing the demands of the job he did at the time of the accident."¹¹

A Functional Rehabilitation report dated January 31, 1996 noted that Mr. Cole had completed his work hardening program. According to the report, after Mr. Cole completed 8 hours of work, he was laid off by Northern Telecom.¹² Mr. Cole was laid off as part of a massive downsizing and received a severance package. Allstate paid income replacement benefits to Mr. Cole until February 3, 1996, which Allstate claims was 14 days after his return to full-time work. A second Explanation of Assessment (the "Second Explanation of Assessment"), which was undated, was sent to Mr. Cole.¹³ It read:

As you returned to your full duties and hours on 01/22/96 you will not receive further loss of income benefits. Your last draft covered up to 02/03/96 two weeks beyond your full time return to work.

ANALYSIS:

Allstate submitted that there was no response from Mr. Cole to the two Explanations of Assessment. Mr. Cole filed an Application for Mediation as of December 3, 1998 on the issue of a loss of earning capacity benefit offer.This was almost three years after the First Explanation of Assessment. A second Application for Mediation was filed on December 2, 1999 on the issue of income replacement benefits. This was almost four years after the First Explanation of Assessment.

Allstate claimed that Mr. Cole lost sight of the fact that the reason for the loss of his position after he went back to work in January 1996 was not by virtue of his ongoing disability but as a result of a corporate decision of his employer to move the jobs south.

Mr. Cole submitted that: 1) the refusal of benefits must be clear, unequivocal and communicated to the Applicant; and 2) the refusal must be in accordance with the Schedule to start the clock running for the two-year limitation period. There is no issue but that Mr. Cole received both Explanations of Assessment. However, Mr. Cole submitted that Allstate provided no section 64 notice of termination and no notice of his section 71 right to dispute. Therefore, there was nothing to trigger subsection 281(5) of the Act or section 72 of the Schedule. In Mr. Cole's opinion, the two Explanations of Assessment could not be read together but each must be clear and unequivocal on its own.

The pivotal issue in this case is whether the limitation period is affected by the application of sections 64 and 71 of the Schedule. Subsection 64(1) of the Schedule reads as follows:

64(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.

Section 71 of the Schedule states:

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 of resolving disputes relating to the benefits under sections 279 to 283 of the Act.

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 process set out in section 64 of the Schedule.

In Zeppieri and Royal Insurance Company of Canada,¹⁴ Arbitrator Naylor ruled that the onus was on the insurer to make certain that the applicant received proper notice of stoppage of benefits. This was reiterated in Paulozza and Liberty Mutual Fire Insurance Company¹⁵ when Arbitrator Sampliner confirmed that the burden was on the insurer to prove that a refusal was provided to the applicant. In NR and Wellington Insurance Company,¹⁶ Arbitrator MacIntosh stated that the simple act of stopping benefits does not imply a refusal to pay. She ruled that subsection 281(5) of the Act should not be read in isolation but must be applied in compliance with the Schedule.

In Francis and Allstate Insurance Company of Canada,¹⁷ Director's Delegate Draper analysed section 64 and emphasized that the two-year limitation period is triggered by the Insurer's refusal to pay. The procedure for stopping benefits under section 64 was summarized 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. The notice must include reasons for the stoppage and inform the insured person of his or her right to request a DAC assessment. If the insured person asks to be referred to a DAC, the insurer must continue paying benefits pending the results of the assessment. If the DAC report states that the insured person no longer meets the disability test, the insurer can stop paying. However, if the report concludes that he or she continues to be disabled, the insurer must continue paying benefits. 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.

In Goheen and Royal Insurance Company of Canada,¹⁸ the arbitrator found that there had been no refusal of benefits because the applicant had not received the required notice under subsection 64(2) of the Schedule. The arbitrator emphasized that there was nothing in either of the Notices of Assessment to inform the applicant of his right to request a DAC assessment, to advise about the DAC process or to notify him that if he requested a DAC he would continue to receive benefits unless he received a DAC report which concluded that he no longer met the disability test.

In the First Explanation of Assessment, Allstate informed Mr. Cole that if he did not return to work, his benefits would be terminated. Mr. Cole did not disagree because he returned to work. However, the grade 5 operator/repair position that he returned to was a different position from the machine operator position which he had held for 15 years.¹⁹ The new position differed substantially from his former position. Mr. Cole was not required to reach above the shoulder and could perform his job sitting down rather than standing.

In Stech and Zurich Insurance Company,²⁰ Arbitrator Leitch pointed out that:

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.

I find that the reference to section 64 in the December 14, 1995 letter accompanying the First Explanation of Assessment specifically referred to a situation where Mr. Cole refused to return to work. Mr. Cole was informed that, in those circumstances, his weekly benefits would be discontinued within 14 days. As well, he was advised that if he disagreed with Allstate's position, he must provide written notice within 14 days so that a DAC assessment could be arranged. However, Mr. Cole did not refuse to return to work. He returned to work on December 19, 1995. Therefore, he did not dispute the position taken by Allstate. As well, his benefits were extended to February 3, 1996.

The Second Explanation of Assessment is not dated and there is no attached letter. It is not clear whether Mr. Cole received it 14 days before benefits were terminated. In fact, based on the statement: "Your last draft covered up to 02/03/96 two weeks beyond your full time return to work," it appears that the Second Explanation of Assessment might have been sent after the stoppage of benefits.

I agree that each Explanation of Assessment must be evaluated on its own. The notice given in the First Explanation of Assessment and the information about the right to dispute cannot be extended and applied to the Second Explanation of Assessment. Mr. Cole did not disagree with the determination of the First Explanation of Assessment and had no reason at that time to access the dispute resolution process. The determination of the Second Explanation of Assessment was very different and informed Mr. Cole that: "As you returned to your full time duties and hours on 01/22/96, you will not receive further loss of income benefits."

The Second Explanation of Assessment does not inform Mr. Cole of his right to dispute nor does it inform him of the DAC assessment process. Therefore, I find that Allstate did not comply with the requirements set out in section 64 of the Schedule when it stopped paying Mr. Cole's income replacement benefits. Also, Allstate did not comply with section 71 of the Schedule when it did not inform Mr. Cole of his right to dispute.

The next question is whether a refusal of benefits by an insurer which fails to comply with sections 64 and 71 of the Schedule stops the running of the limitation period found in subsection 281(5) of the Act and section 72 of the Schedule.

The elaborate and mandatory scheme for the stoppage of benefits found in the Schedule is designed to protect the rights of the insured against any premature or arbitrary decisions of the insurer. This process requires that insurers act cautiously before ending the insured's entitlement to weekly benefits. In my opinion, an applicant should not be prejudiced by an insurer's failure to comply with its obligations under the Schedule. Therefore, I find that the limitation period for Mr. Cole does not begin to run until Allstate has complied with sections 64 and 71 of the Schedule. Therefore, Mr. Cole is not precluded from proceeding to arbitration.

EXPENSES:

I leave the issue of expenses to the discretion of the hearing arbitrator.

September 7, 2000

Judith Killoran Arbitrator

Date