State Farm Mutual Automobile Insurance Company v. Anna Jean Field, 2000 ONFSCDRS 9

Financial Services Commission / Commission des services financiers de l’Ontario

Neutral Citation: 2000 ONFSCDRS 9

Appeal: P98-00046

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Appellant

and

ANNA JEAN FIELD Respondent

Before: Susan Naylor, Director's Delegate

Counsel: Joseph J. Sullivan (for State Farm) Stanley B. Pasternak (for Anna Field)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The appeal is dismissed.
2. Anna Field is entitled to her appeal expenses.

January 17, 2000

Susan Naylor Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF APPEAL

This appeal concerns a dispute over the amount of Anna Field's weekly income benefit; more specifically, it involves the treatment of her Canada Pension Plan (CPP) disability benefits.

Under s. 12(4) of the Statutory Accident Benefits Schedule – Accidents before January 1, 1994, R.R.O. 1990, Reg. 672 ("the Schedule"), enacted under the Insurance Act, R.S.O. 1990, c. I-8 ("the Act"),¹ Mrs. Field's weekly income benefit is determined by taking the lesser of $600, and 80% of her gross weekly income from employment or self-employment less "any payments for loss of income ..received by or available to the insured person under the laws of any jurisdiction or under any income continuation benefit plan."²

Mrs. Field applied for arbitration seeking a ruling that the CPP disability benefits she received were not to be deducted in determining her weekly benefit amount and an order for repayment of past deductions with interest. She relied on the decision of the Divisional Court in Cugliari v. White, (1996), 1996 CanLII 11778 (ON CTGD), 31 O.R. (3d) 42, rev'ing (1994), 1994 CanLII 7343 (ON CTGD), 21 O.R. (3d) 225 (Gen. Div.), aff'd (1998), 1998 CanLII 5505 (ON CA), 38 O.R. (3d) 641 (C.A.).³ In Cugliari, the Court ruled that CPP disability benefits are not "payments that the person has received or that were or are available for loss of income under the laws of any jurisdiction or under an income continuation benefit plan" under s. 267(1)(c) of the Act and so are not deductible from a damages award.

State Farm Mutual Automobile Insurance Company ("State Farm") took the position that CPP disability benefits constitute payments for loss of income under s. 12(4)(b) and that, alternatively, Mrs. Field's challenge was time-barred under the Act and Schedule. The arbitrator held that Mrs. Field's application for arbitration could proceed, and that State Farm was not entitled to reduce Mrs. Field's benefit by the CPP payments she received. State Farm appeals those rulings.

II. FACTS

1Mrs. Field was injured in an automobile accident on August 17, 1990. Shortly afterwards, she applied to State Farm for accident benefits. Her employer's "Confirmation of Income" form reported her average income as below the deemed minimum of $232 a week. State Farm determined that it was liable to pay a weekly income benefit of $185.60, calculated as 80% of Mrs. Field's deemed gross weekly income.

2Mrs. Field was paid benefits at this rate for close to three years.

3On August 5, 1993, Richard Roessner, State Farm's claims adjuster, was advised that Mrs. Field was receiving CPP disability benefits of $496.00 a month. State Farm began deducting the CPP benefits on August 20, 1993. This reduced Mrs. Field's weekly benefit to $58.86 per week. She continued to receive this amount until the arbitrator's order was implemented.

4State Farm started making the deduction after issuing a standard-form Assessment of Claim by Insurer Form dated August 5, 1993. The form provides insurers, in relation to itemized benefits, with several options: "Not Applicable," "Claim Accepted in Entirety," "Portion of Claim Denied" and "Entire Claim Denied." It tells the reader: "The insurer has reviewed your application for no fault benefits and has assessed your claim below. Where the insurer has denied a benefit claim entirely or in part, this is a notice to you of a denial of a claim."

State Farm marked the box: "Claim Accepted in Entirety." The standard-form wording then provides:

"The insurer will pay the amount of $— per week for the period —through — [and then]: "Explanation.""

State Farm wrote that it would pay "$185.60" "July 24, 1993 through August 20, 1993". Under "Explanation," it wrote:

4 wks x 185.60 = 742.40

minus Canada Pension 496.00

Balance owing 246.40

Per our telephone conversation of August 5, 1993, it was confirmed that your weekly income benefit must be reduced by the Canada Pension you are now receiving.

5On October 4, 1996, the Divisional Court issued its reasons in Cugliari, holding that CPP disability benefits are not deductible from an award of damages.

6On December 17, 1996, Mrs. Field applied for mediation disputing the deductions.

7The Report of Mediator dated March 27, 1997 confirmed that the mediation failed.

8Mrs. Field applied for arbitration by application dated May 29, 1997.

9The Court of Appeal dismissed the appeal in Cugliari on April 23, 1998, shortly after Mrs. Field's arbitration hearing concluded. Leave to appeal was denied by the Supreme Court of Canada on December 10, 1998.

III. ARE CPP DISABILITY BENEFITS PAYMENTS FOR LOSS OF INCOME UNDER S. 12(4)(b) OF THE SCHEDULE?

This question can be disposed of concisely. Some months after the arbitrator issued his decision, the Supreme Court of Canada denied leave to appeal in Cugliari, thereby resolving any issue as to the correctness of the decision.

Cugliari involved the interpretation of s. 267(1)(c) of the Act, dealing with the deduction of collateral benefits in tort, rather than s. 12(4)(b) of the Schedule dealing with statutory accident benefits. However, the reasoning of the Court of Appeal has clear implications in the context of the Schedule. Both provisions have almost-identical relevant language. Furthermore, the prevention of double recovery has been identified as among the purposes of s. 12(4)(b), and the provision has been linked to recent common law jurisprudence with respect to collateral benefits.⁴ Cases decided subsequent to the Divisional Court's decision in Cugliari have held that CPP disability benefits are not deductible under s. 12(4)(b) of the Schedule.⁵ I agree. This aspect of the appeal therefore is dismissed.

This leaves the first issue - whether Mrs. Field’s application for arbitration contesting the deduction is out of time.

IV. IS MRS. FIELD'S APPLICATION FOR ARBITRATION TIME-BARRED?

A. Statutory Context

The Act establishes a scheme of statutory accident benefits and a process for resolving disputes about them. Section 279(1) states: "disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled shall be resolved in accordance with sections 280 to 283 and the Statutory Accident Benefits Schedule. "

The Act preserves the right of parties to apply to the courts for adjudication of their disputes but provides insureds also with the option of arbitration. It requires parties to go through mandatory mediation before submitting their dispute for adjudication.⁶

Section 281(5) of the Act imposes a limitation period with respect to the commencement of litigation or arbitration. It says:

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 Schedule sets out a procedure for accident benefit claims. Insureds must provide initial notice of claim and submit a completed application for accident benefits respecting the accident and the resulting loss within certain time frames (s. 22). Interest attaches if benefits are not mailed or delivered within 10 days after the application is received (s. 24(2) and (4)). Insurers must provide written notice with reasons "if the insurer refuses to pay an amount claimed in an application for statutory accident benefits" (s. 24(8)). Under s. 25, an insured cannot access mediation unless he or she has complied with the rules about claiming benefits and attending medical examinations in ss. 22 and 23. Section 26 is titled "Time Limit for Proceedings." In its form as amended by O.Reg. 779/93, s. 5, it says:

26(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 benefits under this Regulation must be commenced within two years from the insurer’s refusal to pay the amount claimed in the application for statutory accident benefits or, if the person has attended school or accepted, or returned to, an occupation or employment, as permitted by section 16, 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 construction and application of the various time lines in the Act and Schedule have been the subject of a number of decisions by judges and arbitrators. The cases distinguish between the effect of the limitation in s. 281(5) which bars an applicant's remedy, from the less severe consequences of a failure to comply with notice of claim requirements or of the rule against proceeding before mediation takes place.⁷

The Act and Schedule require a "refusal to pay." This represents a change from the event triggering the time limit under Schedule C to the Insurance Act, R.S.O. 1980, c. 218, which ran from "the date on which the cause of action arose." In Wilson's Truck Lines Ltd v. Pilot Insurance Co. (1996), 31 O.R. (3d) 177, supp. reasons (1996), 1997 CanLII 660 (ON CA), 33 O.R. (3d) 37, a case under that regime, the Court of Appeal confirmed that a refusal to pay is not synonymous with a failure to pay or breach of contract.⁸

"Refusal" connotes taking a positive and deliberate position. The Shorter Oxford English Dictionary⁹ defines it as "the act of refusing; a denial or rejection of something demanded or offered." Arbitrators have consistently held that in order to trigger a limitation period, the insurer's refusal must be clear, unequivocal and in writing. They have linked the refusal to the insurer’s obligation under s. 24(8) of the Schedule to give notice with reasons if it refuses to pay an amount applied for.¹⁰

It has been held that s. 281(5) of the Act reflects a change not only in the triggering event and length of the limitation period but in the nature of the limitation period itself. In State Farm Mutual Automobile Insurance Company and Kirkham (OIC P96-00069, January 27, 1997),¹¹ Director's Delegate Draper held that, unlike Schedule C, s. 281(5) does not involve a constantly-renewing or "rolling" time-limit in which the cause of action is renewed in respect of each pay period.¹² Rather, under s. 281(5), "an applicant who wants to pursue his or her claim must do so within two years of [the insurers] refusal."¹³ The reasoning in Kirkham is not in issue in this appeal.

B. Conclusion

Determining whether Mrs. Field’s application is time-barred involves construction of the statutory language and application of the facts.

The onus is squarely on the insurer to show that a limitation period has started to run and has expired. It must show that there was a refusal, when that was, and that the insured failed to institute proceedings within the requisite time.

The Act and regulations enacted under it comprise an integrated scheme of accident benefits and an attempt should be made to construe the provisions in a way that gives sensible, purposive meaning to the scheme’s constituent parts.

In this case, the arbitrator relied on the arbitration decision, Coates-Boyce and Zurich Insurance Company (OIC A-95133, January 13, 1997).¹⁴ In Coates-Boyce, the insurer reduced the applicant's benefits on grounds that she had not verified the income on which the benefits had been initially calculated. More than three years later, the applicant applied for arbitration challenging the reduction. The arbitrator held that her application was not time-barred. She held the words "the benefit claimed" in s. 281(5) referred to "the type or category of benefit rather than the amount of benefit," concluding that since the insurer, in reducing benefits, had not refused to pay a certain category of benefit, the reduction did not trigger the time limit. The arbitrator also considered the wording of s. 26(1) of the Schedule, which refers to a refusal to pay "the amount claimed in the application." She found that Mrs. Coates-Boyce' application did not include a claim to a particular benefit amount and that, there being no evidence of a refusal of "the amount claimed in the application," the restriction in s. 26(1) did not apply. This avoided the need for a decision whether the provisions of the Act and the Schedule were in conflict.

A different approach was taken in Garisto and Halifax Insurance Company (OIC A97-001481, September 17, 1998). The insurer reduced the applicant's benefit amount after further investigation; two years later, it terminated benefits altogether. The applicant applied for mediation within two years of the termination but more than two years after the reduction. The arbitrator accepted that the claim for ongoing benefits was not time-barred, but held that the applicant was too late to dispute the reduction in his benefit amount. She concluded that since the applicant had not wavered in his claim for maximum benefits based on the information provided by his employer in the Employer’s Confirmation of Income form, this was the "the amount claimed."

Mrs. Field’s case involves different facts. Although the arbitrator explicitly relied on Coates-Boyce, this appeal does not rest on acceptance of the reasoning in that case (or the arbitrator's distillation of it), and I would express the analysis in different terms.

In my view, the required analysis involves an inquiry as to the nature of the benefit and scope of the benefit claim. There must be a refusal to pay that - "the benefit" in the words of the Act and "the amount" in the words of the Schedule - which is claimed. The Schedule links the inquiry to the procedure for applying for benefits prescribed by the regulations.

State Farm argues that its Notice of Assessment and subsequent reduction in payments represents a "refusal to pay the benefit claimed" and a "refusal to pay the amount claimed in the application." Mrs. Field characterizes the reduction as an adjustment to the benefit in order to reflect receipt of CPP payments, not a refusal of the benefit, and amount, claimed. I note that a similar distinction was made in Nelson v. General Accident Group (Canada) Ltd. [1999] O.J. No. 3060, Court File No. M16940/98 (Ont. S.C.J) which also involved a claim for repayment of CPP deductions following Cugliari.¹⁵

In the context of this case, the distinction is an appropriate one. State Farm’s Notice of Assessment does not indicate a refusal. It accepts the claim in entirety. This is more than simply semantics or a question of the precision with which the form is completed. In my view, it reflects the most sensible description of what happened. State Farm recalculated Mrs. Field’s benefit payment to take account of her CPP benefits. It did not, however, reject, deny or refuse to pay any aspect of the claim she presented.

Mrs. Field initially applied for benefits providing information about her pre-accident income. State Farm determined it was liable to make payments of $185.60 a week, based on 80% of Mrs. Field’s gross weekly income. Both parties accepted this as the correct amount. State Farm accordingly made payments of $185.60 a week until Mrs. Field received CPP payments, which were then taken into account.

I do not accept that Mrs. Field’s claim involves an assertion of a right to a set benefit payment for the life of the claim, or that by reducing the payments it made in order to reflect Mrs. Field’s subsequent receipt of CPP payments, State Farm thereby refused some aspect of her claim. In my view, State Farm’s position does not give effect to the language used nor does it accord with a common sense view of the situation.

As stated in Kirkham, claims for benefits are treated as ongoing claims. The amount of the benefit may be adjusted from time to time as the situation changes. Collateral benefits are deducted from the 80%-of-income figure, to arrive at the weekly income benefit payable. Eligibility for collateral benefits may be established (as in this case) only years after the accident. The Schedule reflects this, requiring insurers to pay benefits until the payments are received, and then allowing them to recover the benefits to the extent of those payments.¹⁶

State Farm also relies on cases linking the running of the limitation period with the insurer’s obligation under s. 24(8) of the Schedule to provide notice with reasons "if the insurer refuses to pay an amount claimed in an application for statutory accident benefits." I do not read these provisions to mean that all decisions affecting the benefit amount, if clearly communicated, attract the time-bar. Rather, the regulation is intended to ensure that those decisions that trigger the time-bar are unambiguous, so that an insured may act to protect his or her rights. The implication is that the notice requirements in s. 24(8) do not extend to the adjustment of benefits in the circumstances here, at least not until State Farm turned down Mrs. Field’s demand for repayment, if then. However, I do not find such a result particularly surprising. The Schedule does not spell out all of an insurer’s responsibilities and duties in connection with benefits, including, I note, an obligation to explain how the benefit amount was arrived at when it was paid in the first place.

At the time State Farm started making the deductions, it fairly can be said that its actions reflected the existing state of the case law. However, it is now clear that such deductions are unauthorized. State Farm must show that the time limit for challenging the unauthorized deductions has passed or that some other principle or rule applies to restrict Mrs. Field’s rights or recourse. Otherwise, she is entitled to payment of the correct amount of benefits on a fully retroactive basis.

I agree with the arbitrator that State Farm did not refuse to pay the benefit claimed by its adjustment of Mrs. Field’s benefits starting in 1993. Mrs. Field, therefore, can proceed with her application for arbitration in order to remedy the shortfall in payments. Her application involves a dispute in respect of the amount of her benefits in relation to which the prerequisites for accessing dispute resolution have been fulfilled.

Limitation legislation has been described as promoting three main purposes: rationales involving certainty, access to evidence and diligence.¹⁷ Courts recognize that consideration of these objectives involves balancing the interests of both sides, being fair to plaintiffs as well.¹⁸

This appeal involves continuing benefits. It is not a case in which the insurer has stopped paying benefits. It does not involve a long-closed claim. State Farm’s position is that Mrs. Field has two years from the date the deductions started to dispute them. If she does not commence proceedings within the time allowed, she cannot recover any past deductions otherwise owing and, by implication, her remedy with respect to deductions from future benefits also may be barred. This is notwithstanding clear law that such deductions are unauthorised. In contrast, insurers are allowed considerable flexibility in making adjustments for collateral benefits. The Schedule allows insurers to adjust benefits retroactively, requiring repayment of weekly income benefits to the extent of deductible payments received, without specific time constraints. Moreover, as is evident from the Commission cases, regardless of whether there is a right to repayment, insurers recalculate ongoing benefits in light of new information, including case-law in their favour.

These considerations reinforce Mrs. Field’s position, giving the legislative language a straightforward meaning and producing a fair and reasonable outcome.

The arbitrator did not make a specific order respecting payments to be made, including interest. The form of the order reads: "State Farm is not entitled to deduct CPP disability benefits from Mrs. Field’s weekly benefits." The parties should notify me if a more specific order for payments is sought. Subject to this, the appeal is dismissed. Mrs. Field is entitled to her expenses.

January 17, 2000

Susan Naylor Director's Delegate

Date

If the insured person materially contributed to the overpayment, it must be repaid. However, if the overpayment is based on information that legitimately was not available earlier, or on later arbitral or court decisions affecting the interpretation of the Schedule, repayment is not required, although the insured person’s ongoing benefits could be affected.

Footnotes

1. 1The Insurance Statute Law Amendment Act, 1993, S.O. 1993, c. 10, s. 1(1) and (2) replaced the term "no fault benefits" and "No Fault Benefits Schedule" with "statutory accident benefits" and "Statutory Accident Benefits Schedule." O.Reg. 779/93, amending Reg. 672, renamed the Schedule and substituted the above term in the regulation.
2. 2Paragraph 12(4)(b) and subparagraph 12(4)(b)(i).
3. 3Leave to appeal to the Supreme Court of Canada dismissed, S.C.C File 26722.
4. 4See Bapoo v. Co-operators General Insurance Company (1997), 1997 CanLII 6320 (ON CA), 36 O.R. (3d) 616 (C.A.) at 622, leave to appeal to the Supreme Court of Canada dismissed, S.C.C. File 26466
5. 5See Gignac v. Canadian General Insurance Co. (1999), 1997 CanLII 12212 (ON CTGD), 38 O.R. (3d) 425 (Gen. Div.); Gawronski v. Allstate Insurance Co.(June 3, 1998) Court File No. 97-CV-128730 (Ont. Gen. Div.)[unreported]; Goos and Non-Marine Underwriters, Member of Lloyd's of London (OIC A96-000393, June 12, 1997), upheld (FSCO P96-00038, September 25, 1998) ( issue conceded on appeal); Laforme and Economical Mutual Insurance Co. (OIC A-000697, June 11, 1998); Pavljuk and Canadian General Insurance Co. (OIC A95-000318, September 12, 1997) upheld (FSCO P97-00055, September 7, 1999) (issue conceded on appeal).
6. 6The Act, s. 281(1) and (2)
7. 7See e.g. Hussaini v State Farm Mutual Automobile Insurance Co., 1999 CanLII 36821 (ON CJ), [1999] O.J. No. 1205, Court File No. C22945/93 (Gen. Div.)); Hudson v. State Farm [1999] O.J. No 136, Court File No. 10829/97 (Gen. Div.); Greenidge v. State Farm Mutual Insurance Co. [1997] O.J. No 5243, Court File No. 13783/96 (Gen. Div); Robertson v. Gamble (1997), 1997 CanLII 12136 (ON CTGD), 33 O.R. (3d) 461 (Gen. Div).
8. 8The distinction has been made in other no fault jurisdictions in which the time limit starts running from "the date of last payment" or similar language: (1986) A.L.R. 4th 36 at 357: Martin J. McMohan, Ann. when statute of limitations commences to run on automobile no fault insurance personal injury claims.
9. 9The Shorter Oxford English Dictionary, 3rd ed. (Oxford: Clarendon, 1990), v. III, p. 1780
10. 10See e.g. Zurich Insurance Company and Bouassali (FSCO P98-00039, November 20, 1998); and the decisions cited therein.
11. 11Application for judicial review dismissed, (March 31, 1998) Court File 510/97 (Div. Ct.); leave to appeal dismissed (July 19, 1998) Court File No. M22347 (C.A). The Divisional Court, in dismissing the application, held that the words of s. 281(5) were "precise and unambiguous."
12. 12Under Schedule C, it was held that a new cause of action arose every time a payment became due. Benefits that had became payable more than one year and thirty days before the action was commenced were time-barred. Benefits payable beyond then (including future benefits) were not.
13. 13Kirkham, p. 8
14. 14Although the arbitrator ruled that Mrs. Coates-Boyce application could proceed, she dismissed it on the merits. Zurich's appeal of the disposition of the limitation issue was dismissed on grounds of mootness (FSCO P97-0005, January 4, 1999).
15. 15The judgment was issued after appeal submissions in this case concluded, as was Zoubian and Zurich Insurance Company, (FSCO A98-001129, June 11, 1999) (appeal pending).
16. 16See s. 14(1) and s. 27(3). The scope of s. 27(3) has been compared to the approach under s. 27(1) which provides, in other circumstances, for repayment of benefits paid through "error or fraud." "Error" has been construed as requiring an error to which the insured has contributed to a material degree. For a discussion of the cases, see State Farm Mutual Automobile Insurance Company and Lunn (P-013860, April 30) which described the approach under s. 27(1) as follows at p. 9:
17. 17M.(K.) v. M. (H), 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6 at pp. 29-30
18. 18M.(K.) v. M. (H); Murphy v. Welsh, 1993 CanLII 59 (SCC), [1993] 2 S.C.R 1069, Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549 These cases deal with the discoverability rule under which limitation provisions have been construed as not starting to run until the material facts on which the action is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence. I received submissions in regards to the relevance of the discoverablility principle in the construction of s. 281(5) of the Act. However, I do not need to deal with the submissions further in this case.