Neutral Citation: 2001 ONFSCDRS 115

FSCO A00-000126

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MICHAEL YORK

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Nancy Makepeace

Heard:

By written submissions dated November 1, 2000 (Insurer) and November 21, 2000 (Applicant).

Appearances:

Michael Smitiuch for Mr. York

Rita L. Urbonavicius for Zurich Insurance Company

Issues:

The Applicant, Michael York, was injured in a motor vehicle accident on October 15, 1995. He applied for and received income replacement benefits and other statutory accident benefits from Zurich Insurance Company ("Zurich"), payable under the Schedule.¹ On October 10, 1997, Zurich made an offer of Loss of Earning Capacity Benefits ("LECBs") under Part VI of the Schedule. Mr. York disputed Zurich's offer with respect to his residual earning capacity ("REC"), and applied for mediation followed by arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. The REC issue will be determined by an arbitrator following a hearing scheduled for September 2001. The issue in this preliminary issue decision is whether Mr. York is entitled to proceed to an arbitration hearing with respect to his Pre-accident Earning Capacity ("PEC"). Zurich submits that he is barred from proceeding because of the limitation period established by subsection 281(5) of the Act and subsection 72(1) of the Schedule.

Issue:

1. Is Mr. York precluded from arbitration with respect to pre-accident earning capacity because of the limitation period established by subsection 281(5) of the Act and subsection 72(1) of the Schedule?

Result:

1. The application is not time-barred. The issue of pre-accident earning capacity may be put before the arbitrator in the main hearing. If necessary, the parties may contact the Commission in order to schedule a pre-hearing resumption with respect to this issue.

2. If the parties are unable to agree about the expenses of this motion, the Commission may be contacted to arrange an expenses hearing in accordance with Rules 73 to 77 of the Dispute Resolution Practice Code - Third Edition (April 15, 1997).

EVIDENCE AND ANALYSIS:

Background:

There appears to be no dispute about the following facts.

Mr. York suffered multiple injuries in a motor vehicle accident on October 15, 1995. Prior to the accident, he was employed as a truck driver/delivery person for an electrical company. The employer provided Zurich with an Employer's Confirmation of Income form after the accident, but failed to complete Part 3 of the form, "Applicant's Income." Zurich contacted the employer, and calculated Mr. York's net weekly income as $358.41 per week based on the information the employer provided for the 52 weeks before the accident. An Explanation of Assessment form dated December 28, 1995 sets out Zurich's calculations.

A second Explanation of Assessment form, dated January 16, 1996, sets out revised calculations. Zurich increased Mr. York's net weekly income to $423.61 per week to reflect income, including overtime income, earned in the four weeks before the accident. The form states "We used the 4 week period as you indicated that this was the time period out of the last three years where your weekly income was the highest."² This produced a base benefit rate of $381.25 per week. Mr. York's benefits were reduced by various amounts from time to time, due to his receipt of collateral benefits from Great West Life.

On October 10, 1997, Zurich wrote Mr. York the following letter:

October 15^th 1997 will mark the 104 week anniversary from which your entitlement to an Income Replacement Benefits arose, as a result of injuries you sustained in the motor vehicle accident of October 15^th, 1995.

At this time, we must advise that part VI of the Statutory Accident Benefits Schedule (SABS) specifies that "an Insurer shall pay weekly Loss of Earning Capacity Benefits (LECB) instead of weekly Income Replacement Benefits (IRB) if the payment of LEC benefits is authorized by part VI of the Regulation.

Payment of a LEC benefit is based on how the impairment affects your capacity to earn income. In order to establish a benefit amount, we must measure the difference between what your pre-accident earnings were deemed to have been and what you are now capable of earning with your current impairment. The amount of your LECB offer is established at 90% of the difference between your Pre-accident Earning Capacity (PEC) and your Residual Earning Capacity (REC).

In accordance with section 29 of the Regulation, we have established $28,906.93 per year gross as your Pre-accident Earnings Capacity (PEC). This amount was established by using the weekly income currently used in the calculation of your Income Replacement Benefit.

Your Residual Earning Capacity (REC) is calculated by having regard for the employment you are "able and qualified" to perform at the 104 week period with respect to your transferable skills and vocational characteristics, and whether or not such employment exists in the area where you live, as per Section 30 (2) of this Regulation.

It has been established that you are capable of full time employment as a Dispatcher.

Based on our survey of the earning potential of the above noted vocations, we have established our residual earning capacity (REC) at $26,000.00 gross annually.

At this time, we confirm that the payment of a Loss of Earning Capacity Benefit authorised under this part of the Regulation is $33.98 per week. This has been arrived at by subtracting the net weekly REC figure from the established net PEC figure, and payment is 90% of the difference.

From the LEC figure we are obliged to deduct the collateral benefit you are receiving, which results in a zero dollar amount as long as you continue to qualify for these benefits.

If you agree with our determination of your LEC benefit, please complete the form on page 3 of this letter and have it witnessed. We will commence payment of your LEC benefit once we have received this signed and completed form.

If you do not agree with part or all of this offer, you may return this form by indicating which components you are disputing. Depending on what you are disputing, the following will happen:

1. If you do not agree with your PEC, you may file for mediation through the Ontario Insurance Commission (OIC) as a way of resolving this dispute.

2. If you do not agree with the REC, then you must attend a REC assessment at the appropriate Designated Assessment Centre (DAC) nearest to your home;

3. If you do not agree with both the PEC and the REC, you may commence mediation as a way of resolving the PEC dispute. To resolve the REC dispute you must attend a REC assessment at the appropriate DAC nearest to your home.

If we do not receive this document from you by November 24^th, 2997, forty-five (45) days from the date of this letter, you will be deemed to have rejected both the PEC and the REC calculations. If you do not return this form by November 24^th, 1997, this is your notice that we will arrange a REC assessment at the DAC location nearest to your home. This notice is required under Section 23(2) of the SABS.

Please note that we are still open to negotiations for a reasonable settlement of this claim.

We will require the completion and return of the enclosed authorization forms (LECB offer & OCF-14 certificate) by November 24^th, 1997 if this offer is rejected.

If you have any questions or concerns regarding these procedures, or the nature of our offer as required by tis Regulation, please do not hesitate to contact the writer.

Mr. York responded through his lawyer, Mr. Mark L. Carniglia, in a letter dated November 19, 1997:

This is in reply to your letter to our client dated October 10, 1997.

Please be advised that Mr. York disputes your residual earning capacity (REC) calculation of $26,600.00 gross annually.

Enclosed is an executed OCF-14 form providing permission to disclose health information to the DAC for the purposes of a residual earning capacity assessment.

A REC DAC was performed in late December 1997 or January 1998. Based on that assessment, Zurich sent Mr. York a letter, dated February 26, 1998, the main part of which is as follows:

The result of this assessment in relation to your LEC benefit is as follows:

PEC -

$28,906.93

REC -

$23,204.00

LEC -

$5,702.93

Divided by 52 weeks -

$109.67

Net Weekly Benefit -

$105.54

90% of your Net -

$95.35

The letter went on to discuss deductions to be made in respect of an overpayment that is not at issue in this proceeding.

Zurich sent another letter on May 12, 1998, the relevant parts of which are as follows:

We have reviewed your LEC benefit, as we have found that we were calculating this benefit incorrectly and we have adjusted your benefits accordingly.

Please advise the writer whether you are receiving collateral benefits from your LTD carrier, as they would be deductible.

The result of this assessment in relation to your LEC benefit is as follows:

PEC - Weekly Gross Amount

$555.90

REC - Weekly Gross Amount

$446.23

PEC - Weekly Net Amount

$416.75

REC - Weekly Net Amount

$341.25

90% Net PEC

$375.08

90% Net REC

$307.13

Weekly Benefit Amount

$ 67.95

The rest of the letter dealt with the readjustment of the 20 percent deductions Zurich was making to collect an overpayment.

On October 15, 1999, Mr. York applied for mediation with respect to the amount of his Residual Earning Capacity. The Report of Mediator, dated January 21, 2000, indicates the parties failed to resolve this dispute. Mr. York applied for arbitration with respect to his Residual Earning Capacity on January 24, 2000.

Zurich states, in its written submissions, that Mr. York's counsel first raised the PEC issue orally during the mediation on January 21, 2000, and, "Up until that time there was no suggestion of any quarrel with the PEC amount." Mr. York applied for mediation of the PEC issue on January 24, 2000, and the application was apparently received by the Commission on January 28, 2000.³The mediation was held in March and April 2000. The Report of Mediator, dated April 20, 2000, indicates that the parties failed to resolve the PEC dispute.

The matter came before me for pre-hearing on September 25, 2000. At that time, Zurich submitted that Mr. York was statute-barred from proceeding to arbitration with respect to the PEC issue. With the consent of the parties, I ordered that the preliminary issue would be determined by written submissions, since the issue is one of legal interpretation and application of the law to the agreed facts.

The Parties' Submissions:

Zurich makes the following alternative submissions:

(i) Mr. York implicitly accepted the PEC component of Zurich's offer by failing to give notice that he disputed it in his counsel's letter of November 19, 1997.

(ii) Mr. York is estopped from disputing the PEC component of the offer because he and his counsel knew that Zurich interpreted the November 19, 1997 letter as an acceptance of it, and they failed to disabuse Zurich of that notion, despite the fact that Zurich relied on that representation to its detriment.

(iii) If Mr. York's silence is deemed to be a rejection of the PEC offer, then time began to run on October 10, 1997, when Zurich made its offer, and had run out by the time Mr. York applied for mediation of the issue on January 28, 2000.

(iv) Subsection 29(1) requires Mr.York's PEC to be equivalent to his net pre-accident income used in determining his income replacement benefits. It is mandatory and there is no alternative offer Zurich could have made. The arbitrator who ultimately hears this matter will not have jurisdiction to substitute any other number.

(v) In any event, as Mr. York's IRB was fixed at the latest on January 16, 1996, the time for disputing Zurich's calculation of his pre-accident income began to run on that date, and Mr. York was out of time when he applied for mediation of the PEC issue on January 28, 2000.

Mr. York makes the following submissions:

(i) Zurich's letter of October 10, 1997 states that Mr. York would be deemed to reject both the PEC and REC components of the offer unless the form were completed, witnessed and returned to Zurich. Since the forms were not completed and returned, Mr. York is deemed to have refused both components of the offer.

(ii) If the drafters intended subsection 29(1) and the other relevant provisions of the Schedule and the Act to preclude access to mediation and arbitration in cases like this one, they would have included express language to that effect.

(iii) Zurich's reasoning suggests that an insured person could be deemed to accept the insurer's position with respect to one benefit issue by remaining silent on that issue while pursuing another benefit issue. This would open the flood gates to similar preliminary motions.

(iv) Subsequent to its October 10, 1997 letter, Zurich presented a different PEC figure in its letter of May 12, 1998. These amended offers extended the time for Mr. York to commence a PEC dispute. His application for mediation, filed on January 24, 2000, was timely.

(v) Even if Mr. York's counsel implicitly accepted the PEC component of Zurich's offer set out in its October 10, 1997 letter, the further offers dated February 26, 1998 and May 12, 1998 remain open for dispute.

Analysis and Conclusion:

This case raises, once again, the issue of the how the time limits provisions of the Act and the Schedule apply to disputes about the amount of benefits to which the insured person is entitled. It is the first case to deal with the application of the limitations provisions to disputes about pre-accident earning capacity.

The Limitations Provisions and FSCO Decisions

Subsection 281(5) of the Act, as amended, is as follows:

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. [bold emphasis added]

Subsection 72 of the Schedule is 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. [bold emphasis added]

(2) Despite subsection (1), an arbitration may be commenced within ninety days after the mediator reports to the parties under subsection 280(8) of the Act.

Commission decisions have established several principles in adjudicating limitation claims. First, the insurer bears the onus of proving that an application for mediation or arbitration is untimely. Secondly, the two-year period begins to run from the date an insured person receives a clear and unequivocal refusal, in writing, pursuant to the notice provisions of the Schedules.⁴ Finally, in State Farm Mutual Automobile Insurance Company and Kirkham, Director's Delegate Draper rejected the argument that the limitation provisions establish a "rolling" or constantly renewing time limit, in which the refusal is renewed in respect of each benefit period.⁵ These principles are not in dispute in this proceeding.

Application to Benefit Rate Disputes

Applying the time limits provisions to disputes about the amount or "quantum" of weekly benefits has proven difficult. The first arbitration case to consider the issue was Coates-Boyce and Zurich Insurance Company.⁶ In that case, the insurer reduced the insured person's benefits to the minimum rate on the basis that she had not provided documentation to support her claim for a higher rate of benefits. The insured person did not apply for mediation until more than three years later. Arbitrator Allen held that the phrase, "the benefit claimed" in subsection 281(5) referred to a category of benefit, including weekly income benefits, and concluded that since the insurer had not refused to pay weekly income benefits, there had not been a "refusal to pay the benefit claimed" under subsection 281(5) of the Act. She then considered the effect of the limitation period in the Statutory Accident Benefits Schedule - Accidents before January 1, 1994. Subsection 26(1), the predecessor to subsection 72(1), stated that the limitation period ran from "the insurer's refusal to pay the amount claimed in the application for statutory accident benefits." The arbitrator found that as the insured person had not claimed any particular amount of benefits in her application for benefits, the limitation period in subsection 26(1) did not apply.

The next arbitration decision to consider the issue was my own decision in Garisto and Halifax Insurance Company.⁷ The facts were similar to those in Coates-Boyce. The insurer initially paid weekly income benefits of $600, but later reduced benefits to the minimum rate on the basis of its further enquiries, while continuing to investigate the matter. The insured person applied for mediation almost three years after the insurer's initial notice of the reduction in her benefits. I rejected the insured person's argument that the insurer had waived the limitation period or was estopped from relying on it by virtue of its ongoing enquiries and communications with the insured person about the quantum issue. After referring to Coates-Boyce, I made the following comments about the interaction of subsection 281(5) of the Act and subsection 26(1) of the Schedule:

The language of subsection 26(1) is curious because nowhere on the Application for Accident Benefits form is the insured person asked to claim a specific amount of weekly benefits, although the form asks for income information on the basis of which the Insurer will set the benefit rate. I received no submissions on this point. In this case, the Applicant gave no income information on her application form, but I find that by her silence she adopted Mr. Tauro's representation [on the Employer's Confirmation of Income form] that she earned a gross pre-accident salary of $800 per week. At no time in the course of the claim has the Applicant wavered from her claim for $600 per week, which I find is "the amount claimed."

Turning to subsection 281(5) of the Act, I find that while "the benefit" refers to the type or category of benefit (weekly income benefits, in this case), "the benefit claimed" means a certain amount of a given benefit. I accept that the Act and the Schedule are ambiguous on this point, but I find that the ambiguity is resolved by considering the underlying legislative objective of expedited dispute resolution. Whether the weekly income benefit paid is $185.60 or $600 per week is of direct financial concern to an insured person and an insurer. In my view, the drafters of the Act and the Schedule intended insured persons and insurers to be able to access mediation and arbitration in order to resolve benefit rate disputes whether or not they have any dispute about the insured person's entitlement to a benefit of that type or category.

I concluded that the insured person was statute-barred from proceeding to arbitration hearing with respect to the quantum dispute.

In Wilson and Wellington Insurance Company,⁸ Arbitrator Manji found that the insurer provided clear and unequivocal notice that benefits were terminated, and the insured person was time-barred because he had not applied for arbitration of that dispute until about three years later. However, as there was no refusal of the insured person's claim for benefits at a higher level, that claim was not time-barred.

The issue next arose in Jakovljevic and Commercial Union Assurance Company.⁹ The insured person received income replacement benefits for a year after the accident, after which benefits were terminated. About two and a half years passed before the insured person applied for mediation of the dispute. He disputed both the insurer's termination of benefits and its calculation of the benefit rate; the insurer sought repayment of benefits paid on the basis that the insured person had received workers' compensation and collateral benefits during that time. The arbitrator found that the insurer's Explanation of Assessment form did not provide clear and unequivocal refusal of benefits. Rather than clearly indicating that benefits were refused, it stated that no benefits would be paid until further financial information was received; in addition, the "eligible" box was checked off.

Arbitrator Bayefsky remarked that the cases "are somewhat at odds on the question of whether payment of an allegedly incorrect amount of benefits triggers the running of the two-year limitation period. "¹⁰ He found that Coates-Boyce and Garisto were not directly applicable because "they deal with situations in which benefits were reduced, as opposed to being paid (allegedly) incorrectly from the outset." The facts were closer to those in Wilson: the insurer "simply provided notice that, while the Applicant was eligible for benefits, no benefits would be paid until certain financial information was received." The arbitrator was not satisfied this was a clear and unequivocal refusal of benefits, and found that "[i]t was certainly not a clear and unequivocal refusal to pay a particular level of benefits." Therefore, the applicant was not time-barred.

Director's Delegate Naylor considered these issues, again in the context of the Statutory Accident Benefits Schedule - Accidents before January 1, 1994, in State Farm Mutual Automobile Insurance Company and Field¹¹ The issue in that case was whether the insurer could rely on the limitation period to bar the insured person from challenging the insurer's deduction of Canada Pension Plan disability benefits. The Insurer's Explanation of Assessment form, in August 1993, indicated the claim was "accepted in entirety." Under "explanation," the insurer set out its calculation of the insured person's base weekly benefit, less CPP benefits, and the balance owing. The insurer relied on a court decision holding that CPP benefits were deductible from a damages award under paragraph 267(1)(c) of the Act,¹² and took the position that the same reasoning applied to the similar language of subsection 12(4)(b) of the Schedule, making CPP benefits deductible from weekly income benefits. However, the Divisional Court reversed the lower court's decision in October 1996, holding that CPP disability benefits are not deductible from damages.¹³ The insured person applied for mediation in December 1996. The decision of the Divisional Court was later upheld by the Court of Appeal,¹⁴ and the Supreme Court of Canada refused leave to appeal.¹⁵

On appeal, Director's Delegate Naylor upheld a series of Commission decisions issued after the Divisional Court decision in Cugliari that have held that CPP benefits are not deductible under paragraph 12(4)(b). The remaining issue, then, was whether the insurer could rely on the limitation period. The Director's Delegate held it could not:

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.

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.

Underlying all these decisions is the recognition that the language of "refusal" found in the time limits provisions "does not necessarily fit well with the accident benefit scheme, which involves periodic benefit payments, requires ongoing assessment and investigation of claims by insurers, and promotes informal dispute resolution in the interest of a long-term relationship between the parties."¹⁶ Despite some variation in application, FSCO decisions are consistent in requiring the insurer, as the party relying on the limitation period, to identify a clear and unequivocal "refusal" of the benefits claimed. As the word "refusal" is not found in Part VI of the Schedule, the application of the time limits provisions to loss of earning capacity benefits is problematic.

The LECB Process

Loss of earning capacity benefits ("LECBs") replace weekly benefits for insured persons with long-term disability. LECBs are distinct from weekly benefits, and Part VI creates a comprehensive code for deciding LECB entitlement. The code is "process driven" in that the insured person and the insurer are required to proceed through a series of steps intended to promote fair and expeditious dispute resolution. Although the LECB process is different from the process for determining entitlement to weekly benefits, there is interaction between the two.

Pursuant to sections 20 and 21, the issue of LECB entitlement does not arise unless the insured person continues to qualify for weekly benefits at 104 weeks, and the insurer's obligation to make an LECB offer is triggered by that ongoing qualification.

Section 20 creates the entitlement:

(1) An insurer shall pay an insured person weekly loss of earning capacity benefits instead of weekly income replacement benefits under Part II . . . if the payment of loss of earning capacity benefits is authorized by this Part. [emphasis added]

(2) A weekly loss of earning capacity benefit under this Part is payable during the lifetime of the insured person and is subject to such adjustments in the amount of the benefit as are provided in this Regulation.

The eligibility criteria are set out in section 21. Mr. York was entitled to an LECB offer under paragraph 21(1)1 of the Schedule because he "qualified for weekly income replacement benefits under Part II and continue[d] to qualify for those benefits 104 weeks after the onset of the disability in respect of which he . . . first qualified for those benefits."

The first step in the LECB process is not a claim by an insured person, but an offer from an insurer, triggered by the insured person's continuing qualification for weekly benefits 104 weeks after the onset of disability. Subsection 21(1) says that "an insurer shall promptly deliver a written [LECB] offer" to a qualified insured person.¹⁷ Subsection 21(5) requires that the offer specify,

(a) the insured person's pre-accident earning capacity determined in accordance with section 29;¹⁸

(b) the type of employment that best satisfies the criteria set out in subsection 30(2);

(c) the insured person's residual earning capacity determined in accordance with section 30; and

(d) the amount of the weekly loss of earning capacity benefit, if any, determined in accordance with section 28.

Pursuant to subsection 21(6), the insurer's offer is also required to include the following notice:

if the offer is not accepted within forty-five days after its receipt or such longer period to which the insurer and the insured person may agree, the insured person shall be deemed to have rejected the offer in respect of both residual earning capacity and pre-accident earning capacity and the insured person will be required to be assessed under section 27.

Subsection 22(1) describes an insured person's permitted responses to an offer:

An insured person who receives the insurer's offer under section 21 may give the insurer a written response,

(a) agreeing to the insurer's offer; or

(b) rejecting the insurer's offer in respect of the person's pre-accident earning capacity or the person's residual earning capacity, or both.

The remainder of section 22 describes the procedure where the insured person agrees to the insurer's offer. Any agreement to pay LECBs must be in writing and must specify the particulars described in subsection 21(5).¹⁹ The insurer shall begin to pay LECBs in accordance with the agreement.²⁰

Section 23 sets out the procedure where there is no agreement. Pursuant to subsection 23(1), silence is deemed to be rejection:

An insured person who does not accept the insurer's offer within forty-five days after receiving it shall be deemed to have rejected the insurer's offer in respect of both residual earning capacity and pre-accident earning capacity.

The process for resolving LECB disputes is prescribed in subsections 23(3) and (4):

23(3) If an insured person rejects the insurer's offer in respect of pre-accident earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on section 29 of this Regulation.

(4) If an insured person rejects the insurer's offer in respect of both pre-accident earning capacity and residual earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on sections 29 and 30 of this Regulation, but no steps shall be taken under sections 279 or 283 of the Insurance Act, other than the filing of an application for mediation, pending receipt of the report of the designated assessment centre under section 27.

The transition from weekly benefits to loss of earning capacity benefits is described in subsections 23(5), (5.1), (5.2) and (8), and section 31 of the Schedule, which dictate when the insurer is authorized to terminate weekly benefits and begin paying loss of earning capacity benefits, which are generally lower. It is now settled law that where an insured person rejects an insurer's LECB offer with respect to REC, or REC and PEC, the insurer cannot replace weekly benefits with LECBs until 14 days after receiving the REC DAC report.²¹ At that time, the insurer may commence paying LECBs based on its PEC offer and the determination of residual earning capacity made by the REC DAC. Disputes about the amount of the LECB may be resolved in accordance with sections 279 to 283 of the Act, but, pursuant to subsection 23(4), no steps shall be taken, other than the filing of an application for mediation, pending receipt of the REC DAC report.

If the insured person accepts the REC offer but disputes the PEC offer, there is no need for a REC DAC assessment. The insurer may, "upon receiving the rejection," commence paying weekly loss of earning capacity benefits based on its offer. The dispute may be resolved in accordance with sections 279 to 283 of the Act.²²

Conclusion

Subsections 23(3) and (4) expressly state that LECB disputes are to be resolved in accordance with sections 279 to 283 of the Act. Subsection 281(5), the time limits provision, is included in sections 279 to 283, and there is nothing in the Act or the Schedule to suggest that the limitation period was not intended to apply to LECB disputes. Further support for this view can be found in the detailed procedural rules set out in Part VI, which are obviously intended to ensure early and orderly resolution of LECB disputes.²³ Moreover, if LECB disputes were allowed to remain open indefinitely, an insurer could be obliged to continue paying weekly benefits indefinitely. These are strong arguments in favour of a finding that the limitation period applies to LECB disputes.

However, there is no reference to an insurer's "refusal" of LECB benefits in Part VI.²⁴ Zurich submits that its offer started the clock running. But the ordinary meanings of "offer" and "refusal" are very different: an offer invites a response and negotiation before a decision is made, whereas a refusal is a decision. Reading an "offer" as a "refusal" flies in the face of the principle that the insurer has the onus of proving that a clear and unequivocal refusal was communicated to the insured person. As Director's Delegate Naylor stated in Field and State Farm, the time limits provisions should not be read "to mean that all decisions affecting the benefit amount, if clearly communicated, attract the time-bar." I can think of no reason why the same strict approach to time limits provisions should not apply in the context of LEC benefits.

The second problem with this interpretation is that subsection 23(1) expressly allows for a 45-day window, after which the insurer must deem the offer rejected, if the insured person fails to respond. By implication, the insurer may not deem silence to be rejection before the end of the 45-day period. I do not accept that the limitation period commences before the period expressly permitted for the insured person to consider and respond to the offer. Perhaps the solution, then, is that the two years commences when the 45-day window closes, or the insured person expressly rejects the offer. But this would mean the limitation period is triggered by the action - or inaction - of the insured person, a distinct departure from the usual model. For every other category of accident benefits, the limitation period is triggered by the action of the insurer. There is nothing in Part VI to suggest a different approach. In the absence of express statutory language, I do not accept that a limitation period can be triggered by the inaction of the party whose rights it extinguishes.

Any attempt to apply the time limits provisions to LECB disputes must grapple with the bifurcated process set out in Part VI for PEC and REC disputes. In this case, Mr. York disputed Zurich's LECB offer with respect to REC within the prescribed 45 days. Accordingly, Zurich's challenge to the timeliness of his subsequent PEC dispute assumes that the Schedule requires a separate rejection of its PEC offer to put the insurer on notice of the dispute. But PEC and REC are not different types of benefits. The only benefit at issue is a loss of earning capacity benefit. The amount of that benefit is calculated, using a prescribed formula, based on the insured person's pre-accident earning capacity and residual earning capacity.²⁵ Pre-accident earning capacity is determined only "[f]or the purpose of determining the amount of a weekly loss of earning capacity."²⁶ In my view, the only reason for the separate treatment of PEC and REC disputes is that they involve different kinds of enquiries. There are two significant distinctions. The first concerns the temporal scope of the enquiry. Arbitrator Allen described the two frames of reference as follows:

As I see it, the time of the accident is a point of departure for two periods during which earning capacity is to be assessed — the first period beginning a reasonable period before the accident and ending at the accident, and the second period starting two years after the accident and extending into the future. A loss in earning capacity then, having regard to an insured's particular qualities and qualifications, is a measure of the difference in income earning capacities between these two periods. ²⁷

Secondly, while a DAC assessment is required where there is a dispute about residual earning capacity, the Schedule does not provide any equivalent step for resolution of PEC disputes; these go directly to mediation and arbitration.²⁸ In many cases, especially where, as in this case, the insured person was employed at the time of the accident, a dispute about pre-accident earning capacity will involve a fairly narrow question about how the Schedule requires PEC to be calculated. Although the PEC enquiry is broader for those who had a more tenuous attachment to the workforce at the time of the accident,²⁹ it still does not require a DAC assessment. The separate provisions for PEC-only issues allows for faster resolution of these disputes.

How the time limits provisions apply where the insured person disputes both PEC and REC is not clear. Reading Part VI as a whole, I find that if the two-year limitation period applies at all, it begins to run only when the insurer is authorized to terminate IRBs and begin paying LECBs based on the REC DAC report. Although the Schedule is silent on the point, I take some comfort in Director's Delegate Draper's analysis in Francis and Allstate.³⁰ That was a weekly benefits case. The issue was whether the two-year limitation period runs from the stoppage notice given under subsection 64(2) or the disability DAC report. The problem is that while subsection 64(11) authorizes an insurer to stop paying benefits if the DAC report states that the insured person is no longer disabled as a result of the accident, the Schedule does not refer to a "refusal." The Delegate concluded that the Schedule sets out a special procedure for terminating weekly benefits on the basis that the insured person no longer meets the relevant disability test. He then turned to 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.

Ultimately, the Delegate concluded that "the clock starts running" after the date of the DAC report, because at that point, he found the insurer is authorized to terminate benefits.

I find the Francis analysis very helpful because I find that the drafters adopted a consistent and coherent approach to the adjustment of the various kinds of statutory accident benefits available under the Schedule. Although subsection 23(4) implicitly allows an insured person to commence mediation prior to receipt of the REC DAC report, no further steps may be taken pending receipt of the report. Pursuant to subsection 23(5), the insurer may not commence paying loss of earning capacity benefits until 14 days after receipt of the REC DAC report. Without express statutory language, I do not accept that the insured person can be expected to decide whether to dispute the offer before the insurer is authorized to act upon it. Further, section 71 of the Schedule provides,

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.

Director's Delegate Naylor considered this section in Sandhu and CAA Insurance, a weekly benefits case. She confirmed the arbitrator’s ruling that the time limit did not commence until the insurer notified the insured person that benefits would be terminated based on the DAC report. Applying the same approach to loss of earning capacity benefits leads to the conclusion that the limitation period is not triggered until the insurer gives written notice that it will commence paying loss of earning capacity benefits authorized under section 23. However, I need not decide what event triggers the limitation period because Mr. York is well within the time limit in respect of his REC dispute, even if the limitation period is triggered 14 days after the insurer's receipt of the report.³¹

Accordingly, if Mr. York had expressly rejected Zurich's offer with respect to pre-accident earning capacity at the same time he rejected the residual earning capacity offer, Zurich would have arranged a REC DAC assessment, and Mr. York would have been entitled to commence mediation with respect to PEC, but he could not have proceeded to arbitration until he received the REC DAC report. At that time he could have proceed to arbitration with respect to both PEC and REC. The same consequences would have followed if Mr. York had not responded to Zurich’s offer at all within 45 days. He would be deemed to have rejected the offer with respect to both PEC and REC, and the dispute would have been resolved as indicated above.

This makes it clear that Zurich’s position depends on its argument that Mr. York’s response to its offer amounted to acceptance of its PEC offer. At its best, Zurich’s argument is that Mr. York’s silence with respect to Zurich's PEC offer, combined with his express dispute of its REC offer, implied acceptance of the PEC offer. I do not accept this. In my view, any ambiguity in the Schedule must be resolved by reference to subsections 21(6), 22(1) and 23(1). Subsection 22(1) contemplates an insured giving a written response to the insurer's offer. Subsection 23(1) provides that an insured person's failure to accept an insurer's offer within 45 days of receiving it is deemed to be rejection of the offer "in respect of both residual earning capacity and pre-accident earning capacity." As required by subsection 21(6), Zurich included this information in its offer. In my view, these express provisions indicate that the drafters of the Schedule intended to preserve the right of insured persons to have LECB disputes resolved in accordance with sections 279 to 283 of the Act, except where the Insurer's offer is expressly accepted. I can think of no policy reason to depart from this general remedial objective.

Zurich also relies on the common-law doctrines of waiver and estoppel. Waiver is a voluntary and intentional relinquishment of a known legal right. Although waiver may be implied from a course of conduct, that conduct must be unequivocal. In my view, subsections 22(1), 22(6) and 23(1) provide a complete answer to the waiver argument. Subsection 22(1) states that, in response to an insurer’s offer, an insured person may give a written response agreeing to the offer, or rejecting the offer "in respect of the person's pre-accident earning capacity or the person's residual earning capacity, or both." Subsection 23(1) states that an insured person who does not accept the offer within 45 days is deemed to have rejected it "in respect of both residual earning capacity and pre-accident earning capacity." By implication, an insured person accepts the insurer's offer in respect of pre-accident earning capacity only by giving the insurer a written response expressly stating that he accepts the offer in respect of PEC, and he accepts the offer in respect of residual earning capacity only by accepting the REC offer expressly and in writing. In my view, the legislature opted for preserving the right of an insured person to dispute an LECB offer where there is any doubt as to whether the offer has been accepted with respect to both REC and PEC.

Promissory estoppel requires a representation that the speaker will not rely on its rights and the other party’s reliance to its detriment. For the reasons I rejected Zurich’s waiver argument, I do not accept that Mr. York’s silence amounted to a representation that he accepted Zurich’s PEC offer. In addition, Zurich has not provided evidence of detrimental reliance. I heard no evidence that Zurich changed its position or conduct once advised there was a PEC dispute, or that it would have done so previously if notified earlier.

Arbitrator Bayefsky rejected a similar argument in Jakovljevic:

The only remaining question is whether the Applicant’s "acquiescence" in the quantum established by the Insurer (in the sense that he did not challenge the amount paid until he filed for mediation more than two years from the initial payment) precludes him from arbitrating a higher amount for the full duration of the claim. I find that it does not. As stated earlier, the mere stoppage of benefits does not constitute a clear and unequivocal refusal of benefits. Similarly, the mere payment of a particular quantum of benefits (which goes unchallenged) does not constitute a clear and unequivocal refusal to pay a certain level of benefits. The provisions creating a limitation period do not refer to time running from the date an undisputed payment is made; they focus on the insurer’s conduct in denying a benefit claimed. In this case, the clock could not begin to run since there is no evidence the Insurer ever refused to pay the benefit now being claimed by the Applicant. The most that can be said is that the Insurer refused these benefits at mediation, but the mediation was held in May 1998, in which case, the arbitration of the quantum issue would be well within the legislated time limits.

This conclusion is consistent with FSCO jurisprudence. Commission adjudicators have not accepted that waiver or estoppel prevent an insurer from relying on the statutory limitation period merely because it continued to make enquiries and communicate with its insured about other issues in the claim.³² Again, an insurer's payment of benefits does not constitute waiver or estoppel of its rights to dispute entitlement, or even to request repayment of benefits already paid. Moreover, both parties to arbitration proceedings are permitted to raise new issues not identified in the early adjustment of the claim, subject to requirements for mediation, issue definition and notice. For example, insurers are permitted to raise new challenges to the rate of benefits paid, despite having challenged only the duration of benefits previously. The Commission's reluctance to find waiver or estoppel in silence or a course of conduct relates to the remedial objectives of the accident benefits scheme, which is intended to encourage ongoing communication between an insured person and his or her first-party insurer, resulting in prompt payment of ongoing periodic benefits by insurers, and in early resolution of disputes. Therefore, I am not satisfied that Mr. York's silence with respect to Zurich's PEC offer amounted to acceptance of the offer or a waiver of his right to reject the offer. If I am wrong in my analysis, I find that the Insurer's amended offer, dated May 12, 1998, triggered the start of a renewed limitation period. That offer set out a substantially reduced figure for pre-accident earning capacity and loss of earning capacity benefit, apparently reflecting net weekly income, pursuant to subsection 29(1); the earlier offers appear to have been based on gross weekly income. Mr. York was entitled to consider the implications of the change. He did so, and identified the PEC dispute in January 2000, within two years of the amended offer.

The amended offers also provide an answer to Zurich’s submission that time began to run when it determined Mr. York's net weekly income for purposes of income replacement benefits in January 1996. Alternatively, Zurich submits that as subsection 29(1) is mandatory, "there was no alternative offer that could be made by the insurer," and the arbitrator will not have jurisdiction to substitute any other number. Loss of earning capacity benefits are distinct from weekly benefits, and there are special rules for determining LECB entitlement and amount. Although subsection 29(1) sets out a method for determining PEC, insurers and insured persons may take different approaches to applying that provision. This case provides an example: Zurich provided two different figures for pre-accident earning capacity, and three different ways of calculating Mr. York's loss of earning capacity benefit. I find that subsections 23(3) and (4) of the Schedule clearly anticipate that the parties may disagree about PEC, and that the dispute may be resolved by arbitration.³³

This leaves the question of when the clock starts ticking where the insured person disputes the PEC component of the offer, but not the REC component. Under subsection 23(5.2), if the insured person disputes PEC, the insurer may, "upon receiving the rejection," begin paying LECBs based on its offer, pending dispute resolution under sections 279 to 283 of the Act. Reading subsection 23(5.2) together with section 71 suggests that the limitation period commences when the insurer gives written notice that it will begin paying LECBs based on the offer. However, I do not need to decide this question because I find that Mr. York rejected both components of Zurich's offer by 45 days after receiving the offer of October 10, 1997, or on November 19, 1997, when his lawyer expressly rejected the residual earning capacity component of the offer without comment on the PEC component. As Mr. York applied for mediation of his loss of earning capacity dispute on October 15, 1999, his application is not time-barred, even if the limitation period commences with the insured person's rejection of the insurer's offer. If I am wrong in this, I find that a new PEC offer was made on May 12, 1998, triggering a new limitation period, and that Mr. York’s application for mediation was, again, timely. Accordingly, the motion is dismissed.

EXPENSES:

Pursuant to Rules 73 to 77 of the Dispute Resolution Practice Code - Third Edition (April 15, 1997), the Commission may be contacted if the parties are unable to agree on arbitration expenses.

July 30, 2001

Nancy Makepeace

Arbitrator

Date

Neutral Citation: 2001 ONFSCDRS 115

FSCO A00-000126

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

MICHAEL YORK

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

ARBITRATION ORDER

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

1. Zurich’s motion is dismissed. Mr. York’s application for arbitration with respect to the pre-accident earning capacity component of Zurich's loss of earning capacity benefits offer is not time-barred pursuant to subsection 281(5) of the Act and subsection 72(1) of the Schedule. The matter may proceed to arbitration together with the dispute with respect to residual earning capacity.

2. If the parties are unable to agree about the expenses of this motion, an expenses hearing may be arranged in accordance with Rules 73-77 of the Dispute Resolution Practice Code - Third Edition (April 15, 1997).

July 30, 2001

Nancy Makepeace

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. 2Subsection 7(2) of the Schedule requires a person who applies for benefits on the basis of being employed at the time of the accident to designate the four weeks before the accident, the 52 weeks before the accident, or the 156 weeks before the accident as the period on the basis of which his or her gross annual income will be calculated pursuant to subsection 9(1). In the case of an insured person who designates the four weeks before the accident, gross annual income is the person's gross income for the four weeks multiplied by thirteen.
3. 3Mr. Smitiuch's covering letter, dated January 24, 2000, is found at Tab E of the Applicant's Responding Submissions. Zurich states, in para. 9 of its submissions, that the application "was received at the Commission on January 28^th, 2000 (it appears)." This decision does not turn on the choice of either date.
4. 4Zeppieri and Royal Insurance Company of Canada (OIC A-005237, February 17, 1994), confirmed on appeal (OIC P-0005237, December 22, 1994).
5. 5The Divisional Court held that the appeals decision in Kirkham was correct. The Commission's general approach to time limits cases was recently reviewed in State Farm Mutual Automobile Insurance Company and Field, (FSCO P98-00046, January 17, 2000) and Jakovljevic and Commercial Union Insurance Company, (FSCO A98-001163, July 26, 1999); see the cases cited in footnote 2 of the latter.
6. 6(OIC A95-1333, January 13, 1997).
7. 7(FSCO A97-001481, September 17, 1998).
8. 8(OIC A96-000119, May 16, 1997).
9. 9Supra, note 5.
10. 10At p. 9 of the decision.
11. 11Supra, note 5.
12. 12Cugliari v. White, (1994), 21 O.R. (3d) 223 (Gen.Div.).
13. 13(1996), 1996 CanLII 11778 (ON CTGD), 31 O.R. (3d) 42 (Div.Ct.).
14. 14(1998), 1998 CanLII 5505 (ON CA), 38 O.R. (3d) 641 (Ont.C.A.).
15. 15[1998] SCCA No. 302.
16. 16Garisto and Halifax, note 7, above. In a footnote to the quoted comment, I noted: "The same difficulty has been noted in the "rolling time limit" cases: State Farm and Kirkham (OIC P96-00069, January 27, 1997)."
17. 17In this case, Zurich duly delivered its offer promptly at the 104-week point, on October 10, 1997.
18. 18Section 29 sets out the rules for determining pre-accident earning capacity. There is no dispute that the applicable provision in this case is subsection 29(1): Mr. York had been employed at his pre-accident job for about three years at the time of the accident. The relevant part of subsection 29(1) provides that the pre-accident earning capacity of a person who is entitled to receive weekly income replacement benefits on the basis of having been employed at the time of the accident is deemed to be the person's net weekly income from employment used in determining the amount of his weekly income replacement benefits immediately before the commencement of LECBs. The criteria for determining residual earning capacity are set out in section 30 of the Schedule. I need not review that section in detail because Zurich does not question Mr. York's right to proceed to arbitration with respect to REC.
19. 19Subsection 22(3).
20. 20Subsection 22(4).
21. 21Subsection 23(5), 23(5.1) and section 31. See Simpson and Trafalgar Insurance Company, (FSCO A98-000215, July 16, 1998); Rocca and GAN Canada Insurance Company, (FSCO A97-000147, December 31, 1998) confirmed on appeal (FSCO P99-00003, July 20, 1999); Martins and Commercial Union Assurance Company, (FSCO A98-000552, March 24, 1999); Blake and Jevco Insurance Company, (FSCO P99-00050, November 9, 1999); and, most recently, Smith and Allstate Insurance Company of Canada, (FSCO A97-001789, July 4, 2001).
22. 22Subsections 23(3) and 23(5.2).
23. 23For example: an insurer shall "promptly" deliver a written offer to a qualified insured person [subsection 21(1), subject to extension in accordance with subsection 21(8)]; the insured person has 45 days to respond, after which, he will be deemed to have rejected the offer [subsection 21(6) and 23(1), subject to an extension agreed under subsection 23(7)]; a party may apply for mediation of a REC dispute, although he cannot take any further steps pending receipt of the REC DAC report [subsection 23(4) and (5)]; and the insurer shall notify the appropriate DAC centre within 15 days of an agreement or requirement that an insured person be assessed [subsection 27(1)].
24. 24Section 31 deals with termination of weekly benefits after loss of earning capacity benefits (if more than zero) begin to be paid, without referring to a "refusal."
25. 25Section 28.
26. 26Subsection 29(1). Similarly, section 30, which sets out the method of determining residual earning capacity, begins with the words, "[f]or the purpose of this Part . . . ."
27. 27Lehman and GAN Canada Insurance Company, (OIC A96-001417, October 27, 1998), confirmed on this point (FSCO P97-00064, August 10, 1998).
28. 28Subsection 281(1) also provides the option of commencing a civil action or submitting the issue to an arbitrator under the Arbitration Act, 1991.
29. 29Subsections 30(2) and (3) apply to persons who were not employed at the time of the accident, but were employed at some point during the previous 156 weeks; persons who were self-employed, and persons who initially received caregiver benefits. For these insured persons, pre-accident earning capacity is based on what the person "could reasonably have earned at the time of the accident, having regard to the person's personal and vocational characteristics at that time." The phrase "personal and vocational characteristics" is defined in section 1 of the Schedule.
30. 30Francis and Allstate Insurance Company of Canada, (FSCO P99-00014, June 11, 1999). I am aware of no decisions directly on the point at issue in the instant case.
31. 31In Francis and Allstate, Delegate Draper found that time begins to run when the disablity DAC report is released. His decision did not turn on that finding, since the proceeding would have been time-barred only if time started running with the stoppage notice under section 64(2). Unlike subsection 23(5), subsection 64(11) makes no reference to "receiving the report."
32. 32Offeh and Allstate Insurance Company of Canada (OIC Appeal P-006494, July 3, 1996) confirming (OIC A-006494, October 25, 1994); Zeppieri and Royal Insurance Company of Canada (OIC Appeal P-005237, December 22, 1994) confirming (OIC A-005237, February 17, 1994). See also Bissoon and Pilot Insurance Company (OIC Appeal P96-000084, October 8, 1997) confirming (OIC A95-000120, March 7, 1997).
33. 33But see Arbitrator McMahon’s decisions in Gauthier and Allstate Insurance Company of Canada, (FSCO A98-000805, June 21, 2000) and Smith and Allstate Insurance Company of Canada, (FSCO A97-001789, July 4, 2001). In Gauthier and Allstate, the arbitrator held that the insurer could not dispute causation to oppose paying loss of earning capacity benefits after continuing to pay income replacement benefits to the 104-week mark without protest. In Smith and Allstate, the insurer challenged the causal relationship between the accident and the insured person’s impairments, for the first time, after paying loss of earning capacity benefits for more than three years. The arbitrator held that the three-year review is concerned only with residual earning capacity, and that pre-accident earning capacity "is fixed at the time LECBs are first paid." It was too late for the insurer to dispute the insured person’s entitlement to income replacement benefits.