Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2001 ONFSCDRS 137 Appeal: P01-00014

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ALBA ALEMAN Appellant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Respondent

Before: Stewart M. McMahon, Director's Delegate

Appearances: Rod Hare and Mark Rowe (for Ms. Aleman) Philippa Samworth (for State Farm)

APPEAL ORDER

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

The appeal is dismissed.
The Appellant shall pay the Respondent's expenses of the appeal fixed at $500.

September 21, 2001

Stewart M. McMahon Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Following a motor vehicle accident, both the insured person and the insurer will typically want to conduct medical and rehabilitation assessments. Section 24 of the SABS-1996¹ provides that some of those expenses must be paid for by the insurer, irrespective of whether the expenses relate to assessments undertaken at the insured person's behest, or are initiated by the insurer. However, not all such expenses are payable by the insurer. The opening sentence of s. 24 contains two important limitations. It reads as follows:

24(1) The insurer shall pay for all reasonable expenses incurred by or on behalf of an insured person for the purpose of this Regulation in obtaining and attending an examination or assessment or in obtaining a certificate, report or treatment plan....

The first limitation is that the expense must be reasonable. The second is that only expenses incurred "for the purpose of the Regulation in obtaining and attending an examination or assessment or in obtaining a certificate, report or treatment plan," are payable. The second limitation suggests there must be a link between the expense, and the advancement of a claim for benefits available under the SABS.

In this case, the arbitrator concluded that the Appellant failed to adduce sufficient evidence to establish the link between the assessment and a claim for benefits. Mrs. Aleman appeals from this finding. She argues that it was improper for the arbitrator to embark on this inquiry, because State Farm did not initially challenge the purpose for which the expense was incurred. In the alternative, the Appellant argues that there was sufficient evidence to establish the purpose of the assessment, and the arbitrator erred when she concluded otherwise.

II. ANALYSIS

Should State Farm be limited to arguing the reasons for denying the benefit as set out in its initial notice of refusal?

Shortly after the accident, State Farm arranged for an in-home assessment of Mrs. Aleman's daily activities. The arbitrator found that approximately a year after the accident, Mrs. Aleman's lawyer "facilitated" an in-home assessment by Profile Investigations ("Profile"). The pre-printed referral form was signed by the family doctor and then faxed to Profile from the lawyer's office.

After the assessment, Profile delivered the report and account to State Farm, which refused to pay the account on the basis that it already had an in-home assessment on file and "as such it is not reasonable and necessary." When the account was delivered a second time, State Farm reiterated its initial reason for denying the account, and added that it had not asked for the assessment to be done.

State Farm's refusal prompted the Appellant to apply for mediation, which failed, and then to apply for arbitration. In State Farm's Response to an Application for Arbitration, it stated that Profile's assessment was not reasonable and necessary, because nothing had changed in the interim between the two assessments.

However, the appeal decision in Tsimidis and Liberty Mutual Insurance Company, (FSCO P99-00013, August 28, 2000) was released shortly before the arbitration hearing. The arbitrator notes that State Farm relied on this decision to expand the reasons for denying the claim. State Farm took the position that the expense was not payable because the referral was not reasonable, the report was not ultimately helpful, and the cost charged was not reasonable in view of the time spent, and expertise of the assessor.

The arbitrator also noted that the Appellant treated the question of whether the expense was "incurred...for the purpose of this Regulation..." as obvious or admitted, when it was not.

The Appellant took the position at arbitration that State Farm should be limited to arguing that the expense was not reasonable as it was a duplication of services. The Appellant argued that once an insurer delivers a denial of benefits it must defend any subsequent arbitration solely on the grounds set out in the initial notice, and that it is precluded from developing any additional defences. The arbitrator rejected this argument, relying on Arbitrator Wacyk's decision in Sivanesan and CIBC Insurance, (FSCO A99-000872, January 4, 2001).

Arbitrator Wacyk started her analysis by referring to the fact that the insurer is under a statutory obligation to provide reasons for any denial of benefits. She also acknowledged the important role these reasons can play in the insured person's decision to accept or challenge the denial, and she expressed some concern about the difficulties inherent in trying to litigate against a "moving target." However, she concluded that nothing in the provisions requiring the insurer to give written notice of its reasons for denying the benefit, suggested that the insurer could not expand on those reasons at a later date. The arbitrator noted that the insurer is obliged to give its reasons for denying a claim for a s. 24 expense within 30 days, which suggested to her that the drafters of the legislation wanted to encourage insurers to give speedy consideration to a demand for benefits, rather than delay the decision to allow for a comprehensive response. She concluded that it would be inappropriate to restrict the insurer to the reasons set out in its initial denial. Later decisions reflect a similar approach.

In Nunes and St. Paul Fire and Marine Insurance Company, (FSCO A00-000501, August 15, 2001- under appeal), Arbitrator Sampliner acknowledged that in some cases the insured person might be taken by surprise by a new reason for denying the claim. In rejecting the argument that the insurer should not be permitted to raise new defences, he stated that this situation could be dealt with "far less drastically through an adjournment to allow the party to address the new evidence or position."

In Smith and Citadel General Assurance Company, (FSCO A00-000984, June 27, 2001- under appeal), Arbitrator Renahan also rejected the suggestion that the insurer should be limited to its initial reasons for denying the claim.

I agree with and adopt the reasoning in these decisions. I am particularly influenced by the short time-frame within which the insurer must give reasons for denying a claim. This obligation, coupled with the onerous interest provisions found in the SABS, and the possibility of a special award, are all designed to ensure that the insured person gets an immediate response to its demand for benefits. Part of the exchange for such a prompt reply must be a generous consideration of a request to rely on new reasons for denying the claim. From an insured person's perspective, the advantages of a system that demands insurers respond quickly to claims, far outweighs the downside inherent in allowing the insurer to defend an arbitration hearing on grounds beyond those set out in the initial denial.

I reject the Appellant's argument that an insurer can never go beyond the reasons for denying the claim set out in its initial notice of denial. To my mind, the real question is how to manage the arbitration process so that prior to the hearing the insured person knows the case she must make, and has fair disclosure of the defences that will be raised by the insurer.

The Appellant argues there cannot be fair disclosure unless the insurer files an amended Response to the Application for Arbitration every time it develops a new reason for denying the claim. Likewise, it argues that if the new defence is asserted after the pre-hearing, an additional pre-hearing should be held in every case. The Appellant argues that because neither of these steps were undertaken, the arbitrator erred in considering the additional defences.

The arbitration unit at the Commission has consistently tried to keep formalities to a minimum, and parties are routinely permitted to alter their position without formal amendment. There will be some cases where consideration should be given to holding an additional pre-hearing, but in most cases adequate disclosure and arrangements can be made without this formality.² The decision to allow or refuse the insurer's request to rely on a new reason for denying the claim, must be made on a case-by-case basis. The overriding factor must be fairness. In most cases, the decision will turn on whether or not the insured person will be unduly prejudiced by the new defence.

In this case, the appellant argued that the arbitrator erred in allowing State Farm to rely upon additional reasons for denying the claim because she was not told about them until the arbitration hearing had started, and hence, was not in a position to call the witnesses necessary to deal with the new issues. The problem with this submission is that there is no evidentiary basis for it. The Appellant chose not to order a copy of the transcript, and the appeal record does not refer to any such complaint, or a request for an adjournment or other form of relief. In the absence of such evidence, the Appellant's argument on this point cannot succeed.

The Appellant argued in the alternative, that if the arbitrator did not err in restricting the hearing to a consideration of the insurer's initial reason for denying the claim, she erred in concluding that insufficient evidence had been tendered to establish that the assessment was undertaken for the "purpose of this Regulation."

Did the arbitrator err in concluding that the appellant had failed to present sufficient evidence to establish that the expenses were undertaken for "the purpose of this Regulation?"

When considering whether the Appellant had established the link between the assessment and the Regulation, the arbitrator noted the reference on the cover sheet of the Profile report to such details as State Farm's policy number and the date of the accident, and referred to a preliminary paragraph that stated the assessment was "required for the preparation of a treatment plan or for the ongoing medical rehabilitation management of claim and benefit entitlement issues." The arbitrator found that this paragraph was part of a standard format used by Profile, rather than positive evidence that Profile had been asked to undertake the assessment for any particular purpose. In fact, the arbitrator went on to state that "evidence should have been offered that this report was intended to be used to establish a treatment plan, was otherwise useful in the course of Mrs. Aleman's rehabilitation, or was used in some way in a dispute with the Insurer over her entitlement to some benefit under the Schedule." The arbitrator found that there was no evidence that the information gathered in the report was "used by anyone for any purpose." In particular she noted that there was no evidence that a treatment plan was prepared after the release of the report, that the chiropractor used the assessment in his ongoing treatment of the appellant, or that the family doctor used the report in any fashion. Nor was there any evidence that Mrs. Aleman's legal counsel used the report in any way.

Notwithstanding a few recommendations at the end of the report, for an exercise program, and some education, she found that the assessment was essentially a compilation of information concerning Mrs. Aleman's pre-accident routines, and that standing alone, its "value is minimal." In the absence of some evidence that someone used this data, the arbitrator found that the Appellant had failed to discharge the onus of establishing that the expense was incurred for the purpose of the Regulation.

The Appellant relies upon Smith and Citadel, in which the arbitrator determined in very similar circumstances that the assessment had been undertaken for the purpose of the Regulation. In Smith, the arbitrator considered a demand for payment of an in-home assessment conducted by the same kinesiologist who performed the Aleman assessment. The arbitrator referred to a similar set of recommendations for exercise and education as found in the Aleman report. He went on to find that "all these recommendations are for rehabilitation purposes and for the type of benefit available under the Schedule," and that therefore the assessment expenses were incurred for the purpose of the Regulation.

The Appellant argues that given the striking similarity between the two cases, the different findings are inconsistent. However, the Appellant's submissions ignore, that the arbitrator in Smith and Citadel went on to deal with whether or not the assessment was a reasonable expense. In that context, he discussed the fact that he received very little evidence (but certainly more than in the present appeal) to suggest that anyone used the reports generated by Profile. In the absence of such evidence, he concluded that the insured person had not proven it was a reasonable expense.

The arbitrators in both cases stated the need for some positive evidence about the intended use of the report. They only differed on when to consider this matter. In the case under appeal, the arbitrator concluded that the Appellant had failed to get over the initial hurdle of establishing the link between the expense and the Regulation. In contrast, the arbitrator in Smith and Citadel set a lower threshold for the initial question, but concluded that the expense was not reasonable. In either event, the absence of sufficient evidence concerning the use to which the assessment was to be put, was fatal to the claim.

I agree with the suggestion that there must be some evidence to establish the link between the assessment and the claims process. However, in the arbitration decision in Tesfai and Allstate Insurance Company, (FSCO A99-000321, July 26, 2000 - under appeal), I set a relatively low threshold concerning the link between the assessment and a claim for benefits, preferring to focus on whether the assessment, including the decision to undertake the assessment, was reasonable. This would appear to have been the approach favoured by the arbitrators in Smith and Citadel and in Nunes and St. Paul Fire.

One of the advantages of focussing on the reasonableness test, rather than on the initial threshold question, is avoiding inconsistences in the treatment of the threshold for s. 24 assessments and IMEs undertaken pursuant to s. 42.

Which ever approach is favoured, it is entirely appropriate for the arbitrator to demand some positive and pointed evidence concerning the use to which the report was intended to be put, and in the absence of such evidence to dismiss the claim. I see no basis for interfering with the order dismissing the claim.

III. EXPENSES

This appeal had very little chance of success.

First, Profile had argued unsuccessfully in three separate arbitrations that the insurer should be restricted to the reasons set out in its initial denial. While the Appellant is certainly entitled to seek an appellate ruling on the issue, the arguments on appeal failed in any real measure to address the reasons provided in any of the arbitration decisions. Without grappling with the arbitrators' reasons, there was little chance of overturning this decision.

Second, the Appellant's argument that it was prejudiced by the arbitrator's decision to allow State Farm to advance alternative reasons for denying the claim, had virtually no chance of succeeding given that the appellant proceed without ordering the transcript.

Third, the Appellant's final argument, that relied on the Smith and Citadel case, ignored the second half of the arbitrator's ruling.

In all of the circumstances, I award the Respondent its expenses of the appeal. However, I fixed them at a modest amount. The Appellant shall pay to the Respondent the expenses of the appeal fixed at $500.