Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2001 ONFSCDRS 183

Appeal P01-00024

OFFICE OF THE DIRECTOR OF ARBITRATIONS

CERTAS DIRECT INSURANCE COMPANY

Appellant

and

MARIA RUDNICKI

Respondent

Before:

David R. Draper, Director of Arbitrations

Counsel:

David Murray (for Certas)

Kevin Wolf (for Maria Rudnicki)

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 and the arbitration order dated April 19, 2001 is confirmed.
Certas Direct Insurance Company shall pay Maria Rudnicki’s reasonable appeal expenses.

December 12, 2001

David R. Draper Director of Arbitrations

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Certas Direct Insurance Company (Certas) appeals from an arbitration order dated April 19, 2001, submitting that the arbitrator erred in law in concluding that Maria Rudnicki’s claim for weekly benefits is not time-barred.

Certas claims that it provided Ms. Rudnicki with clear and unequivocal notice that her income replacement benefits (IRBs) were being terminated effective August 2, 1997. In its submission, the arbitrator erred in concluding that its later agreement to pay IRBs up to August 29, 1997 — the 104-week mark — was a reinstatement, preventing it from relying on the earlier date. In the alternative, Certas claims that even if it reinstated benefits up to the 104-week mark, Ms. Rudnicki, who was represented by counsel, had sufficient notice to start the clock running from that date. In either case, it contends that her application for mediation in May 2000 was filed beyond the two-year time limit.

I have considerable sympathy for Certas’ position. As set out in more detail below, the evidence suggests that it attempted to follow the rather complicated rules established in the SABS-1994.¹ Unfortunately, the relationship between IRBs and loss of earning capacity benefits (LECBs) has caused confusion in many cases. Certas seems to have taken the view that IRBs end at the 104-week mark, when the issue becomes LECBs. However, later decisions have rejected that approach.² IRBs and LECBs are alternative types of benefits, both paid on a weekly basis, with LECBs replacing IRBs in the circumstances and according to the procedures set out in Part VI of the SABS-1994. As a general rule, where IRBs are paid to the 104-week mark and an LECB offer is made, the insurer is required to continue paying IRBs until LECBs are determined.³

By making an LECB offer, Certas accepted that Ms. Rudnicki continued to qualify for IRBs at the 104-week mark. Otherwise, she would not have been entitled to an offer. Nothing in the record suggests that she abandoned her claim for ongoing benefits, although it appears that, like Certas, she may have felt that her ongoing entitlement was restricted to LECBs. In the circumstances, I am not persuaded that the arbitrator erred in allowing Ms. Rudnicki’s claim to proceed, including her claim for IRBs.

Regrettably, the situation has been complicated by the passage of time and the fact that the LECB process was never completed. The parties now face difficult issues about what, if any, benefits are payable. Nevertheless, Ms. Rudnicki is entitled to advance her claim for ongoing benefits after August 29, 1997 — whether IRBs, LECBs, or some combination of the two.

II. ANALYSIS

There is no controversy about the applicable law. The combination of s.281 of the Insurance Act⁴ and s.72 of the SABS-1994 creates a two-year time limit for challenging an insurer’s refusal to pay benefits. The insured person must apply for mediation within two years of the insurer’s refusal to pay the benefits claimed. As long as this time limit is met, he or she can apply for arbitration within two years of the insurer’s refusal, or 90 days after the Report of Mediator, whichever is later. The question in this case is whether Ms. Rudnicki met the time limit for applying for mediation.

The factual background is set out in the agreed statement of facts and related documents, and is accurately summarized in the arbitration decision.

Ms. Rudnicki’s claim arises out of an automobile accident on August 29, 1995. She received accident benefits from Certas, including IRBs. According to s.8 of the SABS-1994, entitlement to IRBs continues as long as the insured person remains substantially unable to perform the essential tasks of his or her pre-accident employment. There is no time limit. IRBs do not automatically end at 104 weeks. They continue until payments are stopped in accordance with s.64 of the SABS-1994, or until they are replaced by LECBs.

Approximately ten months after the accident, Ms. Rudnicki attended an insurer examination at Certas’ request. After obtaining the results, Certas took steps to terminate her IRBs. The rules for termination are found in s.64 of the SABS-1994. The insurer must give notice to the insured person that it intends to stop paying IRBs on a specific date at least 14 days after the insured person receives the notice. The notice must give reasons for the stoppage and advise the insured person about the DAC process.

In this case, Certas sent Ms. Rudnicki and her former lawyer, Ms. Craig, an Explanation of Assessment by Insurance Company form, dated September 11, 1996, stating as follows: “Benefits Discontinued as of September 27, 1996 as per IME dated June 26, 1996. Report stated that insured able to return to graduated duties with a full return to work. Please complete OCF 14 and return if she wants to be assessed at an assessment centre.” The OCF 14 form — Permission to Disclose Health Information to the Designated Assessment Centre — was provided to Ms. Rudnicki.

Ms. Craig notified Certas that Ms. Rudnicki wanted a DAC assessment, and returned the signed OCF 14. The assessment took place at the Mississauga Physical Rehabilitation Centre in October 1996. As required by s.64, Certas paid IRBs pending the result.

Before the DAC issued its report, an overpayment issue arose. Certas wrote to Ms. Rudnicki advising that a cheque for $1,527 had been sent to her in error. She was asked to return the cheque or repay the amount. When Certas learned that the cheque had been cashed, it sent an Explanation of Assessment by Insurance Company form, indicating that her benefits would be reduced by 20% to recover the overpayment, as allowed by s.70(5) of the SABS-1994. The form then advised her that: “If your benefits are discontinued before repayment has been completed, you will be required to pay the remaining balance.”

The DAC released its report in December 1996. Based on its conclusions, Certas wrote to Ms. Rudnicki, stating that from a physical point of view, she was not substantially unable to perform the essential tasks of her pre-accident employment, and should return to work on a gradual basis. Certas agreed to continue paying IRBs, subject to deductions for the overpayment and the income Ms. Rudnicki would earn as she returned to work and increased her hours over time. However, when she did not return to work, Certas refused to pay further IRBs. Its Explanation of Assessment by Insurance Company states as follows: “Benefits discontinued as per DAC recommendations. Benefits paid up to December 20, 1996. An overpayment of $1,324.40 exists on your file.”

On January 15, 1997, a mediation took place with respect to Certas’ earlier refusal to pay certain medical and rehabilitation benefits. At this mediation, the parties agreed to add the issue of IRBs beyond December 20, 1996. According to the Report of Mediator, this issue was resolved. Certas agreed to reinstate IRBs on the condition that Ms. Rudnicki attend a psychological disability DAC. In my view, this is to Certas’ credit, and suggests reasonable level of cooperation between the parties.

The DAC assessment was done in April 1997 at Mississauga Physical Rehabilitation Centre. As a result of this assessment, Certas agreed to continue paying IRBs. On April 28, 1997, the day it received the DAC report, Certas sent Ms. Rudnicki another Explanation of Assessment by Insurance Company. This form has the boxes for both “eligible” and “benefit refused” checked. The explanation is as follows:

Overpayment calculation $84.46 - 20% = $67.57 weekly. Amount outstanding is $1087.94. The Psychological DAC has stated you are disabled. Your benefits will continue. However, the DAC has recommended your gradual return to work. You will be paid weekly benefit based on your participation in the return to work program.

Although Certas accepted its obligation to pay IRBs, it clearly expected Ms. Rudnicki to take steps to return to work. Under the SABS-1994, insured persons are required to make reasonable efforts to return to work (s.13) and to participate in reasonable treatment and rehabilitation (s.73). I note, however, that the penalty for non-compliance is a reduction in benefits, not termination.

On June 5, 1997, Certas wrote to Ms. Craig to confirm a conversation held the previous day. The letter advised Ms. Rudnicki that if she did not participate in a two to three day work trial, her benefits would be “discontinued for non-compliance with the Disability DAC recommendations.” This was followed-up in a letter dated June 30, 1997, in which Certas made a settlement offer, advising Ms. Craig that if she did not respond by July 3, 1997, she should proceed to mediation.

Certas formalized its position on July 18, 1997. In a letter to Ms. Craig, it advised that Ms. Rudnicki’s benefits were being “discontinued because of her failure to participate in the treatment the Psychological DAC has stated was necessary in her recovery.” The letter continues as follows: “Also, she has not returned to work as recommended by the DAC. And, you have not returned the Permission to Disclose Employment form sent to you on June 30, 1997.”

At the same time, Certas sent an Explanation of Assessment by Insurance Company. Like the previous form, it has the boxes for both “eligible” and “benefits refused” checked. The explanation is as follows:

Your benefits are discontinued as of August 2, 1997, since you failed to follow the recommendations of the Psychological Disability DAC and obtain treatment and return to work. Notice was provided to you of the recommendations on April 28, 1997, June 5, 1997 and June 30, 1997. Also, the Permission to Disclose Employment information form sent to you on June 30, 1997 has not been returned as of July 15, 1997. We have paid weekly benefit durind (sic) the time period that you have not complied with the DAC recommendations.

The agreed statement of facts notes that Certas did not send an OCF 17/59, Notice of Stoppage of Weekly Benefits, to Ms. Rudnicki or her lawyer. However, counsel for Ms. Rudnicki concedes that this form applies only to “Bill 59” cases, making it inapplicable here.

In late July 1997, Ms. Rudnicki applied for mediation, claiming that she remained disabled and her doctors did not recommend that she return to work. In my view, there is little question that she had clear and unequivocal notice of Certas’ refusal to pay IRBs beyond August 2, 1997. The real question, as the arbitrator recognized, was whether anything happened to stop the clock.

By this point, Certas had stopped paying Ms. Rudnicki’s IRBs before the 104-week mark. This gave her the right to challenge the refusal, which she did. It is not obvious, therefore, why Certas made an LECB offer in August 1997, particularly given its position that Ms. Rudnicki was capable of returning to her pre-accident job. It may be that with the passage of 104 weeks, Certas thought that it should or could deal with LECBs. However, later decisions have held that this is not the correct approach.⁵

According to s.21(1) of the SABS-1994, an insurer is only required to make an LECB offer if the insured person “continues to qualify for those benefits [IRBs] 104 weeks after the onset of the disability in respect of which he or she first qualified . . .” If IRBs are terminated before the 104-week mark, LECBs do not come into play unless it is determined through arbitration or court that the insured person’s entitlement continued beyond 104 weeks. However, if the insured person remains eligible for IRBs, the insurer must make an LECB offer and continue paying IRBs until relieved from doing so under Part VI of the SABS-1994, particularly s.23. Alternatively, the insurer could take steps to terminate IRBs pending the completion of the LECB process, although this is unlikely to be a practical option in many cases.

In any event, Certas made an LECB offer of zero, taking the position that Ms. Rudnicki’s residual earning capacity (REC) equalled her pre-accident earning capacity. Counsel for Certas attempted to characterize this letter as a restatement of its position that Ms. Rudnicki was capable of returning to work and, therefore, not entitled to either IRBs or LECBs. In my view, however, this letter must be viewed as an LECB offer under s.21 of the SABS-1994. Ms. Rudnicki responded by asking for a REC-DAC assessment, as the letter invited her to do.

The mediation went ahead on October 20, 1997, before the REC-DAC assessment was completed. According to the Report of Mediator, Ms. Rudnicki was claiming ongoing IRBs from August 2, 1997, and LECBs reflecting a REC of zero. Certas agreed to pay IRBs up to August 29, 1997 — the 104-week mark —C and to arrange the REC-DAC assessment.

Certas confirmed this agreement in an Explanation of Assessment by Insurance Company dated October 23, 1997. The boxes for “eligible” and “benefits refused” are both checked, with the following explanation:

You have been paid indexation on your weekly benefit at a rate of 1.5% from January 1/97 to August 29/97. This changes your weekly income benefits from $84.46 to $88.48. You are owed an amount of $136.80 + interest of $19.20 = 156.00. You have also been paid up to the 2 year period from August 2-29/97 for a total $260.61.

The Residual Earning Capacity DAC will be scheduled at Work Able Centre Inc.

Certas objects to the arbitrator’s characterization of its payment as a reinstatement. It points out that benefits were paid for a limited period ending before the mediation, and no interest was paid. It also points to other arbitration decisions where this kind of payment has not been viewed as a reinstatement.⁶

As a general statement, I accept that a lump sum payment of past benefits that does not involve any commitment to pay further benefits should not be treated as a reinstatement for the purposes of the limitation period. However, I agree with the arbitrator that this situation is different. Certas did not simply pay an arbitrary amount to settle the claim. It paid IRBs up to the 104-week mark and accepted its obligation to engage in the LECB process. This must be treated as an acknowledgement that Ms. Rudnicki continued to qualify for IRBs. Otherwise, she would not have been entitled to the offer.

In these circumstances, I agree with the arbitrator that Certas could not rely on its earlier, August 2, 1997 termination. While the arbitrator relied on estoppel, I would look to Certas’ obligations under the SABS-1994. By engaging in the LECB process, it was obliged to comply with the transition rules in Part VI. According to s.31, LECBs do not replace IRBs until the insurer starts paying them, or the amount of the LECBs has been determined to be zero. This does not mean that Certas was entitled to stop payment when it determined that Ms. Rudnicki’s entitlement to LECBs was zero. Where, as here, the insured person asks for a REC-DAC assessment, the general rule is that the insurer cannot switch to LECBs until 14 days after receiving the REC-DAC report.⁷

For similar reasons, I also agree with the arbitrator’s conclusion that the time limit cannot run from August 29, 1997. Certas paid IRBs until this date based on the agreement reached at mediation. However, this agreement, at least on its face, is not as clear as Certas suggests. While Certas did not agree to pay IRBs pending the outcome of the REC-DAC assessment, Ms. Rudnicki continued to pursue her claim for ongoing benefits to cover this period. The only question is the nature of that claim. It may be that both parties assumed that if she was found to be entitled to LECBs, they would be paid back to August 29, 1997. This is not the way the transition is supposed to work and, more importantly, the appeal record does not establish that Ms. Rudnicki abandoned any aspect of her claim for benefits, whether IRBs, LECBs or some combination of the two.

Following the mediation, Certas arranged for a REC-DAC assessment at Work Able, as it said it would. On October 30, 1997, Work Able wrote to Ms. Rudnicki, advising her that the assessment would be done on November 17-19 and 24-28, 1997. After attending on the first day, Ms.

Rudnicki saw two of her treating physicians. They provided correspondence outlining their opinions on the restrictions that needed to be observed for the remainder of the assessment. These letters were forwarded to Certas by Ms. Craig.

Ms. Rudnicki went to Work Able on November 18, 1997, the second day of the assessment, but the assessors refused to proceed on the grounds that the restrictions “precluded the ability to implement the Residual Earning Capacity Assessment.” Certas sent a fax to Ms. Rudnicki’s lawyer the next day, stating as follows:

Today, we were informed by Work Able Centre that you [sic] client would not be completing the remainder of the Residual Earning Capacity DAC scheduled for November 17, 1997 to November 28, 1997. Your client is required to attend this assessment to determine the most amount of money she could earn at this time. Her benefits has [sic] been discontinued as of August 29, 1997. No further benefits will be paid since your client is failing to comply with the REC DAC assessment. At this time we will be billed a no-show fee of $5000.00. If your client wishes to still be assessed, she is required to provide a note from Dr. Klodas and Dr, [sic] Marciniak indicating she is fit to undergo the assessment. Also, you must request the appointment in writing. If this is not completed in 30 days, this file will be closed.

I agree with the arbitrator that this letter is not sufficiently clear and unequivocal to support Certas’ time limit argument. As the arbitrator states, it merely holds out the possibility that the file would be closed without any further benefits being paid. Although the REC-DAC assessment was not completed, the arbitrator found no evidence that Certas closed its file or provided notice that it was doing so.

Following receipt of this letter, Ms. Rudnicki did not take any steps to reschedule the REC-DAC assessment. Nor did Certas. As a result, it was never completed.

In June 1998, seven months after the REC-DAC process was interrupted, Ms. Rudnicki’s new lawyer, Mr. Brian Packard contacted Certas and asked for information. Certas provided the requested information one week later. After another five-month gap in activity, Mr. Packard contacted Certas again, asking about the status of the REC-DAC assessment. Certas responded by letter dated November 26, 1998, explaining what happened with the REC-DAC and stating that her “final weekly payment was August 2, 1997.” The letter also included a settlement offer, the details of which were not disclosed to the arbitrator or me.

Another six months passed before Ms. Rudnicki’s current lawyers filed an Application for Mediation on her behalf in May 2000. The application raises disputes about the termination of IRBs and entitlement to LECBs. While the delays in this case have been substantial, I am not persuaded the arbitrator erred in allowing Ms. Rudnicki to proceed. The situation has left sufficient uncertainty about the status of her post-104 week benefits, whether IRBs, LECBs or some combination of the two, that her claim cannot be viewed as time-barred.

This is not to suggest that Ms. Rudnicki is necessarily entitled to additional benefits, but only that she can pursue her claim before an arbitrator. In my view, the issues in dispute are substantial, requiring a close examination of the provisions in the SABS-1994 dealing with the transition from IRBs to LECBs. Presumably, this will include a consideration of the implications of the agreement reached at the October 1997 mediation, and the consequences of Ms. Rudnicki imposing conditions on the REC-DAC assessment, whether reasonably or unreasonably.

IV. APPEAL EXPENSES

While Certas’ appeal raised legitimate issues, it was unsuccessful. Ms. Rudnicki should not have to bear the cost. Therefore, Certas must pay her reasonable appeal expenses, as set out in the regulations.