Neutral Citation: 2001 ONFSCDRS 60

FSCO A00-000930

BETWEEN:

MARIA RUDNICKI

Applicant

and

CERTAS DIRECT INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Eban Bayefsky

Heard:

March 20, 2001, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Kevin Wolf for Ms. Rudnicki

David Murray for Certas Direct Insurance Company

The Applicant, Maria Rudnicki, was injured in a motor vehicle accident on August 29, 1995. She applied for and received statutory accident benefits from Certas Direct Insurance Company ("Certas"), payable under the Schedule.¹ Certas discontinued weekly income replacement benefits in August 1997. The parties were unable to resolve their disputes through mediation, and Ms. Rudnicki applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issues are:

Is Ms. Rudnicki precluded from proceeding to arbitration because her application for arbitration was filed beyond the two-year limitation period set out in subsection 281(5) of the Act and subsection 72(1) of the Schedule?
Is Ms. Rudnicki entitled to her expenses of this preliminary issue hearing?

Ms. Rudnicki's arbitration was brought in a timely manner and she is, therefore, entitled to proceed to arbitration.
I remain seized on the issue of expenses of this preliminary issue hearing, should the parties be unable to resolve this aspect of the case.

(i) Background

Ms. Rudnicki was injured in a motor vehicle accident on August 29, 1995. Ms. Rudnicki received income replacement benefits ("IRBs") until August 29, 1997. In this arbitration, she is seeking IRBs from August 29, 1997 onward.

On June 26, 1996, Ms. Rudnicki underwent an insurer medical examination ("IME") and on September 11, 1996, the Insurer sent her an Explanation of Assessment stating that benefits were being "discontinued as of September 27, 1996 as per IME dated June 26, 1996." The Assessment also stated that the IME "report stated that insured [was] able to return to graduated duties with a full return to work" and asked Ms. Rudnicki to "please complete [an] OCF 14 and return [it] if she wishes to be assessed at an assessment centre." The Assessment also had the "benefit refused" box under the IRB section checked off. On September 20, 1996, Ms. Rudnicki's initial counsel, Ms. Diane Craig, advised the Insurer that Ms. Rudnicki wished to be assessed at a Designated Assessment Centre ("DAC").

On September 24, 1996, the Insurer sent Ms. Rudnicki another Explanation of Assessment indicating that her IRBs would be reduced by 20 percent to recover an overpayment of $1,527. The Assessment stated that Ms. Rudnicki would be receiving $16.89 less weekly and that "if your benefits are discontinued before repayment has been completed, you will be required to pay the remaining balance." On this form, the "eligible" box under the IRB section was checked off.

On December 9, 1996, after the requested DAC had taken place, the Insurer wrote to Ms. Rudnicki, confirming the DAC's view that she was not substantially disabled from performing the essential tasks of her pre-accident employment and that she should immediately return to work on a graduated basis. The Insurer also indicated that, in order to recover the overpayment, IRBs would not be paid. However, the Insurer agreed to continue paying IRBs after Ms. Rudnicki provided a statement of income from her employer. At the same time, the Insurer sent an Explanation of Assessment, confirming the benefits owing and the overpayment. The Insurer checked off the "eligible" box and the "benefit refused" box under the IRB section. On December 16, 1996, the Insurer sent a further Explanation of Assessment, in which the "benefit refused" box under the IRB section was checked off, and which stated 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 was held between Ms. Rudnicki and the Insurer concerning medical and rehabilitation benefits. At the mediation, the parties agreed to add the issue of entitlement to IRBs beyond December 20, 1996 to the mediation. The Insurer then agreed to reinstate IRBs, on the condition that Ms. Rudnicki submit to a psychological disability DAC.

On April 28, 1997, after the DAC had taken place, the Insurer sent Ms. Rudnicki an Explanation of Assessment confirming the DAC's view that she remained disabled, but that she should gradually return to work. The Insurer stated that Ms. Rudnicki's benefits would continue, but that she would only be paid based on her participation in the return-to-work programme. The IRB "eligible" and "benefit refused" boxes are checked off.

On June 5, 1997, subsequent to the DAC and discussions between the Insurer and Ms. Craig, the Insurer sent a letter to Ms. Craig confirming that if Ms. Rudnicki did not participate in the return-to-work trial, "her benefits will be discontinued for non-compliance with the Disability DAC recommendations."

On June 30, 1997, the Insurer wrote Ms. Craig, in part confirming the Insurer's position that Ms. Rudnicki was capable of returning to work on a graduated basis and that she had not complied with the DAC's recommendations. The Insurer made a settlement offer and stated that if Ms. Craig did not contact the Insurer by July 3, 1997, then Ms. Rudnicki should proceed through the mediation process.

On July 18, 1997, the Insurer sent a letter to Ms. Craig stating that Ms. Rudnicki's "benefits are discontinued because of her failure to participate in the treatment the Psychological DAC has stated was necessary in her recovery." The letter continued as follows: "Also, she has not returned to work as recommended by the DAC. And, you have not returned the Permission to Disclose Employment Information form sent to you on June 30, 1997." An Explanation of Assessment was sent the same day, in which the IRB "eligible" and "benefit refused" boxes are checked off. The following explanation is provided:

"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 parties agree that the Insurer did not provide Ms. Rudnicki with an OCF 17/59, Notice of Stoppage of Weekly Benefits, regarding the stoppage of IRBs as of August 2, 1997.

On July 31, 1997, Ms. Rudnicki filed an Application for Mediation with the Commission regarding IRBs and interest, stating that benefits were paid from September 5, 1995 to August 2, 1997, that the Insured's treating physicians did not recommend a return to work and that the Insured continued to be disabled.

On July 31, 1997, the Insurer wrote Ms. Craig confirming her advice that she had written to Ms. Rudnicki's employer to obtain details of Ms. Rudnicki's period of disability. However, the Insurer stated that they had, in fact, requested a signed Permission to Disclose Employment Information form, that they had requested this form on several occasions and that if this form was not sent by the end of the business day, "Mrs. Rudnicki's file will reflect non-compliance and the unwillingness to not provide this requested form." The Insurer also noted that Ms. Craig had provided a report from Dr. Hanick, but stated that "the more important issue at this time is has Mrs. Rudnicki been receiving the treatment as recommended by the disability assessment Centre?" The Insurer concluded with, "As you know, if you disagree with the recommendations of the DAC, you can dispute through mediation at the Ontario Insurance Commission."

On August 18, 1997, the Insurer wrote Ms. Craig advising her that it had assessed Ms. Rudnicki's loss of earning capacity benefits ("LECBs") at $0.00. The Insurer stated that Ms. Rudnicki's "benefits will be the LEC payment of $0.00," that her "final weekly benefit was paid on August 2, 1997" and that if she wished to dispute the Insurer's assessment of her claim, she could request a Residual Earning Capacity ("REC") assessment.

On September 3, 1997, Ms. Craig wrote the Insurer enclosing a Permission to Disclose Health Information form (OCF-14) in relation to a REC DAC, enclosing information from Ms. Rudnicki's employer concerning pre-accident absences and advising that Ms. Rudnicki had attended for counselling.

On October 20, 1997, the parties mediated the issues previously filed with the Commission on July 31, 1997. At the mediation, the Insurer agreed to pay Ms. Rudnicki IRBs up to 104 weeks from the date of the accident, namely, August 29, 1997. The parties agreed to arrange for Ms. Rudnicki's attendance at a REC DAC. The Mediator noted that the Insurer had made Ms. Rudnicki an LECB offer in the amount of $0.00 and that this issue remained in dispute.

On October 23, 1997, the Insurer sent Ms. Rudnicki an Explanation of Assessment form confirming that she had been paid IRBs, including an indexation of her benefits, up to the two year period, August 29, 1997, and that the REC DAC would be scheduled at Work Able Centre Inc. The IRB "eligible" and "benefit refused" boxes on the form are checked off. The parties agree that the Insurer did not provide Ms. Rudnicki with an OCF 17/59, Notice of Stoppage of Weekly Benefits, regarding the stoppage of IRBs on August 29, 1997.

On November 17, 1997, Ms. Rudnicki attended the initial day of the REC assessment, but based on reports from her treating physicians after that assessment (which outlined restrictions required for the remainder of the assessment) the REC assessors refused to proceed with the assessment on the basis that the restrictions imposed by Ms. Rudnicki's treating physicians "precluded the ability to implement the Residual Earning Capacity Assessment." Since then, the REC DAC has not been completed.

On November 19, 1997, the Insurer wrote to Ms. Craig confirming that Ms. Rudnicki had not completed the REC DAC and that she was "required to attend this assessment to determine the most amount of money she could earn at this time." The Insurer stated that Ms. Rudnicki's "benefits ha[ve] been discontinued as of August 29, 1997" and that "no further benefits will be paid since [she] is failing to comply with the REC DAC assessment." The Insurer also stated that if Ms. Rudnicki still wished to be assessed, she must, within 30 days, provide a note from her doctors indicating she is fit to undergo the assessment and request an appointment in writing, or the file would be closed.

By letter dated June 9, 1998, Ms. Rudnicki's new solicitors, Bergel & Edson, advised the Insurer that they now acted on behalf of Ms. Rudnicki and requested all correspondence to Ms. Rudnicki and all medical information on file. The Insurer provided that information on June 16, 1998.

On November 26, 1998, in response to an inquiry from Mr. Brian Packard of Bergel & Edson, the Insurer wrote a letter advising of the circumstances surrounding the REC DAC and confirming that "Mrs. Rudnicki's final weekly benefit payment was August 2, 1997." The Insurer also noted that the psychological DAC indicated that Ms. Rudnicki could return to work while obtaining psychological treatment, but that Ms. Rudnicki apparently discontinued such treatment and did not return to work. The Insurer made a settlement offer and stated that if this were not accepted, they required further medical, employment and income information from Ms. Rudnicki.

On May 10, 2000, through her current solicitors, Capp, Shupak, Ms. Rudnicki filed an Application for Mediation with the Commission in relation to the termination of her IRBs and the Insurer's LECB offer. The Application stated "IRB improperly terminated or suspended based on client's alleged failure to participate in REC DAC" and indicated Ms. Rudnicki was disputing that her REC was "determined to be zero."

On August 24, 2000, these issues were mediated. The Report of Mediator indicated that it was clarified that Ms. Rudnicki received IRBs up to August 29, 1997 and that she claimed ongoing IRBs beyond this date at a rate of $88.24, subject to indexation. The Report also indicated that the Insurer maintained that the issue of ongoing IRBs had been previously mediated and that it could, therefore, not be mediated again. The Insurer also claimed that Ms. Rudnicki's dispute regarding ongoing IRBs under both Part II and Part VI was time-barred. Finally, the Mediator noted that added to the mediation was Ms. Rudnicki's claim for IRBs up to 14 days after receiving the REC DAC report.

On September 11, 2000, Mr. Kevin Wolf, of Capp, Shupak, filed an Application for Arbitration with the Commission on behalf of Ms. Rudnicki in relation to IRBs beyond 104 weeks and stated that "income benefit terminated on August 29, 1997 without legal justification or medical grounds."

(ii) Law

Arbitration decisions have established a number of principles as to the manner in which the limitation periods under the legislation are to be applied. Some of those principles were summarized in the case of Veldhuizen and Coseco Insurance Company, (OIC A-015549, October 12, 1995), in part, as follows:

(1) To determine if the limitation period applies in a particular case, it must first be determined whether, and when, there was a refusal to pay benefits, and then whether the insurer is estopped from relying on the limitation period that runs from the date of the refusal.

(2) The insurer must show that the refusal was clear and unequivocal, and was communicated to the applicant in writing, with supporting reasons.

(3) An insurer may be estopped from relying on the limitation period if the applicant relied to his or her detriment on the insurer's conduct or if the insurer unreasonably delayed the applicant in processing the claim.

(4) The limitation period runs continuously from the time of the refusal unless the applicant has been mislead or deceived by the insurer in subsequent dealings on the claim.

More recent cases have established that, under Bill 164 (the legislation applicable in this case), an insurer must comply with the termination provisions of sections 64 and 71 of the Schedule, namely, notifying the insured in writing of the availability of the DAC process and the dispute resolution process, before the limitation period can be said to have started running.²

(iii) Findings

I find that Ms. Rudnicki's mediation and arbitration were filed within the time-limits set out in the legislation and that she is, therefore, entitled to proceed to arbitration.

The Insurer urged me to consider the total context of the dealings between the parties in order to determine whether Ms. Rudnicki's arbitration was time-barred. I agree that this is the proper approach in limitation questions. However, I find that communications between the parties evince an ongoing discussion about Ms. Rudnicki's entitlement to IRBs, that the Insurer did not clearly and unequivocally refuse to pay her benefits and that, when benefits were last paid to Ms. Rudnicki, the Insurer did not properly terminate them in accordance with the Schedule.

I find that the dealings between the parties consisted of three stages: June 1996 to April 1997, June to October 1997 and August 1997 onward. The first stage consisted of an IME and termination of benefits, followed by a DAC report and partial reinstatement of benefits and concluded by a mediation and full reinstatement of benefits. The initial Explanation of Assessment, dated September 11, 1996, clearly stated that benefits were being terminated on the basis of the IME and had the "benefit refused" box checked off. However, benefits were subsequently reinstated, both after the DAC in December 1996 and after the mediation in January 1997. The Insurer did not suggest that the initial termination in September 1996 started the clock running on Ms. Rudnicki's arbitration. I agree that this could not be the proper reference point. In my view, a refusal to pay benefits, even if clear and unequivocal, is nullified where the benefits refused are subsequently reinstated. By reinstating benefits, the insurer is notifying the insured that it is no longer relying on the initial termination; that is, it is no longer maintaining that the initial termination was the proper point at which to refuse the insured benefits. The reinstatement stops the clock running until the insured is again refused benefits.

In this case, the Insurer relied on the cases of Zere³ and Murtty⁴ to the effect that settlement discussions between the parties subsequent to a clear refusal of benefits do not re-start the limitation clock. In those cases, however, benefits were not, in fact, reinstated. Where, as here, benefits are reinstated, the insurer is indicating that it believes the insured is still entitled to benefits unless and until it again refuses the insured benefits. In these circumstances, the insurer is not entitled to rely on the initial refusal.

The next stage of the parties' interaction in this case ran from June to October 1997. During that time, the Insurer refused benefits as of August 2, 1997, Ms. Rudnicki applied for mediation, the Insurer reiterated its concerns regarding Ms. Rudnicki's non-compliance and the Insurer assessed Ms. Rudnicki's LECBs at $0.00. As a result of the mediation in October 1997, the Insurer reinstated Ms. Rudnicki's benefits from August 2, 1997 to August 29, 1997. The Insurer submitted that the limitation period began to run from August 2, 1997. However, based on the above analysis, I find that the Insurer's refusal at that point was nullified by the subsequent reinstatement of benefits. In addition to the reasons provided earlier, it would simply not make sense to allow the Insurer to rely on its initial August 2nd termination when it subsequently determined that Ms. Rudnicki should be paid benefits beyond that date. Mediated settlements would be meaningless if an insurer could rely on an earlier termination of benefits. Similarly, arbitrations would be meaningless if they addressed periods for which benefits had already been paid or if the insurer were permitted to determine in its sole discretion whether a period of benefits was to be included or excluded from the scope of a proceeding.

The Insurer pointed to the following comments in my decision in Veldhuizen⁵ to argue that it is not estopped from raising the limitation period:

Finally, I reject the suggestion that an insurer can only assert the limitation period if it has first advised the applicant of the time limit. The legislation is clear that the two year period begins to run when benefits have been refused, not when the insurer advises the applicant of his or her rights to mediation and of the existence of the time limit. An insurer would only be estopped from asserting the limitation period if it had actively led the applicant to believe that the time limit did not apply or had been waived. In light of a clear and unequivocal refusal of benefits, a direct misrepresentation by the insurer would be required to preclude it from invoking what is otherwise a clear statutory restriction on the right to mediation.

In the present case, however, the Insurer reinstated the very benefits it had refused. In my view, this nullifies the initial refusal and, therefore, renders unnecessary any consideration of whether the Insurer had led the Insured to believe that the limitation period ceased to apply. In any event, as discussed earlier, by reinstating benefits, the Insurer was notifying Ms. Rudnicki that it was no longer relying on its initial refusal. In this sense, the Insurer is estopped from using the initial refusal as the point at which the limitation period began to run.

The final stage of the parties' contact began in August 1997. As a result of the October 1997 mediation, the Insurer reinstated IRBs from August 2 to August 29, 1997, the two-year anniversary of the accident. Ms. Rudnicki agreed to attend a REC DAC. The Mediator confirmed that the Insurer's LECB offer of zero was still in dispute. The Insurer submitted that its refusal of benefits occurred, at the latest, on August 29, 1997. I find that the Insurer did not provide Ms. Rudnicki with a clear and unequivocal refusal of IRBs as of August 29, 1997. The Explanation of Assessment sent to Ms. Rudnicki on October 23, 1997 had the "eligible" and "benefit refused" boxes under the IRB section checked off. The Assessment did not indicate that IRBs were being refused beyond August 29, 1997. It simply confirmed the payment of IRBs, including an indexation of her benefits, up to the two-year period and stated that the REC DAC would be scheduled at Work Able Centre Inc. In November 1998, when Ms. Rudnicki's second solicitors inquired as to her claim, the Insurer maintained that her last weekly benefit payment was on August 2, 1997, when, in fact, it had been August 29, 1997. I find that the Insurer, itself, was not clear as to when benefits had actually been refused.

Even in November 1997, after the REC DAC was aborted, the Insurer did not clearly and unequivocally refuse benefits. In its November 19, 1997 letter, the Insurer stated both that benefits would not be paid beyond August 29, 1997 based on Ms. Rudnicki's failure to comply with the REC DAC assessment, but also that the file would be closed if Ms. Rudnicki did not, within 30 days, provide a note from her doctors indicating that she was fit to undergo the REC assessment. While the REC DAC did not, in fact, take place, there is no evidence that the Insurer closed its file or provided notice to this effect. In this regard, I note that, roughly a year later, the Insurer offered to settle the case with Ms. Rudnicki's second solicitors. I find that neither the October Explanation of Assessment nor the November correspondence clearly and unequivocally conveyed that the Insurer was refusing to pay Ms. Rudnicki benefits.

Even if the Insurer intended to deny Ms. Rudnicki further benefits, I find that it was required to, but did not, comply with section 71 of the Schedule. At the October 1997 mediation, the Insurer agreed to reinstate IRBs until the two-year mark, and the parties agreed to a process (namely, arranging for a REC DAC) by which to determine Ms. Rudnicki's entitlement to further benefits. I find that, in this context, the Insurer had not clearly and unequivocally refused IRBs beyond August 29, 1997. Then, in November 1997, the Insurer purported to terminate benefits beyond August 29, 1997 on the basis that Ms. Rudnicki failed to attend and/or complete the REC DAC assessment. Even if this could be characterized as a clear and unequivocal refusal of benefits following the mediated reinstatement of IRBs and REC DAC process, the Insurer ought to have informed Ms. Rudnicki of the procedure by which to dispute the termination of her IRBs as of August 29, 1997. Instead, in its November 19, 1997 correspondence, the Insurer simply advised that benefits had been discontinued as of August 29, 1997, that no further benefits would be paid and that the file would be closed if Ms. Rudnicki did not provide certain medical information within 30 days. Unlike the other stages of the process (including the October mediation and settlement), the Insurer did not issue an Explanation of Assessment confirming the status of the Insurer's payment of benefits, nor (as noted earlier) did the Insurer confirm that the file had, in fact, been closed at the completion of the 30-day period.

Section 71 of the Schedule required the Insurer to inform Ms. Rudnicki of the procedure for resolving disputes relating to her benefits under the Insurance Act, as the Insurer had, to a certain extent, done prior to the second termination of IRBs on August 2, 1997. However, the Insurer simply advised that the file would be closed if certain demands were not met and then did nothing else. I find that the Insurer was required to clearly and unequivocally state to Ms. Rudnicki that it was refusing to pay her IRBs as of August 29, 1997 and then to set out the legislated process by which she could dispute this refusal. The Insurer had, I believe, attempted to follow this process prior to November 1997 (even in light of the ongoing discussions with Ms. Rudnicki and the fact that she was represented by counsel), but clearly failed to do so in November 1997, precisely when the Insurer seemed most intent on refusing Ms. Rudnicki benefits.

I find that, by failing to terminate benefits in accordance with section 71, the Insurer was precluded from relying on August 29, 1997 as the point at which the two-year limitation period began to run. I find that the Insurer did not clearly and unequivocally refuse benefits and did not refuse benefits in accordance with the Schedule. The limitation period, therefore, never began to run and Ms. Rudnicki's mediation and arbitration were filed in a timely manner.

EXPENSES:

I remain seized on the issue of expenses of this preliminary issue hearing, should the parties be unable to resolve this aspect of the case.

April 19, 2001

Eban Bayefsky Arbitrator

Date