Neutral Citation: 2001 ONFSCDRS 87

FSCO A00-000193

BETWEEN:

KYRIAKOS POULOS

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

DECISION ON PRELIMINARY ISSUES

Before: Suesan Alves

Heard: February 26, and 27, 2001, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Brian Sherman for Mr. Poulos

Guy Farrell for Zurich Insurance Company

Issues:

Mr. Poulos claims medical and rehabilitation benefits from Zurich Insurance Company ("Zurich"), under sections 14 and 15 of the Schedule. He alleges that Zurich did not comply with the mandatory denial requirements contained in section 38 of the Schedule,¹ and submits that Zurich is therefore deemed to have admitted his entitlement to these benefits. He also submits that there is therefore no "issue in dispute" between the parties with respect to his entitlement under sections 14 and 15 of the Schedule. Mr. Poulos questioned the extent to which a FSCO arbitrator had jurisdiction under the Insurance Act, R.S.O. 1990, c.I.8, as amended, to determine his claims. Mr. Poulos asked for a determination of these questions by way of a preliminary issues hearing. He requested a severance and stay of the remaining issues of interest, expenses and a special award, pending a determination of the preliminary issues.²

Zurich disputes Mr. Poulos' entitlement to the relief he claims in the arbitration. Zurich disputes that it received some of the treatment plans which Mr. Poulos alleges were submitted by the treatment facilities. Zurich also disputes that it failed to comply with the denial requirements under the Schedule.

Zurich initially opposed the Applicant's request for a preliminary issues hearing. I ruled that I was obliged to deal with the jurisdictional question. On the second day of the hearing, Zurich consented to the severance and stay, pending the release of my decision on the preliminary issues.

The issues are:

Did Zurich comply with the denial requirements of section 38 of the Schedule? If not, what consequences, if any, flow from such non-compliance?

Result:

Zurich did not comply with the denial provisions as required by section 38 of the Schedule. The case law to date suggests that this is an evidentiary question; not a jurisdictional one. The consequences, if any, will be determined after the hearing is concluded. Mr. Sherman and Mr. Farrell should contact the case administrator to schedule further dates to complete the hearing.

EVIDENCE AND ANALYSIS:

Mr. Poulos was injured in a motor vehicle accident on September 11, 1997. He applied for and received statutory accident benefits from Zurich. On February 20, 1998, Zurich requested an assessment by a designated assessment centre, the A.I.M. clinic, of Mr. Poulos' claims for further income replacement benefits and treatment.³ The DAC issued a report which was not entered as an exhibit. However, for purposes of the preliminary issues decision, I accept that the report indicated that in the opinion of the assessors, no further treatment was reasonable or necessary, and based upon that report, Zurich denied Mr. Poulos further treatment.⁴

In May 1999, about a year later, Mr. Poulos consulted a lawyer, Mr. W.D. Gray, in relation to pain complaints which he alleges are related to the motor vehicle accident of September 1997.⁵Mr. Gray provided Mr. Poulos with information about three clinics. Mr. Poulos went to Target Rehabilitation Centre and Sheppard-Leslie Chiropractic Clinic for treatment.⁶

Mr. Poulos alleges that Target submitted four treatment plans to Zurich and that Sheppard-Leslie Chiropractic Clinic submitted eleven. Zurich denies that it received most of the treatment plans.⁷

Zurich wrote Sheppard-Leslie acknowledging receipt of its first treatment plan dated May 28, 1999.⁸ In that letter Zurich informed Sheppard-Leslie that it did not accept the treatment plan and would not accept direct billing. Zurich wrote Mr. Poulos on June 8, 1999, and informed him of its position regarding the treatment plan. Zurich also informed Mr. Poulos that based on the medical evidence on file, it was of the opinion that his present treatment was not related to the motor vehicle accident and would not reimburse him for any invoices from Dr. Suri, the chiropractor at Sheppard-Leslie who prepared the treatment plan.

Target Rehab Centre's first treatment plan, dated May 26, 1999, was date stamped by Zurich on June 29, 1999. Zurich's claims handler, Mr. Walsh, sent an undated fax to Target Rehab Centre and informed Dr. J. Teitel, the physician who signed the plan, that Zurich did not accept the treatment plan, and would not accept direct billing.

In July 1999, Mr. Poulos' lawyer, Mr. Gray wrote Zurich and requested a DAC "as it is essential to ascertain whether our client's current complaints are from the above-noted accident or not." Instead, Zurich scheduled an insurer's examination, with Dr. M. Hall, orthopaedic surgeon for August 24, 1999, "to give the claimant the benefit of the doubt."⁹

On September 3, 1999, Zurich wrote Mr. Poulos and enclosed a copy of Dr. Hall's report. In that letter, Mr. Walsh stated: "This report clearly stands by the previous DAC decision which states your treatment is not reasonable and not necessary and is therefore excessive based on the report, we cannot reimburse your expenses from Target Rehab as these are not related to the motor vehicle accident. ... Please find enclosed an invoice for $7, 960.00 for your attention and we will reject these ongoing invoices based on the medical report enclosed."

On October 5, 1999, Mr. Walsh again wrote Mr. Poulos. Mr. Walsh stated that Zurich had received another treatment plan from Sheppard-Leslie Chiropractic Clinic in the amount of $1,100.00. Mr. Walsh reiterated Zurich's position, and stated that "future treatment plans and invoices shall be sent directly to you for your attention."

On October 12, 1999, Zurich sent Mr. Poulos a fax in care of his lawyer, Mr. Gray, in relation to a second treatment plan received from Target Rehab Centre. He again reiterated Zurich's position and concluded: "This is your final notice we are closing your file, further invoices and treatment plans shall not be responded to."

I find that Zurich clearly asserted its position— that it did not accept that Mr. Poulos' 1999 complaints were related to the motor vehicle accident, and that it did not intend to pay for treatment proposed in two treatment plans of Sheppard-Leslie Chiropractic Clinic, and two treatment plans of Target Rehab Centre. Mr. Poulos and the treatment facilities were therefore aware that Zurich would not voluntarily pay for treatment provided pursuant to the four plans.

Under the provisions of the Schedule, an insurer is obliged to respond to a treatment plan within 14 days. In order to deny a medical or rehabilitation benefit under section 38 of the Schedule, an insurer must do two things. It must reject the treatment plan, with reasons in writing for doing so, and schedule a medical and rehabilitation DAC in relation to the treatment plan. If the DAC recommends treatment then the insurer must pay for that treatment pending resolution of any dispute. The assessment is designed to be conducted by a neutral assessor for the benefit of both parties. The DAC determines the rights and obligations of the insured person and the insurer pending resolution of the dispute. The insurer and the insured person are required to abide by the opinion of the DAC pending resolution of the dispute.

Zurich submits that it was not obliged to arrange a fresh medrehab DAC in 1999, when Target and Sheppard-Leslie presented fresh treatment plans on behalf of Mr. Poulos. Zurich submits that it was entitled to rely on the opinion expressed in the 1998 DAC assessment that no further treatment was required.

I reject this submission for several reasons. The Schedule contemplates the assessment of a treatment plan by a DAC after it has been prepared and submitted. Ms. Kim Thoms, a dispute resolution specialist with Zurich testified that Zurich's policy is to schedule a medical and rehabilitation DAC within 14 days after a treatment plan is received, when the treatment plan is denied. The 1999 treatment plans in issue in this arbitration did not exist at the time of the 1998 DAC.

Under the provisions of the policy, Mr. Poulos has a period of entitlement to medical and rehabilitation benefits for a period of ten years from September 11, 1997, the date of the accident. Treatment and rehabilitation needs which result from the accident may arise at any point during this period. While causation issues may be raised in some cases, there may be cases of pain flares-ups, relapses, exacerbation of the injury, etc. during the period over which the benefit is payable. From a practical point of view, approximately a year had elapsed since the date of the last DAC assessment, and a fresh assessment was warranted.

I find that by failing to schedule a medical and rehabilitation DAC in relation to Mr. Poulos' 1999 claims for treatment, Zurich failed to comply with the denial provisions of the Schedule . Although the Schedule uses mandatory language, no consequence is provided in the Schedule for the failure to arrange a DAC, or to comply with the denial provisions of the Schedule.

The Applicant submits that since the Insurer failed to deny the benefits claimed, it is deemed to have admitted entitlement. Zurich submits that this would be a draconian consequence— this was not intended to be a hard and final time limit which disposes of the Insurer's right to defend. Zurich submits that if there has been a breach of the denial provisions, the Applicant is nevertheless required to prove causation, as well as the reasonableness and necessity of the treatment. In essence then, the Insurer submits there should be no consequence for the breach of a mandatory provision of the Schedule. Both approaches are troubling.

Arbitrators have considered what consequences, if any, flow from the failure to comply with the denial provisions of the Schedule in relation to medical and rehabilitation benefits. In the case of Luo and Guardian Insurance Company of Canada (OIC A96-000588, June 9, 1997), the insurer paid a supplementary medical benefit for almost a year and a half. Arbitrator Palmer found that the insurer improperly terminated the benefit because it had not obtained the requisite DAC assessment. She concluded that the improper termination did not end the issue and that Mr. Luo was still obliged to prove that the treatment was reasonable and necessary.

In Pintucci and Jevco Insurance Company (FSCO A97-000755, January 7, 1999), Mr. Pintucci obtained treatment for back pain following a motor vehicle accident, returned to work and continued to obtain treatment, albeit at a greater frequency. Jevco terminated his supplementary medical benefits based on an opinion from Dr. M. Hall, orthopaedic surgeon, who conducted an insurer's medical examination, that further treatment could not be attributed to the injury sustained in the motor vehicle accident. Jevco did not request a health practitioner's certificate or obtain a medrehab DAC assessment before it terminated these benefits, as it was obliged to do under the Statutory Accident Benefits Schedule —Accidents After December 31, 1993 and Before November 1, 1996. A DAC assessment carried out some months after the termination of benefits also provided an opinion that Mr. Pintucci's treatment was not required as a result of the motor vehicle accident. In the opinion of the DAC assessor, Mr. Pintucci likely sustained a repetitive strain injury to his low back following his return to work, giving rise to his need for further treatment.

Arbitrator Palmer found that the Applicant had not established that his ongoing treatment was related to the accident. Nevertheless, she ordered Jevco to pay for the treatment obtained prior to the release of the DAC report because of the Insurer's non-compliance with the mandatory procedural provisions of the Schedule, for social policy reasons, and in the interest of avoiding an unjust or unreasonable result, "an essential part of the court's task in interpreting statutory language."¹⁰ She stated:

It is important to the integrity of the operation of the Schedule that the parties comply with its terms. Prompt, continuing access to reasonable and necessary treatment, even while a dispute is underway, is a hallmark of the system. The initial gatekeepers of the treatment system are treating health practitioners, who are regulated health professionals, and the designated assessment centres As Justice Catzman of the Court of Appeal noted in a recent decision, "Part VI of the Insurance Act represents the expression of a social policy adopted by the Legislature of this province to deal with automobile insurance."[ In Morton v. Rabito, 1998 CanLII 5865 (ON CA), [1998] O.J. No. 5129, December 10, 1998] Insurers cannot flout the terms relating to the provision of and payment for supplementary medical and rehabilitation benefits and substitute in their stead adjustment procedures that they find more convenient or suitable to their purpose...

In my view the social policy considerations in a case where supplementary medical payments were terminated, without even an attempt at compliance with the Schedule's process, mandate that Jevco be ordered to pay these expenses even though Mr. Pintucci's substantive entitlement to the treatment has not been proved.... in the face of Jevco's noncompliance with the Schedule" it would not be a "reasonable and just outcome" if the applicant was "responsible for the cost of treatment he pursued in good faith at the recommendation of his doctor and chiropractor, yet which, ultimately, he has not proven was necessitated by the accident.

However, Arbitrator Palmer went on to state that this was "not a case where a serious question of fraud has been raised, or where the claim is clearly unreasonable.[see White and Pilot Insurance Company, (OIC A-008462, June 6, 1995) ] Neither is it a case where an unrelated condition is being treated after an accident.[see Norton and Colonial Penn Insurance Company, (OIC A-014428, June 3, 1996; P-96-00057, June 15, 1998]" In Mr. Poulos' case, Zurich alleges that the treatment claimed was unreasonable, unnecessary and not required as a result of the accident.

In the case of Mendez and AxaInsurance (Canada), (FSCO A96-00135 January 25, 2000), Arbitrator McMahon stated: "The amendments to the legislation that provided the insurer with the ability to assess the insured person are critical to the proper operation of the entire scheme. The granting of these important rights carries the "concomitant obligation... to exercise them responsibly. This is especially true of the DAC process, which is triggered by the insurer, but is designed for the benefit of both parties."

Arbitrator McMahon agreed with Arbitrator Palmer that where an insurer simply ignores the pay pending and assessment provisions of the Schedule, it can expect to pay for treatment that is legitimately pursued and is not clearly unreasonable. He proposed a two pronged test: were the assessments pursued in good faith, and were they clearly unreasonable. He also stated that an insurer ought not to expect that an arbitrator will ignore its default and at the same time subject the treatment undertaken, to the same level of scrutiny that could be expected if it had lived up to its own obligations. Arbitrator McMahon awarded some benefits but dismissed those which he concluded were clearly unreasonable.

The above cases all dealt with the Statutory Accident Benefits Schedule — Accidents After December 31, 1993 and Before November 1, 1996. In the case of Mileevsky and General Accident Assurance Co. of Canada, (FSCO A99-000740 June 15, 2000), a case decided in relation to the subsequent Schedule, the Statutory Accident Benefits Schedule—Accidents on or after November 1, 1996, Arbitrator Joachim concluded that the insurer's failure to provide reasons for its refusal to pay medrehab benefits was a breach of a procedural provision. She rejected the argument that the benefits should be deemed payable and found some of benefits claimed reasonable and some unreasonable.

To summarize, to date, arbitrators have considered the breaches raised before them to be procedural, and awarded benefits after hearing all the evidence. An evidentiary approach has been taken; not a jurisdictional one. All the cases were decisions made after a full hearing, dealing with complex treatment and causation issues. The Applicant has asked me to take a different approach from the decided cases. To now decide the question in this case purely on a jurisdictional basis would be novel. In my view, I should consider whether such an approach is appropriate after a full hearing.

Mr. Sherman and Mr. Farrell should discuss the number of remaining witnesses, the duration of their testimony, the anticipated length of their submissions and contact the case administrator to arrange further dates to complete the hearing on all issues in the arbitration.

June 6, 2001

Suesan Alves

Arbitrator

Date