Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 142

Appeal P02-00002

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ABDUL NAHSARI

Appellant

and

BELAIR INSURANCE COMPANY INC.

Respondent

Before:

Stewart McMahon, Director’s Delegate

Counsel:

David Murphy for Abdul Nahsari

Scott W. Densem for Belair

Hearing Date:

August 26, 2002

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 allowed. Paragraph 1 of the order of December 5, 2001 is rescinded and replaced with the following:

Mr. Nahsari’s right to arbitrate his claims for caregiver, housekeeping expenses, and medical and rehabilitation expenses in relation to the treatment provided by “Recovery Rehab,” are not barred by the operation of s. 281(5) of the Insurance Act, or s. 51(1) of the Statutory Accident Benefits Schedule –1996.¹

Company Inc. shall pay Mr. Nahsari’s appeal expenses, fixed at $500.

September 9, 2002

Stewart McMahon Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal is concerned with whether Belair Insurance Company Inc. (“Belair”) can rely on the limitation periods found in s. 281(5) of the Insurance Act, and s. 51(1) of the SABS-1996, to bar Mr. Nahsari from arbitrating his claims for further caregiver benefits, housekeeping expenses, and the medical and rehabilitation expenses related to the treatment he received from Recovery Rehab.² In my view, the recent Supreme Court decision in Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] S.C.J. No. 34, which dealt with the interaction between the limitation periods and the information an insurer must provide at the time it refuses benefits, disposes of this appeal. In fairness to everyone concerned, I note that the Supreme Court’s decision, which significantly expanded on the information that was typically provided by insurers, was not released until after this appeal had already been commenced. The Smith decision dramatically altered the course of this appeal, which would otherwise have failed. For completeness’ sake, I will very briefly review the arguments advanced at the arbitration level, and make equally brief comments on the other submissions set out in Mr. Nahsari’s appeal materials.

II. BACKGROUND FACTS

Mr. Nahsari was injured in a motor vehicle accident on March 7, 1998. In late May 1998, Belair advised Mr. Nahsari, and his previous counsel, that it intended to terminate weekly caregiver benefits and would not pay for further housekeeping expenses or treatment at Recovery Rehab. Belair arranged for disability and medical/rehabilitation assessments at a Designated Assessment Centre (“DAC”), as prescribed by the SABS-1996. The DAC reports indicated that the treatment set out in the treatment plan submitted by Recovery Rehab was not reasonable and necessary, and that Mr. Nahsari was no longer substantially unable to engage in his usual caregiving activities. On receipt of these reports, Belair wrote to Mr. Nahsari’s counsel, with a copy to Mr. Nahsari, on August 4, 1998, to advise that the benefits in issue would no longer be paid. The penultimate paragraph of the letter states; “[i]f your client wishes to dispute this termination of benefits, he must initiate mediation proceedings within 2 years of this notice, otherwise his claim will be time barred.”

In early 2000, Mr. Nahsari retained P.A.I.N. Specialists and Associates (“PAIN”) to represent him. A representative of PAIN wrote to Belair in mid-February 2000, to advise that they were Mr. Nahsari’s new “legal representatives” and to ask the Insurer to “forward to our office a copy of the original benefits package completed by Mr. Nahsari for our records.” Belair did not respond to this letter.

A representative from PAIN wrote to Belair again on July 11, 2000, approximately two weeks shy of the second anniversary of the August 4, 1998 termination letter. The “re” line of this letter reads; “Request to disclose a copy of the Accident Benefits file.” The body of the letter states; “[p]lease be advised that we had requested a copy of the aforementioned file on February 15, 2000, and one has not yet been provided. Please provide our office with a copy of Mr. Nahsari’s accident benefits claim.” This letter also went unanswered.

In late October 2000, PAIN filed an Application For Mediation on behalf of Mr. Nahsari that included claims for a number of benefits including, but not limited to, those referred to in this appeal. Mediation failed and PAIN filed an Application for Arbitration in December. Belair’s Response includes an assertion that the claims we are concerned with were time barred. It is common ground that if Belair can rely on its termination letter of August 4, 1998, Mr. Nahsari is barred from proceeding to arbitration on these claims.

The pre-hearing Arbitrator agreed to dispose of this preliminary issue by way of written materials.³

It is worth noting what is not mentioned in these materials.

First, it is obvious from the fact that an Application for Mediation was filed that Mr. Nahsari’s new representatives had some information. However, there is no evidence identifying what material the representatives were able to obtain, when they obtained it, or from whom. There is not even an explicit statement that they did not have Belair’s letter of August 4 1998. Nor is there any clear statement that they had been unable to file for mediation in a timely fashion because Belair had not responded to their letters. The written submissions filed in the appeal proceeding by Mr. Nahsari’s representatives suggest that they were unable to file mediation in time because Belair had not responded to their letters. However, there is nothing in the record filed at arbitration to substantiate these allegations.

Second, Belair offers no apology or excuse for not responding to the letters from PAIN, other than to say that having provided the documentation to Mr. Nahsari and his counsel in the first place, it had no further obligation to provide it to his new representatives.

III. THE ARBITRATION PROCEEDING

Mr. Nahsari’s representatives advanced three arguments at the arbitration level:

Belair should be estopped from relying on the limitation period in light of its failure to respond to the letters from PAIN.
The refusal to pay further caregiver benefits or housekeeping expenses was not clear and unequivocal in light of subsequent payments.
Belair should not be permitted to raise the limitation defense in relation to the claims for medical and rehabilitation expenses because the issue was not raised at mediation.

The Arbitrator rejected each of these arguments. She found that the termination letter contained a clear and unequivocal denial of benefits that was sufficient to trigger the start of the-two year limitation period. She also dismissed the “mediation” argument on the basis that the limitation question should be characterized as a legal defense to Mr. Nahsari’s claim, rather than an “issue” that must proceed to mediation before it can be referred to arbitration. Mr. Nahsari has not appealed the ruling that the letter of August 4, 1998 contained a clear and unequivocal denial. He raised the "mediation” issue in his written materials, but his counsel advised, during oral argument, it was not being pursued. Accordingly, I will say no more about these rulings.

The Arbitrator also rejected the estoppel argument. She correctly noted that an estoppel can be created that prevents the insurer from relying on a limitation period if it lulls an insured into a false sense of security that a limitation period will not be relied on. The Arbitrator then went on to find that the Insurer had not, by its words or conduct, represented to Mr. Nahsari or his representatives that it would not rely on the expiry of the pending limitation period. However, immediately preceding this discussion is a statement that she found Belair’s decision not to respond to the letters from PAIN “most unfortunate” and that “[h]ad Belair acted on these requests it is most likely Mr. Nahsari would not be facing this limitation period.” [emphasis added]

IV. ARGUMENTS AND ANALYSIS ON APPEAL

A. The Estoppel Argument

On appeal, Mr. Nahsari relied on the Arbitrator’s comment about Belair’s failure to reply to his representative’s letters. He submits that it amounts to a finding that the Insurer caused him to miss the limitation period. I do not read the Arbitrator’s comment in such absolute terms, nor could such a finding be made on the limited evidence before her. The Arbitrator’s comment is no higher than an expression of her disapproval with Belair’s conduct. I agree with the Arbitrator’s conclusion that there was insufficient evidence to support a finding that Belair had, by its conduct, represented to Mr. Nahsari that it would not rely on a limitation defense. In addition, as noted above, she had no evidence on which to make a finding that Mr. Nahsari relied on the absence of a reply from the Insurer.

This ground of appeal is dismissed. However, before I leave this subject, I would also like to voice my disquiet with Belair’s conduct. The company’s failure to respond, in any fashion, to the letters sent by Mr. Nahsari’s new representative was unprofessional and falls below the standard ordinarily expected of reputable insurers. Had the arguments on the initial motion been framed differently, the Insurer’s conduct could conceivably have had a greater bearing on the disposition of this matter.

B. The Effect of Smith v. Co–operators

As noted at the start of these reasons, I believe that the Supreme Court’s decision in Smith is determinative on this appeal. Belair attempted to distinguish the case. For the reasons I shall set out shortly, I am not convinced that the differences in the factual circumstances of the two cases can justify distinguishing the Smith decision.

It is useful to start this discussion with a brief recitation of the applicable legislation.

Section 281(1) of the Insurance Act provides that the insured person may seek a determination of a dispute over accident benefits by initiating a court action, applying for arbitration at the Financial Services Commission of Ontario (“FSCO”) or, on consent, referring the matter to a private Arbitrator. Section 281(5) provides that one of these steps “must be taken 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.” Section 281(2) states that before taking one of these steps the insured must attempt to resolve the dispute with the assistance of FSCO’s mediation unit. Section 51(1) of the SABS-1996 stipulates that the insured must commence these mediation proceedings within “two years after the insurer’s refusal to pay the amount claimed”. However, s. 51(2) affords a measure of relief if mediation is conducted on the eve of the two-year limitation period. It provides that a court proceeding or arbitration may be commenced within 90 days after the mediator reports to the parties.

The net effect of these provisions is that the insured person must apply for mediation within two years of the insurer’s refusal. Thereafter, he has, at most, the balance of the two-year period, or an additional 90 days from the Report of Mediator, to initiate a civil suit or apply for arbitration.

The event that triggers the start of the limitation period is the insurer’s refusal to pay, or continue paying the benefit claimed. There is a consistent line of authority that this refusal must be in writing, must be clear and unequivocal and must contain reasons for the refusal. See Zeppieri and Royal Insurance Company of Canada, (OIC A-005237, February 17, 1994).

In addition to providing written notice of termination, s. 49 of the SABS-1996 provides that the insurer must also; inform the insured that it may challenge its decisions, and provide a description of the dispute resolution process. Section 49 of the present version of the SABS reads as follows:

If an insurer refuses to pay a benefit under this Regulation or reduces the amount of a benefit that a person is receiving 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. [emphasis added]⁴

The central issues in Smith were: (1) what information about the dispute resolution process must be included in this notice? and (2) what are the consequences if the insurer fails to provide the necessary information?

The essential facts in Smith can be stated succinctly. After paying benefits for approximately two years, the insurer put Mr. Smith on notice that it was terminating benefits. This notice was communicated by way of a form approved by the Superintendent of Insurance for use by all insurers. The form had a series of pre-printed headings with room for the insurer to fill in the relevant particulars. Included on the pre-printed portion of the form was the following point of information; “If we cannot settle the application to your satisfaction, you have the right to ask for mediation through the Ontario Insurance Commission [now FSCO]. This form makes no mention of the right to sue or arbitrate in the event that mediation fails, nor of the two-year limitation period.

Mr. Smith took the next step in the process in a timely fashion when he filed for mediation. The parties did not resolve the dispute at mediation, prompting the delivery of a report from FSCO’s mediator. The mediator’s correspondence included a warning that the insured had two years from the date of the refusal, or 90 days from the Report of Mediator, to commence a court proceeding or refer the matter to arbitration. Notwithstanding this caution, Mr. Smith initiated his court proceeding beyond the limitation period. Mr. Smith was represented by counsel throughout.

Mr. Smith’s action was dismissed on a motion for summary judgement. He appealed. The central issue on appeal was the notice provision provided for in s. 71 [now s. 49]. Mr. Justice Sharpe, speaking for the majority, stated that s. 71 was an integral part of the refusal process, and that if the insurer did not provide the necessary information about the dispute resolution process, it could not be said that a proper refusal had been given. However, Sharpe J.A. determined that the insurer had fulfilled its obligation when it informed Mr. Smith of the next step in the process, namely, filing for mediation. The majority expressed concern that if s. 71 were read too expansively, “claimants would be overwhelmed with information that provides little real guidance on what they must do to assert a claim in the face of the insurer’s refusal.”

Mr. Justice Borins dissented, concluding that the information provided by the insurer was insufficient to meet the consumer protection goals inherent in s. 71. He stated “...as s. 71 is consumer protection legislation, there should be strict compliance by insurers with its requirements so that an insured person will be fully informed of his or her rights and responsibilities.” Mr. Justice Borins set out the following four elements that he stated must, at a minimum, be provided in a s. 71 notice:

the insured has the right to dispute the insurer’s refusal to pay;
the right to arbitrate or file a claim depends upon the insured having sought mediation;
the right to arbitrate or file a claim is subject to a two-year limitation period, running from the insurer’s refusal to pay; and
the release of the mediator’s report extends the limitation period by 90 days.

Mr. Justice Borins noted that Mr. Smith had actual knowledge of the limitation period, but concluded that “this should not detract from the insurer’s statutory obligation to comply with s. 71.”

The majority of the Supreme Court, Bastarache J. dissenting, allowed the appeal. Mr. Justice Gonthier, speaking for the majority, agreed with the conclusion of Borins J.A. that it is not sufficient for the insurer to identify only the next step in the process. While suggesting that the legislature should set out the specific contents of a s. 71 notice, the Court stated that at a minimum, the information should “include a description of the most important points of the process, such as the right to seek mediation, the right to arbitrate or litigate if mediation fails, that mediation must be attempted before resorting to arbitration or litigation and the relevant time limits that govern the entire process.” The Court went on to state that “without this basic information, it cannot be said that a valid refusal has been given.” The Court then went on to state that absent a proper refusal the limitation period set out in s. 281(5) of the Insurance Act was not triggered.

Counsel for Belair attempted to distinguish Smith on the basis that his client’s notice contained a warning concerning the limitation period, whereas Mr. Smith only learned of the limitation period from a third party. He argued that in the context of a limitation defense, the key element in any notice must be the applicable time periods and a statement that missing such a period will bar further action. He pressed the point that despite the clear warning in Belair’s notice, Mr. Nahsari failed to initiate mediation within two years. Implicit in this submission is the suggestion that because he failed to take this step in a timely fashion, any deficiency in the notice related to subsequent steps is immaterial, or at a minimum should not operate to prevent the Insurer from relying on the limitation defense.

This argument is understandable, however, it is clear to me that both Borins J.A. and the majority of the Supreme Court read the obligations imposed by s. 71 in broader terms than merely a warning about limitation periods. In addition, the Court could have distinguished between the various elements of the notice, and suggested that the consequences might vary depending on the nature of the deficiency. To the contrary, the Court’s decision makes it clear that if the notice does not contain all of the essential elements a proper refusal has not been given to the insured person, and hence the limitation period has not been triggered.

The Court could also have confirmed that the notice in question was deficient, but then upheld the insurer’s ability to rely on the limitation period on the basis that the insured was not prejudiced by the deficiency. It chose not to. Referring to the link between s. 71 and consumer protection, Mr. Justice Gonthier stated:

As I have mentioned above, insurance law is, in many respects, geared towards protection of the consumer. This approach obliges the courts to impose bright-line boundaries between the permissible and the impermissible without undue solicitude for particular circumstances that might operate against claimants in certain cases. Moreover, as previously discussed, the insurer’s obligation extends beyond mere communication of the limitation period.

In this case, Belair’s notice is deficient in at least one respect, namely, it makes no mention of the right to sue or arbitrate if mediation fails. In these circumstances, a proper refusal was not given and hence the limitation period had not expired by the time Mr. Nahsari applied for mediation.

IV. EXPENSES

Belair argued that even if it were unsuccessful on the notice issue there should be no order of expenses because the Supreme Court’s decision came out in the midst of the appeal. I reject this argument. On release of the decision the Insurer had two choices. One, concede that the decision disposed of the appeal. Two, argue that the decision was not determinative. It chose the latter, but was not successful. In the circumstances, I can see no reason for withholding Mr. Nahsari’s expense of the appeal, which are fixed at $500.

In fixing the amount of the expenses, I have taken account of the fact that all of the preliminary steps in the appeal were conducted by a paralegal whose hourly rate is $23 per hour.