Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 26

Appeal P00-00046

Appellant

and

Respondent

Before:

Nancy Makepeace, Director’s Delegate

Counsel:

Stanley C. Tessis (for Ms. Turner)

Robert S. Franklin (for State Farm)

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 July 24, 2000, is confirmed.
Each party shall bear its own appeal expenses.

February 1, 2002

Nancy Makepeace Director’s Delegate

Date

This appeal is about the nature of the notice required to trigger the two-year limitation period. Ms. Turner appeals from an arbitration order, dated July 24, 2000, that she is statute-barred from proceeding to arbitration with respect to her claims for weekly income benefits after June 16, 1996, prescriptions, nerve blocks, cognitive aids and assistive devices, a biobeam device, taxi and travel expenses, and rehabilitation at the Centre for Traumatic Brain Injury and Columbia Rehabilitation Centre. The arbitrator allowed her to proceed with respect to her claims for rehabilitation services from Therapeutic Rehabilitation Services and case management services from Tishman Group.

Ms. Turner applied for many different kinds of benefits following her accident of June 16, 1993. She received weekly income benefits under s.12 of the SABS-1990¹ until June 16, 1996. At that time, State Farm terminated her benefits on the basis that she did not qualify under the more rigorous entitlement test for weekly benefits after 156 weeks. The same Assessment of Claim form was used to refuse payment of invoices from the Centre for Traumatic Brain Injury. Ms. Turner had also applied for a number of medical and rehabilitation benefits under s.6 of the SABS-1990, and these were refused at various times through 1996. In a letter dated October 8, 1996, State Farm stated,

It is State Farm’s position that Ms. Turner has undergone sufficient treatment to recover from her injuries. Based on the medical documentation compiled, no further treatment is required.

Specific medical and rehabilitation claims were refused in subsequent letters and Assessment of Claim forms.

Ms. Turner applied for mediation of the weekly benefit dispute, along with some of her medical and rehabilitation benefit claims, on October 28, 1996. On November 27, 1996, she filed an amended application for mediation, which included additional medical and rehabilitation claims State Farm had refused in mid-November. However, the mediation did not go ahead, and the Commission closed its file in December 1996.

Ms. Turner retained new counsel in 1997. Her new lawyers wrote to State Farm and the Commission, requesting information about the status of her claims. In a letter to State Farm in early 1998, they expressed concerns about the imminent expiry of the limitation period.

Ms. Turner filed an application for arbitration on June 10, 1999, almost three years after State Farm’s refusals. Although it is not necessary to explore the underlying reasons for the delay, it appears to be related to Ms. Turner’s changing counsel.

The arbitrator heard State Farm’s time limits motion on January 24, 2000. He found that State Farm provided clear and unequivocal refusal of further weekly benefits, and in any event, that Ms. Turner’s application for mediation in the fall of 1996 proved that the refusal was clear. He also found that the refusals of medical and rehabilitation benefits were clear and unequivocal, apart from the notices with respect to vocational rehabilitation and case management benefits. He did not comment on Ms. Turner’s submission that State Farm should not be permitted to rely on a limitation defence in connection with medical and rehabilitation benefits to which the “pay pending dispute” provisions of s.6(7) of the SABS-1990 and s.268(8) of the Act apply.²

Ms. Turner submits that the arbitrator erred in law in finding that State Farm’s refusal of weekly benefits was clear and unequivocal on its face, in considering prior and subsequent events to assess whether she understood the refusal, and in barring claims for “pay pending dispute” benefits on the basis they are out of time.

General Principles

Subsection 281(5) of the Insurance Act requires an insured person to commence an arbitration proceeding “within two years after the insurer’s refusal to pay the benefit claimed” or a longer period provided under the SABS-1990. Section 26 of the SABS-1990 preserves the two-year limitation period, but extends it by an additional 90 days following the mediator’s report, if the insured person applied for mediation “within two years from the insurer’s refusal to pay the amount claimed in the application for statutory accident benefits.”

Subsection 24(8) of the SABS-1990 says,

If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.

Considering these provisions in an early decision, Arbitrator Naylor held that:

The refusal relied on must be clear and unequivocal, and must be communicated to the applicant. Section 24(8) of the regulations indicates that the notice must be in writing, and provide reasons for the refusal. The onus is on the insurer to establish that an applicant has received the proper notice. . . .

In my view, a two-step process must determine whether the limitation period applies in the circumstances of this case. First, it is necessary to ask whether, and when, there was a refusal to pay benefits; and second, whether the insurer may rely on a limitation period that runs from the date of the refusal.³

These principles have been consistently approved and followed in numerous decisions of the Commission⁴ and the courts.⁵

Evidence of Prior and Subsequent Conduct

For the purpose of this appeal, State Farm concedes that an insurer’s mere stoppage or cessation of benefits, without written notice, does not constitute notice under s.24(8) sufficient to trigger the limitation period. It submits that while the parties’ course of conduct cannot compensate for the complete lack of notice, any ambiguity in the notice given can be resolved by considering events beforehand and afterwards.

At first blush, it makes sense to consider communications between the parties over a period of time to assess whether the insured person had notice of a benefit refusal. Disputes often develop incrementally, so that an insured person may not actually be surprised when benefits are finally stopped. In this case, State Farm wrote Ms. Turner a number of letters in late 1995 and early 1996 that reflected its concerns about her medical and rehabilitation claims. The insured person’s conduct after the putative refusal may provide even more persuasive evidence that she knew benefits were terminated. By applying for mediation of her disputes with State Farm, Ms. Turner took the first step in challenging State Farm’s refusal of benefits. It may seem to defy common sense to exclude such considerations when considering whether a limitation period has been triggered. The arbitrator relied on one of several FSCO decisions that have taken that approach.⁶

However, the prevailing weight of FSCO decisions hold that the insurer’s written notice must be clear and unequivocal.⁷ In my view, this result follows from the words of the limitation provisions, which clearly state that the limitation period runs from the insurer’s refusal to pay the benefits claimed, not the insured person’s response to the refusal. Nor is the insurer’s failure to pay the triggering event. The focus of the analysis is the refusal.⁸

Furthermore, s.24(8) requires the insurer to give written notice of “the reasons for the refusal.” Absent clear written notice, an insured person may well be aware that benefits have been refused without understanding the reasons for the refusal. The reasons requirement also reinforces the insurer’s obligation to adjust claims fairly based on all the available evidence.

There are also sound policy reasons for applying an objective test. It promotes certainty in ascertaining the date when time began to run, avoiding a factual enquiry into the parties’ dealings over an extended period of time. This encourages efficient use of adjudicative resources by reducing the number and scope of time limits disputes. It also allows an insured person to communicate with the insurer in the open and co-operative manner contemplated by the legislature, without jeopardizing her right to notice. Conversely, FSCO adjudicators have not applied the doctrines of estoppel or waiver against insurers who have continued to communicate with the insured person or investigate the claim after giving clear and unequivocal notice of refusal. Nor does an insured person’s stated intention to apply for mediation and arbitration assist where the application was not filed in time.

The balance of convenience also favours a strict notice requirement. The insurer has power to issue the notice, triggering the limitation period, and the requirement that the notice be clear and unequivocal is not onerous. On the other hand, an insured person who is statute-barred from proceeding with a claim is severely prejudiced: the claim is forever barred, no matter how meritorious.⁹

I find that the arbitrator erred in law by considering prior and subsequent events in concluding that State Farm provided clear and unequivocal refusal of benefits, triggering the limitation period. However, the error is not fatal to his decision, because he did not err in finding that the notice given, while imperfect, was substantially clear.

The June 16, 1996 Assessment of Claim Form

State Farm’s Assessment of Claim form included the following operative words:

Benefits terminated June 16/96 in accordans [sic] with OMPP 2.35(b) as your injuries do not continuously prevent you from engaging in substantially all of the activities in which you would normally engage.

Ms. Turner submits that the form does not provide clear and unequivocal notice because it contains a number of errors. She relies on Dachner Investments v. Laurentian Pacific Ins., in which the British Columbia Court of Appeal stated:

In my opinion, when an insurer seeks to rely on the running of a period of limitation whose commencement is fixed by the conduct of the insurer in denying coverage under a policy of insurance, the denial of coverage must be clear and unequivocal. I am also of the view that the evidence of equivocation need not be extensive or, indeed, strong. [emphasis added]¹⁰

I agree with this statement of the law, but I am not persuaded it helps Ms. Turner. There is a difference between an equivocal notice, which leaves the insurer’s position unclear, and a notice that is substantially clear and unequivocal, though it contains technical defects.¹¹ In this case, I agree with the arbitrator that none of the problems Ms. Turner identifies undermine the clear and unequivocal message of the notice.

Ms. Turner submits that State Farm should have checked off the box marked “Entire Claim Denied,” rather than “Portion of Claim Denied.” The Assessment of Claim form does not expressly provide for stoppage of benefits after benefits have been paid for some time, and an insurer may be left in some doubt as to which is the better approach. Ms. Turner submits that State Farm could have supplemented the form with a letter. This would have provided greater clarity, but I am not satisfied it was required for the Insurer to satisfy its notice obligations. In my view, treating a stoppage at 156 weeks as a partial refusal is consistent with the Commission’s approach to s.12(5)(b) of the SABS-1990, which is to treat that section as setting out a different entitlement test, not a different head of benefits.¹²

Ms. Turner’s second concern was that State Farm did not fill in the blanks allotted for the amount and duration of benefits. The arbitrator made a factual error in finding that the form “sets out the period of time and weekly amount that Ms. Turner’s disability claim was paid.” However, this was not critical to his decision, and I agree with his finding that “the words ‘Benefits terminated June 16/96’ are sufficiently plain and simple for the understanding of a layperson. . . .” There was no dispute about the benefit rate in this case, and I am not convinced that the notice was less clear and unequivocal for omitting this information when stopping benefits.¹³

The remaining errors are more troubling. State Farm concedes that the reference to “OMPP 2.35(b)” was wrong.¹⁴ That is the section of the policy that applies to non-earner benefits post-156 weeks, equivalent to s.13(8) of the SABS-1990. Ms. Turner received s.12 benefits as a person employed at the time of the accident. The policy section that applies to weekly income benefits post-156 weeks is s.2.26(b), equivalent to s.12(5)(b) of the SABS-1990. State Farm added to the error by citing the entitlement test for post-156 week non-earner benefits: whether “the injury continuously prevents the insured person from engaging in substantially all of the activities in which the person would normally engage.” The test for entitlement to weekly income benefits post-156 weeks is whether “the injury continuously prevents the insured from engaging in any occupation or employment for which he or she is reasonably suited by education, training or experience.”

The purpose of the notice requirement is to ensure that the insured person has enough information to decide whether to dispute or accept the refusal. The requirement also reinforces the insurer’s obligation to give full and fair consideration to every claim. However, while insurers are expected to take seriously their obligation to give written reasons for refusing benefits, the legislative objective of promoting early claims assessment and ongoing communications between the parties suggests they should not be held to a standard of perfection.¹⁵ An insurer’s misstatement of the entitlement test does not invalidate an otherwise clear and unequivocal notice.

Ms. Turner relied on Stracuzza and Allstate Insurance Company of Canada,¹⁶ in which the arbitrator found that the insured person was not statute-barred from proceeding to arbitration with respect to her claim for education disability benefits under the SABS-1994¹⁷ because the insurer’s notice of refusal misstated the entitlement test and did not explain its reasons for finding her ineligible. In that case, the insurer had paid income replacement benefits, and had failed to notify the insured person that she was entitled to elect education benefits at a more generous rate. In this case, there was no question Ms. Turner was entitled to weekly income benefits, not non-earner benefits, and State Farm’s explanation for refusing further benefits appeared under the heading “Weekly Income Benefits.”

I find no error in the arbitrator’s conclusion that State Farm gave clear and unequivocal refusal of weekly benefits on June 19, 1996, and that Ms. Turner’s application for arbitration, filed in June 1999, was out of time. Ms. Turner did not specifically address the other notices in her appeal submissions. I have reviewed them and I am not persuaded the arbitrator erred in finding them clear and unequivocal.

Pay Pending Dispute Benefits

Apart from the claim for vocational rehabilitation and case management benefits, the arbitrator found that State Farm had given clear and unequivocal notice of refusal of the medical and rehabilitation benefits claimed by Ms. Turner. She submits that an insurer cannot rely on a limitation period to bar claims for “pay pending dispute” benefits, that is, benefits to which s.268(8) of the Act and s.6(7) of the SABS-1990 apply. I note, in passing, that these provisions seem to apply only to Ms. Turner’s prescription and travel expenses. In any event, nothing in the Act or the SABS-1990 suggests that the time limits set out in s.281(5) of the Act and s.26 of the SABS-1990 do not apply to “pay pending dispute” benefits, and none of the cases Ms. Turner relies on go that far. Indeed, the objective of early provision of basic medical and rehabilitation benefits is consistent with a requirement that any dispute about an insurer’s alleged contravention of the “pay pending dispute” rule be resolved promptly. Accordingly, I find no error in the arbitrator’s failure to discuss this issue in his decision.

III. EXPENSES

State Farm did not request its appeal expenses. Although Ms. Turner did not succeed in her appeal, she raised a legitimate issue about the arbitration expenses. I find it appropriate that each party bear its own appeal expenses.