Neutral Citation: 2002 ONFSCDRS 62

FSCO A01-000313

BETWEEN:

KETHEESWARAN SELLATHAMBY

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before:

Eban Bayefsky

Heard:

January 28 and 29, 2002, at the offices of the Financial Services Commission of Ontario in Toronto.

Written submissions were received by February 15, 2002.

Order issued March 21, 2002

Appearances:

David S. Wilson for Mr. Sellathamby

Richard F.L. Rose for Allstate Insurance Company of Canada

The Applicant, Ketheeswaran Sellathamby, was injured in a motor vehicle accident on June 29, 1999. He applied for and received statutory accident benefits from Allstate Insurance Company of Canada ("Allstate"), payable under the Schedule.¹ Allstate terminated weekly income replacement benefits ("IRBs") on January 2, 2001. The parties were unable to resolve their disputes through mediation, and Mr. Sellathamby applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

On the first day of the hearing, Mr. Wilson submitted that, as part of the Applicant's claim for income replacement benefits beyond January 2, 2001, he was arguing that the Insurer ought to have continued to pay IRBs pursuant to section 37(5) of the Schedule, which states that if a Designated Assessment Centre ("DAC") finds that a person continues to be disabled, "the insurer may dispute the obligation to pay the benefit in accordance with section 279 to 283 of the Insurance Act, and, pending the resolution of the dispute, the insurer shall pay the benefit." Mr. Rose submitted that, by operation of the principle of res judicata, the Applicant was precluded from raising this issue as it had been argued and decided in the context of his motion for interim benefits, heard July 9, 2001, before another Arbitrator at the Commission.² I heard submissions on this issue and, the next day, delivered the following decision:

I find that I have the jurisdiction over the issue of whether the Insurer breached section 37(5) of the Schedule, for the purposes of the Applicant's entitlement to both income replacement benefits under section 4 of the Schedule and a special award under 282(10) of the Schedule. I find that the Applicant is not precluded, by the operation of the principle of res judicata, from arguing that the Insurer breached section 37(5).

While the Applicant may have argued, at the motion for interim benefits, that the Insurer had breached section 37(5) of the Schedule, I find that the Arbitrator hearing that motion did not issue a ruling on that question.

While the Arbitrator may have alluded to the provisions under section 37 and to a related arbitration decision, I find that she dismissed the motion for interim benefits on a different basis, namely, whether Dr. Ross' examination was reasonably necessary and whether she was in a position to decide that question. The arbitrator found that she could not decide that question and, therefore, that she could not say that the Insurer's actions were in blatant disregard of the Schedule.

The Arbitrator also dismissed the motion on the basis that, in light of the absence of provisions in the Schedule specifically precluding the Insurer from obtaining another opinion from a physician, she could not conclude that by obtaining a report from Dr. Hershberg, the Insurer had shown a blatant disregard for the Schedule. This finding was also made in relation to section 42(7), not section 37(5) of the Schedule.

The Arbitrator issued her decision in relation to whether the Insurer had demonstrated a blatant disregard for the Schedule and whether, on that basis, the Applicant was entitled to interim benefits. She did not address the question of whether the Insurer breached the terms of section 37(5) and whether, on that basis, the Applicant was entitled to either IRBs or a special award.

Finally, the Arbitrator stated that the Applicant's claim for a special award was based on the Insurer's breach of section 37(5) of the Schedule, and she left that issue to be considered by the hearing arbitrator. The Applicant has submitted that he is pursuing the section 37(5) issue in relation to both ongoing IRBs and a special award. I find that the interim motion arbitrator left open the issue of whether, by virtue of a breach of section 37(5), the Insurer was required to pay a special award.

I, therefore, find that the arbitrator did not address and/or finally determine the issue of whether the Insurer breached section 37(5) and whether, on that basis, the Applicant was entitled to either IRBs or a special award. I find that res judicata does not operate to preclude the Applicant from raising this issue, and that I have the jurisdiction to consider this matter.

In light of this ruling, the Applicant indicated that he wished to address the section 37(5) issue first and then, if necessary, proceed at a later date with the more substantive issues in the arbitration, namely, whether, from a medical perspective, the Applicant was entitled to IRBs and housekeeping benefits. The Insurer consented to proceeding in this manner. I accepted that the matter would proceed in this way.

The parties indicated that they had reached the following agreement as to the evidence to be used in the hearing on the section 37(5) issue:

The evidence on the section 37(5) issue will consist solely of documents the parties will file. The Insurer will not be producing Julie Robinson, the claims handler, or any other claims representative. The Insured agrees that he will not request the Arbitrator to find that because of their failure to testify, an inference is to be drawn that their evidence would not have been favourable to the Insurer's position on this aspect of the proceeding. We agree that paragraphs 21-23 of the Insured's affidavit [in the earlier motion for interim benefits] are not relevant to this part of the proceeding. We agree that paragraph 24 is disputed by the Insurer.

The issue at this point in the hearing is:

Is the Applicant entitled to income replacement benefits from January 3, 2001, onward, pursuant to section 37(5) of the Schedule?

The Insurer shall pay the Applicant income replacement benefits from January 3, 2001, onward, pending the resolution of the dispute.

Background:

The Applicant was inj ured in a motor vehicle accident on June 29, 1999. The Insurer began paying the Applicant IRBs at that time. On October 19, 1999, the Insurer's Senior Casualty

Claims Representative, Ms. J. Robinson, wrote the Applicant, indicating that, based on the report of Dr. K. Massiah, an orthopaedic surgeon, dated October 1, 1999, the Insurer would discontinue the Applicant's benefits on November 1, 1999, unless the Applicant requested a DAC assessment. By letter dated November 1, 1999 from his counsel, Mr. Wilson, the Applicant requested a DAC assessment. By letter the same day, Ms. Robinson wrote the Applicant, indicating that, based on a recent medical report received October 27, 1999 (from Dr. B.R. Raghunan, a psychologist), which indicated the Applicant was psychologically disabled from performing his pre-accident employment duties, the Insurer felt it "prudent to continue to pay an Income Replacement Benefit at this time." Ms. Robinson also indicated that the Insurer would not be scheduling a Disability DAC, but that it was arranging for a "Psychiatric Independent Examination to address this reported disability." Also on November 1, 1999, Ms. Robinson wrote the Applicant indicating that it had scheduled an examination with Dr. R. Hershberg, a psychiatrist, for November 17, 1999, regarding the Applicant's IRBs. On November 30, 1999, Ms. Robinson wrote the Applicant indicating that, based on "Independent Orthopaedic and Psychological Examinations from Dr. Grossman and Associates" (where Dr. Hershberg is based), the Insurer would discontinue the Applicant's benefits on December 17, 1999, unless the Applicant requested a DAC assessment. On November 18, 1999, Dr. Hershberg had reported, in part, that the Applicant was not psychologically disabled from performing his pre-accident employment duties. On December 8, 1999, Mr. Wilson wrote the Insurer indicating that the Applicant wished to be assessed at a disability DAC.

The DAC took place on January 21 and March 23, 2000. On January 21, 2000, Dr. C. Stants, a chiropractor, and Ms. D. Terry, a kinesiologist, reported that, from a physical perspective, the Applicant was not substantially disabled from performing the essential tasks of his pre-accident employment. On March 23, 2000, Dr. D. Prendergast, a psychologist, reported as follows:

Based on the above, including the significant degree of anxiety and, relatedly, the significant degree of social avoidant behaviour as well as the extremely pain focussed nature of his presentation and as well having ruled out a diagnosis of a malingering-like nature, it is my opinion that Mr. Sellathamby is psychologically disabled from returning to his pre-accident level of employment. I do not consider him psychologically disabled from returning to and continuing with his activities of daily living. His high degree of pain focus, as well as psychological rumination and, relatedly, his high degree of social avoidance are, in my opinion, contributing significantly to his inability to return to the workplace. This gentleman, at this time, would require a great deal of assistance in doing so."

On April 20, 2000, in response to a request for an "increase in IRB authority," Ms. Robinson's manager, "Tony," sent a memo to her, indicating that, given the DAC report, Mr. Sellathamby's disability appeared to be "psychological at this time" and that it was "too early to write off the insured from his pre-mva job." Tony stated that he would "increase IRB authority as [Ms. Robinson] had requested." Tony confirmed that Ms. Robinson would write to the DAC to ask about treatment recommendations and suggested that a copy of the DAC report also be sent to Dr. Hershberg asking for his recommendations. Tony indicated to Ms. Robinson that, "once we obtain recommendations, please put them into place and begin the process of setting up IE's to re-evaluate his psychological status." Tony also suggested further investigation concerning Mr. Sellathamby's claim of being a caregiver and indicated that he might have put forward "a potentially fraudulent claim with respect to his IRB claim." Tony also suggested more surveillance on Mr. Sellathamby and stated: "please use another surveillance firm given the results of Burl-oak were not productive, thus we do not have to produce them at an arbitration as we will not rely upon their report."

On May 15, 2000, Ms. Robinson wrote Dr. Hershberg asking him to comment on how long he felt Mr. Sellathamby would remain disabled from his pre-accident employment and what treatment Mr. Sellathamby would require to assist him in his return to work. Ms. Robinson explained to Dr. Hershberg that she had sought clarification on these issues from Dr. Prendergast, but that Dr. Prendergast had said that, due to the DAC guidelines, he was unable to respond.

On May 24, 2000, Dr. Hershberg responded by critiquing Dr. Prendergast's report and by concluding as follows: "Dr. Prendergast's report in no way alters my opinion that Mr. Sellathamby continues to have the necessary cognitive, communicative and emotional abilities to carry on with most of his normal Activities of Daily Living and the demands of his employ (loading and unloading groceries), barring any physical findings to the contrary." Dr. Hershberg also stated that "further psychological interventions are neither reasonable or necessary but, a gradual resumption of duties maybe helpful in reducing Mr. Sellathamby's initial anxiety about sustaining further injury."

On June 1, 2000, Ms. Robinson discussed Dr. Hershberg's report with her manager and they agreed that it was "prudent to set up an IE with another doctor, given conflicting opinions." Ms. Robinson then wrote the Applicant advising him that it had scheduled an examination with Dr. M. Ross, a psychiatrist, for July 25, 2000 in respect of the Applicant's claim for attendant care and housekeeping benefits. On June 20, 2000, Mr. Wilson objected to this examination on the basis that attendant care benefits had never been claimed and that the Insurer had long since terminated housekeeping benefits. On June 21, 2000, Ms. Robinson wrote Mr. Wilson apologizing for the error in her June 1^st letter and stating that "the Examination with Dr. Ross is to assess his psychological disability." Ms. Robinson attached a new letter, sent to the Applicant, confirming the appointment with Dr. Ross and stating that it was in respect of the "Income Replacement Benefit" the Applicant had claimed.

On July 4, 2000, Ms. Robinson wrote Dr. Ross confirming the "Independent Psychiatric Examination scheduled for July 25, 2000...." Ms. Robinson enclosed "documents...in respect of Mr. Sellathamby's condition to date." Ms. Robinson asked Dr. Ross to examine Mr. Sellathamby and to prepare a detailed report having particular regard to the following issues:

a) Describe the exact nature of Mr. Sellathamby's psychological/psychiatric impairment and it's [sic] present condition. Kindly detail present objective and subjective complaints. What is his psychological/psychiatric diagnosis and prognosis?

b) Is the present treatment that Mr. Sellathamby is receiving reasonable and necessary with respect to the psychological impairment he sustained in the above noted motor vehicle accident? If no, is there any other treatment that you would recommend? Are the medications reasonable and necessary (if any are being taken)?

c) Do you anticipate that Mr. Sellathamby will make a full recovery, and if not, what permanent disabilities will we have to contend with?

d) Have there been any contributing factors not related to the accident which might have enhanced his psychological condition or prevented recovery?

e) Is Mr. Sellathamby substantially disabled (from a psychological/psychiatric perspective) from doing his normal daily life activities? If yes, when will he be able to return to same?

f) Is Mr. Sellathamby substantially disabled (from a psychological/psychiatric perspective) from performing the essential tasks of his pre-accident employment duties? If yes, when will he be able to return to same?

On July 10, 2000, Mr. Wilson wrote to Ms. Robinson indicating that, on the basis of section 37(5) of the Schedule, he objected to his client being sent for a further psychiatric evaluation with Dr. Ross. Mr. Wilson concluded his letter by saying that "accordingly, the only remedy for your client is to mediate the obligation to pay a continuing benefit" and stating further that "I suspect that at some future point, your client may be entitled to an updated assessment, however, certainly not so soon after the DAC has reported its findings."

On July 12, 2000, Ms. Robinson responded to Mr. Wilson's concerns regarding section 37(5) as follows:

...Allstate Insurance Company continues to pay your client an Income Replacement Benefit. We, therefore, have due course to set up an examination under section 42 of the SABS. We are not disputing his entitlement to benefits at this time; therefore section 37(5) is not relevant. We would simply like to determine if your client is still entitled to a benefit. As per section 42.3, the insurer may require examinations as often as reasonably necessary. It has been four months since the last assessment. It is reasonable for us to request this examination.

Accordingly, the assessment with Dr. Ross remains scheduled. Further to my letter of June 21, 2000, I remind you that if your client fails or refuses to submit to this examination, Allstate may stop payment of the benefit for the period of non-compliance (section 42.8 of the SABS).

In his affidavit in the motion for interim benefits, dated June 25, 2001, the Applicant deposed that "fearing that the insurer would arbitrarily terminate payment of my benefits if I refused to attend for the psychological assessment with Dr. Ross, I agreed to attend."

On July 25, 2000, Dr. Ross examined the Applicant and on November 29, 2000, Dr. Ross provided his report. Dr. Ross conducted a detailed review of the medical documentation and the Applicant's condition, including commenting on the merits of Dr. Prendergast's assessment, and concluded as follows:

This evaluation therefore determined on the basis of a review of the available documentation in combination with an ample opportunity for direct assessment of Mr. Sellathamby that while the exaggerated elements of his presentation do interfere with realistically appreciating other potential aspects of a bona fide condition, the hypothesized condition would not give rise to meaningful and lasting disability in any case. On December 16, 2000, Ms. Robinson wrote the Applicant confirming that the Insurer had been paying him $400 per week under the Schedule, but that, "based on the Independent Psychiatric Examination from Dr. Ross, Allstate Insurance Company considers that you are no longer entitled to receive weekly benefits." Ms. Robinson advised that the Applicant's benefits would be discontinued on January 2, 2001, unless he asked to be assessed by a DAC.

On January 9, 2001, Mr. Wilson responded to Ms. Robinson as follows:

The procedures which you are employing are entirely improper. Apart from the fact that you have ignored Subsection 37(5) of the Regulations, you actually purported to obtain a further report from Dr. Hershberg, which you did not provide to the insured, and upon which Dr. Ross has apparently relied.

In adopting the procedures as set out above, you have ignored the Regulations and abandoned any obligation to deal with the insured in good faith.

My client is not obliged to elect to attend at a DAC. It is the insurer that is obliged to continue paying benefits until such time as the Regulations are followed.

Kindly govern yourself accordingly.

The Applicant did not request a further DAC assessment and the Insurer terminated IRBs on January 2, 2001.

On December 23, 2000, Ms. Robinson noted in her log book as follows:

we had terminated based on IE last year, and clmt went to DAC who rendered him disability [sic] from a psych perspective - lawyer was arguing that we could not send him for another IE and start the "process" over again - however given that we were still paying him IRB I argued successfully that we were entitled

The Applicant subsequently applied for mediation and arbitration in respect of the termination of his income replacement benefits.

The Parties' Submissions:

Mr. Wilson made the following submissions. By sending the Applicant to Dr. Ross after the DAC, and by subsequently terminating the Applicant's benefits, the Insurer breached the terms of section 37(5) of the Schedule, namely, that an insurer may dispute a DAC's finding that an applicant continues to be disabled through the dispute resolution ("DR") process and shall pay benefits pending resolution of the dispute. The Insurer attempted to circumvent the DAC's conclusion that the Applicant continued to be disabled and to start the process over again. An insurer might be entitled to reasonable medical examinations, but regardless of the timing and conclusion of those examinations, the insurer must continue to pay the insured benefits. The Applicant had not acquiesced in Dr. Ross' examination, but even if the examination were reasonably required, the Insurer set out to challenge the DAC's findings (first by immediately consulting Dr. Hershberg and then by arranging an examination with Dr. Ross). To allow this would undermine the DAC system.

Mr. Wilson further argued as follows. The fact that the Insurer continued to pay the Applicant benefits following the DAC does not entitle it to restart the process and to terminate benefits after a subsequent IME. Pursuant to section 37(5), the Insurer must continue paying the Applicant benefits, pending resolution of any dispute through the DR process. By its letter of July 12, 2000, the Insurer was not simply attempting to adjust the claim, but improperly sought to redetermine the Applicant's entitlement to benefits, despite the DAC's finding. An insurer is entitled to reasonable IMEs, but once a DAC has issued a report confirming the insured's continuing disability, the IMEs can only be used to challenge the DAC through the DR process, not to terminate the insured's benefits. Otherwise, the insured would unfairly lose benefits, pending a determination through the DR process that benefits had been unreasonably discontinued. By its April 20, 2000 memorandum, the Insurer engaged in an unreasonable attempt to undermine the DAC's conclusions. The Insurer was not entitled to restart the process because it had not genuinely abandoned its pre-DAC position that the Applicant was not disabled and not entitled to IRBs. In any event, section 37(5) requires an insurer to dispute a DAC's finding, that an insured remains disabled, through the DR process and requires the insurer to continue paying the insured benefits pending resolution of the dispute. The Insurer disregarded both the DR process and the DAC process.

Mr. Rose argued as follows. Section 37(5) does not forever govern an insured's entitlement to benefits, nor does it require an insurer to dispute a DAC's findings through the dispute resolution process. Section 37(5) allows an insurer to do what occurred in this case, namely, to continue paying the insured in accordance with the DAC's findings and to reasonably assess the insured at a later date to determine ongoing entitlement. Since the Insurer continued to pay the Applicant benefits, the test is the reasonableness of the further IME (as well as the subsequent termination), not whether the DR process was initiated in respect of the DAC's findings. Dr. Prendergast's report contains various references justifying a further assessment of the Applicant, and the timing of Dr. Ross' examination was reasonable. If section 37(5) required an insurer to dispute an insured's ongoing entitlement only through the DR process, it would lead to the absurd result of having to apply for mediation in respect of potentially old DACs, as opposed to arranging fresh IMEs to assess an insured's ongoing entitlement. The Insurer in this case was not starting the process over again, but simply exercising its right to a reasonable examination in the context of a continuing and evolving claim. The Insurer continued to pay the Applicant and the Applicant chose not to elect a further DAC following the Insurer's notice that it would terminate his benefits.

Counsel provided written submissions on a point raised by Mr. Rose, namely, that if, pursuant to section 37(5), the only recourse an insurer has to dispute a DAC is to file for mediation, and if the matter fails to settle at that stage, the Insurer would not necessarily have the right to commence a civil suit on this issue. Mr. Rose submitted that the relevant statutory provisions and jurisprudence do not "fully support that the insurer does have a right to commence a law suit, provided there has been a failed mediation" and that the Insurer would, therefore, be placed in an untenable procedural position. Mr. Wilson submitted that the relevant law clearly supports an insurer's right to commence a lawsuit following a failed mediation and, therefore, that the Insurer would suffer no prejudice if required under section 37(5) to dispute the DAC's conclusions through the DR process.

Reasons:

The Legal Context

Section 37 of the Schedule sets out a detailed scheme by which the parties are to determine an insured's entitlement to ongoing disability benefits. Sections 37(1)-(3) describe the process by which an insurer is to notify an insured of its determination that the insured is no longer entitled to benefits. Pursuant to section 37(4), if the insured person has requested a DAC assessment and the DAC reports that the insured person no longer suffers from the relevant disability, the insurer "may stop paying the benefit after it has provided the person with notice of its reasons for stopping payment." In the present case, the Insurer provided the requisite notice and the Applicant requested a DAC. The DAC found that the Applicant continued to be disabled from his pre-accident employment. Pursuant to section 37(5), if a DAC reaches this conclusion, the insurer may dispute the obligation to pay benefits in accordance with the dispute resolution provisions of the Insurance Act and shall pay the insured the benefits pending the resolution of the dispute. In this case, the Insurer continued to pay benefits and began a process that led to Dr. Ross' examination and, subsequently, to the termination of the Applicant's benefits. Section 37(6) of the Schedule states that nothing in section 37 prevents a person from disputing a termination of benefits through the dispute resolution process and that, if it is finally determined that the benefits should not have been terminated, then the insurer shall resume paying the benefit and pay any amounts that were not paid. In this case, the Applicant applied for arbitration on his entitlement to ongoing income replacement benefits, housekeeping benefits and a special award. The Applicant also sought interim benefits, but was denied.

The leading decision to have considered the meaning of section 37 of the Schedule is M.D. and Halifax Insurance Company (FSCO Appeal P00-00049, May 16, 2001). In that case, the Director of Arbitrations stated that "the SABS-1996...controls the refusal or cancellation of benefits" and that "if the insurer determines that the insured person is not entitled to weekly benefits, including IRBs, it can stop paying, but only by following the steps in s. 37." The Director stated that "the DAC report is not just another opinion" and that "although either party can challenge it through the dispute resolution system, the DAC's conclusion governs the payment of benefits in the meantime." The Director indicated that if the DAC finds that the insured person meets the test of IRBs, "the insurer must pay" and that "the 'losing' party's option is to apply for mediation and, if the dispute is not resolved, proceed to court or arbitration." The Director noted that "only the insured person can opt for arbitration" and that "the insurer must go to court." The Director further stated that, under the legislation, DACs play a "pivotal role," namely, "to take the dispute out of the back-and-forth of competing partisan reports by providing an impartial assessment." Citing his earlier decision in Chafe-Moote and Prudential of America General Insurance Company (Canada) (FSCO Appeal P99-00044, September 8, 2000), the Director stated as follows:

Insurers must also respect the role of the DACs. If the DAC does not support its position, the insurer has a choice. It can accept the conclusion and pay benefits, or apply for mediation. It cannot require the insured person to attend an insurer examination for the purpose of challenging the DAC's opinion. An insurer examination only becomes appropriate if it is reasonably required to determining the insured person's ongoing entitlement, or in response to a new claim.

As stated above, the underlying goal is to achieve a reasonable balance between the parties. In a completely straightforward case, the DAC may provide a clear dividing line between the claims process and the dispute resolution process. However, other cases may be complicated by multiple claims or the passage of time. As a result, the facts of each case will be critical in determining whether the assessment is a reasonable expense under s. 24, or the insurer examination is reasonably required to determine entitlement.

Recently, the case of Dhir and RBC General Insurance Company (FSCO A01-000741, January 15, 2002) considered the case of M.D. and found that the insurer's examinations in question were not appropriate since the insurer had conceded that they were arranged to challenge the findings of an Attendant Care DAC, since the applicant's claim for attendant care benefits was not a new claim and since the insurer only disputed the quantum of these benefits, not the applicant's ongoing entitlement.

As noted inM.D., pursuant to section 37(5), if a DAC does not support an insurer's position, it can pay benefits or apply for mediation. Further, an insurer can set up an IME to determine an insured's ongoing entitlement, but not to challenge the DAC's conclusions. The particular facts of each case are critical to determining an insurer's obligations following a DAC that does not support its position and in determining the "dividing line between the claims process and the dispute resolution process." In my view, the fact that an insurer continues to pay an insured's benefits following a DAC does not end the matter. I find that to determine whether an insurer has complied with section 37(5) of the Schedule (as elaborated inM.D.), an arbitrator must consider the total context of the insurer's conduct, having regard to the circumstances under which it paid benefits, conducted an IME and terminated payments. The issue is whether, despite paying benefits, an insurer has, in fact, disputed the DAC's findings, but has not accessed the dispute resolution process. In the case before me, I find that, while the Insurer continued to pay the Applicant benefits following Dr. Prendergast's report, it did not accept the DAC's conclusions. It sought an IME to determine the Applicant's general entitlement to benefits and it terminated the Applicant's benefits on the basis of the IME's findings. As discussed below, I find that, contrary to the principles enunciated in M.D., the Insurer did not respect the role of the DAC, that it, in fact, disputed the DAC's findings and that, despite disputing the DAC's conclusions, it failed to initiate the dispute resolution process. I, therefore, find that the Insurer breached section 37(5) of the Schedule.

Section 37(5) states that if a DAC concludes that an insured person continues to be disabled, an insurer "may" dispute the obligation to pay benefits through the dispute resolution process. I do not find that this allows an insurer to choose not to proceed to mediation. I find that, in light of a DAC's central role in assessing an insured's entitlement and section 37(5)'s detailed description of how an insurer is to dispute a DAC's findings (namely, in accordance with the dispute resolution provisions of the Insurance Act and paying the insured person pending the resolution of the dispute), the intent of the provision is to require an insurer, where it disputes a DAC's findings, to proceed through the DR process. Whether an insurer decides to pay benefits following a positive DAC is irrelevant, since section 37(5) seeks to protect an insured's benefits not simply until a further IME is conducted, but until the insurer's dispute of the DAC's findings is resolved through the DR process. Conversely, I find that it would simply not make sense for section 37(5) to have required an insurer to proceed through the DR process, even if the insurer accepted the DAC's conclusions. I, therefore, find that, by saying that an insurer "may dispute" its obligation to pay in accordance with the dispute resolution provisions of the Act, the Legislature intended to require an insurer to proceed through the DR process, if it disputed a DAC's findings.

Following a DAC which supports the insured's position, an insurer can pay benefits or not. If it does not pay benefits, the insured can, pursuant to section 37(6), dispute the insurer's stoppage of benefits. In my view, however, the fact that section 37(6) allows an insured to dispute a termination of benefits does not relieve an insurer of its general obligation under section 37(5) to dispute a DAC's findings through the DR process. If this were the case, section 37(5) would be unnecessary since an insurer would not have to respect the DAC's conclusions and the onus would shift to the insured to dispute a stoppage in benefits despite the DAC's positive findings. However, while not strictly requiring an insurer to pay benefits following a positive DAC (since, theoretically, an insurer could terminate benefits despite accepting the DAC's conclusions), section 37(5) does suggest that, if an insurer wishes to dispute a DAC's findings (even if it has decided to pay benefits), it must do so through the DR process. As discussed below, I find that, while the Insurer in this case continued for a time to pay the Applicant benefits, it, in fact, disputed the DAC's conclusions, but failed to proceed through the DR process, as required by the Schedule.

The Insurer's Conduct

I find that the Insurer breached its obligations in the following ways. On July 12, 2000, in response to Mr. Wilson's objection to the IME with Dr. Ross, Ms. Robinson wrote that the Insurer was not disputing the Applicant's "entitlement to benefits at this time." However, despite the DAC's conclusion that the Applicant was "psychologically disabled from returning to his pre-accident level of employment" and "would require a great deal of assistance in doing so," four weeks later, Ms. Robinson's manager indicated that it was "too early to write off the insured from his pre-mva job," that any treatment recommendations should be put into place (which could simply mean "should be initiated"), that IMEs should be set up to "re-evaluate his psychological status," and that further, more productive surveillance should be conducted. While Ms. Robinson's manager authorized her request for increased "IRB authority" and while Ms. Robinson then wrote to Drs. Prendergast and Hershberg simply to inquire as to the possible length of the Applicant's disability and as to his treatment needs, I find that the Insurer did not accept the DAC's conclusions that the Applicant remained disabled from performing his pre-accident employment and set out to challenge it.

However, even if the Insurer's conduct immediately following Dr. Prendergast's report cannot be construed as a challenge to the DAC's conclusions, I find that Dr. Hershberg's response led the Insurer quickly and directly to this result. While Ms. Robinson posed relatively limited questions to Dr. Hershberg, Dr. Hershberg responded with a general critique of Dr. Prendergast's opinion and with a restatement of his pre-DAC view that the Applicant continued to be capable of doing his pre-accident job. Despite Dr. Prendergast's opinion that the Applicant would require a great deal of assistance to return to the workforce, Dr. Hershberg firmly stated that no medical treatment was necessary. While the Insurer may not have sought Dr. Hershberg's opinion in order to attack the DAC's conclusions, this is, in fact, what happened.

More importantly, based on Dr. Hershberg's report, the Insurer concluded that it was "prudent to set up an IE with another doctor, given [the] conflicting opinions" and that Dr. Ross' examination was to "assess [the Applicant's] psychological disability." There is nothing to suggest that the context in which the DAC had found the Applicant to be disabled had changed or that, as suggested inM.D., the passage of time required a re-evaluation of the Applicant's ongoing entitlement to benefits. Specifically, there is nothing to suggest that the Applicant's condition had changed in the two and a half months since the DAC. The Insurer sought a new IME simply on the basis of Dr. Hershberg's paper review and critique of the DAC report. I find that, in seeking the opinion of "another doctor" and in considering Dr. Prendergast's and Dr. Hershberg's reports to be simply "conflicting opinions," the Insurer did not respect the role of the DAC. As stated in M.D., "the DAC report is not just another opinion," but a mechanism by which "to take the dispute out of the back-and-forth of competing partisan reports by providing an impartial assessment." I find that the Insurer sought an IME to challenge the DAC's conclusions, not to evaluate the Applicant's ongoing entitlement to benefits.

I find support for this conclusion in the letter the Insurer actually sent to Dr. Ross. Ms. Robinson's referral letter was very broad in scope, asking Dr. Ross much more than previously asked of Drs. Prendergast and Hershberg. Dr. Ross was asked not only to discuss the possible duration of any disability and whether the Applicant required further treatment, but the Applicant's diagnosis, whether any non-accident related factors had enhanced his psychological condition or prevented recovery and whether he was substantially disabled from performing the essential tasks of his pre-accident employment duties. Ms. Robinson explained to Mr. Wilson that the Insurer was simply attempting to determine whether the Applicant was still entitled to benefits. I reject this. I find that the Insurer sought Dr. Ross' opinion on a broad range of questions (which included the very questions the DAC was required to address), that the Insurer thereby sought to obtain a further opinion on the Applicant's general entitlement to benefits and to dispute the DAC's opinion, and that the Insurer was not simply attempting to update the Applicant's medical status and entitlement to benefits.

Ms. Robinson justified the Insurer's request for an IME by saying that it had been "four months since the last assessment." However, only four weeks had passed since the DAC's report when the Insurer began to review the Applicant's entitlement to benefits (even to the point of deciding to conduct new and more productive surveillance), and then only six weeks after that (due in part to the Insurer being directed to Dr. Hershberg), the Insurer decided to seek a further medical opinion. I see no basis, other than the Insurer's initial non-acceptance of the DAC's conclusions and Dr. Hershberg's subsequent critique of Dr. Prendergast's opinion (and reiteration of his pre-DAC position that the Applicant was not disabled), that the Insurer sought to have a further IME. A very brief period of time had elapsed since the DAC, there was no evidence that the Applicant's condition had changed or progressed, and there was no medical imperative to re-assess the Applicant's status. I acknowledge that the Insurer sought to obtain information on the likely duration of the Applicant's disability and on his need for treatment. However, on the basis of the Insurer's general response to Dr. Prendergast's and Dr. Hershberg's reports, and its particular (and very broad) questions to Dr. Ross, I find that the Insurer sought to do much more than simply assess the Applicant's treatment needs. I find that the Insurer sought to fully re-assess the Applicant's claim of disability, not because of the passage of time, but because it disputed the DAC's conclusions.

Not surprisingly, Dr. Ross responded to the Insurer's questions by providing a comprehensive review of the available medical reports and re-evaluation of the Applicant's condition (including references to Dr. Hershberg's findings and a critique of Dr. Prendergast's assessment) and by concluding that, "on the basis of a review of the available documentation in combination with an ample opportunity for direct assessment," the Applicant's "hypothesized condition" would not give rise to either a "meaningful" or a "lasting" disability. Ms. Robinson then told the Applicant that, based on Dr. Ross' examination, the Insurer no longer considered him entitled to weekly benefits. I find that the Insurer disputed the DAC's findings, first by seeking Dr. Ross' opinion (based both on the Insurer's general reaction to the DAC and its specific response to Dr. Hershberg's comments), then by adopting Dr. Ross' findings and, finally, by notifying the Applicant that his benefits would be discontinued if he did not request a new DAC. I do not find that the Insurer either sought or relied on Dr. Ross' opinion simply as part of a continuing and evolving claims process or simply to assess the Applicant's entitlement to ongoing benefits.

I do not find it relevant that the Applicant first objected to and then went to Dr. Ross' examination. Nor do I find it relevant that the Applicant did not request another DAC following Dr. Ross' examination and the Insurer's notice that it no longer considered him disabled. In the first instance, the Insurer told the Applicant that it could terminate his benefits if he failed to attend and the Applicant, therefore, understandably attended. In the second instance, Mr. Wilson wrote the Insurer indicating that, given the Insurer's conduct and pursuant to section 37(5), the Applicant was not "obliged to elect to attend at a DAC." I find that neither of these actions precludes the Applicant from arguing that, contrary to section 37(5), the Insurer attempted to circumvent the DAC process and the dispute resolution process.

I also do not find it relevant that some of the questions posed to Dr. Ross might have been legitimate (namely, those concerning the duration of the Applicant's disability and his treatment needs). In my view, the issue under section 37(5) is not simply whether a particular IME is reasonably necessary. The issue is whether, in all of the circumstances of the case, the Insurer attempted to challenge the DAC's findings and to side-step the dispute resolution process. In this case, I find that the Insurer did not respect the DAC's role and sought to challenge the DAC's conclusions, not, as legislatively mandated, by accessing the dispute resolution process, but by seeking an IME and by relying on its findings to terminate the Applicant's benefits.

I do not accept Mr. Rose's argument that this approach will result in the DAC "governing for all time" or in an insurer having no alternative but to challenge a DAC through the dispute resolution process, despite the passage of a significant amount of time. As noted in M.D., some cases may be complicated by the passage of time, so as to blur the line between the claims process and the dispute resolution process. There may be cases where, due to the passage of time or a significant development in the insured's condition, a DAC's findings are simply no longer helpful and where it would simply not make sense to require an insurer to dispute the matter through the DR process. However, as stated in M.D., the governing principle is that, while either party can challenge a DAC through the dispute resolution process, "the DAC's conclusion governs the payment of benefits in the meantime." Again, each case must be decided on its particular facts, and in the case before me, I find that there was no reason for the Insurer to seek a general re-assessment of the Applicant's condition and to terminate his benefits on the basis of the IME, without engaging the dispute resolution process. I see no basis upon which to relieve the Insurer of its general obligation to dispute the DAC's findings through the DR process and to pay the Applicant's benefits pending the resolution of that dispute.

It is important to point out that none of this precludes an insurer from requesting and obtaining IMEs that are reasonably necessary. Nor does it preclude an insurer from using a new IME in the subsequent mediation or arbitration. It simply means that, in appropriate circumstances, without pursuing the matter through the DR process, an insurer cannot use a new IME as the basis upon which to terminate an Applicant's benefits. As stated above, the question under section 37(5) is not whether an insurer is entitled to reasonably assess an insured's ongoing entitlement, but whether, having regard to the insurer's conduct in its totality (including its seeking an IME), the insurer has sought to challenge the DAC's conclusions and to avoid the dispute resolution process. Thus, even if it could be said that a particular IME was reasonably necessary, an arbitrator would still have to consider the general circumstances under which the IME was obtained and under which benefits were terminated, before concluding that the insurer was not required to dispute a DAC's findings through the DR process.

Mr. Rose argued that, given that the Insurer continued to pay the Applicant benefits and given the various questions raised by Dr. Prendergast's analysis, the Insurer was not required to initiate the DR process and the only question is whether the subsequent IME was reasonably necessary. As noted, I do not accept that continuing to pay an applicant benefits following a DAC is sufficient to exempt an insurer from the general requirements of section 37(5) of the Schedule. Nor do I find that a DAC which leaves some doubt as to an insured's entitlement relieves an insurer of its obligation to dispute the DAC's findings through the DR process. Every medical report, whether an IME or a DAC, can be said to leave some questions as to the nature and extent of a person's injuries. Section 37(5) would be rendered meaningless if, by virtue of an insurer's view that a DAC was inconclusive, it could require an insured to attend another IME, thereby restarting the "back-and-forth of competing partisan reports" and avoiding the dispute resolution process. Whether the insured requested another DAC after the new IME would be irrelevant, since, if the insurer had questions about the new DAC, it could simply request a new IME and start the process all over again. As noted in M.D. (and contrary to what Ms. Robinson appeared to suggest in her December 2000 log note), the thrust of the DAC system and section 37(5) is to avoid this recurring scenario by having an insured's medical entitlement independently assessed and then, failing a mediated solution, to have the merits of that assessment independently adjudicated through a legislated dispute resolution process.

I, therefore, find that it is irrelevant that Dr. Prendergast's report may have raised certain questions about the insured's entitlement and that the Insurer may have had a legitimate reason for requesting a further IME. A DAC had issued its report concluding that the Applicant continued to be disabled, and since the Insurer disputed this conclusion, it was required to proceed through the DR process.

The Insurer's Right to Commence an Action

I do not accept Mr. Rose's argument that, if the Insurer were required to file for mediation to dispute the DAC's conclusions, it might not have the right to commence a civil suit on the issue and would be placed in an untenable procedural position. As noted in M.D., "the 'losing' party's option [following a DAC] is to apply for mediation, and if the dispute is not resolved, proceed to court or arbitration" (where "only the insured person can opt for arbitration" and "the insurer must go to court"). Section 37(5) states that, following a positive DAC, an insurer may dispute the obligation to pay benefits "in accordance with sections 279 to 283 of the Insurance Act...." While, as Mr. Rose attempted to point out, sections 279 to 283 of the Act do not explicitly confer on an insurer the right to proceed to court following a failed mediation (and only explicitly permit the insured person to opt for court), I find nothing in these provisions limiting an insurer's common-law right to commence an action, particularly in light of section 281(2) of the Act, which states that "no person may bring a proceeding in any court or refer a matter to arbitration unless mediation has first been sought and has failed." I find that the phrase "no person" refers to both insureds and insurers, since the surrounding provisions specifically set out rights and obligations in relation to both parties.

I find that the cases cited by Mr. Rose, to the extent that they apply at all to the present case, in fact support the proposition that an insurer has a right to proceed to court following a failed mediation.³ For example, in the arbitration decision in DeCicco, the arbitrator stated that "it is a fundamental principle of law that a statute should not be construed to take away a party’s resort to the courts in the absence of the clearest language" and "the use of the generic 'person' [in what is now section 281(2) of the Act] implies a residual right of insurers to resort to the courts." And in Gogna, the court held as follows:

It follows then the Insurance Act cannot by implication take away the common law rights of the insured [sic] to bring an action such as the one contemplated in the statement of claim herein. To interpret the statute to the contrary would deprive the insurer of a remedy or means to enforce repayment of benefits received by fraud or misrepresentation in the absence of a proceeding with arbitration. The insurer cannot apply for arbitration. The insured can, after application for arbitration, withdraw from arbitration, thereby defeating the insurer’s rights. This cannot be the result of the statute: surely it is not intended that an insured person can defeat the insurer’s remedy by applying for arbitration.

While there are clearly situations where an arbitrator or a court must decide whether to give precedence to an arbitration or a court proceeding, I find that this does not alter an insurer’s basic right to commence an action following a failed mediation.

Mr. Rose’s written submissions contain two concluding paragraphs. The first sets out procedural options open to the Insurer should Mr. Wilson's interpretation of section 37(5) be accepted, namely, commencing a mediation concerning the DAC in this case and commencing an action in court (in respect of which Mr. Sellathamby's arbitration might be given precedence). Mr. Rose stated that, on Mr. Wilson’s interpretation, the Insurer would have to pay benefits until either the date of the subsequent termination or until the Insurer "either successfully concluded a law suit, or was given the right to counterclaim in the arbitration." I find that none of these scenarios affects the conclusion that section 37(5) requires an insurer to dispute a DAC's findings through the DR process or that an insurer has a right to commence a court action following a failed mediation.

The second paragraph appears to suggest that, if Mr. Wilson's interpretation is accepted, insurers will have no option but to dispute every Disability DAC through mediation and that insureds will then have no option but to immediately proceed to arbitration or court. To the extent that I understand this submission, I find that it does not address the question upon which written submissions were to be made, namely, whether insurers have a right, under the terms of the legislation, to commence a court action following a failed mediation. I decline to address this argument.

The Consequences of a Breach of Section 37(5)

Mr. Rose submitted that, even if the Insurer were found to have breached its obligation under section 37(5) to dispute the DAC's findings in accordance with the dispute resolution provisions of the Insurance Act, the Insurer would only be required to pay the Applicant income replacement benefits until June 29, 2001 (the 104-week mark), since section 37(5) refers to an insurer disputing the DAC's finding of continuing disability "in respect of which the benefit is paid" (which, in this case, would be pre-104 week IRBs). Mr. Wilson submitted that section 37(5) does not preclude my ordering the Insurer to pay the Applicant ongoing benefits until the conclusion of the arbitration, despite the passage of the 104-week mark.

Section 37(5) is a "pay pending dispute" provision. The provision does not explicitly limit the time during which an insurer must pay benefits if it disputes the DAC's findings. The section simply states that "pending the resolution of the dispute, the insurer shall pay the benefit." On the plain meaning of the provision, an insurer would be required to pay pre-104 week benefits until the dispute was resolved, regardless of whether this was beyond the 104-week mark. It is not uncommon for insurers to notify insureds that they intend to terminate benefits at, or shortly before, the point at which the test of disability changes. This often results in IMEs and DACs occurring after that point. It also results in benefits being terminated and related arbitrations being held after that point. In light of this quite common course of events, I find that it would have been a simple matter for the Legislature to have said that an insurer need only pay benefits during the period they are payable, as opposed to "pending the resolution of the dispute." Nothing in the section suggests that an insurer can dispute a DAC’s findings, but only pay the relevant benefits until the point at which the test of disability changes.

I do not accept Mr. Rose's submission that section 37(5)'s reference to an insurer disputing a DAC’s finding of continuing disability "in respect of which the benefit is paid" relieves an insurer of its obligation to pay benefits until the dispute is resolved. The provision states that where an insurer disputes a DAC’s conclusion that the insured continues to suffer the disability for which the insurer has paid benefits, then the insurer shall pay the benefits pending resolution of the dispute. It does not say that, by virtue of disputing a DAC’s findings, an insurer need only pay the benefit during the period in which the benefit is payable.

I agree with Mr. Wilson that this issue is somewhat analogous to the payment of IRBs, pending the resolution of an LECB dispute. Arbitration decisions have established that, if an applicant is found to have been entitled to IRBs at the 104-week mark (and that the insurer ought not to have terminated benefits prior to that point), and if an insurer has not made the applicant an LECB offer (on the basis that it thought the applicant did not suffer the requisite disability at the 104-week mark), then the insurer must pay the applicant IRBs until it makes the LECB offer, even if this means paying the applicant IRBs well after the 104-week mark.⁴ While not identical to the case at hand, I find the general principle relevant, namely, that where an insurer has improperly terminated weekly benefits, and where benefits are to be paid pending the resolution of a dispute, then the insurer should continue paying the disputed benefits until the matter is concluded through the DR process, even if this would extend the applicant's benefits beyond the point to which the benefits would otherwise be payable. I find this approach sensible, particularly in light of the fact that section 37(5) does not contain a limit on the period in which the insurer is to pay benefits while the matter is pursued through the DR process.

Finally, I find instructive the arbitration decisions of Singh and Gore Mutual Insurance Company (FSCO A95-000257, July 3, 1998), Pintucci and Jevco Insurance Company (FSCO A97-000755, January 7, 1999) and Mendez and AXA Insurance (Canada) (FSCO A96-001355, January 25, 2000). In Mendez, the arbitrator discussed his decision in Singh and stated that "it would be inappropriate to give an insurer, who terminated benefits improperly, an advantage over those who complied with the Schedule, and continued to pay the benefit," that the "goal was to attempt to put the parties back into the position they would have been in had the insurer acted properly," and that "insurers acting improperly would not gain an advantage by their misconduct by putting the insured to the proof of entitlement to a benefit the insurer had no right to stop paying, but at the same time the insured person would not receive a benefit that would in the normal circumstances be subject to recapture because of his misconduct." In Pintucci, the arbitrator found that, "even though Mr. Pintucci's substantive entitlement to the treatment ha[d] not been proved," the Insurer ought to pay the relevant medical benefits to the date of the DAC report, "since it failed to follow the mandatory, procedural provisions of the Schedule, found at sections 36(4) and 40(7), in paying an expense '...pending resolution of a dispute relating to the expense in accordance with sections 279 to 283 of the Insurance Act.'"

Again, while not on all fours with the present case, I find the analysis in these cases helpful. Where an insurer has not followed the procedure by which to terminate an insured's benefits, and particularly where benefits are to be paid pending resolution of the dispute, the insurer should not be able to avoid what other insurers are otherwise required to do, namely, to continue paying benefits until the matter is addressed through either the DAC process or the DR process.

I find that the Applicant in the present case ought to receive ongoing benefits, since the DAC had found him disabled and since the Insurer took various steps to challenge and, ultimately, to reject, the DAC’s findings, without invoking the dispute resolution process. The Insurer put the Applicant in the difficult position of having to challenge the termination of benefits through the dispute resolution process, without the benefit of weekly IRBs which the Applicant would otherwise have received had the Insurer disputed the DAC’s findings in the prescribed manner. I find that, if ongoing IRBs were not ordered, the Insurer would gain an unfair advantage over other insurers who, in accordance with the Schedule, continued to pay their insureds following a DAC and pending the resolution of any dispute through the DR process.

I, therefore, find that the Insurer breached the terms of section 37(5) of the Schedule and that the Applicant is entitled to weekly income replacement benefits pending the resolution of the dispute.

EXPENSES:

The parties did not address the issue of expenses. It will be dealt with at the conclusion of these proceedings.

May 8, 2002

Eban Bayefsky Arbitrator

Date