Sacikala Sivaloganathan v. Liberty Mutual Insurance Company, 2003 ONFSCDRS 102

Neutral Citation: 2003 ONFSCDRS 102

FSCO A03-000317

BETWEEN:

SACIKALA SIVALOGANATHAN

Applicant

and

LIBERTY MUTUAL INSURANCE COMPANY

Insurer

PRELIMINARY DECISION ON A MOTION FOR INTERIM BENEFITS

Before: David Muir

Heard: June 16, 2003, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

David S. Wilson for Mrs. Sivaloganathan

Deborah G. Neilson for Liberty Mutual Insurance Company

Issues:

The Applicant, Sacikala Sivaloganathan, was injured in a motor vehicle accident on April 3, 2001. She applied for and received statutory accident benefits from Liberty Mutual Insurance Company ("Liberty"), payable under the Schedule.¹ Liberty terminated weekly income replacement benefits on October 28, 2002. The parties were unable to resolve their disputes through mediation, and Mrs. Sivaloganathan applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended (the "Act").

Mrs. Sivaloganathan has brought a motion, pursuant to Rule 67 of the Dispute Resolution Practice Code —Fourth Edition, for interim income replacement benefits to be paid to her pending the resolution of her dispute with Liberty. After the motion was scheduled to be heard, Liberty reinstated income replacement benefits "on a without prejudice basis to Liberty's right to dispute entitlement to benefits from October 28, 2002..."

By way of brief factual background, as indicated, Mrs. Sivaloganathan was injured in an automobile accident on April 3, 2001. Income replacement benefits were paid until terminated on December 10, 2001. Mrs. Sivaloganathan requested a disability DAC which, in a report dated March 1, 2002, concluded that she was substantially unable to perform her pre-accident employment. On June 1, 2002, Liberty requested that Mrs. Sivaloganathan re-attend an insurer's medical assessment at the Canadian Rehabilitation Institute which occurred in August 2002. On the basis of this assessment Liberty purported to terminate income replacement benefits effective September 27, 2002. Benefits were ultimately paid to October 29, 2002, but terminated at that point unless Mrs. Sivaloganathan elected to attend a further DAC assessment.

Although benefits have been reinstated by Liberty, Mrs. Sivaloganathan continues to seek the following relief:

An order requiring Liberty, if it continues to dispute the determination of a disability DAC assessment, to do so in accordance with sections 279 to 283 of the Act and, pending the resolution of the dispute, pay weekly income replacement benefits pursuant to section 37(5) of the Schedule, or,
An order that from and after October 29, 2002, Mrs. Sivaloganathan continued to be entitled to the receipt of income replacement benefits in accordance with the provisions of the Schedule.
A special award based on the failure of Liberty to comply with the provisions of section 37(5) of the Schedule when it terminated the payment of income replacement benefits.

What is sought by Mrs. Sivaloganathan, amongst other things, is a finding that Liberty has failed to follow the procedure in section 37(5) in terminating her income replacement benefits and an order that it comply with that provision - that is, an order requiring it to pay weekly benefits pending the resolution of its dispute with the DAC's conclusions, in accordance with the section. The issue becomes under what circumstances, if any, can an insurer terminate benefits in the face of a Disability DAC assessment which has supported entitlement to income replacement benefits - a so-called positive DAC.

After hearing extensive introductory submissions from the parties and reviewing the arbitration decision and subsequent appeal decision in Sellathamby and Allstate² I indicated that I accepted Mr. Wilson's legal argument that a violation of section 37(5) could give rise to an order requiring an insurer to pay a benefit pending the resolution of the dispute over the DAC's conclusions in accordance with sections 279 to 283 of the Act. This is precisely what was done in Sellathamby. In these circumstances, that would require Liberty to refer the issue to mediation and then, if mediation failed, commence an action. I also indicated to the parties that while I accepted that general proposition advanced by the Applicant, there were two questions arising from the submissions of Liberty upon which I would be required to reserve.

Liberty relied upon two primary defences to the argument made by Mrs. Sivaloganathan. First, that changed circumstances, such as a change in the insured person's medical condition, could justify an insurer seeking further assessments of an insured person leading to a decision to terminate benefits where appropriate, despite a prior disability DAC's conclusions. Secondly, Liberty submitted, to put it simply, that a pre-104 week disability DAC could not be determinative of entitlement to post-104 week income replacement benefits because the test for entitlement changed substantially at the 104 week mark. Accordingly, when an insured person passes the 104 week threshold, a new opportunity to employ the section 37 process arises. As the 104 week mark has just passed and the claim of Mrs. Sivaloganathan to income replacement benefits continues, the effect of this passage of time is pertinent in this case.

Over the objection of Mrs. Sivaloganathan, I decided that it was appropriate to consider these two "preliminary" questions first for primarily practical reasons. Given the positions of the parties on these issues and the potential need for further evidence, it was not possible for the matter to be concluded in the time scheduled for it. As well, Liberty agreed that if it could not rely upon changed circumstances as a basis for termination of benefits in the face of a disability DAC, substantially less evidence would likely be necessary to respond to the motion. The parties agreed to resume the consideration of Mrs. Sivaloganathan's motion on August 14 and 15, 2003.

Accordingly, the issues for determination in this preliminary decision are as follows:

Is an insurer bound by the conclusions of a disability DAC that an insured person was substantially unable to perform the essential duties of her pre-accident employment (a positive DAC), in respect of her entitlement to income replacement benefits after the passage of the 104 weeks of disability as provided in section 5(2)(b) of the Schedule?
Is a change in the medical condition of an insured person subsequent to a positive disability DAC, sufficient to allow an insurer to cause new assessments to be undertaken and terminate benefits contrary to the conclusions of the DAC?

Result:

An insurer is not bound by the determination of a disability DAC that an insured person was substantially unable to perform the essential duties of her pre-accident employment (a positive DAC), in respect of her entitlement to income replacement benefits after the passage of the 104 weeks of disability as provided in section 5(2)(b) of the Schedule.
A change in the medical condition of an insured person subsequent to a positive disability DAC is not sufficient to allow an insurer to cause new assessments to be undertaken and terminate benefits contrary to the conclusions of the DAC.

If this conclusion is incorrect, the changed circumstance must be a significant material change akin to the change occasioned by the passage of the 104 week mark.

ANALYSIS:

Much of the legal background of these two issues is well settled. In the case of Sellathamby, cited earlier, Arbitrator Bayefsky concluded that an insurer could not rely on insurer's medical assessments to challenge a disability DAC's conclusion that an insured person was substantially disabled from performing their pre-accident job duties.

After reviewing the role of the DAC in the dispute resolution system the arbitrator concluded as follows:

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...

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 appealed the decision in Sellathamby. The Director's Delegate upheld the decision of the arbitrator and, in doing so, expressed some tentative opinions that bear on the questions for determination here.

I have drawn the following principles from the decisions in Sellathamby. Where an insurer determines that an insured person is no longer entitled to a benefit it may stop payment, but it is bound to follow the procedure set out in section 37 which provides a detailed code of procedure that must be followed for a termination of benefits to be valid. Section 37(5) provides that where a DAC states that the insured person "continues to suffer from the disability in respect of which the benefit was paid," the insurer is bound to dispute the requirement to pay if it wishes to do so, in accordance with the provisions of section 279 to 283 of the Act. The effect of this latter provision is that the insurer is precluded from terminating benefits on the basis of a subsequent insurer's medical assessment in most circumstances.

But for the preliminary questions set out above, that would end the debate. Liberty appears to have not complied with the provisions of section 37(5) and, accordingly, Mrs. Sivaloganathan would be entitled to an order that she be paid benefits until the dispute is resolved in accordance with sections 279 to 283 of the Act.

1. The effect of the 104 week threshold

The answer to the first question is straightforward. I find that a DAC asked to determine entitlement to weekly benefits for the first 104 weeks of disability cannot be binding beyond the 104 week mark. This is because the test for entitlement to income replacement benefits changes dramatically beyond the 104 week threshold from, colloquially put, an inability to perform one's own job in the first 104 weeks, to an inability to perform any kind of work for which one is suited. A pre-104 week disability DAC's determination is not relevant to the question of whether or not an insured person's entitlement to benefits would continue beyond the 104 week threshold, given the new and different question to be determined. I note that although not an issue to be determined in the case and therefore clearly not binding on me, the Director's Delegate in the appeal decision opined that at the 104 week mark an insurer may be entitled to "restart the process" at that time by reissuing another termination notice pursuant to section 37(1) if appropriate to do so based on the information then available.³

To be clear, this does not mean that at the 104 week mark an insurer is entitled to simply stop paying benefits, merely as a consequence of crossing that threshold. In this regard, the Director's Delegate endorsed the analysis of the arbitrator where he found that the benefits could continue to be paid beyond the 104 week mark, the only limitation being until there had been compliance with all of the requirements of section 37(5) - that is, pending the resolution of the dispute.

I find, however, that it does mean that, as the Director's Delegate put it above, the insurer is entitled to restart the process by commissioning an insurer's medical examination and where appropriate issuing a notice of stoppage pursuant to section 37(1). Assuming that the insurer complies with all of the requirements of section 37, then it may be that the protection afforded by section 37(5) in circumstances such as these, would end at or shortly after the 104 week mark had passed.

2. Changed Circumstances

The more difficult question is whether changed circumstances, such as a change in the insured person's medical condition, could give rise to the ability of an insurer to restart the termination process. This was apparently not an issue in the Sellathamby matter, so neither of the decisions in that case, either at first instance or on appeal, deal with it directly. There is also no provision of section 37 or the rest of the Schedule that specifically provides for changed circumstances.

In Sellathamby, Arbitrator Bayefsky offered the following comments in response to the insurer's argument that the position of the applicant in that case was that the DAC "governed for all 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 develop-ment 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." [Emphasis added]

This view is echoed in a note in the appeal decision, where in reference to a subsequent car accident, the Director's Delegate offered that "this changed circumstance might also have entitled Allstate to restart the process."⁴

Despite the suggestion of my colleague and the Director's Delegate that changed circumstances may give rise to a right to re-start the process, I find that changed circumstances do not entitle an insurer to restart the termination process provided for in section 37.

The conclusion that DAC determinations can be subject to challenge on the ground of alleged changed circumstances ignores two critical principles in my view: First, it requires reading into section 37 language that is not there. The language of section 37(5) in particular is clear and unambiguous. Section 37 is a complete code, describing in detail the mechanisms whereby an insurer can terminate a benefit. The strict application of its terms does not lead to an absurd or unconscionable result. There is no basis for reading into it language that is not there.

Related to this is the point that Liberty's argument discounts the fact that on Mrs. Sivalogonathan's interpretation of the provision the insurer is not left without a remedy where it disagrees with a DAC or believes that the DAC's conclusions have been made redundant by changed circumstances. It is completely open to an insurer to challenge the DAC, including alleging that changed circumstances have rendered the DAC conclusion moot. What is not provided for, once a DAC has offered its opinion, is that the insurer can seek its own opinions and terminate benefits on that basis.

Second, the argument discounts the central role of the DAC in the dispute resolution process as articulated in the MM.D. appeal decision⁵ and applied in the Sellathamby decisions, and as reflected again in the language of section 37(5). The DAC is not merely another assessment. It is meant to provide an objective and independent view, taking the dispute out of the back and forth of competing partisan expert opinion. Although it can be challenged, it governs the payment of benefits in the meantime.

If I am incorrect in the view that a change in the medical circumstances of an applicant does not allow an insurer to restart the section 37 termination process, then these same factors suggest that the changed circumstance would have to be significant. In my view, the central role of the DAC assessment is potentially undermined when any change in the medical progress of an insured person can give rise to further assessments and re-assessments. A change in circumstance, in order to give rise to an insurer's right to restart the section 37 process, must be a significant material change akin to the change occasioned by the passage of the 104 week mark. That is, a new circumstance such that the determination of the prior DAC is moot.

I remain seised of this matter to consider any further issues to be resolved in respect of this motion.

EXPENSES:

The question of expenses is deferred until any remaining issues in this motion are decided.

July 4, 2003

David Muir Arbitrator

Date