Neutral Citation: 2003 ONFSCDRS 140 FSCO A02-001550

BETWEEN:

KATHY YEE Applicant

and

LAMBTON MUTUAL INSURANCE COMPANY Insurer

DECISION ON A PRELIMINARY ISSUE

Before: David J. Evans

Heard: May 12, 2003, in London, Ontario.

Appearances: Gary E. Flaxbard for Mrs. Yee Barry J. Sullivan for Lambton Mutual Insurance Company

Issues:

The Applicant, Kathy Yee, was injured in a motor vehicle accident on October 10, 1998.¹ She applied for and received statutory accident benefits from Lambton Mutual Insurance Company ("Lambton"), payable under the Schedule.² Lambton served notice of its refusal to pay further weekly income replacement benefits (IRBs) in March 1999 and terminated them in June 1999. Mrs. Yee eventually settled her claims for IRBs and medical and rehabilitation benefits by signing a release in March 2000; the mediation that had been filed was cancelled.

In June 2002, Mrs. Yee applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended, alleging the release was ineffective. Lambton relies on the release and submits that in any event the claim is time-barred.

The preliminary issues are as follows:

Was there a full, final and binding settlement of Mrs. Yee's right to accident benefits arising from the accident of October 10, 1998?
Is Mrs. Yee's right to claim accident benefits as a result of the accident of October 10, 1998 extinguished by operation of the limitation periods imposed by sections 272, 281(1), (2) and (5) of the Insurance Act?
Is Lambton liable to pay Mrs. Yee's expenses in respect of the preliminary issue hearing, pursuant to subsection 282(11) of the Insurance Act?
Is Mrs. Yee liable to pay Lambton's expenses in respect of the preliminary issue hearing, pursuant to subsection 282(11) of the Insurance Act?

Result:

There was not a full, final and binding settlement of Mrs. Yee's right to accident benefits arising from the accident of October 10, 1998.
Mrs. Yee's right to claim accident benefits as a result of the accident of October 10, 1998 is not extinguished by operation of the limitation periods imposed by sections 272, 281(1), (2) and (5) of the Insurance Act.
The parties may now speak to me on the question of expenses.

EVIDENCE AND ANALYSIS:

Background:

Mrs. Yee's accident of October 10, 1998 was the third of four accidents that she had in the space of five years: two occurred earlier, on August 14, 1996 and June 8, 1998, and one after, on May 21, 2001. After the October 1998 accident, she claimed benefits through Lambton's claims adjuster, Ms. Karen L. App. Ms. App testified that she had also handled the no-fault claims of Mrs. Yee after the accidents of 1996 and 1998.

Ms. App testified that by early 1999, she felt the medical evidence showed Mrs. Yee could return to work. By letter dated March 4, 1999, she notified Mrs. Yee of Lambton's refusal to continue paying benefits; Mrs. Yee requested a disability assessment with a Designated Assessment Centre (DAC). The Disability DAC agreed with Lambton that Mrs. Yee could return to work.

If the refusal were valid, Mrs. Yee would have had two years to commence arbitration. The Application for Arbitration was filed more than two years later, namely on June 28, 2002. Mrs. Yee submits that the refusal was defective and so the limitation period never began to run. Lambton submits that even if the notice were defective, subsequent documentation including those related to a settlement cured any defect.

As an alternative ground for relief from the limitation period, Mrs. Yee relies on the "discoverability" rule³: she alleges that the time limit only runs from the time it was discovered she had a brain injury.

Mrs. Yee's IRBs were terminated effective June 2, 1999. Mrs. Yee retained counsel, who negotiated a settlement with Ms. App on a lump sum basis for the IRBs and for medical and rehabilitation benefits. Mrs. Yee signed the release on March 10, 2000. Mrs. Yee submits that the release is ineffective and hence there was no full and final settlement.

Was there a full and final settlement?

Subsection 279(2) of the Insurance Act states that any restrictions on a party's right to mediate, litigate, arbitrate or vary an order as provided in sections 280 to 284 of the Act is void, except where the restriction is part of a settlement. Settlements are regulated under the Act by s. 9.1 of Ontario Regulation 664 (the "settlement regulation").⁴ The necessary requirements of the s. 9.1 notice included in the release were considered in Opoku v. Pal⁵ and followed, for example, in Gelle (Litigation guardian of) v. Kacaba & Associates⁶

Lambton, in its submissions, admitted that the release did not meet the requirements as set out in the Gelle case. Therefore, I find that Lambton conceded that there was no full and final settlement.

I will now turn to whether the time limitation has time-barred Mrs. Yee's claim.

Is Mrs. Yee's claim time-barred?

Section 281 of the Insurance Act sets out an insured's right to dispute a refusal of benefits, such as by bringing arbitration (whether private or at the Commission) or suing, after mediation [subsection 281(2)]. The time for bringing an arbitration or action is limited: any such steps "must be taken within two years after the insurer's refusal to pay the benefit claimed or within such longer period as may be provided in the Statutory Accident Benefits Schedule" [281(5)]. Subsection 51(1) of the Schedule repeats the requirement that mediation or arbitration must be brought within two years of the refusal.⁷

The notice of refusal was sent March 4, 1999. Mrs. Yee applied for arbitration on June 28, 2002. If the notice were valid, Mrs. Yee's claim would be time-barred by the two-year time limitation.

However, as was made clear in Smith v. Co-operators General Insurance Company,⁸ the time limitation is only triggered where the insurer gives a valid refusal, which under the Schedule includes informing "the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act" [s. 49].

Did the notice of termination constitute a valid refusal?

The notice of termination Ms. App sent Mrs. Yee on March 4, 1999 advised her of her right to be assessed by a designation assessment centre. The letter also clearly sets out that Lambton planned to cease paying Mrs. Yee benefits (subject to the disability assessment). However, as for Mrs. Yee's rights to seek a remedy should she disagree with the cessation, Ms. App simply enclosed a copy of section 37 of the Schedule and cited subsection 37(6):

Nothing in section 37 (refusal or stoppage of income replacement benefit) prevents a person from disputing a stoppage in the payment of a benefit in accordance with sections 279 to 283 of the Insurance Act and section 50 of this regulation. . . .[sic]

Gonthier J. noted in Smith it is questionable whether simply attaching a verbatim reproduction of ss. 279 to 283 of the Insurance Act to the refusal "would qualify as a valid refusal as it would surely run afoul of the consumer protection purpose of the legislation." This refusal did not even go that far and only referred to ss. 279 to 283 of the Act by quoting s. 37 from the Schedule.

As noted by Gonthier J., the refusal at a minimum

. . . should include a description of the most important points of the process, such as the right to seek mediation, the right to arbitrate or litigate if mediation fails, that mediation must be attempted before resorting to arbitration or litigation and the relevant time limits that govern the entire process. Without this basic information, it cannot be said that a valid refusal has been given.

Since the letter does not provide that basic information, I find that it does not constitute a valid refusal.

Lambton submitted that even if the letter was not initially a valid refusal, subsequent documentation, including that related to the disability assessment and the mediator's report, cured the defect.

Did other documentation constitute a valid refusal?

Lambton submitted that the documents related to the disability assessment cured the notice.

After the disability assessment, Ms. App wrote to Mrs. Yee on May 17, 1999 informing her that the DAC assessment by Dr. Deathe at St. Joseph's Hospital Centre determined that Mrs. Yee could return to work. Ms. App enclosed the DAC report and an OCF-9/59 Explanation of Benefits Payable. The only reference to Mrs. Yee's remedy rights is at the top of the OCF-9/59 form: "If you disagree with our assessment and wish to dispute it, you have the right to ask for mediation through the Ontario Insurance Commission."

I find two problems with this form. First, the form is inaccurate, as the Ontario Insurance Commission no longer existed when the form was sent.⁹ Second, and more important, the form only refers to the first step in the process — mediation. Gonthier J. in Smith held that informing an insured only of the first step means that "a proper refusal cannot be said to have been given." Furthermore, Gonthier J. also held that the notice is still defective even though it was approved by the Superintendent of Insurance. Accordingly, I find that this notice does not cure the initial defect.

Lambton submits that the subsequent release cured the defects in the notice because it gave notice of all the proceedings available to Mrs. Yee.

Mrs. Yee submits that you cannot cure a defective termination notice with a defective release. I find she makes a valid point. Furthermore, paragraph 2 under Schedule "B" to the written notice simply states that the settlement prohibits Mrs. Yee from "mediating, litigating, arbitrating, appealing, applying to vary an Order or proceeding to Judicial Review in respect of the benefits which are the subject of the settlement." I find it would be unreasonable to expect Mrs. Yee to cast her mind back a year to the initial refusal and combine it with this notice. I also find that this statement is made in a different context where Mrs. Yee assumed that the matter was over.

Mrs. Yee had filed for mediation, but the matter settled before mediation. Lambton submits that the mediator's letter cured the defect because it set out the limitation period. However, it only set out the time limit for mediation, not arbitration: On May 9, 2000, Dirk VanderBent, mediator, wrote to Mrs. Yee (still Ms. Munro at that time) confirming that he was closing the file. He also referred to the time limitation and cited the following: "A mediation proceeding under section 280 of the Insurance Act . . . must be commenced within two years from the insurer's refusal to pay the amount claimed. . . ." What is at issue is the delay before Mrs. Yee filed for arbitration. I find that Mrs. Yee was not properly advised of the time limitation for arbitration.

Most importantly, the Supreme Court rejected this argument in Smith. The insurer in that case argued that the applicant was informed of the limitation period in any event through the mediator's report. Gonthier J. wrote that to take this fact into account against the insured would be to ignore the particular nature of the matter:

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

For all these reasons, I find that the letter from the mediator did not cure the initial refusal.

Lambton also argued that Mrs. Yee was represented at the time of the settlement and so can be deemed to have known the procedures she could follow. However, according to the Schedule, it was up to Lambton to provide a valid refusal and not Mrs. Yee's counsel to set out the procedures. As noted by Gonthier J. in Smith, there is a "bright-line boundary" on what insurers must do:

Section [49] clearly states that it is the insurer who "shall inform the person in writing" of the dispute resolution procedure. There is no indication that insurers are legally prevented from adding to the prescribed form so that it is in conformity with the legal requirements.

Furthermore, the insured in Smith was also represented by counsel throughout.¹⁰ I find Mrs. Yee's representation by counsel irrelevant to the issues here.

Finally, Mrs. Yee submitted that the only cure for a defective refusal is a further valid refusal. I find this meritorious, as it creates greater certainty. Requiring an applicant to piece together the information from scattered documents goes against the admonition of Gonthier J. that the insurer is required to inform the applicant of the dispute resolution process "in straightforward and clear language, directed towards an unsophisticated person." Arbitrators have also rejected the piecemeal approach. In Ross,¹¹ the arbitrator found that none of the various letters and Explanation of Assessment forms described or provided full details of the dispute resolution process as required by the Schedule, so the refusals were invalid and the time limits never started to run.

Accordingly, I find that the other documentation when combined with the initial refusal still did not constitute a valid refusal. Since there has been no valid refusal, the limitation period for arbitration has not started to run. Accordingly, Mrs. Yee's claims are not time-barred and she may proceed to arbitration.

Because of these findings, it is not necessary for me to consider the relief from forfeiture claim.

EXPENSES:

The parties wished me to reserve on expenses.

September 16, 2003

David J. Evans Arbitrator

Date