Matilda Downey v. State Farm Mutual Automobile Insurance Company, 2003 ONFSCDRS 53

Neutral Citation: 2003 ONFSCDRS 53

FSCO A01-001603

BETWEEN:

MATILDA DOWNEY

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON PRELIMINARY ISSUES

Before:

Lawrence Blackman

Heard:

By telephone conference call on March 27, 2003.

Written submissions received dated February 27, March 7 and 11, 2003.

Oral reasons given March 27, 2003 with written reasons to follow.

Appearances:

David S. Wilson for Ms. Downey

Todd J. McCarthy for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Matilda Downey, was injured in a May 29, 2001 motor vehicle accident. She applied to her insurer, State Farm Mutual Automobile Insurance Company ("State Farm"), for statutory accidents benefits payable under the Schedule,¹ and received weekly income replacement benefits ("IRBs") of $304.64 from June 5, 2001 until September 18, 2001. State Farm terminated payment of weekly IRBs effective September 19, 2001. Ms. Downey applied in or about November 2001 for mediation of this and other disputes. The Report of Mediator issued November 28, 2001 indicated that the parties were unable to resolve their differences. Ms. Downey subsequently applied for arbitration at the Financial Services Commission of Ontario ("FSCO") under the Insurance Act, R.S.O. 1990, c.I.8, as amended, by Application for Arbitration received by FSCO on December 17, 2001. The Response by Insurer was received January 31, 2002.

The pre-hearing discussion herein was held March 7, 2002. By letter dated March 12, 2002, the pre-hearing arbitrator identified the agreed issues in dispute as including the following:

Is Ms. Downey entitled to receive a weekly income replacement benefit pursuant to section 4 of the Schedule?

Details: In the event the hearing occurs on or after May 2003, Ms. Downey is seeking benefits for the post 104-week period as well.

Hearing dates of January 6, 7, 8 and 9, 2003 were set. The pre-hearing letter indicates that FSCO had earlier dates available, but that the Applicant's counsel was not available in October 2002, and the (then) Insurer's counsel was not available in December 2002.

By letter dated December 10, 2002, the hearing was adjourned to January 7, 8, 9 and April 7 (starting at 2 p.m.) and April 8, 2003. The request was granted as the Insurer had recently retained new counsel. The arbitrator did not, however, grant the Insurer's request that the hearing be adjourned until July or September 2003.

The arbitration hearing commenced before me on January 7, 2003. Much of the following three hearing days involved procedural disputes. The only witness called was the Applicant. Her examination-in-chief has not yet been completed. It became clear during this hearing week that the days set for the hearing would not be sufficient. On the consent of both parties, further hearing days were provided, namely September 23, 24, 25 and 26, 2003. Again, FSCO had earlier dates available, but counsel were unable to find the requisite number of days that they were both available until the Fall of this year.

The arbitration hearing was resumed by telephone conference on February 11, 2003 in order to clarify the issues in dispute between the parties, specifically regarding the potential issue of repayment of weekly IRBs raised by the Insurer, and the question as to the period for which weekly IRBs were being sought and the statutory test to be applied. I confirmed by subsequent letter dated February 18, 2003:

. . . that the motor vehicle accident herein occurred on May 29, 2001 . . . the arbitration hearing has now been extended to dates in September 2003 . . . these days are subsequent to 104-weeks after the accident. The parties were not in agreement concerning the ramifications, if any, of these facts. I was of the view that it was most important to clarify what I saw as the proper framing of the issues in dispute, prior to the resumption of the arbitration hearing in April 2003. Given the new additional hearing dates and their timing, I am not content to wait until final submissions in September 2003, after all the evidence has gone in, to clarify the IRB time frame that I will be determining and the disability test that is applicable. I am very concerned that such an approach may gravely prejudice one or both parties.

Accordingly, I determined that the parties shall serve on each other and file with the Financial Services Commission of Ontario written submissions (and all supporting case law) regarding the proper framing of the issue of ongoing weekly income replacement benefits within the [time frame proposed by counsel and agreeable to myself] . . .

The submissions shall address both the time frames for which the parties submit I should be determining entitlement, as well as address the entitlement test that the parties submit I should apply to the time frames in question. The parties should address any other procedural concerns that they have regarding the framing of this IRB entitlement issue.

I further confirmed in the same letter that, as agreed by the parties, repayment was not presently an issue before me in this proceeding, and that should State Farm wish to add this as an issue, it should forthwith seek a resumption of the hearing by telephone conference for that purpose. The same was reiterated in my letter of March 3, 2003. The Insurer subsequently requested that IRB repayment be added as an issue in this arbitration proceeding.

Accordingly, the preliminary issues to be decided at this time, as part of this ongoing hearing, are:

What is the period of entitlement to income replacement benefits before me?
What is the appropriate disability test or tests to be applied?
Is the issue of repayment of weekly income replacement benefits to be added to this arbitration proceeding?

Result:

The period of entitlement to income replacement benefits before me is ongoing from September 19, 2001, including the post 104 weeks of disability period.
The appropriate disability test for the period up to 104 weeks of disability is set out in subsection 5(1) of the Schedule. The appropriate test for the period longer than 104 weeks of disability is set out in paragraph 5(2)(b) of the Schedule.
The procedure for proceeding with this hearing is set out on pages nine and ten herein.
The issue of repayment of income replacement benefits is added to this proceeding.

EVIDENCE AND ANALYSIS:

1. What is the IRB entitlement period before me?

This issue arises because under section 5 of the Schedule, the applicable disability test for entitlement to weekly IRBs changes at 104 weeks of disability. Prior to that point, the statutorily mandated disability test is particular to whether an applicant suffers a substantial inability to perform the essential tasks of the employment in which he or she was engaged or to be engaged. For any period after 104 weeks of disability, the entitlement test is whether the insured suffers a complete inability to engage in any employment for which he or she is reasonably suited by education, training or experience. As this hearing will now continue into a time frame potentially subsequent to 104 weeks of disability, the question is what period of disability is to be determined by me and what disability test should I apply to the period or periods in question.

The Applicant's submissions focus on the appropriate entitlement test, which she argues is the pre 104-week definition of disability. Ms. Downey argues that the post 104-week test cannot be determined until weekly (post 104-week) benefits are terminated in accordance with section 37 of the Schedule, and she is accorded her right to a disability designated assessment centre ("DAC") examination (with the right or potential right of continued payment of benefits accorded by that provision).

The Applicant argues that should I find that she meets the pre 104-week test on September 18, 2001 and continues to meet that test "at the time of the hearing," she would be entitled to an order for ongoing benefits, even for that period subsequent to 104 weeks of disability. She submits that the Insurer would be entitled to subsequently dispute post 104-week entitlement and obtain a repayment order if she is unable ultimately to establish her entitlement to the post 104-week period in accordance with the post 104-week disability test.

The Insurer submits that the only period of entitlement before me is the period prior to 104 weeks of entitlement, namely, up to and including May 29, 2003 based on the evidence available at arbitration in January 2003.

I do not agree. Rather, I am persuaded that I have jurisdiction to deal with ongoing IRB entitlement, including potential entitlement after 104 weeks of disability. I use the word "potential" as it is presently premature to predict what the insured's condition might be on or about May 29, 2003 (the earliest that the post 104-week test might apply) or what her legal position might be at that point.

I am so persuaded firstly because of the pre-hearing letter herein, dated March 12, 2002.

As set out in Rule 33 of the Dispute Resolution Practice Code (Fourth Edition, May 31, 2001) (the "Code”), one purpose, and in my view, a very significant purpose of the pre-hearing discussion, is identifying and obtaining agreement as to the issues for arbitration. The pre-hearing letter notes, as part of the agreement of the parties, that if the hearing occurs on or after May 2003, Ms. Downey is seeking benefits for the post 104-week period as well.

Rule 23.1 of the Code states that if a party believes that a Report of Mediator is not accurate, the party must notify the mediator and the other parties in writing, with reasons, within ten days of receiving the Report. Although the Code does not contain a specific similar provision regarding pre-hearing discussions, in accordance with Rule 1.2 of the Code, I believe that the essence of Rule 23.1 can be applied to the pre-hearing letter.

In this case, there is no correspondence in the FSCO file before me prior to the start of the hearing objecting to the pre-hearing arbitrator's confirmation of the IRB issue or any other issue. The Applicant's counsel's March 11, 2003 submissions as to why the insured made reference to the post 104-week period at the pre-hearing support, in my view, that an ongoing claim was indeed being advanced.

Further, I find that the issue of post 104-week IRB entitlement flows naturally and consequentially from the pre 104-week inquiry, and, when both time periods are in dispute, they should preferably both be heard by the same arbitrator in the same proceeding, in significant part to avoid a multiplicity of proceedings with the accompanying unfortunate consequences of delay, increased expense, and the possibility of inconsistent results.

Further, I note the appellate decision of Antunes and Allstate Insurance Company of Canada (FSCO P00-00011, November 28, 2001), referenced by the Applicant. Dealing with a claim under the SABS-1990,² Director's Delegate McMahon held that the weekly benefits section, with its pre and post 156-week entitlement tests, provided for a single benefit. However, there are specific procedural safeguards particular to the present Schedule which I address below.

Lastly, this is not a case where the hearing concludes just before but the decision is issued after the 104-week mark. Nor is this a case where the hearing concludes just after 104 weeks. In this case, the hearing is presently set to continue several months after a 104-week mark, which in practical terms, provides a significant window of opportunity to deal with both pre and post 104-week periods during the same hearing.

2. What is the applicable test to be applied to the post 104-week period?

I am persuaded that the applicable test for any benefit period longer than 104 weeks of disability is that which is clearly set out in paragraph 5(2)(b) of the Schedule, namely, "complete inability to engage in any employment for which [the insured person] is reasonably suited by education, training or experience. "

I am not persuaded that in the circumstances of this case, there is necessarily any conflict between paragraph 5(2)(b) and section 37 of the Schedule, which must be settled by a "consumer protection" approach as argued by the Applicant.

The Applicant is correct in stating that section 37 provides insureds with procedural rights. These include notice of any stoppage of benefits, the right to a DAC assessment, the non-stoppage of benefits if the insured person requests a DAC assessment within the designated time frame, and the continuation of benefits (pending the resolution of any dispute brought by the insurer) if the DAC report states that the insured person continues to suffer from the disability in respect of which the benefit is paid.

However, Ms. Downey's submissions appear to be premised on the belief that the procedural safeguards set out in section 37 of the Schedule apply only after I determine her entitlement to pre 104-week benefits; in other words, that any consideration of the post 104-week test begins not on or about May 29, 2003, but rather, sometime towards the end of this year when a decision is rendered. Nowhere in the legislation do I see specific language nor an intent in this regard.

Rather, section 42 of the Schedule provides an insurer with an ongoing right to have the insured person examined by one or more qualified persons, "as often as is reasonably necessary." Further, section 37 applies not merely to the termination of benefits, but also applies where the "insurer determines that a person is not entitled . . . to receive an income replacement" benefit.

In this case, State Farm has already made a determination regarding Ms. Downey's entitlement to pre 104-week IRBs. Using what the Applicant calls the consumer protection approach of the Supreme Court of Canada in Smith v. Co-operators General Insurance Co. 2002 SCC 30, [2002] S.C.J. No. 34, I am not sure why Ms. Downey would not be entitled, on or about May 31, 2003, to firstly, a determination from State Farm regarding post 104-week entitlement, and secondly, would not be entitled to compliance with the procedural rights that flow from the Insurer's decision.

The Applicant raises an important point of potential prejudice to her regarding possible delay in the determination of her right to benefits should State Farm maintain its present denial. Delay, however, is also potentially prejudicial to the Insurer given, amongst other things, the significant statutory rate of interest applicable to benefits found to be overdue.

In addition, given the broader expanse of the post 104-week area of inquiry, I am not confident that the number of days presently set for the completion of this hearing will accommodate the evidence which may be necessary to address both the pre and post 104-week IRB periods.

Given that IRBs were terminated effective September 19, 2001, that mediation failed November 28, 2001, that the pre-hearing discussion was held March 7, 2002 and that the hearing commenced January 6, 2003, I am determined that some measure of resolution of the issues in dispute will transpire as soon as possible after the September 2003 resumption dates. What follows is how I intend to proceed in this matter.

3. The procedural steps which will be followed

The hearing will continue, as scheduled, on April 7, 2003. At that point, the question of post 104-week entitlement will still be moot, as we will not have yet reached the104-week point, nor will the parties have exercised their respective procedural rights with regard to that time frame.

On or about May 29, 2003, I expect that Ms. Downey will confirm with State Farm whether she will indeed continue to advance an ongoing claim for IRBs. I expect that State Farm will provide Ms. Downey with a timely response. I expect that the parties will exercise in a timely manner their respective procedural rights and obligations regarding this entitlement question. I expect that FSCO will reasonably afford the parties access to an appropriate pre-hearing or hearing arbitrator, in a timely manner, to address any disputes which may arise regarding the respective rights of the parties or in order to clarify matters.

Rule 39 of the Code provides that documents to be introduced at a hearing by either party must be served on the other party at least 30 days before the first day of the hearing. To date, I have refused to enter as exhibits documents served by either party less than thirty days prior to the January commencement date of this hearing, except upon consent. Obviously, regarding the post 104-week period, given that we have not yet reached May 29, 2003, extraordinary circumstances (as required by Rule 39.2) exist which demand that this Rule be waived allowing a new 30-day notice period prior to September 23, 2003 regarding evidence pertinent to the post 104-week test (subject to any further submissions as to what additional discretion should be allowed).

Given the uncertainty as to whether the parties will be in a position to include the post 104-week period in September, this hearing will be resumed by telephone conference on a date to be set well in advance of the 30-day notice period to determine whether both the pre and post 104-week time frames can indeed be included in the September hearing dates. Further, at this telephone resumption, I will seek confirmation from the parties not merely that they are in a position to proceed on both disability tests, but whether they can agree that they can complete a hearing of both time periods by September 26, 2003.

Given my concerns regarding the length of time this matter has already taken and what I consider to be legitimate concerns regarding further possible delay, if the parties cannot assure me at the time of the telephone hearing resumption that including the post 104-week evidence will still allow the hearing to conclude on September 26, 2003, I will set further hearing continuation dates at that time for the post 104-week claim. Hence, the September hearing dates would conclude with evidence only as to disability up to May 29, 2003. A decision would then be forthcoming regarding that period. If the decision is in the Applicant's favour, the hearing would proceed before me, as earlier scheduled, regarding the post 104-week time frame.

Obviously, this fall-back approach is not perfect. If the Applicant is successful regarding pre 104-week entitlement, there will be a further delay in the determination of ongoing benefits. However, the delay would be far less than requiring the parties to recommence the dispute resolution process. Similarly, there would be greater delay if any decision on IRB entitlement were delayed until the parties could find further resumption dates some time after September 2003, which, given the past calendars of counsel, might well be into the new year.

Likewise, the Applicant and other witnesses (including experts) may have to be recalled to give oral evidence. Nonetheless, I am persuaded that this result is preferable to having two separate and distinct hearings, which is essentially the procedure ultimately proffered by both parties.

This approach, however, does offer an incentive to the parties to endeavour to move ahead cooperatively and expeditiously. Converse conduct can, of course, be dealt with in expenses and other remedies.

4. Adding repayment as an issue

On the basis of banking records which were, the Applicant submits, voluntarily served on the Insurer shortly before the start of the hearing, the Applicant conceded at the start of the hearing that the amount of the IRB paid by State Farm was too high. State Farm raised as a possibility at that time the issue of repayment. The Insurer, however, wished to obtain the balance of the Applicant's relevant banking records, and commission an expert's report. The Applicant consented to allowing such a report into evidence, notwithstanding the thirty-day notice rule, given the late service of her banking records.

Having obtained its expert's report, State Farm sought, by letter dated March 7, 2003, to add repayment of IRBs as an issue in this hearing. As IRBs were terminated September 19, 2001, that is more than twelve months ago, subsection 47(3) of the Schedule would appear to apply, namely, that an insured's obligation to repay benefits would exist only if the benefit was paid as a result of wilful misrepresentation or fraud. The Insurer specifically stated that it does not allege fraud. The Insurer does allege wilful misrepresentation.

Ms. Downey does not consent to adding this issue to this proceeding. She submits that she should not have to face a new issue effectively in the middle of the hearing. She further argues that there is no merit to the Insurer's claim and that I should defer my decision until the April 7, 2003 resumption of the hearing, at which time I can review State Farm's accountant's report and reject the claim.

I am not prepared to defer the question of whether this issue should be added until the April 7, 2003 resumption. I arranged the March 27, 2003 telephone resumption in significant part to determine this question before proceeding with this matter. Nor am I prepared to determine, essentially on the basis of submissions, the ultimate question of repayment. All that I am prepared to do at this juncture is to decide whether repayment of IRBs on the basis of wilful misrepresentation should now be added as an issue in this proceeding.

I am persuaded that it should.

The decision of Carby and Co-operators General Insurance Company (OIC A-950220, January 12, 1996) sets out the following criteria to be considered before adding an issue, which I will deal with separately:

1. Has the Insurer's issue been mediated?

The repayment issue has not been separately mediated. However, this issue arises at this late point because of documentation provided at a late point by the Applicant.

2. Does the issue involve a different benefit category from that raised by the Applicant?

The repayment claimed pertains to the benefit category of weekly benefits, which has been raised by the Applicant.

3. Is the issue reasonably incidental to the issues raised by the Applicant?

I find that State Farm's repayment claim arises naturally and consequentially from the IRB entitlement and quantum issues which are presently before me. Although the repayment issue does add the question of wilful misrepresentation, I note that an already identified issue in this proceeding is State Farm's claim for its $3,000 assessment. This would require a finding that Ms. Downey commenced an arbitration which was frivolous, vexatious or an abuse of process. The repayment issue is also intertwined with the Insurer's challenge to the Applicant's credibility as to whether she was in fact employed at the time of this accident.

4. Will the inclusion of the issue unduly expand the scope of the inquiry and essentially deprive the Applicant of control of the proceeding?

I am not persuaded that the inclusion of the repayment issue will unduly expand the scope of the inquiry, given that IRB entitlement, IRB quantum and the Insurer's assessment, as well as the credibility of the Applicant, are all in issue. Contrary to the Applicant's submission, the hearing is still in its early stages. The only witness called to date has been the Applicant, herself. Her examination-in-chief has not yet been completed. I again note that this issue arose late because of documents provided on the eve of the hearing by the Applicant. I further note that the Applicant was put on notice as to this issue at the start of the hearing.

I further note the decision of Arbitrator Manji in Colussi and General Accident Assurance Company of Canada (OIC A-009880, March 11, 1996). In that case, the arbitration hearing regarding entitlement to weekly income benefits, babysitting and housekeeping expenses took place on March 20 and 21, 1995. Before the hearing was to resume on August 2, 1995, the insurer in that case applied for mediation, seeking repayment of the expenses in dispute, as well as medical and other benefits paid to the applicant. On August 3, 1995, the arbitrator added as issues the repayment of the category of benefits being pursued by the applicant, essentially because of the overlap of issues and evidence, notwithstanding that the periods in issue were different.

Arbitrator Manji further held that she had discretion to permit a new issue which is properly before her to be raised at any time during the course of the arbitration hearing. She was also satisfied that these were legitimate issues for determination.

In this case, given the concession by the Applicant that the IRB amount paid to her was too high, I am persuaded that repayment is a legitimate issue for determination. The Applicant further concedes in her oral submissions that the repayment issue involves a relatively small amount of money, given the relatively short period that benefits were paid. I am not persuaded that adding this issue would essentially deprive the Applicant of control of this proceeding.

5. Will the inclusion of the issue benefit both parties by avoiding multiple proceedings?

I find that the inclusion of the repayment issue would avoid multiple proceedings, and would avoid unnecessary duplication of effort and expense as well as the possibility of inconsistent results.

Therefore, on the one hand, I find that the repayment issue sought to be added by the Insurer does involve the benefit category raised by the Applicant, is reasonably incidental to the issues raised by the Applicant, would not unduly expand the scope of the inquiry, would not essentially deprive the Applicant of control of the proceedings, and would avoid multiple proceedings (with the unfortunate consequences that would follow that procedure). I further find that this issue arises because of late service by the Applicant of pertinent documentation.

On the other hand, the repayment issue has not been specifically mediated. Nevertheless, given the facts of this case and my finding that repayment flows naturally and consequentially from the issues in dispute, I am not convinced that a separate mediation is required. This point, however, was not argued by the Applicant.

Nonetheless, as I stated in Robertson and Co-operators General Insurance Company (OIC A96-001940, September 15, 1997), I find that the purpose of mediation under the Insurance Act is to facilitate dispute resolution, not to create technical bars to impede dispute resolution. Weighing the factors set out above, I am persuaded that, based on both practicality and fairness, the issue of IRB repayment should be added.

EXPENSES:

I defer the question of expenses of these preliminary issues to the September 2003 resumption of this hearing.

April 4, 2003

Lawrence Blackman Arbitrator

Date