Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2003 ONFSCDRS 56

Appeal P02-00015

OFFICE OF THE DIRECTOR OF ARBITRATIONS

BARRY A. CARRUTHERS Appellant

and

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA Respondent

Before: David R. Draper

Representatives: William G. Scott for Mr. Carruthers Joan Takahashi for Royal & SunAlliance

Hearing Date: March 27, 2003

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The appeal is dismissed and the arbitration decision, dated May 30, 2002, is confirmed.
Barry A. Carruthers shall pay Royal & SunAlliance Insurance Company of Canada's appeal expenses, as agreed or assessed.

April 10, 2003

David R. Draper Director of Arbitrations Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This dispute involves the time limits for applying for accident benefits under the SABS-1996.¹ In a decision dated May 30, 2002, the Arbitrator held that Mr. Carruthers failed to notify Royal & SunAlliance Insurance Company of Canada ("Royal") of his intention to apply for accident benefits within the 30-day time limit, and did not provide a reasonable explanation for the delay. Mr. Carruthers submits the Arbitrator erred in his interpretation of the notice requirement.

II. BACKGROUND

The process for claiming benefits is set out in Part X of the SABS-1996. It involves three steps: the person notifies the insurer that he or she wants to apply for accident benefits; the insurer provides the application package; and the person submits the completed application. This is set out in s. 32, which provides as follows:

— (1) A person who wants to apply for a benefit under this Regulation shall notify the insurer within 30 days after the circumstances arose that gave rise to the entitlement to the benefit, or as soon as practicable thereafter.

(2) The insurer shall promptly provide the insured person with,

(a) the appropriate application forms;

(b) a written explanation of the benefits available under the Regulation;

(c) information to assist the insured person in applying for benefits; and

(d) information on any possible elections relating to the income replacement, non-earner and caregiver benefits.

(3) The person shall submit an application for the benefit to the insurer within 30 days after receiving the application forms.

Subsection 31(1) provides relief from the time limits in s. 32. It states: "A person's failure to comply with a time limit set out in this Part does not disentitle the person to a benefit if the person has a reasonable explanation."

Read together, these provisions raise a number of potential issues:

Notification

Did the insured person notify the insurer within 30 days after the circumstances arose that gave rise to the entitlement to the benefit?
If not, did he do so as soon as practicable thereafter?
If not, does he have a reasonable explanation for failing to comply with the time limit?

Provision of documents

Did the insurer promptly provide the appropriate application forms and other required information?
If not, what are the consequences?

Application

Did the insured person submit an application within 30 days after receiving the forms?
If not, does he have a reasonable explanation for failing to comply with the time limit?

The facts of this case can be summarized relatively briefly. Mr. Carruthers was involved in an automobile accident on November 11, 1996, when he drove his car into the back of a truck parked on the shoulder of the road. He was seriously injured. He was also charged with impaired driving. Although the accident report indicates that Mr. Carruthers was insured by AXA Insurance, he concedes that his policy had been cancelled nine months earlier and, as a result, he was uninsured. The other vehicle — the truck — was owned by Cold Springs Farms Ltd. ("Cold Springs") and driven that day by Mr. David Mills. It was insured by Royal.

Following the accident, Mr. Carruthers was admitted to London Health Sciences Centre where he remained for about two weeks. The diagnosis was a closed head injury, a Brown-Sequard spinal cord syndrome, and a fracture of the radius and ulna of the left arm. He was then transferred to Parkwood Hospital in late November 1996, where he remained until his discharge on February 5, 1997. The diagnosis on discharge included C-7 incomplete quadriparesis and a closed head injury with bi-frontal subdural haematomas.

While at Parkwood, Mr. Carruthers received confirmation from his former broker that he was not insured by AXA. Subsequently, on January 22, 1997, he retained Lerner & Associates. One lawyer from that firm, Mr. James Zegers, represented him on his criminal charges, while Mr. Nigel Gilby took charge of his civil claims.

On February 26, 1997, approximately 15 weeks after the accident and three weeks after Mr. Carruthers was released from hospital, Mr. Gilby wrote to Cold Springs and Mr. Mills, with a carbon copy sent to "Royal Insurance — Policy #50037943." The letter states:

Please be advised that we have been retained by the above named [Barry Carruthers] as a result of the injuries he sustained in the above noted motor vehicle accident.

Please accept this letter as written notice of his intention to commence an action against you for damages for pain and suffering, lost wages and other damages as a result of the above mentioned motor vehicle accident.

You are required by the provisions of Section 258.3(2) of the Insurance Act to give a copy of this notice to your own insurance company within seven (7) days of receiving same. Failure to do so can prejudice your rights with your own insurance company.

If you or your insurance company requires the information under Section 258.3(1) of the Insurance Act please confirm same in writing and we will obtain the requested information as soon as possible.

Section 258.3 of the Insurance Act, the provision referenced in Mr. Gilby's letter, deals with actions "for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile." It requires, among other things, that the plaintiff provide "written notice of the intention to commence the action on the defendant within 120 days after the incident or within such longer period as a court in which the action may be commenced may authorize . . . " According to s. 258.3(2), an insured who receives this kind of notice is required to provide a copy to the insurer within seven days.

On March 27, 1997, Ms. Lorraine Powell, a Claims Representative at Royal, responded to Mr. Gilby's letter. She wrote: ". . . This matter is being investigated. At this point, it appears that your client was uninsured at the time and under Bill 59, would have no right of action. Once our investigation is complete, we will be in touch with your office." The reference in Ms. Powell's letter is to s. 267.6 of the Insurance Act, which disentitles anyone injured while operating a motor vehicle without insurance from recovering damages from someone else.

On April 25, 1997, Mr. John Lutes of the Underwriters Adjustment Bureau Ltd. wrote Mr. Gilby, stating as follows:

Our investigation undertaken on behalf of the Royal Insurance Company confirms that Mr. Carruthers did not possess valid automobile liability insurance and therefore would not have a claim in tort should any liability rest with our insured.

Therefore, in the absence of liability and valid automobile liability insurance, we must respectfully deny your client's claim in this instance.

In July 1997, Royal, on its own initiative, instructed Mrs. Debra Purser, an accident benefits adjuster with TWR Adjusters Inc., to find out if Mr. Carruthers had a potential accident benefits claim under its policy. Mrs. Purser phoned Mr. Gilby on August 18 and 27, 1997, but did not reach him. On August 28, 1997, she wrote to Mr. Carruthers asking that he or his lawyer contact her. That same day, August 28, 1997, Mr. Gilby called Mrs. Purser, apparently returning her call. In her report to Royal, dated September 24, 1997, Mrs. Purser described the call as follows:

We had an opportunity to speak to Mr. Gilby at Lerner & Associates. He advised that he was representing Mr. Carruthers with respect to his claim for accident benefits, however he did not have the file handy during our conversation and would have to look into it.

Although this excerpt refers to accident benefits, there is no evidence that Mr. Gilby told Mrs. Purser that he was waiting for forms or planned to submit an application to Royal. At the arbitration hearing, Mrs. Purser agreed that Royal had notice that Mr. Carruthers might have an accident benefits claim under its policy.² She explained, however, that she had not been given any information to allow her to determine whether he had access to other policies. As examples, Mrs. Purser noted that if Mr. Carruthers had another vehicle, was a listed driver on another policy, or had a spouse or parent, those policies might provide coverage for accident benefits.³ When asked why she did not send the application package, Mrs. Purser testified that she "didn't have an answer as to whether there was a claim for accident benefits with Royal Insurance Company."⁴

On September 24, 1997, a month after their telephone conversation, Mrs. Purser wrote to Mr. Gilby, stating:

This will further our telephone conversation of August 28, 1997.

At that time you indicated that you were representing Mr. Carruthers with respect to his claim for Accident Benefits. It is our understanding that the vehicle he was driving was uninsured at the time of loss and potentially he may be entitled to benefits under our policy.

We would note that we are now 11 months postMVA and we have not yet received a completed Application for Accident Benefits. In the event that your client will be looking toward Royal Insurance Company with respect to his Accident Benefit claim, we would ask that you contact the writer at your earliest convenience in order that we may schedule a meeting and obtain information required in order to evaluate his claim in accordance with Section 33 of the Statutory Accident Benefit [sic] Schedule.

In the event that your client will be looking to Royal Insurance Company for his Accident Benefits, we will also require that a fully completed Application for Accident Benefits be submitted to the writer's attention within 30 days. As you are aware, Section 32 of the SABS states that a person who wants to apply for a benefit under this regulation shall notify the insurer within 30 days after the circumstances arose that gave rise to the entitlement to the benefit, or as soon as practicable thereafter. As previously mentioned, we are now approximately 11 months postMVA and we have not been advised of any potential entitlement to benefits.

In the event that your client has forwarded his Application for Accident Benefits to an alternate insurer, we would appreciate your contacting the writer in order that we may close our file. We appreciate your co-operation and look forward to your early response.

Mr. Gilby did not respond to Mrs. Purser's letter. As a result, she closed her file in late January 1998.⁵ In the meantime, on December 9, 1997, Mr. Carruthers appeared in the court with his lawyer, Mr. Zegers. He entered a plea of guilty to the lesser charge of careless driving, and was fined $1,000 and lost his licence for three months.

There was no further communication with Royal until early May 1998, when Lerner & Associates submitted an application for accident benefits on behalf of Mr. Carruthers. Royal rejected the application in its entirety. In a letter to Mr. Gilby, dated May 11, 1998, Mrs. Purser provided the following explanation:

As you are aware, Section 32 of the Statutory Accident Benefits Schedule indicates that a person who wants to apply for a benefit under the regulation shall notify the insurer within 30 days. We have made several attempts to obtain an application with no result. We were then presented with an Application for Benefits on May 8, 1998. This is approximately 18 months postMVA. As I'm sure you can appreciate, our position has been greatly prejudiced by this delay.

In response, Mr. Gilby wrote to Royal on May 13, 1998, explaining that, until recently, Mr. Carruthers had been facing charges related to the accident and had never received the application forms. This did not change Royal's position, as set out in its letter to Lerner & Associates, dated May 21, 1998:

The time limits set out is [sic] Section 32 of the SABS indicate a person who wants to apply for a benefit under the regulation shall notify the insurer within 30 days. Once it was determined that Mr. Carruthers was represented by counsel, we made every effort to contact Mr. Gilby in order to discuss a possible Accident Benefits claim being presented.

At arbitration, the dispute was argued broadly. The timeliness of the notice and the application were both in issue. The Arbitrator carefully distinguished the various questions set out on page 2, above. He found that Royal did not receive notice of the claim until May 1998, when Mr. Carruthers filed his application for benefits — neither Mr. Gilby's initial letter or his telephone conversation with Mrs. Purser was sufficient. Dealing with the delay, the Arbitrator found that Mr. Carruthers had a good medical explanation for any delay up to late January 1997, when he retained counsel, but simple reliance on counsel after that date was not an adequate explanation.

The focus on appeal is much narrower. Mr. Carruthers only challenges the Arbitrator's conclusion about the date notice was provided. He claims that Mr. Gilby's initial letter, dated February 26, 1997, was adequate notice under s. 32(1). To the extent this letter was provided beyond 30 days, he contends it was sent as soon as practicable, or that he has a reasonable explanation for the delay. Importantly, he does not attempt to explain any delay beyond February 1997. His argument is based on the following excerpts from the decision:

Subsection 32(1) also requires that the notice be directed to "the insurer." I find that the notice must at least implicitly notify the insurer of the claimant's desire to obtain benefits from that particular insurer. [p. 9]

As noted above, I find it implicit in the notice provision set out in subsection 32(1) that the Applicant must notify the insurer of his or her wish to apply for a benefit from that Insurer. There are two elements set out, namely the intention first to apply for a benefit and second to apply for it from Royal. I find that although the first element might have been implied from the initial tort letter, the second element had not yet been set out for Royal at the time Mrs. Purser became involved. [p. 19]

In Mr. Carruthers' submission, the Arbitrator erred in holding that s. 32(1) requires notice of both: (1) an intention to apply for a benefit; and (2) an intention to apply for a benefit from the particular insurer to whom the notice is given.

III. ANALYSIS

Accident benefits are intended to meet the current needs of those injured in automobile accidents. They are payable on a first-party basis, regardless of fault. It follows, in my view, that the application process should not present undue obstacles. This is reflected in the SABS-1996, which clarifies the insurer's obligation to provide forms and information. However, this obligation is contingent on the insurer receiving notice under s. 32(1), which I will set out again:

— (1) A person who wants to apply for a benefit under the Regulation shall notify the insurer within 30 days after the circumstances arose that gave rise to the entitlement to the benefit, or as soon as practicable thereafter.

Notice under this provision serves two purposes. First, it alerts the insurer to a potential claim, allowing it to evaluate the situation at an early stage. Second, it initiates the application process by triggering the insurer's obligation to provide the appropriate forms and information about the available benefits and how to obtain them. If the insurer then receives a completed application, it must respond promptly to the claims, even if it believes it is not the priority insurer.⁶

Mr. Carruthers argues that giving notice and applying for benefits are distinct steps. In his submission, a person can give notice under s. 32(1) without making any final decision on whether that insurer is responsible for paying benefits. I find considerable merit in this position. While the legislation requires the insured person to move quickly in claiming accident benefits, or at least as soon as practicable, there is little to suggest that he or she should be penalized for initially contacting the wrong insurer. On the contrary, the application package, which is approved by the Superintendent of Financial Services, includes instructions on which company should receive the application. In other words, an insurer that receives notice under s. 32(1) is required by s. 32(2) to provide information that might direct the person to submit the application to a different company.

The message of s. 32, in my view, is that insurers should facilitate applications for accident benefits. When they are contacted by someone seeking accident benefits, they must provide the application package. They should not attempt to screen claims at this stage, or deflect them to another insurer. However, the person must do something to trigger the insurer's obligation to send the application package. Using the words of s. 32(1), there must be something to alert the insurer to the fact that he or she is "a person who wants to apply for a benefit under this Regulation. "

That is the problem here. Mr. Gilby sent a "tort letter." This letter fulfilled Mr. Carruthers' obligation under s. 258.3 of the Insurance Act and notified Royal that it might have to defend an action for damages, but said nothing about accident benefits. Nor should it have been obvious to Royal that Mr. Carruthers was presenting himself as someone who wanted to apply for accident benefits — he was not insured under a Royal policy and was represented by a lawyer from a well-established firm who did not raise the issue.

Reading the Arbitrator's comments in context, I believe this was his point. Unlike the situation in Johnson and GAN Canada Insurance Company, (FSCO A99-000290, December 9, 1999), the initial contact did not give Royal enough information to trigger its obligations under s. 32(2). It was only through its own investigations that Royal realized Mr. Carruthers might have a claim under its policy. It acted appropriately in contacting his lawyer, first by telephone and then by letter. Although the circumstances suggest a number of possible explanations for the lengthy delay in applying for benefits — Mr. Carruthers' ongoing medical condition, possible confusion about his insurance coverage, and the impact of the charges he was facing — the Arbitrator addressed them in his decision. His conclusions are not challenged on appeal. As noted above, Mr. Carruthers only attempted to establish that he provided notice in February 1997, and explain any delay up to that point.

For these reasons, the appeal is dismissed.

IV. APPEAL EXPENSES

Counsel agreed that expenses should follow the outcome. As Mr. Carruthers was unsuccessful in this appeal, he will pay Royal's reasonable appeal expenses. If the parties are unable to agree on the amount, it may be assessed according to the rules set out in the Dispute Resolution Practice Code.