Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2004 ONFSCDRS 109

Appeal P03-00033

OFFICE OF THE DIRECTOR OF ARBITRATIONS

PRIMMUM INSURANCE CO. (FORMERLY CANADA LIFE CASUALTY)

Appellant Respondent by Cross-Appeal

and

RADENKO TOTIC

Respondent Appellant by Cross-Appeal

Before:

David Evans

Representatives:

Jamie R. Pollack for Primmum

William F. Elkin for Mr. Totic

Hearing Date:

April 23, 2004 in St. Catharines; further submissions were heard by teleconference on May 17, 2004

APPEAL ORDER

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

The appeals are dismissed, and the arbitration decision, dated September 4, 2003, is con- firmed.
The parties may contact me within 30 days if they are unable to agree on appeal expenses.

July 26, 2004

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

In an order dated September 4, 2003, the Arbitrator granted a dependant’s death benefit to Mr. Radenko Totic pursuant to paragraphs 25(2)2 and 3 of the SABS-1996.¹ Both Mr. Totic and Primmum Insurance Co. (formerly Canada Life Casualty) appealed. Primmum appeals the award of interest from 30 days after it received Mr. Totic’s application in January 1999,² submitting that interest should be based on the date it says the application was completed — December 2002. Mr. Totic appeals the Arbitrator’s denial of his special award claim.

II. BACKGROUND

Mr. Aleksandar Totic died on September 5, 1998. At the time of the accident, he was living withhis father, Mr. Radenko Totic, his mother, Radojka Totic, and his brother, Nenad Totic. In January 1999, Mr. Totic applied to Primmum for death benefits totaling $35,000, claiminghe was “principallydependent for financial support” on Aleksandar Totic. This was the main issue that went to arbitration, although Mr. Totic also claimed interest on any benefits owing, a special award under s. 282(10) of the Insurance Act, and his arbitration expenses.

The Arbitrator held that Mr. Totic was a dependant and that interest on the dependant’s death benefits was payable from 30 days after the application.³ She did not grant a special award.

The Arbitrator’s decision mainly dealt with Mr. Totic’s claimed dependency. Most of the evidence at the hearing came from Nenad Totic. The Arbitrator considered the family relationships and earnings and found that they shared expenses equally and that the largest part of the family income came from Aleksandar Totic. She concluded that, as Mr. Totic’s financial resources were less than Aleksandar Totic’s, he was a dependant of his son and entitled to the dependency benefits.

The Arbitrator then considered the special award and interest claims. These claims turn on the relationship between the Applicant and the Insurer. Accordingly, I will set that out in some detail.

The fatal accident occurred on September 5, 1998.

On September 16, 1998, the independent adjuster at Crawford Adjusters Canada interviewed Nenad Totic. In the unsigned Crawford interview report, Nenad Totic indicates that his father, Mr. Totic, was disabled and unable to work at the time of the accident, so Aleksandar was financially supporting them, and he believed Aleksandar claimed them as dependants on his income tax. He also indicates their legal representative is a George Radojcic.

On September 23, 1998, Primmum wrote to provide condolences and contact information. On October 21, 1998, Primmum’s claims examiner, Sue Newman, wrote asking for a return of the application for death benefit and funeralexpense forms givenat the interviewand for Mr. Radojcic’s address and phone number.

On October 26, 1998, Crawford wrote to Nenad Totic, indicating that Primmum now wished to interview his parents, had not been able to locate their counsel, and asked for a signed letter of direction to arrange an interview with them.

On December 17, 1998, Ms. Newman wrote to Mr. and Mrs. Totic, indicating that she still had not received their death and funeral benefits form and that their lawyer had left her a telephone message in October advising that they were not claiming for dependant benefits.

Finally, on January 5, 1999, Mr. Radojcic wrote to Ms. Newman: “Kindly process the [enclosed] funeral benefits application pending consideration of the dependency of the parents, Radenko Totic and Radojka Totic on the deceased.”

Although the letter refers to the “dependency of the parents,” the Death and Funeral Benefits Application only lists Mr. Totic. The significance of this will be discussed below.

On January 18, 1999, Ms. Newman then wrote to Mr. and Mrs. Totic (incare of Mr. Radojcic), enclosing a cheque of $6,000 for funeral expenses. She wrote: “Your lawyer has advised you may be submitting a claim for dependant benefits. . . .” She wrote again on March 13, 1999, indicating there had been no response and that, if they were claiming for dependant benefits, a statement was needed explaining their financial dependency.

Subsequently, Mr. and Mrs. Totic and Nenad Totic, nowrepresented by Mr. Elkin, commenced mediation in August 2000 on dependency claims for each of them. In the reports of mediator, Primmum alleged the Totics, having failed to comply withthe prescribed notification and filing time limits, had no right to mediate their claims. The Totics filed for arbitration at the end of May 2001, and the Response by Insurer to the joined claims repeated the time limits defense.

Primmum did not request further dependency informationfrom the Totics until counsel for Primmum wrote to Mr. Elkin in July 2001. On Primmum’s behalf, H+A Forensic Accounting Inc., in a letter dated July 23, 2001, then requested in part:

an itemized summary of the expenses of the Totic household (such as rent, heat, light, telephone, cable, repairs, etc.), including who paid for each item, as well as the expenses incurred personally (such as, motor vehicle (car payments, insurance, gas, licence, repairs), clothing, entertainment, spending money, haircuts, etc.) by each of the members of the household, for the period January 1, 1997 to September 5, 1998, including supporting documentation re same for such items as heat, light, water, telephone, cable, repairs and maintenance, etc. . . . It should be noted that additional informationmay be required once we have had an opportunity to examine the foregoing.

The dispute resolution procedure continued. Mr. Elkin forwarded some informationon October 10, 2001. At the December 11, 2001 pre-hearing, a preliminary issue hearing was scheduled to determine the time limits defense.

The preliminary issue hearing scheduled for May 2002 settled on the basis that “the claimants Nenad and Radojka Totic withdrew their claims in exchange for the insurer giving up all defenses raised at the Preliminary Issue Hearing in respect of the claim of Radenko Totic.”⁴

Mr. Elkin provided further documentation on December 10, 2002 — the date Primmum submits the application was completed.

This background explains the positions the Insurer took at the hearing and at appeal.

I will now return to the Arbitrator’s decision. She first considered the special award claim.⁵

The Arbitrator noted that Mr. Totic stated he was devastated by the loss of his son and was unable to deal with the matter. He claimed entitlement on the basis that Primmum unreasonably withheld or delayed the payment of benefits, since he applied for the death benefit in January 1999 and Primmum provided him no assistance in obtaining the necessary information to document his claim. The Arbitrator held as follows:

Nenad Totic testified that Primmum offered no assistance in processing their claim for benefits after his brother’s death. Primmum, however, produced a series of letters addressed to Mr. and Mrs. Totic offering assistance and asking that the application for benefits be filled out and returned. . . .

Primmum . . . argued that benefits were not withheld, but rather it was waiting for the informationfrom the claimant in order to assess entitlement. Primmum referred to the series of letters sent to Mr. and Mrs. Totic requesting the return of the application for benefits and informationsupporting the dependency claim. It noted that the funeralexpenses were paid on January 18, 1999, and Mr. and Mrs. Totic were asked to meet with the independent adjuster in the claim to provide statements. In a letter dated March 13, 1999, Primmum advised that there had been no response to its previous letter, and that, if there was a claim for dependency benefits, a statement was needed explaining the financial dependency on Aleksandar.

Given the delays in forwarding the supporting documentation to Primmum, I find that, in the circumstances of this case, benefits were not unreasonably withheld or delayed. As a result, Mr. Totic is not entitled to a special award.

The Arbitrator then considered the interest provisions. Under s. 41(1), an insured shall pay a death benefit “within 30 days after the insurer receives the application for the benefit.” Subsection 46(1) provides that “an amount payable in respect of a benefit is overdue if the insurer fails to pay the benefits within the time required . . .” and s. 46(2) provides that, if a payment of a benefit is overdue, the insurer “shall pay interest on the overdue amount for each day the amount is overdue from the date the amount became overdue at a rate of 2 per cent per month compounded monthly.”

The Arbitrator held:

Many arbitration decisions have commented on the remedial nature of the interest provisions in the Schedule.⁶ They are designed to compensate an insured for the value of money withheld and to encourage the prompt payment of benefits. Although there was a long delay in this case between filing the application for benefits and providing the supporting documentation, the payment of interest is mandatory when benefits are overdue. In the case of a death benefit, benefits are to be paid within 30 days after the insurer receives the application for benefits.

The question then is what does an application for benefits consist of? Is it the application form itself or the application form with all the supporting documentation? I cannot conclude, based on the clear wording of Schedule, that the meaning of the term “application for benefits” in section 41(1) includes the form and all the documents supporting the application. I find, therefore, that Mr. Totic filed an application for death benefits in January 1999, and is entitled to interest starting from 30 days after. . . .

III. ANALYSIS

A. Interest

Primmum made two arguments:that the application was not complete until the insurer received supporting documentation in December 2002; and that Mr. Totic had failed to comply withinformation requests and thus, pursuant to s. 33 of the SABS-1996, was not entitled to interest until December 2002.

(i). Interest: Incomplete Application

With respect to the first argument, it is helpful to review the three-step application process.

The three steps are set out in s. 32. First, a person seeking statutory benefits “shall notify the insurer of his or her intention to apply for a benefit” (s. 32(1)). Second, the insurer must provide the person with, among other things, informationto assist the person in applying for benefits (s. 32(2)(c)). Third, the applicant “shall submit an application for the benefit to the insurer within 30 days after receiving the application forms” (s. 32(3)).

Completion of the initial application may not be the end of the matter, and both parties have obligations to disclose information throughout the history of a claim. The Director’s Delegate described the reciprocity of the process in L.F. and State Farm Mutual Automobile Insurance Company, (FSCO P02-00026, June 3, 2004):

The three-step procedure prescribed in s. 32 makes a great deal of practical sense because at each step, the obligation is placed on the party in the best position to provide the information and documents needed. At the first stage, the insured person is required to give the insurer sufficient particulars of the claim or potential claim to allow it to commence its claims handling procedures. In response, the insurer is obliged to provide sufficient information, explanation and forms to enable the claimant to apply for benefits. That means providing the application package approved by the Superintendent. The claimant must complete and submit the pertinent forms within 30 days of receiving them.

As the claim progresses, the insurer may require the claimant to provide additional forms and information in response to new information received. Section 32(4) provides for this possibility:

If a person is required by an insurer to submit an additional application in respect of a benefit that the person is receiving or may be eligible to receive, the person shall submit the additional application to the insurer within 30 days after receiving the additional application forms from the insurer.

An insured person may make a number of applications for various benefits — medical and rehabilitation benefits and travel expenses, for example — throughout the claims period. His disclosure obligations do not end with the application for benefits. Additional information may be required after the application process is complete – a statutory declaration (s. 33); disability certificate (s. 34); election (s. 36); treatment plan (s. 38(2)); insurer examination (s. 42) or DAC assessment (s. 43). As well, an insurer may require additional documentation (with respect to income, for example) beyond what an insured person must provide with the initial application. [Emphasis added.]

In this case, the Arbitrator could not conclude, “based on the clear wording of the Schedule, that the meaning of the term ‘application for benefits’ in section 41(1) includes the form and all the documents supporting the application.” This does not contradict L.F., for as the Director’s Delegate noted, the fact that further information is requested does not mean the application process is incomplete, as additional information may be required “after the application process is complete” and beyond what has to be provided “with the initial application.”

Furthermore, a strong line of other cases confirm that an application does not have to include all the supporting documentation for interest to run based on the date of the application. The exception is a case like Trendle and Economical Mutual Insurance Company, (OIC P96-00009, July 11, 1996), in which, for instance, the applicant fabricated invoices and actively concealed the fact he worked after the accident.

The Arbitrator cited the Sebastian case. This was a SABS-1990 case,⁷ so the Director’s Delegate considered the meaning of a “completed application.”⁸ She found that the term “completed application” did not incorporate the “provision of documentation sufficient to determine the claim.”

In Mark and Dominion of Canada, (FSCO A96-000341, January 27, 1999), the Arbitrator summarized the effect of Sebastian as follows: “An application is completed when it is filled in, not when sufficient documentation is provided to determine the claim.”

In Cole and Allstate Insurance Company of Canada, (FSCO P01-00016, May 23, 2003), the Director’s Delegate noted:

[I]nterest is mandatory, compensatory, and flows from late payment of overdue benefits. There is no need for a finding of insurer misconduct. Accordingly, upon a finding of entitlement, interest flows even though the insurer had legitimate reasons for questioning the claim or requiring more information. . . . Allstate concedes that it is now well-established that interest is not forfeited just because the insurer had difficulty calculating the amount of benefit owed.

The question, then, is whether the Arbitrator made an error in law in not considering whether this case fits within the exception in Trendle. In Bajic and Pafco Insurance Company and Zurich Insurance Company, (FSCO P00-00050, June 5, 2001), the Director discussed the extent of his Trendle decision: “If the insured person acts in a manner that effectively prevents the insurer from assessing his or her entitlement, interest may not run.”

Appeals are limited to questions of law.⁹ Having regard to the Trendle exception, I find no evidence sufficient to constitute an error of law suggesting that the Trendle exception should apply. That is, the evidence does not so strongly suggest that Mr. Totic effectively prevented Primmum from assessing his entitlement as to constitute an error of law by the Arbitrator in not considering Trendle.

Furthermore, Mr. Totic argues that if his application was incomplete, Primmum failed at the second step, in that, contrary to s. 32(2)(c), it failed to provide information to assist him in applying for the benefit, especially in failing to take into account his problems with English (he had a Serbian interpreter for the hearing). In that regard, after the conclusion of the hearing, I asked for and received further submissions from the parties on Kuchiak and Wawanesa Mutual Insurance Company, (OIC P97-00025A, December 8, 1997, reversing OIC A96–001176, April 21, 1997), a SABS-1994 case, in which the Director’s Delegate considered the equivalent of s. 32(2)(c).

Kuchiak has some important parallels withthis case. The Applicant initially made a claim for and received a spousal death benefit. She then made a second application for a dependency benefit of $10,000. Wawanesa eventually allowed this claim and paid the additional $10,000 benefit to Ms. Kuchiak. The remaining dispute concerned her claim for interest on this $10,000 benefit. Ms. Kuchiak took the position that the interest in respect of the dependant’s death benefit should have been calculated from 30 days after the first application for benefits.

The Director’s Delegate agreed withthe Arbitrator’s finding that in her first application Ms. Kuchiak failed to present sufficient informationto support a claim for a dependant’s death benefit and that suchinformation was only presented in the second application.

However, the Director’s Delegate disagreed with the Arbitrator’s findings with respect to the information the insurer had to provide at the second step in the application process. The SABS-1994 had a similar three-step process. In the second step, the insurer had to “promptly provide” the person seeking benefits with “a written explanation of the benefits available” and “written information to assist the person in applying for benefits” (ss. 59(2)(b) and (c)).¹⁰ It was common ground that, contrary to the requirements of the SABS-1994, no written information or explanation about the benefits available was ever sent to Ms. Kuchiak or her representatives. Furthermore, although Wawanesa had forwarded the appropriate application forms, it had failed to forward any informational material to Ms. Kuchiak. Nonetheless, the Arbitrator found that, in this case, Ms. Kuchiak’s counsel, and not the insurer, had the primary responsibility to inform Ms. Kuchiak of her rights, and to advise and assist her in making the appropriate choices in applying for statutory accident benefits. She imposed no sanction for Wawanesa’s breach. The Director’s Delegate then wrote:

In my opinion, this approach does not adequately address the issue of an insurer’s responsibility to comply with its obligations under subsection 59(2). The [SABS-1994] mandates that information be forwarded to applicants for benefits. It does not create an exception for applicants who are represented by counsel. . . . I also conclude that, here, Ms. Kuchiak may have been prejudiced by Wawanesa’s failure to send the required information. . . . In these circumstances, I conclude that Wawanesa, and not Ms. Kuchiak, should be responsible for the consequences of the delay in filing the application for benefits. While the [SABS-1994] does not specify the consequences of failing to provide explanatory material, the requirements of paragraphs 59(2)(b) and (c) must be given some meaning.

The result was that the insurer had to pay interest based on the time of the first application for benefits and before Ms. Kuchiak had actually applied for the benefit.

I find the above again supports the Arbitrator’s decision that the interest should run from 30 days after application, especially since in this case Mr. Totic seeks interest from the time he applied for the benefit and not before, unlike Ms. Kuchiak. The first Insurer’s request for information that in effect assisted the Applicant with the information needed to make his claim came in July 2001 — after mediation — and presented him witha list of requests that in no practical sense could be met in its entirety. I find the parallels withKuchiak compelling, so that even though the application raised additional questions, the insurer should pay the cost of the delay.

(ii) Interest: Failure to Consider Section 33

Section 33¹¹ sets out the duties of an applicant to provide information to an insurer, and in particular, s. 33(1)1 provides that within 14 days after receiving a request from the insurer, a person applying for a benefit under the SABS-1996 shall provide the insurer with”[a]ny informationreasonably required to assist the insurer in determining the person’s entitlement to a benefit.” Subsection 33(2) then provides that “[t]he insurer is not liable to pay a benefit in respect of any period during which the insured person failed to comply with” the request for information “reasonably required.” That is not the end of the matter, since s. 31(1) provides that a person’s failure to comply with a time limit such as that in s. 33(1)1 “does not disentitle the person to a benefit if the person has a reasonable explanation.”

In general, considering its location in the SABS-1996, s. 33 is aimed at helping an insurer make an early assessment of a claim. In this case, the requests were made long after Primmum had refused the claim and had already participated in a mediation of Mr. Totic’s claim. The type of claim is also a factor. I agree with the Arbitrator’s discussion of the level of detail an insurer can expect in a dependency claim:

The parties agreed that it is difficult to calculate a family’s household expenses with any accuracy. Typical of most families, the Totics did not keep receipts for the items purchased on a day-to-day basis. . . . One is left to examine the expenses in accordance with the preponderance of probabilities.

Primmum relied on Iankilevitch and CGU Company of Canada, (FSCO A01-000942, October 4, 2002), under appeal, where the arbitrator found that by delaying the production of reasonably required information, by providing inadequate information and by disregarding some requests altogether, the applicant sought to thwart, not to facilitate, the insurer’s assessment of her benefits and so s. 33 applied.

However, Primmum’s letter of March 1999 did not contain a request for specific information, so s. 33 would not apply at that point. The earliest point s. 33 could apply would be July 2001, but it would have been unreasonable to expect Mr. Totic to meet the extensive requests within the 14-day time limit. Furthermore, I believe that requests that are impossible to fulfil — such as determining who paid for a haircut four years earlier — are not “reasonably required.” In addition, the records in the arbitration brief show the efforts made by Mr. Totic’s counsel to obtain as many of the records as he could, and they document the delays he faced in obtaining them. I note that these requests were also made well into the mediation and arbitration process.

Accordingly, in these circumstances, I see no error of law.

B. Special Award

The criteria for awarding benefits are not coterminous with those for a special award. There has to be a finding that the benefits were “unreasonably” withheld or delayed — and Primmum cited a number of cases where it has been noted that a finding of unreasonableness is highly dependent on the Arbitrator’s view of the evidence. Therefore, as held in McConachie and GAN Canada Insurance Company, (FSCO P97-00069, October 28, 1998), considerable leeway will be given to the Arbitrator’s finding unless, as in R.W. and Motor Vehicle Accident Claims Fund, (FSCO P98-00005, June 23, 1999), it is shown that there is a clear error in the Arbitrator’s approach amounting to an error in law, or there is a basis to conclude that the process was unfair to a party in some way.

Mr. Totic did not make lengthy submissions regarding the special award. His essential argument was that Primmum failed to do all it could to help him apply for the death benefit.

In that regard, aninsurer’s decisions are not necessarily unreasonable even though there may be some basis to criticize its actions. Where along the continuum a case falls is, largely, a matter within the judgment of the arbitrator hearing the evidence: Thompson and Peel Mutual Insurance Company, (FSCO P97-00051, November 30, 1999). Although an insurer’s conduct of a claim might fall short of perfection, that is not the standard: Ms. Z and Dominion of Canada General Insurance Company, (FSCO P00-00023, February 14, 2003).

The Arbitrator did not consider a special award warranted. She had evidence upon which to base her finding, and her finding was within the scope of her authority. I see no error in law.

IV. EXPENSES

The parties may contact me within 30 days if they are unable to agree on appeal expenses.