Neutral Citation: 2004 ONFSCDRS 120
FSCO A03-001237
FINANCIAL SERVICES COMMISSION OF ONTARIO
BETWEEN:
ZORICA KNEZEVIC
Applicant
and
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
Insurer
DECISION ON A PRELIMINARY ISSUE
Before:
Jeffrey Rogers
Heard:
June 22, 2004, at the offices of the Financial Services Commission of Ontario in Toronto.
Appearances:
Joseph Zayouna for Ms. Knezevic
Todd J. McCarthy for State Farm Mutual Automobile Insurance Company
Issues:
The Applicant, Zorica Knezevic, was injured in a motor vehicle accident on February 14, 2002. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule.1 State Farm terminated weekly income replacement benefits (IRBs) on August 2, 2002, effective August 26, 2002. The parties were unable to resolve their disputes through mediation, and Ms. Knezevic applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.
A pre-hearing discussion was held on December 2, 2003 and it was decided to hold a hearing on a preliminary issue.
The preliminary issue is:
- Is Ms. Knezevic precluded from proceeding to arbitration on the issue of entitlement to IRBs from October 1, 2002 and ongoing, by operation of subsection 50(1)(c) of the Schedule, because she failed to attend a disability DAC that was scheduled for October 1, 2002?
Result:
- Ms. Knezevic is not precluded from proceeding to arbitration on the issue of entitlement to IRBs from October 1, 2002 and ongoing, by operation of subsection 50(1)(c) of the Schedule.
EVIDENCE AND ANALYSIS:
In this application, Ms. Knezevic claims entitlement to several benefits under the Schedule, including weekly IRBs from August 26, 2002 to February 14, 2004. The Insurer takes the position that the Applicant is precluded from proceeding to arbitration on the issue of entitlement to IRBs from October 1, 2002 and ongoing, because she failed to attend a DAC assessment that was scheduled to take place on October 1, 2002.
Subsection 50(1)(c) of the Schedule provides as follows:
An insured person shall not commence a mediation proceeding under section 280 of the Act unless,...
(c) the insured person has undergone any required designated assessment under section 43 and has complied with that section in respect of the designated assessment.
The procedure for requiring a DAC assessment upon termination of IRBs is set out in section 37 of the Schedule. At issue in this decision is the Insurer's obligation established by subsection 37(3)(2) which provides as follows:
The notice under clause (1) (b) shall inform the person that he or she has the right to require a designated assessment in accordance with section 43 by giving the insurer written notice and a disability certificate from a health practitioner under section 34, before the date specified in the notice under subsection (2).
Subsection 37(6) links an assessment that an insured has required after receipt of a notice in accordance with subsection 37(3)(2), to the barrier to mediation contained in section 50. It provided as follows:
Nothing in this section 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...
The Applicant's position is that the Insurer misinformed her of her right to require a DAC and therefore the Insurer should not be allowed to take advantage of her choice to attend a DAC. In the alternative, the Applicant argues that her choice to attend a DAC is not irrevocable and she has the right to have a bona fide change of mind.
For the reasons below, I accept both of the Applicant's positions and find that she is not precluded from proceeding to arbitration on this issue.
The facts are as follows: On August 2, 2002, State Farm sent the Applicant three documents concerning its decision to terminate IRBs, effective August 26, 2002 (see Appendix). At that time, the Applicant was not represented. Those documents are a covering letter dated August 2, 2002, an Explanation of Benefits and a Notice of Stoppage.
The covering letter notifies the Applicant of the Insurer's decision, quotes verbatim section 37 of the Schedule and also informs the Applicant of the two-year limitation period to commence mediation, contained in section 51 of the Schedule. The letter gives no other explanation of the Applicant's options in the dispute resolution process.
The standard wording in part 4 of the Notice of Stoppage informs the Applicant: "if you disagree with the stoppage of benefits..., you have the right to ask for an assessment by a Designated Assessment Centre..." The Notice of Stoppage contains no information about mediation. The standard wording at the top of the Explanation of Benefits informs the Applicant "if you disagree with our assessment and wish to dispute it, you have the right to ask for mediation through the Financial Services Commission of Ontario." The Insurer added the following to part 2 of that form: "Should you wish to dispute the stoppage you must (emphasis added) authorize and return the enclosed OCF-14 and OCF-17 forms in order for your dispute to be referred to the nearest DAC assessment centre...."
The Applicant signed and returned the forms on August 13, 2002. She then retained counsel on August 27, 2002. By letter of September 23, 2002, the Applicant was informed that the DAC was scheduled for October 1, 2002. On September 25, 2002, counsel for the Applicant advised her that she was not required to attend the DAC and counsel informed the DAC clinic by letter of September 27, 2002 that his client would not be attending. The clinic cancelled the DAC. State Farm responded by letter of October 15, 2002, indicating that no further benefit would be considered until the Applicant made herself available for the assessment and demanding payment of $925.00 for the cancellation fee.
Since that time, the Applicant has not sought to reschedule the assessment.
The hearing proceeded by way of agreed facts except on the issue of whether the letter dated August 2, 2002 accompanied the Explanation of Benefits and Notice of Stoppage that the Applicant admits receiving. Robert Yates, an adjuster at State Farm, testified on this issue. His was the only evidence. Mr. Yates' evidence was that he did not have a specific recollection or note that the letter was sent, but he believed that it was sent because it is his and State Farm's standard practice to do so. He recalled putting the relevant documents in the envelope himself. In the absence of any evidence to the contrary, I accept that Mr. Yates followed standard practice and sent the letter of August 2, 2002.
In Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, the Supreme Court of Canada considered the obligations of insurers to inform insureds of their rights to dispute a refusal to pay a benefit. The Court considered what was then section 71 of the Schedule. The obligation is now found in section 49 of the Schedule which provides as follows:
If an insurer refuses to pay a benefit under this Regulation or reduces the amount of a benefit that a person is receiving under this Regulation, the insurer shall provide the person with a written notice concerning the person's right to dispute.
Section 71 was worded differently. It required the insurer to "inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act." I see no substantive change in the obligations imposed on the insurer.
In Smith, the Court ruled that no refusal can be said to have been validly given unless there had been compliance with the duty to inform and that the insurer has a duty "to inform the person of the dispute resolution process...in straightforward and clear language, directed towards an unsophisticated person." The Court also commented that it was "questionable" whether simply quoting verbatim the relevant sections of the Insurance Act would support a valid refusal as "it would surely run afoul of the consumer protection purpose of the legislation."
I find that State Farm did not comply with its duty to inform the Applicant of the dispute resolution process in straightforward and clear language. That duty includes providing clear information about electing to undergo a DAC assessment, which is an important part of the dispute resolution process. The letter of August 2, 2002 simply quotes verbatim section 37 of the Schedule, without explanation of the options set out in that section, in straightforward and clear language. Except for the copy of section 37, the only other reference to mediation in the documents that the Applicant received, is contained in the Explanation of Benefits. The impression that the Insurer creates by telling the Applicant in the same document "Should you wish to dispute the stoppage you must authorize and return the enclosed OCF-14 and OCF-17 forms in order for your dispute to be referred to the nearest DAC assessment centre...", is that the assessment is a mandatory first step. There is no clear and straightforward explanation of the Applicant's options.
Subsection 50(1)(c) precludes mediation only where the applicant has failed to attend a "required designated assessment." Section 37 does not require that the applicant attend an assessment before applying for mediation. The section gives the insured the right to require an assessment as part of the dispute resolution process. The information that State Farm provided did not explain the options available. Instead, State Farm gave the impression that there was no choice. An assessment under section 37 is not a "required assessment" unless the insured requires and the insurer has complied with subsection 37(3)(2).
I find in the circumstances that the Applicant did not make a valid election to attend a DAC and therefore she did not fail to attend a "required designated assessment."
In the alternative, I find that in the circumstances of this case, the Applicant had the right to change her mind about attending the assessment. In Worthman and AXA Insurance (Canada) (FSCO A96-000486, January 30, 1997), Arbitrator Alves considered the effect of an election to attend a DAC that was cancelled in similar circumstances. She reasoned that, although a simple failure to attend an elective DAC will impose a barrier to mediation, an insured may have a bona fide change of mind, without consequences, after receiving the benefit of legal advice. She noted that the Schedule does not make this election irrevocable, while other elections are specifically irrevocable and reasoned that, had the Legislature intended this election to be irrevocable, it would have stated that clearly.
I adopt that logic and I find that, because the Insurer put the information to the Applicant in terms that did not make it clear that the DAC was elective, she had the right to change her mind upon receiving legal advice. Her change of mind was communicated to the Insurer in a timely manner that avoided undue prejudice to the Insurer. I do not accept the submission that the situation was different in Worthman because the Arbitrator had no evidence that the applicant in that case was aware of the option of applying for mediation. Here, even if one assumes that the Applicant could decipher the information about mediation that she was provided, the clear impression that the Insurer gave was that assessment was the first step.
I also do not accept the submission that the decisions in Rennato and State Farm Mutual Automobile Insurance Company2 and Lopez and Allstate Insurance Company of Canada3support the proposition that an election to attend a DAC may not be revoked. Those cases did not consider the issue of revocation. They dealt with simple refusal to attend. The applicants did not claim to have had a bona fide change of mind. The issue in those cases is whether the applicants had unreasonably failed to attend an assessment, within the meaning of subsection 51(1)(c) of the Schedule, as it was then worded. The finding in those cases was that the conduct of the applicants had been unreasonable. The issue of revocation of an election did not arise.
Having had a bona fide change of mind, and having so informed the Insurer before the scheduled DAC, the Applicant did not fail to attend a "required designated assessment."
For these reasons I have ordered that Ms. Knezevic is not precluded from proceeding to arbitration on the issue of entitlement to IRBs from October 1, 2002 and ongoing, by operation of subsection 50(1)(c) of the Schedule.
I was not asked to rule on the Insurer's right to recover benefits it was required to continue to pay the Applicant after receiving the election, or the right to recover the cost of cancellation of the DAC assessment.
EXPENSES:
I exercise my discretion to award Ms. Knezevic her expenses incurred in this preliminary issue hearing.
August 19, 2004
Jeffrey Rogers
Arbitrator
Date
Neutral Citation: 2004 ONFSCDRS 120
FSCO A03-001237
FINANCIAL SERVICES COMMISSION OF ONTARIO
BETWEEN:
ZORICA KNEZEVIC
Applicant
and
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
Insurer
ARBITRATION ORDER
Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:
Ms. Knezevic is not precluded from proceeding to arbitration on the issue of entitlement to IRBs from October 1, 2002 and ongoing, by operation of subsection 50(1)(c) of the Schedule.
State Farm shall pay Ms. Knezevic her expenses of this preliminary issue hearing.
August 19, 2004
Jeffrey Rogers
Arbitrator
Date
APPENDIX
Letter to the Applicant, from State Farm, dated August 2, 2002
Explanation of Benefits, dated August 2, 2002
Notice of Stoppage, dated August 2, 2002
Footnotes
- The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98, 114/00 and 482/01.
- (FSCO A02-000253, November 1, 2002)
- (FSCO A98-000161, November 6, 1998), confirmed on appeal (P98-00058, April 30, 1999)