Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2004 ONFSCDRS 137

Appeal P03-00035

OFFICE OF THE DIRECTOR OF ARBITRATIONS

LIBERTY MUTUAL INSURANCE COMPANY

Appellant

and

SACIKALA SIVALOGANATHAN

Respondent

Before:

David R. Draper

Representatives:

Philippa Samworth for Liberty Mutual

David S. Wilson for Mrs. Sivaloganathan

Hearing Date:

June 7, 2004

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 orders, dated July 4, 2003 and September 8, 2003, are confirmed.
As agreed, Liberty Mutual will pay Mrs. Sivaloganathan's reasonable appeal expenses.

September 23, 2004

David R. Draper Director of Arbitrations

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal involves the stoppage provisions in the SABS-1996.¹ The issue is narrow, but important: after a Designated Assessment Centre ("DAC") reports that the insured person meets the test for entitlement to income replacement benefits ("IRBs") — a "positive DAC" — can the insurer continue paying benefits without disputing its obligation to pay ongoing benefits and, at some later date, restart the stoppage process on the basis that the insured person no longer meets the disability test at that later date?

II. LEGISLATION

The SABS-1996 establishes detailed procedural rules governing various aspects of the claims process. The parties agree that the stoppage provisions at issue in this appeal are found in s. 37, as it read before the October 2003 amendments:

(1) If the insurer determines that a person is not entitled or is no longer entitled to receive an income replacement, non-earner or caregiver benefit, the insurer shall give the person notice of its determination, with reasons,

(a) within 14 days after receiving an application for the benefit; or

(b) if the insurer has been paying the benefit to the person, no later than the date the next payment of the benefit is due.

(2) If notice is given under clause (1) (b), the insurer shall specify in the notice a date for stopping the benefit and the insurer may stop payment of the benefit in accordance with the notice.

(3) If notice is given under clause (1) (b) for the reason that the person no longer suffers from the disability in respect of which the benefit was paid,

(a) the date specified under subsection (2) shall be at least 14 days after the person receives the notice;

(b) the notice under clause (1) (b) shall inform the person that he or she has the right to require an assessment in accordance with section 43 by giving the insurer written notice before the date specified under subsection (2); and

(c) despite subsection (2), the insurer shall not stop payment of the benefit if, within 14 days after receiving the notice under clause (1) (b), the person gives the insurer written notice that he or she requires an assessment in accordance with section 43.

(4) If the person gives the insurer written notice under clause (3) (c) that he or she requires an assessment and the report from the designated assessment centre states that the person no longer suffers from the disability in respect of which the benefit was paid, the insurer may stop paying the benefit after it has provided the person with notice of its reasons for stopping payment.

(5) If the person gives the insurer written notice under clause (3) (c) that he or she requires an assessment and the report from the designated assessment centre states that the person continues to suffer from the disability in respect of which the benefit is paid, the insurer may dispute the obligation to pay the benefit in accordance with sections 279 to 283 of the Insurance Act, and, pending the resolution of the dispute, the insurer shall pay the benefit.

(6) 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 and, if it is finally determined that payment of the benefit should not have been stopped, the insurer shall,

(a) resume payment of the benefit; and

(b) pay any amounts under the benefit that were not paid.

The focus is on subsection (5). Does it mean that once a DAC determines that the insured person meets the relevant test for IRBs, the insurer must continue paying benefits and can only dispute the insured person's ongoing entitlement through the dispute resolution process, no matter how much time has passed since the DAC report? Or, can the insurer decide not to contest a positive DAC and continue paying benefits, but restart the stoppage process at some point in the future when it determines that the insured person no longer meets the test?

III. BACKGROUND

Mrs. Sivaloganathan was injured in an automobile accident on April 3, 2001. She applied for and received accident benefits, including IRBs, from Liberty Mutual Insurance Company ("Liberty Mutual"). After paying IRBs for about six months, Liberty Mutual notified Mrs. Sivaloganathan that it would be stopping her benefits effective December 10, 2001. She asked for a DAC assessment and, as required by s. 37(3)(c), Liberty Mutual continued paying IRBs pending the results. In its report dated March 1, 2002, the DAC concluded that Mrs. Sivaloganathan was substantially unable to perform the essential tasks of her pre-accident employment — the pre-104 week test. Liberty Mutual did not challenge this opinion and continued paying IRBs.

Roughly five months later, in August 2002, Mrs. Sivaloganathan attended insurer examinations ("IEs") at Liberty Mutual's request. There is no issue about the propriety of this step, at least for the purposes of this appeal. Mrs. Sivaloganathan accepts that the insurer can require reasonable and necessary post-DAC IEs, as long as it is for the purpose of evaluating the insured person's ongoing entitlement, not to challenge the DAC's opinion. The disagreement is over what the insurer does if it determines that the insured person no longer qualifies for the benefit. Liberty Mutual says it can restart the stoppage process, while Mrs. Sivaloganathan argues that if the insured person continues to claim entitlement, the insurer's only option is to dispute its obligation to pay through the dispute resolution process.

Based on the IE report, Liberty Mutual sent another stoppage notice. This one notified Mrs. Sivaloganathan that it would be terminating her IRBs on September 28, 2002, unless she elected to attend another DAC assessment. She did not ask to be assessed and Liberty Mutual stopped paying IRBs, although it did not do so until October 28, 2002 (still within the 104-week period).

Mrs. Sivaloganathan applied for mediation, claiming she was still entitled to IRBs. When the dispute was not resolved, she applied for arbitration. She brought a motion for interim benefits pending resolution of the dispute. Before the motion, Liberty Mutual reinstated her IRBs "on a without prejudice basis to Liberty's right to dispute entitlement to benefits from October 28, 2002."

The motion went ahead on June 16, 2003. Although Liberty Mutual had reinstated IRBs, Mrs. Sivaloganathan wanted an order that benefits were payable. The Arbitrator described the issue as follows:

What is sought by Mrs. Sivaloganathan, amongst other things, is a finding that Liberty has failed to follow the procedure in section 37(5) in terminating her income replacement benefits and an order that it comply with that provision – that is, an order requiring it to pay weekly benefits pending the resolution of its dispute with the DAC's conclusions, in accordance with the section. The issue becomes under what circumstances, if any, can an insurer terminate benefits in the face of a Disability DAC assessment which has supported entitlement to income replacement benefits – a so-called positive DAC. (p. 3)

Relying on the arbitration and appeal decisions in Sellathamby and Allstate Insurance Company of Canada², the Arbitrator accepted Mrs. Sivaloganathan's argument that a violation of s. 37(5) can give rise to an order requiring an insurer to pay benefits pending the resolution of the dispute through the dispute resolution process. He described the stoppage procedure as follows:

Where an insurer determines that an insured person is no longer entitled to a benefit it may stop payment, but it is bound to follow the procedure set out in section 37 which provides a detailed code of procedure that must be followed for a termination of benefits to be valid. Section 37(5) provides that where a DAC states that the insured person "continues to suffer from the disability in respect of which the benefit was paid," the insurer is bound to dispute the requirement to pay if it wishes to do so, in accordance with the provisions of section 279 to 283 of the Act. The effect of this latter provision is that the insurer is precluded from terminating benefits on the basis of a subsequent insurer's medical assessment in most circumstances, (p.6)

The Arbitrator considered two possible exceptions to this rule. First, he held that the situation changes at the 104-week mark. The insurer can re-evaluate the insured person's entitlement under the stricter, post-104 week test and, if it concludes that he or she is not entitled, the termination process in s. 37 of the SABS-1996 can be used.

The Arbitrator then dealt with what he described as the more difficult question — whether changed circumstances, such as a change in the insured person's medical condition, allows an insurer to restart the stoppage process. He concluded it does not. In doing so, he disagreed with the suggestion he found in Sellathamby, both the arbitration and appeal decisions, that changed circumstances can allow an insurer to restart the stoppage process. His reasons follow:

The conclusion that DAC determinations can be subject to challenge on the ground of alleged changed circumstances ignores two critical principles in my view: First, it requires reading into section 37 language that is not there. The language of section 37(5) in particular is clear and unambiguous. Section 37 is a complete code, describing in detail the mechanisms whereby an insurer can terminate a benefit. The strict application of its terms does not lead to an absurd or unconscionable result. There is no basis for reading into it language that is not there.

Related to this is the point that Liberty's argument discounts the fact that on Mrs. Sivaloganathan's interpretation of the provision the insurer is not left without a remedy where it disagrees with a DAC or believes that the DAC's conclusions have been made redundant by changed circumstances. It is completely open to an insurer to challenge the DAC, including alleging that changed circumstances have rendered the DAC conclusion moot. What is not provided for, once a DAC has offered its opinion, is that the insurer can seek its own opinions and terminate benefits on that basis.

Second, the argument discounts the central role of the DAC in the dispute resolution process as articulated in the M.D. appeal decision³ and applied in the Sellathamby decisions, and as reflected again in the language of section 37(5). The DAC is not merely another assessment. It is meant to provide an objective and independent view, taking the dispute out of the back and forth of competing partisan expert opinion. Although it can be challenged, it governs the payment of benefits in the meantime.

Finally, the Arbitrator concluded that if he was wrong in his analysis, any change in circumstances would have to be significant before it could justify restarting the stoppage process. Otherwise, in the Arbitrator's view, the central role of the DAC would be undermined. The Arbitrator did not go on to determine whether, in this case, there was a significant change in Mrs. Sivaloganathan's condition justifying Liberty Mutual's decision to restart the stoppage process.⁴

The motion resumed on August 14, 2003, before the same arbitrator. By that time, the parties had resolved some of the issues. Most significantly, Liberty Mutual had agreed to pay IRBs pending the outcome of the dispute, but argued that the Arbitrator had no authority to order interim benefits when benefits were already being paid.

In a second decision, dated September 8, 2003, the Arbitrator concluded that Liberty Mutual had not complied with s. 37(5), and that Mrs. Sivaloganathan was entitled to an order for interim benefits based on that noncompliance. He indicated that his decision would have been different if he had been asked to limit his order to the pre-104 week period. However, since he was not asked to make this distinction, he ordered Liberty Mutual to pay IRBs "pending the resolution of the parties' disputes, pursuant to sections 279 and 283 of the Insurance Act and the relevant provisions of the Schedule."

Liberty Mutual appeals both orders, although its focus is on the interpretation of s. 37(5). In its submission, the Arbitrator erred in law in concluding that an insurer cannot restart the stoppage process following a positive DAC based on changed circumstances.⁵

IV. ANALYSIS

Unlike the Arbitrator, I do not find s. 37(5) of the SABS-1996 clear and unambiguous. In my opinion, Liberty Mutual's interpretation is plausible. However, for reasons set out below, I conclude that any ambiguity should be resolved in favour of a broad interpretation of the pay pending dispute obligation. The Arbitrator's approach is reasonable, and I accept it.

"Pay pending dispute" provisions are not new to the SABS-1996. In 1990, when the Insurance Act was amended to expand the role of no-fault benefits (now statutory accident benefits), the following section was part of the package:

(8) Where the No-Fault Benefits Schedule provides that the insurer will pay a particular no-fault benefit pending resolution of any dispute between the insurer and the insured, the insurer shall pay the benefit until the dispute is resolved.

This subsection reflects a fundamental goal of accident benefits. Unlike tort, where compensation can be delayed for years while the dispute is resolved, accident benefits are meant to ensure that the injured person's current needs are met on a without-fault basis, including access to reasonable and necessary treatment and some level of income protection. Subsection 268 remains in the legislation, unchanged except for the use of "statutory accident benefits" instead of "no-fault benefits."

Under the SABS-1990,⁶ pay pending dispute only applies to certain types of expenses. If the insurer refuses to pay a claim, the insured person's recourse is to apply for mediation. However, some expenses must be paid "pending resolution of the dispute."⁷ These cover the most urgent needs — medical, psychological, surgical, dental, chiropractic, nursing, ambulance, physiotherapy, prosthetics, dentures, prescription eyewear, hearing aids, and transportation to treatment, training and counselling sessions — reflecting an intention to ensure that insured persons receive important services at an early stage, even if they are being disputed by the insurer.

Pay pending dispute changed in the SABS-1994 with the introduction of DACs. A broader range of benefits, including weekly benefits, were covered, and the insurer's obligation to pay pending dispute became dependent on the opinion of a neutral assessor — the DAC. The problem, seen clearly in this appeal, is that the pay pending dispute rules work more easily for discrete, time-limited claims than for ongoing claims where the situation can change after the pay pending dispute obligation is triggered.

Decisions under the SABS-1994 emphasized the importance of the pay pending dispute provisions.⁸ I am aware of only one decision, however, touching on the issues raised in this appeal. In Cook and State Farm Mutual Automobile Insurance Company, (OIC A96-001284, March 20, 1998), the insured person asked for a DAC assessment after receiving the insurer's stoppage notice. The DAC concluded that he continued to meet the disability test, but went on, contrary to the DAC Guidelines, to state its view that the disability would likely end at the end of a six to eight week work-hardening programme. The insurer reinstated benefits, but terminated them after the insured person completed a six-week programme. The insurer provided an explanation for its decision to terminate, but did not offer the insured person another DAC assessment.

The Arbitrator concluded that this termination was contrary to s. 64, the stoppage provision in the SABS-1994, and ordered the insurer to pay a special award. Although the DAC should not have given a prognosis, the Arbitrator held that the insurer had to bear responsibility for relying on it, particularly without offering the insured person a second assessment. In the course of his reasons, the Arbitrator stated: "On its face, section 64 does require the opportunity to be assessed each and every time benefits are terminated. There is no explicit limitation set out in section 64 with respect to the number of assessments that may be required in the life of a claim." While these comments suggest support for multiple stoppages, read in context, I find that their focus is more on ensuring that the insured person is protected from arbitrary stoppages. Therefore, I do not find the decision persuasive on the issue I have to decide.

As in the previous schemes, insurers are expected to consider applications under the SABS-1996 and decide, in a timely fashion, whether benefits are payable. To assess a claim for weekly benefits, including IRBs, the insurer can require that the insured person provide a disability certificate from a health practitioner of his or her choice, or attend an IE, or both. These tools can be used "as often as reasonably necessary," reflecting the ongoing nature of weekly benefit claims and the recognition that the insured person's condition may change over time.⁹

The insurer's obligation to pay IRBs is found in sections 4 and 5 of the SABS-1996. Once it accepts that these benefits are payable, as Liberty Mutual did in this case, the insurer is obliged to continue paying "during the period that the insured person suffers a substantial inability to perform the essential tasks of the employment in respect of which he or she qualifies for the benefit," with three qualifications. The insurer is not required to pay benefits:

for the first week of the disability;
for any period after 104 weeks of disability, unless the insured person meets the stricter, "any occupation" test; or
if the insured person qualifies for IRBs based on a contract of employment that was to start after the accident, for any period before he or she would have been entitled to start work under that contract.

Section 37 of the SABS-1996 is a procedural section, establishing the steps an insurer must take in refusing or stopping the payment of weekly benefits, including IRBs. In this sense, it is a "complete code," as the Arbitrator describes it. However, it must be read in context. Part of that context, as Mrs. Sivaloganathan points out, is that s. 37 is meant to protect insured persons from arbitrary refusals and terminations, within legislation that is to be interpreted as consumer protection legislation.¹⁰

Subsections 37(1) and (2) are general provisions, applicable whenever an insurer wants to deny weekly benefits, whatever the reason. If the insurer determines that the insured person is not entitled to benefits, or is no longer entitled, it must provide notice within specified time limits, with reasons. Where the insurer has been paying the benefits, it must also provide a date for the stoppage. The insured person's recourse if he or she wants to contest this decision is to apply for mediation, with the ultimate determination of entitlement being made by an arbitrator or judge if the dispute is not resolved.

Subsections 37(3) - (5) deal with a specific type of stoppage — where the stoppage notice is given "for the reason that the insured person no longer suffers from the disability in respect of which the benefit was paid." In that case, the legislation provides additional protections. The stoppage date must be at least 14 days after the insured person receives the notice. Also, the insurer must advise the insured person that he or she can require a DAC assessment and, if the insured person takes this option, the insurer cannot stop paying benefits on the date set out in the stoppage notice. It must continue paying benefits pending receipt of the DAC report.

By sending a stoppage notice to which s. 37(3) applies, as Liberty Mutual did in this case, the insurer is taking the position that the insured person no longer meets the relevant disability test. Presumably, this determination will be based on information that the insurer finds persuasive, such as a recent IE report. The DAC is a check on this determination. It provides, at the insured person's option, an independent assessment of his or her condition that determines whether or not the insurer can stop paying benefits.

The DAC's role is set out in s. 43(5) of the SABS-1996, which states that its report is to include "a statement as to whether the insured person continues to suffer from the disability in respect of which the benefit is being paid." [emphasis added] This focus on the insured person's condition at the time of the DAC assessment is also reflected in the Assessment Guideline prepared by the Minister's Committee on the Designated Assessment Centre System:

When a claimant is referred to a Disability DAC, the existence of a disability has already been accepted by the insurer, and the claimant has been receiving the benefit. It is the continuance of the disability that the DAC addresses. The insurer has challenged the continuance of the disability, and the claimant believes the disability continues. The purpose of the DAC assessment is to offer an independent opinion that will assist these two disputing parties to resolve their dispute. (emphasis in the original)

That is what the "Disability DAC" provides — an independent opinion on whether the insured person continues to meet the relevant disability test at the time of the assessment. Unlike other types of DACs, it does not look into the future and consider the insured person's ongoing needs, or make a specific determination of the total amount of benefits that should be paid.¹¹

While the DAC report is meant to assist the parties resolve their dispute, it is more than just another opinion. It determines whether the insurer can complete the stoppage process. As set out above, once the insured person gives notice that he or she wants a DAC assessment, the insurer is not entitled to stop paying benefits. However, if the DAC report is negative, concluding that the insured person no longer meets the relevant disability test, the insurer can stop paying benefits after providing reasons for the stoppage. [s. 37(4)] The insured person's recourse is to apply for mediation, claiming that he or she continued to be entitled to benefits at the date of the stoppage. [s. 37(6)]

Subsection 37(5) deals with positive DAC assessments. It is repeated below for ease of reference:

There is no question that following receipt of a positive DAC report, the insurer must continue paying benefits. The issue is whether those payments are necessarily made under s. 37(5) on a "pay pending dispute" basis, as the Arbitrator held. The alternative interpretation, advanced by Liberty Mutual, is that s. 37(5) only applies if the insurer disputes its obligation to continue paying benefits from that point in time.

According to Liberty Mutual, if the insurer decides to pursue its position that the insured person no longer qualifies for benefits, despite the DAC's opinion to the contrary, it must apply for mediation and pay benefits pending resolution of the dispute. However, if the insurer does not dispute its obligation to pay benefits, Liberty Mutual submits that it can take reasonable steps to assess the insured person's ongoing entitlement and, if at some point, it determines that the insured person no longer meets the disability test, restart the stoppage process by sending a new stoppage notice, with a new stoppage date, and the option of another DAC assessment.

Given the time-specific nature of the DAC assessment, there may well be situations where an insurer is prepared to re-evaluate its position and accept that the insured person continues to meet the disability test at the time of the DAC assessment, without necessarily accepting that he or she will continue to meet the test indefinitely into the future. In my view, however, the operation of s. 37(5) cannot turn on the insurer's mental state. This would be contrary to the need "to impose bright line boundaries between the permissible and the impermissible" discussed by Gonthier J. in Smith v. Co-operators, cited above.

The reality is that, in contentious cases, the line between "accept" and "reject" will rarely be as clear as Liberty Mutual suggests. An insurer that sends a stoppage notice must have doubts about the claim. Even if it does not contest its obligation to continue paying benefits upon receipt of a positive DAC report, I would not assume that those doubts have disappeared. In this case, Liberty Mutual did not simply point to new medical information suggesting that Mrs. Sivaloganathan's condition had changed, it also noted that the DAC did not have all of the clinical notes and records.

The problem with Liberty Mutual's interpretation, as the Arbitrator points out, is that it dramatically reduces the importance of the DAC assessment. DACs are meant to create a clear line for the parties. As I said in M.D. and Halifax, "[t]heir function is to take the dispute out of the back-and-forth of competing partisan reports by providing an impartial assessment." Subsection 37(5) clearly contemplates insurers applying for mediation if they want to dispute their obligation to pay benefits, just as insured persons must apply for mediation if they want to assert their ongoing entitlement. If insurers can simply marshal new evidence and start the process again, this balance would be lost — a balance that is reflected in the following excerpt from the DAC Guidelines:

If there is new information and the parties agree that the review of the new material may alter the DAC's opinion, then a new DAC assessment should be arranged, rather than one party requesting an "updated" report from the DAC.

Where the parties disagree with either the outcome of the DAC or that new information will have an impact on the original DAC findings, either party may choose to apply for mediation with the Dispute Resolution Group of the Financial Services Commission of Ontario.¹²

As long as entitlement remains in issue, subject to later challenge, I conclude that the s. 37(5) should be interpreted like other pay pending dispute provisions — once the DAC concludes that benefits are payable, the insurer must pay the benefits subject to the dispute resolution process.

Although not strictly necessary to the decision, I agree with the Arbitrator, and Director's Delegate Makepeace in Sellathamby, that the post-104 week test raises a distinct issue. The insurer should be able to assess its obligation to pay benefits under a test that has not been considered by the DAC. Therefore, even if there has been a positive DAC on the pre-104 week test, the insurer can issue a new stoppage notice if it concludes that the insured person does not meet the stricter, post-104 week test. This involves setting a new stoppage date and offering an assessment at a DAC which, according to the DAC Guidelines, must have specific authorization to conduct post-104 week assessments.

This analysis is not perfect. Liberty Mutual raises legitimate questions about why the change in the disability test should be treated differently than other changes affecting the insured person's entitlement, and whether it makes sense to prevent an insurer that has continued paying benefits for years following a positive DAC, which is quite possible in a post-104 week scenario, from restarting the stoppage process and offering the insured person another DAC assessment as a check on its determination. However, I cannot find a problem-free route through the legislation on this issue. The ambiguity, in my view, must be resolved in favour of the interpretation that provides clearer rules and stronger consumer protection.

For these reasons, the appeal is dismissed.

IV. EXPENSES

Liberty Mutual agreed to pay Mrs. Sivaloganathan's reasonable appeal expenses.