Lena Reid v. State Farm Mutual Automobile Insurance Company, 2007 ONFSCDRS 184

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2007 ONFSCDRS 184

FSCO A07-000498

BETWEEN:

LENA REID

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Arbitrator Suesan Alves

Heard: By telephone conference call on July 3, 2007.

Written submissions were received by July 10, 2007.

Appearances: Paul A. Oddi for Ms. Reid

Angela S. James for State Farm Mutual Automobile Insurance Company

Issues:

Lena Reid was injured in a motor vehicle accident on January 12, 2002. She applied for arbitration in relation to her claims for income replacement benefits and interest payable under the Schedule.¹ She also claimed her arbitration expenses.

State Farm requested a preliminary issues hearing to determine whether Ms. Reid applied for arbitration after the limitation period had expired. Ms. Reid submits that State Farm’s application should be dismissed, that her entitlement to further income replacement benefits should be determined at a hearing on the merits. She submits that State Farm is estopped from relying on its termination of benefits because of its conduct following the mediation. In the alternative she seeks relief from forfeiture.

The preliminary issues are:

Is Ms. Reid precluded from proceeding to arbitration in relation to her claims for income replacement benefits because her application for arbitration was filed beyond the two-year limitation period set out in section 281.1 (1) of the Insurance Act, R.S.O.1990, c. I.8 as amended?
Is State Farm estopped from relying on its denial of benefits dated July 23, 2004?
Is this an appropriate case to grant relief from forfeiture under section 129 of the Insurance Act?

Result:

Ms. Reid is precluded from proceeding to arbitration in relation to her claims for income replacement benefits by subsection 281.1 (1) of the Insurance Act.
State Farm is not estopped from relying on its termination of income replacement benefits.
If I have the authority to grant relief from forfeiture, this is not an appropriate case for such relief.

EVIDENCE AND ANALYSIS:

Positions of the parties

State Farm submits that Ms. Reid’s arbitration application is out of time. State Farm submits that it terminated Ms. Reid’s income replacement benefits on July 23, 2004, that under section

281.1 (1) of the Insurance Act, she was required to apply for arbitration on or before July 23, 2006. Since Ms. Reid applied for arbitration on March 12, 2007, her application is more than seven months out of time.

Ms. Reid submits that her entitlement to further income replacement benefits should be determined at a hearing on the merits. She submits that State Farm is estopped from relying on its termination of benefits because of its conduct following the mediation. In the alternative she seeks relief from forfeiture. She submits that State Farm’s application should be dismissed.

Law

Section 281.1 (1) of the Insurance Act, R.S.O. 1990, c.I.8, as amended, requires a person to commence an arbitration, mediation or neutral evaluation within two years of the insurer’s refusal to pay the benefit claimed.

Where a neutral evaluation or mediation has been commenced within the two-year period, section 281.1(2) provides that the limitation period for commencing an arbitration may be extended by 30 days from the date the neutral evaluator reports to the parties, or by 90 days from the date the mediator reports to the parties.

In order to determine whether the limitation period applies in the circumstances of a case, “First, it is necessary to ask whether, and when, there was a refusal to pay benefits; and second, whether the insurer may rely on a limitation period that runs from the date of the refusal.”²

The refusal

I find little dispute that State Farm terminated Ms. Reid’s income replacement benefits on July 23, 2004.

State Farm paid Ms. Reid income replacement benefits at the rate of $333.73 per week. On January 27, 2004, State Farm issued a Notice of Stoppage of Weekly Benefits effective February 15, 2004.

Ms. Reid disagreed with the stoppage and requested a disability DAC assessment. State Farm arranged for that assessment and continued to pay income replacement benefits. The DAC opined that Ms. Reid did not meet the test for post 104-week income replacement benefits. State Farm sent Ms. Reid an Explanation of Benefits dated July 23, 2004 which stated:

Based on the medical documentation on file, and the disability DAC report completed by the Hamilton Hospitals Assessment Centre, you have not suffered a complete inability to engage in any employment you are reasonably suited by education, training or experience. Accordingly, there is no further entitlement for an income replacement benefit. Pursuant to Section 47 of the Statutory Accident Benefits Schedule, State Farm is looking for reimbursement of income replacement benefits paid from February 16, 2004 to July 18, 2004 for the sum of $7,342.06.

I find that State Farm made a clear and unequivocal refusal to pay Ms. Reid further income replacement benefits on July 23, 2004.

For the refusal to be valid, the insurer is required to inform the insured person of the dispute resolution process of the Insurance Act “in straightforward and clear language, directed towards an unsophisticated person. At a minimum, this should include a description of the most important points of the process, such as the right to seek mediation, the right to arbitrate or litigate if mediation fails, that mediation must be attempted before resorting to arbitration or litigation and the relevant time limits that govern the entire process.”³

In this case, the Explanation of Benefits which State Farm sent to Ms. Reid stated that she had the right to dispute the insurer’s reduction or denial of her claim for statutory accident benefits; identified the steps of mediation, arbitration, lawsuit or neutral evaluation; provided a warning of the two year time limit from the insurer’s refusal to pay the benefit; and advised of the possible extension of the limitation period from the date the mediator or neutral evaluator reported. Counsel for Ms. Reid did not complain that the information State Farm provided Ms. Reid was inadequate.

Ms. Reid applied for mediation in relation to her claims for further income replacement benefits within two years of the refusal. The Report of Mediator, dated April 27, 2005 states that the parties did not succeed in resolving the dispute. Ninety days from this date would be in July, 2005. As the two-year limitation period from the date of the refusal provided in section 281.1(1) of the Insurance Act would expire on July 23, 2006, almost a year later, section 281.1(2) of the Act does not assist Ms. Reid by extending the time limit in this case.

Can State Farm rely on the limitation period?

(a) Estoppel

The Applicant alleges that State Farm’s post-mediation conduct clearly led this Insured, through her counsel, to believe that the IRB was not yet decided, and that State Farm should be estopped from relying on its denial based on its conduct post-mediation.

The case law establishes that Promissory estoppel is an effective answer to the defence of a limitation period where the party who seeks to rely on the doctrine establishes that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. “Furthermore, the representee must establish that in reliance on the representation, he acted on it or in some way changed his position.”⁴

Further, “this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiations which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced.” ⁵

Counsel for Ms. Reid submits that the correspondence between the parties establishes the impugned conduct. I disagree with this submission. I find that the conduct complained of by the Applicant was an exploration of settlement between the insurer and the insured, in which the Applicant made one offer and received one counter-offer. I find the correspondence which was filed shows that following the mediation, the claims adjuster wrote to counsel for Ms. Reid on April 28, 2005, requesting “further documentation to assist State Farm in determining if there is an ongoing entitlement for an Income Replacement Benefit.”

In June, 2005, State Farm confirmed that it would pay the cost of obtaining the records it requested. Counsel for the Applicant continued to submit the requested documentation as it became available. In October, 2005, counsel for Ms. Reid confirmed to State Farm that he had provided all the documentation it requested and on December 8, 2005, he communicated the Applicant’s offer to settle her accident benefits file on a full and final basis for $57,511.89.

In December, 2005, State Farm’s claims adjuster responded to Ms. Reid’s offer. She relied on the disability DAC’s opinion that Ms. Reid had the skills and physical ability to perform two occupations and therefore did not meet the test for post 104-week income replacement benefits.

State Farm offered to “waive the overpayment of Income Replacement Benefits for the sum of $7,342.06, offering a full and final Release for $0.00.”

State Farm’s counter-offer is dated December 16, 2005, although counsel for the Applicant advises that he did not receive it until January 4, 2006. In my view, that delay in receiving the counter-offer is of no significance in this case.

Neither party accepted the offer or the counter-offer. I was advised that there were no further offers of settlement made. I accept that there was an effort on the part of the insurer and the insured to resolve Ms. Reid’s claim for ongoing entitlement to income replacement benefits. I find this conduct consistent with State Farm’s obligations to adjust the file on an ongoing basis.

In Derman and State Farm Mutual Automobile Company, (FSCO P-009521 January 29, 1997), Director’s Delegate Draper stated “In my view, an Applicant cannot expect to extend the limitation period indefinitely while he or she attempts to document the claim. There may be good reasons to continue negotiating after mediation fails, but before applying to court or arbitration. However, the limitation period will run unless the insurance company has agreed not to rely on it, or has misled the applicant in some material way about the limitation period.”

This correspondence was exchanged approximately six months before the limitation period would expire. Neither party mentioned the limitation period in their correspondence. I find no representation by State Farm that it would not rely on the limitation period. There is nothing in these negotiations which suggested that State Farm would not rely on its strict rights. I find no evidence that State Farm misled the insured during or following the negotiations. State Farm did not reinstate Ms. Reid’s income replacement benefits at any time following the mediation.

Having regard to the correspondence and the context of these negotiations, I find neither an express nor an implied promise by State Farm that it would not rely on a limitation period defence in relation to Ms. Reid’s claims for income replacement benefits.

I find that the correspondence which was filed does not provide a reasonable basis for a belief on the part of counsel for Ms. Reid that State Farm would not rely on the limitation period.

Neither party provided further evidence of additional correspondence which specifically addressed Ms. Reid’s claims for further post 104-week income replacement benefits. For these reasons, I am not persuaded that State Farm is estopped from relying on the limitation period defence.

(b) The treatment plans

On May 12, 2006, Ms. Reid had surgery to repair a tear to her right rotator cuff which she sustained in the accident. On June 6, 2006, counsel for the Applicant submitted treatment plans to State Farm for payment of medical and rehabilitation benefits as a result of that surgery. State Farm paid those as medical and rehabilitation benefits as claimed.

The treatment plans completed by her surgeon and physiotherapist make it clear that Ms. Reid was unable to move her right arm following surgery and therefore unable to work at her pre-accident job or perform her activities of daily living. I have considered the possibility that in submitting this documentation, Ms. Reid provided evidence of a fresh period of disability which would entitle her to a further, perhaps time limited period of post 104-week income replacement benefits.⁶

Arbitration case law establishes that had Ms. Reid provided such evidence, section 32(2) of the Schedule would oblige State Farm to advise her of her entitlement to further benefits, despite the fact that this evidence was submitted in the form of a treatment plan, despite the fact that she was represented by counsel. The case law also establishes that in the absence of such advice, State Farm would not be permitted to rely on the limitation period after Ms. Reid provided the requisite evidence.⁷

I have rejected this possibility, however, because the questions asked in the treatment plans address the pre 104-week disability test for income replacement benefits; not the test for the post 104-week period which was applicable at the time of her surgery.

In Murugappa and Aviva Canada Inc. (FSCO A05-000209, November 10, 2006), Arbitrator Wilson raised the question of whether the Court of Appeal decision in State Farm Mutual Automobile Insurance Co. v. Dominion of Canada General Insurance Co., 2005 CanLII 47587 (ON CA), 79 O.R. (3d) 78, had implicitly resurrected the applicability of the rolling limitation concept in cases dealing with accident benefit entitlement. I invited submissions from counsel in this regard. Counsel for the Applicant submitted that all of the Applicant’s claims were either in or out of arbitration. Counsel for the Insurer agreed with that submission.

Relief from forfeiture

The Applicant seeks relief from forfeiture pursuant to sections 129 of the Insurance Act. That section states:

Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.

Arbitrators have disagreed whether an arbitrator at the Financial Services Commission of Ontario has the requisite authority to grant relief from forfeiture. Assuming, without deciding that I have the requisite authority, the case law establishes that relief is not granted in cases such as this one which involve a missed limitation period.

In Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] S.C.J. No. 97, the Supreme Court of Canada considered the relief from forfeiture provisions under section 109 of the Saskatchewan Insurance Act. The wording of the Saskatchewan legislation is identical to the wording of s. 129 of the Insurance Act in Ontario. Justice McLachlin, stated: “The case law has generally treated failure to give notice of claim in a timely fashion as imperfect compliance whereas failure to institute an action within the prescribed time period has been viewed as non-compliance, or breach of a condition precedent. Thus, courts have generally been willing to consider granting relief from forfeiture where notice of claim has been delayed.”

I find this case involves a failure to institute a proceeding with the prescribed time period. I find this case is properly viewed as one of non-compliance, and relief from forfeiture is not available.

Conclusion:

For these reasons, I conclude that Ms. Reid is precluded from proceeding to arbitration with her claims for income replacement benefits. Ms. Reid’s claims for income replacement benefits and interest on those benefits are therefore dismissed.

Expenses:

If the parties are unable to agree on expenses, they should follow the procedure set out in section 79 of the Dispute Resolution Practice Code—Fourth Edition, Updated October 2003.

September 30, 2007

Suesan Alves Arbitrator

Date