James Miller v. Optimum Insurance Company Inc., 2007 ONFSCDRS 255

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 255

FSCO A07-000214

BETWEEN:

JAMES MILLER

Applicant

and

OPTIMUM INSURANCE COMPANY INC.

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: David Leitch

Heard: October 30, 2007, November 29 and 30, 2007, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Ian D. Kirby for Mr. Miller

Joan Takahashi for Optimum Insurance Company Inc.

Issues:

Arbitrator Lee’s pre-hearing letter dated June 5, 2007, described the Preliminary Issue as follows:

Is the Insurer estopped or otherwise statute-barred from claiming the repayment of income replacement benefits and contesting the quantum of the weekly income replacement benefit?

Due to the procedural and production issues which emerged during the first two days of the hearing, the Preliminary Issue evolved into the following question of law:

Can the Insurer be estopped from challenging the Applicant’s entitlement to, and quantum of, weekly income replacement benefits (IRBs) on grounds related to his pre-accident employment?

I note that up to this point, I have only heard the Applicant’s examination-in-chief and received certain documents in evidence. The Insurer did not cross-examine Mr. Miller and did not enter any oral evidence though its right to do so at the main hearing is not questioned. As a result, I cannot make any findings of fact at this stage beyond noting the “Background Facts and Positions” set out below.

Result:

The Insurer can, as a matter of law, be estopped from challenging both entitlement to, and quantum of, IRBs on grounds related to his pre-accident employment.

Background Facts and Positions

Mr. Miller was injured in a snowmobile accident on January 30, 1999. On March 4, 1999, Optimum’s independent adjuster received an Application for Accident Benefits and an Employer’s Confirmation of Income form. These documents indicated that Mr. Miller was employed at the time of the accident. They also provided the names of his employers, the dates of his employment and information about his pre-accident income.¹ In an Explanation of Benefits Payable form dated April 19, 1999, the adjuster informed Mr. Miller that he was eligible for IRBS in the amount of $400 per week.² Optimum continued to pay Mr. Miller IRBs at that rate for the next six years.

In February 2005, Optimum filed an Application for Mediation, in which, at paragraph 4, it challenged the quantum or rate of IRBs:

Optimum raises the rate of income replacement benefits into dispute as the insured has failed to comply with requests for documentation of his income. It seeks independent verification of Mr. Miller’s employment status and income in the year prior to the motor vehicle accident, failing which it has no choice but to dispute the full amount paid. Repayment of any overpayment is also in dispute.³

A year later, in February 2006, Optimum terminated Mr. Miller’s IRBs altogether. When Mr. Miller contested the termination by way of an Application for Arbitration, Optimum filed two Responses. At paragraph 14 of its first Response, Optimum challenged both Mr. Miller’s entitlement to, and quantum of, IRBs on the following ground:

Optimum states that the applicant is not entitled to income replacement benefits at the rate at which it is claimed on the basis that he was not employed as described in the OCF-1 [the Application for Accident Benefits] and OCF-2 [the Employer’s Confirmation of Income form] and furthermore for the reason that he was not earning income at the level claimed.⁴

At paragraph 8 of its Supplementary Response, Optimum made the following additional allegation:

Further, Optimum states that the applicant is not entitled to payment of any further income replacement benefits as he provided inaccurate or incomplete information concerning his employment activities at the time of or in the last 52 weeks prior to the motor vehicle accident.⁵

Mr. Kirby complained that if Optimum was going “to call my client a liar,” it should be required to do so explicitly. I agree but, in my view, Optimum is entitled to withhold making such an allegation until the outstanding production issues have been resolved.

The Applicant’s Arguments

Mr. Kirby acknowledged that since estoppel is based on equitable principles, Mr. Miller could not advance an estoppel argument unless he himself had “clean hands”; as is often stated, a party who seeks equity must do equity. Assuming that Mr. Miller does have “clean hands”, however, Mr. Kirby perceived no legal obstacle to my entertaining the argument of estoppel by representation in the present case.

He referred to the definition of estoppel by representation adopted by the Alberta Court of Appeal in Pannenbecker v. Dominion of Canada General Insurance Co.⁶ This definition was quoted from the English text The Law Relating to Estoppel by Representation by Bower and Turner (Butterworths) and has since been repeated in the Canadian text Insurance Law in Canada by Brown and Menezes (Carswell. Looseleaf) at Chapter 12.2. It states:

...where one person (‘the representor’) has made a representation to another person (‘the representee’) in words or by acts and conduct, or (being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive), and with the result, of inducing the representee on the faith of such representation to alter his position to his detriment, the representor, in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at the proper time, and in the proper manner, objects thereto.

Mr. Kirby then cited two appeals decisions of Director’s Delegate Susan Naylor. In the 1996 decision of Offeh and Allstate Insurance Company of Canada, she stated: “Whether an insurer is estopped from enforcing, or has waived, requirements of the policy is a question of fact, based on the particular circumstances of the case.⁷” In the 1997 case of Branchaud and Cooperators General Insurance Company, she confirmed that “…the language and the objectives of the Act support the proposition that a Commission arbitrator has implicit power to apply equitable principles in the ordinary exercise of his or her statutory jurisdiction.⁸”

Mr. Kirby next referred to section 33(1) of the Schedule which reads, in part, as follows:

33.(1)A person applying for a benefit under this Regulation shall, within 10 business days after receiving a request from the insurer, provide the insurer with the following:

Any information reasonably required to assist the insurer in determining the person’s entitlement to a benefit.
A statutory declaration as to the circumstances that gave rise to the application for a benefit.

He noted that this section gave Optimum ample authority to ask Mr. Miller for further or better proof of his pre-accident employment and earnings as soon as it received the Application for Accident Benefits and Employer’s Confirmation of Income form. He maintained that the evidence in the present case will establish that instead of doing that, Optimum represented to Mr. Miller for the following six years, that he was entitled to IRBs at the rate of $400 per week. It did so, he will argue, not through silence but through the Explanation of Benefit forms and cheques it sent to Mr. Miller.

Finally, Mr. Kirby stated that Mr. Miller will be able to demonstrate that he relied on these representations to his detriment. Noting that Mr. Miller bears the onus of proving his pre-accident employment and earnings, Mr. Kirby indicated that the evidence will establish that he did not keep, and can no longer retrieve, records establishing his pre-accident employment and earnings and that his own memory is defective as a result of his accident injuries.

The Insurer’s Arguments

Ms. Takahashi submitted that it would be contrary to the dispute resolution provisions of the Insurance Act and to various provisions of the Schedule to hold that an Insurer can be estopped from challenging the original assessment of an applicant’s entitlement to IRBs.

She noted that section 280(1) of the Insurance Act gave Optimum a broad right “to refer to a mediator any issue in dispute in respect of the insured person’s entitlement to statutory accident benefits.” She maintained that Optimum was permitted, indeed obliged, to reassess Mr. Miller’s entitlement to IRBs in light of the detailed, and potentially changing, information required under Part II of the Schedule. As to the other relevant provisions of the Schedule, Mr. Takahashi referred to Arbitrator Renahan’s decision in Quraishi v. Belair Insurance Company where he observed:

…certain provisions of the Schedule show a legislative intention that insurers make payments promptly on the understanding that they may recover payments made in error. Section 35 of the Schedule requires an insurer to promptly determine whether a benefit is payable, and if it determines that it is payable, pay it within 14 days after receiving the application. Section 46 imposes an interest rate of 2 per cent per month compounded monthly on overdue payments. Section 47 provides for the recovery of payments where an insurer has paid a benefit in error. I find that Belair's compliance with this legislative intent cannot be construed as a waiver of its right to reconsider its decision to make payments.⁹

Ms. Takashi also relied upon the following comments of Arbitrator Nancy Makepeace (as she then was) in the 2001 case of York v. Zurich Insurance Company:

…an insurer’s payment of benefits does not constitute waiver or estoppel of its rights to dispute entitlement, or even to request repayment of benefits already paid. Moreover, both parties to arbitration proceedings are permitted to raise new issues not identified in the early adjustment of the claim, subject to requirements for mediation, issue definition and notice. For example, insurers are permitted to raise new challenges to the rate of benefits paid, despite having challenged only the duration of benefits previously. The Commission’s reluctance to find waiver or estoppel in silence or a course of conduct relates to the remedial objectives of the accident benefits scheme, which is intended to encourage ongoing communication between an insured person and his or her first-party insurer, resulting in prompt payment of ongoing periodic benefits by insurers, and in early resolution of disputes.¹⁰

Finally, Ms. Takahashi re-emphasized two of the necessary ingredients of estoppel - clean hands and detrimental reliance – and cited the Supreme Court of Canada’s 1991 decision in Maracle v. Travellers Indemnity Co. of Canada¹¹dealing with promissory estoppel. However, the issue before me at this preliminary stage is not whether Mr. Miller’s estoppel by representation argument should succeed but whether it can even be made.

Analysis and Conclusion

In my view, there are three general factors which strongly favour Mr. Miller’s right to make an estoppel argument. First, Commission arbitrators have the jurisdiction to entertain arguments based on equitable principles, including estoppel. Second, Mr. Miller is entitled to make any argument he likes as long I have the jurisdiction to entertain it. Third, the strength of his estoppel argument will depend on the facts and I have not yet determined the facts.

Nonetheless, I would have been prepared to dismiss Mr. Miller’s estoppel argument at this preliminary stage had I been persuaded that, on any version of the facts, that argument would necessarily contradict the provisions of the Insurance Act or the Schedule. I am not so persuaded.

Allowing Mr. Miller to make an estoppel argument does not deprive Optimum of its right under the Insurance Act to refer the issues of his entitlement to, and quantum of, IRBs and repayment to mediation. Those issues have already been successfully referred to mediation and arbitration. Nor does it necessarily prevent Optimum from challenging the Applicant’s entitlement to IRBs on the basis of “new” information about his pre-accident employment history. The estoppel argument only gives Mr. Miller a way to question whether it would be equitable in the circumstances to allow Optimum to rely upon that information. I certainly agree that the answer to that question must take into account both the Schedule’s “remedial objectives” and the “Procedures for Claiming Benefits” set out in Part X of the Schedule, including sections 33, 35 and 47. However, I am not prepared at this preliminary stage to find that Mr. Miller’s estoppel argument would necessarily conflict with those objectives and procedures.

Still, since I raised the issue at the hearing, I will make some additional observations about section 47 of the Schedule, the section dealing with repayments to insurers. The relevant portion of that section read as follows:

47.(1)A person shall repay to the insurer,

(a) any benefit under this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of wilful misrepresentation or fraud;

(2)If a person is required to repay an amount to an insurer under this section,

(a) the insurer shall give the person notice of the amount that is required to be repaid;

(3)The obligation to repay a benefit does not apply unless the notice under subsection (2) is given within 12 months after the payment was made

(4)Subsection (3) does not apply if the benefit was paid as a result of wilful misrepresentation or fraud.

During the course of argument, I noted that, in the absence of wilful misrepresentation or fraud, section 47 limits the applicant’s obligation to repay benefits to benefits received within the twelve months preceding the insurer’s notice of repayment. I expressed the tentative view that this section appears to balance competing interests, the insurer’s interest in obtaining repayments, on the one hand, and the applicant’s interest in avoiding unreasonably onerous repayment obligations, on the other. I questioned whether that balance would be disrupted by allowing an applicant to make an estoppel argument which, if accepted, could effectively remove his/her obligation to repay altogether.

After hearing counsel’s submissions and reflecting further on the issue, I observe that any balancing of interests authorized by section 47 appears to presuppose that the repayment order is justified by evidence establishing the existence of both an error and the information needed to correct the error and calculate the amount of the repayment. Since Mr. Miller’s estoppel argument challenges these assumptions, it has at least the potential to remove this case from the reach of section 47. As a result, I am not prepared at this preliminary stage to find that allowing Mr. Miller to make his estoppel argument would necessarily conflict with section 47.

EXPENSES:

The expenses incurred in this preliminary issue hearing will be in the cause.

December 20, 2007

David Leitch Arbitrator

Date