Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2008 ONFSCDRS 164

FSCO A08-000172

BETWEEN:

HAMIDREZA DARYOOSH ADAMI

Applicant

and

WAWANESA MUTUAL INSURANCE COMPANY

Insurer

Before: Jeffrey Rogers

Heard: By written submissions, completed on September 2, 2008.

Appearances: Mr. Raymond Watt, solicitor for Mr. Adami

Mr. Donald G. Cormack, solicitor for Wawanesa Mutual Insurance Company

Issues:

The Applicant, Hamidreza Daryoosh Adami, was injured in a motor vehicle accident on February 22, 2002. He applied for statutory accident benefits from Wawanesa Mutual Insurance Company (“Wawanesa”), payable under the Schedule.¹ Wawanesa refused to pay income replacement benefits (IRBs). The parties were unable to resolve their dispute through mediation, and Mr. Adami applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

Is Mr. Adami precluded from proceeding to arbitration of his claim for IRBs because his application for arbitration was filed beyond the two-year limitation period set out in subsection 281(5) of the Act and subsection 51(1) of the Schedule?

Result:

Mr. Adami is not precluded from proceeding to arbitration of his claim for IRBs by operation of the two-year limitation period set out in subsection 281(5) of the Act and subsection 51(1) of the Schedule.

SCOPE OF HEARING:

At the pre-hearing in this matter, the parties identified the above issue as an issue in dispute and I agreed with their position that it would most efficiently be resolved by way of a preliminary issue hearing. That is the issue I identified in my pre-hearing letter to the parties, dated May 27, 2008. In its factum, Wawanesa raised the further issue of whether Mr. Adami is precluded from entitlement to IRBs for failure to provide information it requested pursuant to section 33 of the Schedule. That issue was not properly within the scope of the preliminary issue hearing. Mr. Adami did not fully respond to it, and I have not dealt with it.

FACTS:

The relevant facts are not in dispute. They are as follows: After the accident, Mr. Adami received an application package from Wawanesa and submitted an Application for Accident Benefits, dated May 28, 2002.² In Part 5 of the Application which asks the applicant to select an option that best describes his employment status at the time of the accident, Mr. Adami selected “unemployed”. The Application also provides the option to select “have a written agreement to start work within 1 year.” Mr. Adami did not select that option.

Wawanesa responded with a letter and Explanation of Benefits, dated June 13, 2002.³ The letter states as follows:

Upon review of your application, you have indicated that you are unemployed and have not worked for 26 of the 52 weeks prior to the accident. The category is Non-Earner and as such, we have determined that you are not entitled to receive any weekly benefits. There is no payment for the first 26 weeks of disability.

The letter goes on to set out the disability test for entitlement to non-earner benefits. In the Explanation of Benefits, Wawanesa checked the box for “not eligible” regarding both non-earner benefits (NEBs) and IRBs. The Explanation of benefits informs Mr. Adami that “[I]f you disagree with our assessment and wish to dispute it, you have the right to ask for mediation through the Financial Services Commission.” No other information about the dispute resolution process or the limitation period is provided.

Mr. Adami then sent Wawanesa an Election, under cover of letter dated June 25, 2003, in which he claims IRBs, instead of NEBs or caregiver benefits.⁴ The letter indicates that the claim is based on a job offer. Wawanesa responded with a letter and Explanation of Benefits, dated July 15, 2003.⁵ The letter notes that the Election was received one and a half years after the Application for Accident Benefits. Wawanesa again checked the box for “not eligible” for IRBs on this Explanation of Benefits, giving the following reason: “Based on evidence on file, you do not qualify for an Income Replacement Benefit. We are investigating the subsequent information received regarding the purported job offer.” The information given about the dispute resolution process was the same as the information given in the earlier Explanation of Benefits.

Wawanesa sent Mr. Adami another Explanation of Benefits, dated July 27, 2004⁶ and then a further Explanation of Benefits, dated October 25, 2004⁷, apparently in response to further claims that Mr. Adami made. In both of these forms, Wawanesa again checked the box for “not eligible” for IRBs. No reasons are given. The section of the Explanation that would normally contain reasons is marked “N/A”. Included in both of these forms is a clear explanation of the entire dispute resolution process and information about the limitation period.

Mr. Adami applied for mediation on May 18, 2007, more than two years after Wawanesa’s latest Explanation of Benefits.

ANALYSIS:

Section 281(5) of the Insurance Act requires an insured person to commence an arbitration proceeding “within two years after the insurer’s refusal to pay the benefit claimed” or within a longer period that may be provided in the Schedule. Section 51 of the Schedule preserves the two-year limitation period, but extends it for an additional 90 days following the mediator’s report, if the insured person applied for mediation within two years. The extension does not apply here, because Mr. Adami did not apply for mediation within two years of any of Wawanesa’s refusals.

At the time that Wawanesa delivered its refusals, section 37(1) of the Schedule provided as follows:

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…

Considering an identical predecessor to section 37 in Zeppieri and Royal Insurance Company of Canada, Arbitrator Naylor held that:

The refusal relied on must be clear and unequivocal, and must be communicated to the applicant.

In my view, a two-step process must determine whether the limitation period applies in the circumstances of this 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.⁸

This approach had been consistently followed in numerous decisions of the Commission and the Courts.⁹

When Wawanesa delivered its first two refusals, section 49 of the Schedule provided 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 inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act.

By the time the two subsequent refusals were delivered, section 49 had been amended by removing the specific reference to sections 279 to 283 of the Insurance Act. In my view, the amendment did not change the insurer’s obligations. In any event, nothing in this decision turns on the change in the section. As will be explained later, the refusals Wawanesa delivered after the amendment complied with section 49, but they breached section 37.

The Supreme Court of Canada considered the insurer’s obligation to provide information about the dispute resolution process under an identical predecessor to section 49 in Smith v. Co-Operators General Insurance Co.¹⁰ Noting that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile insurance, the Court held as follows:

True to that purpose of consumer protection, no refusal under s. 71 . . . can be said to have been given by an insurer if there has not been adequate compliance with that section . . . the insurer is required under s. 71 to inform the person of the dispute resolution process . . . 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.

Commenting on a refusal that gave information on the dispute resolution process similar to the information contained in Wawanesa’s first two refusals, the Court in Smith concluded as follows:

Given that s. 71 of the SABS imposes a requirement to inform the claimant of the dispute resolution process as discussed above, and given that the respondent only

informed the appellant of the first step of this process, a proper refusal cannot be

said to have been given. Since a proper refusal was not given, and since the

limitation period under s. 281(5) [now s. 281.1] of the Insurance Act only begins

to run upon a refusal, that limitation period was not triggered by the notice sent on May 8, 1996.

The combined effect of sections 37 and 49 and the principles set out in Zeppieri and Smith is that the limitation period does not begin to run until a valid refusal is given. To be valid the refusal must be clear and unequivocal, must provide reasons for denying the claim and must give the insured person, in clear and straightforward language, information about the various steps in the dispute resolution process and the applicable limitation period.

I find that each of the four refusals Wawanesa gave Mr. Adami breached one or more of the principles of Zeppieri and Smith.

The first two refusals, given on June 13, 2002 and July 15, 2003 are deficient for the same reason as the refusal in Smith, because they only inform Mr. Adami of the first step in the dispute resolution process.

In addition, the refusal of June 13, 2002 is not properly a denial of a claim for IRBs because Mr. Adami had not made a claim for IRBs at that time. The application process has been described in many decisions as one in which information that the applicant is obliged to provide triggers the insurer’s obligation to respond.¹¹ Here, Wawanesa’s refusal of June 13, 2002 is clearly not in response to a claim for IRBs. It informs him that his “category is non-earner”. This is because Wawanesa did not have information at the time upon which it could determine that he might be entitled to IRBs.

In her decision in Ross and TTC Insurance Company Limited¹² Arbitrator Alves reasoned as follows:

Implicit in the two-step process formulated in Zeppieri, is that there must first have been a claim which has crystallized, that is to say become definite, a claim which has been submitted and properly denied. Only then does the clock start ticking.

I accept that logic. Any other approach would lead to the perverse result of engaging the limitation period before the insured person has made a claim.

As noted above, the refusal of July 15, 2003 gave the following reasons: “Based on the evidence on file, you do not qualify for an Income Replacement Benefit. We are investigating the subsequent information received regarding the purported job offer.” I find those reasons to be equivocal, leaving Mr. Adami with the impression that a final decision on his entitlement to IRBs had not yet been made.

In Smith the Court made the following comment regarding a similar statement in the refusal at issue in that case:

There is some doubt in my mind as to whether the notice given by the respondent in this case would even be considered a refusal in a non-technical sense, absent the refusal letter sent to the appellant’s solicitor. The notice says, inter alia, “If you disagree with our assessment, please contact us immediately. If we cannot settle the application to your satisfaction, you have the right to ask for mediation ...”. There is an equivocal sense of indeterminacy in the decision of the insurer giving the reader the impression that the insurer may very well change its stance if it is contacted for a discussion of the matter.¹³

I am aware that insurers are required to keep an open mind, even after denying a claim and that the jurisprudence supports the approach that a valid refusal is not voided because an insurer continues discussions after giving the refusal. Nevertheless, I find that the refusal itself cannot be unequivocal, if it leaves the insured with the impression that the insurer has not yet made its final determination.

Turning to the two further refusals, given in 2004, I find that they are deficient because Wawanesa gave no reasons.

It has been argued that an insurer complies with the requirements of sections 37 and 49 and the principles of Zeppieri and Smith if it supplies all of the required information in different refusals, even if the refusals are not valid on their own. Arbitrator Evans rejected that argument in Yee and Lambton Mutual Insurance Company¹⁴, ruling as follows:

Finally, Mrs. Yee submitted that the only cure for a defective refusal is a further valid refusal. I find this meritorious, as it creates greater certainty. Requiring an applicant to piece together the information from scattered documents goes against the admonition of Gonthier J. [in Smith] that the insurer is required to inform the applicant of the dispute resolution process “in straightforward and clear language, directed towards an unsophisticated person.”¹⁵

I adopt that reasoning and approach. In any event, even if the cumulative approach were taken, Wawanesa still would not have given a valid refusal because none of the refusals gives adequate reasons.

I conclude that, because Wawanesa has never given Mr. Adami a valid refusal of his claim for IRBs, the limitation period was not engaged and Mr. Adami is not precluded from proceeding to arbitration on the issue.

EXPENSES:

The parties made no submissions on expenses. There was nothing unusual about the hearing that would assist in determining the issue. I therefore reserve the issue to the hearing Arbitrator. However, should the parties resolve the matter without a hearing but are unable to resolve the issue of expenses, either party may make an appointment for me to determine the matter in accordance with Rules 75 to 79 of the Dispute Resolution Practice Code.

October 8, 2008

Jeffrey Rogers Arbitrator

Date