Paramsothy Murugappa v. Aviva Canada Inc., 2008 ONFSCDRS 69

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2008 ONFSCDRS 69

Appeal P06-00036

OFFICE OF THE DIRECTOR OF ARBITRATIONS

PARAMSOTHY MURUGAPPA

Appellant

and

AVIVA CANADA INC.

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

David Levy for Mr. Murugappa

Grant R. Dow for Aviva Canada Inc.

HEARING DATE:

August 14, 2007

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The appeal of the arbitration order dated November 10, 2006 is allowed. Paragraphs 1 and 2 are revoked and replaced with the following:

2. Mr. Murugappa is not precluded from proceeding to arbitration on the issue of income replacement benefits on the basis that his application for arbitration was filed beyond the two-year limitation period set out in s. 281(5) of the Insurance Act and s. 51(1) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996.

3. The expenses of the arbitration hearing are reserved to the arbitrator who will conduct the hearing on the merits.

4. If the parties are unable to agree about the expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

May 1, 2008

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Murugappa appeals the arbitrator’s decision that precluded him from proceeding to arbitration on the basis that his application for mediation was filed beyond the two-year limitation period set out in s. 281(5) of the Insurance Act and s. 51(1) of the SABS–1996.¹

II. BACKGROUND

Mr. Murugappa was injured in a motor vehicle accident on February 7, 2003. He was unable to return to work and claimed income replacement benefits (IRBs).² Pursuant to ss. 37(1) and (2) of the SABS,³ Aviva Canada Inc. (Aviva) provided notice of stoppage on July 30, 2003, effective August 16, 2003, relying on an insurer’s examination. As discussed in more detail below, Mr. Murugappa requested a designated assessment centre (DAC) disability assessment. Under the SABS, Aviva was required to keep paying the benefits pending the DAC report. The DAC was negative, concluding that Mr. Murugappa was no longer disabled from his employment, and on November 25, 2003, Aviva informed Mr. Murugappa that it was stopping his benefits that day. Mr. Murugappa applied for mediation in September 2005. Aviva took the position that Mr. Murugappa had applied out of time. When mediation failed to resolve the dispute, Mr. Murugappa applied for arbitration.

The arbitrator referred to s. 51⁴ of the SABS regarding the limitation period. Subsection 51(1) provides that a mediation proceeding or arbitration in respect of a benefit under the SABS “shall be commenced within two years after the insurer’s refusal to pay the amount claimed,” but s. 51(2) provides that despite s. 51(1) an arbitration “may be commenced within 90 days after the mediator reports to the parties.”⁵ If the insurer’s “refusal to pay the amount claimed” was the letter of November 25, 2003, then Mr. Murugappa’s application would not be out of time since he commenced mediation within two years of that letter and filed for arbitration within 90 days of the mediator’s report. However, relying on Haldenby v. Dominion of Canada General Insurance Co. (2001), 2001 CanLII 16603 (ON CA), 55 O.R (3d) 470 (C.A.), and Kirkham v. State Farm et al., [1998] O.J. No. 6459 (Div. Ct.),⁶ cases decided under the SABS–1990,⁷ the arbitrator found that it was Aviva’s initial notice in July 2003 that was the “refusal to pay,” stating: “The phrase itself is unambiguous. It means just what it says.” He also held that the “continuation of payment until such time as the DAC confirmed Aviva’s determination on the IRB issue” did not change its meaning. He found accordingly that Mr. Murugappa applied for mediation out of time and was precluded from claiming benefits.

The arbitrator also considered whether Kirkham – which found that time limits are not “rolling,” in that a continued refusal to pay IRBs does not extend the time limit beyond the initial refusal to pay – still applies. He asked for submissions with respect to State Farm Mutual Automobile Insurance Co. v. Dominion of Canada General Insurance Co. (2005), 2005 CanLII 47587 (ON CA), 79 O.R. (3d) 78 (C.A.), which dealt with disputes between insurers. While the arbitrator noted that the Court of Appeal in State Farm “left the clear implication that a cause of action arose with every payment for which indemnification could be claimed,” he concluded that Mr. Murugappa had not made out any case for extending the principles of State Farm to the accident benefit arbitration forum. That portion of the decision was not appealed.

III. ANALYSIS

It appears that the arbitrator was not referred to decisions that have held that the requirement for the insurer to continue paying IRBs until it receives a negative DAC means that a “refusal to pay” does not take place until the insurer notifies the insured that it is relying on the DAC report to stop paying benefits. These cases were the subject of the appeal submissions.

As noted above, both Haldenby and Kirkham were decided under the SABS–1990, in which the concept of a DAC was unknown. Section 24 was entitled “Payment of Claims, Refusal to Pay,” and s. 24(8) provided: “If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.” The limitation period was set out in s. 26 and, similar to s. 51, required that a mediation or arbitration proceeding in respect of benefits under the SABS–1990 be “commenced within two years from the insurer’s refusal to pay the amount claimed….”⁸ There was no potential requirement to continue paying benefits after the initial notice. The question of the insurer’s entitlement to stop paying benefits was not separate from the question of the insurer’s refusal to pay the benefits. The issue that is in dispute in this case did not arise.

The situation changed with the introduction of DACs under the subsequent Schedule, the SABS–1994.⁹ Under that Schedule, a notice is required under s. 62(8)(b) where benefits had been previously approved: “If the insurer refuses to pay weekly benefits … it shall give the insured person notice of the reasons for the refusal … by the day on which it would have paid the next weekly benefit, if the refusal occurs after the application is approved.” However, an insurer cannot stop payments of weekly benefits on the grounds that the insured no longer suffers from a disability except in accordance with s. 64 [s. 64(1)]. Instead, the insurer may give notice that it will “stop paying benefits” on a specified date [s. 64(2)] and may stop payment unless the insured requests a DAC [s. 64(3)]. In that case, since the insurer is not authorized to stop payment, it is required to continue paying until the DAC issues its report. Although s. 64 does not prevent an insured person from disputing a stoppage in the payment of weekly benefits [s. 64(13)], during the interim before the DAC is held, the insured cannot commence mediation [s. 71.1(b)]. Subsection 64(11) then provides: “If the [DAC] report states that the insured person is no longer suffering from a disability resulting from the accident in respect of which the weekly benefits are paid, the insurer may stop paying the benefits.” [Emphasis added.] Section 72, the limitation section, in turn is similar to s. 51 of the current SABS, and refers to an “insurer’s refusal to pay.”

Two appeal decisions considered the effect on the limitation period of the requirement for the insurer to continue paying weekly benefits after the initial s. 62(8)(b) notice where a DAC assessment was requested. In the first appeal decision, Allstate Insurance Company of Canada and Francis, (FSCO P99–00014, June 11, 1999), the delegate noted that, according to s. 94 of the SABS-1994, the notice is to be in a form approved by Superintendent. He accepted that this form generally triggers the running of the two-year time limit, but the question is the relationship between the refusal-to-pay section and the stoppage provisions in s. 64. He found that s. 64 creates a separate process. If the insurer is paying weekly benefits and concludes that the insured person no longer meets the relevant disability test, it must give notice under s. 64(2). The delegate was not convinced that this initial s. 64(2) notice constituted the “refusal to pay”: “It would strain the ordinary meaning of the s. 64, read as a whole, to say that an insurer can ‘refuse to pay’ benefits that the legislation requires it to pay.” Instead, he found that notice is contingent upon the insured’s response, and the refusal only comes when the insurer is authorized under the section to stop paying benefits and confirms its decision to do so. The alternative would mean that the limitation clock would start running even before the applicant could apply for mediation since, as the delegate noted, if the insured person asks for a DAC assessment, s.71.1(b) of the SABS–1994 prevents him or her from commencing mediation until the assessment has been conducted.

Francis determined that the initial notice did not start the time limit running. The second appeal decision, CAA Insurance Company (Ontario) and Sandhu, (FSCO P00–00043, March 8, 2001), determined when specifically the time limit starts running. The delegate in Sandhu noted that the question of the insurer’s entitlement to stop paying benefits is separate from the question of the insurer’s refusal to pay the benefits. She noted that the release of the DAC report, in itself, does not end benefits, since s. 64(11) says the insurer may stop payments, not that it must do so:

The insurer is called on to exercise judgement as to what action to take in light of the outcome and findings of the DAC. As a matter of common sense, an insurer needs to do something to let the insured know, with reasonable certainty, that it is acting on the report. Unless this is done, insureds will not have the certainty of knowing that the time limit has started to run, and when it did. As the arbitrator comments, neither the release of the DAC report or the stoppage of payments are necessarily unequivocal acts.

I will now put the facts in Mr. Murugappa’s case into the context of the legislation. Aviva’s initial notice of stoppage of July 30, 2003 informed Mr. Murugappa that, based on an insurer’s examination report, he was no longer suffering a substantial inability to perform the essential tasks of his occupation. It informed him that his IRBs would cease on August 16, 2003. It provided information regarding his rights to dispute pursuant to ss. 279–283 of the Insurance Act [s. 49]. Aviva also informed him that he had the right to require by written notice a DAC disability assessment [s. 37(3)(b)]. As Mr. Murugappa did so within the necessary time lines, Aviva was required to “not stop payment of the benefit” until the DAC issued its report [s. 37(3)(c)]. Pending the DAC report, Mr. Murugappa could not apply for mediation [s. 50(c)¹⁰]. The DAC, completed November 20, 2003, was negative: it concluded that Mr. Murugappa was not substantially disabled from his employment. Subsection 37(4) provided that in those circumstances “the insurer may stop paying the benefit after it has provided the person with notice of its reasons for stopping payment.” [Emphasis added.] Aviva provided the report to Mr. Murugappa along with notice in a covering letter dated November 25, 2003:

In accordance with Section 37(4) of the Statutory Accident Benefits Schedule, this letter is your notice that your insurance company is stopping payment of your income replacement benefit because of the assessment findings. This stoppage of payment is effective as of the date of this letter.

If you do not agree with this decision to stop paying your income replacement benefit, you have the right to dispute this decision in accordance with sections 279 to 283 of the Insurance Act and Section 50 of the Statutory Accident Benefits Schedule. Please let us know if you require an Application for Mediation.

Mr. Murugappa applied for mediation at the Financial Services Commission by application dated September 30, 2005, and the application for mediation was forwarded November 9, 2005 to the insurer. Mediation took place on November 28, 2005, when Aviva raised the limitation period as a preliminary issue. It took the position that Mr. Murugappa had not commenced mediation within two years of its refusal to pay a benefit, which it considered to be the initial s. 37 notice of July 30, 2003. Mr. Murugappa then applied for arbitration on December 7, 2005.

Aviva submits that the differences between s. 37 under the SABS–1996 and s. 64 under the SABS–1994 make the cases cited distinguishable. It submits that the heading for s. 37, “Refusal or Stoppage of Income Replace­ment, Non-earner or Caregiver Benefit,” suggests that the determination of when a person is no longer entitled to these benefits lies entirely with the insurer, and that is confirmed by the opening words of s. 37 (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….” It submits that the requirement for it to continue paying benefits when a DAC is requested is only a procedural requirement, whereas the determination that a person is not entitled is what triggers the limitation period. It submits that s. 37 distinguishes between refusal and stoppage and are not merged, whereas the concepts were one under s. 64.

I am not persuaded by this argument. The similarities between ss. 62 and 64 of the SABS–1994 and s. 37 of the SABS–1996 are far more striking than the differences. In both cases, a separate procedure is set up where, with respect to an insured receiving weekly benefits, the insurer determines that the insured is no longer entitled because he or she is no longer disabled. I agree with the delegate in Francis that it strains the meaning of the language to say that there can be a “refusal to pay” where the insurer is required to keep paying between the request for the DAC and the release of the DAC report. The insured is still prevented from proceeding with mediation until the DAC, so if the initial notice constituted the “refusal to pay,” the insured would not have the full two years to apply for mediation and arbitration. Even after a negative DAC, the insurer is not required to terminate benefits, so as a matter of common sense, an insurer needs to do something to let the insured know with reasonable certainty that it is acting on the report. Furthermore, as can be seen in the quotation from its November 25, 2003 letter, the insurer referred to the insured’s right to dispute at that point, so a reader would naturally think the limitation period would start from that point. Therefore, I agree with the appeal decisions and find that the principles set out in Francis and Sandhu also apply to the SABS–1996 as it stood when Aviva initially sought to terminate Mr. Murugappa’s IRBs.¹¹

I conclude that the limitation period did not begin to run in this case until the insurer provided its notice to Mr. Murugappa after the negative DAC report. Since Mr. Murugappa initiated mediation within the two years of the notice and initiated arbitration within 90 days of the mediator’s report, he is not precluded from proceeding to arbitration on the issue of IRB entitlement. Therefore, I find there was an error in law and the arbitrator’s order precluding Mr. Murugappa from arbitration is revoked.

The arbitrator made no finding with respect to expenses of the arbitration but left it to the parties to contact him. In light of my conclusion regarding the limitation period, I find it would make more sense for the arbitrator hearing the IRB issue to determine all arbitration expenses.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

May 1, 2008

David Evans Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended. Although the arbitrator’s order referred to filing for arbitration, the parties agree that the issue was whether Mr. Murugappa filed for mediation in time.
2. 2He also claimed medical benefits that were subject of a separate mediation and application for arbitration that resolved in December 2006.
3. 3As the provisions then read. The SABS was amended later in 2003. For instance, s. 37 was amended by O. Reg. 281/03. I will generally refer to the SABS as it read at the time of the initial notification.
4. 4This section has not been amended since its original enactment in O. Reg. 403/96.
5. 5In his order, the arbitrator referred to s. 281(5) of the Insurance Act, the limitation provision that was in force in 2003. By 2005, that subsection had been repealed and the new limitation section, s. 281.1, had been enacted by S.O. 2002, c. 24. Section 281.1 essentially repeats s. 51 of the SABS and uses the phrase “refusal to pay.”
6. 6Application for leave to appeal dismissed [1998] O.J. No. 2872 (C.A.).
7. 7The Statutory Accident Benefits Schedule – Accidents Before January 1, 1994, R.R.O. 1990, Reg. 672, as amended.
8. 8Subsection 26(1). Arbitration could be commenced within 90 days of a mediator’s report if the mediation proceeding was commenced in time: s. 26(2).
9. 9The Statutory Accident Benefits Schedule – Accidents After December 31, 1993 and Before November 1, 1996, O. Reg. 776/93, as amended.
10. 10Essentially the same provision was enacted by O. Reg. 281/03 as s. 50 (1)(c).
11. 11I would add that the same general principles apply even after the amendments of October 2003 by O. Reg. 281/03. The introduction of Pre-approved Framework Guidelines limited insureds’ rights and insurers’ duties, in some respects: see s. 37(5.1).