Ann Bisnath v. State Farm Mutual Automobile Insurance Company, 2010 ONFSCDRS 125

Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2010 ONFSCDRS 125

FSCO A08-000007

BETWEEN:

ANN BISNATH

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Edward Lee

Heard: May 17, 18, and August 6, 2010, at the offices of the Financial Services Commission of Ontario in Toronto, and by teleconference.

Appearances: Jeffrey Raphael for Ms. Bisnath

Todd J. McCarthy for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Ann Bisnath, was injured in a motor vehicle accident on July 18, 2005. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ State Farm terminated weekly income replacement benefits by notice dated November 11, 2008. The parties were unable to resolve their disputes through mediation, and Ms. Bisnath 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:

1. Did State Farm fail to comply with sections 35, 37 and 42 of the Schedule when terminating Ms. Bisnath’s income replacement benefits?

2. If State Farm did so fail, what are the consequences of that failure?

Result:

1. State Farm failed to comply with sections 35, 37 and 42 of the Schedule when terminating Ms. Bisnath’s income replacement benefits. Nevertheless, this failure does not automatically entitle Ms. Bisnath (as argued by her counsel) to continuing and ongoing Income Replacement Benefits until a proper termination notice is issued. This matter shall proceed to a full hearing on the merits.

Background:

Ms. Bisnath was receiving income replacement benefits when she was convened for an insurer’s medical examination at Custom Rehab and Assessments pursuant to section 42² of the Schedule.

Ms. Bisnath attended before Dr. Rashid for the insurer’s section 42 examination on September 18, 2007. Following the examination, Dr. Rashid issued a report³ that concluded with a set of specified questions and responses.

Questions #3 and #4 of the report and their respective responses are as follows:

1. Has the insured sustained a substantial inability to perform the essential tasks of his/her employment as an administrative assistant with [her employer]?

A. Based on the responses, Ms. Bisnath is substantially disabled to engage in any activities of normal life including her employment with [her employer], but since her responses describing her condition are questionable because of the suggestion that she has not only been reticent and secretive in her responses but also has endorsed the symptomatologies in an exaggerated and indiscriminate manner, it is not possible to establish an accurate diagnosis in this respect or to answer the question. [italics mine]⁴

2. Does the insured suffer from a complete inability to engage in any employment for which he or she [is] reasonably suited by education, training, or experiences?

Please refer to my answers to the preceding questions. [italics mine]⁵

The report and an accompanying Explanation of Benefits (OCF-9)⁶ dated October 11, 2007 were then sent to Ms. Bisnath. This OCF-9 contained the following statement:

Please find enclosed two copies of the section 42 psychological report dated September 18, 2007 completed by Dr. Rashid at Custome (sic) rehab and assessments. We still await the remaining reports to issue the decision on Income replacement benefit. Please provide the extra copy odf(sic) the report to your health provider [italics mine].

State Farm did not terminate income replacement benefits and the benefit continued to be paid to Ms. Bisnath.

In mid-2008, Ms. Radha Kumar, adjuster for State Farm, contacted Custom Rehab and Assessments and requested a clarification to the response to question #4 of the report. This request was followed by a fax communication⁷ dated July 15, 2008, which posed the following question:

As per our conversation today regarding the S42 Psychological assessment dated 09/18/08 completed by Dr. Rashid, please have question number 4 answered as it was not clearly answered in the report. Thanks.

A subsequent report entitled “Initial Psychological Examination (Revised Psychological Report)”⁸ was received by State Farm on August 22, 2008 from Custom Rehab and Assessments. This second report was identical to the report of September 2007, apart from the answer given to question #4 in its conclusion.

Question #4 of the revised psychological report reads as follows:

1. Does the insured suffer from a complete inability to engage in any employment for which he or she (sic) reasonably suited by education, training, or experience?

A. No. Please refer to my answers to the preceding questions. Even though it is not possible to establish a valid conclusion due to the reasons explained above, there is no suggestion that Ms. Bisnath suffers from a complete inability to engage in any employment for which she is reasonably suited by education, training or experience. [italics mine] ⁹

A letter¹⁰ dated November 11, 2008 enclosing the revised report as well as another OCF-9¹¹ were then sent to Ms. Bisnath. This OCF-9 contained the following statement:

Income replacement benefits: based on the enclosed Section 42 Psychological addendum report dated 08/22/08, you do not suffer a complete inability to engage in any employment for which you are reasonably suited by education, training, or experience. Therefore, your benefits will be discontinued effective 11/12/08 pursuant to section 37 of the Statutory Accident Benefits Schedule. Should you disagree with State Farm’s decision, you may submit a rebuttal examination report for consideration. Please refer to the attached letter which outlines the rebuttal procedure pursuant to section 42.1 of the Statutory Accidents Benefits Schedule. Please find enclosed your income replacement for the period 08/01/08 to 11/12/08- $1228.20¹² [italics mine]

Ms. Bisnath’s income replacement benefits were subsequently terminated.

At the hearing the parties requested that I deal only with the preliminary matter set out above. The issue as to whether Ms. Bisnath might be entitled to a special award was deferred to the hearing on the merits.

1. Did State Farm fail to comply with sections 35, 37 and 42 of the Schedule when terminating Ms. Bisnath’s income replacement benefits?

Ms. Bisnath’s Argument:

Ms. Bisnath argued that State Farm breached procedural requirements in sections 35, 37 and 42 of the Schedule when it generated the initial report and the revised report used to terminate her IRBs.

First, the revised report was distinct from the initial report even though the OCF-9 of November 11, 2008 referred to it as a “section 42 psychological addendum”.

State Farm failed to notify Ms. Bisnath that it was conducting this section 42 examination as required under section 37(1)(b). It also denied her an opportunity to submit a new disability certificate (section 37(1)(a)).

Second, the revised report was communicated to State Farm on August 22, 2008, but State Farm did not send the report and its determination to Ms. Bisnath until November 11, 2008. This breached the requirement to give the report and determination to the insured within five days of its receipt (section 37(5) of the Schedule).

Third, State Farm also breached the notice requirement of section 42(4), and denied Ms. Bisnath the opportunity to provide information and documentation to the examiner as permitted under section 42(10).

Finally, Ms. Bisnath argued that the revised report could not be considered (as suggested by State Farm) an examination based on written “material” (commonly known as a “paper review”) because an insurer may not terminate income replacement benefits based on such a material or paper review (section 42(3)).

State Farm’s Argument:

State Farm argued that an insurer is not bound by a section 42 assessor’s opinion and that an insurer could terminate benefits on evidence that it possessed. A section 42 report provides further evidence or information to an insurer.

In the present case, State Farm did require Ms. Bisnath to attend the section 42 examination that led to the initial report. When State Farm did not obtain an answer to question #4 in the initial report, State Farm’s adjuster, Ms. Kumar, did not terminate benefits. No determination on entitlement was made in the OCF-9 of October 11, 2007. The determination of non-entitlement was not made until November 2008 when a specific answer was given to question #4 posed in the initial report.

Further, it was not necessary for State Farm to give a second notice to Ms. Bisnath or to allow her an opportunity to present further material because the addendum or revised report was not an additional or new section 42 report. It was an identical report with a clarification or amendment to a previous answer.

Alternatively, even if the revised report was a section 42 report, section 37(1)(b) allows the insurer an option as to whether it requires a person to attend a section 42 examination.

Finally, although State Farm failed to comply with the requirement of section 37(5) to provide a copy of the revised report and determination to Ms. Bisnath within five days, the sanction for this breach is found at sections 35(14) or 37(9), which require the insurer to keep paying the benefit until the insured receives the report and determination. State Farm did keep paying and has thus already been sanctioned for these breaches.

Therefore, this preliminary application should be dismissed and the case should proceed on the merits.

ANALYSIS:

Did State Farm Comply with the procedures set out in the Schedule?

State Farm admitted in submissions that it failed to give the initial report and its determination to Ms. Bisnath within the time frames contemplated in sections 35(8) and 37(5) of the Schedule.

I also find State Farm breached section 37(6) of the Schedule, which lists the types of responses an insurer may specify in its determination. According to section 37(6), an insurer must specify the benefits it agrees to pay, those it refuses to pay, the reasons for the decision and the date the benefits will cease to be paid. No provision allows an insurer to await a “remaining report” before making its determination.

In addition, I do not accept State Farm’s argument that the revised report was “identical” to the initial report. The answer to question #4 in the revised report differed from the answer in the initial report. That makes the reports different. Nor do I accept that the revised report was a mere “amendment” or a “clarification” of a previous answer. The change to the answer #4 was significant and exceeded what might be considered an amendment or clarification, as demonstrated by the fact that State Farm terminated benefits based on the revised report, but did not on the basis of the initial report.

Thus I find the revised report was a section 42 report distinct from the initial report. In obtaining this second section 42 report, State Farm denied Ms. Bisnath an opportunity to provide “… all reasonably available information and documents relevant or necessary for the review of the insured person's medical condition” (section 42(10)(a)). State Farm also failed to request a new disability certificate from Ms. Bisnath, as required by section 37(1)(a).

State Farm also breached the five-day requirement of section 37(5) in regard to the revised report. Ms. Kumar, adjuster for State Farm, admitted receiving the revised report by fax on August 22, 2008. This report and the accompanying OCF-9 were not sent to Ms. Bisnath until November 11, 2008. In cross-examination, Ms. Kumar’s only explanation for the delay was that she “... just didn’t get to it.”

Further, section 42(3) sets out the type of examinations that may take place through a “paper review” (without the attendance of the insured person). An examination to discontinue an income replacement benefit does not fall under section 42(3), and the insurer may not make such a determination without conducting an in-person examination.

Finally, although section 37(1)(b) states an insurer “may notify the insured person that the insurer requires the insured person to be examined under section 42”, this provision must be read in conjunction with sections 37(1)(a) and 37(2).

Section 37(1)(a) states that an insurer “shall” request that an insured person submit a new disability certificate if the insurer wishes to make a determination of continued entitlement. Upon receipt of that disability certificate, the insurer might conceivably decide that the insured continues to be entitled and no further section 42 examination would be required, thus allowing for the facultative requirement in 37(1)(a). Alternatively, an insured might refuse or fail to submit the disability certificate, which would then allow the insurer to terminate the benefit without obtaining a section 42 examination as provided in section 37(2)(a).

Clauses 37(2)(c), (d), (e) and (f) list the other four scenarios wherein an insurer might terminate a specified benefit without requiring the insured to attend a section 42 examination. None of these scenarios is applicable in the present case, and State Farm was thus obliged to require Ms. Bisnath to attend a section 42 examination.

Therefore I find State Farm failed to comply with sections 35, 37 and 42 of the Schedule when terminating Ms. Bisnath’s income replacement benefits.

What are the consequences of the noncompliance with the Schedule?

Ms. Bisnath argued that an improperly conducted section 42 examination was no examination at all, and State Farm could not rely on such a report to terminate a benefit. Therefore the OCF-9 of November 11, 2008 was also invalid and no proper termination has ever taken place. As a consequence of this non-compliance, State Farm must continue to pay those benefits until they are properly terminated. In support of her argument, Ms. Bisnath cited various arbitral decisions, including Yogesvaren and State Farm Mutual Automobile Insurance Company¹³, Avdalimov and CGU Insurance Company of Canada¹⁴ and M.S.D. and Citadel General Assurance Company.¹⁵

I am not persuaded that these cases resolve the issue in favour of Ms. Bisnath. Instead, I am bound by the decisions of Stranges v. Allstate Insurance Company of Canada¹⁶ and Turner and State Farm and the Financial Services Commission of Ontario¹⁷, both decided in the Court of Appeal of Ontario.

In Turner, an insured was given a notice of termination which gave as a reason for denial that the legal test for a different benefit (not the one that was claimed) had not been met. The judges of the Court of Appeal ruled as follows:

We also conclude that the Divisional Court erred in requiring that the reasons for cancelling the benefit must be legally correct. Section 24(8) of the Statutory Accident Benefits Scheme obliges the insurer to give the insured “the reasons for the refusal”. It does not provide that the reasons must be legally correct. The purpose of the requirement to give reasons is to permit the insured to decide whether or not to challenge the cancellation. If the reasons given are legally wrong the insured will succeed in that challenge. Requiring that the reasons be legally correct goes beyond both the requirement in the relevant regulation, and the purpose of such a notice.

The respondent argues that the notice is defective because it wrongly addresses the benefit that was never claimed. We do not agree. The notice clearly terminates the weekly benefit that the insured was receiving. While it offers as a reason that the legal test for another benefit is not met, that error neither renders the notice of termination less than clear and unequivocal nor breaches the obligation to give reasons. It simply gives a reason which the insured could, in a timely way, contest [italics mine].¹⁸

In Stranges, the Court of Appeal overturned a decision of the Superior Court of Justice where the trial judge held that the appellant insurance company was required to continue paying ongoing weekly benefits until such time as the insurance company issued a proper notice of termination of benefits and a proper DAC assessment was conducted.

The Court held the following:

That same reasoning applies to the facts of this case. The inadequacy of the refusal notice did not entitle the respondent to payment of benefits in perpetuity until proper notice was given or a proper DAC assessment was carried out. The respondent was still required to prove that she was entitled to the continued payment of IRBs because of her continued substantial inability to perform the essential tasks of her employment. Moreover in this case no question of an expired time period arises.

The respondent also argued that because the doctor who performed the DAC assessment was only authorized to assess musculoskeletal, brain and spinal cord impairments and not psychological or psychiatric impairments, the DAC assessment was invalid. The trial judge agreed and found that the process was flawed and the respondent was entitled to continue to receive weekly benefits until a proper DAC assessment was conducted.

... while the DAC process was flawed as a result of this lack of authorization, this procedural flaw did not entitle the respondent to ongoing disability benefits unless she was entitled to those benefits under the statute—i.e., unable to substantially perform the essential tasks of her employment.¹⁹ [italics mine]

Ms. Bisnath argued that Stranges could not be applicable to the case at bar because, amongst other reasons, it dealt with a DAC procedure that was no longer in place. I am not convinced that this renders the decision inapplicable. The principle enunciated in both Turner and Stranges is indeed applicable to this case.

Here, as in Stranges, State Farm committed procedural flaws which ultimately led to the issuance of a notice of termination. Nevertheless, those procedural flaws do not necessarily invalidate an otherwise clear and unequivocal notice of termination. Nor do they entitle Ms. Bisnath to continued and ongoing benefits until a proper notice is given. As stated in Turner, the reasons given for the termination in the OCF-9 need not be legally correct.

Thus I reject Ms. Bisnath’s argument that the OCF-9 was invalid and that State Farm should be required to pay IRBs until a proper notice is given. Ms. Bisnath must still prove disability in order to receive the benefits sought.

The preliminary issue is dismissed.

EXPENSES:

The entitlement to expenses incurred in this preliminary issue hearing shall be determined with the expenses for the arbitration on the merits.

October 27, 2010

Edward Lee Arbitrator

Date

Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2010 ONFSCDRS 125

FSCO A08-000007

BETWEEN:

ANN BISNATH

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. State Farm failed to comply with sections 35, 37 and 42 of the Schedule when terminating Ms. Bisnath's income replacement benefits. Nevertheless, this failure does not automatically entitle Ms. Bisnath (as argued by her counsel) to continuing and ongoing Income Replacement Benefits until a proper termination notice is issued.

2. The preliminary issue is dismissed. This matter shall proceed to a full hearing on the merits.

October 27, 2010

Edward Lee Arbitrator

Date

APPENDIX

Income Replacement, Non-earner or Caregiver Benefits and Housekeeping or Home Maintenance Expenses

35. (1) In this section and section 37,

“specified benefit” means an income replacement benefit, non-earner benefit, caregiver benefit or a payment for housekeeping or home maintenance services under section 22. O. Reg. 546/05, s. 9.

35. (6) An insurer may make a determination that an insured person is not entitled to a specified benefit if,

(a) the insured person failed or refused to submit the completed disability certificate required under subsection (2);

(b) the insurer has received the report of the examination under section 42, if the insurer has required the insured person to be examined under that section;

(c) the insurer is entitled under subsection (10) to refuse to pay the specified benefit; or

(d) the insured person is not entitled to the specified benefit for reasons unrelated to whether the insured person has an impairment that entitles the insured person to the specified benefit. O. Reg. 546/05, s. 9.

35. (8) Within five business days after receiving the report of the examination of the insured person under section 42, the insurer shall give a copy of the report and of the insurer’s determination to the insured person and to the health practitioner who completed the disability certificate submitted with the application. O. Reg. 546/05, s. 9.

36. (9) The insurer shall set out in its determination the specified benefits and expenses the insurer agrees to pay, the specified benefits and expenses the insurer refuses to pay and the reasons for the insurer’s decision. O. Reg. 546/05, s. 9.

Determination of Continuing Entitlement to Specified Benefits

37. (1) If an insurer wishes to determine if an insured person is still entitled to a specified benefit, the insurer,

(a) shall request that the insured person submit within 15 business days a new disability certificate completed as of a date on or after the date of the request; and

(b) may notify the insured person that the insurer requires the insured person to be examined under section 42. O. Reg. 546/05, s. 11.

37. (2) An insurer shall not discontinue paying a specified benefit to an insured person unless,

(a) the insured person fails or refuses to submit a completed disability certificate as required under clause (1) (a);

(b) the insurer has received the report of the examination under section 42, if the insurer required the insured person to be examined under that section;

(c) the insurer is entitled under subsection (7) to refuse to pay the specified benefit;

(d) the insured person has resumed his or her pre-accident employment duties;

(e) the insurer is no longer required to pay the specified benefit by reason of clause 5 (2) (d) or (e), subsection 22 (3) or 33 (2) or section 55 or 56; or

(f) the insured person is not entitled to the specified benefit for a reason unrelated to whether he or she has an impairment that entitles the insured person to receive the specified benefit. O. Reg. 546/05, s. 11.

37. (5) Within five business days after receiving the report of an examination under section 42, the insurer shall give a copy of the report and the insurer’s determination with respect to the specified benefit to the insured person and to the health practitioner who completed the disability certificate. O. Reg. 546/05, s. 11.

38. (6) The determination of the insurer shall specify,

(a) the specified benefits and expenses the insurer agrees to pay;

(b) the specified benefits and expenses the insurer refuses to pay;

(c) the reasons for the insurer’s decision; and

(d) if the insurer determines that the insured person is not entitled to a specified benefit, the date that payment of the benefit will be stopped. O. Reg. 546/05, s. 11.

42. (4) Whenever the insurer requires an insured person to be examined under this section, the insurer shall arrange for the examination at its expense and shall give the insured person a notice setting out,

(a) the reasons for the examination;

(b) the type of examination that will be conducted and whether the attendance of the insured person is required during the examination;

(c) the name of the person or persons who will conduct the examination, the regulated health professions to which they belong and their titles and designations indicating their specialization, if any, in their professions; and

(d) if the attendance of the insured person is required at the examination, the day, time and location of the examination and, if the examination will require more than one day, the same information for the subsequent days. O. Reg. 546/05, s. 21.

42. (10) For the purposes of the examination,

(a) the insured person and the insurer shall, within five business days after the day the notice of the examination under subsection (4) or (7) is received by the insured person, provide to the person or persons conducting the examination all reasonably available information and documents that are relevant or necessary for the review of the insured person’s medical condition; and

(b) if the attendance of the insured person is required at the examination, the insured person shall attend the examination and submit to all reasonable physical, psychological, mental and functional examinations requested by the person or persons conducting the examination. O. Reg. 546/05, s. 21.

42. (3) Subject to subsection (7), each of the following examinations under this section shall be limited to an examination of material provided under subsection (10) in respect of the insured person without requiring the attendance of the insured person:

43. An examination for the purposes of section 37.2 to assist the insurer in determining whether to pay for ancillary goods or services claimed by the insured person.

44. An examination after an application is made under section 38 to assist the insurer in determining if the insured person has an impairment to which a Pre-approved Framework Guideline applies.

45. An examination for the purposes of section 38 to assist the insurer in determining whether to pay for goods or services contemplated by a treatment plan if the goods and services are substantially similar to goods or services the insurer previously refused to pay for when they were included in a previous treatment plan submitted to the insurer on behalf of the insured person in respect of the same accident.

46. An examination for the purposes of section 38.2 relating to an application for approval of an assessment or examination.

47. An examination for the purposes of section 40 that relates only to the issue of whether the insured person has a brain impairment that results in a score of 9 or less on the Glasgow Coma Scale referred to in subclause 2 (1.2) (e) (i). O. Reg. 546/05, s. 21.

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2Ex I-5: OCF-25 of August 8, 2007
3. 3Ex. I-3, tab 31: Initial Psychological Examination
4. 4Ibid at page 12
5. 5Ibid
6. 6Ex. I-2, Tab 7, OCF-9 dated October 11, 2007
7. 7Ex I-6, fax State Farm
8. 8Ex I-3, tab 40
9. 9Ibid at page 13
10. 10Ex I-1, letter from State Farm, November 11, 2008
11. 11Ex I-2, tab 7, OCF-9, November 11, 2008
12. 12Ex I-2, tab 7, OCF-9 November 11, 2008
13. 13(FSCO A08-001142, November 26, 2009)
14. 14(FSCO A00-000433, May 25, 2001)
15. 15(FSCO A01-001561, February 19, 2003)
16. 16[2010 ONCA 457]
17. 172005 CanLII 2551 (ON CA), [2005] O.J. No. 351
18. 18Turner at page 2
19. 19Stranges at page 4 and 5