Neutral Citation: 2010 ONFSCDRS 25 FSCO A09-000429

BETWEEN:

Vasso Moschonissios, Applicant

and

Security National Insurance Co./Monnex Insurance Mgmt. Inc., Insurer

DECISION ON PRELIMINARY ISSUES

Before: Jeffrey Rogers Heard: February 8 and 9, 2010 at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Mr. Panos Moschonissios, agent for Mrs. Moschonissios Ms. Pamela A. Brownlee, solicitor for Security National Insurance Co./Monnex Insurance Mgmt. Inc. (“Security National”)

Issues:

The preliminary issues are:

Is Security National precluded from participating in the arbitration because it did not file its Response within the 20-day time period prescribed by Rule 26.1 of the Dispute Resolution Practice Code, or should the time for filing the Response be extended to March 27, 2009, the date on which Security National filed its Response?
Is Mrs. Moschonissios precluded from proceeding to arbitration because her Application for Mediation was filed beyond the two-year limitation period prescribed by section 281.1 of the Insurance Act, R.S.O. 1990, c.I.8, as amended and section 51(1) of the Schedule¹?

Result:

The time for filing the Response is extended to March 27, 2009.
Mrs. Moschonissios is precluded from proceeding to arbitration because her Application for Mediation was filed beyond the two-year limitation period prescribed by section 281.1 of the Act and section 51(1) of the Schedule.

EVIDENCE AND ANALYSIS:

The Applicant, Vasso Moschonissios, was injured in a motor vehicle accident on April 12, 1998. She applied for and received statutory accident benefits from Security National, payable under the Schedule. The parties disagree on whether Mrs. Moschonissios suffered a catastrophic impairment as a result of the accident. They were unable to resolve their dispute through mediation and Mrs. Moschonissios applied for arbitration at the Financial Services Commission of Ontario (the “Commission”) under the Act.

Upon receiving the Application for Arbitration, the Commission notified Security National that March 23, 2009 was the last day for filing a Response, within the 20-day time limit prescribed by Rule 26.1. Security National filed its response on March 27, 2009. Mrs. Moschonissios’ husband represents her in this arbitration. He wrote to the Commission and Security National on April 3, 2009, advising that the Response was not filed on time.

A pre-hearing discussion was held on September 29, 2009. Mr. Moschonissios did not raise the issue of late filing of the Response at the pre-hearing. Security National raised the limitation period issue in its Response and pursued it at the pre-hearing. The pre-hearing Arbitrator established this Preliminary Issue Hearing to address the limitation period issue. At the commencement of the hearing before me, Mr. Moschonissios indicated that he intended to argue that Security National has no standing to pursue the limitation period issue because it had not filed its Response on time. He noted that the letter that the Commission sent to Security National setting out the last date for filing the Response states that “[i]nsurers who are late filing their responses may not have standing to participate in the arbitration process...”²

When Mr. Moschonissios stated his position, counsel for Security National indicated that she was aware of his letter of April 3, 2009, but she was surprised that Mr. Moschonissios was now pursuing a remedy, since the issue was not raised at the pre-hearing. Counsel advised that she was not prepared to address the issue immediately, but she could do so on the second day of the hearing. Mr. Moschonissios argued that the hearing on the limitation issue should be adjourned, because it would not be required if his submission that Security National has no standing were accepted. I ruled that, although a two-step approach might have been adopted at an earlier stage in the process, the quickest and least expensive approach in the present circumstances was to hear both issues at the same time. The Preliminary Issue Hearing therefore proceeded on that basis.

Late Filing of Response

As noted above, the last date for filing the Response was March 23, 2009 but it was filed on March 27, 2009. Security National provided an explanation by way of the Affidavit of Tina Maasland, the current adjuster on this file.³ Ms. Maasland states that David Lawrence, an Alternate Dispute Resolution Representative under her supervision, received notice of the deadline for filing the Response. She states that, through inadvertence caused by a heavy workload, he did not note the deadline. She states that he realized his error on March 25, 2009 and took immediate steps to rectify it. The matter was brought to the attention of Security National’s in-house counsel who forwarded it to current counsel at 4:10 p.m. on March 26, 2009. The record of the Commission shows that the Response was received at 11:27 a.m. on March 27, 2009. There is no reason to doubt that the delay in filing the Response was caused by inadvertence. I accept that it was.

Ms. Maasland states in paragraph 11 of her Affidavit that “the Applicant has suffered no prejudice as a result of the short delay of the Insurer in providing its Response.” Mr. Moschonissios suggested to her in cross-examination that the Applicant does face the prejudice of addressing the issues raised in the Response. She agreed. She also agreed that the Applicant’s delay in filing the Application for Mediation was similarly caused by inadvertence.

Mr. Moschonissios argued that the deadline for filing the Response should be strictly enforced. However, Rule 34.1 gives an Arbitrator wide discretion in these circumstances. It states as follows:

Where a party fails to comply with a time requirement established by these Rules or by order or agreement, or fails to produce documents in compliance with an order or agreement, an arbitrator may:

(a) order a party to pay expenses (including interim expenses), or deny expenses to a party;

(b) exclude a document filed;

(c) impose a new timetable for compliance;

(d) draw an adverse inference against a party; and

(e) make such other order as the arbitrator considers just.

The Rules do not contain a provision that deprives an Insurer of standing where a Response is filed late.

In the decision in Garg and Motor Vehicle Accident Claims Fund⁴, the Arbitrator distilled from Arbitral jurisprudence the following criteria that guide the exercise of discretion under Rule 34.1, where an Insurer files a late Response:

did the Applicant raise a procedural objection in a timely manner?
was the delay unintentional?
did the insurer provide a valid reason for the delay and make full disclosure of the material facts?
does a valid defence on the merits exist? and
will the applicant(s) suffer prejudice that cannot be addressed by either a costs order, an adjournment, or other relief within the jurisdiction of an arbitrator?

I agree that these are the relevant criteria and will apply them here. I am satisfied that the Applicant raised and pursued the objection in a timely manner. The Applicant raised the objection immediately after Security National filed its Response. The Applicant could have pursued the objection at the pre-hearing, but I accept that this was not done because Mr. Moschonissios is not an expert in proceedings before the Commission. There is no evidence of waiver of the objection and the circumstances do not support that inference. In my view, caution should be exercised in drawing such an inference because, where an Insurer files a late Response, there is an onus on the Insurer to seek an exercise of Arbitral discretion in its favour. A clear waiver of the Applicant’s rights should be required in those circumstances.

I do not view the issue as one of standing, as stated in the letter to the insurer and as found in the decision in Lebana and Zurich Insurance Company.⁵ The Rules contain no penalty for late filing of a response. The Rules contain no equivalent to the court process of noting pleadings closed. My view is that the insurer named in an Application for Arbitration has standing to participate in the process, until an Arbitrator orders otherwise.

I am satisfied that the delay in filing the Response was unintentional, that Security National has provided a valid reason for the delay and that it has made full disclosure of the circumstances. My decision on the limitation issue demonstrates that a valid defence on the merits exists.

I am also satisfied that the applicant suffers no prejudice as a result of the four-day delay in filing the Response. The prospect of facing a valid defence does not create prejudice to the Applicant. Logic dictates that prejudice be found only where an Applicant would be faced with a baseless defence. That is why the validity of the defence is one of the criteria to be considered in exercising discretion. If facing a valid defence is viewed as prejudice, an absurd result follows. Discretion would be exercised to exclude Responses that raise valid defences, while baseless defences would be allowed to go forward.

In the circumstances of this case, I exercise my discretion by extending the time for filing the Response to March 27, 2009.

Mr. Moschonissios argued that the Applicant was in the same position with regard to filing the Application for Mediation as Security National was with regard to filing the Response. They had both missed a time limit, through inadvertence. He noted the irony of the situation and submitted that there should be consistency in the result. I appreciate the irony, but there are significant differences between the time limits at issue.

The time for filing the Response is established by the Rules. Its purpose is to expedite the arbitration process. Consistent with that purpose, the 20-day period provided is a short one. The Rules give specific authority to extend the limit. In exercising that authority, an Arbitrator can tailor a remedy that addresses the particular circumstances and maintains the efficiency of the process.

The two-year restriction on filing an Application for Mediation is established by a statutory limitation period. Its purpose is bringing finality to potential exposure with regard to claims on a specific date. The period is relatively long, in keeping with the serious consequences of non-compliance. In [Smith v. Co-operators General Insurance Co.]⁶, the Supreme Court of Canada ruled that an Insurer must inform the insured person of the limitation period in order to preserve its right to rely on it. That obligation prevents the insurer from simply waiting quietly, until time expires. Consistent with the purpose of a limitation period, an Arbitrator has no discretion to extend it.

The Limitation Period

A designation of catastrophic impairment gives an insured person access to enhanced medical and rehabilitation benefits. Section 18 of the Schedule sets a 10-year limit on receiving these benefits, unless catastrophically impaired. Section 19 sets a monetary limit at $100,000. The limit for a person who has suffered a catastrophic impairment is $1,000,000. Section 40 of the Schedule allows a person who sustains an impairment as a result of an accident to apply to the insurer for a determination of whether the impairment is a catastrophic impairment.

In early 2003, Mrs. Moschonissios was concerned that she was approaching the non-catastrophic monetary limit of her entitlement to medical and rehabilitation benefits. She exercised her right under section 40 by delivering an Application for Determination of Catastrophic Impairment, dated February 13, 2003.⁷ Security National’s response on March 4, 2003 was that it did not accept that she had suffered a catastrophic impairment.⁸ Mrs. Moschonissios requested an assessment at a Designated Assessment Centre (“DAC”), pursuant to her right conferred by section 40(3) of the Schedule. The DAC assessment was conducted in May and June 2003. The DAC gave the opinion that Mrs. Moschonissios did not suffer a catastrophic impairment. The DAC rendered that opinion in reports dated July 17, 2003 and September 4, 2003. ⁹

Security National wrote to Mrs. Moschonissios on August 20, 2003. A copy of the DAC report of July 17, 2003 was enclosed with the letter. The letter stated: “[a]s per the report, you do not meet the definition of catastrophic impairment...”¹⁰ Security National initially submitted that it was relying on this letter as a denial. It abandoned that position during the course of the hearing. The letter does not provide details about the dispute resolution process, including the limitation period, as required by the Supreme Court of Canada in its decision in Smith.¹¹

Security National relies on an Explanation of Benefits (OCF-9), dated November 17, 2005, in which it again told the Applicant that is does not accept that she suffered a catastrophic impairment.¹² The Application for Mediation that led to this hearing was filed on July 14, 2008.¹³ Section 281.1 of the Act requires that mediation be commenced “within two years after the insurer’s refusal to pay the benefit claimed.” Section 51(1) of the Schedule repeats that requirement.

Mrs. Moschonissios retained counsel to pursue the issue of her catastrophic impairment, long before the potential expiry of the limitation period. Mr. Christian J. Guerette testified in that capacity at the hearing. His evidence was that his firm was retained in May 2004 and he took carriage of the file in early 2005. He testified that he was called to the bar in 2003 and is experienced in procedures before the Commission. He testified that he sent an Application for Mediation, dated February 9, 2005 and a covering letter dated February 10, 2005¹⁴ to the Commission by ordinary mail. The issue identified for mediation is whether Mrs. Moschonissios suffered a catastrophic impairment.

Mr. Guerette’s evidence was that he received no confirmation from the Commission that the application had been filed. He was aware that it is the practice of the Commission to confirm receipt. He did not send a copy of the Application to Security National. He did not follow up with the Commission to confirm that it had received the Application. When the Applicant inquired about the status of the Application for Mediation, Mr. Guerette provided her with a copy of the Application, under cover of a letter dated December 21, 2005.¹⁵ There is no evidence that the Commission received this Application for Mediation.¹⁶ A claim by Mrs. Moschonissios against Mr. Guerette is pending before the Ontario Superior Court.

April 12, 2008 was 10 years after the accident. On April 11, 2008 Security National sent Mrs. Moschonissios another OCF-9.¹⁷ It states that no further medical and rehabilitation benefits are payable because it was more than 10 years after the accident and she had not been deemed to meet the criteria for catastrophic impairment. It appears that this event prompted Mrs. Moschonissios to enquire further as to the status of her catastrophic impairment designation. By that time, her relationship with Mr. Guerette had broken down.

She wrote to the Commission on May 9, 2008.¹⁸ She enclosed a copy of the Application for Mediation Mr. Guerette had purported to file and asked the Commission to “open this file to process the application...” The Commission responded on June 19, 2008 and July 2, 2008, informing Mrs. Moschonissios that there was no record of a 2005 Application for Mediation and a new application would be required.¹⁹ Mrs. Moschonissios therefore filed the Application that led to this hearing on July 14, 2008.

At the hearing, Mr. Moschonissios argued that the OCF-9 dated November 17, 2005 was only intended to provide the Applicant with further information about her remaining entitlement to medical and rehabilitation benefits, if she did not suffer a catastrophic impairment. He submitted that it was not a clear denial and it did not terminate any benefits. Security National had written to Mrs. Moschonissios on November 1, 2005 telling her that it had paid $75, 926.48 for medical and rehabilitation benefits. The OCF-9 also sets out the amount that had been paid for medical and rehabilitation benefits.

As noted above, Security National delivered another OCF-9, dated April 11, 2008.²⁰ This OCF-9 told Mrs. Moschonissios that she was not entitled to further medical and rehabilitation benefits because it was now more than 10 years since the accident. Mr. Moschonissios submitted that, if there was any valid denial, it was this one. The Application for Mediation was filed within two years of this denial. Mr. Moschonissios also suggested that Security National should have done more to warn the Applicant about the expiry of the limitation period and that, since the Applicant was not to blame for the delay in filing the Application for Mediation, she should not suffer the consequences.

I find that the OCF-9 dated November 17, 2005 was a valid denial of Mrs. Moschonissios’ claim for a catastrophic designation. I find that she did not file an Application for Mediation until July 14, 2008. She is therefore precluded from proceeding to arbitration.

Section 40 of the Schedule sets out the process for resolution of disputes about determinations of catastrophic impairment. The first step is the Application for Determination of Catastrophic Impairment. Security National had three options upon receiving it. It could determine that Mrs. Moschonissios had suffered a catastrophic impairment, determine that she had not suffered a catastrophic impairment or give her notice that she was required to attend a DAC. Security National determined that she had not suffered a catastrophic impairment and gave her notice of that determination. Mrs. Moschonissios then exercised her right to require a DAC. Section 40(4) of the Schedule states that:

[t]he determination by the designated assessment centre is binding on the insured person and the insurer, subject to the determination of a dispute, in accordance with sections 279 to 283 of the Insurance Act...

Although there was no immediate claim for payment of a benefit based on a catastrophic designation, section 40(4) engages all the rules of dispute resolution, including the limitation period of section 281.1

In order to be valid, the denial must be clear. The full reasons for denial contained in the OCF-9 of November 17, 2005 are as follows:

Further to my correspondence of November 1, 2005, I am writing you at this time to notify you of medical and rehabilitation benefits paid. At the time of this letter, Security National has paid the following amount in relation to you[r] claim for medical and rehabilitation benefits:

Medical and Rehabilitation: $77,792.38

Please note that as per the Statutory Accident Benefits Schedule Section 19(1)(a)...The sum of the medical and rehabilitation benefits paid in respect of an insured person shall not exceed, for any one accident, $100,000.00 for a non-catastrophic impairment.

As per the Catastrophic DAC Report dated July 13, 2003, you do not meet the definition of catastrophic impairment...

As per the Catastrophic DAC Report dated July 13, 2003, we will continue to proceed on the basis that you have not sustained a catastrophic impairment as a result of the motor vehicle accident.²¹

I find this to be a clear denial. The information about the monetary limit gives context to the denial. When Security National earlier wrote to Mrs. Moschonissios to give her information on how much had been spent on medical and rehabilitation benefits, it did so in a simple letter. The OCF-9 was different in form and content. It is not likely that Mrs. Moschonissios misconstrued its purpose. Security National unequivocally stated its position on Mrs. Moschonissios’ claim for a catastrophic designation. It was the same position that it had taken earlier and it has never retreated from that position. The OCF-9 of April 11, 2008 informs Mrs. Moschonissios that “[a]s your impairment has not been deemed to meet the criteria for a catastrophic impairment no expenses for Medical or Rehabilitation Benefits will be paid if incurred after April 12, 2008.”²² The clear intent is to close the loop at the end of the 10-year period of eligibility.

In its OCF-9 of November 17, 2005, Security National provided information about the dispute resolution process, including the two-year limitation period. In doing so, it complied with the obligations imposed by Smith.²³ It was not required to do more, as Mr. Moschonissios argued. It was not required to keep track of the limitation period and give further warning as the expiry approached.

There being no evidence that an Application for Mediation was filed before July 14, 2008, I find that no Application was filed before that date. Rule 6 of the Dispute Resolution Practice Code sets out the requirements for filing a document. Rule 6.1(a) provides that the document “must be delivered to the Dispute Resolution Group.” Rules 6.1(b) and (c) provide that the methods of delivery and the time frames for delivery are those established for service of documents in Rule 7. Regular mail is a permitted method of delivery, by operation of Rule 7.1(b). Rule 7.3(b) establishes the time frame for delivery by mail as the fifth day after the post office stamps the mailed documents. There is no evidence that the post office stamped the documents Mr. Guerette claims to have mailed to the Commission. Without that evidence, it cannot be determined that the application he claims to have mailed, was filed.

Security National argued that I should find that Mr. Guerette did not mail an application. Given my interpretation of Rules 6 and 7, it appears unnecessary to do so. If it can be found that an application is filed without proof of stamping by the post office or receipt by the Commission, I find that the evidence supports the inference that Mr. Guerette did not mail an application to the Commission. The most telling factor in that conclusion is that, knowing that he should have received confirmation from the Commission, he failed to follow-up at any time. This inexplicable conduct continued even though Mrs. Moschonissios’ inquiry about the status of her Application should have prompted him to consider why the Commission had not confirmed receiving the application he claimed to have mailed months earlier.

The result is that Mrs. Moschonissios is precluded from proceeding to arbitration because her Application for Mediation was filed beyond the two-year limitation period prescribed by section 281.1 of the Act and section 51(1) of the Schedule.

EXPENSES:

The parties made no submissions on expenses. If they are unable to resolve this issue, 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.

March 5, 2010

Jeffrey Rogers Arbitrator

ARBITRATION ORDER

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

The time for filing the Response is extended to March 27, 2009.
Mrs. Moschonissios is precluded from proceeding to arbitration because her Application for Mediation was filed beyond the two-year limitation period prescribed by section 281.1 of the Act and section 51(1) of the Schedule.
The Application for Arbitration is dismissed.
If they 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.