Cathy Hayes v. State Farm Mutual Automobile Insurance Company, 2012 ONFSCDRS 154

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2012 ONFSCDRS 154

FSCO A10-000968

BETWEEN:

CATHY HAYES

Applicant

and

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Joyce Miller

Heard: Written submissions were received on October 15, 2012

Appearances: Charles Flaherty for Ms. Hayes

Susannah M. Travers for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Cathy Hayes, was injured in a motor vehicle accident on September 13, 2003. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ State Farm denied Ms. Hayes’ claim for a non-earner benefit. The parties were unable to resolve their disputes through mediation, and Ms. Hayes 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 Ms. Hayes precluded from proceeding to arbitration because her application for arbitration was filed beyond the two-year limitation period set out in subsection 281.1(1) of the Insurance Act and subsection 51(1) of the Schedule?

Result:

Ms. Hayes is not precluded from proceeding to arbitration.

EVIDENCE AND ANALYSIS:

On September 13, 2003, Ms. Hayes was involved in a tragic accident. Ms. Hayes sustained numerous serious fractures in this accident. She sustained fractured ribs, fractured C1, C2 fractured C5, C6 spinous processes, fractured right superior and inferior pubic rami, fractured left inferior pubic rami, pulmonary contusion, bilateral pneumothorax, closed head injury, severe right upper extremity injury including vascular compromise of right hand, intra articular T-type distal humerus fracture, fractured right humerus shaft and Grade III segmental right radius and ulna fracture. Ms. Hayes was in a coma for several weeks as a result of the accident.

Ms. Hayes’ youngest daughter, aged 12, was killed in the accident. Her 15 year old daughter was seriously injured and suffered severe facial disfigurement due to the accident.

On October 3, 2003, Ms. Hayes’ husband completed an Application for Accident Benefits and State Farm received it on October 6, 2003. The Application indicated that Ms. Hayes was a primary caregiver². As well it indicated that she was employed and also unemployed.

Significantly, despite the fact that Ms. Hayes could be entitled to more than one weekly benefit, not only did State Farm not pay her any weekly benefit, Ms. Hayes was never presented with the option of making an election pursuant to Subsection 61(2) of the Schedule.

State Farm’s adjuster’s notes indicate that a weekly benefit may be owing. The following notes state:

On October 3, 2003, the adjustor’s notes state: “she appears to have been the primary caregiver for the children ages 13, 15, 16.”
On November 25, 2003, the adjuster's notes state: “Non-earner may be an issue later.”
On February 5, 2005, the adjuster's notes state: “… it’s more than likely going to cost a lot to rehabilitate … possibility of CAT for arm.”

Despite the fact that Ms. Hayes’ Application for Accident benefits was not received by State Farm until October 6, 2003, beginning from October 3, 2003 to October 13, 2005, on an almost weekly basis, State Farm sent Ms. Hayes 28 OCF-9 notices.

The first 13 notices from October 3, 2003 to January 5, 2004 stated as follows:

Based on the information provided you do not meet the definition of non-earner in accordance with Section 2(4) of the Statutory Accident Benefits Schedule. At this time you do not qualify for this benefit no amount is payable. The benefit will be reassessed in 26 weeks. Based on the information provided you are not the primary caregiver of any individual in need of care, as such you are not eligible for this benefit and no amount is payable. If the situation should be otherwise, please advise. [Emphasis added]

Significantly, the OCF-9’s do not indicate what information State Farm has from which it concludes that she is not entitled to a weekly benefit.

On March 3, 2004, Ms. Hayes underwent an Occupational Therapy Insurer’s Examination. In her report of March 4, 2004, the therapist, Beverley Cott, indicated that Ms. Hayes’ right hand remains primarily dysfunctional, and that Ms. Hayes has difficulty with word finding and memory. Ms. Cott recommended ongoing housekeeping assistance and that Ms. Hayes be followed by Occupational Therapy in approximately eight weeks.

Although the OCF-9 that State Farm sent to Ms. Hayes on January 5, 2004, as all the other OCF-9’s stated, she would be reassessed in 26 weeks regarding her non-earner benefit, no such assessment was undertaken.

In fact six months after the accident, when non-earner benefits would be available, State Farm does not request a disability certificate from Ms. Hayes. Moreover, there is no evidence that the information in the file was reassessed as it related to the non-earner benefits.

Approximately, six months after the accident, on March 16, 2004, State Farm began sending Ms. Hayes 15 more OCF-9’s on a regular basis wherein it stated:

Based on the information provided you do not meet the definition of non-earner in accordance with Section 2(4) of the Statutory Accident Benefits Schedule. At this time you do not qualify for this benefit no amount is payable. Based on the information provided you are not the primary caregiver of any individual in need of care, as such you are not eligible for this benefit and no amount is payable. If the situation should be otherwise, please advise. [Emphasis added]

Basically this new OCF-9 was the same as the previous 13 OCF-9’s except that the sentence “The benefit will be reassessed in 26 weeks” was removed.

Although State Farm did have information that Ms. Hayes would require further surgeries, that she did undergo emergency surgery in respect of her arm, that she continued to have physical limitations and cognitive and emotional problems, again no information was provided to Ms. Hayes on what basis the non-earner benefit is being denied.

The OCF-9’s continued to be sent to Ms. Hayes until October 13, 2005. By letter of November 26, 2006, State Farm advised Ms. Hayes that her file was closed. However, it was reopened in January 2007 when Ms. Hayes wrote to State Farm enclosing expenses and advising that she would be having further surgery in February 2007.

On April 2007 the file was closed again and then reopened in July 2007 to adjust further expenses related to transportation and to attend treatment at hospital and psychologist.

The file was closed again on December 20, 2007 and reopened in April 2008. The adjuster's log notes reveal that Ms. Hayes contacted State Farm, from the hospital advising she was in for further surgery as the bone in her arm continued to not heal and was currently badly infected.

In December 2008, Ms. Hayes retained a lawyer who wrote to State Farm on December 5, 2008 wherein he stated in part:

As you may or may not know, Cathy continues to suffer from considerable disability. At the present time her fractures have not healed. She has had multiple surgeries and it would appear that her non-union fracture has resulted in a very guarded prognosis.

In addition, she has developed a very significant bone infection which has altered her life considerably.

Would you be kind enough to provide me with a full copy of the accident benefits file at this time, together with a breakdown of all payments made to Cathy for accident benefits to date.

The file was provided to counsel on December 24, 2008.

On February 20, 2009, Ms. Hayes counsel wrote to State Farm requesting a non-earner benefit from the 26-week mark to date in the amount of $52,170. In his letter he stated:

We are making this request, based on medicals in the file which suggest that Ms. Hayes suffered multiple significant fractures and a small bleed on the brain. She has had ongoing issues with respect to the repair of the fractures and she essentially has had very little to no use of one arm since the date of the accident. She has also required significant psychological treatment as a result of this accident. There is documentation of a base skull fracture and closed head injury which have resulted in cognitive impairments. The original neuropsychological examination done between September and December, 2005 could not rule out a possible brain injury. It was recommended that a further neuropsychological examination be done in eighteen months. This never happened and you just recently denied the neuropsychological assessment proposed by Dr. Fluton.

Ms. Hayes was representing herself with respect to her accident benefits claim and I would have thought that you [would] have either requested an updated Disability Certificate, or addressed the issue of non-earner benefits at the twenty-six week mark. Ms Hayes should not be penalized for your failure to do so.

On February 21, 2009 State Farm responded with an OCF-9 which stated:

NON-EARNER BENEFITS -We have reviewed the additional documentation you have submitted dated 2/20/09 State Farm's position with regard to this benefit remain unchanged.

THE LAW

Section 281.1(1) of the Insurance Act provides:

A mediation proceeding or evaluation under section 280 or 280.1 or evaluation under section 280 or 280.1 or a court proceeding or arbitration under section 281 shall be commenced within two years after the insurer’s refusal to pay the benefit claimed.

Section 51(1) of the Schedule provides:

A mediation proceeding or evaluation under section 280 or 280.1 of the Insurance Act or a court proceeding or arbitration under clause 281(1)(a) or (b) of the Act in respect of a benefit under this Regulation shall be commenced within two years after the insurer’s refusal to pay the amount claimed.

Arbitrator Muzzi, in the case of Mohammed-Amin and RBC General Insurance Co.³, set out the well-established rules relevant to determining the validity of the insurer’s refusal to pay.

It is well established that arbitrators do not have the discretion to extend the time limits for commencing mediation and arbitration proceedings that are prescribed in the Insurance Act. However, it is also recognized that the limitation period defense must be strictly construed because the result is to deny an applicant the opportunity to have his or her claim adjudicated. Section 51 of the Schedule requires that a mediation proceeding be commenced within two years after the insurer’s refusal to pay the amount claimed. As an arbitrator does not have the discretion to extend the time limits, cases like this one are generally decided on the basis of the validity of the refusal. If the insurer’s refusal is not valid, the limitation period does not begin to run. The following are the well-established principles relevant to determining the validity of the insurer’s refusal to pay in this case:

the insurer’s refusal itself must be in writing and must be clear and unequivocal notice of the insurer’s refusal to pay the benefits in issue;
the refusal must provide sufficient or complete reasons for the refusal to pay;
a proper refusal must also inform the insured of the dispute resolution process; and
ongoing negotiations or requests for further information between an insured and the insurer do not extend the time limits for disputing an otherwise clear and unequivocal refusal.

ANALYSIS AND FINDINGS

The burden of proof rests with State Farm that on a balance of probabilities that it provided Ms. Hayes with a “clear and unequivocal” denial of her claim for benefits. For the following reasons, I find that State Farm has failed in its burden of proof.

What is very clear from the evidence is that Ms. Hayes had a horrific accident. Not only was her youngest daughter killed, and her middle daughter badly injured, Ms. Hayes had suffered serious physical, cognitive and emotional injuries as a result of her accident, including the loss of use of her right arm and numerous surgeries. State Farm was fully aware of these facts.

It is also very clear from the evidence that State Farm was fully aware of the fact that Ms. Hayes did not have the assistance of counsel when making her claim for benefits. Despite the fact that the adjuster’s notes indicated she would be entitled to a weekly benefit of either caregiver benefits or a non-earner benefit,⁴ even before she had submitted her application for benefits, State Farm began on October 3, 2003, denying her claim for weekly benefits. Moreover, when denying Ms. Hayes’ claim for weekly benefits, State Farm failed in its 28 OCF’s to explain to Ms. Hayes the basis on which it was allegedly denying her claim.

In the case of Turner and State Farm Mutual Automobile Insurance Company⁵, the Divisional Court, in a judicial review of whether the Applicant had been provided with clear and unequivocal notice of termination of her benefits, the Court held that for a termination to be clear and unequivocal, it must provide a basis for its termination. The Court stated:

The only reasonable interpretation of the provision would be for the insurer to provide to the claimant the real basis upon which the insurer was refusing to pay benefits. It is only by knowing the basis for the refusal that the claimant can make an informed decision whether or not to take further steps. [Emphasis added]

Along with failing to provide Ms. Hayes with an informed “real basis” for its denial, on the face of it the alleged denial was ambiguous.

The OCF-9 stated: “At this time you do not qualify for this benefit.” I find as a fact that one cannot say that a reasonable lay person, let alone a cognitively impaired Applicant, would readily read this sentence as a final determination of their claim for a weekly benefit, especially when the insurer was continually sending her the same notice, 28 times, on a regular basis. If in fact it was State Farm’s intention to definitely deny Ms. Hayes her claim for benefits, one must ask why it would need to let her know this 28 times. [Emphasis added]

It is important to note that when sending out its alleged denial of her claim State Farm was fully aware it was dealing with an unrepresented, unsophisticated Applicant with cognitive problems and serious orthopaedic and psychological injuries. Therefore if it was to be a final determination of her claim for weekly benefits, State Farm had a duty to make sure that the explanation was clear and unequivocal.

Significantly, in its February 21, 2009 OCF-9, State Farm stated that “its position had not changed.” However, it failed to provide any specific date where it had previously clearly and unequivocally denied Ms. Hayes’ claim. In fact the OCF-9 of February 21, 2009 like its previous ambiguous 28 OCF-9’s was neither clear nor unequivocal in its denial.

CONCLUSION

In Summary, at the time State Farm received Ms. Hayes’ Application for Accident Benefits on October 6, 2003, State Farm was clearly aware of the following facts: Ms. Hayes was involved in a serious and very tragic accident where her youngest daughter was killed and her middle daughter was severely injured; Ms. Hayes herself suffered serious physical, cognitive, emotional injuries; that according to the adjuster’s notes State Farm had opined that Ms. Hayes may be entitled to caregiver benefits, non-earner benefits or a CAT designation; and most importantly that Ms. Hayes did not have the benefit of legal counsel to assist her with her accident benefits claim.

In light of these facts, State Farm owed a duty to Ms. Hayes to properly assess her case and provide her with a clear and unequivocal informed real basis on which State Farm was allegedly denying her benefits. State Farm did not do so.

I find that it is reasonable to conclude that the 28 OCF-9’s, with the phrase “at this time,” lulled Ms. Hayes, who was unrepresented, into a false sense of security that there was no final denial of her claim for the benefit and that at some point she may be eligible for the benefit.

Accordingly, for all these reasons, I find that the 28 OCF-9’s, including the OCF-9 dated February 21, 2009, were neither clear nor unequivocal in its alleged denial of Ms. Hayes claim for a non-earner benefit.

Accordingly, I find that pursuant to section 281.1 (1) of the Insurance Act and section 51(1) of the Schedule, Ms. Hayes is not barred from proceeding to arbitration on her claim for accident benefits.

EXPENSES:

If the parties cannot agree on the issue of expenses, I may be spoken to on this issue within 30 days of this decision.

November 26, 2012

Joyce Miller

Arbitrator

Date