Edna Klimitz v. Allstate Insurance Company of Canada, 2012 ONFSCDRS 59

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2012 ONFSCDRS 59

FSCO A07-001142

BETWEEN:

EDNA KLIMITZ

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Susan Sapin

Heard: December 9, 2011, at the offices of the Financial Services Commission of Ontario in Toronto. Written submissions were received on August 2, October 26 and November 9, 2011.

Appearances: Jillian Van Allen for Mrs. Klimitz Grant R. Dow for Allstate Insurance Company of Canada

Issues:

The preliminary issue in this arbitration proceeding is whether Mrs. Klimitz is precluded from proceeding to arbitration because she filed her Application for Mediation more than two years after Allstate’s denial of a non-earner benefit, contrary to subsection 281(5) of the Insurance Act and subsection 51(1) of the Schedule.¹

On November 7, 2003, Edna Klimitz, then 68 years old, suffered serious injuries in a pedestrian motor vehicle accident while crossing at an intersection on a green light. She applied for and received certain statutory accident benefits from Allstate Insurance Company of Canada (“Allstate”), payable under the Schedule. Allstate refused to pay a non-earner benefit (NEB) on the grounds that Ms. Klimitz did not meet the statutory test for entitlement. Ms. Klimitz disagreed and applied for mediation, but Allstate took the position that she had missed the time limit for disputing its refusal to pay an NEB. Mrs. Klimitz then applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

Result:

Mrs. Klimitz is precluded from proceeding to arbitration because Allstate’s denial of the non‑earner benefit conformed to the requirments for a valid termination as set out in the jurisprudence.

EVIDENCE AND ANALYSIS:

The preliminary issue proceeded by way of written submissions, affidavit evidence and oral argument.

Sections 281.1 of the Act and 51(1) of the Schedule provide that a mediation proceeding “shall be commenced within two years after the insurer’s refusal to pay the benefit claimed.” The relevant dates are not in dispute. Allstate denied the NEB on May 31, 2004 and Ms. Klimitz’ Application for Mediation is dated July 20, 2006, more than two years later.²

It is well-established law that for the insurer to be able to rely on the two-year time limit, two requirements must be met: the refusal must be clear, unequivocal and include reasons, and the insured person must be informed of his or her right to dispute the insurer’s refusal to pay benefits. As I have pointed out previously,³ failure to meet either test, i.e. the refusal is not clear or unequivocal, or the insurer failed to explain the insured’s right to dispute as set out in Smith and Co-Operators General Insurance Company,⁴ is sufficient grounds to invalidate the refusal. The onus is on the insurer to demonstrate that its refusal met these requirements. While not being held to a standard of perfection, the insurer is nevertheless required to tell an unsophisticated person in a simple and easy to understand written form that the insurer will not pay certain benefits and why it has decided not to pay.⁵

In this case, Allstate’s refusal, in the form of an Explanation of Benefits Payable by Insurance Company (OCF-9), meets the two-fold test in Smith, above, as the refusal is clear and unequivocal and adequately explains Ms. Klimitz’ right to dispute the refusal and the process for doing so.

Mrs. Klimitz challenges the validity of Allstate’s May 31, 2004 OCF-9 on two other grounds: one, Allstate did not provide her with a copy of its insurer’s medical assessment (IE) on which it based its refusal to pay NEBs as required under 42 of the Schedule; and two, Allstate failed to comply with the refusal or stoppage provisions under section 37. I do not agree that Allstate’s failure to include the IE with its OCF-9 renders its refusal any less clear or unequivocal, or that the consequence should be that the two-year time limit does not begin to run.

I further find that Allstate complied with the requirements of section 37, and, even if it did not, the consequence is neither a deemed entitlement to benefits nor does it vitiate the two-year time limit.

Section 42 Argument

Allstate sent a letter dated May 31, 2004 to Barry Goldman, Ms. Klimitz’ solicitor, copied to Ms. Klimitz. The letter purported to enclose the neurological IE report of Dr. Garry Moddel, on which Allstate based its refusal to pay benefits, “in accordance with section 42 of the Statutory Accident Benefits Schedule.”⁶

Under subsection 42(7) of the Schedule, as it read at the time of Ms. Klimitz’ accident, the prompt provision of an IE report was mandatory: “An insurer that receives a report under subsection (6) shall provide the insured person with a copy of the report within five business days.”⁷

In her affidavit Ms. Klimitz states she received only a carbon copy of the letter together with the (OCF-9), also dated May 31, 2004, denying the NEB. Dr. Moddel’s report was not enclosed. Nor did Ms. Klimitz receive the addendum Dr. Moddel prepared two weeks after his report, in which he declined to change his opinion after reviewing additional information sent to him subsequently.⁸ A letter from Ms. Van Allen states that “There is no corresponding letter in Mr. Goldman’s correspondence brad from 2004,” and that Mr. Goldman advised that the first time he received a copy of Dr. Moddel’s report was when he received Ms. Klimitz’ accident benefits file from Allstate under cover of July 18, 2006.

Allstate does not dispute that Dr. Moddel’s report was not attached to the original May 31, 2004 letter it sent to Mr. Goldman. Nor does Allstate dispute that it bears the onus of establishing that the IE report was provided to Ms. Klimitz. Rather, Allstate submits two arguments to support its claim that it should nevertheless be entitled to rely on the two-year time limit. The first is that neither Ms. Klimitz nor her counsel took any steps to follow up on the alleged omission of Dr. Moddel’s report, and that I should infer from this that Ms. Klimitz chose not to dispute Allstate’s denial of NEBs, whether or not she or Mr. Goldman received the report. The second argument is that even if Allstate failed to provide Dr. Moddel’s report, it does not matter, because the reasons for refusal set out in the OCF-9 are clear and unequivocal, and the explanation of the dispute resolution process outlined therein are sufficient to satisfy the criteria for a valid refusal as set out in the jurisprudence.

I accept the uncontradicted affidavit evidence of Ms. Klimitz and Ms. Van Allen’s letter, and find that Allstate has not established that it provided a copy of Dr. Moddel’s report to Ms. Klimitz or her solicitor. Furthermore, I do not find the lack of follow up by Ms. Klimitz or her solicitor to be grounds enough to infer that either Mr. Goldman or Ms. Klimitz actually received the report, or, if they did, that they simply chose not to dispute the refusal of benefits contained in the OCF-9.

However, I find the explanation for the refusal provided in the OCF-9 is nevertheless clear, unequivocal, and delivered in a language an unsophisticated person could understand. It reads as follows:

A recent insurer’s neurological evaluation and a previous insurer’s orthopaedic evaluation have determined that you do not suffer from a complete inability to carry on a normal life due to any impairment sustined [sic] in the accident of November 7, 2003. Therefore you do not qualify for a Non-Earner Benefit.

Allstate failed to comply with s. 37 when it did not provide Ms. Klimitz with Dr. Modell’s orthopaedic IE report within five business days. It does not follow, however, that the consequence of this failure, in this particular case, should be to relieve Ms. Klimitz of her obligation to comply with the two-year time limit to apply for mediation. Allstate’s failure to provide the report does not detract from the clarity and certainty of its refusal. Although I suppose one could argue that the refusal, without Dr. Moddel’s report, did not fully comply with the requirement for Allstate to provide “reasons” under s. 37(1)(a), I find such an argument, in this case, amounts to holding the insurer to a standard of perfection which is contrary to the jurisprudence.⁹

Section 37 Arguments

Mrs. Klimitz presented two alternative arguments under section 37. The first is that Allstate`s May 31, 2004 refusal of the NEB was invalid because it was not given either within 14 days after Allstate received her “application for the benefit” (in the form of her December 13, 2003 Disability Certificate), or within 14 days after the expiry of the 26-week waiting period for the NEB on May 7, 2004, under clause 37(1)(a).

The second argument is that although Allstate did not actually pay the benefit within the meaning of clause 37(1)(b), Mrs. Klimitz was entitled to be paid the NEB from May 7, 2004 until May 31, 2004. Consequently, on that basis, under section 37(3), Allstate ought to have sent her a Notice of Stoppage of Weekly Benefits and Request for Assessment (OCF-17), and advised her of her right to be assessed by a Designated Assessment Centre (DAC). As a result of its failure to comply with subsections 37(1), (2) and (3), Allstate should not be able to rely on the two year limitation period.

I do not agree with either of these arguments for the reasons below.

Section 37 Argument Part One: 37(1)(a)

Section 37 deals specifically with procedures insurers must follow when either refusing or stopping weekly (i.e. income replacement, non-earner and caregiver) benefits. It makes a clear distinction between what is required in two different situations: where a benefit has yet to be paid, and where an insurer has already begun paying benefits:

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, the insurer shall give the person notice of its determination, with reasons,

(a) within 14 days after receiving an application for the benefit; or

(b) if the insurer has been paying the benefit to the person, no later than the date the next payment of the benefit is due.

(2) If notice is given under clause (1)(b), the insurer shall specify in the notice a date for stopping the benefit and the insurer may stop payment of the benefit in accordance with this notice.

Subsection 37(3) goes on to state the rules that apply if “. . . notice is given under clause (1)(b) for the reason that the person no longer has a disability that entitles the person to continue to receive the benefit.” (emphasis added.) One of these rules is that the insurer must inform the insured person that she has a right to require a DAC assessment, by giving the insurer written notice and a disability certificate from her health practitioner.¹⁰

I find it clear from a plain reading of clauses (1)(2) and (3) that the rules on which Ms. Klimitz would like to rely would only apply in the event Allstate had actually begun paying her the NEB, which was not the case. The distinction may seem arbitrary but it is not ambiguous. Nor is it absurd. I can only conclude that the legislature intended for different procedural rules to apply, depending on whether a benefit was being paid or had yet to be paid at the time of the insurer’s refusal. This is consistent with one of the objects of the Schedule, which is to provide for streamlined dispute resolution procedures.

Regardless of whether or not Allstate began paying the NEB, the requirement to give notice of refusal within 14 days of the application for the benefit is the same. I agree that Allstate did not comply with this time limit.

I find Mrs. Klimitz applied for the NEB on December 13, 2003, when Dr. Maryniarczyk sent Allstate a Disability Certificate on her behalf, indicating that she met the “complete inability to lead a normal life” test for entitlement to the NEB. Unlike the other weekly benefits, however, there is a waiting period of 26 weeks before the NEB is payable: under clause 12(7)(a), “the insurer is not required to pay a non-earner benefit for the first 26 weeks after the onset of the complete inability to carry on a normal life.”¹¹ Allstate correctly informed Mrs. Klimitz of this on January 22, 2004, when it acknowledged receipt of Dr. Maryniarczyk’s Disability Certificate, and advised Mrs. Klimitz that she was eligible for the NEB, but that the “benefit is not payable during the first 26 weeks of disability and only afterwards if you still suffer a complete inability to carry on a normal life due to injuries sustained in the accident.”¹²

Under the circumstances, given the unique nature of the 26 week NEB waiting period, I find Mrs. Klimitz is deemed to have applied for the benefit upon the expiry of the 26 weeks, or May 7, 2004. Under s. 37(1)(a), then, Allstate ought to have given her its refusal within 14 days, or by May 21, 2004. As Allstate’s denial is dated May 31, 2004, ten days later, it has not complied with s. 37(1)(a).

However, I do not accept Mrs. Klimitz’ argument that it necessarily follows that Allstate’s delayed refusal prevents it from relying on the two-year time limit for mediation. In this case, Allstate began the process of assessing Mrs. Klimitz’ continuing eligibility for the benefit by requesting IEs in a timely manner before the end of the waiting period, as it was entitled to do under s. 35. There was no evidence that Allstate’s ten-day delay in providing the OCF-9 resulted in any prejudice to Mrs. Klimitz. I was not provided with any compelling reason or case law to suggest that an appropriate or necessary consequence of Allstate’s breach of s. 37(1)(a) should be that it is not entitled to rely on the two-year time limit.

Section 37 Argument Part Two: 37(1)(b)(2) and (3)

Mrs. Klimitz submits that Allstate’s refusal of the NEB was also invalid because Allstate failed to send her a Notice of Stoppage of Weekly Benefits and Request for Assessment (OCF-17) under s. 37(2) and did not advise her of her right to be assessed by a Designated Assessment Centre (DAC) under section 37(3). As a result of these failures, the two year time limit should not begin to run.

The difficulty with this argument is that, as noted above, Allstate never paid her an NEB and so s. 37(1)(b) does not apply, and neither do ss. 37(2) and (3) dealing with the right to a Notice of Stoppage and entitlement to a DAC assessment.

To get around this difficulty, Ms. Klimitz submits that the consequence of Allstate’s failure to comply with the 14-day time limit for refusing the benefit is that she should be deemed entitled to be paid the NEB from May 7, 2004 - when the 26 waiting period expired - and May 31, 2004, the date Allstate sent the OCF-9 denial. On that basis, Allstate would be required to comply with ss. 37(1)(b)(2) and (3).

I do not agree that a procedural failure on Allstate’s part should result in deemed entitlement to the NEB without requiring Ms. Klimitz to prove her claim on the merits. There is no wording anywhere in the Schedule that supports an automatic payment of an NEB upon expiry of the 26-week waiting period. I find I am bound by the Court of Appeal decision in Stranges. V. Allstate Insurance Company of Canada, 2010 ONCA 457, where the Court decided exactly that – an inadequacy of a refusal notice does not entitle an insured person to payment of benefits.¹³

EXPENSES:

If the parties are unable to agree on entitlement to or amount of expenses in of this preliminary issue hearing, I will decide for them based upon the written submissions of the parties, provided they are received within 30 days of this decision.

April 13, 2012

Susan Sapin Arbitrator

Date

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2012 ONFSCDRS 59

FSCO A07-001142

BETWEEN:

EDNA KLIMITZ

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

ARBITRATION ORDER

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

Mrs. Klimitz is precluded from proceeding to arbitration because she filed her Application for Mediation more than two years after Allstate’s denial of a non-earner benefit, contrary to subsection 281(5) of the Act and subsection 51(1) of the Schedule.

April 13, 2012

Susan Sapin Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2There is no dispute that the Commission received Mrs. Klimitz’ Application for Mediation on July 20, 2006, (as per letter from John Lobo, Manager, Mediation Services, to Grant Dow, dated March 14, 2011), or that if Allstate’s refusal is valid, Mrs. Klimitz is out of time to dispute it.
3. 3See Mangos and Aviva Canada Inc., (FSCO A06-000847, October 17, 2007), at pg. 6
4. 4Smith and Co-Operators General Insurance Company 2002 SCC 30, [2002] 2 S.C.R. 129, pg. 7
5. 5Turner and State Farm Mutual Insurance Company (FSCO A99-000578, July 24, 2000), pg. 6.
6. 6Preliminary Issue Record of the Applicant, Tab F
7. 7The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended to O. Reg. 313/03.
8. 8Tab G.
9. 9See Mangos and Turner, supra.
10. 10S. 37(3)2
11. 11In this case, for the purpose of determining the preliminary issue before me, I find the date of onset of complete inability, and the beginning of the 26-week waiting period, is the date of the accident.
12. 12Letter and OCF-9 dated January 22, 2004.
13. 13I note that Arbitrator Feldman came to a similar conclusion in Tam and Wawanesa Mutual Insurance Company (FSCO A07-002163, May 20, 2010)