Thiruvarul Ponnampalam v. State Farm Mutual Automobile Insurance Company, 2013 ONFSCDRS 160

Financial Services Commission of Ontario

Neutral Citation: 2013 ONFSCDRS 160

Appeal P12-00031C

OFFICE OF THE DIRECTOR OF ARBITRATIONS

THIRUVARUL PONNAMPALAM Cross-Appellant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Cross-Respondent

BEFORE: Delegate Lawrence Blackman

REPRESENTATIVES: Mr. Sugunaraj Kanaga for the Cross-Appellant, Mr. Thiruvarul Ponnampalam Mr. Todd J. McCarthy for the Cross-Respondent, State Farm Mutual Automobile Insurance Company

HEARING DATE: October 7, 2013. Additional written submissions received November 1, 2013.

APPEAL ORDER

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

1. This cross-appeal is allowed. Paragraph 1 of the Arbitrator’s July 25, 2012 order is varied to read that State Farm Mutual Automobile Insurance Company did not provide Mr. Ponnampalam with a clear and unequivocal refusal to pay income replacement benefits. Accordingly, the limitation period never began to run. Mr. Ponnampalam may, therefore, proceed to arbitration regarding income replacement benefits.

2. If the parties are unable to agree on the legal expenses of the appeal and cross-appeal, an expense hearing shall be requested, as set out below, within sixty days of the date of this decision.

December 11, 2013

Lawrence Blackman Director’s Delegate

Date

REASONS FOR DECISION

I. BACKGROUND AND NATURE OF THE CROSS-APPEAL

The Cross-Appellant, Mr. Thiruvarul Ponnampalam, was injured in a February 5, 2007 motor vehicle accident. His first party automobile insurer, the Cross-Respondent State Farm Mutual Automobile Insurance Company (“State Farm”), denied payment of his February 27, 2008 treatment plan on May 6, 2008. State Farm terminated Mr. Ponnampalam’s income replacement benefits (“IRBs”) on September 12, 2008, effective September 19, 2008.

In her July 25, 2012 preliminary issue decision, Arbitrator Miller (the “Arbitrator”) held that Mr. Ponnampalam’s treatment plan claim was barred by the two-year limitation period under the Insurance Act, R.S.O. 1990, c. I.8, reiterated in subsection 51(1) of the Schedule.¹

The Arbitrator found that Mr. Ponnampalam was not barred from proceeding to arbitration on his IRB claim as his Application for Mediation, date-stamped as received by the Commission on September 14, 2010, was filed within two years of the September 19, 2008 date IRBs ended.

In the alternative, the Arbitrator found that in advising Mr. Ponnampalam on September 12, 2008 that his benefits were terminated effective September 19, 2008, State Farm had not provided a clear and unequivocal termination date.

State Farm appealed the Arbitrator’s decision that Mr. Ponnampalam’s IRB claim was not statute barred. On September 20, 2012, I exercised my discretion under Rules 50.2 and 51.2(c) of the Dispute Resolution Practice Code (Fourth Edition, Updated August 2011) (the “Code”) to accept State Farm’s appeal from the Arbitrator’s preliminary arbitration decision.

My May 13, 2013 decision allowed State Farm’s appeal of the Arbitrator’s decision, subject to the final determination of Mr. Ponnampalam’s March 13, 2013 cross-appeal.

I found that the Arbitrator had erred in finding that the limitation period was triggered on the date IRB payments ended. Rather, subsection 281.1(1) of the Insurance Act provides that proceedings “shall be commenced within two years after the insurer’s refusal to pay the benefit claimed.” I further found that the Arbitrator erred in finding that the limitation period was not triggered because State Farm did not provide Mr. Ponnampalam with a clear and unequivocal termination date. Rather, it was the refusal that was to be clear and unequivocal.

My May 13, 2013 decision allowed Mr. Ponnampalam’s cross-appeal to proceed, extending the time for the cross-appeal to be brought. I limited the cross-appeal to whether State Farm had provided a clear and unequivocal refusal to pay IRBs, an issue I found the Arbitrator had failed to determine. I rejected Mr. Ponnampalam’s two other grounds of his cross-appeal, that Rules 7.4 and 8.1 of the Code extended the two-year limitation period and that either he had not received a completed OCF-9 (Explanation of Benefits) or that two different versions were provided.

Mr. Ponnampalam does not appeal the Arbitrator’s decision that his February 27, 2008 treatment plan claim is statute barred by the limitation period.

II. ANALYSIS

In his further cross-appeal submissions, Mr. Ponnampalam argues:

1. The September 12, 2008 OCF-9 was merely an abstract notice of IRB termination. The Arbitrator was correct that September 19, 2008 was the date State Farm actually refused to pay IRBs as it was the last day IRBs were received. Hence, the Application for Mediation, filed September 14, 2010, was received just within the two-year limitation period. The Arbitrator was further correct that State Farm did not provide a clear and unequivocal termination date. That the Arbitrator’s decision differs from the appeal decision shows a lack of consensus in the case law.

I reject this ground of cross appeal. Mr. Ponnampalam’s submissions that the limitation period ran from the final date of payment and that the termination date was not clear and unequivocal were addressed in my May 13, 2013 decision in which I declined to exercise my discretion to extend the time for the Respondent to advance these grounds of cross-appeal. The remedy for a disagreement with that appeal decision is judicial review before the Divisional Court.

2. Mr. Ponnampalam argues that he submitted a rebuttal medical report to State Farm within the requisite 40 business days under paragraph 42.1(3)(4) of the Schedule. The rebuttal report stated that he had ongoing chest and back pain requiring further medical care that prevented his return to work. As it was possible the rebuttal report might alter State Farm’s IRB denial, its prior refusal in September was neither unequivocal nor absolute.

Mr. Ponnampalam relies on Do and Guarantee Company of North America, (FSCO A11-000718, November 6, 2012), where Arbitrator Alves held:

Since it is called a rebuttal assessment, it is at least implicit that the insurer would consider the rebuttal assessment and defer its final determination if he chose to exercise that right … I agree with the submission of counsel for the Applicant that such a determination is equivocal, and it is only after the insurer provides its “final” determination that the limitation period could begin to run.

State Farm submits that an insurer always has the good faith duty to consider new information whenever supplied. However, the provision of new information cannot extend the limitation period so as to negate the effect of a prior valid and unequivocal notice of refusal.

In Guarantee Company of North America and Do, (FSCO P12-00037, October 11, 2013), I found that the arbitrator had erred in holding, as a general precept, that an insurer’s refusal would be final and unequivocal, triggering the limitation period, only after it confirmed upon receiving and considering a section 42.1 rebuttal report its prior clear and unequivocal refusal. Unlike the prior designated assessment centre process that was found to delay the limitation period running, subsection 42.1(10) of this Schedule provides that an insurer is “not required as a result of receiving the report of the assessment or examination to allow any application or pay any benefit that it otherwise would not have allowed or paid.”

I provided the parties an opportunity to provide submissions regarding the Do appeal decision. The Appellant reiterated his arguments that the limitation period should run from the date IRBs actually ended, addressed above, and that State Farm’s refusal was not clear and unequivocal, which is addressed below.

In Do, I followed Zeppieri and Royal Insurance Company of Canada, (OIC A-005237, February 17, 1994), upheld on appeal, (OIC P-005237, December 22, 1994):

The fact that an insurance company reconsiders a prior decision to terminate benefits (as it must do) does not mean that a refusal of benefits only can take place at the completion of that process. To interpret the language of s. 281(5) [the then limitation provision] in this manner would largely deprive it of meaning.

Accordingly, I also reject this ground of cross-appeal that delivery of a rebuttal report, as a general precept, extends the limitation period.

3. Mr. Ponnampalam submits that State Farm’s September 12, 2008 OCF-9 failed to note what would happen if it received a rebuttal report within the requisite 40 business days. When it received his November 6, 2008 OCF-3 (Disability Report), State Farm did not deny this was a rebuttal report. There was, therefore, no reason for him to apply for mediation if it was possible State Farm might change its mind based on the report. Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, states, in the case before it:

… There is an equivocal sense of indeterminacy in the decision of the insurer giving the reader the impression that the insurer may very well change its stance if it is contacted for a discussion of the matter.

Mr. Ponnampalam argues that State Farm’s September 12, 2008 OCF-9, Explanation of Benefits, is indeterminate. It implies that its refusal and the dispute are conditional on the rebuttal examination. Thus, he submits, there is neither a clear nor straightforward refusal directed toward an unsophisticated person, as required by Smith.

State Farm argues that when the Arbitrator stated that it “is clear both from the OCF 9 and the insurer’s submission that Mr. Ponnampalam’s income replacement benefit was terminated effective September 19, 2008,” she was saying, expressly or by inference, that it was equally clear there was no other defect in the OCF-9. State Farm submits that an appellate officer cannot interfere with such a finding of fact. As held in FL Receivables Trust 2002-A v. Cobrand Foods Ltd., 2007 ONCA 425 and in Avco Financial Services Realty Ltd. v. Lagace, 5 C.P.C. (2d) 40, deference is required of the Arbitrator’s decision. This is so even if the entire arbitration record is in writing, providing an arbitrator little advantage over an appellate officer in determining an issue.

State Farm submits that a trier of fact is not required to cite every reason for his or her decision.

As its OCF-9 was not otherwise criticized by the Arbitrator, the form should not be critiqued on appeal. It would be improper for an appellate officer to reverse the Arbitrator’s findings of fact and engage in his or her own fact-finding exercise. Accordingly, my May 13, 2003 finding that the Arbitrator did not make a finding whether State Farm had clearly and unequivocally refused to pay IRBs should be reversed.

Part 2, section B, of State Farm’s September 12, 2008 OCF-9 is entitled “Not Eligible/Stoppage of Benefit.” Part 2(B) states in full:

Income replacement benefits has [sic] been enclosed from Sept 11-19, 2008 $400. You have the right to a rebuttal examination. You have 40 business days to provide a rebuttal examination. If this exam is provided within the 40 business day timeline, benefits will not be reinstated pending receipt of the rebuttal examination. Once this exam is received, if the results are contrary to the original Independent Medical Assessment report, we will have the original IE examiner review the report for consideration. If your rebuttal report is not received within the 40 business day timeline, and you wish to further dispute the matter, you may apply for mediation within 2 years from the date of this notice. [emphasis added]

The Arbitrator noted State Farm’s words in Part 2(B) of its OCF-9 “you may apply for mediation within two-years of the date of this notice.” She did not note that those words were prefaced by the condition “if your rebuttal report is not received within the 40 business day timeline, and you wish to further dispute the matter.” State Farm submits that the Arbitrator is entitled to deference in choosing which words to cite.

Arbitrator Naylor held in Zeppieri:

The refusal relied on must be clear and unequivocal, and must be communicated to the applicant. Section 24(8) of the regulations indicates that the notice must be in writing, and provide reasons for the refusal. The onus is on the insurer to establish that an applicant has received the proper notice. . . . In my view, a two-step process must determine whether the limitation period applies in the circumstances of this case. First, it is necessary to ask whether, and when, there was a refusal to pay benefits; and second, whether the insurer may rely on a limitation period that runs from the date of the refusal. [Emphasis added]

This test has been subsequently followed, including in Turner and State Farm Mutual Automobile Insurance Company, (FSCO P00-00046, February 1, 2002).² In Turner, the Ontario Court of Appeal held, ”In our view, the reasons of the Director’s Delegate read as a whole make clear that she applied the proper legal test of “clear and unequivocal.”

The Supreme Court of Canada, in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, stated:

In our view, it is settled law that the determination of whether or not the standard of care was met by the defendant involves the application of a legal standard to a set of facts, a question of mixed fact and law. This question is subject to a standard of palpable and overriding error unless it is clear that the trial judge made some extricable error in principle with respect to the characterization of the standard or its application, in which case the error may amount to an error of law.

Baker v. Canada (Minister of Citizenship and Immigration), 1999 CanLII 699 (SCC), [1999] 2 S.C.R. 817, held, as set out in the headnote:

It is now appropriate to recognize that, in certain circumstances, including when the decision has important significance for the individual, or when there is a statutory right of appeal, the duty of procedural fairness will require a written explanation for a decision. Reasons are required here given the profound importance of this decision to those affected.

Mr. Ponnampalam claims weekly benefits. There is a statutory right of appeal from the Arbitrator’s decision under section 283 of the Insurance Act. IRBs are of important significance to the individual. Procedural fairness requires a written explanation for the decision.

R. v. Walker, 2008 SCC 34, citing R. v. Sheppard, 2002 SCC 26, held:

Sheppard holds that “[t]he appellate court is not given the power to intervene simply because it thinks the trial court did a poor job of expressing itself” … Reasons are sufficient if they are responsive to the case’s live issues and the parties’ key arguments. Their sufficiency should be measured not in the abstract, but as they respond to the substance of what was in issue. The “trial judge’s duty is satisfied by reasons which are sufficient to serve the purpose for which the duty is imposed, i.e., a decision which, having regard to the particular circumstances of the case, is reasonably intelligible to the parties and provides the basis for meaningful appellate review of the correctness of the trial judge's decision” … The duty to give reasons “should be given a functional and purposeful interpretation” and the failure to live up to the duty does not provide “a free-standing right of appeal” or “in itself confe[r] entitlement to appellate intervention” (para. 53).

While the Latin maxim is qui tacet, consetire videtur, or he who is silent is supposed to consent, that is not the standard for providing adjudicative reasons. Rather, Pastore v. Aviva Canada Inc., 2012 ONCA 642 discusses the importance of decisions being transparent and intelligible in their reasoning process.

Zeppieri required that the Arbitrator decide as a first step, in part, whether State Farm had met its onus in establishing that its September 12, 2008 OCF-9 communicated to Mr. Ponnampalam its clear and unequivocal refusal to pay IRBs. The Arbitrator did not answer that live issue, notwithstanding setting out that test on page three of her decision. Her decision does not provide the basis for meaningful appellate review of its correctness. Nor can it be reasonably intelligible to the parties when it leads to the following double negative, at paragraph 2 of State Farm’s September 10, 2013 written submissions, that the Arbitrator:

… did not find as a fact that there was not a clear and unequivocal refusal to terminate benefits by way of an OCF-9 dated September 12, 2008.” [Emphasis added]

I am not persuaded that the failure to answer a live issue or to provide reasons for what is argued to be an implied finding is simply a matter of arbitral discretion. I am persuaded that the Arbitrator’s failure to answer the first step of the two-part Zeppieri test was, as set out in Baker, an “extricable error in principle with respect to the characterization of the standard or its application,” amounting to an error of law.

Again, in any event, the onus was not on the insured to establish that there was not a clear and unequivocal refusal to pay benefits. The onus was on State Farm to positively establish that it communicated to Mr. Ponnampalam its clear and unequivocal refusal to pay IRBs

State Farm argues, in the alternative, that one must look at the entire OCF-9:

(a) Part 2(B) of the September 12, 2008 OCF-9 specifically warned “you may apply for mediation within two years from the date of this notice.”

(b) Any lack of clarity in Part 2(B) was remedied by Part 6 of the OCF-9 which provided the information mandated by Smith, including the warning: “You have TWO YEARS from the date of the insurer’s refusal to pay, or reduction of a benefit, to arbitrate or commence a lawsuit in court.”

(c) Part 2(A) of the OCF-9 that stated “… you do not suffer a substantial inability to return to work. As such, no further income replacement benefits will be paid 5 business days past the date of this notice (Sept. 19, 2008). Final”

State Farm concedes, in its oral submissions, that the Arbitrator did not address the rebuttal report in her decision. It states that if a proper remedy is to send the matter back to be reheard, as the Arbitrator has retired from the Commission and the arbitration was determined on the basis of written, not oral, evidence, an appellate officer is in just as good a position as a new arbitrator to rule on whether the OCF-9, as a whole, provided a clear and unequivocal refusal. I agree, and in the interests of expeditiousness, as proffered by State Farm, I am prepared to decide this issue.

State Farm concedes that there is no question it has the onus of establishing its limitation defence. It submits it “was clear and unequivocal from an overall review of the OCF-9 that the rebuttal examination process if initiated could not extend the two year clock.”

Part 2 of the OCF-9 is divided into two parts. Part 2(A) is entitled “Eligible.” Part 2(B) is entitled “Not Eligible/Stoppage of Benefit.” Adjacent to Part 2(A) is a subsection entitled “Details of how we calculated your income replacement benefit including adjustments for income or payments from other sources.” In that subsection, State Farm has typed that no further IRBs will be paid five business days past the date of this notice, followed by the word “Final.”

State Farm submits that Part 2(B) itself provided Mr. Ponnampalam with two scenarios. The first was that if Mr. Ponnampalam provided a rebuttal report within the requisite period, his benefits would not be reinstated. The second scenario was that if Mr. Ponnampalam did not provide a rebuttal report, his presumed next procedural step would be to seek mediation. State Farm argues that in either case there was a clear and unequivocal refusal to pay further IRBs and that Part 6 of the OCF-9, entitled “Applicant’s Rights to Dispute,” warned Mr. Ponnampalam that he had two years from the date of its refusal to arbitrate or start a court lawsuit.

The Concise Oxford Dictionary of Current English, Eighth Edition (Oxford: Clarendon Press, 1990), defines “equivocal,” in part, as:

1 of double or doubtful meaning; ambiguous. 2 of uncertain nature

The test in Zeppieri is not what State Farm may have meant to convey or what seems more likely, overall, to have been conveyed. The test is whether State Farm gave a clear and unequivocal refusal to pay further IRBs and whether it can rely on that refusal. Consistent with Smith, consumer protection requires that the refusal be “in straightforward and clear language, directed towards an unsophisticated person.”

I am not persuaded that State Farm’s statements in its September 12, 2008 OCF-9 are a clear and unequivocal refusal. Put together, they are inconsistent, ambiguous or of double or doubtful meanings.

The key part of the OCF-9 form is Part 2(B) entitled “Not Eligible/Stoppage of Benefit.” State Farm’s notation regarding Mr. Ponnampalam applying for mediation is restricted to the situation where a rebuttal report is not received within the 40 business day timeline. Where a rebuttal report is received within the 40 business day timeline, State Farm does not reference applying for mediation. Nor does it, in contrast to the stated situation where a rebuttal report is not received, note that the two-year limitation period runs from the date of the notice.

The present situation is not that of the delivery of a section 42.1 rebuttal report that sets aside a prior clear and unequivocal refusal. Nor is the issue whether it is commendable that State Farm said it would keep an open mind or that it is not commendable that State Farm simply ignored the report. Rather, this is a case of an insurer providing unclear, equivocal and conditional mixed messages in its OCF-9. This is especially important when the straightforward refusal must be directed toward an unsophisticated person. In Smith, notwithstanding that the insured was represented by counsel throughout, the Court held:

As I have mentioned above, insurance law is, in many respects, geared towards protection of the consumer. This approach obliges the courts to impose bright-line boundaries between the permissible and the impermissible without undue solicitude for particular circumstances that might operate against claimants in certain cases.

State Farm cites Katanic v. State Farm Mutual Automobile Insurance Company, 2013 ONSC 5103, which was followed by Compton v. State Farm Insurance, 2013 ONSC 5836, that “Limitations are important. They provide certainty; ensure that evidence is maintained; and ensure that plaintiffs do not sleep on their rights. This is particularly so when they are represented by counsel.”

This is true. It is also true, as stated by Director Sachs in Simcoe & Erie General Insurance Company and Wiggan, (OIC P-004204, June 12, 1996), that a limitation period defence must be strictly construed as the result is to deny the insured person the opportunity to have his or her claims adjudicated.

State Farm argues that Mr. Ponnampalam’s November 6, 2008 OCF-3 Disability Certificate was “actually not a rebuttal examination or a report arising from same. Rather, it was a recycled Disability Certificate which restates virtually all of the same information further to the first post-accident examination on February 8, 2008.”

State Farm notes the OCF-3 refers to further investigations and specialists to be seen. A report from one of those sources, it argues, would have been a rebuttal report. The OCF-3, itself, “is nothing more than a manufactured attempt to extend the limitation period clock,” “a desperate attempt to grasp at straws in response to an otherwise successful limitation period defence.”

Subsection 42.1(4) of the Schedule, however, states that the rebuttal assessment or examination must be conducted by the original provider, subject to certain exceptions. State Farm does not argue that those exceptions apply in this case. In any event, State Farm’s implicit argument is that if there was any confusion in its OCF-9, Mr. Ponnampalam can only reply on that confusion if he can establish that he in fact provided a rebuttal report within the requisite 40 business-day timeline and that he relied on that confusion to his detriment.

There was no oral evidence received at arbitration. The documentary evidence included a November 6, 2008 OCF-3 Disability Certificate, a November 9, 2008 transmission verification report and a covering page to Ms. Penny Miller, the claims representative, noting the OCF-3 as being attached. State Farm did not reference any evidence that it did not receive the OCF-3. It did not provide any evidence that it responded to the OCF-3 or that it told Mr. Ponnampalam that the OCF-3 was not a rebuttal report.

Nevertheless, in Smith the Supreme Court rejected that an insured needed to establish that the insurer’s shortcoming affected him or her from engaging in the dispute resolution process. The onus is not on Mr. Ponnampalam to establish that he relied on the September 12, 2008 OCF-9 to his detriment.

Rather, the onus is on the insurer that it has provided the insured person a clear and unequivocal refusal to pay benefits. This, consistent with Zeppieri, is a “bright-line boundary” that must be met before the limitation period can be triggered. The Supreme Court instructs us, at paragraph 16 in Smith, that such boundaries in insurance law between the permissible and the impermissible are to be without undue solicitude, that is, concern or anxiety, “for particular circumstances that might operate against claimants in certain cases.”

State Farm failed to meet its onus of establishing that it provided a clear and unequivocal refusal to pay IRBs. Therefore, the limitation period was never triggered. Accordingly, Mr. Ponnampalam may proceed to arbitration on his IRB claim.

III. EXPENSES

My September 20, 2012 and May 13, 2013 appeal decisions deferred the question of legal expenses. If the parties are unable to agree on the legal expenses of this cross-appeal and/or the main appeal, applying Rule 79.2 of the Code an expense hearing shall be requested, as the parties agreed, within sixty days of the date of this decision.

The request shall be accompanied by a Bill of Costs describing the expenses claimed, the services received and the costs, as well as written submissions regarding entitlement to and/or the quantum of legal expenses, as are in dispute.

December 11, 2013

Lawrence Blackman Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2Overturned on judicial review in Turner v. State Farm Mutual Automobile Insurance Co., 2004 CanLII 13402 (ON SCDC), reversed in 2005 CanLII 2551 (ON CA).