Neutral Citation: 2013 ONFSCDRS 42

FSCO A10-003870

BETWEEN:

FADIA KHALIL Applicant

and

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA Insurer

DECISION ON A PRELIMINARY ISSUE

*Minor error on page 8 corrected on April 24, 2014, in accordance with the Dispute Resolution Practice Code and section 21.1 of the Statutory Powers Procedure Act.

Before: Jessica Kowalski

Heard: By written submissions completed June 18, 2012

Appearances: Robert Hooper for Ms. Khalil Joseph Griffiths for Royal & SunAlliance Insurance Company of Canada

Ms. Khalil filed an Application for Arbitration claiming entitlement from Royal and SunAlliance (“Royal”) to certain medical benefits as well as to income replacement benefits (“IRBs”) from February 5, 2008 onwards, following an accident that occurred on September 11, 2002.

At issue in this preliminary issue hearing is whether Ms. Khalil is precluded from proceeding with her claim for income replacement benefits because she is outside the time limits imposed by section 281 of the Insurance Act and section 51 (now 56) of the Statutory Accident Benefits Schedule¹ (the “Schedule”) or because she has not complied with the notice and disclosure obligations placed upon her by sections 32 and 33 of the Schedule. This decision does not affect the balance of Ms. Khalil’s claims.

Result

Ms. Khalil is precluded from proceeding to arbitration of her claim for IRBs by operation of the time limits imposed by section 281 of the Insurance Act and section 56 of the Schedule.
Ms. Khalil is precluded from proceeding to arbitration because she has not complied with her notification and disclosure obligations under sections 32 and 33 of the Schedule.

Overview

Ms. Khalil was involved in a motor vehicle accident on September 11, 2002, when the car she was driving was rear-ended. At the time of the accident she was employed by CAA as a travel consultant. She went back to work after the accident. She worked continuously for approximately five years and five months until CAA terminated her employment on February 5, 2008 for what Ms. Khalil says were accident-related cognitive impairments.

Ms. Khalil claims entitlement to IRBs in the amount of $400.00 per week from February 5, 2008 to date and ongoing.

Royal submits that Ms. Khalil is statutorily barred from advancing a claim in arbitration for recovery of IRBs on the grounds that Royal denied the benefit on January 21, 2003 and that:

i. she has missed the two year limitation period for challenging Royal’s denial; or,

ii. she failed to comply with the notification and disclosure obligations under the Schedule.

Ms. Khalil argues that she cannot be said to have applied for an IRB until she suffered a loss of income. She submits that Royal could not refuse or deny what it was not liable to pay, and that, on January 21, 2005 (two years after it issued the January 21, 2003 denial), Royal was not yet liable to pay an IRB.

Ms. Khalil says that she considers a denial issued on February 2, 2010 (in response to notice that she lost her job in 2008 and a request by her counsel to reinstate IRBs) to be the first and operative denial she received from Royal. She submits that her claim did not crystallize until February 8, 2008 when she lost her job and that it was not therefore possible for her to qualify for an IRB until then.

For the reasons set out below, I find that, in response to an application for accident benefits Ms. Khalil submitted on September 25, 2002, Royal issued a valid denial of benefits on January 21, 2003 and that the two-year limitation period began to run on January 21, 2005. I find that section 11 of the Schedule, which deals with a temporary return to work, does not apply to the circumstances of this case. I also find that Ms. Khalil failed to comply with her notice and disclosure obligations in sections 32 and 33 of the Schedule.

The Law

Income Replacement Benefits

Section 4 (now 5)² of the Schedule requires an insurer to pay to an insured person who sustains an impairment as a result of an accident an IRB if he or she was employed at the time of the accident and, as a result of and within 104 weeks after the accident, suffers a substantial inability to perform the essential tasks of that employment.

An insurer is not required to pay an IRB after the first 104 weeks of disability unless, as a result of the accident, the insured person is suffering a complete inability to engage in any employment or self-employment for which he or she is reasonably suited by education, training or experience.

Section 11 of the Schedule states that an insured person receiving an IRB may return to or start employment at any time during the 104 weeks following the onset of the disability in respect of which a benefit is paid without affecting his or her entitlement to resume receiving benefits if, as a result of the accident, he or she is unable to continue the employment.

Time Limits

Subsection 51(1) (now 56(1)) of the Schedule in effect at the time of Ms. Khalil’s accident states that a mediation proceeding in respect of an accident benefit shall be commenced within two years after the insurer’s refusal to pay the amount claimed.

Section 281.1(1) of the Act states that a mediation or court proceeding shall be commenced within two years after the insurer’s refusal to pay the benefit claimed.

The limitation is not triggered until there is a refusal or a reduction by an insurer pursuant to section 49 (now 54) of the Schedule to pay the benefits claimed. Section 49 of the Schedule provided that if an insurer refuses to pay a benefit, the insurer shall provide the person with a written notice concerning the person’s right to dispute.

The leading case in defining what constitutes a proper notice is the Supreme Court of Canada’s decision in Smith v. Co-operators General Insurance Co.³, in which the Court held that an insurer’s refusal must include an adequate description of the Schedule’s dispute resolution process in “straightforward and clear language, directed towards an unsophisticated person.”

January 21, 2003 denial clear and unequivocal and not premature

Ms. Khalil returned to her own employment as a travel consultant on September 16, 2002, five days after the accident. The next day, she gave a statement to Royal in which she confirmed that she had returned to work.

On September 25, 2002, Ms. Khalil filed an application for accident benefits. At Part 8 of the application, when asked whether her injuries prevented her from working, Ms. Khalil wrote in “Partley” [sic].

On September 26, 2002, Ms. Khalil’s then family doctor, Dr. S.M. Elliott, completed a disability certificate that did not support that Ms. Khalil was disabled from returning to her work. Although he noted that Ms. Khalil suffered an impairment that substantially prevented her from engaging in her pre-accident care-giving and housekeeping activities and in all of her normal pre-accident activities, Dr. Elliott endorsed that Ms. Khalil could return to work and/or to modified hours and/or duties. He added the following explanation: “Patient works as a travel agent…desk employment. Although uncomfortable is capable of same.”

On October 12, 2002, Royal responded to Ms. Khalil’s application by way of an explanation of benefits form (OCF-9/59) and letter, in which it advised Ms. Khalil that she was not eligible for an IRB because Royal did not consider her disabled from working. Royal confirmed Ms. Khalil’s advice that she had returned to work partly, asked her to provide details of her work hours, and to complete a post-accident income declaration form.

Ms. Khalil did not respond to Royal’s requests that she clarify her partial return to work. She did not provide the requested post-accident work and income particulars, although she notified Royal on November 18, 2002 that she had retained counsel.

Having received no further response from Ms. Khalil, on January 21, 2003 Royal sent a second explanation of benefits form with a letter confirming its earlier position and denying Ms. Khalil’s claim for IRBs because she was not considered disabled. Royal invited Ms. Khalil to alert it within 14 days if she had a change to her employment status.

In Zeppieri and Royal Insurance Co. of Canada,⁴ Arbitrator Naylor set out a two-step test to apply when considering a limitation defence:

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.

If there was any ambiguity in the October 12, 2002 explanation of benefits because Royal requested additional information, the second explanation of benefits on January 21, 2003 reiterated Royal’s position clearly.

Ms. Khalil has not alleged that the January 21, 2003 denial was unclear or that it did not comply with Smith v. Co-operators or section 49, only that it was premature because Royal was not liable to pay the benefit until she had an income loss.

For the reasons that follow, I find that Ms. Khalil submitted an application for accident benefits on September 25, 2002 and that Royal issued a valid denial on January 21, 2003 and that it was not premature. The two-year limitation period in relation to the denial of an IRB therefore expired on January 21, 2005.

The January 21, 2003 denial confirmed Royal’s explanation on October 12, 2002 that Ms. Khalil was not disabled from working and therefore not entitled to IRBs. The denial was compliant with the consumer-protection principles set out in Smith v. Co-operators as well as with section 49 of the Schedule. The denial was detailed, clear and unambiguous, contained step-by-step information about the procedure for engaging the dispute resolution process, provided reasons for Royal’s decision, and included statutory references and warnings about time limits.

Although she would go on to dispute Royal’s denial of other benefits, Ms. Khalil did not challenge the decision to deny IRBs.

On February 5, 2008 (approximately five years after Royal’s denial of IRBs), Ms. Khalil lost her job. I address the termination of employment in more detail later in this decision, under the heading “Failure to give notice of change in circumstances – section 32”.

In summary, however, Ms. Khalil was terminated from her employment for making errors at work that cost her employer money to correct. Ms. Khalil did not tell Royal that she had lost her job, that she thought her errors were caused by cognitive difficulties she suspected were related to the 2002 accident, or that she intended to revisit the issue of IRBs. In an updated disability certificate dated January 12, 2010, her new family doctor, Dr. Poonam Sharma, wrote that he was unable to comment on any relationship between Ms. Khalil’s inability to work in 2010 and the accident.

Royal continued to adjust the file and invited Ms. Khalil to provide information and updates. Ms. Khalil would not tell Royal directly about the February 5, 2008 job loss until almost two years later (722 days), when her then counsel sent a letter dated January 26, 2010 advising that she had been terminated “because of accident related symptoms” and was seeking reinstatement of IRBs.

Ms. Khalil relies on the FSCO decision in Ross and TTC Insurance Company Limited ⁵, in which Arbitrator Alves found that an applicant could proceed to arbitration with her claim for IRBs that the TTC had argued was time-barred.

In Ross, the insurer advised the applicant that she did not qualify for IRBs after she filed an application for accident benefits, employer’s confirmation of income, and disability certificate. The applicant later lost her job because of accident-related injuries, at which time she advanced a claim for IRBs. The insurer denied the benefits and raised a limitation defence. It argued that the applicant had asserted a claim for IRBs when she submitted her forms, and that the start of the limitation period was triggered by the responding denial. The applicant argued that submitting the application and forms did not constitute a claim for IRBs as she was simply following the general instructions on the cover sheet of the accident benefit package.

The arbitrator found that it was unlikely in circumstances where the applicant had no loss and nothing to gain from making an application for IRBs that she was asserting a claim for IRBs. Because the arbitrator found that the applicant was not asserting a claim for IRBs in her application, the limitation did not start to run from the insurer’s denials.

I find the Ross case distinguishable from Ms. Khalil’s case. In Ross, the applicant worked for close to 16 months following the accident, and took time off for rehabilitation treatment. She claimed from the outset that her injuries prevented her from performing the essential tasks of her employment as of the day after the accident. Her health practitioner’s certificate noted that she was not able to function at work and identified her need to continue to work as a factor affecting her recovery.

In Ms. Khalil’s case, there was no evidence of an inability to return to work following the accident. She worked without interruption for almost 5 ½ years after the accident. Her disability certificate following the accident did not support a disability from working, and neither did the one submitted in 2010 after she was fired.

In Ross, the insurer issued a second denial when the facts behind the first denial changed.⁶ The arbitrator found that the second denial was unclear. The arbitrator found that the insurer did not understand that Ms. Ross was in fact making a claim for IRBs when it issued the second denial because the applicant sought information about the benefits that might be available to her.

Even in Ross, the arbitrator wrote that only after there has been a clear and unequivocal denial does the limitation period begin to run. In Ms. Khalil’s case, Royal issued a clear and unambiguous denial early on. Despite opportunities to do so, Ms. Khalil did not update Royal on what she says were changes in her work circumstances that she attributed to the accident. For example, Royal’s October 12, 2002 denial invited Ms. Khalil to provide details about what she meant by being partly impaired from working. She did not respond to requests to provide particulars and continued working. Royal issued a valid refusal on January 21, 2003.

The second part of the Zeppieri test requires the insurer to show that it is not estopped from relying on the limitation period because the applicant relied on the insurer’s action to her detriment. In this case, Royal never faltered in or waived in its position regarding denial of the IRB. Ongoing negotiations or requests for further information between the parties do not extend the time limits for disputing a clear and unequivocal refusal of benefits. I find no indication in any of the records that Ms. Khalil failed to understand Royal’s decision, or that she did not receive or understand either or both of Royal’s letters and denials.

Section 11 (“Temporary Return to Employment”)

I find that section 11 of the Schedule does not apply in this case.

The section permits an insured person to return to employment at any time during the 104 weeks following the onset of the disability in respect of which a benefit is paid without affecting his or her entitlement to resume receiving benefits if as a result of the accident he or she is unable to continue in the employment.

In Baker and Aviva Canada Inc.,⁷ Arbitrator Rogers wrote that section 11 “creates a right to ‘resume receiving benefits’, not a right to re-apply. The jurisprudence rejects the possibility of multiple applications for weekly benefits.” He cited the Court of Appeal decision in Haldenby v. Dominion of Canada General Insurance Co.,⁸ in which the Court considered a provision of the relevant schedule similar to section 11 in rejecting a multiple applications argument. The Court reasoned that:

…there is no provision in the Act or the SABS which allows a claimant to reapply for further benefits after an insured person’s benefits have been terminated by the insurer. The only remedy for the insured person is to appeal the termination of benefits within the two-year period.⁹

Royal never paid income replacement benefits. The January 26, 2010 letter requesting “reinstatement” of benefits that were denied because Ms. Khalil was not disabled did not constitute a fresh application for a weekly benefit. Ms. Khalil returned to her own job one week after the accident and worked continuously for approximately five years and five months. Section 11 does not apply because Ms. Khalil was never receiving an IRB to begin with. To allow for a fresh application in these circumstances or to consider Ms. Khalil’s request for reinstatement of benefits that Royal denied more than five years before, would be “inconsistent with the Supreme Court of Canada’s rationale which underlined the common sense of, and the need for limitation periods.”¹⁰

Failure to comply with notice and disclosure obligations (sections 32 and 33)

In my view, it would be unreasonable to find that the two-year limitation period runs from the denial issued by Royal on February 2, 2010 when Ms. Khalil wilfully or recklessly withheld critical information from Royal for almost two years.

Even if I was wrong and the limitation period ought to run from February 2, 2010 (when Royal responded to the January 26, 2010 letter reiterating its January 21, 2003 denial), I nonetheless find that Ms. Khalil is precluded from proceeding with her claim for IRBs because of her failure to comply with her notice and disclosure obligations as set out in sections 32 and 33 of the Schedule.

Section 32(1) of the Schedule in effect at the time of the accident provided that a person shall notify the insurer of his or her intention to apply for a benefit. Subsection 32(1)(1.1)(a) provided that a person shall notify the insurer of his or her intention to apply no later than:

the 30th day after the circumstances arose that gave rise to the entitlement to the benefit, or as soon as practicable after that day, if those circumstances arose as a result of an accident that occurred before October 1, 2003.

Section 32(1) of the current Schedule states as follows:

32(1) A person who intends to apply for one or more benefits described in this Regulation shall notify the insurer of his or her intention no later than the seventh day after the circumstances arose that give rise to the entitlement to the benefit, or as soon as practicable after that day.

Section 33 places a duty on an applicant to, within 10 business days after receiving a request from the insurer, provide the insurer any information reasonably required to assist the insurer in determining the applicant’s entitlement to a benefit.

Section 34 (now 31) contains a saving provision, so that a person’s failure to comply with a time limit in sections 32 or 33 does not disentitle the person to a benefit if he or she has a reasonable explanation.

Failure to give notice of change in circumstances – section 32

Ms. Khalil worked from September 16, 2002 until February 5, 2008 when she was fired. Ms. Khalil did not notify Royal of the change in her employment until almost another two years later, on January 26, 2010, well after the seven or 30 days contemplated in either the current or predecessor version of section 32.

By the time Ms. Khalil notified Royal for the first time that she was seeking reinstatement of IRBs (that were never paid), more than seven years had passed since Royal denied the benefit and invited Ms. Khalil to notify it of any changes to her employment situation.

Ms. Khalil gave no explanation for why she ignored Royal’s requests for information about her post-accident employment, and no reasonable explanation why she waited for nearly two years to advise Royal that she had been fired and intended to seek IRBs.

The termination

On December 3, 2003, Ms. Khalil says she experienced an incident at work while on the phone with a client that left her stuttering and unable to speak, feeling numbness and burning on the left side of her face and body.

The following year, Ms. Khalil began receiving warnings from her employer due to errors at work.

On August 21, 2007, she received a “final warning” alleging failure to adhere to travel industry regulations and to CAA audit and compliance. On November 8, 2007, she received a “final final warning letter”, in which her employer wrote that her errors in 2007 alone had cost it some $3,391 to correct. Ms. Khalil made a further error on or around January 18, 2008, when she misspelled a client’s surname. This resulted in additional costs for CAA to correct. As a result of what CAA identified as “excessive errors”, Ms. Khalil was fired on February 5, 2008.

In the meantime, a report from the Hamilton Pain Management Center dated July 12, 2006 noted that Ms. Khalil did not miss any work since the accident and that, after some modifications were made to assist her, she did not have “any substantial difficulties” at work.

Ms. Khalil also switched family doctors to Dr. Sharma in 2007. She did not report to Dr. Sharma that she suspected the accident was a factor in her difficulties at work. According to Dr. Sharma’s notes, Ms. Khalil reported harassment issues at work. He noted in an entry on November 5, 2007 that Ms. Khalil was under stress at work and that there was “a lot of harassment going on.”

Two weeks after she was fired, Ms. Khalil told Dr. Sharma, but his notes contain no reference to accident-related impairments or any suggestion that her work circumstances were related to the 2002 accident.

Ms. Khalil first received an opinion in 2009 that her cognitive difficulties were a result of the accident. Psychologist Dr. William A. Fulton completed a neuropsychological assessment at Ms. Khalil’s request over four days in October through December 2008. In a report dated January 12, 2009, he diagnosed her with, among other things, a chronic moderate cognitive disorder and concluded that she had problems that were accident-related. He linked her cognitive problems to her difficulties at work, opined that she was not competitively employable and that she lasted at her job as long as she had because her employer had been accommodating.

According to Ms. Khalil, she incurred the expense of Dr. Fulton’s assessment after Royal denied it because she wanted confirmation that her cognitive impairments were accident-related. With Dr. Fulton’s opinion that they were, Ms. Khalil says she felt it now became appropriate to pursue an IRB.¹¹ However, she still did not tell Royal.

Coincidentally, Royal wrote to Ms. Khalil on March 14, 2008 inviting to present any further claims because the file had been dormant. Absent information to the contrary, Royal advised that it would assume there were no more claims to address as a consequence of the 2002 accident. Ms. Khalil claims she was by this time suspicious that the accident led to the termination of her employment when in March 2008 she asked Royal to fund Dr. Fulton’s assessment.¹² Again she did not tell Royal, notwithstanding that by then she says her claim had crystallized.

Even if Dr. Fulton’s 2009 report could be said to have constituted notice to Royal that Ms. Khalil’s circumstances changed, she did not explain why she would wait approximately five months to send it to Royal. The report was authored on January 12, 2009 but not sent to Royal until June 4, 2009.

With respect to the assessment itself, Dr. Fulton did not address the post-104 week complete inability test in concluding that Ms. Khalil was not competitively employable because of the accident. He wrote that she had low scores reflecting deficiencies with arithmetic and mathematics, which would explain the mistakes demonstrated on audit of her work, but that it was “not clear to what extent such deficits are attributable to accident-related impairment.”

In 2009 Ms. Khalil also advised her own physiotherapist and an insurer’s physiotherapy assessor that she had been fired, which they noted in their reports dated March 10, 2009 and March 24, 2009, respectively.

Ms. Khalil gave no explanation why she would not have told Royal directly that she had lost her job, or why she felt the need to rely on third party reports assessing different benefits and prepared long after her change in circumstances to notify Royal for her.

I find that Ms. Khalil had an obligation to notify Royal of her change of circumstances and her intention to seek IRBs (insofar as she says her firing was caused by the accident), at the very latest after she received Dr. Fulton’s report drawing that conclusion in January 2009. I also find that telling Dr. Fulton or two physiotherapists who made brief references in 2009 reports to Ms. Khalil’s job loss was not a reasonable explanation for Ms. Khalil’s failure to do so in time, and did not excuse her from her obligation.

Failure to respond to requests for information – s.33

Even if the nearly two-year delay in reporting her change of circumstances could be justified or excused, Ms. Khalil has failed to provide information to Royal that she was statutorily obligated to provide in support of her claim.

Before denying the IRBs on the basis that she was not disabled, Royal asked Ms. Khalil to provide it with information regarding her post-accident employment, including clarification of what she meant by being “partly” disabled from work (when her disability certificate did not endorse a disability from work). Royal also asked for particulars regarding Ms. Khalil’s post-accident income and hours worked.

I find that this was information that was reasonably required to assist Royal in determining the applicant’s entitlement to a benefit, and that Ms. Khalil wholly ignored Royal’s requests and submitted no additional information, without explanation, contrary to section 33 of the Schedule.

Conclusion

Ms. Khalil submitted an application for benefits in September 2002. She returned to work almost immediately following the accident, and a September 2002 disability certificate stated that Ms. Khalil was not disabled from working. Royal issued a valid notice denying income replacement benefits on January 21, 2003. Ms. Khalil did not dispute the denial within the two-year time limit set out in the Insurance Act and Schedule.

Without explanation, Ms. Khalil waited almost two years to notify Royal of a change in circumstances that she says made Royal liable to pay an income replacement benefit and took no steps in the interim to advise Royal of a purported intention to claim income replacement benefits or the basis for her delayed claim. Also without explanation, Ms. Khalil ignored Royal’s requests for information regarding her post-accident employment and income, despite an obligation to do.

In order for Ms. Khalil to have qualified for an income replacement benefit, she would have to have been disabled from her employment within the first 104 weeks of the accident. Royal denied the benefit on the basis that Ms. Khalil was not disabled. Ms. Khalil did not cooperate with Royal’s requests for information, disputed other benefits, and continued working at her own employment for almost 5 ½ years after the accident. In 2010, almost two years after she lost her job, she notified Royal and sought reinstatement of a benefit that Royal never paid on the basis that Ms. Khalil was not disabled.

She did not explain her failure to notify Royal.

Ms. Khalil is precluded from proceeding with her claim for income replacement benefits because she is outside the time limits to do so; in any event, she has failed to comply with the notification and disclosure obligations placed upon her by the Schedule without a reasonable excuse.

EXPENSES:

If either party wishes to make any submissions with respect to the issue of expenses, they may do so in accordance with Rules 75-79 of the Dispute Resolution Practice Code.

March 28, 2013

Jessica Kowalski Arbitrator

Date

Financial Services Commission of Ontario