Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2014 ONFSCDRS 71

Appeal P13-00020

OFFICE OF THE DIRECTOR OF ARBITRATIONS

WESTERN ASSURANCE COMPANY

Appellant

and

CLIFF BURDEN

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

Eric Grossman and Peter Durant for Western Assurance Company

K. Jay Ralston and Sandi J. Smith for Mr. Burden

HEARING DATE:

January 27, 2014, with further written submissions received by March 27, 2014

APPEAL ORDER

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

The Arbitrator’s order of June 5, 2013 is confirmed and this appeal is dismissed.
If the parties are unable to agree on the legal expenses of this appeal, an expense hearing shall be requested pursuant to the Dispute Resolution Practice Code (Fourth Edition, Updated – January 2014), but as set out below and within sixty days of the date of this decision.

April 28, 2014

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Western Assurance Company appeals Arbitrator Kowalski’s order that Mr. Burden may proceed to arbitration regarding the stoppage of weekly benefits. She found that since the notice of stoppage was void, no time limit prevented his proceeding to arbitration.

II. BACKGROUND

Mr. Burden was injured in an automobile accident on August 17, 2001, and sought weekly income replacement benefits (IRBs) from Western Assurance Company under the SABS–1996.¹ Western paid IRBs to August 13, 2004, the stoppage date set out in the Notice of Stoppage of Weekly Benefits and Request for Assessment (OCF-17)² sent by Western on July 29, 2004. The assessment in the title refers to one at a Designated Assessment Centre (DAC).

Mr. Burden did not seek to mediate this stoppage until 2010, even though Part 4 of the OCF‑17 warned him that he had two years from the date of stoppage to dispute it by seeking mediation.

The Arbitrator found that the refusal was rendered void by Part 5 of the OCF-17, in that it made a request for a DAC assessment mandatory in order to mediate the stoppage of weekly benefits, when such a request is optional. She found that the form did not meet the requirement set out in Smith v. Co‑operators General Insurance Co., [2002] S.C.R. 129, that at a minimum a notice of stoppage should include a description of the most important points of the dispute resolution process, such as the right to seek mediation. As the Arbitrator found the form was confusing regarding this basic information, she found that a valid refusal had not been given. Therefore, the two-year time limit had not begun to run, and Mr. Burden could proceed to arbitration.

III. ANALYSIS

Section 37 of the 1996 SABS sets out the procedures for an insurer seeking to stop paying weekly benefits like IRBs. At the time of the stoppage in 2004, s. 37(2) provided that an insurer could stop paying IRBs if it sent a notice specifying the stoppage date. The OCF-17 is such a notice. However, s. 37(3) provided that the notice had to inform insureds of the right to request a DAC assessment and, if one was properly requested within 14 days of receiving the notice, the insurer had to keep paying IRBs pending the DAC.

The request for a DAC assessment was not mandatory. However, the Arbitrator found the OCF‑17 made it so. She found that the first 4 parts of the form were “clear and uncontroversial: they told Mr. Burden in straightforward and clear language that his income replacement benefits were going to be stopped, and the reason for the stoppage.” In particular, Part 4 set out the dispute resolution process and warned Mr. Burden of the two-year limitation period to engage it.³ However, she found the rest of the form then made a request for a DAC a mandatory first step in the process.⁴

The Arbitrator noted that, just before Part 5, entitled “Applicant Request and Signature,” the form states in bold “The rest of this form must be completed by the applicant and returned to the insurance company if the applicant disagrees with the stoppage of benefits.” Part 5 then includes the insured’s disagreement with the stoppage, request for a DAC, and authorization for the DAC to provide personal information regarding eligibility for benefits. The Arbitrator found:

Together with the instructions that precede it (that Part 5 must be completed if an applicant disagrees with the stoppage of benefits), Part 5 contains information that is contrary to s.37 of the Schedule and therefore misleading. Rather than describing the DAC as an option available to the insured person it tells an insured person that, if he or she does not sign the portion of the form requesting an assessment by a DAC, then he or she cannot continue on to mediation or more if she or he disagrees with the stoppage of benefits.

By this time, Mr. Burden had undergone numerous assessments, and might not reasonably have wanted another, albeit at a DAC.

Western submits that the Arbitrator had no basis for her conclusion in the second paragraph that Mr. Burden may not have wanted a DAC, and so it is speculation and an error in law. Even if that is so, I find that does not vitiate the Arbitrator’s analysis in the first paragraph that the form mandates the request for a DAC when such a request is optional.

Western submits that an OCF-17 was considered in Blake v. Dominion of Canada General Insurance Co., 2013 ONSC 6069. However, nothing in the decision indicates that the issue before the court was the adequacy of the notice. Instead, as the court put it, “The sole issue [was] whether or not a mediation after the date of refusal, or subsequent application for benefit extends the limitation period.” The court simply applied principles set out in Haldenby v. Dominion of Canada General Insurance Co., 2001 CanLII 16603 (ON CA).

Western submits that Mr. Burden should have provided evidence on how the problems with the OCF-17 adversely affected him. That submission was rejected in Ponnampalam and State Farm Mutual Automobile Insurance Company, (FSCO P12-00031C, December 11, 2013).⁵ As Delegate Blackman noted, the Supreme Court in Smith rejected the idea that the onus is on insureds to establish that shortcomings in the prescribed forms prevented them from engaging in the dispute resolution process: “Rather, the onus is on the insurer that it has provided the insured person a clear and unequivocal refusal to pay benefits.” Similarly, the onus is on the insurer to demonstrate that the notice informed the insured of the dispute resolution process, as discussed next.

Western submits that recent case law in the courts, addressed below, provides that a faulty notice does not prevent the limitation period from running where the insured was represented by counsel. However, Gonthier J. in Smith specifically rejected the argument that the court should consider circumstances beyond the insurer’s notice of refusal when determining whether the refusal was adequate. This was reiterated by the Court of Appeal in one of the cases Western relies on, Golic v. ING Insurance Co. of Canada, 2009 ONCA 836, 98 O.R. (3d) 394. As O’Connor A.C.J.O. noted,

This issue turns on whether the respondent gave the appellant proper notice of its refusal to pay the benefits in accordance with s. 71 of the SABS. That section imposed a requirement on insurers when refusing to pay benefits to inform a claimant of the dispute resolution process available under the Act.⁶

I understand Gonthier J. to have said that in the context of an insurance company giving notice of its refusal to pay benefits, it must satisfy the requirements of s. 71 in its refusal. Courts should not look to circumstances beyond the insurer’s notice of refusal, such as the mediator’s report in Smith,⁷ to relieve the insurance company of its obligation to provide a proper refusal.

The court found that the time limit applied in Golic not because the insured was represented by counsel but because the notice was adequate. Thus, O’Connor A.C.J.O. found that the insurer’s refusal letter in Golic was significantly different from the notice in Smith because it “specifically referred to the dispute resolution process. It enclosed copies of the relevant sections of the Act. In addition, the refusal referred to the earlier mediations. It made a reasonable assumption that the appellant knew about the dispute resolution process and it invited inquiries if he did not… It is not necessary to go outside the letter in order to find that the respondent had given the appellant proper notice of its refusal to pay benefits.” That the insured was represented by counsel was not determinative.

While the courts in several of the cases proposed by Western do refer to the fact that the insureds were represented, in at least a couple of them that fact was either at best ancillary or the real issue lay elsewhere. For instance, in Katanic v. State Farm Mutual Automobile Insurance Company, 2013 ONSC 5103,⁸ the court found that the insurer determined that Mr. Katanic was not entitled to a non-earner benefit (albeit for what later turned out to be the wrong reason). Milanetti J. found that the insurer “included an explanation of all of the benefits available to an insured and set out the steps that could be taken if the insured disagreed with their decision.” [Emphasis added.] She found that distinguished the case of Spadafora v. Dominion of Canada, 2013 ONSC 182, where “no explanation was given by the insurer… In the case before me, the denial was made, an explanation was given in clear and straightforward language, and dispute mechanisms and timeframes were provided. The plaintiff appears to have had legal representation at the time of these events.” While the court in Golic found that circumstances outside the notice of refusal like legal representation should not be considered, Milanetti J. found that the refusal was adequate regardless of representation.

Similarly, Seitzema v. Economical, 2013 ONSC 4299, turned on a refusal of a non-earner benefit (NEB) for the wrong reason, so the insured said “the only conclusion she could come to … was that she could never apply for Non-Earner Benefits because she was employed at the time of the accident.” The lower court held that “Once the plaintiff retained a lawyer to seek advice on her rights, she can no longer plead ignorance or that Part 3 of The Form was misleading to her personally because she was unsophisticated with respect to auto insurance.”

However, the Court of Appeal in Sietzema⁹ v. Economical Mutual Insurance Company, 2014 ONCA 111, did not endorse that reasoning, just as in Golic the court reached the same decision as the lower court but by a different route. First, the court noted that

The appellant’s real complaint is that she was given an incorrect reason for her ineligibility for Non-Earner Benefits. That argument is answered by this court’s decision in Turner v. State Farm Mutual Automobile Insurance Co. (2005), 2005 CanLII 2551 (ON CA), 195 O.A.C. 61. In that case, this court held that clear and unequivocal notice given by the insurer, cancelling the insured’s benefits, was sufficient to trigger the limitation period, notwithstanding the insurer gave legally incorrect reasons for cancelling the benefit.

The court then went on to find that the notice was clear and unequivocal because the form

gave her clear notice of her rights to mediation, followed by arbitration, litigation or neutral evaluation if she wished to dispute the refusal or reduction of benefits. It also gave her clear notice of the two year limitation period. She admitted on cross-examination that when she received the OCF-9 she knew she was being denied Non-Earner Benefits. The limitation period began to run when the appellant’s claim for Non-Earner Benefits was refused.

Accordingly, the fact that the insured in Sietzema was represented was irrelevant to the Court of Appeal because the notice was clear and unequivocal.

This leads us to the final case I will discuss, Conrad v. State Farm, 2014 ONSC 4. In Conrad, the plaintiff applied for non-earner benefits, and the insurer denied them in an OCF-9 dated October 14, 2005. The plaintiff claimed the form was insufficient to trigger the limitation period. Reilly J. thought there was some merit to that position if the OCF-9 was the only evidence of the refusal, in light of Spadafora. He then stated that “In terms of the plaintiff’s appreciation of the refusal of benefits she had received from the plaintiff, I must consider the fact that in the Spring of 2006, the plaintiff had retained counsel.” He noted that in May 2006 the insurer received a letter from counsel, and the statement of claim was issued regarding non-earner benefits by the same counsel in July 2012, so he presumed “that the plaintiff has been represented by counsel and has had access to legal advice over the past several years.”

Reilly J. was guided by Katanic and the lower court decision Seitzema, and referred to the comments in those cases about the plaintiffs being represented by counsel. However, as set out above, the presence of counsel was not decisive in Katanic, nor was it decisive in the Court of Appeal’s ruling in Sietzema, which came out after Conrad.

Furthermore, the refusal notice was likely sufficient in any event. Reilly J. thought the OCF-9 was possibly insufficient based on what was stated in Spadafora. However, that case involved income replacement benefits, so the notice was found insufficient because it

failed to include any written explanation as to how the income replacement benefit was calculated, a written explanation as to the basis for the denial of benefits and any written notice of the insured’s right to dispute the denial, either the fact or the right or the procedure to follow thereto.¹⁰

By way of contrast, Conrad was a case involving the denial of NEBs, so there would be no requirement to explain how it was calculated. Furthermore, the OCF-9 stated that, based on a Disability Certificate, the insured did not suffer a complete inability to carry on a normal life, so she was not considered eligible to receive an NEB. Thus, there was a written explanation of the basis for the denial of benefits. Reilly J. also noted how the form set out in the “Applicant’s Right to Dispute” the steps in the procedure and the limitation period. The notice would thus appear to be as sufficient as the one in Katanic, considering that a denial was made, an explanation was given in clear and straightforward language, and dispute mechanisms and time frames were provided.

Regardless, I am not bound by the decision in Conrad but rather by the decision of the Court of Appeal in Golic and the Supreme Court in Smith. The Arbitrator was not required to consider circumstances beyond the insurer’s notice of refusal when determining whether the refusal was adequate. A valid refusal may consist of more than one document, so a covering letter sent together with the relevant form may provide sufficient notice, as happened in Golic; it just can’t follow a year later, like the mediator’s report in Smith. However, in this case, we only have the one document with nothing in it to indicate that a DAC assessment is optional and not mandatory.

The court said in Golic that “The underpinning of the [consumer protection] rationale is the need to ensure that an insured is properly informed about the dispute resolution process at the time an insurer refuses to pay benefits” and that it is not necessary to consider circumstances outside the refusal, like representation by counsel. The fact that Mr. Burden was represented by counsel is therefore irrelevant if the refusal was invalid.

A valid refusal has to set out the dispute resolution process. The form in this case improperly indicates that, to even initiate the dispute resolution process, Mr. Burden had to request a DAC assessment. I agree with the Arbitrator that this failure to properly inform Mr. Burden about the dispute resolution process renders the refusal invalid, so the time limitation did not start to run.

The appeal is therefore dismissed, and the arbitration decision confirmed.

IV. EXPENSES

If the parties are unable to agree on the legal expenses of this appeal, applying the procedure set out in Rule 79.2 of the Dispute Resolution Practice Code, an expense hearing shall be requested, 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.