Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2016 ONFSCDRS 147 Appeal P15-00073

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ALLSTATE INSURANCE COMPANY OF CANADA Appellant

and

KAMLESH VERMA Respondent

BEFORE: David Evans

REPRESENTATIVES: Richard Horst for Allstate Insurance Company of Canada Stephen Nadler for Mrs. Kamlesh Verma

HEARING DATE: On the record, with submissions received by March 23, 2016

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 as it read immediately before being amended by Schedule 3 to the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, and Regulation 664, R.R.O. 1990, as amended, it is ordered that:

The appeal of the Arbitrator’s order of November 30, 2015, is allowed. Paragraphs 1 and 2 of the order are rescinded and replaced with the following:
1. The Applicant is precluded from proceeding with her claim for Non-Earner Benefits by virtue of section 56 of The Statutory Accident Benefits Schedule – Effective September 1, 2010.
2. Expenses of this Preliminary Issue are left to be determined by the arbitrator conducting the hearing of the issues remaining in dispute.
If the parties are unable to agree about expenses of this appeal, an expense determination on the record may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code (Fourth Edition – Updated January 2014).

May 19, 2016

David Evans Director’s Delegate Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Allstate Insurance Company of Canada appeals the preliminary issue hearing decision dated November 30, 2015 by Arbitrator Ellen Fry. The Arbitrator held that Mrs. Verma should be deemed to have filed for mediation with respect to her claim for non-earner benefits (NEBs) within the two-year time lines of section 56 of the 2010 SABS.¹ Accordingly, she was not prevented from proceeding with her claim in arbitration for NEBs. She also awarded expenses of the hearing to Mrs. Verma.

II. BACKGROUND

This appeal relates to whether limitation periods to institute mediation and arbitration were missed. At arbitration, Allstate submitted that Mrs. Verma failed to file in time for mediation regarding the NEB issue. On appeal, it also raised the issue of whether she failed to file in time for arbitration of the same issue.

The time lines for instituting mediation and arbitration are set out in s. 56 of the SABS and s. 281.1 of the Insurance Act. The starting point is the date of the refusal of a benefit by an insurer. The time limit to institute mediation and commence arbitration after mediation fails is two years from the notice. Despite this, arbitration may be commenced within 90 days of a Report of Mediator indicating failed mediation.² However, while Mrs. Verma instituted mediation on the NEB issue within two years of the refusal, she sought to add the issue to arbitration after the two years, with no valid Report of Mediator to extend the time limit.

I will set out the time lines in brief, followed by a more detailed discussion.

TIME LINES

DATE	EVENT
February 12, 2012	Date of accident
June 12, 2012	Allstate refuses to pay Non-Earner Benefits (NEBS)
August 3, 2012	Mrs. Verma files an Application for Mediation on other benefits but not NEBs
November 29, 2012	Court of Appeal issues Cornie v. Security National Insurance Co., 2012 ONCA 837, in part confirming that mediation is deemed failed 60 days after filing for mediation and a Report of Mediator is not needed to commence arbitration
December 31, 2012	FSCO institutes a form for parties to file requesting an extension of the time for mediation or a 60 day failed Report of Mediator. The Information was posted on the Web and provided by an email blast.³
May 16, 2013	Mrs. Verma requests the addition of the NEB issue to mediation and shortly thereafter requests a 60 day failed Report of Mediator
June 11, 2013	Mediator issues a 60 day failed Report of Mediator without the NEB claim
July 15, 2013	60 days pass since Mrs. Verma’s request to add the NEB claim to mediation
December 30, 2013	Mrs. Verma files an Application for Arbitration but not on NEBs
June 12, 2014	Two year anniversary of Allstate’s refusal of the NEB claim
July 30, 2014	Mrs. Verma seeks to add the NEB issue at the pre-hearing, to which Allstate objects on the ground that the issue has not been mediated
August 7, 2014	Mrs. Verma files an Application for Mediation on the NEB claim
October 3, 2014	second Report of Mediator is issued

DETAILED DISCUSSION

Mrs. Verma was injured in a motor vehicle accident on February 12, 2012 and sought various accident benefits from Allstate, her insurer.

The benefit at issue here is her claim for NEBs. Allstate refused to pay the NEBs on June 12, 2012. That refusal, if valid, started the two-year limitation period that, absent a Report of Mediator, ended on June 12, 2014.

The first step in the dispute resolution process leading to arbitration is mediation, as s. 281(2) of the Insurance Act provides that no person may refer the issues in dispute to an arbitrator under section 282 unless mediation was sought and mediation failed. Mediation is sought when any party files an application for mediation with FSCO: s. 280(2). Mediation is deemed failed if no settlement is reached within 60 days of the filing of the application for mediation.⁴ If mediation fails, a Report of Mediator is supposed to be issued: s. 280(8). However, no Report of Mediator is required to proceed to arbitration: Cornie.

Shortly after Allstate’s June 12, 2012 refusal of her NEB claim, Mrs. Verma filed an Application for Mediation on August 3, 2012. However, she did not include in it her claim for NEBs.

By May 2013, since no mediation date had yet been set, Mrs. Verma took two steps.

First, she sought to add the NEB issue to the mediation. On May 16, 2013, she sent a letter to FSCO and to Allstate requesting its addition. There was no response. However, as discussed below, she had an absolute right to add that issue under Rule 15.2 of the DRPC.

Second, she almost immediately requested a 60 day failed Report of Mediator indicating a failed mediation, the option instituted by FSCO after the Cornie decision. Cornie dealt in part with when mediation fails. Until Cornie, FSCO told parties that an application for mediation was not filed until it deemed it so, so the 60-day time limit for failure of mediation did not start running until that point. In Cornie, the Court of Appeal held that a completed application is filed when it is received by FSCO, so the 60-day time limit ran from then.

In light of Cornie, FSCO instituted the option of requesting a 60 day failed Report of Mediator.

The failed Report of Mediator Mrs. Verma requested in May 2013 was issued on June 11, 2013, but it did not include the claim for NEBs.

However, Mrs. Verma only requested adding the NEB issue to mediation on May 16, 2013. The 60 days for mediation to fail on that issue had not yet passed when the mediator issued the Report of Mediator on June 11, 2013. Only on July 15, 2013 had 60 days passed since Mrs. Verma requested mediation of the NEB issue. Therefore, the NEB issue had not failed before then.

No valid Report of Mediator was subsequently issued regarding the NEB issue (more below).

Cornie has additional points to make regarding situations like that of Mrs. Verma in July 2013, namely where the 60 days have passed since filing for mediation and there has been no settlement. In such cases, the Court held, the issue is deemed failed, without requiring a mediation meeting. Further, no Report of Mediator is required to proceed to court or arbitration.

Therefore, pursuant to Cornie, Mrs. Verma could proceed to arbitration on the NEB issue after July 15, 2013 when the issue was deemed failed and there was no settlement, despite the lack of a Report of Mediator.

Second, the Court also said that, without a mediator’s report, s. 281.1(1) would always apply to bar an action commenced two years after the insurer's refusal to pay the benefits claimed.

Mrs. Verma then filed an Application for Arbitration for various issues on December 30, 2013. The Application for Arbitration did not include any claims for NEBs.

The deadline for filing for mediation and arbitration on the NEB issue passed on June 12, 2014.

Mrs. Verma did not seek to add the NEB issue to arbitration until July 30, 2014. As the Arbitrator noted, “The Applicant’s counsel did not notice the omission of non-earner benefits from the Report of Mediator until the arbitration Pre-Hearing on July 30, 2014. At the Pre-Hearing, the Insurer’s counsel objected to the inclusion of non-earner benefits in the arbitration on the basis that this issue had not yet been mediated.”

Mrs. Verma then filed an Application for Mediation that included NEBs on August 7, 2014. The second Report of Mediator followed on October 3, 2014.

The Arbitrator’s Findings

The issue of the late filing for mediation then came before the Arbitrator. Mrs. Verma submitted that the notice of refusal was not valid because of the grounds on which it was based and because it failed to provide “the medical and any other reasons for the insurer’s decision” as required by s. 37(6)(c). Accordingly, she submitted, the time limit did not start to run.

The Arbitrator found that the refusal was valid because it was not relevant whether the refusal of the benefit was justified in the circumstances or even legally correct. She also found that the Explanation of Benefits provided a clear statement of the reasons for the insurer’s decision. Accordingly, she found that the limitation period in s. 56 started running on June 12, 2012.

Mrs. Verma also submitted that she did indeed apply to mediate her NEB claim within two years of the June 12, 2012 refusal because on May 16, 2013, she requested that the claim for NEBs be added to the existing mediation.

Unfortunately, Rule 15.2, which provides a straightforward answer, was not cited to the Arbitrator. Instead, the Arbitrator found that Mrs. Verma could have reasonably expected that any problem with adding the issue would have been communicated either in a letter or in the Report of Mediator. She concluded that the mediator “simply omitted to address his mind to whether the Non-Earner Benefits should be added.” The Arbitrator found that, if there had been a communication about a problem with adding the issue, then Mrs. Verma would have had time to add the issue to the Application for Arbitration. The Arbitrator concluded that a just resolution would be “to consider that the May 16, 2013 letter validly commenced mediation of the Non-Earner Benefits, despite the defect in form that the Application for Mediation Form was not filed at that time.”

Since Mrs. Verma was successful, the Arbitrator awarded her the expenses of the motion.

III. ANALYSIS

I will make a couple of preliminary points.

First, both parties made submissions about whether the Arbitrator was correct to find the notice of termination valid. That issue was not under appeal and I will not deal with it.

Second, I stated above that there has been no Report of Mediator regarding the NEB issue that would have extended the time for filing for arbitration. In that regard, the only Report of Mediator regarding the NEB issue was based on a second application for mediation filed on August 7, 2014, more than two years after the refusal. It is therefore a nullity.

With respect to the timely application for mediation on the NEB issue, I agree with the Arbitrator, but for different reasons. Rather, there was no defect in form regarding that May 16, 2013 letter because it validly added the NEB issue to the outstanding mediation pursuant to Rule 15.2 of the DRPC, which provides as follows:

Where either party wishes to add an additional issue to a mediation, they must provide a written request identifying the new issue to the mediator and the other party at least 10 days prior to the scheduled date of the mediation meeting. Thereafter, issues may be added on the consent of all parties. [Emphasis in the original.]

There was still no scheduled date of the mediation meeting as of May 16, 2013, so the 10-day time limit requiring all-party consent did not apply. Therefore, the issue was effectively added to the mediation.

However, Mrs. Verma did not seek to add the issue to arbitration until after the two-year mark. The Application for Arbitration was filed on December 30, 2013, but it did not include the NEB issue, although pursuant to Cornie nothing prevented Mrs. Verma from adding that issue then, or up until the time limit expired.

The time limit for adding the NEB issue to arbitration passed on June 12, 2014; Mrs. Verma sought to add the NEB issue to the arbitration on July 30, 2014.

As noted earlier, Allstate on appeal submits that since the Application for Arbitration itself did not refer to the NEBs, any attempt to add the issue after the limitation period expired should fail.

Mrs. Verma objects, in part on the basis that the Application for Arbitration is “fresh evidence.” It is not fresh evidence, since the Application for Arbitration forms part of the record before me.

Mrs. Verma also submits that Allstate was only concerned with whether the mediation was filed late, not whether the arbitration was filed late, so it should not be allowed to raise the issue. However, I find that the entirety of s. 56 was at issue, since that was how the Arbitrator herself defined the issue: “Whether the Applicant is prevented from proceeding with her claim for Non-Earner Benefits by virtue of section 56 of the Schedule.” Section 56 applies to both mediation and arbitration.

It is therefore necessary to review what Cornie said about the limitation period and the Report of Mediator. The Court spoke to the equivalent of s. 56 in the Act, s. 281.1(1), which sets the two-year limit, and s. 281.1(2)(b), which extends it by 90 days from the Report of Mediator. However, the Court rejected the idea that, until applicants receive a mediator’s report, the time limit does not run, stating: “Without a mediator’s report, s. 281.1(2)(b) could not apply and there could be no extension of the limitation period set by s. 281.1(1). Without a mediator’s report, s. 281.1(1) would always apply to bar an action commenced two years after the insurer’s refusal to pay the benefits claimed.”

The Court did leave open the possibility that in different circumstances a different result might apply. For instance, the Court did not discuss what happens if a mediation application is filed less than 60 days before the limitation period expires. However, this is not such a case. Mrs. Verma filed to add the NEB issue to mediation over a year before the time limit expired, and 60 days later she could have filed for arbitration on the issue. She had time to add her NEB claim to arbitration, either in the Application for Arbitration or up until the limitation period expired. She did not delay doing so in expectation of a further report of mediator, since she assumed that the Report of Mediator already indicated that mediation on the NEB issue had failed. The lack of a Report of Mediator dealing with the NEB issue therefore had nothing to do with her failure to include the issue in her Application for Arbitration. The court in Cornie held that, absent the mediator’s report, the limitation period continues to run. The time limit had already run when the second Application for Mediation was filed, so the second Report of Mediator was a nullity and could not somehow retroactively extend the limitation period. Accordingly, since the time limit continued to run, and Mrs. Verma failed to add the NEB issue to her Application for Arbitration before the limitation period passed, her NEB claim is precluded from arbitration.

The appeal is therefore allowed. I recognize that Mrs. Verma sought to add the NEB issue only shortly after the limitation period expired, but the Court in Cornie spoke clearly on this issue.

The Arbitrator’s decision regarding expenses must also be set aside, since it was based on Mrs. Verma’s success at arbitration. As a result of this appeal, Mrs. Verma is now unsuccessful at arbitration.

Since there will still be a hearing of the other matters in this case, the Arbitrator at the substantive hearing can determine all the arbitral expenses including those of the preliminary issue hearing.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense determination may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code except that, as with this decision, the expenses will be determined on the record based on the parties’ submissions.