Aviva Canada Inc. v. Cathy Tew (formerly known as Frankum), 2016 ONFSCDRS 281

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2016 ONFSCDRS 281

Appeal P15-00056

OFFICE OF THE DIRECTOR OF ARBITRATIONS

AVIVA CANADA INC.

Appellant

and

CATHY TEW (FORMERLY KNOWN AS FRANKUM)

Respondent

BEFORE:

Richard Feldman

REPRESENTATIVES:

Frank Benedetto and Todd McCarthy for the Appellant

Arthur R. Camporese for the Respondent

HEARING DATE:

October 7, 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:

1. The Arbitrator’s order of September 1, 2015 is confirmed and this appeal is dismissed.

October 21, 2016

Richard Feldman Director’s Delegate

Date

REASONS FOR DECISION

I. BACKGROUND

The facts are not in dispute. This matter involves the SABS–1996.¹

The Respondent, Cathy Tew (formerly known as Cathy Frankum), was involved in a motor vehicle accident on January 11, 2000. She applied for accident benefits (income replacement benefits and medical/rehabilitation benefits) from Pilot Insurance Company (“Pilot”, now Aviva Company of Canada, collectively referred to herein as “the Appellant” or “the Insurer”). Disputes arose between the parties concerning certain claims for accident benefits and, in 2001, the Respondent applied at the Financial Services Commission of Ontario (“FSCO”) for mediation of these disputes.

In September 2001, during mediation, the parties entered into a full and final settlement of all claims for accident benefits arising out of the January 11, 2000 accident. The parties executed settlement documentation and the Insurer paid $15,000 in settlement funds to Ms. Tew.

In 2013, the Respondent attempted to revive her claim to income replacement benefits by commencing arbitration proceedings at FSCO (File No. A13-010659).² The Insurer raised a preliminary issue in that arbitration proceeding, seeking a determination that Ms. Tew was precluded from pursuing arbitration either because there was a binding settlement in place or because she was out of time.

In a decision issued September 1, 2015, Arbitrator Chuck Matheson (the “Arbitrator”) made the following rulings on the preliminary issues raised by the Insurer:

1. Ms. Tew is entitled to rescind the settlement pursuant to the Settlement Regulation.

2. Ms. Tew is not statute barred from proceeding with this Application for Arbitration.

3. A stay of this Arbitration is ordered, until full repayment of the settlement funds by the Applicant to the Insurer, is completed.

4. Should the parties be unable to resolve the issue of expenses between themselves, they may submit written submissions on the matter, no later than 30 days from the release of this decision.

II. NATURE OF THE APPEAL

Aviva is appealing the Arbitrator’s order of September 1, 2015. It submits that the Arbitrator erred in law by determining that:

1. the settlement was void(able) as a result of the Insurer failing to comply with the Settlement Regulation; and

2. Ms. Tew was not statute-barred in 2013 from either rescinding the settlement or commencing an arbitration proceeding.

III. ANALYSIS

Was there compliance with the Settlement Regulation?

The Arbitrator held that the Insurer failed to provide Ms. Tew with the information required by subsection 9.1(2) of the Settlement Regulation and, as a result, the settlement was voidable at the instance of the Respondent. I agree with the Arbitrator’s conclusion, although for slightly different (or, at least, more expansive) reasons, set out below.

Pursuant to subsection 279(2) of the Insurance Act R.S.O. 1990, c. I.8 (as it read at the relevant time), any restriction on a party’s right to mediate, litigate, appeal or apply to vary an order as provided in sections 280 or 284, or on a party’s right to arbitrate under section 282, is void except as provided in the regulations.

Pursuant to subsection 9.1(5) of the Settlement Regulation (O. Reg. 664, R.R.O. 1990, as it read at the relevant time), a restriction on an insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act, is not void under subsection 279(2) of the Act if,

(a) the restriction is contained in a settlement; and

(b) the insurer complied with subsection 9.1(2).

Subsection 9.1(2) of the Settlement Regulation states that, before a settlement is entered into between an insurer and an insured person, the insurer shall give the insured person a written notice that contains (amongst other things):

1. A description of the benefits that may be available to the insured person under the Statutory Accident Benefits Schedule and any other benefits that may be available to the insured person under a contract of automobile insurance.

2. If the settlement provides for the payment of a lump sum in an amount offered by the insurer and, with respect to a benefit, under the Statutory Accident Benefits Schedule that is not a lump sum benefit, the settlement contains a restriction on the insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act, a statement of the insurer’s estimate of the commuted value of the benefit and an explanation of how the insurer determined the commuted value.

Subsection 9.1(3) provides that a settlement may be rescinded by the insured person, within two business days after the settlement is entered into, by delivering a written notice to the insurer. Subsection 9.1(4) states that if the insurer did not comply with subsection 9.1(2), the insured person may rescind the settlement after the period mentioned in subsection 9.1(3) by delivering a written notice to the insurer.

In this case, the settlement consisted of a lump sum payment by the Insurer of $15,000 in exchange for a full and final release by Ms. Tew (then Ms. Frankum) of all claims (past, present or future) for statutory accident benefits arising out of the accident of January 11, 2000. Of this amount, $7,500 was attributed to income replacement benefits and $7,500 was attributed to medical benefits. The Insurer provided a written notice to Ms. Tew (the “Notice”), purporting to contain the information the Insurer was required to provide pursuant to subsection 9.1(2) of the Settlement Regulation. Ms. Tew then executed a Full and Final Release.

With respect to the validity of the settlement, the Appellant argues that the Arbitrator erred in determining that the Respondent was entitled to rescind the settlement. The Insurer submits that it complied with the requirements of subsection 9.1(2) of the Settlement Regulation. It also submits that Ms. Tew was not misled by any deficiencies that may exist in the settlement documentation.

Ms. Tew submits that the onus is upon the Insurer to prove that it complied with subsection 9.1(2) of the Settlement Regulation and that, in this case, it has failed to prove compliance with both paragraphs 1 and 5 of subsection 9.1(2).³ The Respondent also submits that whether or not she was actually misled is irrelevant and that there is no onus upon her to establish this as a fact.

To comply with paragraph 1 of subsection 9.1(2), according to the Ontario Court of Appeal, a description of the benefits available requires a statement of any monetary limits which apply to any particular benefit.⁴ In the case of a full and final settlement, this would require a description by the Insurer of all benefits potentially available to the insured person, not just those for which claims had already been advanced, since the insured person is giving up the right to make any claim for statutory accident benefits in the future, including the potential right: to re-elect a different weekly benefit; to assert a more severe level of impairment (such as catastrophic impairment) that could affect the potential maximum amount and/or duration of benefits; and to claim types of benefits that had not previously been claimed.

In this case, with respect to the description of benefits provided by Pilot (Schedule ‘A’ to its Notice), the Respondent argues that the description is deficient because it does not inform the insured person, for each type of benefit, the maximum amount(s) potentially available or the possible duration of payments. In particular, according to the Respondent:

• With respect to income replacement benefits, Schedule ‘A’ does not advise of the possible duration of income replacement benefits⁵ nor does it describe the difference in the test for eligibility between the first 104 weeks of disability and post-104-weeks of disability;
• With respect to caregiver benefits, there is no indication of the maximum potential duration of such benefits or any description of how the test for eligibility changes after two years of disability;
• With respect to medical and rehabilitation benefits, there is no indication of the maximum potential benefits and duration for either non-catastrophically impaired persons⁶ or catastrophically impaired persons⁷;
• With respect to attendant care, there is no indication of the maximum potential benefits and duration for either non-catastrophically impaired persons or catastrophically impaired persons;
• The description of housekeeping and home maintenance benefits (under “Other Settlements”) does indicate the maximum weekly amount ($100) but does not indicate the maximum potential duration of such benefits for either non-catastrophically impaired persons⁸ or catastrophically impaired persons⁹.

The Respondent argues that the failure of the Insurer to provide an adequate description of the benefits that may have been available constitutes a failure by the Insurer to comply with paragraph 9.1(2)1 of the Settlement Regulation and renders the settlement voidable. By operation of subsection 9.1(4), it is submitted, Ms. Tew was entitled to rescind the settlement.

The Respondent also submits that the Insurer failed to comply with the requirements of paragraph 5 of subsection 9.1(2) of the Settlement Regulation.

Paragraph 9.1(2)5 of the Settlement Regulation requires an insurer to provide its estimate of the commuted value of the benefit(s) it is paying and an explanation of how it determined the commuted value(s). The seminal case on this issue comes from Justice Spiegel in Opoku v. Pal (“Opoku”).¹⁰ Justice Spiegel held that the term “commuted value”, as it is used in paragraph 5, means the present value of a stream of future payments. The explanation of how the insurer arrived at the commuted value should include a description of:

1. the insured’s life expectancy;
2. the appropriate discount rate in respect of each of the periodic benefits;
3. the insurer’s assumptions concerning the rate and duration of payment of each benefit.¹¹

In Opoku, although the insurer advised the insured person of the maximum potential benefits available and provided the life expectancy of the insured person, it made no effort to provide an estimate of the commuted value of each of the relevant accident benefits. Justice Spiegel held that this constituted a breach of paragraph 9.1(2)5. The Court of Appeal agreed with Justice Spiegel’s interpretation of the term “commuted value” and upheld his ultimate finding (that the insurer’s notice did not comply with paragraph 9.1(2)5 of the Settlement Regulation).¹²

In the current case, unlike Opoku, the Insurer did make some attempt to provide commuted values for benefits where it was making a lump sum payment of what would normally be periodic benefits and some explanation as to how those commuted values were calculated.

With respect to income replace benefits, the Insurer provided the following information under the heading “Commuted Value”:

Weekly benefits of $210.78 x 52 weeks = $10,960.56/year. Claimant’s age is 41 years and claimant is female. Life expectancy is 41.24 years. $10,960.56/year for 2 years discounted by 6% = $10,960.56 x 1.8334 = $20,095.09 (less already paid)

With respect to supplementary medical benefits, the Insurer provided the following information:

Maximum $100,000.00 available for 10 years (until January 11, 2010) To date $15,300.00 has been paid, including settlement. $84,700.00 maximum still available to January 11, 2010 (10 years) $84,700.00/10 years = $8,470.00/year discounted by 6% = $8,470.00 x 7.3601 = $62,340.05 (less already paid)

The Arbitrator found that the Insurer, by restricting its calculations concerning the commuted value of the income replacement benefits to only the first 104 weeks (i.e., to the “two year mark”), failed to complete its calculations and, thereby, failed to comply with paragraph 9.1(2)5 of the Settlement Regulation. Given this finding, the Arbitrator found it unnecessary to explore the other non-compliance arguments advanced by Ms. Tew.

The Appellant submits that the Arbitrator erred in this finding and submits that its calculations of the commuted values set out in Schedule ‘B’ do comply with the requirements of paragraph 5 of subsection 9.1(2) of the Settlement Regulation. In the alternative, the Appellant submits that the information provided, if not perfect, was sufficient on the facts of this case to constitute substantial compliance. The Appellant submits that the Court of Appeal, in its decision in Catania,¹³ suggested that a more nuanced or subjective approach may be appropriate where there has been at least partial compliance with subsection 9.1(2).

Statements within Catania (at paragraphs 20 and 21) suggest that, where there is some compliance with subsection 9.1(2), the court may consider the extent of the breach and the effect, if any, of the deficiencies on the insured person’s decision to settle.¹⁴ These comments constitute obiter dictum, however, because, in Catania, the Court found that there was “not even minimal compliance with the regulation.” Furthermore, immediately following these obiter comments in Catania, the Court of Appeal went on to explicitly recognize that:

1. any test that requires a judge or arbitrator to try to ascertain the impact of an insurer’s breach of subsection 9.1(2) upon an insured person’s acceptance of the settlement offer would be very difficult to apply with any degree of confidence or predictability; and
2. the stricter test (described in Opoku), although it might in some cases “give rise to some unreasonable or unfair results”, has the virtue of relative ease of application -- placing the burden (or risk) upon insurers is appropriate since “it is entirely within the hands of the insurance companies to see that there is compliance with s. 9.1(2)”.¹⁵

I therefore do not accept the Appellant’s contention that, in Catania, the Court of Appeal has modified the test set out in Opoku or created a new, lower threshold for compliance with the Settlement Regulation. The most that can be said is that the Court of Appeal may have left open the question of whether (and under what circumstances) less than perfect compliance by an insurer with subsection 9.1(2) may be sufficient. I also note that the decision of the Court of Appeal in Catania comes about one year prior to the Supreme Court of Canada’s pronouncement in Smith v. Co-operators¹⁶ that “bright-line” tests (i.e., objective rather than subjective tests) must be established by the courts in order to draw a clear distinction between the permissible and the impermissible.

I find numerous deficiencies in Schedule ‘B’ to the Insurer’s Notice, including the following:

• it fails to clearly state the date upon which the commuted value is being calculated;
• with respect to the calculation of the commuted value of income replacement benefits:
  • it fails to explain why the Insurer is only calculating income replacement benefits for two years;
  • no consideration is given to any possible value for income replacement benefits beyond two years of disability and no explanation is provided for this by the Insurer;
  • the Insurer indicates that, when calculating the commuted value of income replacement benefits, the amounts it has already paid should be deducted but it does not provide the total of all income replacement benefits paid, leaving the actual commuted value of income replacement benefits as an unspecified and uncertain sum;
• with respect to the calculation of the commuted value of supplementary medical benefits:
  • the Insurer assumes that the maximum available benefit is $100,000 and does not inform the insured person of even the possibility of an enhanced level of benefits that is available to a person who sustains a catastrophic impairment;
  • the Insurer deducts from $100,000 the amounts it has paid, which it says includes the amounts paid in “settlement” -- it is not clear whether this means the $7,500 attributed in the settlement to medical benefits or the entire $15,000;
  • This amount (amounts already paid) is then deducted by the Insurer for a second time in the last line of the calculation, which appears to me to represent double-counting by the Insurer – the amount to be deducted, however, is not specified in this line;
  • Since the amount to be deducted in the last line of the calculation is not specified, the actual commuted value of supplementary medical benefits is also an unspecified and uncertain sum.

The Respondent suggests that these deficiencies in the explanation of the calculation of the commuted values (in Schedule ‘B’) are made that much worse when seen in the context of the Insurer’s failure to provide information (in Schedule ‘A’) about the maximum amounts and potential duration of benefits that may have been available to Ms. Tew. It is submitted that, in combination, these breaches of subsection 9.1(2) of the Settlement Regulation made it impossible for Ms. Tew to compare the amounts offered with the commuted value of the maximum amounts potentially available for each type of benefit. As stated by the Court of Appeal in Opoku (at para. 4):

Paragraph 1 and 5 … relate to different informational requirements. The two (maximum benefits available under the policy and commuted value of certain benefits) taken together provide the insured with information that will assist the insured in determining whether the settlement should be accepted.

I agree with this submission by the Respondent. When taken as a whole, the information provided by the Insurer in Schedules ‘A’ and ‘B’ of its Notice cannot be said to have complied with the requirements of paragraphs 1 and 5 of subsection 9.1(2) of the Settlement Regulation. Certainly, the Insurer made some attempt to provide an explanation of its determination of the commuted values for income replacement benefits and supplementary medical benefits. However, the Insurer’s explanation of its calculations omits important information and these omissions are made worse by the failure of the Insurer to provide basic information concerning the monetary limits of all benefits, not just those claimed in the past by Ms. Tew but also benefits that she might have claimed in the future.

The Appellant would like me to infer from the Court of Appeal’s obiter comments in Catania, that there may be cases where less than perfect compliance with the Settlement Regulation is sufficient. If the Appellant is arguing that there may be cases where minor errors or omissions in settlement documentation ought not to invalidate settlements that, in all material ways, comply with the Settlement Regulation, this is probably not a controversial proposition. Compliance does not necessarily require perfection. Nevertheless, there must be compliance with the Settlement Regulation for a settlement to be binding upon an insured person; if not, the settlement is void.

If the Appellant is suggesting that significant breaches of the Settlement Regulation ought to be ignored unless the insured person can prove that such breaches had an effect on his or her decision to enter into the settlement, then I reject this proposition. I adopt the Court of Appeal’s comments in Catania that a more relaxed or subjective test would likely lead to greater uncertainty. That is why it is foolhardy to attempt to shift the onus onto an insured person to prove that he or she was materially misled or disadvantaged by the information the insurer provided (or failed to provide) in the settlement documentation. Whether or not the insured person had the benefit of legal advice is also irrelevant for the same reason.¹⁷ Consumer protection requires that the test for compliance remain an objective one -- either an insurer has provided the information it is required by law to provide or it has not.

Even if “substantial compliance” is sufficient, the Notice provided by the Insurer in this case would not satisfy this test either. For the reasons already given, the description of benefits was inadequate to satisfy paragraph 1 of subsection 9.1(2) of the Settlement Regulation. The failure of the Insurer to describe the monetary limits and maximum duration of each type of benefit in Schedule ‘A’ also made worse the breaches of paragraph 5 (i.e., the deficiencies I have found in Schedule ‘B’). In short, the Insurer failed to comply with subsection 9.1(2) of the Settlement Regulation. In such circumstances, pursuant to subsection 9.1(4), the insured person may rescind the settlement after the period mentioned in subsection 9.1(3) by delivering a written notice to the insurer.

The Appellant argues that this is unreasonable or unfair since, when one considers the sequence of events and the negotiations that took place between the parties leading up to execution of the settlement documentation, it is patently clear that Ms. Tew was satisfied with the terms of the settlement and that she knew or ought to have known (since she was represented by counsel) what she was giving up in exchange for the settlement funds.

Admittedly, the Court of Appeal’s musings on this issue in Catania are confusing because they appear to be self-contradictory. On the one hand, the Court suggests that, where there has at least been some degree of compliance with s. 9.1(2) of the Settlement Regulation, a court could consider what effect, if any, breaches of that subsection had on an insured person’s decision to accept an offer. On the other hand, in the very same paragraph (para. 21), the Court also explicitly recognizes that such a subjective test would be very difficult to apply with any degree of confidence or predictability and that a more strict test for compliance has the virtue of relative ease of application and, not unreasonably, places any risk arising from non-compliance with the Settlement Regulation upon insurance companies, which companies have the responsibility and ability to ensure compliance with subsection 9.1(2).

The Court of Appeal recognized that there might be cases where strict application of subsection 9.1(2) of the Settlement Regulation could lead to unreasonable or unfair results. It is possible that this is such a case. I find, however, that principles of both certainty and consumer protection require a strict test of compliance.¹⁸ The Supreme Court of Canada has made this very clear:

…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.¹⁹

Section 279(2) of the Insurance Act provides that any restriction on a person’s right to pursue accident benefits is void except as provided in the regulations. The purpose of the Settlement Regulation is “to permit an insured to receive sufficient information from the insurer to make a meaningful comparison between a proposed settlement payment and the value of the statutory accident benefits that might otherwise be available to that person under the Statutory Accident Benefits Schedule”.²⁰ In this case, for the reasons set out above, I find that the Insurer failed to provide sufficient information to Ms. Tew and failed to comply with subsection 9.1(2) of the Settlement Regulation.

The Arbitrator found that the Insurer failed to meet its onus of proof that it complied with the Settlement Regulation and, as a result (i.e., pursuant to subsection 9.1(4) of the Settlement Regulation), Ms. Tew was entitled to rescind the settlement. I find no error in this.

Aviva’s Limitation Defence

(a) Limitation under the Insurance Act and the Schedule

Both at first instance and before me, the parties seemed to focus on the issues of: (1) the validity of the settlement between the parties; and (2) the applicability and effect of the Limitations Act on that settlement. Few submissions were made by either party on the effect of the limitation provisions under the Insurance Act and the Schedule²¹ on Ms. Tew’s right, in 2013, to pursue her claim for income replacement benefits. Nevertheless, the Appellant raised this issue on the record and declined, during oral submissions, to withdraw this as an issue. I shall therefore deal with this issue below.

The limitation provisions under the Insurance Act establish the period within which an insured person must challenge an insurer’s refusal to pay a benefit under the Schedule. In its simplest terms, the insured person has two years from the insurer’s refusal in which to commence a proceeding (mediation, evaluation, court proceeding or arbitration). Where mediation is sought, the time limit for commencing proceedings is extended to 90 days after the mediator reports to the parties. Where neutral evaluation is sought, the time limit for commencing proceedings is extended to 30 days after the report of the neutral evaluator.

At the relevant time (i.e., April 2001), section 49 of the Schedule²² provided that:

If an insurer refuses to pay a benefit under this Regulation or reduces the amount of a benefit that a person is receiving under this Regulation, the insurer shall inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act.

In the case of Smith v. Co-operators,²³ the Supreme Court of Canada held that, in order to rely upon this statutory limitation period provided for in the Insurance Act, an insurer must deliver to the insured person a refusal of a benefit that is clear and unequivocal and, along with this refusal, inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act.

Smith v. Co-operators involved a 1994 accident. The Insurer terminated benefits effective May 8, 1996 and, along with its notice of refusal, advised the insured person of her right to ask for mediation through the Ontario Insurance Commission (as FSCO was then known). At the time of this refusal, Ms. Smith was represented by counsel. The dispute was mediated in 1997 and, when that failed to resolve the dispute, Ms. Smith commenced court proceedings (by statement of claim) in September 1998. The insurer in that case brought a motion for summary judgment on the basis that Ms. Smith’s claims were statute-barred (i.e., out of time). Ultimately, the issue made its way to the Supreme Court of Canada.

That Court stated that the rationale for ensuring that insurers comply with provisions of the regulations that require them to provide specific information to insured persons is that “one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance.”²⁴ Also, pursuant to s. 279(2) of the Insurance Act, any restriction on a party’s right to mediate, arbitrate, litigate or appeal is void, except as provided in the regulations. Thus, according to the Supreme Court of Canada, an insurer must provide to an insured person (as part of its refusal) a description, not just of the person’s right to mediate, but of the entire dispute resolution process contained in sections 279 to 283, in straightforward and clear language, directed towards an unsophisticated person. The Court held (at p. 137) that:

At a minimum, this should include a description of the most important points of the process, such as the right to seek mediation, the right to arbitrate or litigate if mediation fails, that mediation must be attempted before resorting to arbitration or litigation and the relevant time limits that govern the entire process. Without this basic information, it cannot be said that a valid refusal has been given.

In Smith v. Co-operators, the majority held that Ms. Smith’s claims were not out of time because the refusal in 1996 was not a valid²⁵ one. The insurer’s refusal in that case only provided a brief description of mediation and provided no information about the relevant time limits. The insurer did not adequately describe the entire dispute resolution process contained in sections 279 to 283, as required by the regulations. According to the Supreme Court of Canada, this meant that the insurer in that case could not rely upon a limitation defence.

In the present case, Ms. Tew was involved in an accident in January 2000. In April 2001, the Insurer refused to pay income replacement benefits. The letter from the Insurer dated April 24, 2001, states (in part):

Your income replacement benefits will now stop.

If you disagree, you may file for mediation.

The refusal does not contain any other information about the dispute resolution process contained in sections 279 to 283, nor does it provide any information about the relevant time limits.

The Appellant has not, either in its written or oral submissions, attempted to argue that the refusal given in April 2001 provides the type of information described in Smith v. Co-operators. The Appellant merely points out that Pilot’s refusal in this case was clear and that it pre-dates the Supreme Court of Canada’s decision in Smith v. Co-operators.

Although it is true that the Supreme Court’s decision in Smith v. Co-operators came out in 2002 (i.e., after the refusal of income replacement benefits in this case), the Supreme Court of Canada was not imposing a new requirement on insurers. Rather, the Court was merely interpreting the responsibility that was imposed upon insurers under the existing regulations – that is, the requirement than an insurer shall inform the person in writing of the procedure for resolving disputes relating to benefits under sections 279 to 283 of the Insurance Act. The Supreme Court clarified what the impact would be of an insurer’s failure to provide the necessary information concerning the dispute resolution process. The result of a breach is that any refusal that does not contain the necessary information will be considered invalid and an insurer will not subsequently be able to successfully raise a limitation defence concerning any accident benefits that were not validly refused.

In this case, income replacement benefits were refused by the Insurer in April 2001. Ms. Tew commenced mediation proceedings in June 2001, well within the limitation period. The report of mediator was issued in September 2001. Ms. Tew did not, however, commence arbitration proceedings within two years of the refusal or within 90 days of receiving the September 2001 report of mediator.

Had the Insurer provided Ms. Tew with a valid refusal of income replacement benefits in April 2001, the Insurer might well be able to rely upon its limitation defence concerning any claim for income replacement benefits. I find, however, that the Insurer’s refusal in April 2001 was not a valid one as it did not contain any information about the dispute resolution process contained in sections 279 to 283 (other than a reference to a right to mediate) and it did not provide any information about the relevant time limits. This case is not distinguishable on its relevant facts from Smith v. Co-operators. The Insurer in this case was under the same obligation as the insurer in Smith v. Co-operators to provide information about the entire dispute resolution process in writing at the time of its refusal to pay a benefit. It failed to do so. The consequences must be the same as in Smith v. Co-operators. The Respondent’s claim for income replacement benefits is not statute-barred as a result of the operation of the limitation provisions under the Insurance Act.

The Appellant argues that to permit a party to bring forward a claim many years after what may have been a defective refusal can, in certain circumstances, result in an abuse of process. The Appellant argues that, just as in the case of Golic,²⁶ Ms. Tew should not be able to “feign ignorance” and use of the consumer protection objectives of the legislation to mask her failure to challenge the settlement or prosecute her claims on a timely basis.

The case of Golic, however, is distinguishable from the present one. Mr. Golic, the plaintiff in a court action for accident benefits, brought a motion to amend his claim to include additional claims that would otherwise be statute-barred. Under the Rules of Civil Procedure and case law established with respect thereto, the burden was upon Mr. Golic to show:

1. that the amendment he was requesting would not cause prejudice to the defendant (insurer) that could not be compensated for in costs; and
2. that permitting him to add claims outside of the limitation period would not result in irreparable prejudice to the defendant.

In the circumstances of that case, Justice Quigley held that Mr. Golic had failed to meet his onus on both counts and the motion was dismissed.

On appeal, the Ontario Court of Appeal held in Golic that “courts should not look to circumstances beyond the insurer’s notice of refusal, such as the mediator’s report …, to relieve the insurance company of its obligation to provide a proper refusal”(emphasis added).²⁷ It therefore appears to me that the Ontario Court of Appeal is maintaining an objective test as to whether or not a refusal satisfies the requirements of the regulations. The Court of Appeal writes (at paras. 19-22):

[19] I am satisfied that the refusal in this case, standing alone, is sufficient to meet the consumer protection purpose that formed the rationale for the majority decision in Smith…

[20] In reaching this conclusion, I do not find it necessary to have regard to circumstances not contained in the respondent’s letter …

[21] … The motion judge found that the letter, by itself, did not constitute a proper refusal to pay benefits. He went on, however, to find that the appellant should not be able to feign ignorance of the dispute resolution process having regard to the fact that he was an experienced litigant and had been through three mediations… The motion judge noted that it would be unfair to the respondent to have to answer the appellant’s claims so many years after the accident. While I agree with the result reached by the motion judge, I am satisfied that the same conclusion is available from the letter standing alone. 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.

[22] In the result, I am satisfied that the letter … constituted a proper refusal to pay benefits so as to trigger the running of the limitation period in s. 281(5). That period expired two years later, long before the appellant sought to amend his statement of claim to include the new statutory accident benefits claims. I agree with the motion judge that the appellant has not satisfied his onus of establishing special circumstances to relieve against the operation of the limitation period.

[23] Thus, I agree with the motion judge that the claims in the amended statement of claim were statute-barred and that the motion to amend should have been dismissed.

In Czajkowski and Wawanesa,²⁸ an arbitrator at FSCO followed the approach of the motion judge in Golic in looking outside of the insurer’s refusal in order to draw conclusions as to what the applicant knew or ought to have known about the dispute resolution process and the relevant limitation periods. Although the arbitrator in Czajkowski indicates that she is aware that the decision of the motion judge was upheld on appeal to the Court of Appeal, she provides no citation for the Court of Appeal decision. It is therefore not clear that she actually had an opportunity to read the decision of the Court of Appeal. The arbitrator seems unaware, for example, that the Court of Appeal adopted a very different approach from that of the motion judge and that the Court of Appeal stated very clearly that “courts should not look to circumstances beyond the insurer’s notice of refusal to relieve the insurance company of its obligation to provide a proper refusal.” The Supreme Court of Canada’s decision in Smith v. Co-operators and the Court of Appeal’s decision in Golic are binding upon me. The decisions of the arbitrator in Czajkowski and of the motion judge in Golic are not binding upon me. To the extent that these decisions may be in conflict, I am bound to follow those of the Supreme Court of Canada and the Ontario Court of Appeal.

In the present case, it is not Ms. Tew who is seeking some discretionary relief (as was the case in Golic). It is the Insurer who is raising the limitation provisions under the Insurance Act as a defence and it is the Insurer who bears the onus of proving that it complied with the requirements of the regulations in order to be able to rely upon this limitation defence. In deciding whether the Insurer has provided a valid refusal, one need look no further than the Explanation of Benefits (Form OCF-9) and letter given to Ms. Tew in April 2001. The Insurer failed in those, or any other, documents to provide to Ms. Tew necessary information about the dispute resolution process and the relevant limitation periods. This fact is not denied by the Insurer. I find that the Insurer’s refusal of income replacement benefits in April 2001was not a valid one and, therefore, Ms. Tew is not statute-barred by the limitation provisions under the Insurance Act from pursuing her claim for income replacement benefits in her arbitration proceeding (File No. A13-010659).

(b) Limitations Act

The Appellant argues that certainty and finality are required in this field²⁹ and that there should be a time limit on an insured person’s ability to challenge a settlement of their claims to accident benefits. The Appellant suggests that, where an insured person seeks to challenge the validity of such a settlement, this can be viewed as an action on a contract or an action upon the case. Pursuant to paragraph 45(1)(g) of the Limitations Act,³⁰ such an action must be commenced within six years after the cause of action arose.

This argument was rejected by the Arbitrator. For the reasons that follow, I agree with the Arbitrator’s conclusion on this issue.

Certainty and finality are laudable goals. They are not, however, the only important goals in the realm of statutory accident benefits. Consumer protection is also recognized as one of the main goals of government-mandated no-fault insurance. Furthermore, introducing the Limitations Act into the field of statutory accident benefits is not necessary to achieve these goals. It is entirely within the hands of insurers to ensure compliance with the Settlement Regulation and with the Statutory Accident Benefits Schedule and, thereby, achieve certainty and finality.

Where an insurer complies with the Settlement Regulation, an insured person will not be successful in attempting to rescind the settlement. There will be certainty and finality. Where, however, an insurer fails to comply with the subsection 9.1(2) of the Settlement Regulation, the settlement is void. Where a settlement is void, all the insured person need do to rescind the settlement is deliver a written notice to the insurer (pursuant to paragraph 9.1(2)4 of the Settlement Regulation).

Where an insurer complies with the Schedule and provides a valid refusal to pay a benefit (i.e., one that provides sufficient information about the entire dispute resolution process and relevant time limits), the insurer will be able to rely upon the statutory limitation period set out in the Insurance Act. Again, there will be certainty and finality. Where the insurer fails to provide, as part of its refusal, the information it is required to provide concerning the dispute resolution process, the refusal will not be valid and the insurer will not subsequently be able to rely upon the limitation period provided in the Insurance Act (and the Schedule).

The Appellant argues that paragraph 45(1)(g) of the Limitations Act creates an “ultimate limitation” of six years³¹ within which an insured person can challenge the validity of a settlement and, beyond which, an insurer can have confidence that the file is well and truly closed.

There are several fatal flaws in the reliance by the Appellant upon subsection 45(1) of the Limitations Act.

First, pursuant to subsection 45(2) of the Limitations Act, nothing in s. 45 extends to any action where the time for bringing the action is by any statute specially limited. The limitation provisions under the Insurance Act create a two-year³² limitation on actions³³ concerning statutory accident benefits. There is no need to look to the Limitations Act.

An insurer might ask, “What about settlement of benefits that were never claimed or denied?” The limitation provisions under the Insurance Act will not apply to a benefit that was not refused. “Should there not be a time limit on those claims that were never refused but that were released by an insured person as part of a full and final settlement?” The simple answer is that, if it was intended that there be a time limit on such claims, it would be found in the Insurance Act and the regulations thereunder. The Settlement Regulation provides no time limit on the right to rescind and it could easily have done so.

The Appellant argues that the Settlement Regulation did not need to include a time limit on the right to rescind because that time limit exists under paragraph 45(1)(g) of the Limitations Act. Paragraph 45(1)(g) of the Limitations Act precludes a person from commencing an action (amongst other things) on a contract or on a case more than six years after the cause of action arose. The flaw in this argument is that an insured person, in order to rescind a settlement, need not commence any legal proceeding – he or she need only provide written notice to the insurer.

In Navage v. Pilot,³⁴ Justice Lederman held that:

1. there is no time limit on an insured’s right to rescind a settlement of statutory accident benefits; and
2. because no action need be commenced to rescind such a settlement, the Limitations Act has no application to the exercise of this rescission right.

Justice Lederman, in coming to this conclusion, followed an earlier unreported decision of Madame Justice MacFarland.

In Pickrem,³⁵ on a motion for summary judgment,³⁶ Justice Broad adopted the reasoning from Navage and held that the right of rescission in subsection 9.1(4) is capable of being exercised at any time. He accepted the arguments (at para. 13) by plaintiff’s counsel that:

1. although this might be regarded as being potentially unfair and against any notion of finality, it is a result which is driven by the failure of the legislature to provide for a time limit for the exercise of the rescission right under subsection 9.1(4); and
2. it is not open to the Court to create a time limit where none exists in the legislation.

While these decisions are not binding upon me, they support the conclusions reached by the Arbitrator on this issue and I find the reasoning in these cases to be persuasive.

After an insured person exercises his or her right to rescind a settlement, he or she may then seek to commence a legal proceeding for accident benefits but it is the Insurance Act that sets the limitation for such proceedings. Accordingly, the Limitations Act has no application. The insurer is then free to seek, in that proceeding, a determination that the settlement is valid and binding upon the insured person. The insurer is also free to seek a determination that some or all of the claims being advanced by the insured person are statute-barred under the relevant provisions of the Insurance Act and the regulations thereunder.

That is exactly what has occurred here. It is just that, in this case, due to the Insurer’s breaches of the subsection 9.1(2) of the Settlement Regulation and section 49 of the Schedule, the Insurer has deprived itself of the ability to successfully rely on either of these potential defences. To the extent that there is a lack of certainty and finality, the Insurer is responsible. If, as alleged by the Insurer, Ms. Tew is taking advantage of the situation, it is the Insurer’s breaches of its responsibilities that created the conditions that have permitted her to do so.

Conclusion

In short, for all the reasons set out above, I agree with the ultimate findings in the decision under appeal. I agree that Ms. Tew is entitled to rescind the settlement due to the failure of the Insurer to comply with subsection 9.1(2) of the Settlement Regulation. I also agree with the Arbitrator’s conclusion that paragraph 45(1)(g) of the Limitations Act does not apply to settlements of statutory accident benefits and that the claims raised in the arbitration proceeding (File No. A13-010659) are not statute-barred.

IV. EXPENSES

At the hearing of this appeal, the parties advised me that, given the novelty of the issues raised in this matter, regardless of the outcome, neither party is seeking any expenses of this appeal.

October 21, 2016

Richard Feldman Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended (the “Schedule”).
2. 2Ms. Tew first filed a new application for mediation and, when that did not resolve the dispute, filed an application for arbitration.
3. 3Although the focus of the decision under appeal was on paragraph 5 of subsection 9.1(2) of the Settlement Regulation, the Respondent also raised at first instance and before me alleged breaches of paragraph 1.
4. 4Opoku v. Pal (2000), 2000 CanLII 1539 (ON CA), 49 O.R. (3d) 97 (ON CA), at para. 3.
5. 5To age 65 with a “ramp down” thereafter.
6. 6Up to $100,000 over 10 years – there is some reference to this information, however, in Schedule ‘B’ to the Insurer’s Notice.
7. 7Up to $1,000,000 over the person’s lifetime.
8. 8i.e., 104 weeks.
9. 9i.e., lifetime.
10. 10(1999), 1999 CanLII 19913 (ON CTGD), 49 O.R. (3d) 100 (S.C.J.), upheld on appeal, (2000), 2000 CanLII 1539 (ON CA), 49 O.R. (3d) 97 (ON CA).
11. 11In Opoku, since the insured was a young person who sustained a catastrophic impairment, the court required the Insurer to indicate the date at which it expected the maximum limits for each type of benefit to be reached, if such date would occur before the expiration of the insured’s life expectancy.
12. 12(2000), 2000 CanLII 1539 (ON CA), 49 O.R. (3d) 97.
13. 13Catania v. Scottish & York Insurance Co. (2001), 2001 CanLII 24147 (ON CA), 53 O.R. (3d) 383.
14. 14The actual quote is, “Accepting that there may be gradations in the statements of information that will comply with the requirements of s. 9.1(2), I do not think it can reasonably be said that the facts of this case show even minimal compliance.” When read in the context of the decision as a whole, the word “Accepting…” in the above quote could be interpreted as “If it were accepted…” Thus, it appears to me that the Court of Appeal is not actually accepting this proposition but is indicating that, even if it were to be accepted as a legal principle, it would not help the insurer on the facts of the case before it.
15. 15Catania v. Scottish & York Insurance Co. (2001), 2001 CanLII 24147 (ON CA), 53 O.R. (3d) 383 at para. 21.
16. 16Smith and Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129.
17. 17Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129 (“Smith v. Co-operators”).
18. 18See Navage v. Pilot Insurance Co., 2004 CanLII 15034 (ON SC), [2004] O.J. No. 1098 (Ont. S.C.J.) (“Navage”).
19. 19Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129 at p. 139.
20. 20Navage v. Pilot Insurance Co., 2004 CanLII 15034 (ON SC), [2004] O.J. No. 1098 (Ont. S.C.J.), at para. 12.
21. 21At the time of the refusal of income replacement benefits in April 2001, the relevant limitation provisions were s. 281(5) of the Insurance Act and s. 51 of the Schedule. In 2004, the relevant limitation provisions of the Insurance Act were moved to s. 281.1. I shall refer to these, collectively, as “the limitation provisions under the Insurance Act”.
22. 22Formerly section 71 under the previous Statutory Accident Benefits Schedule.
23. 23Smith and Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129.
24. 24Smith and Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129 at 137.
25. 25Throughout these reasons, where I use the term “valid” refusal, I mean one that is clear and unequivocal and that provides the required information about the dispute resolution process. I acknowledge that a refusal can be “valid” (i.e. effective to start the running of the limitation period under the Insurance Act) even if it provides legally incorrect reasons for the denial of benefits.
26. 26Golic v. ING Insurance Company of Canada 2008 CanLII 69502 (ON SC), 94 O.R. (3d) 446 (Ont. S.C.J.) (“Golic”).
27. 27Golic v. ING Insurance Company of Canada (2009), 98 O.R. (3d) 294 at para. 12.
28. 28Czajkowski and Wawanesa Mutual Insurance Company (FSCO A14-003498, August 24, 2015) (“Czajkowski”).
29. 29“…one of the primary purposes of the SABS regime [is] to ensure the timely submission and resolution of claims for accident benefits”: Sietzema v. Economical Insurance, 2014 ONCA 111 (ON CA), at para. 16.
30. 30R.S.O. 1990, c. L.15.
31. 31Plus two business days, says the Appellant, since a settlement of accident benefits is not considered binding until two business days after its execution.
32. 32Plus up to 90 days after delivery of the report of mediator or up to 30 days after delivery of the report of the neutral evaluator.
33. 33“Action” in this case is being used in its broadest sense, to include any civil proceeding arising out of a dispute over statutory accident benefits, including: mediation, arbitration and a court action.
34. 34Navage v. Pilot Insurance Co., 2004 CanLII 15034 (ON SC), [2004] O.J. No. 1098 (Ont. S.C.J.).
35. 35Pickrem and Belair Insurance, 2012 ONSC 1402.
36. 36For determination, amongst other things, of whether Ms. Pickrem was bound by the purported settlement between the parties of Ms. Pickrem’s claim to accident benefits and whether she had been entitled to and did, in fact, rescind that settlement. Note that this case is unusual in that it was the plaintiff who brought the motion for determination of these issues whereas, typically, it will be the insurer who seeks such declaratory relief.