Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2016 ONFSCDRS 55

FSCO A14-000269

BETWEEN:

JODY FALCON (DMYTRYSHYN)

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

Before:

Arbitrator Anne Morris

Heard:

In person at ADR Chambers on December 17, 2015

Appearances:

Mr. Jody Falcon did not participate

Ms. Sharon MacKay, Mr. Falcon’s current lawyer, filed materials but did not participate in the Oral Hearing

Ms. Sandi Smith participated for Mr. Falcon on the Preliminary Issue Hearing with the consent of all parties

Ms. Leilah Edroos, lawyer, participated for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Mr. Jody Falcon, was injured in a motor vehicle accident on May 11, 2008, and sought accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Falcon, through his representative, applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8, as amended.

The issues in this Preliminary Issue Hearing are:

Is the Applicant’s claim for income replacement benefits statute barred pursuant to s. 281.1 of the Insurance Act² and s. 51 of the Schedule?
Is either party entitled to its expenses of the Preliminary Issue Hearing?

Result:

The Applicant’s claim for income replacement benefits is not statute barred pursuant to s. 281.1 of the Insurance Act³ and s. 51 of the Schedule.
The question of expenses related to this Preliminary Issue Hearing is deferred to the Hearing Arbitrator.

EVIDENCE AND ANALYSIS:

The Law

Section 281.1 of the Insurance Act provides as follows:

Limitation period

A mediation proceeding or evaluation under section 280 or 280.1 or a court proceeding or arbitration under section 281 shall be commenced within two years after the insurer’s refusal to pay the benefit claimed.

Exception

(2) Despite subsection (1), a proceeding or arbitration under clause 281 (1) (a) or (b) may be commenced,

(a) if there is an evaluation under section 280.1, within 30 days after the person performing the evaluation reports to the parties under clause 280.1 (4) (b);

(b) if mediation fails but there is no evaluation under section 280.1, within 90 days after the mediator reports to the parties under subsection 280 (8).

Section 51 of the Schedule provides as follows:

A mediation proceeding or evaluation under section 280 or 280.1 of the Insurance Act or a court proceeding or arbitration under clause 281 (1) (a) or (b) of the Act in respect of a benefit under this Regulation shall be commenced within two years after the insurer’s refusal to pay the amount claimed.

(2) Despite subsection (1), a court proceeding or arbitration under clause 281 (1) (a) or (b) of the Insurance Act may be commenced within 90 days after the mediator reports to the parties under subsection 280 (8) of the Act or within 30 days after the person performing the evaluation provides a report to the parties under section 280.1 of the Act, whichever is later.

Leading Case

Supreme Court of Canada Decision in Smith v. Co-operators General Insurance Company (“Smith v. Co-operators”)⁴

The Supreme Court held in this case that the limitation period at issue begins to run upon issuance by the Insurer of a valid refusal. In order for there to be a valid refusal, consumer protection requires that the Insurer must inform the insured person of the dispute resolution process in straightforward and clear language, directed towards an unsophisticated person. For a refusal to pay a claimed benefit to trigger the limitation period, the Insurer’s notice to its Insured must be clear and unequivocal.

Facts not in dispute

The Applicant was injured in a motor vehicle accident on May 11, 2008.

He applied for income replacement benefits which were paid by the Insurer commencing on May 18, 2008.⁵

The Insurer stopped the income replacement benefits effective May 18, 2009, following Insurer Examinations. The Insurer sent two Explanations of Benefits (“OCF-9s”), dated April 17, 2009, with respect to this stoppage to the Applicant, one of which (“OCF-9 A”), was accompanied by a letter setting out the rebuttal examination process, and one of which (“OCF-9 B”), was not accompanied by a letter.⁶

The Applicant sent a rebuttal examination dated June 8, 2009 to the Insurer,⁷ following which the Insurer sent a further OCF-9, dated July 9, 2009 (“OCF-9 C”).⁸

The Applicant’s former lawyer applied for Mediation at FSCO with a covering letter, dated March 14, 2011.⁹

The Insurer subsequently received a Report of Mediator issued on June 27, 2012, accompanied by a covering letter from FSCO, dated June 27, 2012.¹⁰

The Applicant retained his current lawyer, Ms. MacKay, in early 2013. She requested the complete file of FSCO which was received on November 20, 2013. Based on the information received, she filed the within Application for Arbitration on December 10, 2013.¹¹

This Application for Arbitration was stamped “Received” by FSCO on January 7, 2014.¹²

Submissions of the Parties

The Insurer submits that the Applicant filed an Application for Arbitration, received by FSCO on January 7, 2014, more than two years after the benefit in question was denied, and over 18 months after the Report of Mediator was issued. As such the Insurer maintains that the Applicant is statutorily barred from arbitrating his income replacement benefit entitlement by operation of the time limits imposed by s. 281(2)(b) of the Insurance Act and s. 51(2) of the Schedule.

The Applicant submits that:

The Insurer never provided the Applicant with a clear and unequivocal refusal to pay a benefit, or informed him of all steps of the dispute resolution process as required;
The Applicant did not in fact receive the Report of Mediator, dated June 27, 2012, and therefore the 90 day time period referred to in s. 281.1(2) did not begin to run as the Mediator did not report to the parties within the meaning of that section;
The Applicant’s former lawyer in fact delivered an (earlier) Application for Arbitration dated August 27, 2012 which was delivered to FSCO on October 3, 2012, and which should therefore be deemed received by FSCO on that date, even though FSCO has no record of that earlier Application for Arbitration.

Conclusions

With respect to number 1 above, I accept the Applicant’s submission that the Insurer never provided the Applicant a clear and unequivocal refusal to pay a benefit, or informed him of all steps of the dispute resolution process as required, for the reasons discussed further below.

With respect to items 2 and 3 above, I do not accept the Applicant’s submissions that the Mediator did not report to the parties with respect to the Report of Mediator issued on June 27, 2012 within the meaning of s. 281.1(2)(b); and I do not accept the Applicant’s submission that an Application dated August 27, 2012, was received by FSCO on October 3, 2012. I will deal with those submissions first.

Did the Mediator report to the parties within the meaning of s. 281.1(4)(b)?

It is established law that the 90 day period referred to in s. 281.1(4)(b) begins, not when the Report of Mediator is issued, but when it is received by the parties. I have considered all of the cases submitted by the parties including the decision of the Director’s Delegate in Pilot Insurance Company and Tyler¹³ which considered the issue of when a Report of Mediator might be deemed to be have been received within the meaning of Rule 7.3(b)¹⁴ of the Dispute Resolution Practice Code (“the Code”), ¹⁵ which provides that if a document is served by regular, registered, or certified mail, service takes place on the fifth day after the date the post office stamps the mailed document.

While the actual date stamp from the post office is not in evidence, there is evidence that the Report of Mediator in question was mailed on June 27, 2012, from which I can infer the date upon which the post office stamped the mailed document.

Peter Pietraszek, a lawyer with Ms. Edroos’ law firm, provided an affidavit, dated September 17, 2015,¹⁶ in which he stated that he had spoken to the Mediator in question by telephone on July 30, 2015. The Mediator reviewed her records and confirmed that the Mediation had closed on June 27, 2012; that she had every reason to believe that she issued her report the same day in accordance with her standard practice and the standard practice of FSCO; and that she mailed the report the same day to the Insurer, the Applicant, and the Applicant’s representative. The Mediator advised Mr. Pietraszek she did not see any reference in the file that the Report of Mediator went undelivered, or that it was returned to FSCO as undeliverable.

As noted above, in its materials, the Insurer provided a copy of the Report of Mediator issued on June 27, 2012 together with a copy of the covering letter from the Mediator, also dated June 27, 2012, showing that the Insurer in fact received a copy of the Report of Mediator. This tends to confirm that the Report of Mediator was in fact issued on June 27, 2012, and that FSCO’s standard practice with respect to delivery of the report (mailing to the parties on the day of issuance) was likely followed, as stated by the Mediator.

The Applicant’s former lawyer provided an affidavit¹⁷ in which she stated that she does not recollect receiving the Report of Mediator; and that the Report of Mediator is not in her office file. This is unlike the fact scenario in Tyler where an affidavit was provided that the Report of Mediator was in fact received but on a date different to the “deemed” date received. The evidence in this case is vaguer than that and I find that in weighing the evidence, it is more likely than not that the Mediator mailed her report to the parties, including to the Applicant’s former lawyer, on June 27, 2012. The Report of Mediator, dated June 27, 2012, is therefore deemed to have been served five days later at which time the 90 day time period began to run.

Application for Arbitration, dated August 27, 2012

There was evidence provided¹⁸ that the Applicant’s former lawyer prepared an Application for Arbitration, which was signed by her on August 3, 2012, and by the Applicant on August 27, 2012 (prior to the within Application for Arbitration which was prepared by the Applicant’s current lawyer and received by FSCO on January 7, 2014).

It is not disputed, however, that FSCO has no record that this earlier Application for Arbitration was ever delivered to FSCO, or that an Arbitration file was ever opened with respect to the income replacement benefit issue, prior to January 7, 2014.

The Applicant’s evidence of delivery to FSCO of this earlier Application for Arbitration is a courier slip with a tracking reference in a name, which is not the Applicant’s name, showing delivery of a package to FSCO Mediation (not FSCO Arbitration) on October 3, 2012, some months after the earlier Application for Arbitration was signed.¹⁹ The Applicant’s former lawyer stated under cross-examination that she knew this Purolator slip was related to this Applicant’s file because there was very little going out to FSCO at the time. She wasn’t doing much accident benefit work.²⁰

The Insurer’s investigation revealed, however, that the Applicant’s former lawyer had a client with the same name as that on the Purolator slip, who had an ongoing Arbitration at the time.²¹ Ms. Smith, who represented the Applicant at the Preliminary Issue Hearing, submitted that since the Arbitration with respect to the client whose name appeared on the Purolator slip, had been commenced on May 8, 2012, the Purolator package could not have been related to that client, notwithstanding the tracking reference. It must have been related to this Applicant, if the former lawyer was not doing much accident benefit work at the time. I cannot draw that inference, however, especially since as an Arbitrator I am aware that issues are often added to an existing Arbitration following Mediation, which might explain a package to the Mediation Unit in October 2012 with a tracking reference in the other client’s name. Information with respect to the other file was not provided, although the Insurer requested it.

The fact is that the purported delivery of the August 2012 Application for Arbitration is not supported by much in the way of evidence in circumstances where FSCO has no record of it ever having been filed. There is no Purolator slip which clearly ties delivery of a package related to the Applicant in October 2012. A slip indicating delivery of a package of unknown documents to FSCO Mediation with a tracking reference in another client’s name some months after the August Application for Arbitration, falls very short of evidence of delivery of an Application for Arbitration. There is no other supporting evidence such as for example a copy of a covering letter which might have accompanied such an application. I note that the Applicant’s former lawyer attached a copy of the letter which accompanied the Application for Mediation to her affidavit, as well as the Application for Mediation.²²

There is no evidence of a cheque being issued for the filing fee. There is no affidavit or direct evidence from the person who might have sent the Application for Arbitration to FSCO that she in fact did so.

I find it more likely than not on the evidence provided that the Application for Arbitration prepared in August 2012, was in fact not delivered to FSCO on October 3, 2012, as alleged. An Application for Arbitration could therefore not have been commenced at that time.

I find that no Application for Arbitration with respect to the income replacement benefit at issue was commenced prior to January 7, 2014 when the within Application for Arbitration was commenced by the Applicant’s current lawyer. The earlier Application for Arbitration may have been prepared but there is insufficient evidence that it was ever filed.

Clear and Unequivocal Refusal and Information as to Dispute Resolution Process

Arbitrator Sapin set out succinctly the established law with respect to the limitation period in Chung Park and Dominion of Canada General Insurance Company²³ as follows:

It is well-established law that for the insurer to be able to rely on the two-year time limit, two requirements must be met: the refusal must be clear, unequivocal and include reasons, and the insured person must be informed of his or her right to dispute the insurer’s refusal to pay benefits. …failure to meet either test, i.e. the refusal is not clear or unequivocal, or the insurer failed to explain the insured’s right to dispute as set out in Smith and Co-Operators General Insurance Company, is sufficient grounds to invalidate the refusal. The onus is on the insurer to demonstrate that its refusal meets these requirements.

The Insurer sent two OCF-9s, both dated April 17, 2009, to the Applicant. In one OCF-9 (OCF-9 B), the Insurer set the following out in the “Eligible” section of the form:

Income Replacement Benefits: Given Dr. Aubin’s recommendation for a gradual return to your employment in the Section 42 Orthopaedic report dated 3/19/09, State Farm has issued your Income Replacement Benefit up to May 18, 2009. Please see attached draft in the amount of $2400.00. Please see our other Explanation of Benefits dated 4/17/09 for further details.

OCF-9 B does not constitute a clear refusal of benefits.

In the other OCF-9 (OCF-9 A) upon which the Insurer relies as a valid refusal of benefits, the Insurer stated as follows in the “Not Eligible/Stoppage of Benefit” section of the form:

Income Replacement Benefits: Based on the Section 42 Orthopaedic report dated 3/19/09 and the Section 42 Functional Abilities Evaluation report dated March 11, 2009 (which was sent to you on 3/18/09) you do not suffer a substantial inability to perform the essential tasks of your employment. Therefore, your benefits will be discontinued effective 5/18/09 pursuant to s. 37 of the Statutory Accident Benefits Schedule, given Dr. Aubin’s recommendation for a gradual return to your employment. Should you disagree with State Farm’s decision, you may submit a rebuttal examination report for consideration. Please refer to the attached letter which outlines the rebuttal procedure pursuant to Section 42.1 of the Statutory Accident Benefits Schedule.

There is no reference in this section to the other steps which an insured person may wish to take should he disagree with the Insurer’s decision, such as Mediation, and Arbitration.

Part 6 of the OCF-9 form (true of both OCF-9 A and OCF-9 B) sets out the Applicant’s Rights to Dispute, the first step being: “Notify Your Insurer/Further Examination” followed by Step 2: “Mediation”, followed by Step 3: Arbitration, Lawsuit or Evaluation.” A warning with respect to the two year limitation is set out at the bottom of the page.

OCF-9 A was accompanied by the letter referred to specifically in the “stoppage of benefits” section of OCF-9 A. This letter discusses the rebuttal process. The letter starts out by explaining:

I have provided you with a copy of the Independent Medical Examination, and an OCF-9, Explanation of Benefits which is the insurer’s determination notifying you of the denial of the Income Replacement Benefit.

The letter then states in the second paragraph:

Pursuant to section 42.1 of the Statutory Accident Benefits Schedule, you have the right to an assessment or examination in response to the denial of the Income Replacement Benefit….

The letter continues discussing the rebuttal assessment process but does not refer at all to the other rights which an insured person has in response to the denial of the income replacement benefit, such as applying for Mediation and Arbitration.

The Applicant subsequently submitted a rebuttal assessment,²⁴ which is dated June 8, 2009.

The Insurer then sent a further OCF-9, dated July 9, 2009 (OCF-9 C). The “Not Eligible/Stoppage of Benefit” section of the form contains the following:

Income Replacement Benefits: We have reviewed the additional documentation you have submitted. Please refer to the previous Explanation of Benefits (OCF-9) dated April 17, 2009 wherein the benefit was denied or deemed not payable. State Farm’s position with regard to this benefit remains unchanged.

In my view, OCF-9 A of April 17, 2009, upon which the Insurer relies as a valid refusal, is equivocal with respect to the dispute resolution process in its emphasis on the rebuttal process. It sets out that right or step in the section of OCF-9 A, which denies the benefit, while excluding references to other steps such as Mediation and Arbitration. The emphasis is continued in the letter which accompanied OCF-9 A, which refers to the right to an assessment as a response to the denial of the benefit but does not refer at all to the remainder of the dispute resolution process.

In my view, an unsophisticated person might reasonably conclude from the emphasis on the rebuttal process as a response to the denial of the benefit, that that was the most important or even the only step to be taken in the dispute resolution process. An unsophisticated person might at least conclude that the refusal of benefits was not complete until the Insurer’s consideration of the rebuttal assessment was completed if one was obtained (as it was in this case).

For these reasons, the Insurer did not in my view issue a clear and unequivocal refusal of the Applicant’s income replacement benefit on April 17, 2009 by way of either OCF-9 A or OCF-9 B and did not inform the Applicant of the dispute resolution process in straightforward and clear language, directed towards an unsophisticated person, as required.

I am also of the view that the further OCF-9 of July 9, 2009 (OCF-9 C) cannot stand alone as a valid refusal. Even if it was reasonable to expect that an insured person should have to piece together OCF-9s of different dates to arrive at a valid refusal, which it is not,²⁵ the OCF-9 of July 9, 2009 (OCF-C) is still equivocal. It refers to the previous “OCF-9 of April 17, 2009”, in circumstances where there were two OCF-9s sent that day in relation to income replacement benefits, and it is not clear whether OCF-9 C is referring back to OCF-9 A or OCF-9 B.

In the circumstances, I find that the limitation period was not triggered with respect to income replacement benefits as the Insurer has not provided a clear and unequivocal refusal of that benefit and did not inform the Applicant of the dispute resolution process in straightforward and clear language, directed towards an unsophisticated person, as required.

EXPENSES:

The question of expenses related to this Preliminary Issue Hearing is deferred to the Hearing Arbitrator.

February 16, 2016

Anne Morris Arbitrator

Date