Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2017 ONFSCDRS 328

Appeal P17-00053

OFFICE OF THE DIRECTOR OF ARBITRATIONS

I.G. Appellant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Respondent

BEFORE: Delegate Jeffrey Rogers

REPRESENTATIVES: Mr. Kwaku Bona, licensed paralegal, for Mr. I.G. Ms. Susan Keenan, solicitor, for State Farm

HEARING DATE: On the record, by written submissions completed on November 2, 2017

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:

This appeal is allowed and the Arbitrator’s order is rescinded.
Mr. I.G. is not precluded from proceeding to arbitration of his claims.
If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

December 14, 2017

Jeffrey Rogers Director’s Delegate Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. I.G. appeals the Arbitrator’s order of July 17, 2017. He submits that the Arbitrator erred in concluding that he is precluded from proceeding to arbitration for failure to attend insurer examinations (IEs). The Arbitrator refused to consider whether Mr. I.G. had a reasonable excuse for not attending.

For the reasons that follow, I find that an Arbitrator must determine that there has been a failure or refusal to comply with a notice to attend an IE, before deciding whether an insured person is precluded from proceeding. A determination of whether there has been a failure or refusal to comply includes considering whether the insured person has a reasonable excuse. The Arbitrator therefore erred in refusing to consider Mr. I.G.’s excuse. Mr. I.G. was incarcerated at the time that he did not attend the IE. He could not attend. There was no failure or refusal to comply. Upon his release, Mr. I.G. had no duty to reschedule the IE, as the Arbitrator found. His only duty was to attend a properly scheduled IE. Mr. I.G. is therefore not precluded from proceeding to arbitration.

Mr. I.G. also appealed the Arbitrator’s finding that his claim for attendant care benefits is out of time, arguing that his claim is limited to a period during which there was no denial by State Farm. State Farm conceded this fact in its Response to Appeal, but took the position that the arbitration should nevertheless be dismissed. State Farm submitted that, since there has been no denial, entitlement cannot be arbitrated because there is no issue in dispute. I reject this submission.

II. BACKGROUND

On July 8, 2011, a TTC bus ran over Mr. I.G.’s foot and fractured it. He was then 14 years old. On July 12, 2011, his father, as his litigation guardian, applied to State Farm for accident benefits payable under the Schedule.¹ Mr. I.G. applied for arbitration after mediation did not resolve disputes about his entitlement to Non-Earner Benefits (NEBs), attendant care benefits (ACBs), and chiropractic treatment in the amount of $2,750.05. State Farm raised two preliminary issues which came for hearing before the Arbitrator:

Whether Mr. I.G. is precluded from proceeding to arbitration of his claims for NEBs and treatment because he failed to attend IEs under s. 44 of the Schedule, and
Whether Mr. I.G.’s claim for ACBs is barred for failure to commence mediation within the 2‑year limitation period under s. 56 of the Schedule.

The Arbitrator ruled that the ACB claim was barred for breach of the 2-year limitation period in s. 56 of the Schedule. Mr. I.G. claims ACBs from July 9, 2011 to February 16, 2012. State Farm denied the ACB claim on March 12, 2012. Mr. I.G. applied for mediation of ACBs on April 7, 2015, more than two years after the denial. The Arbitrator did not note in his decision that the claim was for a limited period, ending before the denial.

Mr. I.G. did not attend an IE after State Farm gave him notice under s. 44 of the Schedule. That is not in dispute. The critical notice was given for attendance on December 4, 2014 in order to assess Mr. I.G.’s entitlement to NEBs and the chiropractic treatment in dispute. Mr. I.G. was incarcerated at the time. The day before the scheduled IE, Mr. I.G.’s mother informed State Farm that he was not able to attend because he was in jail. State Farm then sent Mr. I.G. a notice on December 12, 2014. Among other things, the notice asked him to contact State Farm to re-schedule the IE. Mr. I.G. applied for mediation of the relevant claims on April 7, 2015. He made no effort to re-schedule the IE between the date of his release from prison and when he applied for mediation. Mr. I.G. did not inform State Farm of the date of his release from prison until he filed an affidavit dated September 13, 2016, at the preliminary issue hearing.

The Arbitrator ruled that Mr. I.G. is precluded from proceeding to arbitration for failure to attend IEs.

III. ANALYSIS

Attendant Care

Without noting that Mr. I.G.’s ACB claim is for a limited period that ends before the date of the denial, the Arbitrator dismissed Mr. I.G.’s claim for ACBs because he applied for arbitration more than two years after State Farm’s denial. On appeal, State Farm concedes that the claim is not time-barred, but argues that the dismissal should nevertheless stand. State Farm submits that the Commission lacks jurisdiction to address Mr. I.G.’s claim for ACBs since, without a denial by State Farm, the issue is not in dispute. I reject this submission.

Section 282(3) of the Insurance Act gives an arbitrator jurisdiction to “determine all issues in dispute” when an insured person seeks arbitration at the Commission. I find that Mr. I.G.’s entitlement to the ACBs he claims is in dispute. The approach that State Farm suggests would effectively allow insurers to deny access to the Commission by simply failing to pay accident benefits, while not giving a formal denial. The jurisdiction of the Commission should be interpreted to avoid that absurd result. In my view, a formal denial is not a prerequisite for a dispute. Where entitlement is not in dispute, the Schedule requires insurers to pay benefits in a timely manner. By failing to pay benefits in a timely manner, an insurer tells an insured person that it disputes payment. Issuing a formal denial starts the clock running for the limitation period, but the denial is not necessary to gain entry to the dispute resolution process.

The Arbitrator’s order that Mr. I.G. is precluded from arbitrating his claim for ACBs is therefore rescinded.

NEBs and Treatment

The Arbitrator ruled that Mr. I.G. is precluded from proceeding with these claims by operation of s. 55.2 of the Schedule. That section precludes an insured person from commencing mediation where the insurer has provided notice requiring attendance at an IE and the insured person has not complied. The section also operates to preclude arbitration in the same circumstances, because mediation is a necessary step before arbitration. It states:

An insured person shall not commence a mediation proceeding under section 280 of the Act if any of the following circumstances exist: …

The insurer has provided the insured person with notice in accordance with this Regulation that it requires an examination under section 44, but the insured person has not complied with that section.

The result of the appeal on this issue turns on whether this preclusion applies when Mr. I.G. could not attend the scheduled IE because he was in jail at the time that it was scheduled. I conclude that the Arbitrator erred in finding that the preclusion applies.

To reiterate the facts: Mr. I.G. did not attend an IE after State Farm gave him notice under s. 44 of the Schedule. That is not in dispute. The critical notice was given for attendance on December 4, 2014 in order to assess Mr. I.G.’s entitlement to NEBs and the chiropractic treatment in dispute. Mr. I.G. was incarcerated at the time. He was in jail from November 7, 2014 to February 17, 2015. On December 3, 2014, his mother informed State Farm that he was not able to attend because he was in jail. State Farm sent Mr. I.G. a notice on December 12, 2014. Among other things, the notice asked him to contact State Farm to re-schedule the IE. Mr. I.G. applied for mediation of these claims on April 7, 2015. He made no effort to re-schedule the IE between the date of his release from prison and when he applied for mediation.

State Farm had earlier given Mr. I.G. notices for IEs which he did not attend. The Arbitrator set out the details of these IEs in his decision and he also included irrelevant information regarding the fees State Farm paid when Mr. I.G. did not attend. The Arbitrator appears to have believed that State Farm was seeking to preclude Mr. I.G. from proceeding based upon the earlier notices as well. However, the only basis for State Farm’s claim was the notice given while Mr. I.G. was incarcerated. The other instances of non-attendance were apparently provided to show that Mr. I.G. was familiar with the process and he knew how to arrange to re-schedule an IE. The Arbitrator stated:

In the view I take of this matter, it is unnecessary for me to consider the issue of whether or not the Applicant had reasonable excuse for failing to attend these various s. 44 examinations.

The language of section 55 is mandatory. There is an absolute bar to the commencement of an application for mediation where there has been non-attendance at a s. 44 examination. I agree with the Insurer’s submission that, for its part, it had no further onus².

and

Once the notice was delivered, it was incumbent upon the Applicant to do something other than purport to proceed to a mediation.³

In my view, the Schedule does not impose an obligation upon Mr. I.G. to attend an IE that he is unable to attend because he is incarcerated and it does not require him to make arrangements to re-schedule it. His only duty was to attend another IE, upon proper notice.

Both before the Arbitrator and on appeal, Mr. I.G. argued that the preclusion does not apply because his incarceration was a reasonable explanation for his non-attendance. Mr. I.G. relied upon s. 37(8)(b)(2) of the Schedule to support his position. I agree with State Farm that s. 37(8)(b)(2) does not assist Mr. I.G. State Farm is correct in its assertion that this section only applies to require an insurer to pay benefits that were withheld due to a failure or refusal to attend an IE, when the insured person subsequently attends and provides a reasonable explanation for the failure or refusal. The facts here are different. However, I reject State Farm’s submission that the Arbitrator correctly ruled that Mr. I.G.’s reason for non-attendance is irrelevant. The Arbitrator was required to consider the entire Schedule and not just the sections that Mr. I.G. brought to his attention.

I recently considered the issue of preclusion in Comegna and Aviva Canada Inc.⁴ I noted that the preclusion in s. 55(2) must be interpreted in the context of the entire Schedule. Preclusion denies access to the dispute resolution process for breach of s.44. I noted that section 37(7) provides context by defining the benefits that are denied upon breaching s. 44. Section 37(7) only allows an insurer to refuse to pay a benefit where an insured person has “failed or refused to comply” with a proper notice for an IE under s.44. Therefore, before finding preclusion, there must be a finding that the insured person failed or refused to comply. In my view, the circumstances of non-attendance are relevant to finding whether there has been a failure or refusal. Further, there is no failure or refusal to comply where the insured person provides a reasonable explanation for non-attendance. Mr. I.G.’s incarceration was patently a reasonable explanation.

This issue was considered in 1998 by Delegate Draper in Liberty Mutual Insurance Company and Harper.⁵ A different version of the Schedule applied in that case, but the language imposing preclusion was the same. The issue was whether Mrs. Harper failed or refused to make herself reasonably available for an IE. She did not attend an IE upon being given proper notice. She had provided the insurer with a letter from her psychologist indicating that attending would be detrimental to her well-being, and the insurer ignored it. The Arbitrator found that Mrs. Harper did not fail to attend because the insurer did not “make reasonable efforts to schedule the examination for a time that is convenient to the insured person”.⁶ Delegate Draper upheld that ruling. This decision shows that it has long been established that preclusion is not the only available result when an insured person fails to attend an IE upon proper notice, as the Arbitrator ruled.

As in Harper, the issue of scheduling is relevant to this case. The Arbitrator accepted State Farm’s position that, having delivered its notice, it had no further onus. He appears to have accepted State Farm’s position that Mr. I.G. had a responsibility to re-schedule the IE. He stated: “it was incumbent upon the Applicant to do something other than purport to proceed to mediation”. The Arbitrator did not refer to any section of the Schedule that imposes that obligation. I find none. The Legislature would have used clear and specific language to impose that duty, given that a breach has the effect of denying access to accident benefits to which an insured person might otherwise be entitled. State Farm could not impose this obligation by simply asking Mr. I.G. to get in touch to re-schedule the IE.

I also do not agree that Mr. I.G. breached obligations imposed by s. 33, as State Farm argues. It is true that s.33 of the Schedule requires an insured person to provide the insurer with any information reasonably required to assist the insurer in determining entitlement to benefits. However, s. 33 does not require the insured person to keep the insurer informed as to his availability to attend IEs. State Farm did not ask Mr. I.G. whether he was released from jail. It could have done so when he applied for mediation in April 2015. It could have done so when mediation took place later that year. Instead, it appears that State Farm was content to rely on Mr. I.G.’s silence as to the date of his release from jail, and to then claim prejudice as a result of the delay in knowing. In addition, even if Mr. I.G. breached obligations imposed by s. 33, the penalty is delay in payment and not denial. There is no preclusion of mediation for breach of s. 33. Section 33(8)(b) requires payment of benefits in any event, upon providing a reasonable explanation.

Like the relevant Schedule in Harper, the current Schedule does impose a specific duty upon State Farm when scheduling IEs. Section 44(9)(2)(i) requires State Farm to “make reasonable efforts to schedule the examination for a day, time and location that are convenient for the insured person.” The insured person only has a duty to attend if the insurer has complied with s. 44(9)(2)(i). State Farm knew on December 3, 2014 that the examination on the following day was not scheduled for a day, time or location, convenient for Mr. I.G. State Farm made no inquiries as to when he might be available at any later date, even after he applied for mediation in April 2015.

State Farm relies on the decision in Troubitsine and TTC Insurance Company Limited⁷ where Arbitrator Nastasi held that an insured person who did not attend an examination-under-oath, scheduled while he was incarcerated, had a duty to inform the insurer of his availability to attend upon his release. Arbitrator Nastasi did not identify any provision in the Schedule that imposes that duty. I prefer the logic of Fernihough and Guarantee Company of North America⁸ and Lafratta and Allstate Insurance Company of Canada⁹ where the arbitrators held that insured persons have no obligation to re-schedule IEs that they have not attended for good reasons. Their only obligation is to attend a subsequently scheduled IE, upon proper notice. In both cases the insured persons were hospitalized at the time of the scheduled IEs and did not contact the insurer to re-schedule at a later date. The Arbitrators ruled that they had no duty to do so. In Lafratta, Arbitrator Gueller stated:

Allstate submitted that Ms. Lafratta never advised when she left the hospital, and that it would have been reasonable to expect the Applicant to advise the Insurer that she would be able to participate in the requested assessment, and to provide her availability to the Insurer. While it may be true, I agree with Fernihough and Guarantee, where the arbitrator noted: “I know of nothing that would prevent Guarantee from simply serving another IE notice well within the benefit period”. I find that Ms. Lafratta’s lone duty was to respond appropriately to a further notice of an IE.¹⁰

As in Lafratta and Fernihough, there was nothing preventing State Farm from simply serving Mr. I.G. with another IE notice when he applied for mediation. Had it done so, and had Mr. I.G. still failed to attend, the result might have been different. As it is, the Arbitrator’s determination that Mr. I.G. is precluded from proceeding cannot stand. The appeal is therefore allowed. The Arbitrator’s order is rescinded.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.