Arsenault v. Dumfries Mutual Insurance Co.

Arsenault v. Dumfries Mutual Insurance Co. [Indexed as: Arsenault v. Dumfries Mutual Insurance Co.]

57 O.R. (3d) 625

[2002] O.J. No. 4

Docket No. C35942

Court of Appeal for Ontario

Abella, MacPherson and Cronk JJ.A.

January 8, 2002

Limitations -- Insurance -- Claim for bad faith damages arising out of insurer's termination of no-fault accident benefits is subject to two-year limitation period in s. 281(5) of Insurance Act -- Insurance Act, R.S.O. 1990, c. I.8, s. 281(5).

The defendant insurer notified the plaintiff in September 1995 that her weekly statutory accident benefits would be discontinued. The plaintiff applied for mediation under s. 280 of the Insurance Act. The mediation was unsuccessful. The plaintiff took no further steps until she commenced an action in June 2000 claiming damages for the defendant's "bad faith" conduct in prematurely terminating her weekly benefits. The defendant brought a motion under rule 21.01(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for a determination of the question whether the plaintiff's action was statute- barred by the two-year limitation period in s. 281(5) of the Insurance Act, and for an order striking out the paragraphs of the statement of claim referable to the claim for bad faith damages. The question was answered in the affirmative and the requested relief was granted. The plaintiff appealed.

Held, the appeal should be dismissed.

Section 281(5) of the Act states that a proceeding in a court or an arbitration "in respect of" no-fault benefits must be commenced within two years after the insurer's refusal to pay the benefits claimed. The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters. Any and all disputes about an insurer's refusal to pay no-fault benefits, including disputes which allege the insurer's bad faith in connection with that refusal, must be brought within two years of the refusal.

Assuming without deciding that there can be an independent claim for bad faith conduct in respect of the insurer's refusal to pay or continue to pay no-fault benefits, such a claim must comply with the requirements outlined in ss. 280-283 of the Insurance Act, one of which is the two-year limitation period for the institution of proceedings to determine this question. The plaintiff could not, by the device of a claim for bad faith damages, extend the length of that limitation period.

APPEAL from an order granting a motion for a determination of a question of law and for an order striking a statement of claim.

Nowegijick v. R., [1983 18 (SCC)], [1983] 1 S.C.R. 29, 144 D.L.R. (3d) 193, 46 N.R. 41, 83 D.T.C. 5041, apld Other cases referred to Whiten v. Pilot Insurance Co. (1999), [1999 3051 (ON CA)], 42 O.R. (3d) 641, 170 D.L.R. (4th) 280, [1999] I.L.R. 1-3659, 32 C.P.C. (4th) 3 (C.A.) [Leave to appeal to S.C.C. granted (1999), 249 N.R. 392n], revg (1996), [1996 8109 (ON SC)], 27 O.R. (3d) 479, 132 D.L.R. (4th) 568, 47 C.P.C. (3d) 229 (Gen. Div.) Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, ss. 279(1), 280, 281, 282, 283 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1) (a) Statutory Accidents Benefits Schedule -- Accidents Before January 1, 1994, R.R.O. 1990, Reg. 672

David S. Wilson, for appellant. H. Wayne Snyder, for respondent.

The judgment of the court was delivered by

[1] ABELLA J.A.: -- The issue in this appeal is whether a claim for bad faith damages arising out of an insurer's termination of no-fault accident benefits is subject to the two-year limitation period set out in s. 281(5) of the Insurance Act, R.S.O. 1990, c. I.8, as amended. [^1]

[2] The appellant, Evelyn Arsenault, was injured in a motor vehicle accident on May 1, 1993. She was 54 years old at the time of the accident, and had been employed as a receptionist/ secretary at a medical centre.

[3] The insurer responsible for the payment of her statutory accident benefits was Dumfries Mutual Insurance Company. Pursuant to its obligations as set out in the Statutory Benefits Schedule -- Accidents Before January 1, 1994, [^2] the insurer paid weekly benefits of $405.52 to Ms. Arsenault until September 30, 1995.

[4] Early in 1994, Ms. Arsenault's family doctor suggested that she could probably work part-time by the end of February 1994. On her return from a two-week holiday in Florida, Ms. Arsenault informed her rehabilitation counsellor that her condition had deteriorated due to depression. Consequently, the insurer arranged for a medical assessment in April 1994, the result of which was a diagnosis that maximum medical recovery -- and a return to part-time employment -- would be possible with the assistance of anti-depressant medication and, if desired, psychiatric assistance.

[5] Accordingly, arrangements were made for Ms. Arsenault to begin working two hours daily with her former employer starting June 21, 1994. Since the employer had already hired another employee to do Ms. Arsenault's job, the insurer agreed that there would be no cost to the employer and that it would continue paying weekly income benefits.

[6] By August 16, 1994, Ms. Arsenault was working five days a week for five hours daily. Her family doctor referred her for psychological counselling and advised her to decrease her hours and days of work.

[7] By the time she left for a 3-4 week holiday in Florida in January 1995, Ms. Arsenault was working four hours daily for two days a week. Both her family doctor and the insurer's doctor recommended on her return from Florida that she expand her work schedule. Ms. Arsenault agreed to these recommendations, along with a referral to a psychiatrist, in April 1995.

[8] By mid-May, however, Ms. Arsenault was not complying with either the proposed home-based exercise program or the graduated return-to-work schedule. A new rehabilitation plan was therefore entered into in June 1995. This amended plan too was not followed by Ms. Arsenault. Another doctor, arranged by the insurer, diagnosed Ms. Arsenault on August 31, 1995 as suffering from chronic pain syndrome and depression, but agreed with all the other medical assessments that she was able to return to work.

[9] The insurer notified Ms. Arsenault on September 8, 1995 that her weekly benefits would be discontinued. Around September 30, 1995, the payment of these benefits was terminated.

[10] In June 1996, Ms. Arsenault applied for mediation under s. 280 of the Insurance Act, disputing the termination of her weekly benefits. The mediation, conducted between August 12 and September 19, 1996, was unsuccessful. Ms. Arsenault took no further legal steps until she commenced an action on June 13, 2000, claiming damages for the insurer's "bad faith" conduct in prematurely terminating her weekly benefits.

[11] After all the pleadings had been filed, the insurer brought a motion under rule 21.01(1)(a), Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for a determination of the following question of law raised in the Statement of Defence and for an order striking all paragraphs of the plaintiff's Statement of Claim referable to the claim for bad faith damages on the ground that the claim was statute-barred by s. 279(1) and s. 281(5) of the Insurance Act.

Is the Plaintiff's action for bad faith damages commenced on June 13, 2000 statute-barred by reason of s. 281(5) of the Insurance Act, R.S.O. 1990, c. I.8 (a two-year limitation period).

[12] On February 14, 2001, Justice B. Wright granted the relief requested. For the following reasons, I agree with his order.

[13] The dispute resolution scheme in the Insurance Act is found in ss. 279-283. Section 279(1) states that any disputes in respect of any insured person's entitlement to, or amount of, no-fault benefits are to be resolved in accordance with ss. 280 to 283. Section 280(1) provides that either the insured or the insurer may refer any such dispute to a mediator. If, and only if, mediation is unsuccessful, ss. 281(1) and (2) permit the insured either to bring a proceeding in court or to refer the matter to arbitration. Under s. 281(5), court or arbitration proceedings must be brought within two years of the insurer's refusal to pay the benefit claimed.

[14] In this case, the insurer terminated the weekly benefits on September 30, 1995. A plain reading of s. 281(5) yields the conclusion that court proceedings should have been commenced within two years of this triggering event. Ms. Arsenault, however, did not start her action until almost five years had elapsed since the insurer's refusal to continue paying benefits. She argues that this court's decision in Whiten v. Pilot Insurance Co. (1999), [1999 3051 (ON CA)], 42 O.R. (3d) 641, 170 D.L.R. (4th) 280 (C.A.) [^3] entitles her to bring a separate action for damages resulting from the insurer's bad faith conduct, and that the limitation period for this cause of action is six years.

[15] Section 279(1) is a mandatory provision for the resolution of disputes "in respect of any insured person's entitlement to no-fault benefits or in respect of the amount of no-fault benefits to which an insured person is entitled" (emphasis added). There is no option for an insured but to proceed in accordance with the scheme outlined in ss. 280 to 283 if the dispute is in respect of entitlement issues. Section 281(5) states that a proceeding in a court or an arbitration "in respect of no-fault benefits" must be commenced within two years after the insurer's refusal to pay the benefits claimed.

[16] In Nowegijick v. R. [1983 18 (SCC)], [1983] 1 S.C.R. 29, 144 D.L.R. (3d) 193, at p. 39 S.C.R., p. 200 D.L.R., Dickson J. attributed the "widest possible scope" to the words "in respect of":

The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject-matters.

[17] Although Justice Dickson was dealing with language in the Income Tax Act, in my view, his observation is generic and equally applicable to the relevant Insurance Act provisions in this case. That means that any and all disputes about an insurer's refusal to pay no-fault benefits, including disputes which allege the insurer's bad faith in connection with that refusal, must be brought within two years of the refusal.

[18] I am prepared to assume, without deciding, that there can be an independent claim for bad faith conduct in respect of the insurer's refusal to pay or continue to pay no-fault benefits. In order to establish such a claim, the appellant would first have to establish that the insurer's termination of her benefits was improper. Such a claim must comply with the requirements outlined in ss. 280-283 of the Insurance Act, one of which is the two-year limitation period for the institution of proceedings to determine this question. The appellant cannot, by the device of a claim for bad faith damages, extend three-fold the length of that termination period.

[19] If I am wrong in concluding that bad faith claims in connection with no-fault benefits refusals are subject to the procedures and time limits set out in ss. 280 to 283 of the Insurance Act, I am nonetheless of the view, based on the pleadings, that this appellant's claim is not an independent, actionable wrong, but is in fact exactly the kind of dispute over no-fault benefits entitlements contemplated by the dispute resolution scheme in the Insurance Act. The allegation is that the insurer ought not to have terminated Ms. Arsenault's benefits when it did. This is the issue she attempted, unsuccessfully, to resolve through mediation. She then had the choice of either starting a court action or filing an application for the appointment of an arbitrator under s. 282 of the Insurance Act. Moreover, had the dispute been arbitrated, it was open to the arbitrator under s. 282(10), if it was found that the insurer had "unreasonably withheld or delayed payments", to award an additional lump sum. [^4]

[20] Rather than proceeding with either court action or arbitration, Ms. Arsenault took no further steps for a number of years. When she did, she brought an action that was, on its face, clearly "in respect of" the insurer's refusal of further no-fault benefits. It was therefore an action that, under s. 281(5), [^5] had to be started no later than two years after that refusal.

[21] Ms. Arsenault's characterization of the insurer's refusal as bad faith conduct is merely an attempt to circumvent the mandatory requirements of the dispute resolution scheme in the Insurance Act through the guise of linguistic reformulation. Her allegations, distilled, are that the refusal was inappropriate in the circumstances, the very issue contemplated for resolution under the scheme, and a claim that is clearly subject to the two year limitation period set out in s. 281(5).

[22] I would therefore dismiss the appeal with costs.

Appeal dismissed.

APPENDIX

The [Insurance Act, R.S.O. 1990, c. I.8](https://www.canlii.org/en/on/laws/stat/rso-1990-c-i8/latest/rso-1990-c-i8.html)

279. (1) Disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled shall be resolved in accordance with sections 280 to 283 and the Statutory Accident Benefits Schedule.

280. (1) Either the insured person or the insurer may refer to a mediator any matter in dispute in respect of the insured person's entitlement to no-fault benefits or in respect of the amount of no-fault benefits to which the insured person is entitled.

(2) The party seeking mediation shall file an application for the appointment of a mediator with the Commission.

(3) The Director shall ensure that a mediator is appointed promptly.

(4) The mediator shall enquire into the issues in dispute and attempt to effect a settlement of as many of the issues as possible within the time prescribed in the regulations for the settlement of the type of dispute in question.

281. (1) If mediation fails, the insured person may bring a proceeding in a court of competent jurisdiction or may refer the matter to an arbitrator.

(2) No person may bring a proceeding in any court or refer a matter to arbitration unless mediation has first been sought and has failed.

(3) Subject to subsection (4), if mediation fails, the insurer shall pay no-fault benefits in accordance with the last offer of settlement that it had made before the failure until otherwise agreed by the parties or until otherwise ordered by a court, an arbitrator or the Director.

(4) If a dispute involves a no-fault benefit that the insurer is required to pay under subsection 268(8) and the insured has not commenced a proceeding in a court or an arbitration proceeding within forty-five days after the day mediation failed, the insurer shall pay the insured in accordance with the last offer made by the insurer before the failure until otherwise agreed by the parties or until otherwise ordered by a court, an arbitrator or the Director.

(5) A proceeding in a court or an arbitration proceeding in respect of no-fault benefits must be commenced within two years after the insurer's refusal to pay the benefit claimed or within such longer period as may be provided in the No- Fault Benefits Schedule.

282. (1) An insured person seeking arbitration under this section shall file an application for the appointment of an arbitrator with the Commission.

(2) The Director shall ensure that an arbitrator is appointed promptly.

(3) The arbitrator shall determine all issues in dispute, whether the issues are raised by the insured person or the insurer.

(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

(16) The Arbitrations Act does not apply to arbitrations under this section.

283. (1) A party to an arbitration under section 282 may appeal the order of the arbitrator to the Director.

[^1]: For accidents between June 22, 1990 and December 31, 1993.

[^2]: R.R.O. 1990, Reg. 672 of the Insurance Act, R.S.O. 1990, c. I.8, as amended.

[^3]: Appeal heard and reserved by the Supreme Court of Canada on December 14, 2000; decision pending.

[^4]: Section 282.(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the beneifits first became payable under the Schedule.

[^5]: Section 281(5): A procedding in a court or an arbitration proceeding in respect of no-fault benefits must be commenced within two years after the insurer's refusal to pay the benefit claimed or within such longer period as may be provided in the No-Fault Benefits Schedule, 1990, c. 2, s. 65, part.