Arcelormittal Dofasco Inc. v. Industrial Alliance Insurance and Financial Services Inc.

Ontario Reports

Court of Appeal for Ontario,

Laskin, MacFarland and L.B. Roberts JJ.A.

March 23, 2016

129 O.R. (3d) 292 | 2016 ONCA 224

Case Summary

Insurance — Limitations — Defendant denying coverage for expensive drug treatment in September 2009 — Plaintiff providing coverage as secondary payor — Plaintiff making inquiries in October 2010 about why defendant had denied claim — Defendant aware by December 2010 that its denial was inappropriate and repeatedly ignoring or refusing [page793] requests from plaintiff and insured for wording of policy — Defendant providing insured with copy of policy in September 2011 — Plaintiff suing defendant in April 2012 for reimbursement of its payments — Plaintiff not discovering that it had claim against defendant until defendant produced policy in September 2011 — Action commenced within two years of discovery of claim — None of plaintiff's claims statute-barred.

C was prescribed a very expensive drug for her life-threatening blood disease in September 2009. Her employer's group benefits insurance policy, issued by the defendant, provided for reimbursement of 90 per cent of certain prescription drug payments. The defendant denied C's claim for reimbursement. C obtained reimbursement from the plaintiff as secondary payor. In October 2010, the plaintiff began to inquire into why the defendant had denied C's claim. The defendant knew by at least December 2010 that its denial of coverage was "inappropriate", but repeatedly ignored or refused requests from the plaintiff and C for the wording of the policy. It finally provided C with a copy of the policy in September 2011. The plaintiff commenced an action against the defendant in April 2012 for reimbursement of its payments. On a motion for summary judgment by the plaintiff, the defendant conceded its obligation to pay from January 24, 2011. The motion judge found that the plaintiff was aware of the defendant's obligation to pay in October 2009 and that its claim against the defendant was therefore discovered in October 2009. He disallowed any reimbursement claim from October 2009 through April 4, 2010. The plaintiff appealed.

Held, the appeal should be allowed.

While the plaintiff was not diligent in initiating its inquiries about the basis for the defendant's denial of coverage, it could not possibly have known that it had a claim against the defendant until it had the opportunity to review the policy wording. Even if it had begun its inquiries in October 2009, based on the defendant's conduct, it was highly unlikely that it would have received the policy wording before September 2010. The plaintiff discovered that it had a claim against the defendant on September 19, 2011, when the policy was disclosed to C. The action was commenced within two years of that discovery, and none of the claims for which the plaintiff sought reimbursement were statute-barred.

APPEAL by the plaintiff from the summary judgment of Dow J., [2015] O.J. No. 3890, 2015 ONSC 3099 (S.C.J.).

Geoffrey D.E. Adair, Q.C., and Gordon McGuire, for appellant.

Barry A. Percival, Q.C., and Grant D. Bodnaryk, for respondent.

The judgment of the court was delivered by

[1] MACFARLAND J.A.: — D.C. has a rare life-threatening blood disease. In late September 2009, her hematologist prescribed the drug Soliris to manage her condition. The drug is very expensive, costing approximately $25,000 per month.

[2] D.C. promptly applied to the respondent, Industrial Alliance ("IA"), her employer's group benefits insurer, for pre-approval for the expected cost of the drug. The IA policy [page794] provided for reimbursement of 90 per cent of certain prescription drug payments.

[3] IA denied D.C.'s claim. A note on the first page of D.C.'s application form reads "N/E (Hosp. drug) K 2-10-09". As it turned out, IA erroneously thought that Soliris was administered in a hospital setting and therefore excluded under the terms of its policy. This, despite the letter from D.C.'s hematologist that accompanied her application, which stated that the medication would be administered in a private medical clinic.

[4] Fortunately for D.C., her retired husband had a benefit plan through his former employment. This plan was underwritten by the appellant, Arcelormittal Dofasco Inc. ("Arcel"), and managed on Arcel's behalf by Great West Life ("GWL"). GWL accepted D.C.'s claim and began payment in October 2009.

[5] It is undisputed that where IA's policy provides coverage, it is the primary payor and is required to reimburse D.C. 90 per cent of the cost of her medication in accordance with the terms of the policy. Arcel is secondary payor and provides coverage where the primary insurer does not. The Arcel policy covers the full cost of prescription drugs.

GWL Begins Inquiries

[6] In October 2010, GWL, on behalf of Arcel, after paying benefits for a year, began to inquire into why IA denied D.C.'s claim. It is unnecessary to review the entire lengthy correspondence between the parties -- it suffices to say that the record clearly demonstrates that IA was "stonewalling" GWL's efforts to understand the basis for IA's decision to deny coverage.

[7] What is crystal clear in the record is that IA knew at least by December 15, 2010 that its denial of coverage was "inappropriate". In an e-mail dated December 15, 2010, Keith Bullock, a senior consultant with IA, wrote to his superiors:

Sheila came to me in regards to a claim for Soliris which will be approximately $470,000/year (and ongoing). We had originally denied it and GW picked it up under their plan as the claimant is the spouse of a member covered by GW. After paying for a year GW has now come back to us on our denial and which we have now determined was inappropriate. Therefore Sheila was [sic] asked me to look at and to see if there were was [sic] a way to continue the denial under the terms of the contract (same [as] I did last year with the $600,000 drug claim).

Since we are paying this drug in Montreal it is possibly going to create difficulty for us in Toronto in regards to finding a way if possible to deny it (and leave it with GW). Please note that failure to do so could possibly result in GW coming back against us in regards to the $ they have paid out for the drug on the claimant. [page795]

[8] IA also repeatedly ignored or refused requests from GWL and D.C. for the wording of the policy. By e-mail dated June 14, 2011, GWL again wrote to IA to inquire about the basis for IA's denial of coverage. In her e-mail, Ms. Wilson of GWL wrote:

If we do not hear from you shortly, we will be discussing this matter further with our Senior Management and Law Dept. with a view to escalating the issue with your organization.

[9] Finally, in a letter dated September 19, 2011, IA provided a copy of its policy to D.C.

IA Continues to Refuse Coverage

[10] In the meantime, IA continued to refuse to cover Soliris for D.C. It sent her letters in January and February 2011, confirming that Soliris was not eligible for benefits. In the February 2011 letter, IA told D.C. that they would not pay her claim because expenses which are "free of charge" and payable by the Ontario Government were ineligible for coverage under the IA policy. D.C. was directed to apply to Ontario for payment. She did so and was told that she was ineligible to receive benefits under the Ontario Drug Benefit Program. She conveyed this information to IA by letter dated September 19, 2011.

[11] By letter dated November 28, 2011, IA informed D.C. that they would pre-approve Soliris as an eligible drug for her under their group plan on an "exception basis" and that coverage would begin January 24, 2011. The letter was misleading in a number of ways and did not anywhere indicate that their original denial of her claim had been "inappropriate", as Mr. Bullock had pointed out in the e-mail to his superiors at IA on December 15, 2010. IA refused to reimburse GWL/Arcel for any moneys it had paid for the cost of Soliris.

[12] The statement of claim was issued April 4, 2012. Arcel sought reimbursement from IA for Soliris payments from October 8, 2009 to November 4, 2011 in the sum of $1,280,163.95, representing 90 per cent of its payout of $1,422,404.40.

The Summary Judgment Motion

[13] Arcel moved for summary judgment before Dow J. on May 5, 2015. At the outset of the argument before the motion judge, the respondent conceded its obligation to pay from January 24, 2011, which had the effect of reducing the amount in dispute by $488,396.30. Prior to this admission, IA had taken the position that although it had approved claims going forward from January 24, 2011: [page796]

Even if any of these claims were incurred after January 24, 2011, Great West Life has already paid them in full. If [Ms. C.] has already been fully reimbursed for her claims, she does not have an expense to submit under our group policy.

[14] So, even though IA conceded its policy covered the claim, it would only pay D.C. on a go forward basis from January 24, 2011. If GWL had already paid any of those claims, IA would not reimburse Arcel/GWL for them.

[15] When the motion was argued, the claims that remained in dispute were those incurred and paid for by GWL from October 2009 through January 24, 2011.

[16] In setting out his summary of the facts, at para. 2(f), the motion judge said:

The plaintiff reviewed and accepted [D.C.'s] application and began paying the $24,666.48 per month expense. It is important to note GreatWest Life was also aware of Industrial Alliance's obligation to pay and denial of the benefit as of sometime in October, 2009.

And further, at para. 8:

[T]he plaintiff acknowledges, through its agent, GreatWest Life, that it was aware of the defendant's obligation to pay and rejection of [D.C.'s] claim as of October, 2009.

The motion judge concluded, at para. 9:

[T]he possible claim against the defendant was "discovered" by the plaintiff as of October, 2009 and the Statement of Claim issued April 4, 2012 is beyond the time permitted under section 22 of the Limitations Act. . . . Thus, the defendant is responsible to reimburse the plaintiff for claims going back to April 4, 2010 or two years before this action was issued.

[17] In summary, he disallowed any reimbursement claim from October 2009 through April 4, 2010, but required IA to reimburse the appellant for 90 per cent of all amounts from April 4, 2010 going forward. Those claims amounted to $609,995.52 and 90 per cent of that amount for which the respondent is responsible amounts to $548,995.97.

Appeal on the Merits

[18] In this court, the appellant raises two grounds of appeal and seeks leave to appeal on the costs disposition made by the motion judge.

[19] The appellant submits:

(1) the motion judge's finding of fact that Arcel's agent GWL was aware of IA's obligation to pay as of October 2009 is a palpable and overriding error; [page797]

(2) on the whole of the record, Arcel clearly established that its agent GWL acting reasonably could not have discovered its claim until on or after April 4, 2010.

[20] Counsel for the appellant concedes that his client "sat on its hands" for a year. It paid the claim and made no inquiries why IA declined the claim.

[21] In my view, the appellant acted properly in the face of the respondent's denial of coverage. It accepted the claim and began payment for this drug. This was not a claim for aspirin -- this was an extraordinarily expensive drug. However, a reasonable second paying insurer, while accepting the claim for payment, would have begun immediate inquiries as to the basis for the primary insurer's denial of coverage. There is a corresponding obligation on the primary insurer to respond to any such inquiry promptly and in a meaningful way.

[22] The record discloses that the appellant began its inquiries in October 2010, but it was not until September 2011 that IA, after repeated requests, finally produced a copy of its policy. It produced the policy not to the appellant but to D.C.

[23] The appellant argues that there is no evidence to support the motion judge's finding that Arcel/GWL "was aware of the defendant's obligation to pay . . . as of October, 2009".

[24] I agree. In my view, it is clear that in October 2009 all the appellant knew was that IA, the primary insurer, had refused to pay D.C.'s claim on the basis that there was no coverage under its policy. As second payor, the appellant accepted the claim and began payment.

[25] In late October 2010, when the appellant made its initial inquiry as to the basis for the denial of the coverage, IA responded:

Kathie we have declined the prior auth drug Soliris back in Oct. 2009 as our PBM has this drug listed as a hospital drug and we don't cover based on that information.

[26] On November 1, 2010, the appellant asked for the contract wording "which supports the Soliris decline". Despite follow up e-mails from the appellant, IA did not respond until December 14, 2010 -- but did not provide the policy wording requested. IA indicated it was investigating the matter and would let the appellant know the result. The appellant next wrote to IA by email dated January 13, 2011 by way of follow-up, and said in part:

Our records show this drug is being administered in a private clinic which means that it may be eligible for reimbursement under your plan. We have been contacted by a patient advocate for Soliris who we are reluctant to speak with until we resolve the coverage issue under your [page798] plan. This matter is now becoming critical and we would like to resolve it as soon as possible.

[27] At this point in time, IA knew that the basis upon which it had declined coverage was "inappropriate" yet it refused to provide the policy wording either to the appellant or to D.C. for another eight months. The appellant could not confirm the basis for IA's denial of coverage until it had an opportunity to review the policy wording.

[28] While I accept that the appellant was anything but diligent in initiating its inquiries about the basis for IA's decision to decline coverage, I am satisfied on this record the appellant could not reasonably have known that it had a claim against the respondent until it had the opportunity to review the policy wording. Further, I am persuaded that even if it had begun its inquiries in October 2009, based on the respondent's conduct after October 2010, it is highly unlikely it would have received the policy wording before September of 2010.

[29] Accordingly, I would conclude that, contrary to the motion judge's finding, the appellant did not know and could not reasonably have known it had a claim until after September 19, 2011, which was the date that the policy was disclosed to D.C. The finding of the motion judge is not supported by the evidentiary record and is a palpable and overriding error. The appellant's action was therefore commenced within two years of its "discovery" of its claim and accordingly none of the claims for which it sought reimbursement from the respondent are statute-barred.

[30] I would set aside the judgment below and in its place judgment shall issue requiring that the respondent pay the appellant the sum of $1,280,163.95, which is 90 per cent of $1,422,404.40 and represents reimbursement to the appellant back to October 2009. Counsel have indicated they will be able to agree on the necessary calculations for prejudgment interest to be added to the principal amount.

Costs Appeal

[31] The appellant seeks leave to appeal the costs disposition made by the motion judge. In view of the fact that the judgment below is, as the result of this decision, set aside, so too is the costs disposition made in relation to that judgment and leave to appeal is not required.

[32] The motion judge awarded the appellant $50,000, inclusive of fees, disbursements and HST, for the costs of the action including the summary judgment motion. [page799]

[33] The appellant had claimed $102,709.87 on a partial indemnity basis and $166,301.75 on a full indemnity basis. Both numbers take into account and give credit for a $5,000 costs award made by Myers J. on April 1, 2015 as the result of a last minute adjournment request by the respondent. The appellant's disbursements total $12,276.85.

[34] While it is for this court to consider the costs of the action afresh, in light of the appellant's success on appeal, in the circumstances of this case, where there was partial success below, the costs disposition made by the motion judge will be a relevant factor.

[35] In this court, the appellant submits that the motion judge considered only the partial success and that the respondent's bill of costs was for a much lower amount than the appellant's and failed to consider other relevant factors in making his costs award. The respondent's full account for the services of its counsel totalled $67,366.96.

[36] In his reasons dealing with costs, the motion judge noted at para. 14:

. . . the time and amounts claimed by the plaintiff is excessive, particularly the lack of complete success on the part of the plaintiff[.]

So it appears there were three factors that influenced the motion judge's decision -- excessive time, excessive amounts and the lack of complete success.

[37] It is reasonable to infer that had the appellant achieved full success below the costs awarded would have been in a higher amount. The only question is how much higher the award should be.

[38] The appellant had carriage of the matter as plaintiff and accordingly the obligation, to borrow the words of counsel, "to carry the ball". Pleadings were exchanged, significant -- though not voluminous -- documentary production was made, examinations for discovery were held and there were a number of scheduled motions in addition to the motion for summary judgment. The judgment amount is almost $1.3 million.

[39] The appellant's claim was based on equitable contribution and fraudulent concealment. The motion judge allowed the claim in part on the basis of equitable contribution and in relation to the claim of fraudulent concealment said, at para. 10:

[W]hile the conduct of the defendant was clearly substandard, the defendant did eventually acknowledge its responsibility as set out in its letter of January 11, 2012 without litigation having commenced and, as such, its conduct does not equate to the requisite fraudulent concealment[.] [page800]

[40] While the appellant raised the issue of fraudulent concealment in this court, it was not pressed. Without endorsing the motion judge's finding on this issue, the point made earlier in these reasons bears repeating on the issue of costs. The appellant did nothing for a year after it accepted this claim as second payor. However, once it began to make inquiries, the obligation of the respondent was to immediately respond to those inquiries in a meaningful way and provide the basis for its denial of the claim. Instead it delayed, ignored and obfuscated in relation to the legitimate requests of the appellant. It is the sort of conduct that attracts the court's disapproval and of a type not to be encouraged among insurers. That said, it is a factor but only that, absent a finding of fraud.

[41] It is also important to bear in mind that it was not until the argument on the summary judgment motion was about to begin that the respondent acknowledged and conceded its liability to reimburse the appellant for the amounts it had paid to D.C. after January 24, 2011. The concession came too late for any costs savings to the appellant.

[42] The discrepancy in the hours spent between the appellant and the respondent is significant even allowing for the fact that the appellant had carriage of the matter -- approximately 400 hours for the appellant compared to approximately 180 for the respondent. While the appellant's office involved some eight lawyers on the file, the respondent's had only two. There is no explanation why the appellant needed the involvement of eight lawyers. Partial indemnity hourly rates claimed were $360 for appellant's senior counsel and $400 for the respondent's. It would appear from this brief comparison that time is the overriding factor that accounts for the discrepancy between the accounts.

[43] Accepting that the appellant has had complete success on the appeal and taking all other factors into account, I would award the appellant $90,000 for all costs of the action. This figure is inclusive of disbursements and HST.

Disposition

[44] In the result, the appeal is allowed and the judgment below is varied in accordance with these reasons.

[45] Costs of the appeal to the appellant in the agreed sum of $10,000, inclusive of disbursements and HST.

Appeal allowed.

End of Document