Ontario Superior Court of Justice (Divisional Court)

Court File No.: 272/03 Date: 2004-02-25

Between: Deborah Turner, Applicant

• and - State Farm Mutual Automobile Insurance Company and The Financial Services Commission of Ontario, Respondents

Before: MacFarland, Forestell, Wilson J.J.

Counsel: Stanley C. Tessis, for the Applicant Robert S. Franklin, for the Respondent State Farm Joe Nemet, for the Respondent Financial Services Commission of Ontario

Heard: February 18, 2004

Endorsement

[1] The applicant claims entitlement to statutory accident benefits as a result of a motor vehicle accident that occurred on June 16, 1993.

[2] She seeks judicial review of the Appeal Order of Director’s Delegate Nancy Makepeace dated February 1, 2002 (the Appeal Order) in which she concluded:

I find no error in the arbitrator’s conclusion that State Farm gave clear and unequivocal refusal of weekly benefits on June 19, 1999 and that Ms. Turner’s application for arbitration, filed in June, 1999, was out of time.

[3] The effect of the Appeal Order is that the applicant's claims for certain disability benefits after June 16, 1996 were dismissed as statute barred, by the application of the limitation period under section 281(5) of the Insurance Act, R.S.O. 1990, c. I.8, as amended.

[4] The parties are agreed that for a refusal (of an insurer to pay accident benefits) to trigger the limitation period set out in section 281(5), the insurer’s notice to its insured must be clear and unequivocal.

[5] In her reasons the Director’s Delegate observed:

Ms. Turner submits that the form does not provide clear and unequivocal Notice because it contains a number of errors. She relies on Dachner Investments v. Laurentian Pacific Ins., in which the British Columbia Court of Appeal stated:

In my opinion, when an insurer seeks to rely on the running of a limitation whose commencement is fixed by the conduct of the insurer in denying coverage under a policy of insurance, the denial of coverage must be clear and unequivocal. I am also of the view that the evidence of equivocation need not be extensive or, indeed, strong.

I agree with this statement of the law, but I am not persuaded it helps Ms. Turner. There is a difference between an equivocal notice, which leaves the insurer’s position unclear, and a notice that is substantially clear and unequivocal, though it contains technical defects. In this case, I agree with the arbitrator that none of the problems Ms. Turner identifies undermine the clear and unequivocal message of the notice.

And further:

I find that the arbitrator erred in law by considering prior and subsequent events in concluding that State Farm provided clear and unequivocal refusal of benefit triggering the limitation period. However, the error is not fatal to his decision, because he did not err in finding that the notice given, while imperfect was substantially clear.

and still further:

An insurer’s misstatement of the entitlement test does not invalidate an otherwise clear and unequivocal notice.

(Emphasis added)

[6] It appears to us that the Director’s Delegate was applying a test other than clear and unequivocal notice in her use of the language “substantially clear and unequivocal” and “substantially clear”. In our view, she erred in law in so doing. The notice must be clear and unequivocal—period. Nothing less will do.

[7] Since the decision of the Supreme Court of Canada in Smith v. Co-Operators (cite), it is clear that a limitation period will not begin to run until there has been a proper refusal to pay benefits, where the commencement of the limitation is fixed by the conduct of the insurer in refusing payment.

[8] As Gonthier J. noted at paragraph 16 of Smith (supra) :

…insurance law is in many respects gleaned toward the 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.

[9] Section 281(5) of the Insurance Act provides:

A step authorized by subsection (1) must be taken within two years after the insurer’s refusal to pay the benefit claimed or within such longer period as may be provided within the Statutory Accident Benefits Schedule.

[10] Section 24(8) of Ontario Regulation 779/93 provides:

If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured giving the reasons for the refusal.

[11] It is not sufficient for the insurer to give notice of its refusal to pay benefits, it must also provide the insured with the reasons for the refusal.

[12] State Farm takes the position that the legislation does not require that the reasons be correct reasons. Mr. Franklin submits that if it had been the intention of the legislature that insurers were to provide claimants with the correct reasons for the insurer’s refusal, it could have said so. With respect we think this submission is absurd. The only reasonable interpretation of the provision would be for the insurer to provide to the claimant the real basis upon which the insurer was refusing to pay benefits. It is only by knowing the basis for the refusal that the claimant can make an informed decision whether or not to take further steps.

[13] Whether the insurer’s decision is justified or not is not the issue at this stage. The legislation is not concerned with the merits of the insurer’s position. It does, however, obligate the insurer to give the claimant the basis for the insurer’s refusal to pay benefits. Until the insurer gives written notice of its refusal to pay benefits claimed and the reasons for its refusal, the limitation period does not begin to run.

[14] It is conceded that the reasons given to this claimant were incorrect. In our view the insurer’s obligation under section 24(8) of the Statutory Accident Benefits Scheme can, by way of analogy, be compared to the obligation that the Supreme Court considered in Smith (supra). Until Section 24(8) has been complied with, there has not been a clear and unequivocal refusal which the law requires.

[15] We are in agreement that the interpretation of section 281(5) of the Insurance Act is a question of law (Kirkham v. State Farm Mutual Automobile Insurance Co., 1998 Carswell Ont 2811, leave to appeal refused [1998] O.J. No. 2872 (QL). The standard of review therefore, of the Director’s Delegate’s decision in this case is one of correctness. In our view she erred in law when she found there had been a clear and unequivocal refusal in the circumstances of this case.

[16] An Order will issue quashing the Appeal Order of the Director’s Delegate Nancy Makepeace, dated February 1, 2002.

[17] Costs to the Applicant fixed in the sum of $7500.00, which figure the applicant and the respondent State Farm agree is appropriate. The Financial Services Commission of Ontario does not seek costs and none are awarded.

MacFARLAND, J.

FORESTELL, J.

WILSON, J.

Released: February 25, 2004

COURT FILE NO: 272/03 20040225

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

B E T W E E N: DEBORAH TURNER Applicant

• and – STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and THE FINANCIAL SERVICES COMMISSION OF ONTARIO Respondents

ENDORSEMENT MacFarland, Forestell, Wilson, J.J.

Released: February 25, 2004