Limitation Defence did not apply to Catastrophic Determination

Ramalingam and State Farm Mutual – Catastrophic impairment – no limitation defence for insurer to CAT determination, particularly where no proper denial provided by insurer – insurer cannot issue denial for benefit that has not been explicitly claimed by insured.

July 17, 2010, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Arbitrator: Edward Lee
Decision Date: June 4, 2010

Mr. Ramalingam was involved in an automobile accident on January 9, 2002. State Farm Mutual paid income replacement benefits, housekeeping and home maintenance benefits until July 27, 2002, when they were terminated following insurer's medical examinations.

Mediation took place and failed in November 2002, and Mr. Ramalingam applied for arbitration that month. The hearing on the merits was scheduled for September 2003, but later adjourned. A motion for interim benefits was heard in April 2003 by Arbitrator Alves, and in September 2003, she issued an interim order awarding IRBs, housekeeping and home maintenance benefits to Mr. Ramalingam from the date of the interim motion and onward.

In April 2004, State Farm brought a motion to vary the interim order of Arbitrator Alves on the grounds that her order could not continue past the 104 week mark. A decision was rendered on the variation in June 2004 wherein Arbitrator Alves varied that portion of her interim order dealing with housekeeping and home maintenance so that State Farm was not obliged to pay housekeeping and home maintenance after January 9, 2004.

In July 2007, Mr. Ramalingam applied for a determination of catastrophic impairment. Mediation on this issue failed and the mediator's report was issued in June 2008. The present application for arbitration was filed on July 23, 2008. The subject of this particular report was Mr. Ramalingam’s most recent claims for housekeeping and home maintenance benefits from January 9, 2004 onward, as well as a determination that the insured had suffered a catastrophic impairment.

State Farm argued that the claims for post 104 week housekeeping and home maintenance benefits, and the claim for a catastrophic determination were barred by the two-year limitation periods found in the Schedule.

The Preliminary Issue

One of several preliminary issues is discussed in this report. The issue in question was to determine if there is a limitations defense for the claim for a determination of catastrophic impairment.

Arguments

State Farm submitted that the letter of January 16, 2004 written by Claims Representative Jeff Kope of State Farm to Mr. Wilson was a valid refusal to Mr. Ramalingam's claim for a designation of catastrophic impairment. That letter contained the following statement: “With respect to the Housekeeping Benefits pursuant to Section 22 beyond 104 weeks, payment of these claimed expenses will be discontinued on the basis of the available medical information and evidence which leads us to conclude that Mr. Ramlingam is not catastrophically impaired for which there is no longer any available entitlement pursuant to section 22(3).”

State Farm noted that although the Schedule contained no specific limitation period for the stand-alone issue of catastrophic impairment, a limitation period for claiming catastrophic impairment was found in the Limitations Act, 2002 ("Limitations Act").

The Limitations Act states the following on the subject of limitation periods for claims:

Unless the Limitations Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

State Farm argued that Mr. Ramalingam was aware of his own medical condition and by January 2004, he knew all the requisite facts which would cause the limitation period to commence. Accordingly, Mr. Ramalingam had two years from January 2004 to make his claim under Section 4 of the Limitations Act, 2002. As the claim for a catastrophic designation was not advanced until February 2007, the two year limitation period had long since expired. Mr. Ramalingam's claim for catastrophic impairment was therefore barred.

Mr. Ramalingam made several arguments in response. First, he argued that the letter of January 16, 2004 could not be considered a valid denial because Mr. Ramalingam had not made a claim for catastrophic impairment at that time. Second, he argued that the Limitations Act, 2002 was not the applicable legislation in regard to the issue of catastrophic impairment, and that Mr. Ramalingam's self-knowledge could not be considered a triggering point for any limitation period. Third, he argued that the Schedule and the Insurance Act provided a complete dispute resolution scheme to deal with these issues, and there was no requirement under either legislation for Mr. Ramalingam to claim catastrophic impairment at the point of time suggested by State Farm.

Analysis

The arbitrator agreed with Mr. Ramalingam's position concerning State Farm's letter of January 16, 2004. Arbitrators have consistently held that the general scheme of the Schedule requires an applicant to make a claim before it can be validly denied. In Ross and TTC Insurance Company Arbitrator Alves held as follows: “The claims and denial process contemplates that a claim is crystallized, submitted by the insured person, and that only after there has been a clear and unequivocal written denial does the limitation period begin to run. I find that an insurer cannot gratuitously deny a claim which has not been submitted.”

In the present case, State Farm presented no evidence that the insured submitted a claim for a catastrophic designation in January 2004 or before, resulting in the "denial letter" of January 16, 2004. No forms or medical reports regarding catastrophic impairment were presented; no letter was written or communication made to State Farm requesting a designation of catastrophic impairment. Without considering whether the January 16, 2004 letter met the requirements of a valid denial, the arbitrator found that Mr. Ramalingam simply did not apply for a catastrophic designation in January 2004 or before. No claim was crystallized. Therefore the letter of January 16, 2004 could not be considered a denial triggering any limitation period.

Nor was the arbitrator convinced that Mr. Ramalingam was required to make a claim for catastrophic impairment at that time. It was not accepted that Mr. Ramalingam's knowledge of his own circumstances triggered a two-year limitation period in January 2004, pursuant to the provisions of the Limitations Act.

Merit was found in Mr. Ramalingam's argument that the provisions regarding dispute resolution found in sections 279 to 283 of the Insurance Act form a complete scheme for the resolution of all disputes concerning benefits, and the catastrophic designation.

Given the Court's interpretation of these provisions of the Insurance Act, the arbitrator was not convinced that it was necessary to turn to the Limitations Act for a limitation period or triggering point for the claim for catastrophic impairment.

According to section 2(2), an insured may not even apply for a catastrophic designation in regard to clauses (1.1)(f) and (g) unless the insured's condition has "stabilized and is not likely to improve," or "three years have elapsed since the accident". Therefore, the arbitrator did not accept State Farm's argument that Mr. Ramalingam was required to apply for the catastrophic designation in January 2004. At that time, the three year period of section 2(2)(b) had not elapsed. Nor was there evidence that his condition had stabilized.

The arbitrator concluded that there was not a limitations defense for the claim for a determination of catastrophic impairment.

About Paquette Travers & Deutschmann

Paquette Travers & Deutschmann serve South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann and Doug O’Toole focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit www.deutschmannlaw.com or call us toll-free at 1-866-414-4878.

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