October 31, 2008, Kitchener, Ontario
Posted by: Robert Deutschmann, Personal Injury Lawyer
Arbitrator: Jeffrey Rogers
Decision Date: October 8, 2008
Hamidreza Daryoosh Adami was injured in a motor vehicle accident on February 22, 2002. He applied for statutory accident benefits from Wawanesa Mutual Insurance Company. Wawanesa refused to pay income replacement benefits. The parties were unable to resolve their dispute through mediation, and Mr. Adami applied for arbitration.
The arbitrator dealt with a preliminary issue. The issue was whether Mr. Adami was precluded from proceeding to arbitration of his claim for income replacement benefits because his application for arbitration was filed beyond the two-year limitation period set out in subsection 281(5) of the Act and subsection 51(1) of the Schedule.
After the accident, Mr. Adami received an application package from Wawanesa and submitted an Application for Accident Benefits, dated May 28, 2002.
Upon review of the application, Mr. Adami indicated that he was unemployed and had not worked for 26 of the 52 weeks prior to the accident. This put him in the category of Non-Earner and as such, Wawanesa determined that Mr. Adami was not entitled to receive any weekly benefits. There was no payment for the first 26 weeks of disability.
In the Explanation of Benefits, Wawanesa checked the box for "not eligible" regarding both non-earner benefits and income replacement benefits. The Explanation of benefits informed Mr. Adami that "[I]f you disagree with our assessment and wish to dispute it, you have the right to ask for mediation through the Financial Services Commission." No other information about the dispute resolution process or the limitation period was provided.
Mr. Adami then sent Wawanesa an Election, under cover of letter dated June 25, 2003, in which he claimed income replacement benefits, instead of non-earner benefits or caregiver benefits. The letter indicated that the claim was based on a job offer.
Wawanesa again checked the box for "not eligible" for income replacement benefits on this Explanation of Benefits, giving the following reason: "Based on evidence on file, you do not qualify for an Income Replacement Benefit. We are investigating the subsequent information received ...." The information given about the dispute resolution process was the same as the information given in the earlier Explanation of Benefits.
Wawanesa sent Mr. Adami another Explanation of Benefits, dated July 27, 2004 and then a further Explanation of Benefits, dated October 25, 2004 [See note 7 below], apparently in response to further claims that Mr. Adami made. In both of these forms, Wawanesa again checked the box for "not eligible" for income replacement benefits. No reasons were given. The section of the Explanation that would normally contain reasons was marked "N/A". Included in both of these forms was a clear explanation of the entire dispute resolution process and information about the limitation period.
Mr. Adami applied for mediation on May 18, 2007, more than two years after Wawanesa´s latest Explanation of Benefits.
Section 281(5) of the Insurance Act requires an insured person to commence an arbitration proceeding "within two years after the insurer´s refusal to pay the benefit claimed." Section 51 of the Schedule preserves the two-year limitation period, but extends it for an additional 90 days following the mediator´s report, if the insured person applied for mediation within two years. The extension does not apply here, because Mr. Adami did not apply for mediation within two years of any of Wawanesa´s refusals.
At the time that Wawanesa delivered its refusals, section 37(1) of the Schedule provided that if the insurer determines that a person is not entitled or is no longer entitled to receive an income replacement, non-earner or caregiver benefit, the insurer shall give the person notice of its determination, with reason.
In the case of Zeppieri and Royal Insurance Company of Canada, it was the arbitrators view that, a two-step process must determine whether the limitation period applies in the circumstances of this case. First, it is necessary to ask whether, and when, there was a refusal to pay benefits; and second, whether the insurer may rely on a limitation period that runs from the date of the refusal.
This approach had been consistently followed in numerous decisions of the Commission and the Courts. The refusals Wawanesa delivered after the amendment complied with section 49, but they breached section 37.
The Supreme Court of Canada considered the insurer´s obligation to provide information about the dispute resolution process under an identical predecessor to section 49 in Smith v. Co-Operators General Insurance Co. Noting that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile insurance, the Court held as follows:
True to that purpose of consumer protection, no refusal under s. 71 . . . can be said to have been given by an insurer if there has not been adequate compliance with that section . . . the insurer is required under s. 71 to inform the person of the dispute resolution process . . . in straightforward and clear language, directed towards an unsophisticated person . . . At a minimum, this should include a description of the most important points of the process, such as the right to seek mediation, the right to arbitrate or litigate if mediation fails, that mediation must be attempted before resorting to arbitration or litigation and the relevant time limits that govern the entire process.
The combined effect of sections 37 and 49 and the principles set out in Zeppieri and Smith is that the limitation period does not begin to run until a valid refusal is given. To be valid the refusal must be clear and unequivocal, must provide reasons for denying the claim and must give the insured person, in clear and straightforward language, information about the various steps in the dispute resolution process and the applicable limitation period.
The arbitrator found that each of the four refusals Wawanesa gave Mr. Adami breached one or more of the principles of Zeppieri and Smith.
The first two refusals, given on June 13, 2002 and July 15, 2003 were deficient for the same reason as the refusal in Smith, because they only informed Mr. Adami of the first step in the dispute resolution process. Also, the refusal of June 13, 2002 was not properly a denial of a claim for income replacement benefits because Mr. Adami had not made a claim for income replacement benefits at that time. The application process has been described in many decisions as one in which information that the applicant is obliged to provide triggers the insurer´s obligation to respond. In this case, Wawanesa´s refusal of June 13, 2002 was clearly not in response to a claim for income replacement benefits. It informed him that his "category is non-earner". This was because Wawanesa did not have information at the time upon which it could determine that he might be entitled to income replacement benefits.
The refusal of July 15, 2003 gave the following reasons: "Based on the evidence on file, you do not qualify for an Income Replacement Benefit. We are investigating the subsequent information received regarding the purported job offer." The arbitrator found those reasons to be equivocal, leaving Mr. Adami with the impression that a final decision on his entitlement to income replacement benefits had not yet been made.
In Smith the Court made the following comment regarding a similar statement in the refusal at issue in that case:
There is some doubt in my mind as to whether the notice given by the respondent in this case would even be considered a refusal in a non-technical sense, absent the refusal letter sent to the appellant´s solicitor. The notice says, inter alia, "If you disagree with our assessment, please contact us immediately. If we cannot settle the application to your satisfaction, you have the right to ask for mediation ..." There is an equivocal sense of indeterminacy in the decision of the insurer giving the reader the impression that the insurer may very well change its stance if it is contacted for a discussion of the matter.
The arbitrator was aware that insurers are required to keep an open mind, even after denying a claim and that the jurisprudence supports the approach that a valid refusal is not voided because an insurer continues discussions after giving the refusal. But, the arbitrator found that the refusal itself could not be unequivocal, if it left the insured with the impression that the insurer had not yet made its final determination.
Turning to the two further refusals, given in 2004, the arbitrator found that they were deficient because Wawanesa gave no reasons.
In the case of Yee and Lambton Mutual Insurance Company it was found that
Mrs. Yee submitted that the only cure for a defective refusal was a further valid refusal. This was found meritorious, as it creates greater certainty. Requiring an applicant to piece together the information from scattered documents goes against the admonition of Gonthier J. [in Smith] that the insurer is required to inform the applicant of the dispute resolution process "in straightforward and clear language, directed towards an unsophisticated person."
The arbitrator adopted that reasoning and approach. In any event, even if the cumulative approach were taken, Wawanesa still would not have given a valid refusal because none of the refusals gives adequate reasons.
It was concluded that, because Wawanesa had never given Mr. Adami a valid refusal of his claim for income replacement benefits, the limitation period was not engaged and Mr. Adami was not precluded from proceeding to arbitration on the issue.