A decision that an insurer’s denial of benefits provided incomplete reasons for the denial as it did not enclose the report of a medical examiner relied on for the denial and that the limitation period did not start to run was held to be reasonable on judicial review.

[2014] O.J. No. 5943

2014 ONSC 7108

Ontario Superior Court of Justice

F.N. Marrocco, J.M. Spence and C.J. Horkins JJ.

December 12, 2014

The applicant, Allstate Insurance Company of Canada (“Allstate”), sought judicial review of a decision of the Director’s Delegate that the two year limitation period under section 281.1(1) for an insured person to commence mediation for benefits under the Statutory Accident Benefits Schedule (the “Schedule”) did not commence to run until a medical report which the insurer relied upon in its decision to deny benefits was provided to the insured.

The insured, Edna Klimitz, was injured on November 7, 2003 and submitted her Application for Accident Benefits to Allstate in January 2004. At Allstate’s request, she was examined by an orthopaedic surgeon and a neurologist. Section 37(5) of the Schedule required that Allstate, within five days after receiving the reports from the examinations, provide the insured with a copy of the reports and its determination with respect to the specified benefit. On May 31, 2004, Allstate sent the insured a denial notice relying on the neurological evaluation and the orthopaedic evaluation and purporting to enclose both reports. However, no report from the neurologist was enclosed. Allstate provided the insured with copies of two reports from the neurologist on July 18, 2006 and the insured filed her Application for Mediation on July 20, 2006.

A preliminary issue arbitration was held and the arbitrator determined that the insured was precluded from the proceeding to arbitration and that Allstate’s denial of benefits conformed with the requirements for a valid termination because the denial notice was clear and unequivocal and to require that Allstate provide the neurologist’s report as part of its reasons for denial would amount to holding it to a standard of perfection. The insured appealed this decision to the Director’s Delegate(the "Delegate"). The Delegate noted that an insurer’s notice of refusal to pay benefits must provide: (1) a clear and unequivocal refusal; (2) reasons for the insurer’s determination; and, (3) an adequate explanation of the right of the insured person to dispute the refusal and the process for doing so. He found that the denial notice was a clear and unequivocal refusal of the claim but that the arbitrator had erred in law when she held that to require Allstate to provide the insured with a copy of the neurologist’s report as part of its reasons for denial would amount to holding the insurer to a standard of perfection. Requiring Allstate to provide an actual copy of the medical report, upon which it was basing its refusal, was not an onerous task nor did it hold the insurer to a standard of perfection. As a result, the insured was not precluded from proceeding to arbitration because the two year limitation period did not commence to run until the neurologist’s report was provided to her.

Allstate sought judicial review of the Delegate’s decision. It argued in essence that the obligation to provide the insured with a clear and unequivocal denial did not include a requirement to provide the insured with copies of the medical reports within five days of receipt as required by the Schedule. The court noted that the standard of review was reasonableness and found that the Delegate’s decision was reasonable. The finding that the reasons provided by Allstate in the denial notice were insufficient was supported by the evidence that Allstate did not provide a copy of the neurologist’s report which formed part of the reasons for the denial as set out in the denial notice. In coming to this conclusion, the Delegate relied on established case law regarding the purpose of the insurer’s obligation to give reasons for a refusal of benefits, which stated “The purpose of the requirement to give reasons is to permit the insured to decide whether or not to challenge the cancellation.” The court held that it was entirely reasonable for the Delegate to conclude that Allstate was required to produce the neurologist’s report as part of its reasons for refusing benefits. Allstate obviously relied on the report because it said so in the denial notice. It had also failed to comply with the statutory obligation to provide the insured with a copy of the report and as a result, the insured received incomplete reasons explaining the denial of her claim. Her ability to decide “whether or not to challenge the cancellation” was seriously limited. In the result, the application for judicial review was dismissed.