What happened?

The Court of Appeal has upheld the lower court decision in Hurst v.Aviva Insurance Company (2012 ONCA 837) that Applications for Mediation received by FSCO that have not been mediated within 60 days are deemed failed. A Report of Mediator is not required for an insured to commence litigation.

What does this mean?

This has serious repercussions for the tens of thousands of Applications for Mediations stuck in backlog at FSCO. Essentially, all the Applications that were filed in excess of 60 days may proceed directly to litigation should the insured so choose. This in turn will likely overwhelm the arbitrations unit and devour already limited court resources.

The Case:

A number of insureds wanted to commence litigation circumventing the condition precedent of receiving a Report of Mediator. Their Applications for Mediation had been filed at FSCO and the 60 day limitation period had lapsed. No mediations were held in these cases due to a considerable backlog.

The issue: when can an insured person commence an action against his or her insurer for accident benefits?

Section 281(2) of the Insurance Act prevents insured persons from commencing actions against their insurer unless they first sought mediation at the Financial Services Commission of Ontario. Provisions regarding these mandatory mediations are set out in s. 280. Of note, s. 280(4) requires the mediations to be conducted within the "prescribed time". Section 280(7) states that mediations have failed when the mediator has given notice to the parties that the mediation will fail or when the prescribed or agreed time for mediation has expired and no settlement has been reached. Section 10 of the Dispute Resolution Practice Code prescribes the time to be 60 days:

10. A mediator is required, under subsection 280(4) of the Act, to attempt to effect settlement of a dispute within 60 days after the date on which theapplication for the appointment of a mediator is filed.

FSCO had been taking the position that the time limit does not start ticking until an Application for Mediation had been marked as "complete". Thus a backlog of cases was allowed to build up. At the time of the release of the decision the backlog is approximately 36,000.

Juriansz J.A. held that this view is contrary to the legislative purpose of providing a speedy mediation process. Further, the court noted that the DRPC definition of "filed" does not require any action by FSCO for a document to be "filed", as per the reasons of Arbitrator Jeffrey Rogers in State Farm Mutual Automobile Insurance v. Leone(FSCO A11-002196). The 60 day time limit is an "integral part of the legislative scheme that aims to provide a speedy mediation process". It was further held that an insured person need not even wait to receive the Report of Mediator confirming that the mediation had failed. The failure of FSCO to perform a statutory duty did not extinguish a person's right granted by the statute. Finally, the court dismissed the concern that the absence of a Report for Mediator would allow for a perpetual limitation (s. 281.1(2)(b) permits a 90 day extension following the issuance of a Report of Mediator) as "more imaginary than real" since the issuance of a Mediator's Report is necessary for the 90 day extension. Changes to the regulation could be made to remedy this situation. Ultimately, if parties do not agree to extend the time line for Mediation, then it could be inferred that the insured persons have chosen to commence an action and the time limit is still two years from the denial of the benefit.