Limitation Period Trumps Invalid Election

The recent FSCO decision on a preliminary issue in Kanagalingam v. Economical Mutual Insurance Company[1] confirms that insurers can rely on the statutory two-year limitation period when a weekly benefit is properly denied, even if the underlying election of benefits is found to be invalid. In her decision, Arbitrator Morris found that even though the claimant’s election of a caregiver benefit (“CGB”) was an “invalid election”, the subsequent claim for an income replacement benefit (“IRB”) was time-barred when the claimant sought the new benefit after three years. The initial clear and unequivocal denial of the IRB following the claimant’s application for benefits and election of a CGB started the clock on the two-year limitation period.

Following a motor vehicle accident on June 23, 2008, the claimant sought accident benefits from her insurer. The insurer advised her by letter that she may be eligible for either an IRB or a CGB, but that only one benefit could be paid at any one time. The only information given to the claimant regarding the duration of an IRB was that it would have been limited to 12 to 16 weeks if her injuries fell within the Grade I Whiplash Guideline/Grade II Whiplash Guideline. The claimant selected a CGB on her OCF-10 Election of Income Replacement, Non-Earner, or Caregiver benefits form.

The resulting OCF-9 Explanation of Benefits forms from the insurer set out that she was not eligible to receive an IRB as she had elected to receive a CGB (on July 23, 2008). The OCF-9 also set out the dispute resolution process and contained a warning about the two-year limitation period. The claimant’s CGB was terminated in December 2008 following an Insurer Examination.

In November 2011, nearly three and a half years after making the CGB election and almost three years after the CGB was terminated, the claimant sought an IRB from the insurer. This was denied by the insurer on the basis that the claimant had elected to receive a CGB and, based on the December 2008 letter, she was no longer entitled to receive that benefit.

The claimant took the position that the July 2008 election of benefits was invalid as the insurer had failed to provide information required by the Schedule regarding “information on any possible elections relating to income replacement, non-earner and caregiver benefits.” The claimant argued that the refusal of an IRB was thus also invalid and that the limitation period had not begun to run. Conversely, the insurer took the position that the July 2008 election of a CGB was valid and that the IRB was then properly denied.

Arbitrator Morris found that the information provided by the insurer to the claimant indicated that she could not receive a CGB or an IRB at the same time; however, she found that the insurer had not told the claimant that if she chose a CGB, she could never receive an IRB. The claimant further pointed out that the insurer did not correct their information on the possible duration of an IRB when a subsequent Disability Certificate showed a Grade III whiplash instead of a Grade I or II whiplash.

Consequently, Arbitrator Morris found that the insurer did not comply with its obligation to provide information to the claimant as required by the Schedule. As such, the claimant was not prevented by her initial election of a CGB from claiming an IRB instead. Arbitrator Morris reached this conclusion primarily using the analysis in Antony and RBC General Insurance Company[2], which found that a claimant had a right, in certain circumstances, to re-elect benefits where an election was found to be valid. However, she noted that while Antony discussed a time limit on re-election where the election was a valid one, it did not discuss time limits with respect to an invalid election. She further noted that the claimant in Antony purported to change her election after three months, while the claimant in the case before her sought to do so after three years.

Turning to the issue of whether the claim for an IRB was time-barred, Arbitrator Morris found that, despite the invalid election of a CGB in 2008, the refusal of an IRB was nevertheless clear. The denial had complied with the requirement to advise the claimant of the dispute resolution process and set out a warning of the two-year limitation period. Arbitrator Morris cited the Ontario Court of Appeal in Turner v. State Farm Mutual Automobile Insurance Company[3], which upheld a refusal of benefits even though the reasons given were legally incorrect, where the refusal was otherwise clear and unequivocal and notice of the dispute resolution process was properly given.

Arbitrator Morris also cited the Court of Appeal’s decision in Bustamante v. The Guarantee Company of North America[4], where the Court upheld a denial of a claim for non-earner benefits brought three years after the claimant’s IRB was terminated. Arbitrator Morris drew from the Court’s decision that the applicable limitation started when the insurer accepted the claim for an IRB and denied a Non-Earner benefit:

In denying the claim, the Court stated:

In response to the appellant’s argument that the start of the limitation period for the non-earner benefit does not start to run during the period when she was entitled to the income replacement benefit, we repeat and reinforce what this court said in Sietzema, at para. 16: “If we accepted the appellant’s argument, the limitation period for making a claim for Non-Earner Benefits never began to run. This would defeat one of the primary purposes of the SABS regime, namely, to ensure the timely submission and resolution of claims for accident benefits.”

Arbitrator Morris found that while the election of a CGB was invalid and “could have been changed for that reason within the two-year period”, the IRB was clearly and unequivocally refused. Arbitrator Morris found that the two-year limitation period was triggered by the Explanation of Benefits that denied the IRB on July 23, 2008. Additionally, the claimant did not re-assert a claim to the alternate benefit until more than two years after the elected benefit, which was paid for a time, had been denied. Arbitrator Morris therefore dismissed the Application for Arbitration as time-barred.

The Kanagalingam decision is consistent with the appeal decision in Cejvan and Western Assurance Company[5], which was not available when arbitration was commenced in Kanagalingam. The Cejvan decision set out that the OCF-1 Application for Benefits is an encompassing application for all weekly benefits, with the resulting payment of one benefit and denial of the other categories beginning the limitation clock for all weekly benefits, regardless of which one is being paid. Judicial review in Cejvan is currently pending and will hopefully provide some clarity in the future.