Recent FSCO Decisions Limit Consequences of Insurers’ Technical Errors on SABS Claims

December 1, 2010 | Nicholaus de Koning | Kitchener-Waterloo

Some recent
FSCO caselaw provides reassurance to insurers that accident benefits disputes
should be resolved on their merits. Technical errors or breaches of the SABS
should not and do not result in automatic benefit entitlement, regardless of
whether the insured person meets the eligibility or disability criteria, unless the legislation very specifically
provides for that consequence.

In the
arbitration decision in Mrs. S. and
Economical Mutual Insurance Company
(FSCO File A08-001275), Arbitrator
Renahan dismissed the claimant’s claims for income replacement benefits,
housekeeping and home maintenance benefits and a Special Award. He agreed with
the insurer that the claimant had simply made up the story of her employment at
a restaurant prior to her accident, so she never met the eligibility criteria
under section 4 of the SABS. There was no documentary evidence, such as a T4,
or employer’s human resources file, to substantiate the employment. There were
no independent witnesses to corroborate her story of employment. There was no
reported income on her tax return for the year the accident, even though she
did file a return. There were many implausible features to her story.
Arbitrator Renahan found the claimant was a person with limited intellect, who
lacked the insight to realize that her evidence was implausible and not
believable.

The difficulty for the insurer was that it was late
responding to the claim. Section 35(3) of the pre-September 1, 2010 SABS
provided that within 10 business days of receiving a completed application for
benefits, an insurer was to (a) pay the specified benefit, (b) send a request
to the insured person [for more information or documentation] under subsection
33(1), or (1.1); or (c) notify the insured person that the insurer required
insurer medical examination. Since this was a case of late report (the
claimant’s accident was November 22, 2006, but she did not notify the insurer until
March, 2007, and did not 

submit her
application until April 5, 2007), the insurer had a longer period of 45 days to
make a decision on entitlement, based on section 32(6). Unfortunately, the
insurer did not meet the deadline of May 21, 2007. It requested employment
documentation on June 2, 2007, and notified the claimant of medical
examinations on June 7, 2007.

At
arbitration, the claimant’s counsel argued that she was entitled to income
replacement and housekeeping benefits (because the insurer failed to comply
with the time limits), either on an indefinite basis, or at minimum, for the
period prior to June 2, 2007. Arbitrator Renahan rejected this. Had the
claimant actually been entitled to the benefits, the remedy for the lateness
would have been a Special Award and/or compound interest. There was no
automatic benefit entitlement simply because the insurer had missed the
deadline. The legislation did not provide for that consequence.

For reasons best known to herself, the claimant
appealed. This is surprising as factual determinations, in general, cannot be
appealed, as appeals must be limited to questions of law. The facts as found by
Arbitrator Renahan were not favourable to the claimant. In any event, Delegate
Lawrence Blackman dismissed the appeal on November 17, 2010. He agreed with
Arbitrator Renahan that although the insurer had made a technical error by
missing a deadline by about 15 days, this was in the context of the claimant
not applying for accident benefits for almost four months after her accident.
Furthermore, the legislation did not provide for automatic benefit entitlement,
regardless of the merits, simply due to that error. Delegate Blackman commented
that the SABS is not precisely tailored to every specific circumstance of
individuals and unlike tort compensation, it is, to a significant degree, “off
the rack” legislation. Its provisions are a compromise between sometimes
competing legislative
goals, including providing a fair yet limited degree of compensation, being a
payor of last resort, a trade off for statutory limitations on accident
victims’ third party tort recovery, playing claims on a no fault and consumer
protection type basis in a timely manner, avoiding double recovery and
preventing fraud or abuse of the system.

In order to
smooth out these rougher edges of the legislation, Delegate Blackman noted that
the legislation provides some adjudicative discretion to arbitrators, mainly in
the form of Special Awards (where the insurer has unreasonably withheld or
delayed payments), interim orders and awards of legal expenses and interest.
However, that adjudicative discretion did not go so far as to impose
substantive benefit entitlement on an automatic basis, simply due to an
insurer’s breach. This would be an especially far reaching consequence, and
ought to be imposed only if there was very specific legislative language to
that effect. 

Insurers can take
some comfort in this decision. Clearly, legislative timelines have a function
in advancing timely compliance by both insured persons and insurers. If an
insurer fails to comply with timelines, then in meritorious claims, it faces
significant consequences, mainly in the form of mandatory interest and possibly
a Special Award. On the other hand, disputes should be adjudicated on their
merits and insurers should be able to resist clearly abusive or fraudulent
claims, despite technical shortcomings in their adjusting of the file.