Disputed Ontario auto claim over denial notice could reach Supreme Court of Canada

Allstate Insurance Company of Canada is applying, to the Supreme Court of Canada, for leave to appeal a ruling arising from a notice denying benefits to an Ontario auto claimant. Court records indicate that Allstate essentially contends that the two-year limitation period in Ontario started when the denial of benefits notice was sent to a claimant, not when the claimant received a copy of a neurologist’s report on which that denial of benefits was based.

Edna Klimitz was injured in November, 2003 when she was struck by a vehicle while crossing an intersection.

Two months later, she applied for statutory accident benefits, under Ontario insurance law. At Allstate’s request, Klimitz was examined by an orthopaedic surgeon (Dr. Edward English) and a neurologist (Dr. Garry Moddel).

Klimitz received the orthopaedic surgeon’s report April 15, 2004.

On May 31, 2004, Allstate sent her a “denial notice,” contending she does not qualify for a non-earner benefit, citing reports from the insurers’ examiners.

Section 37(5) of Ontario’s Statutory Accident Benefits Schedule states that within five business days after receiving an insurer’s examiner’s report, “the insurer shall give a copy of the report and the insurer’s determination with respect to the specified benefit to the insured person and to the health practitioner who completed the disability certificate.”

Allstate’s denial noted sent May 31, 2004 “was sent with a covering letter,” wrote Madam Justice Carolyn Horkins of the Ontario Superior Court of Justice, in a divisional court ruling released Dec. 12, 2014. “While this letter stated that Dr. Moddel’s report was enclosed, it is agreed that it was not.”

Court records indicate that Klimitz did not receive Dr. Moddel’s reports until July 18, 2006.

Two days later, she applied to the Financial Services Commission of Ontario (FSCO) for mediation.

Ontario law stipulates that mediation “shall be commenced within two years after the insurer’s refusal to pay” a claim.

In 2012, a FSCO arbitrator ruled that the two-year limitation period started when Klimitz received her denial notice, and she was therefore precluded from proceeding to arbitration. That ruling was overturned by a FSCO director’s delegate, Lawrence Blackman, in March, 2013.

Allstate applied for judicial review. However, in 2014, Ontario’s divisional court ruled that it was “not unreasonable” for the FSCO director’s delegate “to conclude that the two year limitation period did not start to run until Ms. Klimitz received a copy of Dr. Moddel’s report” in 2006.

The Divisional Court’s decision was upheld by the Court of Appeal for Ontario. In a decision released Oct. 19, 2015, Ontario’s appeal court ruled that the FSCO director’s delegate “was entitled to deference in the interpretation” of Ontario insurance law.

On Dec. 10, 2015, Allstate applied for leave to appeal with the Supreme Court of Canada.

In 2012, the FSCO arbitrator ruled that “Allstate’s failure to provide Ms. Klimitz with Dr. Moddel’s report did not detract from the clarity and certainty of its refusal to pay the benefit.” Requiring Allstate to provide the neurologist’s report, with its denial notice, “would amount to holding the insurer to a standard of perfection,” the FSCO arbitrator added in 2012.

“In essence, it is Allstate’s position that the obligation to provide the insured with a clear and unequivocal denial does not include a requirement that it comply with the statutory obligation to provide the insured with copies of the medical reports within five days of receipt,” Justice Horkins wrote.

But she added that the FSCO director’s delegate found that the arbitrator erred in law, on the grounds that an insurer must “give reasons” that permit a claimant “to decide whether to challenge its denial.”

The director’s delegate cited a Court of Appeal for Ontario ruling, released in 2005, in State Farm Mutual Automobile Insurance vs Deborah Turner.

“The Director’s Delegate found that requiring Allstate to provide an actual copy of the medical report, upon which Allstate was basing its refusal, was not an onerous task nor did it hold the insurer to a standard of perfection,” Justice Horkins ruled in 2014. The other judges hearing Allstate’s application for judicial review – Mr. Justice Frank Marrocco and Mr. Justice James Spence – agreed.

The Divisional Court noted that while there is “no clear link” in SABS “between production of the medical reports and the commencement of the limitation period, the Schedule does require reasons in the Denial Notice and as stated in Turner the reasons have a purpose. The reasons that Allstate provided did not fulfill this purpose because Allstate did not provide Ms. Klimitz with Dr. Moddel’s report.”