June 10, 2013

Accident Benefits Update – Termination of IRBs – Caution: The Limitation Period Starts To Run on Date of Notice, Not Last Payment!

ACCIDENT BENEFITS UPDATE

For the week of June 10 to June 4, 2013

Caution: The Limitation  Period Starts to Run on Date of Notice, Not Last Payment!

Ponnampalam v. State Farm, Appeals P12-00031A and P12-00031C, May 13, 2013; Delegate Lawrence Blackman.

MVC February 5, 2007. The insurer notified the insured on September 12, 2008 that his Income Replacement Benefits (“IRBs”) were being terminated effective September 19, 2008. The insured applied for mediation on September 14, 2010. The insurer argued that the insured was precluded from arbitrating the issue of IRBs by the two year limitation period set out under the Insurance Act.

Arbitrator Miller held that the limitation period did not start to run on the date the insured person was notified of the refusal to pay, but on the date the benefits actually ended, which was September 19, 2008. Therefore the insured was not precluded from arbitration. The insurer appealed.

 

ANALYSIS

The Explanation of Benefits (OCF-9) dated September 12, 2008 terminating the insured’s IRBs stated the following on Part 2A of the form entitled “Eligible”:

…no further income replacement benefits will be paid 5 business days past the date of this notice (Sept. 19, 2008). Final.

Section 281.1(1) of the Insurance Act provides that “a mediation proceeding or evaluation under section 280 or 280.1 or a court proceeding or arbitration under section 281 shall be commenced within two years after the insurer’s refusal to pay the benefit claimed.”

After citing past authorities, Delegate Blackman held that Arbitrator Miller erred in finding that the limitation period started to run on the date the IRB payments ended. He noted that the Insurance Act does not state that proceedings shall be commenced within two years after payment of the benefits ended. Delegate Blackman held that the two year limitation period starts to run on the date of the insurer’s Explanation of Benefits notifying the insured of its refusal to pay. Therefore, although the benefits may continue for some period after the insurer’s notice, the insured is not prohibited from applying for mediation immediately after notice is given. Delegate Blackman concluded that because the two year limitation period started to run on September 12, 2008, the insured was precluded from proceeding to arbitration on the termination of his IRBs.

IMPLICATIONS

In determining when the limitation period for disputing the termination of IRBs starts to run, an insured must look to the date that the insurer provided notice of the refusal to pay, which is likely the date of the Explanation of Benefits (OCF-9). Although there is much fact-specific law concerning what is considered a clear and unequivocal “refusal to pay”, the insured should take the “better safe than sorry” approach and apply for mediation within two years of the date of the notice, regardless of when the last day of payment is.

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