In T.P. and TD General Insurance Company, Arbitrator King provided a strong reminder that issues of capacity are a constant concern for settlements of all accident benefits cases.

The Applicant was injured in a motor vehicle accident on June 5, 2008 and received benefits from TD General Insurance Company (“TD General”). A dispute arose about the benefits being paid. On September 2, 2009 the Applicant and TD General came to an agreement and the Applicant signed settlement documents.

On the evening of September 2, 2009 the Applicant was hospitalized and diagnosed with paranoid psychosis, paranoid ideation and hypomania after jumping from his parents’ third storey balcony. He was involuntarily detained under Form 1 of the Mental Health Act until September 5, 2009. He was hospitalized on four subsequent occasions over the course of the next month.

In 2011 the Applicant’s file was transferred to new counsel and the current proceeding was commenced by a litigation guardian, the Public Guardian and Trustee, on the Applicant’s behalf. It was alleged that the settlement was not binding as the Applicant did not have the requisite capacity when the settlement agreement was signed or during the two business day “cooling off” period set out in the Settlement Regulation.

There were some factual disputes over whether the Applicant signed the settlement document or his father did, and whether the Applicant would have been objectively known to be incapacitated at the time of signature.  She ultimately found that the Applicant signed the agreement.

Arbitrator King found the settlement agreement was void due to the Applicant’s incapacity. She acknowledged that under the Dispute Resolution Practice Code, there is a presumption of capacity during statutory accident benefits claims unless there is compelling objective evidence to believe otherwise. In this instance, she believed that neither the Applicant’s counsel nor TD General had knowledge of, or a reasonable reason to suspect, the Applicant’s psychosis.

In coming to her decision, Arbitrator King examined Statutory Accident Benefits Schedule (“SABS”) contracts within the context of insurance principles, relying heavily on Smith v Co-operators[1] and Arbarca v Vargas[2]. She notes that the Supreme Court in Smith determined that the main objective of insurance law is consumer protection. Similarly, in Arbarca the Ontario Court of Appeal held automobile insurance policies are “more than mere commercial contracts.” Insurance principles must be considered when balancing parties’ interests.  As a result, insureds are provided with additional rights not otherwise available under standard contract law (such as a two business day “cooling off” period).

When analyzed in the context of the insurance principles, Arbitrator King held there was sufficient evidence to overcome the presumption of capacity under the Dispute Resolution Practice Code. He was hospitalized on the same day shortly after signing the settlement agreement, he was detained under the Mental Health Act for the entire “cooling off period”, and his family testified that he had been acting bizarrely in the days leading up to his signing the settlement agreement. In addition, Dr. Lynn Lightfoot, a Designated Capacity Assessor under the Substitute Decisions Act (“SDA”), found that the Applicant failed the two branch “understand and appreciate” test for incapacity established in the SDA. Given the underlying principle of consumer protection, Arbitrator King found the settlement agreement was not binding due to the Applicant’s incapacity.

Arbitrator King’s decision places an additional burden on insurers to actively determine whether there are potential capacity issues at the precise time of settling accident benefits disputes. Insurers should no longer rely exclusively on the presumption of capacity, but should consider actively investigating an insured’s capacity in all claims. It might be beneficial for representatives of the insurer to have the opportunity to engage with a claimant at the time a settlement is entered into, and for those representatives to satisfy themselves, in a lay person fashion, about capacity, and document those observations in the event of a future capacity challenge.

[1] [2002] S.C.J. No. 34

[2] 2015 ONCA 4

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