On February 11, 2014, the Ontario Court of Appeal released its decision in Sietzema v. Economical Mutual Insurance Company, 2014 ONCA 111. This decision provides more clarity with respect to the application of the two year limitation period set out in s. 281.1(1) of the Insurance Act and s. 51(1) of the SABS. Those sections stipulate that a FSCO mediation and an arbitration or court proceeding must be commenced within two years of the insurer’s refusal to pay a benefit claimed (a 90 day extension is available for claims where mediation or neutral evaluation was commenced before the two year mark, and failed afterwards within those same 90 days).

In this case, Tanya Sietzema was involved in a car accident on November 11, 2005, and she applied to Economical for accident benefits. In a Disability Certificate included with her application, her physician opined that her accident-related impairments qualified her for income replacement benefits, but not for non-earner benefits. Economical responded with an Explanation of Benefits (OCF-9) indicating that she was eligible for income replacement benefits, but not non-earner benefits (because of the fact that she was eligible for income replacement benefits, and could not be eligible for the two benefits at the same time).

It was the claimant’s position that when her income replacement benefit was subsequently terminated, she should have been told by Economical that she could apply for non-earner benefits. Based on the OCF-9 received initially, she claimed that it was her understanding that she could never claim a non-earner benefit. She argued that the initial OCF-9 was not a denial that would trigger the running of the limitation period. Economical argued the opposite position, pointing to the fact that Ms. Seitzema had been represented by legal counsel during the period after Economical had delivered the OCF-9 denying her eligibility for the non-earner benefit.

Prior to the Court of Appeal’s decision, there were two lines of jurisprudence as to when the limitation period starts to run in situations where a benefit was denied “pre-emptively”.

At FSCO, arbitrators had held that an insurer could not deny a benefit before it was claimed. In this situation, it was held that even where the insurer had demonstrated that a clear and unequivocal refusal had been made by the insurer, this would not trigger the limitation period. The logic of this analysis was that it would be unfair and contrary the consumer protection purpose of the SABS to permit an insurer to deny entitlement to a type of benefit where that same benefit had not been claimed by the insured person.[1]

However, in the Superior Court of Justice, four different judges have rendered decisions within the last year that have effectivelyheld that the two year limitation period does run from the date of the insurer’s refusal even where the benefit had not technically been claimed prior to the refusal[2]. Aside from the decision of Justice Sloan at first instance in Sietzema, the Court of Appeal specifically refers to two of these other cases:Katanic v. State Farm, and Sagan v. Dominion.

The Court of Appeal upheld the lower court decision of Justice Sloan and, in doing so, the Court rejected the claimant’s submission that the often-cited decision of the Supreme Court of Canada in Smith v. Co-Operatorsimplied that limitation periods should be construed strictly and narrowly without regard for the presence/absence of legal representation of the claimant.

Here, the Court of Appeal found that while the claimant herself may have been personally misled by the insurer’s denial, she had retained counsel early in the process to protect her rights, and to aid her in the claims process. The Court held that her counsel knew or ought to have known that the limitation period was running following the insurer’s clear and unequivocal refusal to pay her non-earner benefits.

The Court of Appeal went further to state that the effect of the liberal interpretation ofSmithv. Co-Operators that was being advocated by Ms. Seitzema would be that the limitation period never began to run, thus defeating one of the primary purposes of the whole SABS regime – the timely submission and resolution of claims for accident benefits.

The result appears to be a clear divergence in the jurisprudence from FSCO versus the courts on this issue.

Currently, it is not known whether leave to appeal from this decision will be sought and granted by the Supreme Court of Canada. If not, then FSCO arbitrators will likely find it much more difficult to deny limitation period defences where the insurer proves that a clear and unequivocal refusal to pay a benefit was communicated, the limitation period has expired, and the claimant was represented by legal counsel during this time but failed to commence mediation and arbitration or litigation within the applicable limitation period.

[1]See for example: Ross v. TTC Insurance Co., [2002] O.F.S.C.I.D. No. 47; Adami v. Wawanesa Mutual Insurance Co., [2008] O.F.S.C.I.D. No. 142; and Mannarino v. ING Insurance Company of Canada, FSCO A08-000388, released January 11, 2010.

[2]See for example: Seitzema v. Economical, 2013 ONSC 4299 (CanLII), a decision of Mr. Justice Sloan released June 21, 2013; Katanic v. State Farm Mutual Automobile Insurance Co., [2013] O.J. No. 3605, a decision of Madam Justice Milanetti released August 2, 2013; Sagan v. Dominion if Canada General Insurance Co., [2013] O.J. No. 6022, a decision of Mr. Justice Lofchik released December 31, 2013; and Conrad v. State Farm Mutual Automobile Insurance Co., [2014] O.J. No. 167, a decision of Mr. Justice Reilly released January 14, 2014.