The Court of Appeal in Mader v. South Easthope Mutual Insurance Company (2014 ONCA 714) confirmed that mediation and the repayment of benefits are preconditions to proceeding with a lawsuit for accident benefits.
In this case, the Plaintiff was involved in a motor vehicle accident on July 21, 2002. In April 2003, she received a notice of stoppage of weekly benefits and a request for an assessment at a Designated Assessment Centre ("DAC"). The Plaintiff disagreed with the stoppage and requested a DAC assessment in accordance with the Statutory Accident Benefits Schedule. Prior to the DAC assessment occurring, the Plaintiff signed a Full and Final Release.
There was conflicting evidence regarding the circumstances surrounding the execution of the release. According to the Plaintiff, the adjuster went to her apartment and Ms. Mader felt that she had no choice but to accept the settlement. Reportedly, the adjuster did not tell Ms. Mader that she did not have to sign the release or that she could continue to receive benefits from the Insurer. In contrast, the Insurer reported that it was the Plaintiff who first approached them about trying to resolve the claim.
On April 5, 2005, the Plaintiff issued a Statement of Claim. She sought a declaration that the release was a nullity. The Plaintiff also sought further statutory accident benefits and bad faith damages.
Following the claim, South Easthope wrote to Plaintiff's Counsel advising that the Plaintiff had a statutory obligation to repay the settlement funds before commencing her claim. The letter indicated that South Easthope was prepared to re-open the file and deal with the matter as if the settlement had not taken place. Specifically, the Insurer explained that they would reinstate income replacement benefits and pay the arrears provided that the Plaintiff (a) described her activities and earnings since signing the release; and, (b) agreed to undergo an independent assessment.
There was no response to this letter. There was no repayment of the settlement funds and there was no application for mediation filed.
In January 2013, the Plaintiff brought a motion for partial summary judgment and a declaration that she was entitled to income replacement benefits until the Insurer complied with its obligation to provide the requested DAC assessment.
The Insurer also bought a summary judgment motion seeking to dismiss the claim on the basis that it was statute barred because there was no repayment of the settlement funds and the mediation had not been filed.
In dealing with the Insurer's motion for summary judgment, the Court noted that pursuant to section 281 of the Insurance Act, no person may commence a Court or Arbitration proceeding unless they have first sought mediation and the mediation failed. The Court held that mediation was a statutory precondition.
The Plaintiff did not dispute that she had not sought mediation for her claim. Instead, the Plaintiff argued that the dispute would not be accepted for mediation at Financial Services Commission of Ontario because the Dispute Resolution Practice Code ("Code") required a denial of benefits a precondition to mediation. It did not permit mediation where a settlement agreement was in place.
The Court of Appeal disagreed with this argument. Justice Hourigan held that the dispute was clearly contemplated by the Code's mediation procedure which covered "any dispute about an insured person's entitlement to accident benefits".
The Court of Appeal noted that the Code permitted mediation where a settlement agreement was in place in limited circumstances including where the "claimant disputes the validity of the settlement, such as whether the insurer has complied with the requirements of the Settlement Regulation". The Plaintiff argued that this exception did not apply because it was not her position that the Full and Final Release did not comply with the Settlement Regulation. Instead, the Plaintiff argued that the last Release was obtained through fraud or misrepresentation. The Court of Appeal dismissed this submission and held that the exception applied to all circumstances where the Insurer disputed the validity of the settlement.
In her claim, the Plaintiff also purported to rescind the settlement agreement. In order to do so, the Court of Appeal held that she was required to deliver written notice to the office of the Insurer and return any money received. The Court of Appeal noted that the Insured was prohibited from commencing mediation until she had returned the money received as consideration. The Court of Appeal found that it was clear that the Plaintiff had not fulfilled the statutory preconditions.
The Plaintiff submitted that she had not only sued for breach of contract but for mental distress, breach of duty of good faith and conspiracy. The Plaintiff claimed that the damages for mental distress and bad faith were independent causes of action.
The Court of Appeal recognized that the breach of an Insurer's duty of good faith or intentional infliction of mental distress could constitute an independent cause of action. However, the Court of Appeal held that the claims asserted by the Plaintiff all flowed from the denial of benefits. The claims being advanced were simply that the Plaintiff was wrongfully denied benefits to which she believed she was entitled to receive. This was precisely the type of claim contemplated by the resolution procedure.
The decision confirms that Plaintiffs must mediate a claim for accident benefits in accordance with the Insurance Act prior to commencing a lawsuit. Further, where an Insured claims to repudiate a settlement agreement, a necessary pre-condition is the return of settlement funds. In accordance with this decision, Insurers should require strict compliance with these obligations. If this is not done, the Insurer should take steps to dismiss the proceeding.
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