What constitutes a valid refusal of an accident benefit on
the part of an insurer?
FSCO Arbitrator Anne Morris was required to revisit the issue in
the hearing of Jody Falcon ats State Farm, with reasons
released on February 16, 2016.
The Arbitrator's conclusion will be a surprise to many in
the insurance industry as all three
Explanations of Benefits ("OCF-9s") delivered by State
Farm were considered to be invalid. As a consequence, no limitation
period had been triggered, allowing the insured to pursue
entitlement to an Income Replacement Benefit notwithstanding the
passage of five and a half years since entitlement was
The case-law holds that a valid refusal must be clear,
unequivocal and include reasons. The insured must be informed of
his or her right to dispute the insurer's refusal to pay a
benefit. The onus is on the insurer to demonstrate that its refusal
meets these requirements. Failure to explain the insured's
right to dispute is sufficient grounds to invalidate a refusal.
This ultimately was the fatal flaw in most of the OCF-9's that
were the subject of this dispute.
The insured had been involved in an accident on May 11, 2008. He
sought accident benefits from State Farm. He was paid an Income
Replacement Benefit up to May 18, 2009. State Farm sent the insured
three OCF-9's in an attempt to terminate the Income Replacement
Two OCF-9s were dated April 17, 2009. One explained that
pursuant to an IME opinion it was advisable for the insured to
return to employment. It explained that the Income Replacement
Benefit would be paid "up to May 18, 2009." The
insured was directed to "see our other Explanation of
Benefitsdated 4/17/09 for details." Arbitrator
Morris concluded that this did not constitute a clear
refusal of benefits.
In the second OCF-9 of April 17, 2009, the insured was referred
to two IME assessments, and he was informed that since he did not
suffer a substantial inability to perform his employment, the
benefit would be "discontinued effective 5/18/09 pursuant
to s.37 of the SABS." The insured was advised that if he
disagreed with the decision he was entitled to "submit a
rebuttal examination" and a letter attaching a summary of
the rebuttal procedure was attached. Arbitrator Morris considered
this inadequate because the Explanation excluded references to
steps such as mediation and arbitration.
The third OCF-9 was dated July 9, 2009. The insured was advised
to "refer to the previous Explanation of Benefits dated
April 17, 2009 wherein the benefit was denied or deemed not
The problem for State Farm was that the prior OCF-9's did
not constitute a clear and unequivocal denial of the benefit. If
the earlier OCF-9's were deficient, then the subsequent OCF-9
of July 9, 2009 that referred to the prior notices was also
The Arbitrator also considered it unreasonable that an insured
would have to "piece together" OCF-9's of
different dates to arrive at a valid refusal.
Significantly, all the OCF-9's contained the standard
section that sets out the insured's rights to dispute
("Step 1: Notify Your Insurer/Further
Examination" and "Step 2: Mediation"
followed by "Step 3: Arbitration/Lawsuit or
Evaluation"). The Arbitrator seems not to have been
persuaded that this section of the form would be adequate notice of
the dispute resolution process.
Of importance to the Arbitrator was the perspective of the
"unsophisticated person." Exactly what this
standard would require in the circumstances is not spelled out, but
the decision would imply the following about best practices when it
comes to issuing denials of accident benefits:
A valid denial must include a
reference to the dispute resolution process, and this means
informing the insured directly of his or her rights to engage in
the mediation and arbitration process.
It will not always be adequate to
rely on the description of the dispute resolution process in
section 6 of the OCF-9.
Some might argue that in a case like this, it would have been
obvious that a benefit was being refused, given that the insured
was sent at least two IME assessments along with three OCF-9s, two
of which made reference to the benefit being stopped.
But evidently the law on the issue is not that simple. The
decision highlights the high demands made on insurers in respect of
issuing valid denials. Lawyers who advise insurers would be
well-advised to consider whether benefits have been denied with a
clear and unequivocal refusal that also provides specific
information about the dispute resolution process.
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