The year 2016 was not all that bad: The Superior Court finally provided some much needed guidance on whether an insurer can recover an overpayment made to an insured under the SABS. Justice Perell in Intact Insurance Company v. Marianayam shed some light on this ambiguous area of law.
Overpayments commonly occur when an insured person is paid an income replacement benefit and subsequently receives Long Term Disability benefits (LTD) or Canada Pension Plan benefits (CPP), which are deductible under the SABS.
The recovery of overpayments is governed by section 52 of the SABS-2010 (see section 47 of the SABS-1996). It provides that an insurer may recover benefits that were paid to an insured in error or if the insured was disqualified from receiving benefits. This is, of course, only if the overpayment is not a result of willful misrepresentation or fraud. One of the most controversial aspects of this law is subsection 52(3) of the SABS-2010 (section 47(3) of the SABS-1996), which requires the insurer to give notice of the amount that is required to be repaid.
The notice requirement was introduced in the 1996 amendments to the SABS. Subsequently, a body of case law has developed around the timing and content of this notice.
With respect to timing of notice, the Superior Court in Marianayam has helped clarify this area of law by upholding the Director's Delegate decision in Pries v. Economical Mutual Insurance Company2, and confirming that an insurer can only recover an overpayment made within 12 months of giving notice. In Pries, Economical took issue with the term "payment" in s.47 (3) of the SABS, and with the phrase, "within the 12-months after the payment was made". Economical argued that they should be able to recover the full amount of the overpayment. However, Directors Delegate Evans was not persuaded and ultimately held that an insurer can only recover an overpayment made within 12-months of giving notice and awarded Economical 12 of the 16 months of overpayments. To put it another way, the amount of the repayment is capped at one year before the demand and there is no recovery for any payment made more than 12 months before the repayment notice was made.
The Superior Court in Marianayam also weighed in on what constitutes proper notice under the SABS. In doing so, Justice Perell upheld the controversial decision of Knechtel v. Royal SunAlliance, where Arbitrator Sampliner held a valid notice letter must contain:
- The name of the specific benefit(s) the insurer claims has overpaid;
- A statement of the appropriate weekly/monthly or lump sum amount sought;
- The payment date of applicable time span of the specific benefit(s) it has paid and seeks repaid; and
- Calculation of the total repayment claim;
Justice Perell stated that the amount claimed in the insurer's notice letter "need not be perfectly correct but should be substantially correct." While this may sound simple enough, Justice Perell determined that Intact's first two notice letters failed comply with the Knechtel requirements.
In Marianayam, Intact claimed reimbursement for overpayments made to the Claimant between 2007 to 2015 as a result of the Claimant's receipt of retroactive LTD benefits and CPP benefits.
Intact's first letter sought $69,000 or 170 weeks of IRBs although the applicable statute provided for repayment of only 12 months (52 weeks). Justice Perell stated that Intact should have only indicated in their letter a demand for 12 months of payments. As a result, Justice Perell found the amount requested was not substantially correct; it was grossly incorrect. Therefore, the first notice was not considered proper notice and could not be relied upon.
Intact's second letter indicated its legal position and advised that an accountant had been retained to calculate the quantum of the repayment. Justice Perell found that this letter also failed to satisfy the notice requirement, as the amount of the repayment was left undetermined.
Finally, Justice Perell accepted a subsequent letter that enclosed Intact's accounting report as a proper notice. Justice Perell accepted the letter and report as notice, since it came close to calculating the correct amount of the overpayment and only erred by making a claim for 14-months of overpayments rather the limit of 12-months.
Interestingly, Justice Perell did not order repayment of CPP amounts. Intact's accounting report included the CPP benefits in its overpayment calculation; however, Intact's letter did not specifically request repayment of CPP benefits. Therefore, Justice Perell found Intact was not entitled to the CPP payments.
Given that Justice Perell did not define "perfectly correct" and "substantially correct", we are left guessing when a particular notice falls on the spectrum between perfect and substantially correct. Nevertheless, it is fair to say that the evolving jurisprudence regarding overpayments has made it more difficult for insurers to recover overpayments. However, the Marianayam decision has provided much needed guidance on how to recover overpayments successfully. When faced with an overpayment situation, insurers must act quickly to identify and provide notice of any overpayment within 12 months or they may lose the right of recovery. Insurers must also ensure their notice contains the Knechtel requirements and the amount sought must comply with the statute.
See Intact Insurance Company v. Marianayam, 2016 ONSC 1479
 Pries v. Economical Mutual Insurance Company, FSCO A11-002004, September 21, 2012; Economical Mutual Insurance Company v. Pries, FSCO Appeal P12-00036, July 8, 2013
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