Avoid the Ambush! Self-Defense for Insurers

Picture it: on the eve of a Financial Services Commission arbitration, a medical report on behalf of the insured is delivered, one that introduces new medical opinions supporting the insured’s position. In fact, the report appears to introduce new evidence supporting a new medical position, and lands with a thud on the insurer’s lap.

Insurers need not fear such an ambush, as defences are strengthened by a recent decision of the Ontario Divisional Court in Certas Direct Insurance Company v. Gonsalves (2011 ONSC 3986).

In Gonsalves, the insured sought and was denied caregiver benefits pursuant to the test established for post-104 weeks. An arbitration was scheduled. One month prior to the commencement of the arbitration, two new orthopaedic opinions were delivered on behalf of the insured. These opinions supported the insured’s position and were found to include a new diagnosis. The insurer rallied and obtained an adjournment and an Order for the insured to attend a section 42 assessment.

To determine the reasonable necessity of the insurer’s request for examinations, the Arbitrator relied upon the factors found in prevailing arbitral authority, including: the timing of the request; whether the insurer made its insurer examination request as soon as it reasonably determined the need for the examination; what other information was available to the insurer; whether information provided by the claimant since the insurer’s last insurer examination suggested a new diagnosis, a change in the claimant’s condition or a new direction in medical investigation of it; and whether there was a reasonable nexus between the requested examination and the insured person’s injuries, among other factors.

Despite the Arbitrator’s Order, the insured would not be thwarted and continued to refuse to attend the section 42 orthopaedic assessments. When the Director’s Delegate reversed the arbitrator’s Order, the insurer applied for judicial review.

The Divisional Court saw the insured’s reports for what they were: trial by ambush! The Court noted that fundamental to any administrative process is the requirement that it be fair. At its most basic, procedural fairness required that a party have an opportunity to be heard and that it be able to respond to the position taken against it.

In Gonsalves, the Court specifically held that it was not enough to say that the delivery of the reports was made within the permitted time frame (in this case, one day before the last day the Code, clause 39.1 says is acceptable) when those reports provided new evidence supporting a new position. The Court relied on the tenet of procedural fairness to find that the insurer would be denied the right to make a full response if the insurer orthopaedic assessment did not take place. The Court ordered the insured to attend the assessment and ordered costs payable by the insured in the amount of $10,000.00.

The Gonsalves decision was invoked as a self- defence mechanism for the insurer in the recent decision of Kostynyk and State Farm Mutual Insurance Company (FSCO A09-003158, 28 Sept. 2011). In that case, the insurer assessed the insured for caregiver benefits, prior to the 104 week point. Post 104 weeks, the insured obtained her own reports, determining her entitlement for caregiver benefits and subsequently refused to attend section 42 assessments to determine her caregiver entitlement beyond 104 weeks. Arbitrator Rogers relied on Gonsalves to define the insurer’s right to assessments under Section 42.

Arbitrator Rogers found that the insurer’s assessments were reasonable and necessary, as Gonsalves established that an insurer has a prima facie right to require an insured person to be assessed upon a change in the test for entitlement. The Arbitration relied on three principles distilled from Gonsalves:

1. Fairness is fundamental to any administrative process. Procedural fairness requires that a party be able to response to the decision taken against it;

2. A Section 42 assessment may be required in order to have a fair hearing; and

3. A change in circumstances, such as a change in the test for entitlement, gives an insurer prima facie right to require an insured person to be assessed.

Arbitrator Rogers stayed the arbitration pending Kostynyk’s attendance at the proposed assessments. Arbitrator Rogers concluded that if the hearing were to proceed without the opinions from the proposed assessments, the insured would have the unfair advantage being able to rely on the opinions from her own assessments, to which the insurer would not be able to respond.

This line of decision-making provides a practical tool for insurers, to defend against trial by ambush in the accident benefits arena. The approach is one that relies upon the insurer being able to adequately illustrate circumstances that would lead to unfairness if the insurer were deprived of the opportunity to respond by way of section 42 assessments. While this fairness analysis is keeping with previous arbitral decisions, Gonsalves appears to place more significant weight upon the fairness aspect of the request as a determinative factor.

Indeed, Kostynyk, in adopting the reasoning in Gonsalves, reflects an overriding concern with fairness. In the arbitral process, where insurers are at a disadvantage, deprived of current knowledge as to the insured’s often evolving condition, treatment, and medical investigations, Gonsalves goes a ways towards levelling the playing field when there is an attempt to ambush.

Caroline L. Meyer is a lawyer with Miller Thomson LLP. Her practice involves defending insurers in first and third party claims. Caroline was previously involved in a very different line of defence work: defending death row inmates in Texas.