Ontario Court of Appeal clarifies notice requirements for refusing benefits under the Statutory Accident Benefits Schedule

In Varriano v Allstate, 2023 ONCA 78, the Ontario Court of Appeal considered the notice requirements of insurers when discontinuing an insured's income replacement benefits pursuant to the Statutory Accident Benefits Schedule – Effective September 1, 2010, O. Reg. 34/10 (the "SABS"). The License Appeal Tribunal Decision held that the insurer, Allstate Insurance Company of Canada, did not have to provide a medical reason in its notice to the insured, Nunzio Varriano, when it stopped providing income replacement benefits. The Divisional Court allowed the appeal and remitted the matter back to the License Appeal Tribunal for reconsideration on its merits.

The Ontario Court of Appeal overturned the Divisional Court's holding and reinstated the decision of the License Appeal Tribunal. The Ontario Court of Appeal held that an insurer must provide its actual reasons for their determination. If the insurer relies on a medical and a non-medical reason to deny benefits, the insurer must advise the insured person of both. However, where the insurer only relies on a non-medical ground, it must only provide notice of the cancellation of the benefits and the non-medical reason for the determination.

Background

Nunzio Varriano was injured in a motor vehicle accident on September 30, 2015. Mr. Varriano applied to Allstate for income replacement benefits. Allstate paid Mr. Varriano income replacement benefits starting on October 7, 2015, until he returned to work on a fulltime basis on December 2, 2015. On December 30, 2015, Allstate notified Mr. Varriano that his benefits would end effective December 2, 2015 because Mr. Varriano had returned to full-time work. The notice also outlined Mr. Varriano's right to dispute the insurer's determination of the benefits.

On July 1, 2018, Mr. Varriano stopped working again and applied to Allstate to resume his benefits. Allstate denied the resumption of his benefits by another letter dated July 30, 2018, which stated, "Income Replacement Benefits & Non Earner Benefits - Please refer to our explanation of benefits dated December 30 2015. Our position remains unchanged."

Statutory framework

An insurer is permitted to discontinue an insured's benefits for any of the specified reasons set out in section 37(2) of the SABS.^[1] Section 37(2)(e) permits an insurer to discontinue an insured person's benefits when they have returned to their pre-accident employment duties.^[2] Where one of the reasons outlined in section 37(2) applies, section 37(4) requires an insurer to provide notice to the insured containing the reasons for their determination:

37. (4) If the insurer determines that an insured person is not entitled or is no longer entitled to receive a specified benefit on any one or more grounds set out in subsection (2), the insurer shall advise the insured person of its determination and the medical and any other reasons for its determination.^[3]

Pursuant to section 56, a valid notice under s. 37(4) commences the applicant's two-year limitation period to bring an application before the License Appeal Tribunal to dispute the decision.^[4]

Judicial treatment

"Medical and any other reason" should be read in a several sense, not conjunctive

The Divisional Court held that the insurer was required to provide medical reasons for discontinuing the insured's benefits. The Divisional Court held that a plain reading, contextual analysis, and consideration of the legislative intent behind section 37(4), all supported that the word "and" was to be read conjunctively.^[5] As a result, the Divisional Court held that insurers are required to be explicit as to whether or not medical reasons support denying or limiting coverage.^[6] In the absence of such reasons, the Divisional Court held that Allstate did not provide Mr. Varriano with adequate information to allow him to assess whether to appeal Allstate's determination.^[7]

On appeal, the Ontario Court of Appeal rejected that "and" had a conjunctive meaning, and instead held that "and" was to be interpreted in a several sense based on a grammatical and contextual approach.^[8] Based on a contextual approach, section 37(2) sets out various medical and non-medical grounds for the insurer's determination.^[9] To read "and" in a conjunctive sense would require insurers to provide medical reasons, even where non-medical reasons were the sole basis for their determination.^[10] In addition, where the insurer relied solely on a single non-medical ground for denying benefits, requiring the addition of a line stating, "there are no medical reasons for this denial," would not assist an insured in deciding whether to challenge the denial of benefits.^[11] 

SABS as a statute, not an insurance coverage provision

The Divisional Court reasoned that requiring insurers to provide medical reasons where they applied was consistent with the general principle that "insurance coverage provisions are to be interpreted broadly, while coverage exclusions or restrictions are to be construed narrowly, in favour of the insured."^[12] Further, the Divisional Court noted that this interpretation was especially applicable to the SABS which establishes a no-fault insurance regime for accident survivors who forego their right to civil damages and who may not have access to other resources to support their rehabilitation.^[13]

The Ontario Court of Appeal specifically rejected the Divisional Court's application of this principle.^[14] The Ontario Court of Appeal clarified that interpretive principles used for insurance coverage provisions do not apply to interpreting statutes. Instead, the correct interpretation of s. 37(4) requires an interpretation that accords with the purposes of the SABS: the timely submission and resolution of claims that affords the insured an opportunity to decide whether to challenge a denial of benefits.^[15]

Key takeaways

• If the insurer relies on a medical and a non-medical reason to deny benefits, the insurer must advise the insured person of both.
• If the insurer is relying on a non-medical ground, the insurer must only provide notice of the cancellation of the benefits and the non-medical reason for that determination.

Should you have any specific questions about this article or would like to discuss it further, our Insurance and Professional Liability Practice Group would be pleased to assist.