LAT TALES (Court of Appeal Edition): Does an insurer always have to provide a medical reason when denying specified benefits under the SABS? Short answer: No.
In Varriano v. Allstate Insurance Company of Canada [1], the Court of Appeal overturned a Divisional Court decision [2] and reinstated the decision of the LAT adjudicator which found that the insurer’s letter denying IRBs complied with the legislative requirements of 37(4) of the SABS, even though it did not provide any medical reasons.
Background
Mr. Varriano was injured in an accident on September 30, 2015. He applied to Allstate and was paid IRBs for the period of October 7, 2015 to December 2, 2015. Allstate sent a denial letter to Mr. Varriano dated December 30, 2015 explaining that IRBs were stopped effective December 2, 2015 as Mr. Varriano had returned to work full-time. It stated:
Your Income Replacement Benefit has been stopped on December 2, 2015, as you returned to work fulltime on December 2, 2015. No further Income Replacement will be paid after this date.
Mr. Varriano stopped working on July 1, 2018 and sought resumption of his IRBs. Allstate denied the resumption of IRBs by Explanation of Benefits dated July 30, 2018, stating:
Income Replacement Benefits & Non Earner Benefits – Please refer to our explanation of benefits dated December 30, 2015. Our position remains unchanged.
History at the LAT
Mr. Varriano filed a LAT application on September 28, 2018, disputing the termination of his IRBs. Allstate took the position that the LAT application for IRBs was statute-barred. The LAT agreed with Allstate at the case conference and at the reconsideration hearing.
Adjudicator Boyce found that Allstate’s letter dated December 30, 2015 met the legislative requirements of s.37(4) of the SABS. Section 37(4) of the SABS reads as follows:
(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.
Adjudicator Boyce found that the letter complied with the requirements of the SABS as well as the principles established by the Supreme Court of Canada [3] that the notice contain straight forward language. The adjudicator observed that the notice: clearly and plainly stated the reason for Mr. Varriano’s ineligibility to IRBs; outlined the dispute resolution process; and stated the relevant limitation periods.
Adjudicator Boyce also found that returning to work was determined to be a valid “other” reason as per s.37(2)(e), which states:
37. (2) An insurer shall not discontinue paying a specified benefit to an insured person unless,
…
(e) the insured person had resumed his or her pre-accident employment duties
On reconsideration, Adjudicator Boyce did not find that there was any reason to vary his decision. Specifically, Adjudicator Boyce noted that Mr. Varriano’s interpretation of s.37(4) would require the insurer to provide a medical reason to deny benefit even if there was none. If this was the meaning of s.37(4), it would result in insurers fabricating medical reasons for denials of specified benefits, which ultimately would result in bad faith allegations.
The Divisional Court
On appeal, the Divisional Court held that Adjudicator Boyce erred in his interpretation of s.37(4), because the word “and” found in s.37(4) indicated that both medical AND any other reasons were required. As such, because the insurer’s denial of IRBs on December 30, 2015 failed to include reference to medical reasons for the denial, the Court found that the reasons were insufficient and did not meet the legislative requirements of s.37(4), therefore, the denial did not trigger the commencement of the limitation period.
The Divisional Court allowed the Mr. Varriano’s appeal and remitted the matter back to the LAT for reconsideration on its merits.
The Court of Appeal
Allstate appealed the Divisional Court decision to the Court of Appeal. The issue on appeal was whether the Divisional Court erred in its interpretation of s.37(4) of the SABS.
Allstate advanced two arguments:
(1) the Divisional Court erred in its approach to the interpretation of s.37(4) and the notice provided to the applicant was not deficient; and
(2) even if the notice was deficient in failing to provide a medical reason, a clear and unequivocal termination of the IRBs had triggered the limitation period.
The Court of Appeal only addressed Allstate’s first argument and concluded that the Divisional Court erred in its approach to the interpretation of s.37(4) in two key ways:
- The Divisional Court improperly applied the modern principle of statutory interpretation; and
- The Divisional Court wrongly concluded that s.37(4) was an insurance coverage provision that had to be interpreted broadly
The Divisional Court improperly applied the modern principle of statutory interpretation
The Supreme Court of Canada has previously indicated that statutes are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament [4].
The Divisional Court failed to properly apply the modern principle of statutory interpretation in giving a conjunctive meaning to the word “and” in the phrase “medical and any other reason” in s. 37(4). The Divisional Court failed to acknowledge that the grammatical and ordinary usage of the word “and” can include both the joint sense and the several sense.
The Court of Appeal noted that the requirement to provide reasons in s.37(4) is tied to the grounds for discontinuance of benefits which were stipulated in s.37(2). When s.37(4) and s.37(2) are read together, it is clear that the “and” in the context of s.37(4) was intended in the joint and several sense, and not just the joint sense.
In determining the proper interpretation of s.37(4), the Court of Appeal looked at the history of the SABS, including the amendment which occurred in 2010 which added the language “medical and other reasons” to s.37(4). The added language is intended to codify the requirement to provide a sufficient reason or reasons for the insurer’s decision.
The Divisional Court wrongly concluded that s.37(4) was an insurance coverage provision that had to be interpreted broadly
The Divisional Court supported its interpretation of s.37(4) on the basis that it 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.”
The Court of Appeal held that, while that general principle continues to hold, it is not applicable to s.37(4), because that section is not a coverage provision (as it does not determine whether a person is entitled to coverage under the SABS).
Ultimately, the Court of Appeal reinstated the LAT decision, holding that the insurer’s December 30, 2015 denial complied with s.37(4). As the reasons for denial were not deficient, the limitation period was triggered and the claimant was out of time.
Takeaway
The words “medical and other reasons” in s.37(4) of SABS does not require an insurer to provide a medical reason in every case in order to properly deny a specified benefit. Some “other” reason, such as those found in s.37(2), can be sufficient to comply with s.37(4).
[1] Varriano v. Allstate Insurance Company of Canada, 2023 ONCA 78 < https://coadecisions.ontariocourts.ca/coa/coa/en/21197/1/document.do> [2] Varriano v. Allstate, 2021 ONSC 8242 (CanLII), <https://canlii.ca/t/jlbcv> [3] Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129 [4] Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27