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Denial of Benefits Post-Varriano: A Medical Basis for a Denial Still Needs Medical Reasons

Since the Court of Appeal released its decision in Varriano v. Allstate Insurance Company of Canada, 2023 ONCA 78, the issue of accident benefits denials and the reasons required for them has been a much-discussed issue.

In this case, the insured applied for and received income replacement benefits (IRBs) after being involved in an accident in 2015. However, the benefits payments were terminated in December of that year. Allstate (the insurer) advised the insured that the reason for their benefits stoppage was related to the insured’s return to work.

In the initial 2018 decision and upon reconsideration, the License Appeal Tribunal (LAT) found that Allstate’s denial letter met the requirements set out in section 37(4) of the Statutory Accident Benefits Schedule (SABS), and that the insured’s claim was time-barred since the decision to stop the payments was made more than two years prior.

The Divisional Court disagreed. The Court found that Allstate’s letter did not meet the requirement to provide medical reasons for the IRB stoppage.  As such, the Divisional Court held that the limitation was not triggered by the denial letter and, therefore, that the claim was not time-barred.

On further appeal, the Court of Appeal found that the Divisional Court’s interpretation of the following in section 37(4) was incorrect:

“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 [emphasis added] for its determination.”

The Court of Appeal disagreed with the Divisional Court’s interpretation that the word “and” in the phrase “medical and any other reasons” bears a conjunctive meaning, such that both medical and other reasons are required. Instead, the Court applied the modern approach to statutory interpretation and noted that, when the phrase “medical and any other reason” is considered along with s. 37(2), an insurer is required to determine the basis for disqualifying the insured from receiving the benefits and to then communicate the basis for that determination to the insured. The Court highlighted that, while some of the grounds for denials in s.37(2) are medically based, others are not, as was the case in Varriano.

In those situations, the Court held that the insurer is not required to provide a medical reason. Instead, the Court held that the insurer is required to provide a sufficient reason or reasons for the denial by “directly tying the reasons to the actual grounds for termination of benefits in s.37(2)”.

The Court found that Allstate’s letter complied with the legislative requirements by providing clear and unequivocal notice that Allstate was terminating the IRBs and including the reasons for doing so. Since the denial was not medically based, Allstate was not required to provide medical reasons. Accordingly, the Court of Appeal allowed the appeal and reinstated the decision of the LAT, such that the claim was barred

While we do not necessarily agree with the decision, the result is that, if the insurer is relying on a medical and non-medical reason to deny benefits, then the insurer must provide both to the insured. If the insurer is relying solely on a medical reason, then one must be provided. However, according to the Court of Appeal, if the insurer is relying on non-medical grounds, the insurer is required to only provide the non-medical reason for the determination.

Longboat v. Gore

A recent post-Varriano decision confirms that, where there is a medical basis for a denial, medical reasons must be provided.

In Longboat v. Gore Mutual Insurance Company 2023 CanLII 67925 (ON LAT), the insurer denied an insured’s IRB benefit and sought a preliminary issue hearing as to whether the insured was barred from proceeding to a hearing, as the insured failed to dispute the denial within two years.

In that case, the applicant was advised on May 31, 2019, that she did not suffer a substantial inability to complete the essential tasks of her pre-accident employment. Therefore, she had no entitlement to IRBs.

On September 14, 2022, the applicant filed an application to dispute the denial. In response, the insurer took the position that, even with the six-month extension pursuant to section 7.1 (6) of the Emergency Management and Civil Protection Act, the limitation to dispute the denial expired on November 29, 2021. Therefore, the claim was time-barred. The applicant took the position that the notice was defective, and thus, the time to dispute the denial was never triggered.

The Tribunal stated that the insurer is required to provide notice in accordance with the principles set out in Smith v. Co-operators General Insurance Co, 2002 SCC 30. These principles dictate that the denial must “contain straightforward and clear language,” and that “it must be directed towards an unsophisticated person, it must outline the dispute resolution process and the relevant time limits that govern the process, and it must provide valid or other reasons for the denial.”

In discussing Varriano, the adjudicator noted that the case does, indeed, affirm that a medical reason for a denial is not required if there was no medical basis for the decision. However,  the adjudicator affirmed that, where there is a medical basis for the denial, medical reasons should be provided.

The adjudicator went on to discuss that the notice to the insured should explain what the insured’s medical conditions are and why those conditions do not justify entitlement to the benefits claimed. In this regard, the Tribunal noted that, as set out in Hedley v. Aviva Insurance Company of Canada, 2019 ONSC 5318, rather than simply providing boilerplate medical reasons, the reasons must be clear and meaningful. Most notably, if the insurer’s notice of denial to an insured person does not satisfy these requirements, “the denial may be determined to be invalid and fail to trigger the two-year limitation period.”

The adjudicator reviewed the notice and found that it did not comply with the requirements set out in the aforementioned case law, outlining that no references were made to the insured’s medical conditions and that the explanation did not demonstrate why the insured did not suffer a substantial inability to complete the essential tasks of her employment. Since the reasons provided to the insured were vague, the Tribunal found that the limitation period was not triggered by the invalid denial, and that the insured was permitted to proceed with the application.

The Takeaway

While both Varriano and Longboat v. Gore involve IRB denials, these cases are clearly distinguishable. In Varriano, the denial was based on a return to work and did not contain a medical reason for the denial. In Longboat v. Gore, however, there was a medical basis for this denial and a medical reason was required.

Insureds must be  wary of insurers using the precedents established in Varriano to simply deny benefits without medical reasons. It is important to scrutinize all denials to ensure that, if the decision was made on a medical basis, a specific medical reason was indeed provided. Ontario accident benefits lawyers handling these types of claims must ensure that the denial includes sufficient, clear, and unequivocal medical reasons and reasoning, when required. If these reasons were not provided, the denial could be found invalid.

This article was written by Alon Barda.

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