Can an Insurer Terminate Benefits When It Learns the Accident Was Staged?

Synopsis:

An insurer introduces a new internal policy where they review claims more carefully if they occur within six months of a newly created policy. The insurer in good faith pre-approves a number of treatment plans submitted on behalf of one of their policyholders while they investigate the accident. The investigation concludes that the accident was staged and did not occur. What can the insurer do?

The insurer could argue that although it may have agreed in good faith to pay certain amounts based on the representations it received about an accident having occurred and injuries having been sustained, once it learns that its agreement to pay was based on misrepresentation or fraud, it may rescind the agreement for that reason.

Section 53 of the Statutory Accident Benefits Schedule (SABS) states that:

“An insurer may terminate the payment of benefits to or on behalf of an insured person,

(a) if the insured person has wilfully misrepresented material facts with respect to the application for the benefit; and

(b) if the insurer provides the insured person with a notice setting out the reasons for the termination. O. Reg. 34/10, s. 53.”

So the insurer could invoke that section by providing notice under section 53 (b) that it refuses to pay anything not already paid including the outcome of their investigation.

Section 52 (1) of the SABS also says a person is liable to repay an insurer:

"Subject to subsection (3), a person is liable to repay to the insurer,

(a) any benefit described in this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of wilful misrepresentation or fraud;

(b) any income replacement or non-earner benefit under Part II that is paid to the person if he or she, or a person in respect of whom the payment was made, was disqualified from receiving the benefit under Part VII; or

(c) any income replacement, non-earner or caregiver benefit under Part II or any benefit under Part IV, to the extent of any payments received by the person that are deductible under this Regulation from the amount of the benefit. O. Reg. 34/10, s. 52 (1 )."

So if the insurer has already paid out amounts to a provider, this section gives it the right to claim it back by first invoking section52 (2) (a) and then following up in court if necessary.

"If a person is liable to repay an amount to an insurer under this section,

(a) the insurer shall give the person notice of the amount that is required to be repaid; and

(b) the insurer may, if the person is receiving an income replacement or caregiver benefit, give the person notice that the insurer intends to collect the amount by reducing each subsequent payment of the benefit by up to 20 per cent of the amount that would otherwise be the amount of the benefit. O. Reg. 34/10, s. 52 (2)."

In summary, an insurer is not obligated to continue to pay pre-approved treatment when it subsequently discovers that the claim is fraudulent. By law, any benefits already paid out should be repaid to the insurer.