Neutral Citation: 1991 ONICDRG 4

File No. A-000055

ONTARIO INSURANCE COMMISSION

BETWEEN:

BRANDEN K. HUI

Applicant

and

SECURITY NATIONAL INSURANCE COMPANY

Insurer

DECISION

Issue:

On October 30, 1990, the Applicant was injured in a motor vehicle accident. He was insured under an automobile owner's standard insurance policy issued by the Insurer. He applied for no-fault weekly income benefits under the policy. Every motor vehicle liability policy provides for the no-fault benefits set out in Ontario Regulation 273/90, (the "No-Fault Benefits Schedule") enacted under the Insurance Act, R.S.O. 1980, c. 218, as amended by the Insurance Statute Law Amendment Act, 1990, S.O.1990, c.2.

Two weeks previously, the Applicant had been terminated by his employer. He accepted a severance package offered to him. Under the package, his employer paid him $4,540, less deductions (about one month's wages), at the time of termination, and contributed a further $22,700 to a Registered Retirement Savings Plan on his behalf.

The Applicant claimed weekly income benefits for disability arising from the automobile accident. He disputed the deduction of the payment of $22,700 in the calculation of his no-fault benefits. The Applicant applied for mediation. The mediation was unsuccessful and the Applicant subsequently applied for the appointment of an arbitrator under s. 242d of the Insurance Act, as amended.

The issue to be determined in this arbitration is:

Is the payment of $22,700 a "payment.. for loss of income .... received by or available to the insured person under the laws of any jurisdiction.." and so deductible in calculating the Applicant's no-fault weekly income benefits under subsection 12(4)(b)(i) of the No-Fault Benefits Schedule?

The Applicant also claims interest upon any amounts found to be owing, and an award for the expenses he has incurred in relation to the arbitration under subsection 242d(11) of the Insurance Act, as amended. He also claims a special award under s. 242d(10), on the basis that the Insurer has unreasonably withheld payments.

Hearing:

An arbitration hearing was held at North York on September 12, 1991 before me, Susan Naylor, arbitrator.

Present at the hearing were:

The Applicant

Branden K. Hui

The Applicant's Representative

Hugh Pattison, Barrister & Solicitor

The Insurer

Security National Insurance Co, c/o the Optimum Insurance Management Ltd. represented by Lynn Shuryn

The Insurer's Representative

Mark Edwards, Barrister & Solicitor

The Applicant testified at the hearing.

Documents before the Arbitrator

The following documents were marked as exhibits at the hearing:

Exhibit 1:

Memorandum from J.C. Wright, Director, Display Systems-Engineering to B. Hui, dated August 24, 1990.

Exhibit 2:

Letter from Ann Straker, Employee Relations Manager, to Mr. Branden Hui, dated October 10, 1990

Exhibit 3:

Revenue Canada Statement of Remuneration, T4 1990 and T4A-1990

The following documents were before the arbitrator but not marked as Exhibits:

• Application for Appointment of an Arbitrator, dated May 2, 1991
• Response of Insurer, dated June 6, 1991
• Report of Mediator, dated February 28, 1991

Case Authorities:

• Income Tax Act, s. 56, 248, and 60
• Interpretation Bulletin IT- 337R2
• Employment Standards Act, s. 40 and 40a
• Paese v. United States Fidelity & Guarantee Company, (1986) 1985 CanLII 1984 (ON HCJ), I.L.R. 1-2017 (Dist.Ct)
• Ratych v. Bloomer (1990) 1990 CanLII 97 (SCC), 69 DLR (4th) 25

Preliminary Issues:

At the commencement of the hearing, counsel for the Insurer requested that I disqualify myself from participating further in the proceedings on the basis that there existed a reasonable apprehension of bias.

The grounds for the motion were that I had had access to the report of the mediator that had been issued following the unsuccessful mediation of this case. The mediator had issued a report pursuant to s. 242b(8) of the Insurance Act, as amended. That section provides that:

If mediation fails, the mediator, in addition to any notice required to be given, shall prepare and give to the parties a report setting out the insurer's last offer and the mediator's description of the issues that remain in dispute.

When an application for appointment of an arbitrator was filed in this case, the mediator's report was placed in the arbitration file, in accordance with the usual administrative practices of the Ontario Insurance Commission. At the commencement of the hearing, I reviewed the documents contained in the file with the parties, and identified this report.

The mediator's report, dated February 28, 1991, confirmed that mediation had taken place, and identified the issues that remained in dispute between the parties. It indicated that weekly income benefits remained in issue because of a dispute over the treatment of the severance package. The report stated that the Insurer had been asked to produce information to support its position that the payment was made under an income continuance plan, and so deductible, but the Insurer had not done so. The report further stated that:

It was pointed out to the insurer that termination pay provisions of the Employment Standards Act are irrelevant to the claim at hand in that they serve a totally different purpose than do payments under the auto policy, they have different triggering dates, and are based on different factors.

Counsel for the Insurer submitted that there was no statutory authority for placing the mediator's report before an arbitrator. He argued that the report implicitly rejected the Insurer's position on the issue under adjudication. Accordingly, any knowledge of the contents of the report disqualified me from continuing the arbitration as it compromised my ability to impartially adjudicate the matter.

I rejected the motion that I disqualify myself on the basis of a reasonable apprehension of bias, for the following reasons:

I concluded that a report of mediator prepared pursuant to s. 242b(8) of the Insurance Act, as amended, properly may be placed before an arbitrator as a matter of administrative practice where the purpose of so doing is to confirm that the issues before the arbitrator have been mediated.

Mediation of any dispute regarding no-fault benefits is mandatory under the Insurance Act, as amended. Under the provisions of subsection 242c(1) and (2), it is only after mediation has failed that an applicant may exercise an option of having the matter litigated through the courts or resolved through binding arbitration.

Where mediation is unsuccessful in resolving the dispute, the Insurance Act requires at s. 242d(8) that a report of the mediator be issued.

No express provision authorizes a copy of the report to be placed before an arbitrator. However, the legislation implicitly confers on the arbitrator the authority and powers necessary to conduct an arbitration proceeding in a manner that is consistent with the objectives and scheme of the legislation. Furthermore, s. 6o confers express authority upon the Director of Arbitrations to make rules for practice and procedure in arbitration proceedings, subject to any regulations.

The object of the dispute resolution scheme established under the Insurance Act, as amended, is to provide the parties with an opportunity of resolving their dispute quickly and by agreement, through mediation, before the parties resort to adjudication of an adversarial nature. Therefore, litigation or arbitration may not be commenced until mediation has been attempted and has failed. Until such time as mediation is deemed to have failed, an arbitrator has no jurisdiction to hear and determine the matters in dispute. Access to the report of the mediator allows an arbitrator to satisfy herself that the parties have attempted to resolve their dispute through a mediated settlement process as required by the legislation.

A Dispute Resolution Practice Code ("Practice Code") that sets out the procedures for arbitrations has been issued by the Ontario Insurance Commission. The Practice Code does not specify that the report of mediator be included in the arbitration file.

Subsection 8(c) of the Practice Code , however, states that:

The insured person may include a response to the issues set out in the Report of Mediator.

Similarly,’s 11.2 of the Practice Code provides that the Response of Insurer shall include a response to the issues set out in the Report of Mediator.

Moreover, section 11.2(c) states:

An insurer shall respond to all issues and other matters raised in the Application for Appointment of an Arbitrator and to the issues set out in the Report of Mediator.

These provisions may be taken as authorizing the inclusion of the mediator's report in the arbitration file.

In this case, however, I accept that the mediator's report goes beyond the purpose of merely confirming that mediation has taken place, and appears to express a view about the merits of the dispute before me.

Nevertheless, I am satisfied that my review of the report does not compromise my ability to fairly and impartially adjudicate the matters before me.

The test for reasonable apprehension of bias is whether a reasonable person who is objective and well-informed would conclude that the decision-maker must have pre-judged the issue, and therefore would be unable to render an impartial decision.

In this case, the presence of the mediator's report was disclosed to the parties at the commencement of the hearing. The parties were provided with a full opportunity to make submissions regarding it. They were advised that the report was provided to me for the sole purpose of confirming that the matter was properly before me, and that its contents were not regarded as evidence for the purposes of the hearing.

In the circumstances, I am not persuaded that a reasonable, well-informed person would conclude that I would not or could not act in an impartial manner, as a result of having reviewed the mediator's report.

The motion of the Insurer was therefore denied. The Insurer was advised of its statutory right to apply to the Director of Arbitrations for the appointment of a new arbitrator under subsection 242d(12) of the Insurance Act, as amended, where it believes that the arbitrator is biased.

Evidence:

The Applicant was injured in an automobile accident on October 30, 1990. Two weeks prior to the accident, on October 15, 1990, the Applicant was terminated from his employment. He testified that he had been employed for approximately sixteen years by Litton Systems Canada Limited, a manufacturer of avionic systems. When he was terminated, he held the position of group leader in the display systems engineering program, at an annual salary of approximately $53,000.

The Applicant testified as to the circumstances surrounding his termination.

He stated that the employees in his department had been told that there would a lay-off of personnel, due to lack of work. He received a memorandum from Mr. J.C. Wright, his department head, dated August 24, 1990, confirming that he would be terminated, with details to be provided later. (Exhibit 1).

On October, 12, 1990, someone from the personnel office contacted him and told him that he would be terminated on October 15, 1990. He was offered a severance package for his past service, which he accepted. The package consisted of two payments. Firstly, there was a payment of $4,540, less deductions, being approximately one month's wages; secondly, he was to get a lump-sum payment of $22,700. A letter from the Employee Relations Manager, dated October 10, 1990 and entered as Exhibit 2, described this payment in the following terms:

"in lieu of Litton providing reasonable notice of your dismissal from employment, Litton will make the following payments to you:

(a) a lump sum payment equivalent to your normal gross monthly earnings for a 20 week period, less applicable statutory deductions,

(b) a further lump sum payment equivalent to the value of your terminated fringe benefits for a 20 week period, less applicable deductions, (the value of your monthly fringe benefits has been calculated to be twenty percent (20%) of your gross monthly salary."

The letter also indicated that a further allowance might be paid to the Applicant if he were still unemployed in February 1991. However, because the Applicant had obtained employment by that time, he did not receive anything further.

The first payment of a month's wages, less statutory deductions, was paid directly to the Applicant, when he was terminated. However, with regard to the payment of $2.2,700, the Applicant was given an option of taking it as a lump sum, taxable at that time, or contributing all or part of it to a Registered Retirement Savings Plan, so deferring tax on it. He testified that he chose to transfer the full amount to an RRSP, because it made sense to defer the tax. He stated that he did not get any legal advice or tax planning advice on his choices.

The payment of $22,700 was reported on his Revenue Canada T4A-1990 Statement of Remuneration under "Retiring Allowance" (Exhibit 3).

On cross-examination, the Applicant stated that he had some knowledge of the obligations of his employer on termination, since Litton had been laying-off employees for some time. He had acquired his general knowledge as a result of other employees' experience. He knew that his employer could not terminate him without reasonable notice or pay in lieu, and that he would therefore get some compensation. The amount, he knew, depended upon his position, length of service, and age, and was subject to individual negotiation.

On cross-examination about his employer's liability to pay severance pay under the Employment Standards Act, he testified that Litton employed approximately 1,500 people and that the payroll likely exceeded 2.5 million dollars per annum.

Following his termination, the Applicant sent out applications for other jobs with engineering firms. However, as a result of his injuries from the automobile accident, he was unable to work until the beginning of February. He got a job offer two weeks later, and started work with his new employer in April, 1991. He testified that he delayed starting work before this time, because it was painful to sit at a terminal for long. He did not want to start work and have to take days off. He wanted to start his new job when he was completely recovered.

Submissions

The parties agreed to reverse the normal order of argument, at the request of counsel for the Applicant.

Counsel for the Insurer

Counsel for the Insurer submitted the payment was deductible as a "payment for loss of income" that had been paid "under the laws of a..jurisdiction." He argued that the payment was a "retiring allowance" under s. 56(1))(a)(ii) of the Income Tax Act, and therefore a payment in the nature of income. He also referred to s. 60(j.1) and Revenue Canada Bulletin IT-337R2, which provides for a deduction for a retiring allowance that is transferred to an RRSP, to allow the tax on such income to be deferred until the income is withdrawn on retirement.

Counsel further submitted that the payment was made to the Applicant "under the laws of any jurisdiction" because it was paid pursuant to the employer's statutory obligations to pay termination pay and severance pay under the Employment Standards Act. He argued that common law rights are preserved under the legislation, which is intended only to establish a minimum level of benefits, against which rights the Applicant was able to negotiate.

He cited the decision of Paese v. US Fidelity, (supra) as a precedent for the principles governing the construction of the No-Fault Benefits Schedule.

He also cited Ratych v. Bloomer (supra) as articulating a general principle against double recovery.

Counsel for the Applicant

Counsel for the Applicant submitted that the Applicant was prima facie entitled to benefits under the Insurance Act, as amended, and that the onus lay on the Insurer to demonstrate that the severance package should be deducted.

Counsel argued that the loss of income for which payment is made must arise from the automobile accident and that the conditions under which the payment was made must bear some relationship to the disability. Otherwise, in his view, the language of the section imposed no restrictions upon the right of an insurer to deduct payments for loss of income, regardless of whether the payments were income from employment. This, he submitted was an absurd result.

He further argued that had the Applicant not been injured, he would likely have found other employment. However, he was entitled to keep the full amount of the payment regardless of whether, or when, he became re-employed. By virtue of his disability, however, the Applicant was unable to work. Counsel did not concede that the Applicant necessarily would have been entitled to severance pay under the Employment Standards Act.

The Applicant's representative also submitted that it was unreasonable of the Insurer to compel the Applicant to arbitrate the issue, and, therefore, the Applicant should be entitled to a special award under s. 242d(10) of the Insurance Act, as amended.

In reply, counsel for the Insurer submitted that, as of the date of the accident, the Applicant had suffered a loss of income, and the severance payment was made to compensate for this loss. He further submitted that there existed a legitimate disagreement between the parties regarding payment of benefits, and therefore no special award was warranted.

Findings

There was no significant disagreement about the facts in this case.

The Applicant was injured in an automobile accident on October 30, 1990. As a result of his injuries he was unable to work at his usual employment until February, 1991. There was no dispute regarding the Applicant's disability for the period or his entitlement to weekly income benefits under s. 12 of the No-Fault Benefits Schedule. The sole issue is in regards to the amount of no-fault benefits to which he is entitled, and specifically, the deductibility of the payment of $22,700. The total amount of weekly income benefits in issue is $6,480.

The evidence is that the payment was made as a consequence of the termination of the Applicant's employment. In his evidence, the Applicant described the payment as "severance pay". The company, in its letter of October 10, 1990 described it as "in lieu of ... reasonable notice". The evidence is that the payment was directed to an RRSP at the request of the Applicant, because he wished to defer the tax payable on it. He could have received the money in a lump sum at the time of termination, had he wished to do so. However, he would have had to pay tax upon it at that time. The evidence is also that the payment was made regardless of whether, or when, the Applicant obtained alternative employment.

The relevant parts of s. 12 of the No-Fault Benefits Schedule provide as follows:

(4) Subject to subsection (5), the weekly benefit under subsection (1) will be the lesser of,

(a) $600, plus, if Optional Benefit 2 has been purchased, the amount of the benefit chosen; and

(b) 80 per cent of the insured person!s gross weekly income from his or her occupation or employment, less any payments for loss of income, except Unemployment Insurance benefits,

(i) received by or available to the insured person under the laws of any jurisdiction or under any income continuance benefit plan, or

(ii) received under any sick leave plan.

In this case, I am called upon to determine whether the payment made to the Applicant is a "payment for loss of income" that is received by or available to him "under the laws of any jurisdiction", and so deductible in the calculation of his weekly income benefits.

The No-Fault Benefits Schedule is remedial legislation, and, in accordance with the usual principles of statutory construction, must be accorded a broad and liberal interpretation, that best achieves the object and intent of the legislation.

Whether a payment represents a "payment for loss of income ... received by or available to the insured person under the laws of any jurisdiction" within the meaning of subsection 12(4)(b)(i) depends upon the nature and character of the payment, viewed in the context of the program in which it operates.

Counsel for the Applicant argued that, in order to be deductible, the payment must be for loss of income resulting from the automobile accident.

In a previous arbitration decision, McCormick v. Economical Mutual Insurance Company, Ontario Commission File No. A-000139, October 10, 1990, (S. Naylor, Arbitrator), it was argued that the term "payments for loss of income.. received by or available to the insured person" should be restricted to payments for loss of income that flow from the automobile accident. In that decision, I concluded, however, that:

I find nothing in the language of the subsection, the context and scheme of the Act, or the legislative intent, that warrants the inclusion of qualifying words in subsection 12(4)(b) so as to limit deductions solely to payments attributable to the automobile accident.

I heard no arguments in this case that would cause me to modify the view I expressed in McCormick (supra), and I therefore adopt the same reasons here. A copy of that decision is attached to these reasons.

Counsel for the Insurer submitted that the payment was income. In support of this submission, he cited the treatment of payments made on retirement or in respect of loss of employment, - (called a "retiring allowance") - under the Income Tax Act. Under the Income Tax Act, a retiring allowance must be included in taxable income. However, the legislation allows the tax on it to be deferred provided the money is directed to an RRSP.

Notwithstanding that the payment is in the nature of income, however, the issue before me is whether it constitutes a payment for loss of income.

Counsel for the Insurer also submitted that the payment was made in accordance with the obligations of the Applicant's employer on termination under the Employment Standards Act R.S.O. 1980, c.137. He argued that the Act establishes minimum benefits to which the Applicant was entitled, and against which he was able to negotiate the amount of his individual severance payment.

The Employment Standards Act provides minimum statutory standards governing an employment relationship, including an employer's obligations upon the termination of an employee. S. 4 and s. 6 of the Employment Standards Act state that employment standards set out are minimum requirements, and that an employee's civil remedies are not affected by the legislation. Any greater rights that an employee may be entitled to under his or her own contract of employment are therefore preserved.

The Employment Standards Act provides for "termination pay" and "severance pay". Termination pay is paid in addition to severance pay. Under s. 40, an employer must give notice of termination, and in default, must provide pay in lieu of notice, called "termination pay". The Act specifies the period of notice to which employees are entitled, based on their length of service. In default of the specified notice, an employer must pay termination pay, calculated at the employee's regular wages for a regular non-overtime work week for the prescribed period. Employees with at least eight years of service (like the Applicant) are entitled to eight weeks notice.

Additionally, s. 40a requires an employer with a payroll of $2.5 million dollars to pay "severance pay" to employees with at least five years service. The amount of severance pay is also based on an employee's length of service, to a maximum amount of 26 weeks regular wages for a regular non-overtime work week.

Although the sum provided to the Applicant "in lieu of ..reasonable notice" was not broken down, it is reasonable to conclude that the minimum statutory payments are included in the Applicant's total severance package. In this case, the evidence suggests that the employer likely would be liable to pay severance pay under s. 40a to the Applicant. However, my decision does not depend upon such a finding.

Assuming that the payment to the Applicant was made pursuant to the obligations of the employer under the Employment Standards Act, it is necessary to determine whether it constitutes a "payment for loss of income".

Both termination pay and severance pay are payable on the termination of employment. Both are designed to cushion the economic effects of loss of employment by continuing an employee's flow of income for a period. The common purpose of the statutory requirements to pay termination and severance pay is to afford an employee the opportunity to find another job. Although such payments are intended to cushion economic dislocation following termination, they are payable regardless of whether, or when, the individual employee obtains re-employment.

Weekly income benefits under s. 12 are intended to compensate an applicant for loss of income arising from his or her inability to work as a result of an automobile accident. Payments for loss of income from the sources specified in s. 12(4)(b) must be deducted from such benefits. In order for payments to represent payments for loss of income, the payments must be predicated upon the occurrence of loss, and made for that loss. The loss for which the payment is made is not loss of employment, per se, but loss of income. Generally, one would expect payments of this kind to terminate when the loss to which they pertain is made good.

In my view, therefore, the payment made to the Applicant is not a payment for loss of income, as that term is properly construed under s. 12(4)(b). It was paid to the Applicant, whether or not he got another job. The payment did not depend in any way upon the Applicant's incurring a loss of income as a result of the loss of his employment. The payment was payable even if the Applicant had obtained a better paying job the next day.

Counsel for the Insurer argued that if the Applicant received no-fault benefits without deduction of the payment, he would receive double compensation. He cited the decision of the Supreme Court of Canada in Ratych v. Bloomer (1990) 69 D.L.R.(4th) 26, as authority for the proposition that the general policy of the law is against double recovery.

I find, however, that there is no "double recovery" in the Applicant's receiving both no-fault benefits and the payment on termination. His evidence was that he had started looking for work immediately after his termination, but was unable to accept employment until he had recovered from his injuries. He may or may not have been successful in finding alternative employment, had the automobile accident not occurred. However, the accident deprived him of any opportunity that he might have had of finding and starting work during the period of his disability.

I find therefore that the payment made to the Applicant and directed to an RRSP is not a payment for loss of income within the meaning of s.12(4)(b) of the No-Fault Benefits Schedule, and should not be deducted in the calculation of his weekly income benefits.

The Applicant is entitled to interest on any amount outstanding as a result of the above finding, pursuant to s. 24 of the No-Fault Benefits Schedule.

Special Award

The Applicant also claims a special award pursuant to s. 242d(10) of the Insurance Act, as amended. This section provides as follows:

If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insurer person is entitled under the No-Fault Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

In the circumstances, I find that the Insurer has not unreasonably withheld or delayed payments. The Insurer's denial of weekly income benefits in this case was based upon a reasonable and legitimate dispute regarding the proper construction of s. 12(4)(b) and its application in the circumstances of this case. The dispute was essentially confined to this legal issue, and the facts were not placed in issue.

I find, therefore, that the Insurer has not unreasonably withheld or denied payments, and is not liable to pay a special award under s. 242d(10).

The Applicant's expenses

The Applicant also seeks an award for the expenses he has incurred in respect of the arbitration proceeding. An award for expenses may be made under section 242d(11) which provides as follows:

The Arbitrator may award to the insured person such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations to the maximum set out in the regulations.

The prescribed expenses and amounts are set out in the Schedule to Ontario Regulation 275/90, and in the Schedule to the Dispute Resolution Practice Code, governing the conduct of arbitration proceedings.

In the prior arbitration decision of McCormick v. Economical Mutual Insurance Company (supra), appropriate criteria guiding the exercise of an arbitrator's discretion to award an applicant his or her expenses were discussed. In that decision, it was stated:

..It is appropriate to award an applicant his or her expenses unless, in the circumstances of the particular case, it is determined that the application for appointment of an arbitrator was manifestly frivolous or vexatious, or that the applicant's conduct unreasonably prolonged the proceedings.

I received no submissions that suggested that these criteria are inappropriate, or otherwise inapplicable in this case. Therefore, having regard to them, I find that the Applicant is entitled to an award for his expenses, as prescribed in Ontario Regulation 275/90, and Schedule 1 of the Dispute Resolution Practice Code. I remain seized of this matter in the event that there is a dispute in regards to the amount of expenses claimed.

Order.

1. The payment of $22,700 is not deductible from the amount of the Applicant's gross weekly income from his employment in calculating the amount of his weekly income benefit under s. 12(4)(b) of the No-Fault Benefits Schedule.

2. The Applicant is entitled to interest on amounts outstanding.

3. The Insurer has not unreasonably withheld or delayed payments, and therefore is not liable to pay a special award under s. 242d(10) of the Insurance Act, as amended.

4. The Applicant is entitled to his expenses incurred in respect of the arbitration proceeding as prescribed under Ontario Regulation 275/90, and the Schedule to the Dispute Resolution Practice Code.

November 15, 1991

Susan Naylor Arbitrator

Date