Neutral Citation: 1992 ONICDRG 2

File No. A-000025

ONTARIO INSURANCE COMMISSION

BETWEEN:

SION DRAY

Applicant

and

ROYAL INSURANCE COMPANY OF CANADA

Insurer

DECISION

Issue:

The Applicant was injured in a motor vehicle accident on June 24, 1990. 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 ("No-Fault Benefits Schedule"), enacted under the Insurance Act, R.S.O. 1990, Chapter I.8 ("the Act").

The Applicant was paid weekly income benefits under the automobile policy. In addition, he received disability income benefits paid under an employer-paid group accident and sickness disability policy. The disability insurance company, Confederation Life, deducted $70.83 at source for federal income tax, and remitted the net amount of the payment to the Applicant.

The Insurer deducted the gross amount of the payments in calculating the Applicant's no-fault benefits and paid him no-fault weekly benefits of $142.35. The Applicant disputed this, arguing that the disability payments should be deducted, net of tax, leaving him with $213.18 in no-fault benefits.

The Applicant applied for mediation of this issue. Mediation was unsuccessful, and the Applicant subsequently applied for the appointment of an arbitrator under the Act.

The issue to be determined in this arbitration is:

Is the Insurer entitled to deduct the gross weekly amount of disability income benefits ($384.00) paid by Confederation Life, or the net amount ($313.17), under Section 12(4)(b) of the No-Fault Benefits Schedule?

The Applicant also claims interest upon any amounts found to be owing.

Decision:

The decision is:

The gross weekly amount of the disability income benefits ($384.00) paid by Confederation Life is a "payment for loss of income ... available to the insured person" under an income continuation benefit plan pursuant to Section 12(4)(b)(i) of the No-Fault Benefits Schedule. It is therefore deductible in calculating his no-fault weekly income benefits.

Hearing:

An arbitration hearing was held at North York, on October 28, 1991, before Susan Naylor, arbitrator.

Present at the hearing were:

The Applicant:

Sion Dray

The Applicant's Spouse:

Aileen Dray

Insurer's Representative:

Oleh Vereshchak Barrister & Solicitor

An Interpreter in

Angela Tippett

American Sign Language:

Bob Rumble Association for the Deaf

The Applicant was originally represented by Mr. Jayson Schwarz. Mr. Schwarz advised the Ontario Insurance Commission by letter dated July 8, 1991 that he was withdrawing from the case. The Applicant was not represented by counsel at the hearing. He made his submissions through an interpreter in American Sign Language.

Documents before the Arbitrator

The following documents were before the arbitrator at the hearing:

○ Report of Mediator, dated November 29, 1990

○ Application for Appointment of an Arbitrator, filed on April 29, 1991

○ Response of Insurer, filed on June 26, 1991

○ Summary (revised) of Submissions on behalf of Insurer, dated October 24, 1991

Preliminary Issue:

At the hearing, an issue was raised with respect to the amount of the Applicant's gross weekly income from his employment, upon which his no-fault benefits are based.

The Insurer's position was that the Applicant's salary, averaged over the four weeks prior to the accident, was $657.94. This was the amount on which benefits have been calculated to date.

However, the Applicant disputed this. He considered that his gross income from employment should be $702.84, representing his hourly rate of $17.59 for a 40 hour work week. It was not clear that this amount represented an amount averaged over the 4 or 52 weeks before the accident under Section 12(7)1 of the No-Fault Benefits Schedule. Because neither party was in a position to deal with this issue at the hearing, the parties agreed to proceed on the assumed basis that the Applicant's gross weekly income is the amount of $657.94. The parties agreed that the Insurer would write to the Applicant, outlining the basis for the calculation of his benefits. In the event that the amount continues to be disputed, a further hearing will be conducted before me, to determine the matter.

The Legislation

Weekly income benefits are paid under Section 12 of the No-Fault Benefits Schedule. Subsection 12(4) addresses the amount of the benefit to be paid. It states:

(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 continuation benefit plan, or

(ii) received under any sick leave plan.

Subsection 12(7) deals with the calculation of an applicant's gross weekly income. It states:

(7) The following rules apply to the calculation of gross weekly income:

1. A person's gross weekly income shall be deemed to be the greatest of,

i. his or her average gross weekly income from his or her occupation or employment for the four weeks preceding the accident,

ii. his or her average gross weekly income from his or her occupation or employment for the fifty-two weeks preceding the accident,

iii. $232.

2. When a person becomes qualified to receive an income benefit under subparagraph iii of paragraph 1 of subsection (2), the person's gross weekly income shall be deemed to be the greatest of,

i. if the person was qualified under either subparagraph i or ii of paragraph 1 of subsection (2), his or her gross weekly income as determined under paragraph 1,

ii. the gross weekly income payable under the contract of employment,

iii. $232.

3. Business expenses which cease as a result of the accident shall be deducted from a person's income from self-employment before calculating his or her gross weekly income. O.Reg. 273/90, s. 12.

Submissions

The Applicant:

The Applicant submitted that, as a result of the accident, his income has been significantly reduced. Because the gross payment is deducted, rather than the net payment, the Applicant receives $70.00 to $80.00 a week less in no-fault benefits than he would have received had he had no other disability coverage. In addition, he will not receive the annual income tax rebate that he normally would expect to receive, because he is in receipt of less taxable income. This situation will get worse, the longer he is disabled and in receipt of non-taxable no-fault benefits. He argued that the government was taking away his rights without giving him the full compensation he deserved. He pointed out that the Act said nothing about whether payments should be declared net or gross.

Counsel for the Insurer:

Counsel for the Insurer argued that Section 12(4) required the gross weekly benefit to be deducted. First, he submitted that the gross amount of the payment was a payment for loss of income "available" to the Applicant within the meaning of Section 12(4). If the legislation intended to cover only payments "received" by the applicant, it would say so, as it has done in Section 12(4)(b)(ii).

He further submitted that Section 12(4) refers only to "gross" weekly income, and that therefore the payments must be assumed also to be gross.

Thirdly, he submitted that the Insurer is unable to control the amount deducted at source. The amount of no-fault benefits should not be contingent on the insured person's income tax situation or the amount which is deducted. Such amounts may eventually revert back to the insured.

Findings:

The facts in the case are agreed upon, other than as outlined previously. The Applicant was injured in a motor vehicle accident on June 24, 1990. At the time of the accident, he was employed with de Havilland Ltd. For the purposes of this hearing, his gross weekly income, averaged over the four weeks preceding the accident, is assumed to be $657.94 (subject to the foregoing). Under subsection 12(4)(b) of the No-Fault Benefits Schedule, his weekly benefit is 80% of this amount, or $526.35, less any deductions.

The Applicant also received disability income benefits from Confederation Life under an employer-paid group accident and sickness disability policy. The gross weekly benefit was $384.00. Confederation Life deducted $70.83 weekly at source for federal income tax, and remitted the net amount of $313.17 to the Applicant.

The issue in this arbitration is whether the gross amount of these benefits - before tax is deducted at source, or only the net amount of the benefit, after tax is deducted at source - should be offset against the Applicant's no-fault benefits.

Under Section 12, an applicant is entitled to weekly income benefits while substantially disabled from his or her employment as a result of an automobile accident. Subsection 12(4) addresses the amount of benefit to be paid once entitlement has been established. This states that the amount of benefits is the lesser of either (a) $600 (or a higher amount if opted for) and (b) 80 per cent of an applicant's gross weekly income from his or her occupation or employment (as determined under Section 12(7)) 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 continuation benefit plan,

(ii) received under any sick leave plan.

Therefore, under subsection 12(4)(b)(i), an insurer can reduce the weekly benefit paid to an applicant by "any payments for loss of income ... received by or available to" the applicant under a plan such as the employment benefit plan in this case.

The subsection does not say explicitly whether the full amount of those payments is to be deducted, regardless of an applicant's other liabilities, such as income tax, or whether payments are to be deducted net of income tax. The Insurer argued that the gross amount of the payments (including the amount withheld for tax) is "available to" the Applicant under the plan, and therefore should be deducted.

I do not have the benefit of any judicial authority bearing on this question. My decision is based upon the arguments and evidence of the parties, which was limited. The parties were unable to advise me as to how the amount to be deducted at source was determined, or the basis for withholding tax at source. Neither the insurance policy nor other documentation was introduced in evidence. Furthermore, no expert evidence from an accountant or tax specialist was introduced to assist my understanding of the general effects of the conflicting interpretations advanced by the parties. The applicability of this ruling to other cases should be viewed in this context.

The following are the assumptions on which this decision is based. It is my understanding that withholding tax at source is not required by federal law - as it is in the case of, for example, salary or wages - but takes place by arrangement between the insurance company and group policy holder, under Revenue Canada rules. However, there was no evidence or suggestion that the insured had a choice in the matter, or could have elected that full payment be directed to him. From his perspective, I suspect that the distinction is largely an abstract one.

The amount deducted is apparently based on tables provided by Revenue Canada, and according to Counsel for the Insurer also depends on individual details, such as the number of the taxpayer's dependents and whether tax is paid on a calendar or fiscal year. The amount deducted is credited against the person's total tax liability for the year, having regard to his or her particular social and economic circumstances. Depending upon the circumstances, therefore, the amount deducted may or may not reflect the full tax liability, and some money may be refunded to the person at year-end.

Counsel for the Insurer submitted that the word "available" is not ambiguous and clearly covers the amount withheld at source. I disagree, and find that the meaning of the statutory words used is ambiguous.

The Concise Oxford Dictionary provides two related meanings of the word "available": "1. capable of being used; at one's disposal; 2. within one's reach".

Are payments "capable of being used" or "at one's disposal" if they are required to be set aside for a specific purpose - namely, to meet an applicant's potential tax liability for the year?

At first look, money withheld at source would not appear to fall within the scope of either of these definitions. The money is not capable of being used for the Applicant's day-to-day living expenses for the week for which the disability benefit is paid. Nor is it within the Applicant's reach for that period. The Applicant is deprived of use of the funds when he may need them the most - regularly, while he is unable to work and make a living.

On the other hand, a person may be said to have money at his or her disposal, notwithstanding that the money has been earmarked for a specific purpose. Regardless of whether the uses to which the money is put are determined by choice, financial necessity or legal requirements, it is nonetheless "available" to the person for those uses. Moreover, the payment of tax is a general civic liability. It applies to everyone with eligible taxable income. This liability exists regardless of whether payment is secured in advance through deduction at the source of the income or after-the-fact, at year-end. The amount withheld simply represents a credit towards a person's tax liability for the year.

The conflicting positions set out above demonstrate that in ordinary usage, the words "available to" are capable of more than one meaning and are ambiguous. Moreover, merely determining the meaning of these words in isolation does not significantly advance the inquiry. The words "any payments" are equally ambiguous in this regard. Does a payment mean a gross or a net payment? The phrase "any payments for loss of income, received by or available to the insured person" must be read in its entirety.

Statutory words must be construed in the context of the provision in which they appear and in the context of the whole Act. One must ask therefore whether the statutory context would clarify the meaning of the words used. I conclude that it does not.

Subsection 12(4)(b) and subsection 12(7) refer expressly to "gross weekly income". I find however that the use of the word "gross" in this phrase does not materially assist in determining whether payments are to be construed as "gross" payments. Counsel for the Insurer submitted that the legislation would have expressly said "net" payments had such been intended. The Applicant, in contrast, submitted that, if the legislation meant "gross" payments, it would have said so, as it does elsewhere.

Counsel for the Insurer also argued that, had the Legislature intended to limit the deduction of payments to the net amount in fact received in the hands of the Applicant, it would contain qualifying language comparable to subsection 12(4)(b)(ii). This provides that payments under a sick leave plan are only deducted if they are "received by" an applicant. The phrase "or available to" the applicant is expressly omitted. However, this argument restates the question: what is the meaning of the phrase, payments "available to the insured person", under the plan?

Where statutory words are ambiguous and the context does not assist, the most reasonable interpretation should be adopted, in light of the purpose and objects of the Act.

The purpose of weekly income benefits under Section 12 is to provide adequate and fair compensation for income lost as a result of an automobile accident, without regard to fault, and to do so quickly and efficiently. In interpreting the language of the No-Fault Benefits Schedule, the regulation must be given a broad and liberal construction that best attains these objectives.

The No-Fault Benefits Schedule provides for the replacement of 80% of an applicant's previous gross employment income, within the statutory ceilings provided in the legislation. Payments for loss of income are offset so that an insured does not receive more than this amount. Presumably, the policy intent is to prevent double compensation and to foster the incentive to return to work.

Weekly income benefits, however, are non-taxable. A patchwork of public and private plans and schemes provides income protection for periods of sickness and disability. These benefits may or may not be taxable.

If the gross amount of a taxable payment is deducted, an applicant is worse off (net) than an applicant who has no other disability coverage, or is covered by a plan with non-taxable benefits. In this case, the Applicant is $70.83 a week worse off. This does not seem to be a fair result. It appears to contravene the goal of the legislation to match 80 per cent of an applicant's pre-injury employment income during disability (within the limits specified by the legislation). Moreover, even if the Applicant qualifies for a refund at year-end, once his income tax liabilities have been determined, he does not have the benefit of the money when he needs it the most - on a regular basis, when disabled and unable to earn a livelihood.

These policy arguments support the deduction of payments, net of tax, in the interests of adequacy of compensation and equity of treatment. However, persuasive reasons support the contrary view.

The effect of the deduction of gross benefits is not uniform. The amount withheld may or may not represent the tax that the applicant ultimately owes. That depends on all the other factors used to calculate a person's tax liability - such as other sources of taxable income, credits, deductions taken, etc. The amount withheld is simply a credit to the tax-payer's account, and some money may be refunded to the tax-payer at year-end.

The evidence before me does not indicate the extent to which insureds are affected in the long run by deducting from gross payments. It also does not indicate how this Applicant would likely be affected.

The no-fault benefits scheme established by the legislation is intended to place no-fault benefits in the hands of accident victims, regardless of fault, quickly and efficiently. It is particularly important that income replacement benefits be paid quickly in order to minimise the interruption of earnings resulting from the accident. The scheme's administrative workability is essential to its ability to deliver benefits speedily and efficiently.

The no-fault system must also be fair, equitable and reasonably predictable in its treatment of insureds, covered by a multiple of insurance plans.

It would be administratively difficult for insurers to try to work out the net value of payments involving taxable benefits, because the calculation is based on social and economic factors particular to the individual. Of course, it is possible to make certain concessions to administrative simplicity. But unless some such general rules to account for the net amount of deductible benefits are set out, the administration of no-fault benefits would be rendered considerably more complex. This would likely result in inconsistent and unfair treatment of insureds. These administrative considerations persuade me that this legislative scheme does not contemplate that insurers be required to determine the net value of payments based upon the individual circumstances of insureds.

In this case, however, an amount has already been withheld for income tax. It is argued therefore that the Insurer should accept the amount of the deduction made by the disability insurance company on its face. In response, Counsel for the Insurer submits that the insurer has no "control" over the amount of tax deducted at source, because it depends on the actions of a third-party payer. Moreover, the amount deducted may not represent the individual's eventual tax liability.

The withholding of tax is an administrative act by a third party, that is intended to secure payment of tax found to be owing. Ultimately, the individual whose tax is withheld in advance is in the same position as other tax-payers. To distinguish between people entitled to taxable benefits on this basis does not seem equitable. Moreover, it ignores the fact that, for some people, the amount deducted may not truly represent their tax liability. If the Legislature intended to achieve this result, in my view, it is more likely that it would have done so in clear language.

On balance, therefore, I find that an interpretation of the statutory language that provides for the deduction of gross payments more likely reflects the intent of this legislation. I find therefore that the gross amount of the Applicant's weekly disability benefits from Confederation Life are "payments for loss of income..available to the insured person" within the meaning of subsection 12(4)(b)(i).

I reach this result with considerable reluctance. The Applicant receives approximately $70.00 weekly no-fault benefits less than he would receive if he had no other benefit plan, or a non-taxable benefit plan. This does not appear to be a fair result in this case. However, based upon the material and arguments before me, I am persuaded that this interpretation of the legislation is the correct one. In my view, any unfairness that results from this interpretation is a matter that is best addressed by the Legislature.

The Applicant submitted that the present legislative scheme does not adequately replace the income he has lost from employment as a result of the accident. He feels that the legislation has taken away his rights without fair compensation. This is not only because of the issue dealt with above, but because of the general level of benefits, the fact that they are non-taxable, and payments from other plans are deducted. However, these concerns go beyond my jurisdiction as an arbitrator, which is limited to interpreting and applying the legislation, and are matters for the Legislature to address as it sees fit.

The Applicant is entitled to his expenses in participating in the arbitration, as prescribed in Ontario Regulation 275/90 and Schedule 1 of the Dispute Resolution Practice Code. These include (but are not limited to) the return of his filing fee, out-of-pocket expenses, and travelling expenses incurred by him and his spouse in attending the hearing.

The Order:

1. The Insurer is entitled to deduct the gross amount of the disability income benefits paid by Confederation Life in calculating the Applicant's no-fault weekly income benefits under subsection 12(4)(b)(i) of the No-Fault Benefits Schedule.

2. The Applicant is entitled to his expenses incurred in the arbitration proceeding under Ontario Regulation 275/90 and Schedule 1 of the Dispute Resolution Practice Code.

January 31, 1992

Susan Naylor Senior Arbitrator

Date