Neutral Citation: 1993 ONICDRG 47

File No. A-002304

ONTARIO INSURANCE COMMISSION

BETWEEN:

MARCELLO GUEVARA

Applicant

and

SIMCOE & ERIE GENERAL INSURANCE COMPANY

Insurer

DECISION

Issues:

The Applicant, Marcello Guevara, was injured in a motor vehicle accident on December 12, 1990. He applied for and received weekly income benefits from the Insurer, payable under Ontario Regulation 672 (the "No-Fault Benefits Schedule"), enacted under the Insurance Act, R.S.O. 1990, c. I.8.

The Applicant owed money to Chrysler Credit Canada Ltd. ("Chrysler Credit") for a car loan. Under the terms of a disability insurance policy, after the accident, payments were made by Seaboard Life Insurance Company ("Seaboard") to Chrysler Credit to repay the loan. The Insurer reduced the weekly income benefits payable to the Applicant by the amount of the disability insurance payments.

The issues in this arbitration are:

(1) Are the disability insurance payments deductible from the Applicant's weekly benefits?

(2) Did the Insurer unreasonably withhold benefits from the Applicant, such that the Applicant is eligible for a special award?

The Applicant also claims interest on any outstanding amounts owing, and his expenses incurred in the hearing.

Result:

1. The disability insurance payments are not deductible from the weekly income benefits paid to the Applicant.

2. The Applicant is not entitled to a special award.

Hearing:

A hearing was held in North York, Ontario, on June 1, 1993, before me, Frederika M. Rotter, Senior Arbitrator.

Present at the Hearing:

Applicant's Representative:

Altor Shields Barrister and Solicitor

Insurer's Representative:

Ralph D'Angelo Barrister and Solicitor

Documents before the Arbitrator:

Application for the Appointment of an Arbitrator, filed December 1, 1992

Response, filed December 22, 1992

Report of Mediator, dated November 18, 1992

Agreed Statement of Facts, filed by parties

Exhibit 1

Certificate of Insurance issued by Seaboard under Group Policy No. 3250

The cases referred to are noted at Appendix 1 to this decision.

Findings

Disability Insurance Payments

The facts in this case were not disputed. The parties prepared an agreed statement of facts, which discloses the following:

The Applicant, Marcello Guevara, was involved in a motor vehicle accident on December 12, 1990, and started receiving weekly income benefits under section 12 of the No-Fault Benefits Schedule, in the amount of $533.25 a week.

After the accident, Seaboard paid $290.38 per month to Chrysler Credit, from September 1991 to May 1992, pursuant to the provisions of Group Disability Insurance Benefits Policy No. 3250.

The relevant sections of the policy, as set out in the Certificate of Insurance, are as follows:

DEFINITIONS:

4. "TOTALLY DISABLED" OR "TOTAL DISABILITY" means the inability of an Insured solely due to Sickness or Injury to perform each and every duty pertaining to any occupation for which the Insured is, or can become, qualified by virtue of the Insured's education, training or experience.

ELIGIBILITY FOR INSURANCE

To be eligible for Life Insurance Benefits and Disability Insurance Benefits an Insured must be:

(a) a natural person; and

(b) over age 16 and under age 65 at the Effective Date of Insurance; and

(c) physically able to perform the usual duties of his or her livelihood at the Effective Date of Insurance; and

(d) a debtor under the Purchase/Lease Contract.

In addition, with respect to Disability Insurance Benefits, an Insured must be:

(a) gainfully employed for a minimum of 27 hours per week at the Effective Date of Insurance; or

(b) gainfully employed as a seasonal worker for 13 consecutive weeks during the one year period immediately prior to the Effective Date of Insurance period.

DISABILITY INSURANCE BENEFITS

In the event that the Insured becomes Totally Disabled while insured for the Disability Insurance Benefits continuously for longer than the Retroactive Waiting Period, or the 30 day Elimination Period, the Company will pay the Disability Insurance Monthly Benefit. This Disability Insurance Monthly Benefit will be paid to discharge indebtedness incurred under the Purchase/Lease Contract for so long as the Insured remains Totally Disabled from the date the Insured first became Totally Disabled, but excluding the Elimination Period, if any. The Disability Insurance Monthly Benefits will not be payable after the Expiry Date of Insurance...

TERMINATION OF INSURANCE

1. Insurance under this Certificate of Insurance will terminate upon the occurrence of the earliest of the following events:

(a) upon the discharge of the indebtedness in respect to the Purchase/ Lease Contract for any reason whatsoever; or

(b) upon the Expiry Date of Insurance; or

(c) the terms or conditions of payment, or the amount payable, under the Purchase/Lease Contract have been increased or extended; or

(d) the Creditor, or the Financing Institution, has demanded payment of the full amount due under the Purchase/Lease Contract owing to default on the part of the Insured; or

(e) the property which is the subject of the Purchase/Lease Contract has been repossessed, sold or become the subject of a court action; or

(f) upon receipt of notice to the Company that the Insured wishes to cancel the insurance coverage, when the notice is in a form acceptable to the Company and has been signed by the Insured Debtor and Joint Insured Debtor; or

(g) upon payment of a refund of any unused part of the Total Premium, if any is owing, under paragraph 4 of this Section.

The Insurer deducted the monthly amount of $290.38 from the weekly income benefits paid to the Applicant for the period in question, on the basis that the Seaboard disability benefits were payments for loss of income, deductible from the Applicant's no-fault benefits under section 12(4) of the No-Fault Benefits Schedule.

Section 12(4) of the No-Fault Benefits Schedule provides:

(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. (emphasis added)

As has been often repeated, the No-Fault Benefits Schedule is remedial legislation, and must be broadly and liberally interpreted, in accordance with the usual principles of statutory construction, in order to best achieve the object and intent of the legislation.

The legislation provides that benefit payments which can be characterized as "payments for loss of income" that "are received by or available to" the Applicant "under the laws of any jurisdiction or under any income continuation benefit plan" will be deducted from weekly income benefits. However, the deduction is only to be made where each separate and specific requirement of the legislation is fulfilled. That is, I must make a positive finding with respect to each of the three elements set out in the section, if the Seaboard payments are to be deducted.

(1) Payment for loss of income

Counsel for the Insurer argued that the Seaboard benefits constituted payments for loss of income within the meaning of subsection 12(4)(b)(i).

Counsel argued that to be eligible for disability benefits under the policy, the Applicant had to be gainfully employed on the date the insurance policy became effective. Benefits became payable in the event that the insured became "totally disabled". "Total Disability" is defined in the policy in terms of an insured person's inability to work.

The Insurer argued that, the disability requirement, coupled with the initial requirement of gainful employment, created a nexus in which the benefit payments could be seen as compensation for the economic effects of the disability: i.e. a payment for loss of income.

Counsel for the Applicant argued that the benefits are not payment for loss of income. Although payment is initiated on "total disability", it terminates under certain conditions, such as where the debt is discharged, or where the terms of the indebtedness is increased or extended.

Therefore, the benefit exists for the purpose of ensuring repayment of the debt, and not for the purpose of ensuring that the Applicant has available to him a reliable source of income.

I accept these submissions of counsel for the Applicant.

Counsel for both parties referred me to previous arbitration decisions which dealt with the meaning of the term "payment for loss of income". In Ralph McCormick and Economical Mutual Insurance Company (O.I.C. File No. A-000139, October 2, 1991), Senior Arbitrator Naylor held that:

Whether a benefit is a "payment for loss of income" within the meaning of subsection 12(4) depends upon the nature and source of the particular payment, viewed in the context of the program in which it operates.

(emphasis added)

In Antonio Pallotta and Alpina Insurance Co. Ltd. (O.I.C. File No. A-000808, April 22, 1992), Senior Arbitrator Naylor specified:

In order to determine whether the payments that the Applicant receives are "payments for loss of income...received...under any income continuation benefit plan", it is necessary to read the insurance policy as a whole in order to determine firstly, whether the payments are intended to compensate the Applicant for loss of income arising from his inability to earn and secondly whether they are paid under a benefit plan that is designed to continue the Applicant's income following his inability to earn.

Senior Arbitrator Naylor went on to find in Pallotta, that the payments in question were deductible. The payments were triggered by the applicant becoming totally disabled, the definition of "total disability" precluded the claimant from engaging in gainful employment, and the payments were made to provide some compensation to the claimant for a loss of income from employment. Benefits were paid when disability was established and ceased when the claimant was able to return to work.

In the present case, the payments under the Seaboard policy are also triggered by the Applicant becoming "totally disabled", and the definition in the policy of "total disability" also refers to the inability of the insured to work. To that extent, the insurance policy in this case is similar to the policy in Pallotta.

However, in reading the policy as a whole, I find that the purpose and intention of the benefit payments in the present case are not to compensate the Applicant, in whole or in part, for his loss of earnings. Instead, the policy specifies that benefits are paid in order "to discharge indebtedness under the Purchase/Lease Contract" for only so long as monies are owed under the contract, and the contract has not expired.

Reading the contract as a whole, I find its purpose is to benefit and protect the creditor, Chrysler Credit. The policy ensures that the car loan continues to be repaid if the debtor cannot earn an income because of a disability. Although the payments are triggered by the inability of the Applicant to earn, their purpose is not to provide the Applicant with compensation for that earning loss, but rather to shield the creditor from the consequences of that loss.

Whereas in Pallotta, payments continued so long as the claimant was unable to return to work, in the present case, payments are made so long only as the Purchase/Lease Contract remains valid and in effect. If the debt is paid off or the car is sold, no further benefits are payable, regardless of the Applicant's ongoing disability.

The Insurer also argued that the intent and purpose of the No-Fault Benefits Schedule is to compensate individuals for their net economic loss. Accordingly, an insured is not entitled to double compensation -- that is, compensation for the same economic loss from two different sources.

Counsel cited the Supreme Court of Canada decision in Ratych v. Bloomer (1990) 1990 CanLII 97 (SCC), 69 DLR (4th) 25. He also referred to the appeal decision of the Director in Michael Morin and The Personal Insurance Company of Canada (O.I.C. File No. P-00468, February 26, 1993), to the effect that an insured person cannot look to two separate sources of recovery for the same economic loss. He argued that to allow the Applicant to benefit from the Seaboard payments in this case would be to allow him some double compensation for his loss.

Clearly the Applicant does receive an economic benefit as a result of the Seaboard payments. However, that fact alone cannot make the payments deductible when the payments themselves are not to compensate the Applicant for his loss of earning ability, but for some other purpose: namely, to protect a creditor. Accordingly, this is not a situation where the principle against double compensation, as enunciated by the Supreme Court of Canada in Ratych v. Bloomer (supra), is to be invoked.

In McCormick (supra), Senior Arbitrator Naylor referred to the double compensation issue, and explained that it arises in cases where an Applicant receives payments under two schemes:

both intended to compensate him for the same loss, namely his loss of income from employment, as a result of his inability to work.

However, since the Seaboard scheme is not intended to directly compensate the Applicant for his loss of income, as a result of his inability to work, double compensation is not an issue. To the extent that it occurs, it is a fortuitous and secondary consequence of the policy, which is primarily intended to protect the creditor.

Since I have found that the Seaboard payments are not "payments for loss of income", they are not deductible from the Applicant's no-fault benefits under section 12(4)(b), and the inquiry logically ends here. However, for the sake of completeness, I feel it worthwhile to address the other requirements set out in the section, referred to by the parties in their arguments.

(2) received by or available to the insured person

Counsel for the Insurer argued that the Seaboard payments could be found to be "received by or available to" the Applicant, even though they were not paid to the Applicant, but paid to Chrysler Credit.

The Insurer relied on the decision in Francis Nand and State Farm Mutual Automobile Insurance Company (O.I.C. File No. A-001893, May 28, 1993), in which I held that it was irrelevant that the funds in that case were not being paid directly to the Applicant.

Counsel for the Applicant argued that the benefits in question are not received by or available to the Applicant. The benefits are paid to and received directly by Chrysler Credit, and are not directly or indirectly available to the Applicant.

I accept this argument of counsel for the Applicant and find that, in the present case, the benefit payments are neither received by nor available to the Applicant. Since payments are made directly from Seaboard to Chrysler Credit, it is clear that they are not "received by" the Applicant.

Neither are the payments "available" to the Applicant.

In Sion Dray and Royal Insurance Company of Canada (O.I.C. File No. A-000025, January 31, 1992), Senior Arbitrator Naylor referred to two related meanings of the word "available": 1. capable of being used; at one's disposal 2. within one's reach.

In that case, Senior Arbitrator Naylor concluded that funds which had been withheld at source for income tax were available to the Applicant, notwithstanding that the funds had been earmarked for a specific purpose by choice, financial necessity, or legal requirements.

In the case of Nand, I adopted the reasoning of Senior Arbitrator Naylor in Dray, and found that certain long-term disability benefits were available to the Applicant, notwithstanding that he did not actually receive some payments for a certain period because they had been withheld until an existing overpayment was repaid.

However, I accept that the facts of this case are distinguishable from the facts in Dray and Nand. Messrs. Dray and Nand were both free to order their affairs (i.e. pay off their respective income tax obligations or debts) so that the benefits in issue in those cases would be directly received by and available to them.

In the present case, the Applicant is not the beneficiary to whom the Seaboard payments are designated. If the Applicant repays his debt to Chrysler Credit, Seaboard will pay him nothing. The payments are not at the Applicant's disposal, regardless of how he chooses to organize his affairs. The Applicant benefits indirectly to the extent that payments are made. However, the Seaboard payments are not available to the Applicant, in the sense that he has access to the funds, depending on how he orders his financial affairs.

(3) "under any income continuation benefit plan"

Finally, regardless of how one might choose to characterize the Seaboard payments, and even if one felt that the funds were "available" to the Applicant because money was at his disposal as a result of the payments, in order for the payments to be deductible, they must be paid "under the laws of any jurisdiction or under any income continuation benefit plan".

Is the Seaboard policy "an income continuation benefit plan"? Is it a plan designed to pay "income continuation benefits" within the meaning of that term, as it is used in the No-Fault Benefits Schedule?

Counsel for the Insurer argued that the Seaboard policy, was indeed an "income continuation benefit plan", in the sense that the Applicant had in his hands, while he was disabled, benefits that to some extent continued or replaced his income.

I find that an "income continuation benefit plan", according to the plain meaning of the words, must be a plan intended to pay "income continuation benefits". Senior Arbitrator Naylor, in Pallotta (supra), explained it as "a benefit plan that is designed to continue the applicant's income following his inability to earn". In Pallotta, Senior Arbitrator Naylor found that:

...the disability insurance plan provides for the continuation, in part, of the Applicant's stream of income when his ability to earn income is interrupted. As stated above, benefits are not earnings-related, and the plan does not provide for the continuation of those earnings. However, it provides for the continuation during disability of income, in an amount established under the policy. It therefore falls within the plain wording of subsection 13(3)(a).

(emphasis added)

In contrast, in the present case, the Seaboard disability plan does not provide, in whole or in part, for the continuation of the Applicant's income during disability. Benefits are paid, not to provide the Applicant with a steady and continued source of income while he is unable to earn, but simply to assure the repayment of a particular debt. The elimination or refinancing of the debt terminates the benefits, regardless of the Applicant's ongoing disability and requirement for income continuation. Therefore, the plan cannot be described an "income continuation benefit plan".

I therefore find that the Seaboard benefits are not payments for loss of income deductible from the Applicant's no-fault benefits.

Special Award

The Applicant has claimed a special lump sum award under section 282(10) of the Insurance Act, on the basis that the Insurer has unreasonably delayed or withheld payments. That section states:

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 insured 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.

The Applicant claimed that the Insurer improperly withheld a portion of the Applicant's weekly benefits payments and took an excessive and unreasonably "legalistic" approach in this case.

I find that the Insurer has not acted unreasonably, since I am satisfied that the Insurer had a bona fide disagreement with the Applicant about its obligations under the legislation in this case. As I have previously observed, we are dealing with relatively new legislation, and parties may fairly differ as to its interpretation. In this case, I consider that the characterization of the Seaboard benefit is not sufficiently plain and self-evident, as to render the Insurer's actions the unreasonable withholding of a benefit, within the meaning of the section.

Accordingly, the Applicant is not entitled to a special award under this section.

Expenses:

The Applicant seeks an award of the expenses he incurred in the arbitration hearing. I have a discretion to award such expenses, which are normally granted, following the criteria outlined by Senior Arbitrator Naylor in the decision of McCormick and Economical Mutual, which I endorse.

In this case, neither counsel suggested that these criteria are inappropriate, or that an award of expenses should not be made. The Applicant is therefore entitled to his expenses incurred in respect of the arbitration proceeding.

Order:

1. The disability insurance benefits paid by Seaboard are not payments for loss of income, received by or available to the Applicant under an income continuation benefit, and accordingly are not deductible from any weekly income benefits paid to the Applicant.

2. The Applicant is not entitled to a special award.

3. The Applicant is entitled to his expenses incurred in the arbitration proceeding, pursuant to Ontario Regulation 664, R.R.O. 1990, "Dispute Resolution Expenses".

August 13, 1993

Frederika M. Rotter Senior Arbitrator

Date

APPENDIX 1

Sion Dray and Royal Insurance Co. of Canada, O.I.C. File No. A-000025, January 31, 1992

Ralph McCormick and Economical Mutual Insurance Company, O.I.C. File No. A-000139, October 2, 1991

Michael Morin and The Personal Insurance Company of Canada, O.I.C. File No. P-00468, February 26, 1993

Francis Nand and State Farm Mutual Automobile Insurance Co., O.I.C. File No. A-001893, May 28, 1993

Antonio Pallotta and Alpina Insurance Co. Ltd., O.I.C. File No. 000808, April 22, 1992

Ratych v. Bloomer (1990) 1990 CanLII 97 (SCC), 69 DLR (4th) 25