ONTARIO INSURANCE COMMISSION
Neutral Citation: 1993 ONICDRG 58 File No. A-005441
BETWEEN:
MARCIA EDGAR Applicant
and
WELLINGTON INSURANCE COMPANY Insurer
DECISION
Issues:
The Applicant, Marcia Edgar, was injured in a motor vehicle accident on January 7, 1991. She was insured under an automobile owner's standard insurance policy issued by Wellington Insurance Company ("Wellington"). Wellington paid her weekly income benefits under Section 12 of Ontario Regulation 6721. The Applicant also applied for and received a weekly payment for loss of income from National Life of Canada ("National"). Wellington deducted 100 per cent (i.e. the gross amount) of the weekly payment for loss of income paid by National, from 80 per cent of the Applicant's gross weekly income, when calculating the amount of the Applicant's weekly income benefit under Section 12 of the Schedule.
The Applicant disputed Wellington's method of calculating her weekly income benefit because it ignored the impact of the income taxes she was responsible for paying on the gross amount of payments for loss of income from National.
The Applicant applied for mediation of the dispute concerning the method of calculation to be used by the Insurer to determine the amount of weekly income benefit payable to her. Mediation was unsuccessful, and the Applicant applied for arbitration.
The issue to be determined in this arbitration is:
Is the Insurer entitled to deduct 100 per cent (i.e. the gross amount) of weekly payments for loss of income from National, from 80 per cent of the Applicant's gross weekly income, when calculating the amount of the Applicant's weekly income benefit under Section 12(4)(b) of the Schedule?
The Applicant is also seeking interest on amounts owing to her by Wellington and her expenses incurred in the hearing.
Prior to mediation, Wellington and the Applicant entered into negotiations concerning the method of calculating her weekly income benefit and the amount of benefit payable to her. The Applicant alleges that certain agreements were reached between Wellington and herself concerning these issues, upon which she relied. The issue of the specific terms and purported binding nature of the discussions between the Applicant and Wellington are not before me for determination in this hearing.
Result:
The Insurer is not entitled to deduct 100 per cent (i.e. the gross amount) of weekly payments for loss of income from National under Section 12(4)(b) of the Schedule, when calculating the amount of weekly income benefit payable to the Applicant in this case. Section 12(4)(b) of the Schedule should be construed to provide a deduction of the net "after-tax" amount of weekly payment for loss of income from National, when calculating the amount of weekly income benefit payable to the Applicant.
The Applicant is entitled to payment of interest on amounts owing to her by Wellington and her expenses incurred in the hearing.
Hearing:
The hearing was held in Ottawa, Ontario, on October 19, 1993, before me, Janice Mackintosh, Arbitrator.
Present at the Hearing:
Applicant: Marcia Edgar
Applicant's Representative: Michael Elliott
Insurer's Representative: Stephen Kelly Barrister and Solicitor
Witness: Marcia Edgar
The parties introduced an agreed statement of facts dated October 13, 1993, reproduced in Appendix A. Documents and exhibits placed before the arbitrator are listed in Appendix B.
Evidence and Findings:
On the basis of the agreed statement of facts and the evidence of the Applicant, I find that:
Under the provisions of Section 12(7) of the Schedule, Marcia Edgar's gross weekly income from employment was $819.72, at the time of her accident on January 7, 1991.
Marcia Edgar had not purchased Optional Benefit 2.
Eighty per cent of the Applicant's gross weekly income from employment equals $655.78.
Marcia Edgar was paid a gross weekly amount of $573.81 by National. This payment was a "payment for loss of income" within the meaning of Section 12(4)(b) of the Schedule.
The Applicant is required to pay tax on the gross amount of the payments for loss of income from National. At the request of the Applicant, National calculated the amount of taxes payable by the Applicant upon the weekly payment for loss of income and withheld these amounts at source. The after-tax amount received by the Applicant from National was approximately $471.42 per week. Subsequent to the breakdown of communications between Wellington and the Applicant, National paid the amounts withheld at source to the Applicant, at her request [Exhibits 1(a) and 1(b)].
Calculation proposed by Wellington:
Wellington calculated the amount of weekly income benefit payable to the Applicant under Section 12 of the Schedule as follows:
Gross weekly income (G.W.I.) $ 819.72
x 80% less $ 655.78
Gross payment for loss of income from National (G.P.L.I.) $ 573.81
Weekly income benefit payable (W.I.B.) $ 81.97
Wellington assumed that the calculation of weekly income benefit (W.I.B.) under Section 12(4)(b) of the Schedule required that 100 per cent (ie. the gross amount) of payments for loss of income (G.P.L.I.) from National was to be deducted from 80 per cent of the Applicant's gross weekly income (G.W.I.). Stated more simply, Wellington used the following calculation to determine the amount of weekly income benefit (W.I.B.) payable to the Applicant:
W.I.B. = (80% x G.W.I.) - G.P.L.I.
Using Wellington's approach, the Applicant's post accident income before taxes is:
Weekly income benefit from Wellington (W.I.B.) added to $ 81.97
Gross weekly payment for loss of income from National (G.P.L.I.) $ 573.81
Before tax income $ 655.78
(i.e. equivalent to approximately 80% of the Applicant's pre-accident gross weekly income from employment)
Using Wellington's approach, the Applicant's post-accident income after taxes is:
Weekly income benefit from Wellington (W.I.B.) added to $ 81.97
Net weekly payment for loss of income from National $ 471.42
After tax income $ 553.39
(i.e. equivalent to approximately 67.5% of the Applicant's pre-accident gross weekly income from employment).
Calculation proposed by the Applicant:
The Applicant objected to Wellington's assumption that 100 per cent (i.e. the gross amount) of the weekly payments for loss of income from National should be deducted from her benefit, regardless of whether such payments are taxable in her hands. The Applicant's representative submitted that in order to match the Applicant's after-tax position, the 80 per cent calculation in Section 12(4)(b) of the Schedule should refer to both the gross weekly income (G.W.I.) and the gross amount of payments for loss of income (G.P.L.I.). Stated more simply, the Applicant proposed the following calculation to determine her weekly income benefit:
W.I.B. = 80% x (G.W.T. - G.P.L.I.).
The Applicant interpreted the wording of Section 12(4) as follows:
12(4) Subject to subsection (5), the weekly benefit under Section 12(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 and brackets added)
The Applicant calculated the amount of weekly income benefit as follows:
W.I.B. = Gross weekly income (G.W.I.) $ 819.72
less Gross weekly payment for loss of income from National (G.P.L.I.) $ 573.81
$ 245.91
x 80% Weekly income benefit payable (W.I.B.) $ 196.72
Using the Applicant's approach, her post-accident income before taxes is:
Weekly income benefit from Wellington (W.I.B.) added to $ 196.72
Gross weekly payment for loss of income from National (G.P.L.I.) $ 573.81
Before tax income $ 770.53
(ie. equivalent to approximately 94% of the Applicant's pre-accident gross weekly income from employment)
Using the Applicant's approach, her post-accident income after taxes is:
Weekly income benefit from Wellington (W.I.B.) added to $ 196.72
Net weekly payment for loss of income from National $ 471.42
After tax income $ 668.14
(ie. equivalent to approximately 81.5% of the Applicant's pre-accident gross weekly income from employment)
Construction of Section 12(4)(b) of the Schedule:
Two possible constructions of Section 12(4)(b) have been proposed by the parties in this case:
Insurer's calculation: W.I.B. = ( 80% x G.W.I) - G.P.L.I.
Applicant's calculation: W.I.B. = 80% x (G.W.I. - G.P.L.I.)
Counsel for Wellington relied on Senior Arbitrator Naylor's ruling in the case of Sion Dray and Royal Insurance Company of Canada, January 31, 1992, OIC File No. A-000025, to support its position that 100 percent (ie. the gross amount) of payments for loss of income from National ought to be deducted when calculating the Applicant's weekly income benefit.
In the case of Dray two possible constructions of Section 12(4)(b) were proposed by the parties. Senior Arbitrator Naylor considered whether the Insurer ought to deduct the gross or net amount of weekly payments for loss of income made by a collateral insurer, when calculating weekly income benefits under Section 12(4)(b) of the Schedule. The Senior Arbitrator ruled that the insurer was entitled to deduct the gross amount of such payments.
This case demands that I re-examine the method of calculating weekly income benefits and review the reasoning of Senior Arbitrator Naylor in the Dray decision. For the reasons set out below, I do not agree with the result reached by Senior Arbitrator Naylor in the case of Dray and followed by Wellington. I also conclude that the Legislature did not intend the 80 per cent calculation in Section 12(4)(b) to apply to both the gross weekly income and the gross amount of payments for loss of income, as proposed by the Applicant. Rather, I conclude that Section 12(4)(b) of the Schedule should be construed to provide a deduction of the net "after-tax" amount of payments for loss of income, when calculating the amount of weekly income benefit payable to the Applicant.
At pages 9 through 13 of the Dray decision, Senior Arbitrator Naylor examined the wording of Section 12(4) of the Schedule. She concluded that the section is ambiguous and gives rise to more than one possible interpretation. She specifically found that the addition of the words "gross weekly income" in Section 12(4)(a), "any payments" in 12(4)(b) and "received by or available to" in 12(4)(b)(i) do not clarify whether a 100 per cent (ie. gross) deduction of collateral insurance benefits was intended. I also conclude that the wording of Section 12(4)(b) is ambiguous.
Senior Arbitrator Naylor then interpreted the ambiguous wording of Section 12(4)(b). At page 14 of the decision she concluded that:
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.
(emphasis added)
In reaching her decision, Senior Arbitrator Naylor recognized the impact of deducting 100% of taxable payments for loss of income (gross), from 80% of gross weekly income (net), as proposed by the insurer. She states at page 12 of the Dray case:
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).
However, Senior Arbitrator Naylor goes on to note that 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. She recognized that the scheme's administrative workability is essential to its ability to deliver benefits speedily and efficiently and concluded at page 13 that:
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.
While I appreciate the administrative considerations referred to by Senior Arbitrator Naylor, I am not convinced that the goal of administrative efficiency outweighs the policy considerations favouring adequacy of compensation and equitable treatment of insured persons. Many portions of the Schedule demand an individualized inquiry into the specific circumstances of the individual. This was acknowledged by Senior Arbitrator Naylor in the case of Francois Philippe and Royal Insurance Company of Canada, January 24, 1994, OIC File No. A-001736, at page 11 where she stated:
In my view, Section 12(7)3. cannot be interpreted to provide a clear formulation which applies in all cases. Ultimately, the issue of whether an expense is a ceasing expense is a question of fact, based on an individualized inquiry into the specific circumstances of each case.
At page 12 of the Dray case, Senior Arbitrator Naylor acknowledged that one of the principle goals of the legislative scheme is to match 80 per cent of an applicant's gross pre-accident employment income during disability. The Applicant's representative also referred to an information pamphlet prepared by the Ontario Insurance Commission entitled The Ontario Motorist Protection Plan (Exhibit 2). The pamphlet states:
A weekly, tax-free income replacement benefit of 80 percent of gross income (up to $600 per week) will be provided. This maximum amount is equal to an average "take home" pay of someone earning about $39,000 a year.
The Applicant submits that on the basis of the information and examples provided by the Commission in its pamphlet, weekly income benefits were intended to provide a disabled applicant with a weekly, tax-free income replacement benefit of approximately 80 per cent of pre-accident gross weekly income, up to the statutory maximum of $600 (or higher, if Optional Benefit 2 was obtained). This amount is intended to reflect an applicant's approximate after-tax "take home pay", up to the statutory maximums. The Applicant submits that this goal is not achieved by the Dray interpretation followed by Wellington.
I find that the reference to 80 per cent in Section 12(4)(b) of the Schedule is intended to approximate the average tax payer's after-tax position or "take home" pay and is consistent with the approach used in other sections of the Schedule. For example, Section 15 of the Schedule provides an insurer with a calculation for deducting employment income earned post-accident, as follows:
- The insurer may deduct from any benefit payable under this Part 80 per cent of any income received or available from any occupation or employment subsequent to the accident.
I conclude that only 80 per cent of such income is deducted under Section 15 for two reasons. It would be unfair to deduct 100 per cent of subsequent income received (ie. the gross amount) from a benefit that is calculated on the basis of only 80 per cent of gross pre-accident income (ie. net).
Furthermore, a failure to recognize the impact of income taxes upon post-accident income from employment would discourage people from pursuing rehabilitation goals and returning to part-time or modified work programs as soon as possible after their injury. I conclude that a recognition of the after-tax position of the insured person is central to the scheme of the Schedule and should govern the interpretation of Section 12(4)(b).
Moreover, the Applicant submits that the calculation used by Wellington penalizes her for having obtained collateral insurance benefits through National. Had the Applicant not obtained collateral insurance benefits, she would have been entitled to receive the $600.00 maximum benefits under the Schedule, tax free, from Wellington. Using Wellington's calculation, the Applicant receives approximately $553.39 in after-tax income - $46.61 less per week than she would receive if she had no other loss of income coverage.
I do not accept that it was the intention of the Legislature to penalize insureds who, through their own foresight or opportunity, obtain collateral insurance benefits. Using the Dray method of calculation, the Applicant ends up with only 67.5 per cent of her pre-accident income and is significantly worse off (net of taxes) than if she had obtained no additional coverage. On the other hand, the Insurer benefits from the reduction of its responsibility to the Applicant by the amount of her collateral insurance benefit, and also makes a 100 per cent (gross) deduction from a benefit calculated upon only 80 per cent of the Applicant's pre-accident income. This strikes me as inconsistent, counter-productive, and unfair.
Where the language of a statute is equivocal and bears more than one reasonable meaning, such factors as injustice, anomaly, hardship, and inconvenience are relevant in making the choice between possible constructions.
As has been stated in other arbitration decisions, the Schedule is remedial legislation and is to be interpreted in a broad and liberal way to best achieve the object and intent of the legislation. One of the principal objects of the Schedule is to provide a fair and adequate income stream to those who are injured and disabled from work. I conclude that the Insurer's proposal to deduct 100 per cent (the gross amount) of weekly payments for loss of income from National, is unfair to the Applicant and results in significantly less income to her (after tax) than the goal of 80 per cent of her pre-accident gross weekly income (up to the maximums set out in the Schedule).
I am aware that by rejecting the Insurer's position, I am differing from the conclusion reached by Senior Arbitrator Naylor in the case of Dray. However, administrative decision makers, including arbitrators under the Insurance Act, are not strictly bound by precedent. The role of precedent in the administrative context is discussed by Arbitrator Draper in the decision Chuong Vo and Maplex General Insurance Company, October 4, 1993, OIC File No. A-002777. I accept and adopt Arbitrator Draper's conclusions. In my opinion, the interpretation of Section 12(4)(b) cannot yet be regarded as settled. This is particularly so in view of the qualifications Senior Arbitrator Naylor placed upon her ruling in Dray, at pages 8 and 9 of her decision:
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.
Many of the qualifications described above, by Senior Arbitrator Naylor in the Dray case, apply equally to this case. However, I am satisfied that a different view on this important issue is warranted.
The Applicant was originally represented by counsel. At the pre-hearing of this matter, Applicant's counsel characterized the issue for determination at the hearing as follows:
In the context of Section 12(4)(b) of the Schedule which contemplates a 100 per cent deduction of collateral benefits received, and Section 15 which contemplates an 80 percent deduction for post accident income earned, is the overall scheme unfair, unreasonable and consequently "ultra vires".
The Applicant was not represented by counsel at the hearing. Mr. Michael Elliott, represented her interests and did not pursue the issue of whether the overall scheme of the Schedule was "ultra vires". He simply argued that it was unfair to the Applicant to permit Wellington to ignore the impact of income taxes she was responsible for paying, on the gross amount of collateral benefits from National, when calculating her weekly income benefit under Section 12(4)(b) of the Schedule.
In an effort to avoid the administrative concerns raised by Senior Arbitrator Naylor in the Dray decision, the Applicant's representative proposed a formula which interprets the 80 per cent calculation contained in Section 12(4)(b) as applying to both the gross weekly income (G.W.I.) and the gross amount of payments for loss of income (G.P.L.I.) in all cases. [ie. W.I.B. = 80% x (G.W.I. - G.P.L.I.)]
At first glance this is an appealing construction which addresses the administrative concerns raised by Senior Arbitrator Naylor and is supported by a plain reading of Section 12(4). However, statutory words must be construed in the context of the provision in which they appear and in the context of the Act or Schedule as a whole. The interpretation of Section 12 must also be reviewed in the context of Section 13 of the Schedule. In the preliminary decision Michael Morin and the Personal Insurance Company of Canada, June 16, 1992, OIC File No. A-000468 Senior Arbitrator Rotter states at page 11:
I cannot accept counsel for the Applicant's creative submission that Section 13 should be interpreted differently than Section 12, because the sections deal with individuals in differing situations. Both sections deal with the calculation of weekly benefits, using identical words and phrases. Common sense dictates that the same words used in a similar context are meant to be interpreted consistently from one section of the legislation to the next.
The Director of Arbitrations, Elisabeth Sachs, specifically agreed with this statement at page 7 of the Appeal Decision in Michael Morin and the Personal Insurance Company of Canada, February 26, 1993, OIC File No. P-000468.
Section 13(3) of the Schedule reads as follows:
(3) The weekly benefit under subsection (1) will be $185 less any payments for loss of income, except unemployment insurance benefits,
(a) received by or available to the insured person under the laws of any jurisdiction or under any income continuation benefit plan; or
(b) received under any sick leave plan.
(emphasis added)
The underlined portions of Section 13(3) are identical to the wording of Section 12(4). The construction of Section 12(4) proposed by the Applicant, would lead to the result that insured persons claiming under Section 12 would have only 80 per cent of their collateral benefit deducted under Section 12(4)(b) when calculating the amount of their weekly income benefit, whereas those claiming under Section 13 would have the full amount of their collateral benefits deducted. This construction does not further the goals of consistent and equitable treatment of insured persons under the Schedule.
I conclude that the policy considerations favouring adequacy of compensation and equitable treatment of insured persons are best met when Section 12(4)(b) of the Schedule is construed to provide a deduction of the net "after-tax" amount of weekly payment for loss of income from National, when calculating the amount of weekly income benefit payable to the Applicant.
Order:
The Insurer is not entitled to deduct 100 per cent (i.e. the gross amount) of weekly payments for loss of income from National under Section 12(4)(b) of the Schedule, when calculating the amount of weekly income benefit payable to the Applicant in this case. Section 12(4)(b) of the Schedule should be construed to provide a deduction of the net "after- tax" amount of weekly payment for loss of income from National, when calculating the amount of weekly income benefit payable to the Applicant.
The Applicant is entitled to payment of interest on amounts owing to her by Wellington and her expenses incurred in the hearing.
March 6, 2022
Janice Mackintosh Arbitrator
Date
SCHEDULE "A"
AGREED STATEMENT OF FACT
The parties to this arbitration agree to the following facts:
Marcia Edgar's gross weekly income from employment was $819.72.
Eighty per cent (80%) of Marcia Edgar's gross weekly income equals $655.78.
Marcia Edgar receives a weekly disability payment from National Life in the amount of $573.81.
Assuming the total gross amount of any disability benefits received by Ms. Edgar are to be deducted from her loss of income benefits (which fact is not admitted by Ms. Edgar) Ms. Edgar's weekly benefit is calculated as follows:
Gross weekly income $ 819.72
x 80 per cent $ 655.78
Less payment received from National Life $ 573.81
Weekly Benefit Due $ 81.97
DATED: October 13, 1993
KELLY, HOWARD, SANTINI Barristers & Solicitors 900 - 200 Elgin Street Ottawa, Ontario K2P 1L5
Stephen J. Kelly (613) 238-6321 Solicitors for the Wellington Insurance Company
SCHEDULE "B"
Exhibits
a) Statement of Account from National Life of Canada withholding Federal Tax from cheque number 887060 dated August 12, 1992.
b) Statement of Account from National Life of Canada withholding Federal Tax from cheque number 887061 dated August 28, 1992.
Copy of "The Ontario Motorist Protection Plan" pamphlet issued by the Ontario Insurance Commission.
Documents Before the Arbitrator
Report of the Mediator dated July 6, 1993.
Application for Appointment of an Arbitrator dated July 13, 1993.
Response by Insurer dated August 17, 1993.
Pre-hearing letter dated August 30, 1993.
Cases Referred To:
Sion Dray and Royal Insurance Company of Canada, January 31, 1992, OIC File No. A-000025
Michael Morin and the Personal Insurance Company of Canada, June 16, 1992, OIC File No. A-000468
Michael Morin and the Personal Insurance Company of Canada, February 26, 1993, OIC File No. P-000468
Francois Philippe and Royal Insurance Company of Canada, January 24, 1994, OIC File No. A-001736