Wellington Insurance Company v. Marcia Edgar, 1996 ONICDRG 47

Ontario Insurance Commission

Commission des assurances de l’Ontario

Neutral Citation: 1996 ONICDRG 47

Appeal P-005441

OFFICE OF THE DIRECTOR OF ARBITRATIONS

WELLINGTON INSURANCE COMPANY Appellant

and

MARCIA EDGAR Respondent

Before: David R. Draper

Representatives: Michael R. Elliott (for Marcia Edgar) Stephen J. Kelly (for Wellington)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The arbitration order, dated April 13, 1994, is rescinded, except for the portion dealing with expenses.

2. Ms. Edgar is required to repay to Wellington the amount that she received pursuant to the arbitration order, less her appeal expenses which are fixed at $100.

3. Wellington is entitled to interest on the amount of the repayment from the date of this Order.

March 27, 1996

David R. Draper Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Ms. Edgar was injured in a motor vehicle accident on January 7, 1991. As a result, she received accident benefits from Wellington Insurance Company ("Wellington"). She also received disability benefits from National Life of Canada ("National Life") under an insurance policy arranged through her employer. Wellington interpreted section 12(4)(b) of the Schedule¹ as allowing it to reduce Ms. Edgar's weekly income benefits by the gross amount of her disability benefits. Ms. Edgar claimed that this was unfair because it did not take into account the fact that she had to pay income tax on her National Life benefits. In a decision dated April 13, 1994, the arbitrator ordered that Wellington could only reduce Ms. Edgar's weekly income benefits by the net "after tax" amount of her National Life benefits. Wellington appeals this order.

II. PRELIMINARY ISSUES

A. Extension of time

The Insurance Act establishes a thirty-day appeal period. Wellington's Notice of Appeal was received by the Commission five days late. Section 283(3) of the Act provides that the appeal period can be extended where:

(a) there are reasonable grounds for applying for the extension; and

(b) there are apparent grounds for granting the relief sought.

I advised the parties by letter that the appeal period would be extended to allow Wellington to proceed with its appeal. Based on the material provided, I was convinced that Wellington decided to appeal within the appeal period, and notified Ms. Edgar of its intention. The failure to file the appeal documents was a matter of inadvertence that was quickly addressed, with no significant prejudice to Ms. Edgar. Given the conflicting arbitration decisions on the issue raised in this appeal, I concluded that the second criterion was also met.

B. Intervention

Abdul-Karim Bapoo requested intervenor status under section 283(8) of the Insurance Act. In an order, dated February 6, 1996, I denied his request with reasons.

III. CALCULATION OF BENEFITS

Ms. Edgar's weekly income benefits are calculated according to section 12(4) of the Schedule, which provides:

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.

In Ms. Edgar's case, Optional Benefit 2 was not purchased. Therefore, her entitlement is the lesser of $600 and the amount calculated under paragraph (b). Ms. Edgar's gross weekly income from employment, calculated according to section 12(7), was $819.72. Eighty per cent of $819.72 is $655.78. This means that if she were not entitled to any other payments for loss of income, she would receive $600 per week from Wellington. Since weekly income benefits are not subject to income tax, this amount would be tax-free.

The gross amount of Ms. Edgar's disability benefits from National Life was $573.81 per week. Unlike her weekly income benefits, these payments were taxable because her employer contributed to the premiums. Her tax liability was limited to the amount by which the benefits paid to her exceeded her own contributions.

At Ms. Edgar's request, National Life calculated the income tax payable on her disability benefits and withheld that amount at source. As a result, she received approximately $471.42 per week. After communications broke down with Wellington, Ms. Edgar asked National Life to pay her all of the amounts that had been withheld, which it did. Thereafter, she received the gross amount of her disability benefits from National Life ($573.81 per week), although she had to pay income tax on it.

Wellington calculated Ms. Edgar's weekly income by deducting the gross amount of her benefits from National Life ($573.81) from 80% of her gross weekly income ($655.78):

Gross weekly income from employment $819.72

x 80% $655.78

Less National Life benefits (gross) -573.81

Weekly income benefits payable by Wellingtons 81.97

As a result, Ms. Edgar received $81.97 from Wellington (tax-free) and $573.81 per week from National Life (subject to income tax). She objected to Wellington's approach, claiming that because her tax liability was not taken into account, she was worse off than if she had no disability insurance.

The arbitrator did a number of calculations comparing the possible approaches. She relied on National Life's determination of Ms. Edgar's tax liability, although I can find no explanation of how it was calculated. The arbitrator found that Wellington's approach left Ms. Edgar with after-tax benefits of $553.39 ($81.97 + $471.42 ). This is less than the $600 that she would have received from Wellington if she had no other insurance coverage, and is approximately 67.5% of her gross weekly pre-accident income.

At the arbitration hearing, Ms. Edgar argued that the "80 per cent" in section 12(4)(b) should apply to both her gross weekly income and her National Life benefits. In other words, 80 per cent of her gross weekly income should be reduced by 80 per cent of her National Life benefits, resulting in weekly income benefits of $196.72:

(80% x $819.72) - (80% x $573.81) = $196.72

The arbitrator found this approach attractive, but concluded it was not supported by the words used in the Schedule. In particular, she noted that section 13 provides for weekly benefits of "$185 less any payments for loss of income . . ." No 80 per cent calculation is involved. The arbitrator was not prepared to adopt an interpretation that would result in benefits under section 12 being reduced by 80 per cent, while the reduction under section 13 would be 100 per cent.

Although this argument was not specifically re-opened on appeal, I agree with the arbitrator's conclusion. In my opinion, the grammatical structure of section 12(4)(b) does not support Ms. Edgar's position. The plain meaning is that 80 per cent of the insured person's gross weekly income is to be calculated, "less any payments for loss of income." Ms. Edgar's interpretation is further undermined by the fact that it leads to an inconsistent approach to the calculation of benefits under sections 12 and 13.

Although the arbitrator did not accept Ms. Edgar's interpretation, she went on to consider whether Wellington should be entitled to deduct the gross amount of the National Life benefits, or just the net "after-tax" amount. This issue had been previously considered by another arbitrator who concluded that the insurer was entitled to deduct the gross amount (Sion Dray and Royal Insurance Company of Canada, January 31, 1992, OIC File No. A-000025).

In the Dray case, the applicant was entitled to $384 per week from an employer-paid group accident and sickness disability policy, but received only $313.17 per week because federal income tax was withheld at source. Unlike Ms. Edgar's situation, there was no evidence that he chose to have the tax deducted at source, or had the option of receiving the full amount. The arbitrator found section 12(4)(b) ambiguous and looked for the most reasonable interpretation in light of the purpose and objects of the Act. Although she was concerned about the fairness of deducting the gross amount of the applicant's disability benefits, she felt that the administrative difficulty of determining each person's net after-tax benefits was inconsistent with a system requiring fast payments. The arbitrator concluded:

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 great 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 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. [p. 17]

In Ms. Edgar's case, the arbitrator agreed that section 12(4)(b) is ambiguous, but was not convinced "that the goal of administrative efficiency outweighs the policy considerations favouring adequacy of compensation and equitable treatment of insured persons" (p. 10). In the arbitrator's view, the 80 per cent calculation is used in section 12(4)(b) so that weekly income benefits approximate the person's pre-accident after-tax income, or "take home pay," up to the limits set in the Schedule. She concluded that Wellington's approach should not be accepted because it is inconsistent with this intention, and would effectively penalize an applicant for having other insurance coverage:

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). [pp. 12 - 13]

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. [p. 15]

The fact that the arbitrator did not follow the Dray decision is not, in itself, an appealable error. Although consistency is a desirable goal, arbitrators are not bound to follow their colleagues' decisions. The issue on appeal is whether she erred in her interpretation of the Schedule.

The Dray and Edgar decisions were considered in two subsequent arbitrations. In both cases, the injured person received payments for loss of income after income tax was deducted at source. In Joseph N. Bush and Pilot Insurance Company², the arbitrator accepted the analysis in Dray "with great reluctance." In Manuel Medina and Old Republic Insurance Company³, the arbitrator followed Edgar.

Analysis and Conclusions

Ms. Edgar's position is quite understandable. She was injured in an automobile accident and is looking to her automobile insurer for income replacement benefits. There would be nothing surprising about a legislative policy making automobile insurers primarily responsible for protecting income lost as a result of automobile accidents. However, that is not the approach taken in the Schedule. Section 12(4)(b) makes it clear that the injured person must look first to other sources, presumably as a means of controlling the cost of automobile insurance. Ms. Edgar accepts the Schedule allows Wellington to take her disability benefits into account, but argues that the intention could not have been to penalize her for having this other coverage.

Arbitrators are responsible for determining the facts of the case before them and applying the Schedule to those facts. As in this case, questions of interpretation may arise. Mr. Justice Ferguson recently considered the proper approach to interpreting accident benefit provisions, in Catherwood et al. v. Pilot Insurance Company et al.⁴ He rejected a policy-based approach where the "tribunal tries to 'fix' the policy wording to make it conform with the tribunal's perception of legislative policy." Instead, he adopted a contextual approach, involving the following five steps identified by Driedger in Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983):

1. The Act as a whole is to be read in its entire context so as to ascertain the intention of Parliament (the law as expressly or impliedly enacted by the words), the object of the Act (the ends sought to be achieved), and the scheme of the Act (the relation between the individual provisions of the Act).

2. The words of the individual provisions to be applied to the particular case under consideration are then to be read in their grammatical and ordinary sense in the light of the intention of Parliament embodied in the Act as a whole, the object of the Act and the scheme of the Act, and if they are clear and unambiguous and in harmony with that intention, object and scheme and with the general body of the law, that is the end.

3. If the words are apparently obscure or ambiguous, then a meaning that best accords with the intention of Parliament, the object of the Act and the scheme of the Act, but one that the words are reasonably capable of bearing, is to be given them.

4. If, notwithstanding that the words are clear and unambiguous when read in their grammatical or ordinary sense, there is disharmony within the statute, statutes in para materia, or the general law, then an unordinary meaning that will produce harmony is to be given to the words, if they are reasonably capable of bearing that meaning.

5. If obscurity, ambiguity or disharmony cannot be resolved objectively by reference to the intention of Parliament, the object of the Act or the scheme of the Act, then a meaning that appears to be the most reasonable may be selected.

I agree with this approach and conclude that in this case, the arbitrator crossed the line into attempting to "fix" a section of the Schedule she believed was unfair.

The fundamental problem with Ms. Edgar's position is that she actually received the full amount of her National Life benefits. To find in her favour, therefore, the arbitrator had to conclude that although Ms. Edgar received the full amount, a portion of it was not "received by or available to" her, within the meaning of section 12(4)(b), because it was subject to income tax. I am not persuaded that the words of the section are "reasonably capable of bearing that meaning," even if the section could be seen as ambiguous or creating disharmony.

The arbitrator focused on the purpose of section 12(4), concluding that the 80 per cent calculation was intended to protect the insured person's income at a level approximating his or her pre-accident "take-home pay," subject to certain limits. She rejected Wellington's interpretation because she found that it left Ms. Edgar with significantly less after-tax income than this "goal."

I do not find it so obvious that the Schedule was meant to guarantee a certain level of after-tax income. The Schedule is just that, a schedule of benefits to be paid to people injured as a result of automobile accidents. The benefits are not intended to provide full compensation for the person's loss, but are meant to be paid promptly, regardless of fault. Section 12(4)(b) specifically makes weekly income benefits residual to other types of coverage for loss of income. In other words, automobile insurance provides income protection, but only to the extent that coverage is not available from some other source.

In her decision, the arbitrator referred to an information pamphlet issued by the Ontario Insurance Commission, entitled "The Ontario Motorist Protection Plan" (Exhibit 2). Although it does not have the status of legislation, the following excerpt appears to have contributed to Ms. Edgar's view that Wellington treated her unfairly:

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 excerpt is correct for someone without access to other benefits. The pamphlet also indicates, however, that weekly income benefits are affected by the availability of benefits from other types of insurance. The following example is provided:

Sirak also makes $52,000 a year or $1,000 gross weekly income. Unlike Sharon, Sirak works for a company that has an income replacement plan that pays 50 per cent of lost income to disabled employees. Sirak would collect $500 a week from his disability plan and $300 tax-free a week from his automobile insurance policy. This would bring his total recovery up to $800 a week, which is 80 per cent of his gross income.

Although this example does not specifically address the question of income tax, I find it consistent with Wellington's approach. Sirak is expected to look first to his company policy. The total amount of his benefits is $800, or 80 per cent of his gross pre-accident income, but only his weekly income benefits are described as tax-free.

Wellington cited Paese v. United States Fidelity & Guaranty Company, [1986] I.L.R. 7775 (Ont. Dist. Ct.) as an example of the courts deducting the gross amount of other benefits from accident benefits under Schedule C to the Insurance Act, the predecessor to the Schedule. The issue in that case, however, was whether the insurer could deduct the other benefits at all. There is no indication that the "net-versus-gross" issue was raised. Therefore, the decision is of little assistance.

In this case, the arbitrator pointed to section 15 as an indication that the insured person's after-tax position is central to the scheme of the Schedule. Section 15 provides:

15. 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.

In the arbitrator's opinion, the 80 per cent calculation is used in section 15 because "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)." I find this inconsistent with the rest of her analysis. If the phrase, "received by or available to," in section 12(4)(b) is to be interpreted as net of tax, it would be difficult to adopt a different interpretation of the phrase, "received or available," in section 15. That would mean the 80 per cent in section 15 would be applied to net "after-tax" income, not the gross amount.

In my view, the fact that deductions are specifically limited in section 15 is more supportive of the conclusion that the full amount of other benefits is deductible under section 12(4)(b), as long as they are "received by or available to" the person. Where the person actually receives the benefits, as Ms. Edgar did, I conclude that the full amount is deductible. Although this may be seen as penalizing people who have some source of income protection in addition to automobile insurance, I cannot ignore the words of the legislation or distort them beyond their reasonable meaning.

I want to emphasize that this decision does not deal with a situation where the injured person is not paid the full amount of his or her other benefits and has no right to demand it. While I do not intend to suggest that the result would be different, such a case might raise issues of both fact and law that were not presented in this case.

March 27, 1996

David R. Draper Director's Delegate

Date

Footnotes

1. 1The term "Schedule" will be used to refer to Ontario Regulation 672. Before January 1, 1994, Regulation 672 was called the No-Fault Benefits Schedule. As of that date, it became the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994.
2. 2Joseph N. Bush and Pilot Insurance Company, April 25, 1994, OIC File No. A-004687.
3. 3Manuel Medina and Old Republic Insurance Company, September 14, 1995, OIC File No. A-005286.
4. 4Catherwood et al. v. Pilot Insurance Company et al., Ontario Court (General Division), File No. 2265/91 (Cobourg), Judgment released Novembe 0, 1995.