Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 1999 ONFSCDRS 108

Appeal P99-00010

OFFICE OF THE DIRECTOR OF ARBITRATIONS

CANADIAN GENERAL INSURANCE GROUP

Appellant

and

JARROT A. ZEHR

Respondent

Before:

David R. Draper, Director’s Delegate

Counsel:

Lee Samis (for Canadian General Insurance Group)

Barbara Legate (for Jarrot A. Zehr)

APPEAL ORDER

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

The appeal is allowed in part. Paragraph 2 of the arbitration order, dated January 14, 1999, is rescinded and the following paragraph is substituted:
I remained seized of the issue of Jarrot A. Zehr’s entitlement to accident benefits after July 15, 1996.
Mr. Zehr is entitled to his reasonable appeal expenses, payable by Canadian General Insurance Group.

June 11, 1999

David R. Draper

Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by Canadian General Insurance Group (“Canadian General”) from an arbitration decision dated January 14, 1999. Canadian General claims the arbitrator erred in concluding that Jarrot A. Zehr continued to qualify for Education Disability Benefits (“EDBs”) and, therefore, was entitled to an offer for Loss of Earning Capacity Benefits (“LECBs”).

More specifically, the appeal involves two issues:

(1) Did the arbitrator err in concluding that Mr. Zehr was substantially unable to continue his education?

(2) Did the arbitrator err in concluding that Canadian General was required to make an LECB offer because Mr. Zehr qualified for EDBs up to the 104-week mark, even if he did not qualify after?

II. BACKGROUND

Mr. Zehr, a seventeen-year-old high school student, was seriously injured in an automobile accident in July 1994. He suffered brain and orthopaedic injuries. Canadian General accepted his claim and paid him accident benefits, including weekly EDBs, under O. Reg. 776/93, as amended, the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996 (“the SABS-1994”).

At the appeal hearing, counsel for Canadian General, who was not involved until the appeal, questioned whether Mr. Zehr should have received EDBs at all. The issue is that EDBs are payable under s.15(1)1ii if the insured person “was enrolled on a full-time basis in elementary, secondary or post-secondary education at the time of the accident.” The record indicates, however, that Mr. Zehr had completed Grade 12 and started a summer job about a month before the accident.

This may be a legitimate question, but it was raised far too late in the process. From the outset, Mr. Zehr was treated as a student for reasons that are understandable. At the time of the accident, he had just finished his fourth year of high school and was planning to complete his OAC credits when school resumed in September. His job was temporary. While Mr. Zehr might have claimed entitlement to Income Replacement Benefits under s.7, perhaps at a higher rate, he did not. According to his lawyer and Canadian General’s Response to an Application for Arbitration, Mr. Zehr elected to claim EDBs and Canadian General acted on that election.¹ In the circumstances, I am not prepared to reopen this issue.

To qualify for EDBs, Mr. Zehr had to have suffered:

(a) a substantial inability to continue his or her education (s.15(1)2i - the “substantial-inability test”), or

(b) a partial or complete inability to carry on a normal life, terms defined in sections 2 and 3 (s.15(1)2iii - the “normal-life test”)

The parties agree that Mr. Zehr initially met both tests. However, he was able to return to school in January 1995 on a part-time basis, completing his OAC credits by June 1996, almost two years after the accident. He then enrolled at Sir Wilfred Laurier University, where he started full-time in September 1996. He continued with his studies with assistance and a great deal of effort, but limited success.

Canadian General concluded that Mr. Zehr’s entitlement to EDBs ended in July 1996, before he started university and just short of the 104-week mark.² The timing is important because after 104 weeks of disability, the test for EDBs changes. According to s.15(4), if the insured person qualifies under the normal-life test and does not qualify under the substantial-inability test, EDBs are not payable “more than 104 weeks after” he or she first qualified unless he or she suffers a complete inability to carry on a normal life. In other words, a partial inability to carry on a normal life is not sufficient for EDBs beyond 104 weeks.

In addition, LECBs become relevant at 104 weeks. Subsection 20(1) provides that the insurer shall pay LECBs “instead of” weekly income benefits if the insured person falls within any of the situations set out in s.21(1). The crucial provision states as follows:

21.-(1) 4. The insured person qualified for weekly education disability benefits under section 15 and, 104 weeks after the onset of the disability in respect of which he or she first qualified for those benefits or on the date the person attains sixteen years of age, whichever occurs later, continues to qualify for weekly education benefits.

In his application for arbitration and at the pre-hearing, Mr. Zehr claimed he was entitled to an LECB offer because he continued to meet the “partial inability” test at the 104-week mark. Canadian General argued that this was the wrong test. In its submission, Mr. Zehr was not entitled to an LECB offer unless he continued to qualify for EDBs by meeting either the substantial-inability test or the complete-inability test. As an alternative argument, Mr. Zehr claimed he met both of these tests.

At the pre-hearing, the parties agreed to schedule a preliminary hearing to deal with two issues. First, does Mr. Zehr need to meet the partial-inability or complete-inability test to qualify for LECBs? Second, if the stricter test applies, does he qualify under the substantial-inability test? The question of whether he met the complete-inability test was left to be determined, if necessary, at a later hearing.

The preliminary hearing proceeded without witnesses, based on an “Agreed Statement of Fact” and a “Supplementary Agreed Statement of Fact.” On appeal, counsel for Canadian General questioned the procedure, noting that the agreed statements of fact include contradictory medical reports. It seems clear, however, that the parties agreed to have the arbitrator base his decision on certain agreed facts plus the available medical reports. While another term might have been used to describe the material, I find nothing wrong with the process.

The arbitrator released his decision on January 14, 1999. The first issue he addresses is whether Mr. Zehr continued to meet the substantial-inability test. He found that although Mr. Zehr was able to attend school, there was “no reasonable comparison” between his pre and post-accident activities and, therefore, he remained substantially unable to continue his education, within the meaning of s.15(1)2i. However, the arbitrator only made this finding for the four days from July 12-15, 1996, at which point, he concluded that LECBs, not EDBs, were the issue.

The main question with respect to LECBs was whether Mr. Zehr had to meet the partial-inability or complete-inability test, with Canadian General essentially conceding that he met the partial-inability test. The arbitrator concluded that Mr. Zehr only had to meet the lesser test because s.21(1)4 requires that the insured person to continue to be entitled to EDBs at the 104-week mark, not after. As a result, Canadian General was ordered to pay EDBs up to the 104-week mark and to make an LECB offer according to Part VI of the SABS-1994.

III. THE APPEAL

This appeal raises important questions about the disability tests used in the SABS-1994 and the transition from weekly benefits to LECBs. For the following reasons, I accept the arbitrator’s approach to the substantial-inability test and its application to the facts of this case. However, I am unable to agree with his analysis of the LECB provisions.

A. The Substantial-Inability Test

Canadian General acknowledges that this is a difficult case, but argues that Mr. Zehr does not meet the test substantial-inability test in s.15(1)2i of the SABS-1994. It contends that, based on the agreed facts, he returned to high school, received his diploma, was accepted into a university program reasonably comparable to his pre-accident academic plans, and has been successful in that program, although perhaps not at the level he might have been if he had not been injured. This, Canadian General argues, is not a substantial inability to continue his education.

On appeal, Canadian General accepts that the question is not whether Mr. Zehr can pursue “any education.” The program must be reasonably comparable to his pre-accident situation. In my opinion, however, the arbitrator correctly held that the test involves an individualized inquiry based on the insured person’s situation at the time of the accident. As the arbitrator states, the use of the words, “his or her education,” reflects an intention that the inquiry is particular to the insured person.

The appropriate question is, what was Mr. Zehr’s educational program at the time of the accident? This is a factual question to be answered without undue speculation. However, the inquiry is not static, looking only at what he was doing at the time of the accident. I agree with Mr. Zehr that the legislation recognizes the evolving, progressive nature of education. This interpretation is supported by the phrase, “continue his or her education,” in s.15(1)2i and also by s.16(5), dealing with lump sum education benefits. I note that in Rich and Jevco Insurance Company, (FSCO A97-000896, December 30, 1998), an arbitration decision released shortly after the arbitration hearing in this case, another arbitrator reached the same conclusion.

Looking at the record, I find ample evidence that Mr. Zehr’s educational program involved completing his OAC credits and attending university in a professionally-based program such as business or finance. The issue, as the arbitrator correctly identified, was whether he was substantially unable to continue this kind of education. It was not, as the Designated Assessment Centre (“DAC”) approached the issue, whether or not he could attend school at all.

Relying on the following analysis from the Director’s decision in Levenson and General Accident Assurance Company of Canada, (OIC A-000260, September 29, 1992), the arbitrator held that there is a qualitative aspect to the substantial-inability test:

Attendance at school is not just the physical act of occupying space in a classroom or lecture hall. Attendance at school encompasses many other activities, including the ability to comprehend and absorb classroom and laboratory instruction, complete assigned work, participate in discussions and projects, study, write or take examinations, meet any physical requirements of the course work, and generally function as a part of the student body with provision for some reasonable extra-curricular activity. This does not mean a person must excel in any of these tasks or be able to function in them as if the accident had not occurred, but be substantially able to perform them.

Although Levenson was decided under an earlier version of the accident benefits regulation, I agree with the analysis and find it applicable to the SABS-1994. It sets two parameters that, in my view, are appropriate. First, mere attendance is not enough to establish that the insured person is capable of pursuing his or her education. Second, some reduction in the insured person’s achievement is not sufficient to establish entitlement.

In Levenson, the Director upheld the arbitrator’s conclusion that Ms. Levenson was only entitled to weekly benefits for the first week of school that she missed. Although the arbitrator agreed that her entitlement did not end simply because she returned to school, she concluded that Ms. Levenson’s post-accident academic achievement was not sufficiently compromised to support a finding that she was substantially unable to perform her essential tasks as a student.

In this case, the arbitrator reached a different conclusion. He found that although Mr. Zehr was making sincere and admirable efforts to pursue his pre-accident educational plans, his performance was sufficiently compromised that he met the disability test. This may have been a close call, but I am satisfied there was sufficient evidence to support the arbitrator’s conclusion.

An important finding, in my view, is that Mr. Zehr was pursuing an educational program that, while reasonably consistent with his pre-accident expectations, was an inappropriate program due to his accident-related limitations. Short of a finding that he unreasonably refused to pursue appropriate rehabilitation, I agree with the arbitrator that Mr. Zehr should not be penalized for his optimism and sincere efforts.

B. Loss of Earning Capacity Benefits

Canadian General contests the arbitrator’s conclusion that Mr. Zehr was entitled to an LECB offer if he met the partial-inability test at the 104-week mark, even if he did not suffer a complete inability to carry on a normal life. As noted above, this is based on the specific wording used in the SABS-1994. According to s.21(1)4, the insurer must make an LECB offer if, “104 weeks after the onset of the disability,” the insured person continues to qualify for EDBs. In contrast, the disability test changes under s.15(4) for the period “more than 104 weeks after the person first qualified for weekly education disability benefits.” The arbitrator interpreted these provisions to mean that the insurer’s obligation to deliver an LECB offer is triggered precisely at the 104-week mark, before the restricted disability test comes into effect.

I considered similar issues in Gray and Zurich Insurance Company, (FSCO P98-00047, June 11, 1999), a decision being released concurrently with this one. Although that case involved caregiver benefits, not EDBs, the analysis applies here. For reasons detailed in Gray, I conclude that the LECB provisions are not triggered if the insurer stops paying weekly benefits before the 104-week mark. The insured person’s remedy is to dispute the stoppage, which Mr. Zehr did. The insurer is not obliged to make an LECB offer in case it erred in terminating benefits.

The insured person’s protection is found in s.64(13) of the SABS-1994. If it is determined that payment of the benefits should not have been stopped, the insurer is required to resume payment of the benefits and pay the benefits that were not paid. In my opinion, this suggests that up to the determination of entitlement, the insured person is to be compensated through weekly benefits. If the arbitrator eventually finds that the insured person continued to qualify for weekly benefits at the critical time, this would trigger the LECB provisions, but only prospectively. In other words, the insurer would then have to make an offer based on the insured person’s current situation, followed by the DAC process, if necessary.

It might be suggested that insurers could try to avoid paying LECBs by terminating weekly benefits and hoping that the insured person’s condition improves before they are committed to paying LECBs. Given that weekly benefits are often payable at a higher rate, it is not obvious that this would be a sensible strategy. It is clear, however, that this kind of tactic would offend the insurer’s obligation to act in good faith, leaving it open to a special award or an investigation for unfair business practices under sections 282(10) and 288 of the Insurance Act.

My analysis suggests a different order than the one made by the arbitrator. Specifically, weekly benefits would be payable until the resolution of the dispute. At that point, the LECB provisions would take effect, with Canadian General obliged to deliver a written LECB offer. However, I am uncomfortable making this order for two reasons. First, the arbitrator did not specifically find that Mr. Zehr met either the substantial-inability test or the complete-inability test after July 15, 1996. Second, the parties may feel that they have not had an opportunity to address this issue, or even that it falls within the preliminary issues put before the arbitrator.

Therefore, I will remain seized of the matter. Counsel will be contacted to discuss a resumption of the hearing for further submissions, whether oral or written.

IV. APPEAL EXPENSES

Considering the outcome and the issues involved, I have no hesitation in awarding Mr. Zehr his reasonable appeal expenses.