Jack Michalowski v. St. Paul Fire & Marine Insurance Company, 1999 ONFSCDRS 129

Neutral Citation: 1999 ONFSCDRS 129

FSCO A98-001492

BETWEEN:

JACK MICHALOWSKI

Applicant

and

ST. PAUL FIRE & MARINE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Lawrence Blackman

Heard: June 29, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Mr. John D. Johnson for Mr. Michalowski

Mr. Gregory P. Heckel for St. Paul Fire & Marine Insurance Company

Issues:

The Applicant, Jack Michalowski, was injured in a motor vehicle accident on November 3, 1996. He applied for statutory accident benefits from St. Paul Fire & Marine Insurance Company ("St. Paul"), payable under the Schedule.¹ St. Paul terminated weekly income replacement benefits as of January 19, 1997, relying on section 48 of the Schedule. The parties were unable to resolve their disputes through mediation and Mr. Michalowski applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issues in this proceeding are:

Does section 48 of the Schedule apply to Mr. Michalowski?
If so, did Mr. Michalowski wilfully misrepresent material facts with respect to his application for income replacement benefits?

Result:

Section 48 of the Schedule does apply to Mr. Michalowski.
Mr. Michalowski did not wilfully misrepresent material facts with respect to his application for income replacement benefits.

EVIDENCE AND ANALYSIS:

1. The facts:

The parties agree on the following facts for the purpose of this preliminary issue hearing:

Mr. Michalowski was injured in a motor vehicle accident on November 3, 1996. At the time of the accident he was employed as a long-distance truck driver. His gross annual income for the 52 weeks prior to the accident was $61,466.41.
On or about November 28, 1996, Mr. Michalowski submitted an Application for Accident Benefits to St. Paul.
In his Application, Mr. Michalowski checked the box marked "yes" beside the question "do your injuries prevent you from working?" and wrote "November 3, 1996" in the area marked "From what date?"
At the time the Application was signed, submitted and received by St. Paul, the information provided by Mr. Michalowski was accurate and true.
Mr. Michalowski received no weekly income replacement benefit whatsoever from St. Paul in November or December 1996 or January 1997 and was not advised that payment of weekly income replacement benefits would be forthcoming. The delay in providing benefits was due in part to the need to obtain detailed information regarding Mr. Michalowski's income from self-employment.
On or about January 21, 1997, Mr. Michalowski took on part-time employment as a delivery person at Ho-Lee Chow Restaurant. He worked approximately two days each week, six hours per week. He was paid five dollars per hour, plus fifty cents per delivery, plus tips. Mr. Michalowski terminated this employment on February 17, 1997.
Mr. Michalowski was never asked by St. Paul or its representatives if he had returned to any employment. Mr. Michalowski never told St. Paul or its representatives that he had or had not returned to any employment.
As of January 21, 1997, Mr. Michalowski suffered a substantial inability to perform the essential tasks of his pre-accident employment as a long-distance truck driver.
St. Paul did not pay any weekly income replacement benefits to Mr. Michalowski until it sent an Explanation of Benefits Payable by Insurance Company form dated February 25, 1997 to the Applicant by regular mail. This form indicated that weekly income replacement benefits of $628.03 would be paid from November 10, 1996 to January 19, 1997, at which time they would be terminated based on section 48 of the Schedule.
Mr. Michalowski did not return to any form of truck driving until several months after February 25, 1997.
Mr. Michalowski has not received any further income replacement benefits.

I further note that the Explanation of Benefits form, which was entered as Exhibit 2, states that:

Our investigation shows you have been working in a capacity and have not advised us. It shows you are not substantially disabled from your employment duties. You have wilfully misrepresented this material fact. We are terminating as of Jan. 19, 1997 as per section 48.

2. The Law:

Section 48 of the Schedule is a new provision. It has no equivalent in the preceding statutory legislation. The provision states that:

(1) If an insured person has wilfully misrepresented material facts with respect to an application for a benefit, the insurer may terminate payment of the benefit.

(2) The insurer shall not terminate payment under subsection (1) unless the insurer provides the insured person with notice of the reasons for terminating payment.

The Applicant submits, and I agree, that the onus is on St. Paul to prove that this provision applies to Mr. Michalowski in the factual situation herein, and if so, that he has indeed made a misrepresentation, that the misrepresentation was wilful, and that what was misrepresented were material facts respecting his application for income replacement benefits. I also find that the onus is also on the Insurer to establish that it has complied with the requirements of subsection 48(2) of the Schedule. I rely on the decision of Byford and Economical Mutual Insurance Company (OIC A95-000110, April 17, 1996) regarding the question of onus in an exclusionary provision such as Section 48.

Misrepresentation is defined in Black's Law Dictionary (Revised Fourth Edition, St. Paul, Minnesota: West Publishing Co, 1968), as:

Any manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the facts.

The Applicant submits that section 48 is restricted to any misrepresentations which may be contained in the specific application forms approved in accordance with section 69 of the Schedule by the Superintendent (who, pursuant to Ontario Regulation 303/98, replaces the Commissioner of Insurance). As it is agreed that the information contained in Mr. Michalowski's application form was correct at the time it was submitted, the Applicant submits that section 48 does not apply to him.

I do not agree. If the Legislature had intended such a narrow meaning, it would have been a simple matter to have section 48 read: "wilfully misrepresented, on any document set out in section 69, material facts with respect to an application for a benefit." That the Legislature did not do so, indicates to me, as submitted by St. Paul, that section 48 is intended to apply more broadly to an insured's ongoing application for a benefit during the entire currency of the claim, rather than merely pertain to the information set out in the initial approved application form. Accordingly, I find that section 48 potentially applies to Mr. Michalowski regardless of the agreed fact that there was no misrepresentation in his initial application form.

In this case the alleged misrepresentation consists not of a "positive misstatement of fact,"² but rather an omission, that is, the concealing of facts. Can silence amount to a misrepresentation? I find that it may, but only if supported by relevant and adequate evidence. The evidence must persuade the finder of fact that both the requisite intent and the requisite materiality have been established.

"Wilful" was found to mean a "deliberate or intentional action" in the decision of Adu-Poku and Kingsway General Insurance Company (OIC A96-000433, August 20, 1997). I agree with that definition. I do not agree with the Insurer that one must assume wilfulness from the failure of Mr. Michalowski to report to St. Paul, on his own initiative, his part-time work of a significantly different character than his pre-accident employment. In this agreed factual situation, there are other equally persuasive (and less culpable) explanations which might be assumed, including the Applicant's resignation that benefits were not going to be paid, procrastination, or unfamiliarity with any responsibility to keep St. Paul informed of his condition during the months of ambiguity, if not silence, from the Insurer following his initial application for benefits.

The present situation is very different from an applicant returning to pre-accident employment yet continuing to accept and to cash disability cheques from an insurer operating under the assumption the applicant was still off work. In such a case where an insurer acts to its detriment as a result of the silence of an insured, there is at least some evidence (although not necessarily determinative) that the insured intended the insurer to so act. I am far from persuaded that there was any wilful misrepresentation on the part of this Applicant based on the agreed facts.

Turning to the requirement that the misrepresentation be "material," St. Paul submits that this term means "important." That is indeed one of the definitions of "material" found in the Concise Oxford Dictionary of Current English (8th Edition, Oxford: Clarendon Press, 1990). The same entry, however, also defines "material" as "essential," which I find goes significantly beyond the meaning of the word "important."

A major consideration in determining the correct meaning of the adjective "material" as used in section 48 must be the remedy available to the Insurer. Both parties herein submit that the effect of section 48 is to deny an insured all further entitlement to the benefit in respect of which the misrepresentation was made. Therefore, in this case, if the requirements of section 48 were met, Mr. Michalowski would be denied entitlement to any further weekly income replacement benefits, regardless of the extent of his disability.

Assuming, without deciding, that this draconian result indeed follows from section 48, I find that the facts misrepresented must not be merely "important," but rather must be "sufficiently basic or fundamental"³ to justify the relief submitted to be available under section 48. The question of whether the misrepresentation is "material" will depend on the facts of the particular case, and may include a consideration of, amongst other things, what is misrepresented, what is obtained as a result of the misrepresentation, the relationship in monetary and other terms between the misrepresentation and the potential benefit available, and the availability of other provisions to assist the insurer (such as section 47 which deals with repayments).

As an example, let us take an insured person rendered a quadriplegic as a result of an accident who misrepresents to his insurer to any degree his pre-accident income.

I accept the submissions of both parties that section 48 was introduced into the Schedule as part of an effort by the Legislature to deal with fraud. I am provided with excerpts from Ontario Hansard for Thursday, June 13, 1996, wherein Mr. Sampson, in moving second reading of Bill 59, stated that:

we have taken some steps to deal with fraudulent claims . . . Insurers will now have the ability to suspend accident benefit payments if there is wilful and material misrepresentation made by the insured.⁴

I am not persuaded that section 48 was intended to foreclose any future weekly benefit recovery in the quadriplegic example noted above. To do so would elevate section 48 from a shield protecting insurers from outright fraud into a sledgehammer obliterating fundamentally meritorious cases.

Turning to the facts of this case, I find that there were no monies improperly paid to Mr. Michalowski. Further, I find that if the Insurer had not become aware of the post-accident income, the overpayment would have amounted (based on six hours a week at five dollars an hour, plus delivery bonus and tips) to probably less than ten per cent of the weekly rate of $628.03 calculated by St. Paul. Further, this overpayment would have occurred for only a few weeks until the Applicant terminated this part-time employment. In addition, as submitted by the Applicant, if there had been an overpayment, section 47 of the Schedule would allow St. Paul to have this amount repaid, including the ability to collect these monies by deducting up to 20 per cent of further weekly payments to Mr. Michalowski. In light of these considerations, I do not find the alleged misrepresentation to be "material" within the context of section 48.

I lastly note that subsection 48(2) permits an insurer to terminate payment of the benefit in question only if it provides the insured person with notice of the reasons for terminating payment. I agree with the finding in Coates-Boyce and Zurich Insurance Company (OIC A-951333, January 13, 1997) "that legislation that curtails or interferes with rights should be strictly construed."

In this case, the reason for terminating payment of weekly benefits given by St. Paul was its investigation that Mr. Michalowski was working which showed that he was not substantially disabled from his employment duties. Under section 5 of the Schedule, those employment duties must be the essential tasks of Mr. Michalowski's employment at the time of the accident as a long-distance truck driver. The parties now agree that as of the date of termination, Mr. Michalowski met the entitlement test for weekly income replacement benefits.

As subsection 48(2) was not argued by the Applicant, I will merely state that I have concerns as to whether this provision is properly complied with when the insurer, some time after terminating benefits, changes its reason for invoking section 48 from an entitlement concern to one of quantum.

EXPENSES:

I defer the question of expenses to the arbitrator hearing the substantive issues in dispute in this proceeding.

July 9, 1999

Lawrence Blackman Arbitrator

Date

Neutral Citation: 1999 ONFSCDRS 129

FSCO A98-001492

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN: