Financial Services Commission

Commission des services financiers de lander

Neutral Citation: 1999 ONFSCDRS 141

Appeal P99-00003

OFFICE OF THE DIRECTOR OF ARBITRATIONS

GAN CANADA INSURANCE COMPANY

Appellant

and

PASQUALE ROCCA

Respondent

Before:

Susan Naylor, Director’s Delegate

Counsel:

Michael Gillen (for Pasquale Rocca)

Ralph D’Angelo (for Gan Canada)

APPEAL ORDER

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

The arbitration order, dated December 31, 1998 is rescinded and the following substituted:
Subject to any order of the court and subject to paragraph 2, pending resolution of the dispute in respect to loss of earning capacity benefits, GAN Canada shall pay Pasquale Rocca income replacement benefits from June 11, 1997 to the date of this order.
If GAN Canada pays loss of earning capacity benefits determined in accordance with subsections 23(5) and 23 (5.1) of the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996, O.Reg. 776/93 as amended by O.Reg. 781/94 and O.Reg. 463/96, its obligation to pay income replacement benefits pursuant to this order ceases.
GAN Canada shall pay interest on overdue amounts pursuant to section 68.
GAN Canada shall pay Mr. Rocca his arbitration expenses.
Mr. Rocca is entitled to his appeal expenses.

July 20, 1999

Susan Naylor Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF APPEAL

GAN Canada Insurance Company (“GAN Canada”) and Pasquale Rocca have been involved in lengthy and fractured proceedings regarding Mr. Rocca’s right to statutory accident benefits arising out of an automobile accident on February 15, 1995. This appeal, however, involves a relatively narrow issue and circumscribed facts. It turns on an interpretation of Part VI of the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996, O.Reg. 776/93 as amended by O.Reg. 781/94 and O.Reg. 463/96 (“SABS-1994”).

GAN Canada and Mr. Rocca disagree on the amount of Mr. Rocca’s loss of earning capacity benefits (LECBs). They are involved in a court proceeding about this. The issue is whether the arbitrator was correct in ruling that, pending resolution of their dispute, GAN Canada must pay income replacement benefits unless and until it opts to pay LECBs determined in accordance with subsections 23 (5) and 23 (5.1) of SABS-1994. GAN Canada appeals this order.

II. THE STATUTORY REGIME

Under the compensation system covering automobile accidents between January, 1994 and November, 1996, the right to sue for economic losses was removed in even the most serious cases. In lieu of recovery in tort, accident benefits were enhanced, including the introduction of a new LECB benefit which is intended to provide an individualised benefit to compensate for a permanent or long-term reduction in a person’s potential earnings as a result of the accident.

Those unable to work after an accident and who qualify under the rules are entitled to income replacement benefits (IRBs) to compensate them for their inability to perform the essential tasks of their employment. Once 104 weeks have passed since the onset of disability, with the person still being entitled, LECBs become available to replace IRBs or other weekly benefits. LECBs are based on 90% of the difference between the insured person’s pre-accident earning capacity and their residual earning capacity, as determined by SABS-1994.

LECBs are payable for life, subject to only to reviews at the three and eight year mark, when the amount can be adjusted. There is also an automatic adjustment when the person reaches 65 years of age.

LECBs are found in Part VI of the SABS-1994, starting at section 20:

20.C(1) An insurer shall pay an insured person weekly loss of earning capacity benefits instead of weekly income replacement benefits under Part II, weekly education disability benefits under section 15, weekly caregiver benefits under Part IV or weekly disability benefits under Part V if the payment of loss of earning capacity benefits is authorized by this Part.

Section 31, titled, “Termination of other Benefits”, states:

No weekly income replacement benefits are payable to a person under Part II, no weekly education disability benefits are payable to a person under section 15, no weekly caregiver benefits are payable to a person under Part IV and no weekly disability benefits are payable to a person under Part V,

(a). after loss of earning capacity benefits begin to be paid to the person under this Part; or

(b) if the amount of the weekly loss of earning capacity benefits payable to the person has been determined in accordance with this Part to be zero.

The process for converting from weekly IRBs to LECBs is generally put in motion by an offer from the insurer, although section 24 allows the parties to make arrangements before any offer is made. Section 21 requires the insurer to make an offer in set circumstances. The relevant parts provide (subject to certain qualifications which do not apply here):

..an insurer shall promptly deliver a written offer to an insured person with respect to the payment of weekly loss of earning capacity benefits if one or more of the following circumstances occurs:........

The insured person qualified for weekly income replacement benefits under Part II and continues to qualify for those benefits 104 weeks after the onset of the disability in respect of which he or she first qualified for those benefits.

Section 22 applies when the insured accepts the offer or the parties reach agreement on the payment of LECBs. Section 23 sets out the procedure if there is no such agreement:

23–.C(1) An insured person who does not accept the insurer’s offer within forty-five days after receiving it shall be deemed to have rejected the insurer’s offerin respect of both residual earning capacity and pre-accident earning capacity.

(2) An insured person who rejects the insurer’s offer in respect of residual earning capacity shall be assessed under section 27, and the insurer shall give the person notice of that requirement.

(3) If an insured person rejects the insurer’s offer in respect of pre-accident earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on section 29 of this Regulation.

(4) If an insured person rejects the insurer’s offer in respect of both pre-accident earning capacity and residual earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on sections 29 and 30 of this Regulation, but no steps shall be taken under sections 279 to 283 of the Insurance Act, other than the filing of an application for mediation, pending receipt of the report of the designated assessment centre under section 27.

(5) Subject to subsection (8), if an insured person rejects the insurer’s offer in respect of residual earning capacity or both residual earning capacity and pre-accident earning capacity, the insurer may commence paying weekly loss of earning capacity benefits to the insured person 14 days after receiving the report from the designated assessment centre under subsection 27 (5).

(5.1) The benefits paid under subsection (5) shall be based on,

(a) the insurer’s offer made under section 21, in respect of the insured person’s pre-accident earning capacity; and

(b) the determination made by the designated assessment centre of the insured person’s gross annual income, in respect of the person’s residual earning capacity.

(5.2) Subject to subsection (8), if an insured person rejects the insurer’s offer in respect of pre-accident earning capacity but not residual earning capacity, the insurer may, upon receiving the rejection, commence paying weekly loss of earning capacity benefits to the insured person based on the insurer’s offer made under section 21.

(6). If, after the centre notifies the insured person under subsection 27(2), no report has been submitted under subsection 27(5) and the centre has informed the insurer that the report has not been submitted because of the insured person’s failure to cooperate, the insurer may, on notice to the person and until a report is submitted under subsection 27(5), pay the person weekly loss of earning capacity benefits based on the insurer’s offer made under section 21.

(7) By agreement between the insurer and the insured person,

(a) the forty-five-day period referred to in subsection (1) may be extended;

(b) the assessment referred to in subsection (2) may be delayed;

(8) Subject to subsection (6) and to subsection 281 (4) of the Insurance Act, the insurer shall continue to pay benefits under Part IV or V pending the resolution of a dispute under subsection (3) or (4), if the person continues to qualify for those benefits.

Central to the parties’ arguments is the effect of certain amendments to the original wording of this section. When first enacted, subsection 23(5) read differently. It used the imperative “shall” instead of the permissive “may.” This earlier version of the subsection 23(5), before it was replaced by O.Reg. 781/94, stated:

(5) Forty-five days after receipt by the insurer of the report from the designated assessment centre under subsection 27(5), the insurer shall commence payment of weekly loss of earning capacity benefits based on the insurer’s offer made under section 21 in respect of pre-accident earning capacity and the gross annual income determined by the centre in respect of residual earning capacity, unless the insured person disputes the report within thirty days of receiving it in accordance with sections 279 to 283 of the Insurance Act or has disputed the insurer’s offer in respect of pre-accident earning capacity in accordance with those sections.

Subsection 23(8) was also different. It stated:

(8) Subject to subsections (5) and (6) and to subsection 281(4) of the Insurance Act, the insurer shall continue to pay benefits under Part II, section 15, Part IV or Part V pending resolution of a dispute under subsection (3) or (4), if the person continues to qualify for those benefits.

The amendments removed IRBs (under Part II) from subsection 23(8), no longer specifying that they had to be paid pending resolution of a dispute.

III. THE FACTS

The facts can be summarised briefly as follows. Mr. Rocca received IRBs until after the 104 week mark. They were paid at $185. The proper amount of those benefits is still being adjudicated.¹

After 104 weeks, on April 17, 1997, GAN Canada made Mr. Rocca an offer with respect to his LECBs under subsection 21(1). It offered a zero benefit, determining his pre-accident earning capacity to be $723.98 (net) a week under subsection 29(2) and his residual earning capacity to be $888.27 a week under section 30.

Since Mr. Rocca did not accept the offer within forty-five days, under subsection 23(1), he was deemed to have rejected it in respect of both pre-accident earning capacity and residual earning capacity. At that point, GAN Canada took the position in accordance with its offer that it had no obligation to make further payments. It terminated Mr. Rocca’s IRBs, effective June 11, 1997.

Mr. Rocca was ultimately assessed at a designated assessment centre (“REC-DAC”) as required by subsection 23(2). The REC-DAC issued its report on April 27, 1998. It determined Mr. Rocca’s residual earning capacity was considerably more impaired than in GAN Canada’s view. Using GAN Canada’s pre-accident capacity offer, and the REC-DAC’s residual earning capacity determination, Mr. Rocca would have received an LECB of $463.62. While LECBs are often lower than IRBs, based on the REC-DAC assessment, the reverse would have been true in Mr. Rocca’s case, although his IRBs may increase as a result of the most recent arbitration.

GAN Canada viewed the report as flawed. It continued to maintain that its obligation was limited to its original offer. It argued that SABS-1994 did not require it to make any payments between the date its offer was deemed to be rejected and 14 days after it received the REC-DAC report. While ultimately it could be held liable to pay a higher LECB for a period after that time, it was not liable to do so under the permissive terms of subsection 23(2) until the dispute had been adjudicated.

Mr. Rocca’s position is that GAN Canada was required to continue his IRBs until receipt of the REC-DAC report (plus a further fourteen days) but then had the option of paying either IRBs or LECBs pending resolution of the dispute. However, it could not pay nothing. That is the crux of the appeal.

The arbitrator accepted Mr. Rocca’s submissions. He concluded that pending resolution of the dispute about the amount of LECBs, payment of IRBs continue until 14 days after the insurer receives the REC-DAC report. After that point, the insurer has the option of moving from paying IRBs to LECBs pursuant to subsection 23(5.1) based on its offer of pre-accident earning capacity and the REC-DAC’s determination of residual earning capacity. However, unless and until it begins to pay LECBs in accordance with subsection 23(5.1), its obligation to pay IRBs continues until the amount of LECBs is finally adjudicated.

IV. ANALYSIS AND CONCLUSION

The provisions of Part VI dealing with LECBS are complicated. Analysing the effect of section 23, in particular, has caused problems. A number of court and Commission decisions have commented on the effect of the provisions and the transition from IRBs to LECBs.

As a starting point, I note that the provisions in issue must be read in their total context, having regard to ordinary sense of the words used and the context in which they appear, both immediate and in relation to the rest of the statutory scheme.²

The Insurance Act³ and SABS-1994 make it clear that LECBs are a distinct type of benefit. They are not a continuation or extension of IRBs.⁴ However, they only come into play once a person continues to qualify for IRBs 104 weeks after the onset of disability.

The provisions of Part VI, and specifically sections 21 to 24, are process-driven. They do not state that at 104 weeks an insured is entitled to LECBS. The person’s entitlement, if he or she meets the qualification to qualify for IRBs, is to receive an LECB offer. The relevant sections set out a step-by-step process for determining the amount of those benefits. The fact that LECBs are distinct from IRBs does not, of itself, address the interplay between them or the conversion from one to another. For that, one must look to the specific provisions of SABS-1994.

The basic rules for entitlement to IRBs are found in Part II. Under section 8, they are payable “during the period that the person suffers a substantial inability to perform the essential tasks of the employment in respect of which he or she qualifies for the benefit.”

There is no time limit on the payment of IRBs, save that section 12 provides they are not payable past age 65. No provision specifies that they end at 104 weeks. In fact, SABS-1994 clearly contemplates that payments may continue after 104 weeks.⁵

SABS-1994 contains rules around the termination of IRBs. An insurer cannot stop IRBs on the basis that the insured ceases to be substantially disabled unless it follows the process set out in section 64. Section 11, which allows insurers to end benefits if the insured has permanently left the workforce, has its own set of rules. In contrast, there is no set procedure for ending benefits at age 65, although subsection 62(8) would seem to require notice of the stoppage.⁶

Section 31 addresses the stoppage of IRBs when LECBs begin to be paid under Part VI. It does not set out a separate process for ending IRBs but specifies that they cease to be payable when LECBs begin to be paid or are determined in accordance with Part VI to be zero.

A number of cases have considered the interplay between IRBs and LECBs where there is a disagreement over whether the insured continues to qualify for an IRB or other benefit after 104 weeks, and therefore no offer of LECBs is made. These cases include Fox and Economical Mutual Insurance Company, (FSCO A96-002040, February 17, 1998); Fry and Halifax Insurance Company, (FSCO A96-001248, June 26, 1998); Gray and Zurich Insurance Company, (FSCO P98-00047, June 11, 1998); Zehr and Canadian General Insurance Company, (FSCO P99-00010, June 11, 1999); Litigation Guardian of Roach v. Ward (1998) C16726/96 (April 2, 1998) (Gen. Div.).

The reasoning in these decisions is that a dispute over the person’s entitlement to IRBs must be resolved before the process for determining the amount of a person’s LECBs is triggered. In the meantime, there is no obligation on an insurer to make an LECB offer. Pending resolution of the issue of entitlement, the insurer remains obligated to continue IRBs until they are properly terminated in accordance with section 64 or otherwise.

I agree with the proposition that, notwithstanding that 104 weeks have passed, an insurer continues to be obliged to pay IRBs under the usual rules until they are properly terminated. The issue then is whether IRBs cease to apply once an offer of LECBs has been made pursuant to section 21 and rejected pursuant to section 23.

As GAN Canada points out, section 23 is silent as to an insurer’s obligation to pay a benefit once it has made an offer of zero LECBs. In contrast, there are numerous examples in SABS-1994 where the rights and obligations of the parties related to the obligation to pay a benefit, or to pay pending a dispute, is specifically provided for.⁷ GAN Canada submits that the absence of a payment obligation is consistent with the long-term nature of the LECB benefit.

Notwithstanding the language used elsewhere, construing the provisions to read that IRBs continue to be payable after an insurer’s offer has been made and rejected, respects the language used and gives coherence to the various parts of the regulation. IRBs are payable past 104 weeks. They are not automatically terminated. Section 31 provides that they are not payable after LECBs begin to be paid under Part VI or if the amount of LECBs has been determined in accordance with Part VI to be zero. Part VI sets out a process for determining the amount of LECBs. Making an offer is only part of that process.

Subsection 22(4) states that if the parties enter into an agreement respecting payment of LECBs, the insurer “shall begin to pay [LECBs] in accordance with the agreement”. If the offer is rejected with respect to residual earning capacity, the insurer is permitted by subsection 23(5) to commence paying LECB 14 days after receiving the REC-DAC report, but the benefit is to be based on the insurer’s offer as to pre-accident capacity and the REC-DAC’s determination as to residual earning capacity (subsection 23(5.1)). If the rejection pertains to both residual earning capacity and pre-accident earning capacity, the same rule applies. If the rejection relates only to pre-accident earning capacity, the insurer is permitted, on receiving the rejection, to pay benefits based on its offer (subsection 23(5.2)). If the REC-DAC is unable to report due to the insured’s lack of co-operation, the insurer is permitted to pay LECBs based on its offer. However, this is only on notice to the insured and until a report is submitted (subsection 23(6)).

The provisions set down specific time frames for when and under what terms payment of LECBs may begin. If an insurer is entitled to rely on its offer of zero regardless, pending resolution of the dispute, it is difficult to give any meaning to subsections 23(5.2) and (6).

Moreover, the provisions control delay within the process. The parties must agree in order for the 45 day period in subsection 23(1) to be extended or for the assessment to be delayed. If an insured fails to cooperate in the REC-DAC assessment, the insurer is allowed to pay LECBs based on its offer until a report is submitted. Therefore, the insurer’s obligation to pay IRBs in the interim is subject to some control. In this case, there was a delay in arranging a REC-DAC. GAN Canada attributed this to Mr. Rocca’s failure to provide documentation. In my view, the provisions provide a mechanism for addressing such problems.

GAN Canada also points to subsection 23(8) in support of its position. The subsection states that the insurer must continue to pay caregiver benefits and weekly disability benefits pending resolution of a dispute, if the person continues to qualify for them. Until amended in 1995, this pay-pending-dispute provision included IRBs. Also, subsection 23(5) was changed to read “the insurer may commence paying” rather than “the insurer shall commence payment.” GAN Canada argues the changes reinforce its position that IRBs are not payable once the LECB process is triggered by an offer.

I do not view the amendments as signalling an intent by the drafters to relieve an insurer of the obligation of paying IRBs following an offer. I find the explanation offered in Martins and Commercial Union Assurance Company (FSCO A98-000552, March 24, 1999) more plausible. Arbitrator McMahon pointed out that the original version of subsection 23(5) only allowed the insurer to substitute LECBs for IRBs if the person did not dispute the REC-DAC report within 30 days. Pending resolution of a dispute, an insurer could not replace IRBs with LECBs based on the REC-DAC results, even if the REC-DAC concluded that an insured had a significant residual earning capacity. The amendment to subsection 23(5) addressed this situation by allowing the insurer to begin paying LECBs based on the REC-DAC’s assessment of residual earning capacity and the insurer’s offer of pre-accident earning capacity. However, pursuant to subsection 23(8), caregiver benefits and weekly disability benefits continue to be paid pending resolution of a dispute.

GAN Canada cites several cases in support of the proposition that it has no obligation, pending resolution of a dispute over Mr. Rocca’s LECBs to pay any benefits other than in accordance with its initial offer. It relies on Mihichuk v. Allstate Insurance Co. of Canada (1998), 38 O.R. (3d) 763 (Gen. Div.). In that case, the insurer made an offer of zero LECBs and refused to make payments in accordance with the findings of a REC-DAC. It took the position the REC-DAC’s findings were flawed. There were two questions before Justice Kozac in that case: (1) whether the insurer was required to pay an LECB in accordance with the findings of the REC-DAC, and (2) whether the plaintiff had to mediate the insurer’s refusal before continuing with an action for payment. Mihichuk turned on the seemingly absolute terms of subsection 23(2) read in conjunction with subsections 23(5) and (5.1). The plaintiff argued that the REC-DAC report was determinative where residual earning capacity was the only issue and that there was no access to the dispute resolution process provided under the Insurance Act. Although he expressed some discomfort with the language of section 23, Justice Kozac rejected the plaintiff’s position, holding that the insurer was not required to pay an LECB in accordance with the report and that the plaintiff must mediate the insurer’s refusal to pay the benefit.

Mr. Rocca’s case involves a dispute over both residual earning capacity and pre-accident earning capacity, in respect of which the wording is different. Mihichuk also did not directly address whether IRBs might be payable. Furthermore, it is fair to say the focus in that case was not so much on the insurer’s obligation to pay an LECB pending resolution of a dispute, but whether an insurer could dispute the REC-DAC report at all. In this regard, Justice Kozac concluded that the wording of the regulation was insufficiently precise to prevent the parties from accessing dispute resolution specifically provided for in the enabling Act.

GAN Canada also relied on the decision of Director’s Delegate Draper in Lehman and GAN Canada Insurance Company, (FSCO P97-00064, August 10, 1998). Lehman addressed whether the original, or the amended, version of subsections 23(8) and 23(5) applied in respect of an accident that occurred before the date of the amendment. Mr. Lehman wanted the benefit of the original version of subsection 23(8), entitling him to IRBs until his LECBs had been adjudicated. The Director’s Delegate concluded that IRBs were not payable pending resolution of the dispute because the amended version of the SABS-1994 applied. It was not argued that IRBs were payable if the new version of the SABS-1994 applied. In my view, the decision of Delegate Draper cannot be viewed as deciding the issue since its focus was on the applicability of the old rules, not the effect of the new ones.

GAN Canada also referred to the arbitration decision Olszynko and Dominion of Canada General Insurance Company, (FSCO A97-001495, February 22, 1999). In that decision Arbitrator Makepeace concluded that Lehman allowed the insurer to stop paying IRBs once it had made an LECB offer. I do not consider that Lehman stands for this principle, and the argument in Olszynko likewise focused on the applicability of the amendments.

In conclusion, I find that subsection 23(5) does not evidence an intent to relieve an insurer from paying IRBs after it has made an offer pursuant to section 21 and that offer has been refused. I also conclude that subsection 23(5), and the amendments giving effect to it, were not intended to allow an insurer the discretion to pay LECBs based on its own assessment of residual earning capacity, in the face of a REC-DAC determination. Rather the changes were intended to permit the insurer, pending resolution of a dispute, to replace IRBs with LECBs, based on the insurer’s offer of pre-accident earning capacity and the REC-DAC’s determination of residual earning capacity.

In light of the above, I do not accept GAN Canada’s position that it has no obligation to pay benefits pending resolution of the dispute. I agree with the arbitrator that Mr. Rocca’s position is more sustainable. It respects the language of the regulation, gives coherent meaning to its respective parts, and makes sense of the history of the provisions. It should be noted that in considering this appeal, I confined myself to the alternative positions put forward by the parties. However, I would depart from the open-ended terms of the arbitrator’s order. Shortly before the hearing, Mr. Rocca decided to proceed with his dispute over LECBs in the courts rather than through the arbitration process. He took the position that LECBs should not have been included in the arbitration because the issue had not been mediated. He distinguished the issue of his entitlement to IRBs and asked the arbitrator to rule on his entitlement to the latter, which the arbitrator did. I have some difficulty with this approach. The benefits Mr. Rocca seeks are benefits payable pending resolution of a dispute. The dispute is before the courts. The status of a person’s benefits pending resolution of a dispute generally should be raised in the forum chosen to resolve the dispute.

In my view, an open-ended order of this nature would be an intrusion into the prerogative of the courts. At the same time, I am unwilling to leave Mr. Rocca without a remedy, given that he was permitted to proceed to arbitration on the issue and in light of my finding that the arbitrator was justified in his view of the insurer’s payment obligations. Pursuant to subsection 279(4) of the Insurance Act, I may make an order “subject to such conditions as are set out in the order.” In my view, the appropriate disposition is to order GAN Canada to pay Mr. Rocca’s income replacement benefits to the date of this appeal decision. If, before this time, GAN Canada starts to pay LECBs in accordance with subsection 23(5.1), its obligation to pay income replacement benefits pursuant to this order ceases. Any further order in this matter is for the courts.

V. EXPENSES

GAN Canada shall pay Mr. Rocca’s appeal expenses.