Neutral Citation: 1999 ONFSCDRS 18

FSCO A98-000058

BETWEEN:

SANDRA WILCOX

Applicant

and

ECONOMICAL MUTUAL INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before:

Dirk VanderBent

Heard:

October 15, 1998, in Kitchener, Ontario,

Appearances:

Basil F. McDonald for Ms. Wilcox

Gordon L. Robson for Economical Mutual Insurance Company

Issues:

The Applicant, Sandra Wilcox, was injured in a motor vehicle accident on June 29, 1995. She applied for and received statutory accident benefits from Economical Mutual Insurance Company ("Economical"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Ms. Wilcox applied for arbitration at the Financial Services Commission of Ontario² under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

Is the $1,200 monthly payment under a Great West Life policy a payment for loss of income "under any income continuation plan" within the meaning of section 75(1) paragraph 1 of the Schedule, and therefore deductible from weekly income replacement benefits and weekly loss of earning capacity benefits?
Is Ms. Wilcox entitled to receive a special award?

Ms. Wilcox also claims interest on any amounts owing, and her expenses incurred in respect of the hearing.

Payments received by Ms. Wilcox under the policy of insurance with Great West Life are not deductible pursuant to section 75(1) paragraph 1 of the Schedule.
Ms. Wilcox is not entitled to receive a special award.
Ms. Wilcox is entitled to interest on overdue payments, and her expenses of this arbitration.

Agreed Statement of Facts

The parties agreed on the following statement of facts. Economical paid Ms. Wilcox $185 per week for income replacement benefits from July 6 to September 10, 1995, at which time they advised her that her benefits would cease because she was receiving benefits from her private disability carrier, Great West Life. Ms. Wilcox participated in an assessment of her Residual Earning Capacity, conducted by a Designated Assessment Centre (DAC) in late 1997, which determined that she had "nil" residual earning capacity. Economical advised her by letter dated January 23, 1998, that her Loss of Earning Capacity benefit (LECB) would be $247.89/week, but that the $1,200 per month she received from Great West Life would be deducted from the LECB pursuant to paragraph 75(1)1 of the Schedule.

Ms. Wilcox disputes this deduction, arguing the benefits paid by Great West Life are not payments for loss of income received under an income continuation plan.

The Great West Life Policy ("GWL policy"):

Ms. Wilcox testified briefly at the hearing. She purchased the GWL policy in 1991, as she did not have disability benefits available to her through her employment. She confirmed that the payments which she has received under the GWL policy have resulted from her disability arising from the motor vehicle accident and that she did not receive disability benefits prior to this accident.

The GWL policy is issued only to those persons who are employed at the time the policy is initially issued, and who also have non-disqualifying medical histories. The monthly disability benefit is fixed at the time the policy is issued. The insured person does not need to be employed at the time of disability in order to qualify for the monthly benefit. The quantum of the benefit is based on the amount the insured person wishes to purchase, and the applicants employment income for the two-year period preceding the application for coverage. The monthly premium is calculated on several factors: the amount of the monthly benefit to be paid in the event of a disability, age, gender, occupational class, and rating class (smoker v. non-smoker).

Provided that Ms. Wilcox meets one of the disability tests under the policy, she can receive monthly benefits for a maximum period of 10 years, after an initial 61-day waiting period. She is permitted to renew her policy at age 65, if she is working full time, with premiums based on rates in effect at that time. In order to receive benefits in the first 24 months following an accident or sickness, Mrs. Wilcox must be unable to perform the substantial duties of her regular occupation which is identified in the policy. Thereafter, she must be unable to work in any gainful occupation. There is an important exception to this disability test. Where an insured person permanently suffers the loss of hearing or sight, or use of both hands or both feet, the insured person is considered to be totally disabled and entitled to benefits, even if she is working at her own or any other occupation.

Analysis:

The provisions of the Schedule respecting overlapping coverage are found in Part XVII of the Schedule. The parties agree that paragraph 75(1)1 is the applicable section. It provides:

75.—(1) The insurer may deduct the following amounts from the amount payable to an insured person for weekly income replacement benefits under Part II, education disability benefits under section 15, caregiver benefits under Part IV, other disability benefits under Part V or weekly loss of earning capacity benefits under Part VI:

Net payments for loss of income that have been received by the insured person as a result of the accident under the laws of any jurisdiction or under any income continuation plan.³

Economical asserts that the proper test is to compare the characteristics of the GWL policy and the coverage provided by Part 2 of the Schedule, arguing that the purpose of section 75(1)1 is to require deduction of a collateral benefit where the fundamental features of the two plans are the same. Ms. Wilcox argues that the analysis of the Court of Appeal in Cugliari v. White⁴ applies to the interpretation of section 75, and leads to the conclusion that the GWL policy payments are not payments for loss of income under an income continuation plan. In Cugliari, the Court was asked to determine if Canada Pension Plan disability benefits were payments for loss of income pursuant to section 267(1)(c) of the Insurance Act, and concluded that they were not. Economical asserts that the analysis cannot be applied, even though the Court interpreted wording which was identical to paragraph 75(1)1, because the Court's analysis was made in the context of applying the private insurance exception to the rule against double recovery in tort actions.

In reviewing Cugliari, I have come to the conclusion that the fundamental basis of the decision centred on the interpretation of the wording of section 267(1)(c) itself, and did not rest on the consideration of the exception to the rule against double recovery. As Mr. Justice Charron stated:

I agree that the categorization of payments as either indemnity or non-indemnity is not the determinative test. The deductibility . . . must be governed by the words of the statute. Nonetheless, I find the distinction helpful since, in my view, the words "payments . . . for loss of income" do import a notion of indemnification.⁵

My conclusion is further supported by a decision of Arbitrator Blackman, where he also determined that the Divisional Court’s decision in Cugliari (which was upheld by the Court of Appeal), applied to the previous version of the Schedule, where the same wording is used.⁶ This arbitral decision has subsequently been adopted in one court decision.⁷ Accordingly, I find that the Court’s reasoning in Cugliari applies to the interpretation of paragraph 75(1)1.

In Goos,⁸ Arbitrator Blackman found that "payments for loss of income" refer only to indemnity payments, which was consistent with the internal context of the provision, and followed the decision of the Divisional Court in Cugliarii

Ms. Wilcox argues that the salient features of the GWL policy are so similar to those of the Canada Pension Plan, that I should be guided by the Court’s decision, and find that the GWL policy benefits are not payments for loss of income. In Cugliari, it was argued that the four features of the plan supported the conclusion that CPP payments were payments for loss of income :

Premiums paid were tied to employment.
In order to receive a pension, a person must have been employed.
Benefit entitlement was based on a functional ability test related to performance of an occupation.
Amount of benefit entitlement was based, in part, upon earnings received during the course of employment.

The GWL policy has features similar to features #1 and #2. It is only partially similar to feature #3, because the presumptive disability provision, which is a disability benefit based only on loss of function, allows for payment even if the insured person is working. Feature #4 does not apply to the GWL policy. The amount of the monthly benefit is fixed at the time the policy is purchased and can change only if the policy is amended.

Three features were argued to support the conclusion that CPP payments were not payments for loss of income:

The insured person does not have to demonstrate pecuniary loss in order to receive a pension.
The person does not have to be employed at the time the disability commences to receive a pension.
The amount of the benefit payable is not based solely on pensionable earnings earned during employment, but includes a flat rate payable to all recipients.

The GWL policy has features which are the same as features #1 and #2. Feature #3 is analogous to the GWL policy, as the quantum of the benefit is fixed, i.e. does not vary with employment income earned after the policy is issued, and is based in part on non-employment criteria (i.e. the insured person picks the amount of coverage he/she wants, which may be less than the maximum amount GWL may be willing to insure).

Therefore, the GWL policy has fewer arguments favouring its characterization as payments for loss of income, than the Canada Pension Plan.

While I agree that paragraph 75(1)1 should be evaluated in the context of the Schedule, and particularly the provisions of Part XVII, I do not find that this evaluation supports Economical's position that section 75 allows for a deduction where the terms of the collateral plan are similar to the weekly benefit provisions of the Schedule. First, I note that the Schedule appears to draw a distinction between "temporary disability benefits" and "payments for loss of income . . . under any income continuation plan." This reinforces the distinction which was made in Cugliari. Had the Legislature intended otherwise, it could have easily used the term "disability benefit" or broadly referred to "any benefit." I note that section 75(13) of the Schedule does provide for such broad exclusion for any medical, rehabilitation, attendant care, or other pecuniary loss benefit that is "reasonably available . . . under any insurance plan . . ."

Secondly, I note that the deduction under paragraph 75(1)1 applies to all classes of weekly benefits, not just weekly income replacement benefits. This does not support the contention that the legislative intention is to require a deduction whenever the collateral benefit matches the class of benefit being received by the insured person under the Schedule. Consequently, I find that the intent of the Schedule is to allow for deduction of a specific class of collateral benefits irrespective of the entitlement scheme evidenced by any particular type of weekly benefit.

Every disability insurance plan is premised on the notion that it provides for benefits to ensure an individual’s economic security. Rather than allowing for deduction on such broad terms, I find that paragraph 75(1)1 evidences an intention to provide for a narrower exclusion of collateral benefits. This definition contemplates a distinction between a general disability plan, and a collateral plan where payments are made to continue the insured person’s income. Only the latter is deductible under paragraph 75(1)1.

While I have not adopted a rote application of the Court’s analysis in Cugliari, I nonetheless have concluded that the benefits payable under the GWL policy are not payments for loss of income under an income continuation plan. As already noted, under the GWL policy, the amount of the monthly disability benefit is fixed at the outset of the policy, and the insured person does not have to be employed at the time the disability commences in order to qualify for benefits. Similarly the quantum reflects what the insured person wishes to purchase, and is not necessarily reflective of employment income being earned at the time the policy is being issued, let alone at the time the disability commences. Furthermore, the GWL policy allows for benefit entitlement based on presumptive disability, benefits which are payable even if the insured person returns to work. These features lead me to conclude that the GWL policy is primarily a policy to compensate for general disability, and not to insure a continuation of income.

Special Award:

Ms. Wilcox claimed entitlement to a special award on the basis that Economical deducted the benefit payable under the GWL policy without first reviewing this policy. I received no evidence on this aspect of her claim. I find that Economical did not act unreasonably in adopting the position that these benefits were deductible, as there were rational arguments in favour of this position. I also note that the law in this area was unsettled. Consequently, Ms. Wilcox's claim is denied.

EXPENSES:

As I have found that Economical is not permitted to deduct payments received under the GWL policy, it follows that payments of her weekly income replacement benefits are overdue, and consequently, she is entitled to receive interest on these amounts. As Ms. Wilcox has been successful in this hearing, I exercise my discretion to award her the expenses she incurred in respect of this arbitration.

January 26, 1999

Dirk VanderBent Arbitrator

Date