Zurich Insurance Company v. Lanctot, 1999 ONFSCDRS 217

Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 1999 ONFSCDRS 217

Appeal P99-00012

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ZURICH INSURANCE COMPANY

Appellant

and

LORRAINE LANCTOT

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

Peter G. Hagen (for Zurich Insurance Company)

Lorraine Lanctot did not participate

APPEAL ORDER

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

1. The appeal is allowed and the arbitration order dated January 18, 1999 is rescinded. The following order is substituted:

2. Zurich Insurance Company is not required to pay weekly income benefits after February 25, 1996.

3. If benefits were paid pursuant to the arbitration order, Lorraine Lanctot must repay them with interest according to s.27 of Reg. 672 of R.R.O. 1990, as amended, the Statutory Accident Benefits Schedule—Accidents Before January 1, 1994.

4. No appeal expenses are payable.

November 9, 1999

David R. Draper

Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Lorraine Lanctot was injured in an automobile accident on February 25, 1993. As a result, Zurich Insurance Company ("Zurich") paid her weekly income benefits under s.12(1) of the Schedule¹for 156 weeks. The issue was whether Ms. Lanctot qualified for ongoing weekly income benefits after February 25, 1996 under the stricter, post-156 week test in s.12(5)(b). The arbitrator denied the claim, except for a six-week period starting March 21, 1996, when Ms. Lanctot had ear surgery.

Both parties appealed the arbitrator's order. However, Ms. Lanctot withdrew her appeal and did not respond to Zurich's. As a result, only Zurich participated. It submits that the arbitrator erred in ordering any weekly income benefits after the 156-week mark because:

(1) the evidence does not support the arbitrator's finding that Ms. Lanctot's ear surgery was to repair damage caused by the accident; and

(2) the order is inconsistent with the arbitrator's conclusion that Ms. Lanctot failed to establish that, after February 26, 1996, her accident-related injuries continuously prevented her from engaging in any suitable occupation or employment.

II. ANALYSIS

A. Ear Injury

Zurich challenges the arbitrator's finding that on March 21, 1996, Ms. Lanctot "underwent further surgery to repair the damage caused by the motor vehicle accident." It claims there is no evidence to support this finding and, therefore, it is an error of law that undermines the order. For reasons that follow, I do not accept this argument.

The accident in this case was quite serious. Ms. Lanctot was sitting, unbelted, in the back seat of an automobile stopped at a red light, when it was rear-ended by a drunk driver being chased by police. The force of the impact drove her head though the rear window, causing the window to break.

Ms. Lanctot clearly suffered injuries in the accident. Her claim, however, was compromised by her failure to provide accurate information about her pre-accident medical problems, her exaggeration of her post-accident limitations, and her resistance to rehabilitation efforts. The arbitrator found Ms. Lanctot an unreliable source of information, both at the arbitration hearing and for the various medical professionals who saw her. This affected the evaluation of her injuries, including her ear problems.

Before the accident, Ms. Lanctot reported a hearing loss to Dr. Paul Gérin-Lajoie, who recommended a hearing aid. After the accident, she complained of a deterioration in her hearing, dizziness and/or vertigo, and tinnitus (ringing in the ears). In April 1995, twenty-two months after the accident, she saw Dr. André Lamothe for a second opinion. He initially found it difficult to determine whether the deterioration was progressive or arose suddenly as a result of the accident. However, after some testing, he felt that Ms. Lanctot might have sustained an injury to the ossicular chain (the three small bones of the middle ear) in both ears, particularly the right.

Dr. Lamothe referred Ms. Lanctot to Dr. G. Guy Laframboise for further exploration. Dr. Laframboise performed surgery on Ms. Lanctot's right ear, finding dislocations of the ossicles. In his report dated January 25, 1996, he expresses the view that Ms. Lanctot will need further surgery to restore her hearing and might have to wait a year or two before being reasonably employable.

In March 1996, Dr. Laframboise performed another surgery on Ms. Lanctot's right ear. He was then provided with additional information, including surveillance videotapes. In his second report, dated July 15, 1996, Dr. Laframboise presents a significantly different view of the relationship between the accident and Ms. Lanctot's ear problems. In his opinion, she suffers from otosclerosis, a progressive disease that predated the accident. As a result, he finds it "impossible to assess" the role of the accident with regard to the tinnitus since it is common in both head injuries and osteosclerosis. With respect to Ms. Lanctot's hearing loss, Dr. Laframboise states as follows:

It is now obvious that there was little change to this patient's hearing loss from the accident since pre-accident audiograms show a bilateral horizontal type, predominantly sensory-neural hearing loss with surgically correctable hearing loss in the right ear and an insignificant conductive loss in the left ear. These changes are in the result of the disease, Otosclerosis and were present prior to the accident.

Surgical exploration of the right ear did demonstrate a dislocated Incus as well as a fractured Stapes superstructure but this damage did not result in changing the patient's hearing since the footplate of the stapes was fixed by otosclerosis.² The patient now does not put much emphasis on the hearing problem in relation to the accident, a statement she has volunteered on two occasions when confronted with pre and post-accident audiograms.

As I understand it, Dr. Laframboise still attributes the ossicular damage to the accident, but concludes that Ms. Lanctot's hearing loss was due to otosclerosis, not structural damage. This is the distinction drawn by the arbitrator in her decision. She finds that the accident caused injuries to Ms. Lanctot's ear bones, not that it was the source of her hearing loss. Although it is not obvious that Dr. Laframboise would have done the March 1996 surgery if he had been given more complete information, the purpose of the surgery was to repair the damage to the ossicles. This is what the arbitrator found and, therefore, I see no error.

B. "Continuously prevents"

The more substantial question is whether an insured person who does not qualify for weekly income benefits at the 156-week mark can qualify at some later point. In Zurich's submission, s.12(5)(b) limits the scope of weekly income benefits. They are not payable after 156 weeks unless the insured person's disability is sufficiently serious to meet the stricter, "any occupation" test and is continuous. The requirement of continuous disability, Zurich claims, means that weekly income benefits are not payable for the kind of temporary, post-156 disruption resulting from Ms. Lanctot's surgery.

In support of its position, Zurich relies on the arbitration decision in Bouassali and Zurich Insurance Company, (FSCO A97-000029, March 31, 1999).³ The facts of that case are somewhat complicated, but involve a taxi driver injured in an accident in April 1993. About three months after the accident, Mr. Bouassali returned to work part-time, claiming weekly income benefits on the basis that he was unable to work full-time. The insurer paid the benefits, but only for one year. Mr. Bouassali then claimed ongoing benefits, up to and beyond 156 weeks, on the basis that was still unable to work full-time. In addition, there were two periods when he was completely unable to work due to accident-related operations in 1995 and 1997.

The arbitrator found that Mr. Bouassali did not qualify under the pre-156 week test in s.12(1) of the Schedule for any additional weekly income benefits, except for a two-week period in September 1995 following his first surgery. At the 156-week mark, he did not meet either the pre- or post-156 week test. The arbitrator then considered whether Mr. Bouassali should receive weekly income benefits for the three-month period around his second surgery. The difference was that the second surgery was after the 156-week mark. After reviewing previous court and arbitration decisions, the arbitrator held that benefits were not payable because the disability was not continuous:

In my view, Mr. Bouassali's three month disability in the spring of 1997, although a significant period, does not meet the test of continuity. This period of disability was a temporary interruption in a life in which he was otherwise substantially able to carry out the essential tasks of his job as a taxi driver. In my opinion, the Schedule does not provide for compensation for such occurrences when they happen in the post-156 week period. (p.23, footnote omitted)

Zurich submits that this is the correct interpretation and should be applied in this case. For the following reasons, I agree. In my opinion, the arbitrator erred in awarding Ms. Lanctot post-156 week benefits for a temporary disability.

Previous legislation has included provisions similar to s.12(5)(b). For example, the old Schedule 'C' to the Insurance Act, R.S.O. 1980, c.218, included the following:

PART II - LOSS OF INCOME

Subject to the provisions of this Part, a weekly payment for the loss of income from employment for the period during which the insured person suffers substantial inability to perform the essential duties of his occupation or employment, provided,

(a) such person was employed at the date of the accident;

(b) within 30 days from the date of the accident the insured person suffers substantial inability to perform the essential duties of his occupation or employment;

(c) no payments shall be made for any period in excess of 104 weeks except that if, at the end of the 104 week period, it has been established that such injury continuously prevents such person from engaging in any occupation or employment for which he is reasonably suited by education, training or experience, the insurer agrees to make such weekly payments for the duration of such inability to perform the essential duties.

For the purposes of this Part,

(4) a person receiving a weekly payment who, within 30 days of resuming his occupation or employment is unable to continue such occupation or employment as a result of such injury, is not precluded from receiving further weekly payments.

A particularly helpful analysis of these sections is found in Roberts v. Safeco Insurance Co., [1988] O.J. No. 691 (H.C.J.). According to Watts J., the insurer's obligation to pay weekly benefits and the insured person's entitlement to receive them arises when certain conditions precedent are met: he or she is an insured person under a valid and subsisting policy of motor vehicle liability insurance; he or she has sustained bodily injury by an accident arising out of the use or operation of an automobile; he or she was employed at the date of the accident; and, in consequence of such bodily injury and within 30 days from the date of the accident, he or she suffers substantial inability to perform the essential duties of his occupation or her employment.

If these conditions are met, weekly benefits are to be paid during the period that the insured person "suffers substantial inability to perform the essential duties of his occupation or employment." This is the test of entitlement and is not time limited. Watt J. refers to it as the "primary disability."

However, the matter does not end there. Clause (c) must be considered. Watts J. holds that clause (c) does not detract from the general rule that entitlement is based on the primary disability. In other words, to qualify for weekly benefits after 104 weeks, the insured person must still be able to show that he or she is substantially unable to perform the essential duties of his or her occupation or employment. Additionally, the insured person must establish that he or she is continuously prevented from engaging in any occupation or employment for which he or she is reasonably suited by education, training or experience. Watt J. refers to this as the "derivative disability":

Upon conclusion of the period of 104 weeks of primary disability, loss of income payments shall continue for the period of primary disability provided the insured demonstrates a derivative disability, namely, "that such injury continuously prevents such person from engaging in any occupation or employment for which he is reasonably suited by education, training or experience,..." It is necessary in all cases in which an insured asserts entitlement to loss of income payments for a period in excess of 104 weeks that he or she establish concurrent primary and derivative disability. Failure of proof of either extinguishes the insurer's obligation to pay and the insured's entitlement to receive loss of income payments. Proof of both engages the insurer's obligation to pay the insured's correlative entitlement to receive loss of income payments for the duration of the period of primary disability. (p.23)

Watt J. then clarifies the final sentence by stating: "Both primary and secondary [derivative] disability must continuously appear to engage the insurer's obligation to make and insured's entitlement to receive loss of income payments in excess of a period of 104 weeks." (p.24)

In my opinion, this analysis applies to s.12 of the Schedule. The general obligation to pay weekly income benefits is established in s.12(1). The insurer is required to pay benefits during the period that the insured person is substantially unable to perform the essential tasks of his or her occupation or employment, provided he or she meets the initial conditions set out in s.12(2) or (3). The obligation to pay benefits under s.12(1) is ongoing, with no time limit. Payments must be made at least once every second week while the insurer remains liable to the insured person.⁴However, like clause (c) of Schedule 'C', s.12(5)(b) limits the insurer's obligation to pay weekly beyond a certain point. The insurer "is not required to pay a weekly benefit under subsection (1) . . . for any period in excess of 156 weeks unless it has been established that the insured person is continuously prevented from engaging in any occupation or employment for which he or she is reasonably suited by education, training or experience."⁵

The recent decision of the Divisional Court in Dominion of Canada General Insurance Company v. Coles⁶ supports the view that s.12(5)(b) is a limitation on the insurer's obligations under s.12(1). In that case, the insured person qualified for weekly income benefits under s.12(1), but did not receive them for significant periods because her collateral benefits reduced the amount payable to zero. The question was when the stricter, post-156 week test came into effect; does "156 weeks" mean 156 from the accident, 156 weeks of payment or 156 weeks of disability? The Divisional Court agreed with the Director's Delegate that s.12(5)(b) refers back to s.12(1), limiting the insurer's obligation under that section. It follows, therefore, that "156 weeks" means 156 weeks of entitlement under s.12(1), even if the amount payable is reduced to zero by collateral benefits.⁷

Therefore, even after 156 weeks of disability, the first question is whether the insured person continues to meet the s.12(1), "own occupation," test. If not, s.12(5)(b) never comes into play. However, if the insured person meets the s.12(1) test, the issue is whether he or she also meets the s.12(5)(b) test. This is stricter in two respects. First, the scope of possible work is expanded from the insured person's own occupation or employment to any suitable occupation or employment. Second, the degree of disability is tightened from "substantially unable to perform the essential tasks" to "continuously prevented."

A number of decisions have considered the phrase, "continuously prevented," in the context of Schedule 'C'. For example, in Roberts, cited above, Watts J. held that the insured person must prove "disability or incapacity of the requisite nature, extent or degree which is and remains uninterrupted. There must be, in other words, no abatement in the degree, nature or extent of the disability." (p.25)

In Newton v. The General Accident Assurance Company, [1988] I.L.R. ¶ 1-2296 (Ont. H.C.J.), the insured was injured in an automobile accident on June 14, 1981. He returned to his pre-accident employment on June 6, 1983, just before the 104-week mark, and continued working for just over a year until his knee gave out. Steele J. found that the insured person's knee injury resulted from the accident and it, together with accident-related emotional problems, left the insured unable to engage in any suitable employment. He received weekly benefits for 104 weeks, so the issue was whether he was entitled to any benefits after 104 weeks.

Steele J. held, consistent with other decisions, that the return-to-work provision in clause 4 of Schedule 'C' does not mean that anyone who works for more than 30 days is automatically disentitled. He then held that the insurer's obligation to pay weekly benefits ends if, at the 104-week mark, the insured person is able to work in some type of suitable occupation or employment:

In my opinion, if, at the end of the 104-week period, an insured is able to pursue employment for which he is reasonably suited, there is no obligation upon the insurer to continue such payments. If at some later time the injuries from the motor vehicle accident should preclude the insured from continuing in such employment, there is no obligation upon the insurer to recommence the payments. The word "continuously" in paragraph (c) reinforces this view.⁸ (p.8883)

As noted in Bouassali, the use of the phrase, "at the end of the 104 week period," in Schedule 'C' focuses the inquiry on the 104-week mark. The wording of s.12(5)(b) is somewhat different.

While the focus is less obviously on the insured person’s condition at 156 weeks, the requirement of continuous disability remains.

In my view, s.12(5)(b) relieves the insurer of its obligation to continue paying weekly income benefits under s.12(1) if at any point after 156 weeks, the insured person's injuries do not continuously prevent him or her from engaging in some type of suitable occupation or employment. If the insured person challenges the insurer's decision to terminate benefits, the arbitrator must determine whether the s.12(5)(b) test is met: do the insured person's injuries continuously prevent him or her from engaging in any suitable employment for the period claimed? This is a question of fact, the approach to which has been considered in a number of court and arbitration decisions.

I agree with earlier decisions holding that entitlement is not lost simply because the insured person is capable of working for a brief period. As Watts J. states in Roberts, the test should be informed by reason, common sense and a healthy regard for the realities of the situations within the reasonable contemplation of the legislation. The standard should not be set so high that it precludes legitimate claims, or so low that it encourages specious ones.

In Earl v. Lang, [1997] O.J. No 739 (Ont. Gen. Div.), G.R. Morin J. accepted that although the insured person had good days when she could return to sedentary work, the limited number and unpredictability of those days continuously prevented her from working, within the meaning of s.12(5)(b) of the Schedule. A similar approach is seen in Fowlie v. Co-Operators Group Ltd., [1986] O.J. No. 1962 (Ont. Dist. Ct.), a Schedule 'C' decision dealing with an insured person affected by unpredictable, periodic "flare-ups." Recently, I considered an appeal by an insured person with an episodic psychiatric injury.⁹ In upholding the arbitrator's order denying post-156 week benefits, I stated as follows:

I would be concerned about the decision if it suggested that an insured person with an episodic disorder can never meet the post-156 week test. However, that is not how I read it. In my view, the arbitrator properly looked for evidence about the frequency and severity of Mr. K.'s bad periods, and his functional ability during his better times. She was unable to find on the evidence before her that he met the test. This is essentially a factual finding that I am not prepared to second-guess. (p.8)

Judges and arbitrators have also been understandably reluctant to penalize an insured person for attempting to return to work. As noted above, the return-to-work provision in Schedule 'C' has been interpreted only in a positive sense. An insured person can return to work for up to 30 days without affecting his or her benefits, but a longer return to work does not result in automatic disentitlement.¹⁰ This approach has been adopted by arbitrators in interpreting the return-to-work provisions in s.16 of the Schedule.¹¹

As a result, an insured person who returns to work more than two years after the accident and continues working for more than 90 days will not automatically be disentitled by s.16(2).¹²Moreover, it has been held, correctly in my view, that a return to work cannot be taken as proof that the insured person is no longer prevented from engaging in a suitable occupation or employment. First, the work might not be suitable within the meaning of the legislation.¹³Second, the person's performance may be so compromised that it cannot be said that he or she is capable of doing the work in any meaningful sense. In each successful claim, however, the insured person has been able to establish that, despite working, he or she continuously met the disability test.

For example, in Cohoe v. Safeco Insurance Co. of America, [1993] I.L.R. 1-2951 (Ont. Gen. Div.), the insured person returned to her secretarial job a year after the accident. She worked for seven months, was off for five months and then worked for eight months before stopping. The issue was whether she was entitled under Schedule 'C' to weekly benefits up to and after 104 weeks. Zalev J. found that the insured diligently attempted to do her job, but her performance was so far below her pre-accident standard that she was unable to meet the work quota set for her job. In the circumstances, he concluded that her injuries continuously prevented her from engaging in suitable employment from the date of the accident to the date of trial.¹⁴

Perhaps the best example is found in Brasseur v. Anglo Canada General Insurance Co., [1994] O.J. No. 2235 (Ont. Gen. Div.), another decision involving Schedule 'C'. In that case, the insured person returned to part-time work before the 104-week mark. At 104 weeks, she started working full-time and continued working for more than a year. The insurer brought a motion for summary judgment dismissing the claim, arguing that the insured person could not possibly prove that she was continuously prevented from working. G.R. Morin J. dismissed the motion, holding that the insured person’s return to work, while a significant fact, was not an absolute bar to her entitlement. Based on the material before him, he found sufficient evidence to allow the insured person to argue at trial that while he survived in the job for some 15 months, it was not work that he was capable of doing by any reasonable standard. This, in his view, was a factual question best left to the trial judge to decide after hearing all the evidence.

In this case, Zurich stopped paying weekly income benefits on February 26, 1996, the 156-week mark, claiming that Ms. Lanctot did not meet the test in s.12(5)(b). Ms. Lanctot disagreed, arguing that she was entitled to ongoing benefits because she was continuously prevented from engaging in any suitable occupation or employment. After reviewing the evidence, the arbitrator did not accept Ms. Lanctot’s claim. At page 21, she states: "Thus, the Applicant has failed to establish on a balance of probabilities that her injuries from the accident continuously prevent her from engaging in any occupation or employment for which she is reasonably suited by education, training or experience, after February 26, 1996." Having reached this conclusion, I agree with Zurich that it was not open to her to order weekly income benefits for the additional six-week period. As in Bouassali, this was a temporary interruption in Ms. Lanctot’s ability to work.

I do not find it necessary to answer the broader question of whether any period of ineligibility after 156 weeks automatically extinguishes the insurer's obligation to pay weekly benefits, as argued by Zurich and suggested by some of the Schedule 'C' decisions. Given the lack of submissions on behalf of the insured person, that issue is better left for another case.

November 9, 1999

David R. Draper

Director’s Delegate

Date

The Schedule E, Part II - total disability benefits are only payable by Constitution during the period that the insured is wholly and continuously disabled as defined within the Schedule. Accordingly, if at any time subsequent to the judgment of Cromarty J. Coombe ceased to be permanently and totally disabled, he would no longer be entitled to receive the benefits. (p.477)

Footnotes

1. 1Reg. 672 of R.R.O. 1990, as amended, the Statutory Accident Benefits Schedule— Accidents Before January 1, 1994.
2. 2[Footnote not in the original]. The incus and stapes are two of the ossicles.
3. 3The Bouassali decision was released two months after the arbitration decision in this case and was also appealed. The appeal decision in Bouassali, dismissing the appeal, is being released at the same time as this decision.
4. 4Schedule, s.24(3).
5. 5Emphasis added. Similarly, s.12(5)(b) relieves the insurer of its obligation to pay benefits for the first week following the accident.
6. 6Unreported decision Ontario Court (General Division) Divisional Court, dated May 18, 1999 (Court File No. 594/97 - Toronto), dismissing the application for judicial review from Coles and Dominion of Canada General Insurance Company, (OIC P-007416, July 28, 1997).
7. 7A similar analysis is found in Whyte and Metropolitan Insurance, (FSCO A-009277, April 30, 1996).
8. 8The Roberts and Newton decisions were followed in Constitution Insurance Co. of Canada v. Coombe (1993), 1993 CanLII 5461 (ON CTGD), 15 O.R. (3d) 461, although in the context of the earlier Schedule 'E' to the Insurance Act. Schedule 'E' used a different test of disability, but included a similar clause (c). The procedural history in Coombe is extensive, but this decision involves a motion by the insurer for an order suspending a previous court order and repayment. Its position was that since January 1990, Mr. Coombe had not met the post-104 week test. In defining the test in clause (c), Granger J. states:
9. 9A.K. and Allstate Insurance Company of Canada, (FSCO P98-00057, June 28, 1999).
10. 10See Roberts v. Safeco, supra; Howe v. Economical Mutual Insurance Co. (1989), 1989 CanLII 10424 (ON HCJ), 40 C.C.L.I 216) (Ont. Dist. Ct.); and Dowling v. Phoenix Continental Management Ltd. (1989), 1989 CanLII 4364 (ON HCJ), 70 O.R. (2d) 311 (H.C.J); Crooks v. Wawanesa Mutual Insurance Co. (1996), 1996 CanLII 8036 (ON CTGD), 30 O.R. (3d) 244 (Ont. Gen Div.).
11. 11In two early decisions, including one of mine, the opposite interpretation was adopted. Work for more than 90 days after the 156-week mark was held to preclude entitlement. However, in later decisions, arbitrators have consistently held that an insured person who returns to work for more than 90 days is not automatically disentitled. Instead, the return to work creates a rebuttable presumption against entitlement. I accept this approach. See, Russell and Co-operators General Insurance Company, (OIC A-005417, December 20, 1993); Theuma and Halifax Insurance Company, (OIC A-006496, April 28, 1994); Lafleur and Zurich Insurance Company, (OIC A-004141, May 11, 1995); Whyte and Metropolitan Insurance, (OIC A-009277, April 30, 1996); and Chudy and West Wawanosh Mutual Insurance Company, (OIC A96-000924, January 23, 1997).
12. 12Unlike the 156 weeks in s.12(5)(b), the return to work provisions in s.16 run from the date of the accident.
13. 13For example, see Campanella v. The Great American Insurance Company, [1977] C.I.L.R. 1-876 (Ont. Co. Ct.).
14. 14See also, Crooks v. Wawanesa Mutual Insurance Co., cited above.