Neutral Citation: 2000 ONFSCDRS 24

FSCO A96-000601

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

ANN MARIE KING

Applicant

and

WAWANESA MUTUAL INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Dirk Vanderbent

Heard:

October 27, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Andrew Suboch for Mrs. King

Lee Samis for Wawanesa Mutual Insurance Company

Issues:

The Applicant, Ann Marie King, was injured in a motor vehicle accident on June 2, 1995. She applied for and received statutory accident benefits from Wawanesa Mutual Insurance Company ("Wawanesa"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mrs. King 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 issue is:

1. Is Mrs. King precluded from proceeding with arbitration because she entered into an enforceable agreement, dated October 31, 1996, which releases Wawanesa from any action to claim statutory accident benefits? More specifically, has Ms. King established contractual defences which renders the agreement unenforceable? In addition, did Wawanesa fail to provide Ms. King with written notice which strictly complies with the provisions of section 9.1 of Regulation 664 of R.R.O 1990 as amended by section 7 of Regulation 780/93?

Result:

1. Mrs. King's request to proceed with her application for arbitration is denied.

EVIDENCE AND ANALYSIS:

Facts:

After participating in mediation, Ms. King applied for arbitration in April 1996. Wawanesa responded and a pre-hearing conference was conducted on September 30, 1996. The parties negotiated an apparent resolution of the dispute by way of a comprehensive settlement of all claims for accident benefits. Her former solicitor sent correspondence dated October 15, 1996, to Wawanesa's counsel confirming their agreement that the matter was to be settled on a full and final basis for $16,750.00. The Commission accordingly closed its file.

Under cover of correspondence dated November 1, 1996, Wawanesa's counsel then forwarded a document entitled "Full and Final Release" (hereafter referred to as "the Release") which included the typical terms associated with a contractual agreement to extinguish all claims for accident benefits, in exchange for a promise to pay $16,750.00. There was, however, an error in this document, in that it referred to claims arising from an accident which occurred on or about January 14, 1994, rather than June 2, 1995. Ms. King agrees that she was never involved in an accident on this date, and the only claim she made for accident benefits arose from the June 2, 1995 accident.

In addition to the Release, Wawanesa also forwarded a document entitled "Disclosure Statement — Statutory Accident Benefits Schedule — Accidents after January 1, 1994" (hereafter referred to as "Wawanesa's disclosure statement"). This disclosure statement was provided in purported compliance with section 9.1 of Regulation 664 of R.R.O 1990 as amended by section 7 of Regulation 780/93 (hereinafter referred to as the "Settlement Regulation"). The relevant portion of this disclosure statement reads as follows:

V. STATEMENT OF THE INSURER'S ESTIMATE OF THE COMMUTED VALUE OF BENEFITS WHICH ARE NOT LUMP SUM BENEFITS.

A. The insurer has estimated the commuted value only. The amounts do not represent a precise calculation of amounts payable. For purposes of this estimate the insurer has applied the MAXIMUM amounts payable, for the MAXIMUM period of time or for the remainder of the insured person's life expectancy determined by the 1980 - 1982 Life Tables for Canada, 1980-1982 from Statistics Canada, catalogue 84 - 532 Occasional.

B. The amounts set out do not represent the insurer's view of the insured person's entitlement.

C. Assumptions:

1. Discount rate to reflect the present value of future benefits (annual): 2.5%

2. Life expectancy of 49.34 years.

3. These calculations assume the maximum benefit payable, for the maximum length of time. This assumption is not the insurers evaluation of the insured person's entitlement.

D. Care benefits at $10,000.00 per month, converting the discount rate to a monthly rate by dividing by 12. $3,380,531.58.

E. Present Value of Future weekly indemnity of $ 1,000.00, converting the discount rate to a weekly rate by dividing by 52: $1,294,103.43.

F. Benefits from last payment to date of settlement: approximately $9,719.60.

Ms. King executed the Release on October 31, 1996, and also signed a copy of Wawanesa's disclosure statement to acknowledge that she had received a copy. Ms. King's former solicitor then mailed a copy of the Release and Wawanesa's disclosure statement to Wawanesa's solicitors. Payment of $16,750.00 was subsequently delivered to Ms. King's former solicitor on November 28, 1996.

On March 5, 1999, Mr. Suboch wrote to Wawanesa's solicitors and the Commission, advising that he had been retained to represent Ms. King respecting her claims for accident benefits. He advised that Ms. King wished to proceed with the arbitration. Wawanesa opposed Ms. King's request, asserting that the Release prohibits Ms. King from taking further proceedings against Wawanesa to advance claims for benefits under the Schedule. The matter was then referred for adjudication of a preliminary issue. The parties agreed that only documentary evidence would be submitted, accompanied by written and oral submissions.

Issues:

Ms. King asserts that she and Wawanesa did not enter into a binding settlement. In her oral and written submissions she advanced the following arguments in support of this position:

1. The Release references an incorrect date for the motor vehicle accident, and therefore this document cannot contractually prohibit her from advancing further claims for benefits under the Schedule.

2. Even if the Release is contractually binding, Wawanesa's disclosure statement does not satisfy the requirements of the Settlement Regulation in several ways.

[a] The statement does not adequately specify how the commuted values of certain benefits were determined. Although it includes certain assumptions, it does not provide explicit calculations of the commuted benefits.

[b] The statement only provides an approximate amount for benefits paid to the date of settlement.

[c] In calculating the commuted value of Ms. King's benefits, the statement merely uses the maximum amount payable for the maximum period of time or for the remainder of Ms. King's life expectancy.

[d] The statement expressly provides that it does not represent the insurer's view of the insured person's entitlement.

There must be strict compliance with the statutory requirements respecting disclosure statements, and a release is not enforceable where an insurer fails to precisely follow these statutory requirements. Ms. King asserts that the settlement regulation requires that an insurer provide information which is specifically relevant to the individual insured person who is executing the release. It also requires that a disclosure statement provide the insurer's opinions/assumptions respecting the insured person's entitlement to future benefits. It is not sufficient to provide the insured person only with estimates of the maximum benefits which are conceivably available. Ms. King cites the decision of Spiegel J., in Opoku v. Pal² in support of this position.

3. Ms. King entered into this settlement on the mistaken belief that she could advance her claims for loss of income in tort against the third party tortfeasor. Given the provisions of the Schedule and the Insurance Act, this clearly is a materially incorrect assumption. As stated in her written submissions, there never was a "meeting of the minds" as to exactly what was being settled. As such the settlement cannot be binding on her.

4. The amount paid to Ms. King in full and final release of all her claims for benefits under the Schedule, was scandalously low given the computed value of the benefits, and accordingly, applying principals of equity and fairness, it should not be enforced.

5. In his oral submissions, Ms. King's counsel further argued that even if any one of the abovementioned grounds was insufficient to vitiate the settlement, all these factors in combination, should render the agreement unenforceable, again by applying principles of equity and fairness.

Discussion:

Ms. King's submissions fall into two broad categories. The first category entails the application of contract law and equity in the enforcement of settlement agreements. The second involves the interpretation and application of the Settlement Regulation.

Contractual defenses:

It is clear that the release of a legal right, including the abandonment or compromise of a legal proceeding, is a contract, and therefore subject to laws of contract.³ Wawanesa has asserted that the reference in the release to the incorrect date for the motor vehicle accident was a clerical error only, and that there could have been no misunderstanding on Ms. King's part as she had not been involved in any other motor vehicle accident. I accept this submission. I find that the equitable doctrine of rectification clearly applies in the circumstances of this case. Where the parties are in complete agreement as to the terms of their contract, but write them down incorrectly, the agreement will be reformed or rectified to conform with the parties true intentions.⁴ I received no evidence to suggest that Ms. King intended any result other than to settle her claims for accident benefits arising from the motor vehicle accident on June 2, 1995. Accordingly, I find that the Release is enforceable notwithstanding the clerical error respecting the date of the accident.

Under contract law, a party may be relieved from liability if she or he enters into a contract under a mistaken assumption.⁵ At the heart of Ms. King's argument, is the notion that she was unaware that her claims for future income loss fell under the Schedule, believing that she could advance these claims in her tort action. Had she known that this was not the case, she either would have not entered into a release of her benefits under the Schedule, or she would have demanded a significantly higher lump sum payment. This may be a proper defense to the contract. However, I received no evidence on which to conclude that Ms. King negotiated this agreement under such an erroneous belief, other than her own assertion that she did so. The balance of the evidence which I did receive does not support her position. Wawanesa's disclosure statement clearly refers to future weekly income benefits, and confirms a present value of this claim in excess of one million dollars. I further note that Ms. King was represented by counsel in negotiating this settlement and that she acknowledged receiving this disclosure statement. Accordingly, I find that Ms. King has not established, on a balance of probabilities, that she entered into this settlement agreement under the mistaken assumption that it did not include a release of claims for future loss of income.

Although Ms. King advanced the argument that the settlement was scandalously low, I received no submissions respecting the applicable principles of contract law which would support her contention that the agreement should be set aside on the principles of equity and fairness. Apart from this deficiency, Ms. King must first establish some basis to assert that the settlement was in fact seriously improvident. Again, I received no evidence to support this position, other than Ms. King's own assertion that it was so. I am asked to infer that Ms. King's claims for future weekly income loss, as well as claims for other benefits, are significant, simply because they are potentially available under the Schedule. However, access to benefits is not automatic. Entitlement tests apply to all benefits under the Schedule. It is therefore equally possible that the value of Ms. King's claims for benefits was negligible. However Ms. King might frame the legal principles to support her submission, it is clear that the evidentiary burden rests with her to establish that the amount she received was unreasonably low. In the absence of any clear evidence to substantiate this claim, I find that she has not done so.

Ms. King also did not provide me with any legal authority to support her contention that her concerns, when considered in combination, are sufficient to vitiate the agreement. Assuming there is such legal authority, I find that Ms. King has failed to adduce sufficient evidence to establish such a defense. The evidence to support any of her submissions can at best be described as weak. Even when weighed for its cumulative effect, the evidence falls far short of establishing a prima facie assumption that the settlement was unfair. In reaching this conclusion, I have also considered the portion of Wawanesa's disclosure statement which Ms. King has challenged as inadequate. Apart from the issue of whether this statement meets the requirements of the Settlement Regulation, I do not find that the information, and the manner in which it was provided, could in anyway be construed as supporting the contention that the agreement was inequitable or unfair.

In summary therefore, I find that Ms. King has failed to establish any grounds under the law of contract or equity to support a finding that the agreement should not be enforced.

Interpretation and application of the Settlement Regulation:

The Settlement Regulation provides:

9.1.- (1) In this section, "settlement" means an agreement between an insurer and an insured person that finally disposes of a claim or dispute in respect of the insured person's entitlement to one or more benefits under the Statutory Accident Benefits Schedule.

(2) Before a settlement is entered into between an insurer and an insured person, the insurer shall give the insured person a written notice that contains the following:

1. A description of the benefits that may be available to the insured person under the Statutory Accident Benefits Schedule and any other benefits that may be available to the insured person under a contract of automobile insurance.

2. A description of the impact of the settlement on the benefits described under paragraph 1, including a statement of the restrictions contained in the settlement on the insured person's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act.

3. A statement that the insured person may rescind the settlement within two business days after the settlement is entered into by delivering a written notice to the insurer.

4. A statement that the tax implications of the settlement may be different from the tax implications of the benefits described under paragraph 1.

5. If the settlement provides for the payment of a lump sum in an amount offered by the insurer and, with respect to a benefit under the Statutory Benefits Schedule that is not a lump sum benefit, the settlement contains a restriction on the insured person's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act, a statement of the insurer's estimate of the commuted value of the benefit and an explanation of how the insurer determined the commuted value.

6. A statement advising the insured person to consider seeking independent legal, financial and medical advice before entering into the settlement.

(3) A settlement may be rescinded by the insured person, within two business days after the settlement is entered into, by delivering a written notice to the insurer.

(4) If the insurer did not comply with subsection (2), the insured person may rescind the settlement after the period mentioned in subsection (3) by delivering a written notice to the insurer.

(5) A restriction on an insured person's right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act is not void under subsection 279 (2) of the Act if,

(a) the restriction is contained in a settlement; and

(b) the insurer complied with subsection (2). O. Reg. 780/93, s.7.

Ms. King's counsel confirmed that Ms. King disputes the sufficiency of only Part V of Wawanesa's disclosure statement. Both he, and Wawanesa's counsel agreed that I was not required to consider the adequacy of any other aspect of Wawanesa's disclosure statement. Consequently, the only question I need to address is whether Wawanesa's statement of commuted value satisfies the requirement of subparagraph 9.1(2)(#5) of the settlement regulation (hereafter referred to as 'the commuted value requirement' or 'CVR').

Wawanesa's disclosure statement provides a calculation for income replacement benefits, and attendant care benefits, based on the maximum periodic amounts payable under the policy. As Ms. King has challenged the sufficiency of Wawanesa's disclosure, two questions are raised:

(i) what benefits are subject to the commuted value requirement?

(ii) what is the exact nature of the disclosure to be provided for each benefit that is subject to the CVR?

These questions have recently been addressed in two court decisions, Opoku v. Pal (as noted above), and an as yet unreported decision by Dambrot, J., in Catania v. Scottish & York Insurance. ⁶

In Opoku, the insured person had been catastrophically injured. The insurer's disclosure statement provided no statement resecting weekly income benefits, citing instead that an annuity was in place. It further disclosed a commuted value for medical, rehabilitation and attendant care benefits based on policy limits. Other classes of benefits, such as housekeeping expenses were identified, but a commuted value was specified only for visitor expenses. The calculation was based on the then current monthly visitor expenses which were being incurred.

Justice Spiegel held that the disclosure of the maximum value of the benefits available to the insured was not sufficient to satisfy the commuted value requirement. He made the following findings. "Commuted value" is essentially the present value of a stream of future payments. An explanation of how the insurer calculated commuted value should include:

• the date the commuted value was calculated

• the amount and timing of the benefits that the insurer assumed would otherwise be paid

• the extent to which those benefits would increase in the future to offset the erosive effect of inflation

• mortality and interest rate assumptions

These requirements therefore made it necessary for the insurer to disclose assumptions respecting life expectancy and the appropriate discount rate⁷ used in calculating the value.

Justice Spiegel clearly assumed that medical and rehabilitation benefits were subject to the CVR. He concluded that the insurer was required to provide its assumptions respecting the rate such benefits would be paid out. In other words, rather than disclosing the maximum value of potential coverage, the insurer is required to make assumptions respecting the amount of benefits for which the insured person could actually qualify, and the time those benefits would be paid. For ease of reference, I describe this as an approach based on the insurer's view of the insured person's individual entitlement to benefits, (hereafter also referred to as "the subjective approach"). Justice Spiegel further found that if the insurer did not have the information necessary to perform the calculation based on the subjective approach, its duty of uberrimae fides (ie. to act in utmost good faith) required that it delay final settlement until the information was available.

Justice Spiegel stated:

The main purpose of the CVR was to require the insurer to provide the insured with relevant information to assist the insured in making a meaningful comparison between the proposed lump sum payment and the real value of the periodic benefits . . .Providing the insured with "estimate of the maximum benefits which are conceivably available" does nothing to achieve this purpose.

...The CVR, however, obligates the insurer to provide information that is specifically relevant to the particular insured who is faced with the decision of giving up rights to periodic benefits in return for a lump sum payment.⁸

He acknowledged that this subjective approach might not produce helpful results in all cases. He therefore indicated that precise compliance with the CVR would not always be required, particularly so in cases where the insurer's opinion is that the insured person will not require any benefits in the future (in which case the commuted value could simply be reported as nil).

As a matter of policy, he observed that the no-fault legislation replaced an unsatisfactory system of lump sum compensation with a scheme of mandatory accident benefits payable on a periodic basis, if and when an insured person sustains a loss or incurs an expense. Accordingly, he expressed the view that there is no strong public interest in encouraging settlements which restrict the injured person's right to access the dispute resolution process. He concluded therefore that the settlement regulation demonstrated a legislative intention to permit restrictions on an insured person's access to the dispute resolution process, only under the limited circumstances as described in the regulation.

In Catania, the insurer's disclosure statement did not provide a commuted value based on an actuarial calculation of a discounted value of a future stream of payments. In this case, the insurer agreed to pay six months of income replacement benefits, and $2,000.00 for psychological treatment. The insurer's disclosure statement simply broke down the lump sum settlement into two amounts: Income replacement benefits for 26.08 weeks at $230.00 per week, for a total of $6,000.00, and $2,000.00 for medical benefits. While Justice Dambrot accepts that it is not the object of the settlement regulation to encourage settlement, this does not mean that

. . . there is any reason to interpret the provision [s.9.1(2)] in a manner that would discourage considered and well-informed settlements, or that a punctilious approach to the fulfilment of the requirements of s.9.1(2) should be demanded.⁹

Justice Dambrot found the insurer's disclosure statement was adequate. At the time of the settlement both the insured person and the insurer believed the insured was not entitled to any benefits other than income replacement and medical benefits. Accordingly, Justice Dambrot concluded that there was no obligation to provide an estimate of the commuted value of other benefits at all. He also found that reference to an actuarial calculation respecting the income replacement benefit would be "quite irrelevant." He concluded that the insurer "was not making a lump payment as of a specific date that was equal in value to one or more payments or a stream of payments that would be made at one or more specific times or during specific periods in the future."¹⁰

Discussion:

Wawanesa accepts that a settlement of a statutory accident benefits claim is not binding on an insured person unless the insurer strictly complies with the written notice requirements of the settlement regulation.¹¹

While I am in partial agreement with the analysis in Opoku and Catania, I do not accept that the settlement regulation necessarily requires a subjective approach when calculating the commuted value of benefits that are not lump sum benefits. Adopting such an interpretation would introduce uncertainty in the settlement process. This is contrary to the purpose of the settlement regulation which, in my view, is to support the parties' ability to enter into final agreements. I further conclude that the commuted value requirement applies only to attendant care benefits under Bill 59 and Bill 164,¹² and benefits which provide for a weekly income.

Having arrived at a different conclusion, I must consider whether these decisions are binding on me. Wawanesa submits that I am not bound by these decisions, citing Sittler and Canadian General Insurance Co.¹³ In this case the Director concluded that a decision of a first instance court does not necessarily create binding authority for a tribunal of concurrent jurisdiction. Ms. King's counsel did not seriously contest Wawanesa's submission in this regard. Accordingly I accept that I am not bound by these decisions. I therefore have pursued my own analysis of the relevant sections. In doing so, I have adopted a two-fold approach.¹⁴ I first consider the settlement regulation provisions in their ordinary grammatical meaning, and then undertake a purposive analysis to consider the effect of the regulation in the context of the general intent of the statutory accident benefits scheme.

Grammatical Meaning:

The settlement regulation applies to settlements of accident benefit claims under all versions of the statutory accident benefits schedule. It presents difficulties in its interpretation because it does not provide a prescribed form for the written notice which the insurer is required to provide. Furthermore, rather than expressly identifying the benefits to which the CVR applies, it defines this class of benefits in the negative (ie. benefits 'that are not lump sum benefits'). The term 'lump sum benefit' is not defined in any of the Schedules. It must be observed, therefore, that the wording of the regulation does not present any clear or obvious indication of the nature and extent of the disclosure which it requires. Accordingly, interpretation of the settlement regulation depends significantly on a purposive/policy analysis. However, a few observations can be made based on the wording of the regulation.

I accept Justice Spiegel's conclusions respecting the meaning of the term 'commuted value', how it should be calculated, and the information which the insurer should provide to describe how the calculation was done, subject to one exception. I find it reasonable for the parties to assume the date of the calculation was contemporaneous with the preparation of the disclosure statement. Therefore an insurer need only expressly include the calculation date in the disclosure statement if this is not the case.

Since the term 'commuted value' is not defined in the regulation, Justice Spiegel adopted a practical approach in formulating a definition, based on current industry practices used in negotiating final agreements. I agree with this approach. The requirements of the settlement regulation are clearly part of the settlement process. I therefore find that the legislators intended that the provisions of the regulation should be interpreted with these practical realities in mind.

Nothing in the regulation indicates that an insurer is to provide a single aggregate commuted value for all future benefits. Clearly subparagraph (#5) requires commuted values for some benefits, but not all. Had the legislators intended a single aggregate value, the regulation would expressly state this requirement, and also specify the method governing the calculation.

Subparagraph (#1) of the settlement regulation requires that the insurer provide a description of benefits that may be available. It is generally accepted that this description requires a statement of any monetary limits which apply to any particular benefit. Therefore, I conclude that the legislators considered that disclosure of the maximum values payable under the policy, will be meaningful to an insured person. This information is meaningful in the context of a final agreement, because the proposed settlement includes a waiver of claims for future benefits. The insured person needs to know the extent of benefit coverage which is being released, if he/she is to make an informed decision respecting settlement.

Disclosure of maximum values is straight forward where the policy provides fixed monetary limits. However, the maximum amounts payable for some benefits (eg. weekly income benefits) are not subject to fixed monetary limits, and are based on an insured person's life expectancy. Accordingly, a maximum value must be calculated for this type of benefit in some fashion. How is this calculation to be done? The settlement regulation appears to answer this question, by directing that the insurer provide a commuted value for the benefit. This conclusion is supported by the observation that the term 'commuted value obviously includes considerations related to an insured person’s life expectancy. Therefore, it can be inferred that subparagraph (#5) is intended to complement the disclosure contemplated in subparagraph (#1). When viewed in this manner, a calculation of commuted values based on maximum amounts payable, is consistent with the other provisions of the regulation. Certainly, there is no express provision anywhere in subparagraph(#5) to indicate that such calculation would be insufficient to satisfy the commuted value requirement.

While subparagraph(#5) requires that an insurer estimate the commuted value of the benefit, it does not state that the insurer is required to estimate the insured person’s entitlement to the benefit. The use of the terms 'with respect to a benefit, and 'estimate of the commuted value of the benefit appear to refer to a benefit in its generic sense. Hence these terms do not suggest a legislative intent to require the insurer to quantify the subjective entitlement of an insured person to any particular benefit. I agree with Wawanesa’s submission that, had this been the intended result, the legislators could have easily included language such as: '. . . a statement of the insurer's estimate of the commuted value of the benefit which, in the insurer's view, the insured would be entitled to receive'. Similarly, there is nothing in the wording of the settlement regulation to suggest that different forms of disclosure are appropriate depending on the insurer's view of the insured person's entitlement. I also note that nothing in the wording of subparagraph(#5) suggests that an insurer is obligated to delay final settlement.

The settlement regulation does not include a definition of the term 'lump sum benefit.' Therefore its meaning must be derived from its ordinary grammatical sense in the context of its application to the Schedules. Again, this term must also be considered in light of the legislators' intention to adopt a practical approach to disclosure. When viewed in this manner, benefits 'that are not lump sum benefits', are benefits which provide periodic payments to the insured person.¹⁵ But what does 'periodic' mean in the context of the Schedules? An insured person may be entitled to receive funding for several courses of physiotherapy treatment. Are these payments periodic, or merely a series of lump sum payments? The Schedules, and the adjudicative interpretation of their provisions, provides some guidance in addressing this question.

The Schedules clearly provide for some classes of benefits where payments are provided on a periodic basis, without requiring that the insured person re-establish entitlement for every payment made. The prime examples of this type of benefit are the weekly income payments. Once entitlement is established, there is an evidentiary presumption of ongoing eligibility for benefits.¹⁶ The same can be said for attendant care benefits under Bill 164, and Bill 59. Even though the relevant sections governing attendant care restrict compensation to incurred expenses, an insured person receives ongoing monthly entitlement to payment without having to re-establish entitlement each month. These are the only classes of benefits which provide for continued payment once initial entitlement is established. If viewed in this manner, supplementary medical benefits are not a periodic benefit, as entitlement to one course of physiotherapy, for example, does not create a presumption of ongoing entitlement to payments for further physiotherapy services in the future.

Excluding such types of benefits from the commuted value requirement has some merit, having regard to the practical approaches used when negotiating final agreements. As Wawanesa's counsel pointed out in his oral submissions, the cost of individual courses of anticipated future treatment are not usually included in commuted values, due to the parties' inability to predict the time when the expense will be incurred (this information being necessary to calculate commuted value). Consequently, there is merit to the view that benefits which "are not lump sum benefits," are those benefits which provide for continued periodic payment after initial entitlement is established, without the need to re-establish entitlement for each payment. Because such payments automatically continue, there is no need to predict when they will be required. Therefore, I find that this approach best clarifies the meaning of the term "that is not a lump sum benefit."

Purposive Interpretation:

One of the hallmarks of the statutory accident benefit scheme is to encourage insured persons and their insurers to resolve their disputes without the necessity of resorting to litigation. The parties are required to submit their disputes to mandatory mediation. They are also provided with access to arbitration services where adjudicators are required to assist the parties in negotiating settlement of their disputes. The provision of alternate dispute resolution services clearly evidences that it is in the public interest that parties negotiate a resolution of their disputes.

While a final resolution of claims for statutory accident benefits may not meet the needs of all insured persons, many find it advantageous. The receipt of a lump sum payment removes uncertainty respecting future entitlement, and allows the insured person to manage his/her needs, free of the continued requirement to satisfy the insurer that there is entitlement under the policy. Final resolution also frees insured persons from the concern that they may have to face delay and expense in seeking adjudication of disputed claims, a process which some find stressful and deleterious to their health and well-being. Furthermore, an insured person’s qualification for ongoing entitlement to a benefit may be unclear. Negotiating a final settlement affords the insured person an opportunity to secure funds in recognition of at least partial entitlement to a benefit, rather than facing a risk of receiving no payment at all if he/she proceeds with litigation and is unsuccessful.

In my view, it is clear that the general intent of the statutory accident benefit scheme is to encourage and support the parties' ability to negotiate a resolution of their disputes, and this includes the option to negotiate a final resolution of accident benefit claims. Parties will not be encouraged to negotiate a resolution of their disputes if they cannot rely on the finality of their agreements. Both insured persons and their insurers are entitled to be reasonably assured that their settlement agreements are enforceable. Therefore, while the written notice must provide meaningful disclosure, the disclosure requirements must be interpreted in a manner which will bring certainty and finality to the settlement process.

I note that Justice Spiegel comments that policy considerations, as they relate to statutory accident benefit entitlement, do not emphasize that uncertainty in the enforcement of final settlements should be a concern.¹⁷ His rationale is that the insurer would not suffer any adverse economic consequences if an agreement is overturned, and the public interest requires review of the insured person's entitlement, if the settlement payment is inadequate. I do not agree with this view. Firstly, the general law of contract provides an appropriate remedy if the settlement is improvident. There is no need to assume, therefore, that the intent of the regulation is to introduce a remedy where one already exists. Secondly, if the interpretation and application of the settlement regulation is such that final agreements cannot be reliably enforced, then insurers, in practice, will be discouraged from participating in these types of settlements. This result is directly contrary to the policy that all insured persons should be free to negotiate final agreements if they determine that it is in their best interests to do so.

The plain wording of the settlement regulation does not restrict the parties' right to enter into a final settlement. In my view, it is not intended to be a legislative minefield designed to undermine the parties ability to enter into an enforceable agreement. Its provisions are intended to ensure that insured persons receive adequate information to make an informed decision when negotiating a final settlement. This initiative serves to re-inforce certainty in the enforcement of settlement agreements, by ensuring that the insured person understands the nature of the final agreement. Even the inclusion of the 48 hour cooling-off period (subparagraph (#3) ), supports the finality of agreements. This provision screens out any insured persons who experience doubt after executing a settlement, and encourages all insured persons to give serious second thought to their decisions, before the agreement becomes final. The process therefore fosters increased certainty that those insured persons who enter into final agreements, fully comprehend the nature of their agreements and intend that they will be bound by them.

Justice Spiegel has observed that there is no strong public interest in encouraging settlements which restrict an insured person's right to access the dispute resolution process.¹⁸ However, as can be inferred from Justice Dambrot’s comments in Catania, there is no strong public interest in discouraging such settlements either. Therefore, rather than viewing the settlement regulation as restricting the parties right to enter into final agreement, I find the settlement regulation affirms that such agreements are a legitimate and productive option which the parties may use to effect a resolution of their disputes.

I note that subparagraph (#6) requires that the insured person be advised to seek independent legal, financial and medical advice. In my view, this is a strong indication that the main objective of the regulation is to provide a form of consumer protection for insured persons who are self-represented. Accordingly, I conclude that the primary purpose of the regulation is to provide all insured persons with the information necessary to identify the full range of benefit values which are available to them under the policy.

While I agree that it would be desirable that the commuted value calculation be based on a subjective assessment of an insured person's entitlement to a benefit, adopting this approach will introduce doubt respecting the binding nature of final agreements. The practical realities of the settlement process cannot be ignored. At best, the parties can only estimate which benefits an insured person will require in the future, and an insured person’s entitlement to such benefits will always remain a matter of opinion. Therefore it can never be presumed that any assessment of an insured person's subjective entitlement is realistically accurate.

I agree that the purpose of the CVR is to assist the insured person in making a meaningful comparison between the proposed lump sum payment and the value of the benefit. However, I do not agree that the regulation contemplates that the provision of speculative information (even if well informed) necessarily furthers an insured person's ability to make such meaningful comparison.

There are other problems associated with an approach based on the subjective assessment of an insured person's entitlement. The settlement regulation requires that the insurer perform the calculation. While I agree that the insurer has a duty to act in good faith, the doctrine of uberrimae fides does not extinguish an insurer's right to dispute that an insured person is entitled to benefits. Insurers and insured persons often hold widely divergent views respecting entitlement issues and treatment needs. In such cases, the insurer remains in an adversarial relationship with the insured person, notwithstanding its duty to act in good faith. This raises significant difficulties. If an insurer believes there is no entitlement, should it disclose that the commuted value is zero? If the insurer does so, the net result is that the insured person's "meaningful" assessment will be conducted using a calculation based on assumptions with which the insured person clearly disagrees. Such disclosure will always be subject to the criticism that it is potentially misleading. I fail to see how this can further the purposes of the settlement regulation which, stated in its broadest terms, is to ensure that an insured person understands the potential benefits which he or she is being asked to release.

The above concern is particularly significant for insured persons who do not have legal representation. An insured person who lacks sophistication in these matters, when presented with the disclosure statement, may have difficulty discerning the distinction between the insurer's assessment of his/her entitlement, and the amount of the benefits potentially available under the policy. Such misunderstanding may persist, notwithstanding that reasonable efforts have been made by the insurer to explain the difference.

Another difficulty associated with the subjective approach is the problem of ascertaining just what information is necessary and sufficient to enable the insurer to perform the calculation. I have already noted that the legislators intended that the parties adopt a practical approach to disclosure, based on current industry practices. As such, I cannot infer a legislative intention to impose the commuted value requirement in circumstances where it is not practically feasible to do so, absent any express provision to the contrary. Wawanesa’s counsel submitted that it would be unrealistic to believe that an insurer could provide a realistic assessment of an insured's entitlement to future periodic benefits when, as in many cases, causation, duration, quantum, and collateral benefits, all might be in issue. He further asserted that settlements are often entered into because the parties are uncertain about future entitlement, and they remove uncertainty by settling their claims. He argues that an insurer is unable to calculate precisely a commuted value of something that is unknown and controversial. I agree with these submissions.

I do not agree with Justice Spiegel's view that if an insurer does not feel it has sufficient information to calculate a commuted value, it is obligated to delay the settlement.¹⁹ The settlement regulation is clearly an adjunct to the settlement process, one that follows the negotiation of a final settlement. The regulation delays only the final stage of the settlement process, ie. execution of the written contract which evidences the parties' agreement. Nowhere in its provisions does it mandatorily prescribe conditions which must be met before the parties can pursue settlement negotiations. I fail to see how the duty to act in good faith would require an insurer to decline to enter into settlement negotiations, if the insured person makes a competent and informed decision that he/she wishes to enter into a final agreement. To put it another way, the duty to act in good faith does not authorize or require an insurer to unilaterally decide whether the insured person should proceed with the settlement. In some cases, an insured person may still wish to proceed with final settlement, even though full information is not available. In other cases, an insured person may not agree with an insurer's assessment that further information is required. In either situation, the insurer might equally be charged with breaching its duty to act in good faith by refusing to proceed with an agreement where the insured person is adamant that it should do so. Furthermore, the insured person's only option in such circumstances would be to proceed with litigation of current issues in dispute. The end result is that a requirement to delay settlement will precipitate litigation, in cases where the insured person wishes to resolve his/her claim through negotiation. Obviously this result is directly contrary to public policy which encourages the parties to negotiate a resolution.

Finally, I again note that the settlement regulation requires that the insured person be advised to seek independent legal, financial, and medical advice. If the legislators had contemplated that it would be sufficient to disclose only the insurer's view of the insured person's entitlement, there would be no need to advise the insured person to seek independent advice. In my view, the settlement regulation clearly contemplates that the insured person look to his/her own representatives, and not the insurer, to obtain guidance on his/her subjective entitlement to benefits.

I am unable to find a convincing rationale to support the proposition that the settlement regulation contemplates different methods of calculating and presenting the commuted value of a benefit, depending on the insurer's view of the insured person's entitlement. An insured person who is executing a final release of weekly income benefits, for example, is entitled to receive the same type of information respecting the potential value of the benefit, irrespective of whether the insurer believes there is no future entitlement, entitlement for a limited period only, or for the rest of the insured person's life. In each case, the insured person requires the same information respecting potential value, in order to meaningfully assess the sufficiency of the proposed lump sum settlement. In my view, if a benefit is subject to the commuted value requirement, then only the actuarial calculation inherent in the definition of the term "commuted value" can apply when disclosing the value of the benefit. Nothing in the regulation suggests that "commuted value" has more than one meaning, depending on the insurer's views on the merits of the insured person's claim.

In Opoku, Justice Spiegel conceded that in an infinite variety of settlements, there may be cases where the actuarial calculation would not be helpful. He therefore held that precise compliance with the commuted value requirement would not be required in every case.²⁰ I do not accept this conclusion. I first note that the settlement regulation provides for written notice and disclosure of commuted value of non-lump sum benefits in all cases where the parties enter into a final agreement. Therefore, I must adopt an interpretation of the regulation which applies to all cases. Secondly, how is an insurer to decide when precise calculation is necessary? No clear criteria are specified to guide the insurer in answering this question. It must be remembered that if the insurer's written notice is deficient, the agreement cannot be enforced. Insurers, as a result, could never be reasonably assured that a final agreement will be enforceable. In my view, therefore, this loose approach can only serve to introduce uncertainty into the settlement process. It is therefore inconsistent with the intent and purpose of the settlement regulation.

For the reasons stated above I do not accept the approach adopted in Opoku. In light of all the difficulties discussed above, I conclude that the legislators did not intend that settlement regulation necessarily requires disclosure of the insured's subjective entitlement to benefits, or what Justice Spiegel described as the "real value of periodic benefits." What then, does the regulation require?

Wawanesa argues that the regulation contemplates a commuted value calculation of the maximum amounts payable for each benefit. Counsel have not provided me with any other option, and no other methods have been identified in the court and arbitration decisions which have been issued to date. Consequently, I have concluded that an approach based on policy maximums is the only other viable option. Critics of this approach point out that the calculations produce very high dollar amounts. They argue that the difference between these amounts and the real value of periodic benefits is so great, that this information of no assistance to an insured person who must decide if a proposed lump sum settlement is reasonable. I recognize that this is a legitimate concern. However, I do not accept that an approach based on disclosure of maximum amounts has no merit whatsoever.

When an insured person finally disposes of a claim for a benefit, he/she contractually gives up the right to apply for any future entitlement to the benefit. An insured person needs to know the parameters of his or her potential entitlement, before he or she can assess what the actual entitlement may be. For example, an unsophisticated insured person may erroneously believe that the policy will provide coverage for only one year of income replacement benefits. In such circumstances, this person cannot properly assess the value of his/her entitlement to benefits. Therefore, disclosure of the maximum benefits available under the policy is meaningful to the insured person in such circumstances.

Bearing in mind the practical realities of the settlement process and the exigencies of benefit entitlement under the statutory accident benefit schedules, it must be recognized that no form of mandatory standardized disclosure can perfectly address every aspect of an insured person's entitlement.²¹ The efficacy of any approach will have its limitations. Therefore, as a matter of policy, the question becomes: Which approach better supports the settlement process?

I have already noted that commuted value calculations are necessary to establish maximums for some benefits, such as income replacement benefits, where fixed monetary limits are not specified, and maximum entitlement is based on life expectancy. Therefore, the regulation itself, suggests the disclosure of maximum values. I further note that disclosure of maximum values is not subject to any of the problems associated with the subjective approach.

In conclusion, when compared to the merits of the subjective approach, I find that a calculation based on maximum amounts payable, better supports the parties' ability to resolve their disputes through negotiation of a final settlement. It follows, therefore, that this type of calculation fulfills the purpose and objective of the settlement regulation. Accordingly, I have concluded that disclosure based on calculation of maximum benefit entitlement is sufficient to satisfy the requirements of the regulation.

I note, however, that it should not be inferred that disclosure using the subjective approach is necessarily insufficient. In my view, one cannot assume that a disclosure statement is inadequate simply because it used the subjective approach. Insurers, however, need to be mindful that if the insured person challenges the accuracy of the assumptions made respecting subjective entitlement, there is a significant risk that their written notice may be found to be inadequate. The circumstances in Catania provide an interesting example. I have some reservations respecting the adequacy of the disclosure statement in this case, as its net effect is to provide nothing more than a statement of the lump sum to be paid to the insured person. I would agree with the result however, if, on the facts of the case, the insured person acknowledged time limited entitlement to income replacement benefits. In such circumstances the actuarial calculation would produce an amount virtually equal to the proposed settlement. I infer that it is for this reason that Justice Dambrot found that inclusion of a full actuarial calculation was unnecessary. However, if the insured person challenges the insurer's assumption, by asserting long term entitlement to income replacements, then, in my view, the insurer's disclosure statement is inadequate. A disclosure statement which provides only a recitation of the proposed lump sum being offered, provides the insured person with no means whatsoever to assess the value of his/her claim, irrespective of which standard of disclosure (subjective or maximum value) is applied.

Finally, I note that there is nothing in the settlement regulation preventing an insurer from including both types of calculation in a disclosure statement, provided that the two approaches are clearly identified and explained.

I turn now to the question of which types of benefits are subject to the commuted value requirement. I have already indicated that commuted value applies to the class of benefits which provide for continued periodic payment once initial entitlement is established, without the need to re-establish entitlement for each payment. Specifically, this class only includes benefits which provide for weekly benefits and attendant care benefits. It should be noted that the benefits in this class do not have fixed monetary limits (with the exception of attendant care benefits under Bill 59),²² and therefore maximum values are based on life expectancy. Accordingly, the commuted value requirement is necessary to establish maximums for these types of benefits. Therefore this definition is logically consistent with the wording and the intent and purpose of the regulation.

Finally, I must address the issue of the sufficiency of a calculation of the commuted value, based on the maximum periodic amount payable, rather than an amount which the insurer believes the insured person is entitled to (ie. in this case, using $1000.00 per week for the income replacement benefit, rather than the amount actually paid to Ms. King). Whether an insured person is entitled to the maximum periodic amount, or to a lesser amount, again requires a subjective assessment of the insured person's entitlement. Consequently, the above analysis applies equally to this issue. It follows, therefore, that the disclosure of the maximum amount available for these periodic benefits, is sufficient to satisfy the requirements of the settlement regulation. Calculations based on lesser period amounts, may also be consistent with the purposes of the regulation, and therefore satisfy the disclosure requirement, if the insured person never challenges the quantum used.

I turn now to Ms. King's submission that the disclosure statement is insufficient because it provided only an approximate amount for benefits paid to date, in the context of explaining the means by which Wawanesa calculated the commuted benefit. The clear language of subparagraph (#5) states "an insurer's estimate of the commuted value" [emphasis added]. I accept Wawanesa’s submission that it is impossible to provide an exact amount, as benefit payments may be made between the date the disclosure statement is prepared, and the time it is received and reviewed by the insured person. Consequently, I find no substance in this submission. I also agree with Justice Spiegel's observation that technical defects in the written notice will not preclude an insurer from enforcing the agreement, where such defects could not have reasonably affected the insured's decision to settle.²³ I received no evidence to suggest that this aspect of the disclosure, even if considered a defect, was in any way a significant factor affecting Ms. King’s decision to settle.

Conclusion:

In light of the above analysis, I do not accept Ms. King's submissions that Wawanesa's disclosure statement does not satisfy the commuted value requirements of the settlement regulation. It provides all the important information necessary to explain how the insurer arrived at the calculation, including confirmation of life expectancy, discount rate, and description of the periodic benefit payable. It also provides disclosure for the class of benefits which are subject to the commuted value requirement. There is no suggestion on the evidence that the date of calculation was not contemporaneous with the agreement, and it utilizes correct values for maximum periodic amounts payable.

As Ms. King has not established any grounds to set aside the agreement, she remains bound by its terms. Consequently her request to re-open this arbitration is denied.

EXPENSES:

The parties may return the issue of expenses before me, if they are unable to resolve this matter between themselves.

January 31, 2000

Dirk Vanderbent Arbitrator

Date

Neutral Citation: 2000 ONFSCDRS 24

FSCO A96-000601

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

ANN MARIE KING

Applicant

and

WAWANESA MUTUAL INSURANCE COMPANY

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Mrs. King's request to proceed with her application for arbitration is denied.

2. The parties may return the issue of expenses before me, if they are unable to resolve this matter between themselves.

January 31, 2000

Dirk Vanderbent Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended by Ontario Regulations 635/94, 781/94, 463/96 and 304/98.
2. 2Ontario Superior Court of Justice, 1999 CanLII 19913 (ON CTGD), [1999] O.J. No. 1777, Court File No. 98-CV-1453001CM, Judgement: May 19, 1999.
3. 3For example, see MacEwan v. Toronto General Trusts Corp. (1917), 1917 CanLII 1 (SCC), 54 S.C.R. 381, and Forsyth v. Moulton (1893), 25 N.S.R. 359 (C.A.).
4. 4See S.M. Waddams, The Law of Contracts — Third Edition, pp. 219 -225, and cases cited therein.
5. 5For a discussion and application of this contract principle see Shadd and Prudential of America General Insurance Company (Canada) (A97-000364, October 2, 1998).
6. 6Ontario Superior Court of Justice, [1999] O.J. No. 3678, Court File No. 98-CT-050918/98, Judgement: October 5, 1999.
7. 7As noted in Opoku, the total value of future payments are discounted by interest at an appropriate rate, to take account of the time related value of the money.
8. 8Opoku vs. Pal; supra, Par. 69
9. 9Catania vs. Scottish and York Insurance; supra, par. 18
10. 10Ibid, par. 27
11. 11For a summary of this and related principles see Opoku as Pal; supra., par.78 to 106.
12. 12ie. The versions of the Schedules which apply on or after January 1, 1994.
13. 13(P-000951, P-004495, August 11, 1995)
14. 14This approach was adopted Director's Delegate Rotter in Aramakis and Royal Insurance Company of Canada (OIC P96-00081, January 7, 1998)
15. 15The term 'lump sum benefit' appears only in the Schedule for accidents after January 1, 1994, and before November 1, 1996. It is used in section 16 - 'Lump sum education disability benefit'. On plain reading of the Schedule, its purpose is to distinguish this benefit from the weekly education benefit which is payable under section 15. The structure of these provisions, therefore, re-inforce this conclusion.
16. 16See Hermoza and Allstate Insurance Company of Canada (FSCO A98-001144, April 23, 1999), and cases cited therein.
17. 17Opoku vs. Pal; supra par.124 & 125
18. 18ibid., par. 129.
19. 19ibid., par.64
20. 20ibid., par. 66
21. 21It is again emphasized that the legislators recognized this reality, and therefore required that the insurer's notice include advice that the insured person should seek legal representation.
22. 22In this case the actuarial calculation would include assumptions of payment only up the maximum, if the insured person's life expectancy is long enough to access this full amount.
23. 23ibid, par.130