Neutral Citation: 2000 ONFSCDRS 29

FSCO A98-000215

BETWEEN:

PAMELA SIMPSON

Applicant

and

TRAFALGAR INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before: Judith Killoran

Heard: October 18 and 19, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

David S. Wilson for Mrs. Simpson

Brian Bangay for Trafalgar Insurance Company of Canada

Issues:

The Applicant, Pamela Simpson, was injured in a motor vehicle accident on November 1, 1995. She applied for and received statutory accident benefits from Trafalgar Insurance Company of Canada ("Trafalgar"), payable under the Schedule.¹ Trafalgar terminated weekly income replacement benefits on October 31, 1997. The parties were unable to resolve their disputes through mediation, and Mrs. Simpson applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. The issues in this hearing are:

How should the benefits payable to Mrs. Simpson after October 31, 1997 be characterized? To what date was Mrs. Simpson entitled to receive a weekly income replacement benefit ("IRB"), and on what date could Trafalgar begin paying Mrs. Simpson a loss of earning capacity benefit ("LECB")?
Is Mrs. Simpson entitled to a special award because Trafalgar unreasonably withheld or delayed benefits?
Is Mrs. Simpson entitled to her expenses of this arbitration proceeding?
Is Trafalgar entitled to its expenses of this arbitration proceeding?

Result:

Mrs. Simpson's benefits should be characterized as weekly IRBs until August 30, 1999, which was 14 days following receipt of the assessment of her residual earning capacity by a Designated Assessment Centre ("REC DAC"). As of August 30, 1999, Trafalgar could begin paying Mrs. Simpson LECBs determined in accordance with sections 23 and 23(5.1) of the Schedule. The LECBs are subject to the reviews established in sections 33 to 35 of the Schedule.
Trafalgar shall pay Mrs. Simpson a lump sum special award of 10 percent of the amount to which she was entitled at the date of Arbitrator Palmer's order of July 16, 1998, together with interest on all amounts owing to her (including unpaid interest) at the rate of 2 percent per month, compounded monthly, from the time the benefits first became payable under the Schedule.
The issue of expenses may now be spoken to.

EVIDENCE AND ANALYSIS:

History of Proceedings:

Mrs. Simpson was a passenger in a motor vehicle involved in an accident on November 1, 1995. She received weekly IRBs from Trafalgar until October 31, 1997. Before the accident, Mrs. Simpson worked at two full-time jobs, for a total of 80 hours per week. She worked as a linen room attendant from 3:30 p.m. to midnight at the Westin Harbour Castle and from 6:30 a.m to 3:00 p.m. at the Toronto Hilton. However, her duties as a linen room attendant were much lighter at the Toronto Hilton. She returned to the lighter job in late September 1996, on a modified basis.

Mrs. Simpson brought a motion before Arbitrator Palmer for interim benefits, including arrears, interest and a special award on May 1, 1998. A Decision on Interim Benefits was released on July 16, 1998.²

By letter dated July 22, 1997, Trafalgar had informed Mrs. Simpson that it would be terminating her weekly IRB of $613.77 on August 15, 1997.³ Arbitrator Palmer found that:

Trafalgar has not terminated Mrs. Simpson's IRBs in accordance with the provisions of section 64 of the Schedule by failing to "within 15 days notify the designated assessment centre," as subsection 64(8) of the Schedule requires. No disability DAC was held, as Mrs. Simpson requested, as is her right, according to the Schedule. The Schedule provides, at subsection 64(12), that unless the report of the DAC states that "the insured person is no longer suffering from a disability resulting from the accident in respect of which the weekly benefits are paid," then Trafalgar "shall pay the benefits" pending the resolution of the dispute.⁴

Arbitrator Palmer also found that Trafalgar did not communicate to Mrs. Simpson in September 1997 its intention to continue her IRBs and confirm it would not be sending her for a disability DAC. "Trafalgar just kept sending her cheques for IRBs."

At 104 weeks after the onset of disability, Trafalgar calculated Mrs. Simpson's pre-accident and residual earning capacities, presumably in accordance with sections 28 to 30 of the Schedule. Trafalgar’s conclusion was that Mrs. Simpson’s LECB was zero, because her residual earning capacity ("REC") exceeded her pre-accident earning capacity ("PEC").

I agree with Arbitrator Palmer that by making an LECB offer, Trafalgar implicitly accepted that Mrs. Simpson’s disability continued. Thereafter, the Arbitrator found that Trafalgar failed to follow the Schedule's provisions by not continuing to pay Mrs. Simpson's IRBs until 14 days after receiving the REC DAC report. As Mrs. Simpson did not accept Trafalgar's LECB offer within 45 days, subsection 23(1) of the Schedule deems that she rejected it.

Arbitrator Palmer ordered the following:

Trafalgar Insurance Company of Canada shall pay weekly income replacement benefits of $613.77 to Pamela Simpson from October 31, 1997 to May 27, 1998 plus interest according to section 68 of the Schedule. Trafalgar Insurance Company may deduct from these income replacement benefits the requisite percentage of net income received by Pamela Simpson in respect of any employment after October 31, 1997, as set out in subsections 10(3) and 10(4) of the Schedule.
Trafalgar Insurance Company of Canada shall pay weekly loss of earning capacity benefits to Pamela Simpson from May 27, 1998, ongoing, according to the provisions of subsections 23(5) and 23(5.1) of the Schedule.
Trafalgar Insurance Company of Canada shall pay Pamela Simpson forthwith a lump sum special award of 10 per cent of the amount to which she was entitled at the date of my order, together with interest on all amounts then owing to her (including unpaid interest) at the rate of 2 percent per month, compounded monthly, from the time the benefits first became payable under the Schedule.⁵

Trafalgar filed a Notice of Appeal from the Decision on Interim Benefits. Director's Delegate Draper concluded that the appeal was premature and that a resumption of the pre-hearing should proceed, hopefully clarifying some of the outstanding interim issues. After the resumption of the pre-hearing, Trafalgar applied again to appeal and Director's Delegate Draper determined that as no final conclusion had been reached, the matter should proceed to arbitration, with any appeal arising from the final arbitration order.

A resumption of the pre-hearing occurred on September 25, 1998 and the parties agreed to the scheduling of a REC DAC and Trafalgar's payment to Mrs. Simpson of a weekly benefit of $315 pending the outcome at the arbitration hearing. These payments were not to be characterized as LECBs or IRBs. For the purposes of this hearing, the parties agreed that the issues of disability, entitlement and quantum of benefits were not to be adjudicated.

How to characterize the benefits paid after October 31, 1997:

On October 31, 1997, Trafalgar wrote to Mrs. Simpson and informed her that she no longer qualified for a weekly IRB.⁶ The letter confirmed Notice of Termination to her and stated that if she were entitled to an LECB offer, her benefit would be zero. An explanation was given as to why the offer would be zero if she were entitled to an offer. Mrs. Simpson was told that if this letter, which was an offer, was not accepted within 45 days, it would be deemed to be rejected.

On November 6, 1997, Mrs. Simpson’s counsel wrote to Trafalgar and asked how an offer could be sent to Mrs. Simpson if Trafalgar was taking the position that she was no longer entitled to an IRB.⁷ On December 1, 1997, counsel requested a response and reiterated that request on December 17 and 23, 1997.⁸ Finally, Trafalgar informed counsel that it was not obliged to pay weekly IRBs after the two year mark and Mrs. Simpson was only entitled to receive an LECB.

A disability DAC was not arranged although Trafalgar never withdrew its position that Mrs. Simpson was not disabled. Also, Trafalgar did not schedule a REC DAC assessment until four and one-half months after its letter of October 31, 1997. Mrs. Simpson commenced mediation and filed an Application for Arbitration which was served on February 9, 1998. After Trafalgar delivered its response, a motion for interim benefits was brought.

Instead of continuing with the termination under section 64, Trafalgar made an LECB offer. I agree with Arbitrator Palmer that "if this alternate course had been accomplished properly, in my view, the Schedule’s provisions would not have been violated and no prejudice to Mrs. Simpson would have resulted." As Arbitrator Palmer explained, an insurer is not required to follow the "stoppage of benefits" provisions of section 64 in switching from IRBs to LECBs, provided the transition is accomplished correctly.⁹

At 104 weeks after the onset of disability, Trafalgar calculated Mrs. Simpson’s PEC and her REC, presumably in accordance with sections 28 to 30 of the Schedule. Trafalgar concluded that Mrs. Simpson’s LECB was zero, because her REC exceeded her PEC. Arbitrator Palmer found that Trafalgar failed to follow the Schedule’s provisions by not continuing to pay Mrs. Simpson IRBs until 14 days after the REC DAC report was received.

From April 6 to April 16, 1998, Mrs. Simpson attended a REC DAC assessment at Work Able Centres Inc. The REC DAC report dated May 8, 1998 concluded that it was unable to determine whether she was capable of working on a full-time basis and, therefore, was unable to determine her REC. On September 25, 1998, the parties agreed that Trafalgar would pay Mrs. Simpson $315 per week pending the outcome of the hearing. These payments were not characterized as LECBs or IRBs. A further REC DAC was scheduled for July 19 and 20, 1999 at the Orthopaedics Rehabilitation Division of Scarborough General Hospital. A REC DAC report (which was undated) was sent to Mrs. Simpson in August of 1999.

The main issue is: Until what date was Mrs. Simpson entitled to receive a weekly IRB and on what date could Trafalgar pay Mrs. Simpson an LECB? Trafalgar submitted that all payments made subsequent to October 31, 1997 are LECBs or in the alternative, every payment subsequent to 14 days from May 8, 1998, the date of the first REC DAC report, is properly characterized as an LECB.

Mrs. Simpson submitted that after October 31, 1997, weekly IRBs continued to be payable to her on an ongoing basis. In the alternative, Mrs. Simpson submitted that since she attended a REC DAC assessment and a REC DAC report was delivered, her right to receive a weekly IRB terminated 14 days after delivery of the second REC DAC report when Trafalgar was entitled to pay her an LECB. Therefore, weekly benefits were payable to August 30, 1999 and thereafter, an LECB was payable.

According to Mrs. Simpson, amendments to section 23 of the regulations as of January 1, 1995 did not change matters significantly. Trafalgar’s position is that the effect of the amendments means that once 104 weeks have passed, an insured is not entitled to weekly IRBs. Mrs. Simpson disagrees and states that there is nothing in the regulations regarding a 104-week limit. She relied on Commission Bulletin No. 29/94 which was released on December 30, 1994. The Commissioner wrote with respect to the change in section 23:

The Loss of Earning Capacity Benefit (LECB) is the benefit paid after two years for persons with a permanent economic loss. Claimants who dispute the amount offered by their insurer continue to receive their initial benefit until the dispute is resolved under the current process. The proposed change is to base the benefit pending the outcome of a dispute on the difference between the benefit payment prior to the LECB offer and the Designated Assessment Centre (DAC) assessment of residual earning capacity. The proposed change would apply to earners and students. All other claimants, would continue to receive their initial benefit (caregiver or disability benefit).

Mrs. Simpson also reviewed section 7 which does not state that receipt of weekly IRBs is limited to 104 weeks. As well, section 64 delineates the steps for a stoppage of benefits with no restrictions specified before or after 104 weeks. Mrs. Simpson submits that in a regulatory scheme designed to provide benefits to the disabled, it would have to be specifically stated if any benefits are taken away.

Mrs. Simpson also relied on subsection 21(1) of the Schedule which refers to someone who continues to be qualified before and after 104 weeks. As well, in Part VI, the regulations specify that certain things must occur before the stoppage of benefits. According to Mrs. Simpson, Trafalgar did nothing for months and made no arrangements for a REC DAC. The legislative scheme is only workable if weekly IRBs continue when the process outlined in section 20 occurs.

Mrs. Simpson asserted that only if a determination is made by the DAC of a REC is there a right to pay a weekly LECB. According to Mrs. Simpson, no regulation can take away the right of an insured person to be paid if the REC DAC does not respond properly in its report.

Trafalgar characterized the features of this case to be its consistent attempts since late 1997 to formalize its move into the LECB stream but the LECB process had no control mechanism. From April 1998 to August 1998 the tempo of the process was controlled by Mrs. Simpson. Trafalgar submitted that it could not look to subsection 23(6) of the Schedule because it was bound by the interim order of Arbitrator Palmer and an appeal was denied by Director’s Delegate Draper.

Approached from the perspective of what is just and expeditious, Trafalgar submitted that it opted to go into the LECB stream. Trafalgar’s position is that the payments to Mrs. Simpson from October 31, 1997, based on the most recent decisions and appeal decisions, are properly characterized as LECBs and the Insurer is entitled to a credit for its overpayment.

Trafalgar relies on the cases of GAN Canada Insurance Company and Lehman¹⁰ and Canadian General Insurance Group and Tustin¹¹ to support the proposition that an insurer may stop paying income replacement benefits and substitute its own offer of an LECB after 104 weeks. Arbitrator Alves considered that same argument in Blake and Jevco Insurance Company and explained:

I disagree that the Lehman decision is authority for the second proposition, that the 1995 amendments mean that an insurer may stop paying income replacement benefits and substitute its own offer of loss of earning capacity benefits pending the report of a REC DAC which fulfills the requirements of section 27(5) of the Schedule.¹²

Director's Delegate Draper refused leave to appeal in Jevco Insurance Company and Jeffery Blake with these words: "[The Arbitrator] rejected Jevco's submission that my decision in GAN Canada Insurance Company and Lehman (OIC P97-00064, August 10, 1998) stands for the proposition that pending a REC DAC report, the insurer can stop paying IRBs and pay LECBs according to its offer. I agree."

Arbitrator Alves reviewed the issue as follows:

The specific question before me, whether the 1995 amendments to section 23(8) of the Schedule permit an insurer to substitute the payment of loss of earning capacity benefits for income replacement benefits before the receipt of a REC DAC report, has been ably addressed by my colleagues .... In each case, the arbitrator has concluded that income replacement benefits continue to be payable pending receipt of the REC DAC report. I am not persuaded that I should depart from my colleagues reasons or conclusions. They have provided a detailed and reasoned analysis of the provisions in question, having regard to the earlier Schedule, the nature of the legislative scheme, and the legislative purpose of the amendment.¹³

Findings:

The question is what authorizes a Part VI LECB? Subsection 21(1) requires a prompt offer and subsection 21(2) specifies that the insured person must continue to qualify for a weekly IRB. In its letter of October 31, 1997, Trafalgar stated that Mrs. Simpson no longer qualified for benefits and if she were entitled to an offer, it would be zero. By making an LECB offer, Trafalgar implicitly accepted that Mrs. Simpson's disability continued. Subsection 23(1) deems that the insured person has rejected the offer in respect of REC and PEC if there is no response within 45 days. In these circumstances, Trafalgar was obliged to, within fifteen days, make arrangements for an assessment to be conducted at a REC DAC. It did not schedule such an assessment for four and one-half months.

IRBs and LECBs are products of a process-driven phenomenon. Two REC DACs were attended by Mrs. Simpson, one from April 6 to April 16, 1998, and the second on July 19 and 20, 1999. If Mrs. Simpson’s position is accepted, all payments by Trafalgar continue to be characterized as IRBs. The issue then becomes how does Mrs. Simpson get into the LECB stream and what is the curative remedy to the situation? For example, should Mrs. Simpson attend a disability DAC or attend a REC DAC?

Subsection 23(5) of the Schedule states that two weeks after the REC DAC report is received, Trafalgar may begin paying LECBs to the insured person, based on its figure for PEC and based on the REC DAC’s determination of REC. Accordingly, Trafalgar should have paid Mrs. Simpson IRBs until 14 days after receiving a REC DAC report. Thereafter, LECBs should be paid in accordance with sections 23 and 23(5.1) of the Schedule.

What happens to the process when a REC DAC fails to make a finding? The first REC DAC Report dated May 8, 1998 was unable to determine whether Mrs. Simpson was capable of working on a full-time basis and, therefore, was unable to determine her gross annual income in respect of her REC, as required by subsection 27(5) of the Schedule. The second REC DAC report determined that Mrs. Simpson would be able to work as a general office clerk, which is in National Occupation Category #1411. It concluded that it was not realistic to expect that, over the long term, Mrs. Simpson could sustain two full-time jobs as she had in the past.

REC DAC assessments were introduced to provide opinions about suitable employment having regard to the insured person’s personal and vocational characteristics, impairment, possible deterioration in impairment and present capacity to earn income. According to subsection 27(5) of the Schedule, REC DAC reports are required to identify the gross annual income the insured person could earn from suitable employment and give reasons for their conclusions. The first REC DAC report dated May 8, 1998 did not fulfill the requirements of the Schedule, but the second REC DAC report did comply with the Schedule’s requirements.

Trafalgar pointed to Arbitrator Palmer’s interim order and its reference in paragraph 2 to the payment of "weekly loss of earning capacity benefits" from May 27, 1998 ongoing to support its arguments about LECBs. However, this order was written with the expectation that a REC could be determined by the DAC in question. The significance of the order is the reference to payment of LECBs "according to the provisions of subsection 23(5) and 23(5.1) of the Schedule, "which requires determination of the insured person's gross annual income. The pre-hearing letter which was written later by Arbitrator Palmer, when a second REC DAC was scheduled, did not characterize the payments to Mrs. Simpson as LECBs or IRBs .

I agree with Trafalgar that it is too late for Mrs. Simpson to take the position that she continue to be paid IRBs and that she should be scheduled for a disability DAC. The REC DAC which was arranged in March of 1998 provides a clear indication of Trafalgar's position. This issue was not raised at the interim hearing which was held almost contemporaneously with the second REC DAC. It only makes sense in the context of there being no interim order.

I find that the benefits payable to Mrs. Simpson after October 31, 1997 should be characterized as weekly IRBs until August 30, 1999, which was 14 days following receipt of the assessment of her residual earning capacity by a REC DAC. As of that date, Trafalgar could begin paying Mrs. Simpson LECBs determined in accordance with sections 23 and 23(5.1) of the Schedule.

Overpayment of Benefits:

Trafalgar submitted that Mrs. Simpson's submissions are not relevant because IRBs were paid to the 104 week mark. All but the last seven weeks were at the full rate notwithstanding that Mrs. Simpson had income as early as September 1996. In addition, the rate of $315 weekly from the date of the interim order to date was well in excess of the recent REC DAC findings. Trafalgar submitted that even on an IRB basis, there had been an overpayment.

Trafalgar asserted that the only time that benefits were not paid was from November 1, 1997 to the date of the interim order. Taking into account what was paid and the uncertainty in 1997 over the LECB provisions as a result of the complex changes in the 1994 and 1995 Schedules, Trafalgar insisted that it may be clear now that Mrs. Simpson was entitled to receive IRBs after 104 weeks but it was not that clear in 1997, nor is it that germane to the issue. According to Trafalgar, it does not matter if the IRBs were terminated properly as the matter was moved into the LECB stream a long time ago.

Mrs. Simpson, in reply, says section 70 of the Schedule must be considered when looking at the issue of overpayment. She told Trafalgar she was working and did not hide anything. Mrs. Simpson also forwarded copies of pay slips and fully informed Trafalgar of all her earnings.

According to Mrs. Simpson, to the extent there might have been a small overpayment, it came about as a result of the agreement between the parties.

The issue of overpayment of benefits was not raised by Trafalgar until later in the hearing. However, both parties had confirmed at the outset of the hearing that the issue of quantum of benefits was not to be adjudicated. Further, I was not presented with sufficient evidence to calculate properly whether or not there had been an overpayment. For these reasons, I dismiss this claim.

Special Award

According to Mrs. Simpson, Trafalgar blatantly disregarded the Schedule. Mrs. Simpson submits that the circumstances of this disregard amount to malice or malevolence. She seeks the most substantial award possible. According to Mrs. Simpson, the request for a special award is not based on anything to do with confusion and uncertainty about the law. No benefits were paid for eight months from October 31, 1997 until after the interim award was issued.

Mrs. Simpson alleges that Trafalgar's letter of October 31, 1997 is incomprehensible. Even if Trafalgar decided to send her to the LECB stream, it did nothing for four and one-half months when the REC DAC should have been scheduled within 45 days from when the offer was rejected. According to Mrs. Simpson, Trafalgar ignored Mrs. Simpson's rights and its obligations under the Schedule. Mrs. Simpson's submission is that the special award should be 50 per cent of $11,800, which is $5,900.

Trafalgar recommended that the interim special award should be rescinded. In the alternative, Trafalgar submitted that I should decline to deal with the issue since leave to appeal has already been sought. In Trafalgar's opinion, Arbitrator Palmer wrongly exercised her discretion.

I do not accept the conclusions of either party. I believe that Arbitrator Palmer exercised her discretion correctly and I find considerable merit in her reasoning relating to the issue of the special award. I accept her finding that Trafalgar unreasonably withheld Mrs. Simpson’s weekly benefit payments by failing to follow the provisions of the Schedule. I agree that Trafalgar could have continued the termination procedure in section 64 or properly followed the provisions of Part VI, but it did neither.

I also accept Arbitrator Palmer’s reasoning that the Schedule’s LECB provisions are complex and that the law, at the time, was not well settled as to how changes between the 1994 Schedule and the 1995 Schedule should be interpreted. In those circumstances, I find that it was reasonable to award Mrs. Simpson a lump sum of 10 percent of the amount to which she was entitled at the date of Arbitrator Palmer’s order, together with interest on all amounts then owing (including unpaid interest) at the rate of 2 percent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

EXPENSES:

If the parties are unable to resolve the issue of expenses, I may be spoken to.

February 4, 2000

Judith Killoran Arbitrator

Date