Neutral Citation: 2001 ONFSCDRS 165

FSCO A01-000215

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

PAMELA SIMPSON

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before:

David Leitch

Heard:

October 29, 30 and November 1, 2001, at the offices of the Financial Services Commission of Ontario in Toronto

Appearances:

David S. Wilson for Ms. Simpson

John D. Dean for Allstate Insurance Company of Canada

Issues:

The Applicant, Pamela Simpson, was injured in a motor vehicle accident on May 4, 2000. She applied for and received statutory accident benefits from Allstate Insurance Company of Canada ("Allstate"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Ms. 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:

1. Do I have the jurisdiction to issue and, if so, should I issue an order establishing the Applicant's entitlement to income replacement benefits?

2. Is accrued vacation pay included in the calculation of the Applicant's income replacement benefit?

3. Is the Insurer entitled, under section 60 of the Schedule, to deduct from the Applicant's income replacement benefit a temporary supplement she received from another insurer in respect of a motor vehicle accident on November 1, 1995?

4. Is the Insurer entitled, under section 47 of the Schedule, to recover an overpayment of income replacement benefits to the Applicant?

5. Is the Insurer required, under section 282(10) of the Insurance Act, to pay a special award to the Applicant?

Result:

1. I have the jurisdiction to issue, and I issue, the following order: on November 1, 2001, the last day of the hearing, the Applicant continued to be entitled to receive income replacement benefits payable by the Insurer.

2. Accrued vacation pay is included in the calculation of the Applicant's income replacement benefit.

Issues 3, 4 and 5 are to be spoken to at a resumption of the hearing by telephone conference on Friday, December 14, 2001, at 9:30 a.m.

Issue 1: Request for an order establishing the Applicant's right to income replacement benefits

Background;

Soon after, and as a result of, the motor vehicle accident of May 4, 2000, the Applicant started to receive income replacement benefits from the Insurer. By letter dated October 16, 2000,² the Insurer informed the Applicant that it would be terminating these benefits, subject to her right to request a DAC assessment. The Applicant, who was represented,³ did not request a DAC assessment but rather applied for mediation.⁴ Sometime in November 2000 (the exact date was unclear), the Insurer stopped paying income replacement benefits. According to the Report of Mediator dated February 1, 2001,⁵ mediation of her entitlement to this benefit, and of the amount payable, failed. The Applicant applied for arbitration on February 5, 2001.⁶ By early March 2001, Applicant's counsel indicated his intention to file a motion for interim benefits; this motion and the pre-hearing discussion were set for the same date, May 16, 2001.⁷

An issue then developed as to whether the Insurer was entitled to have the Applicant examined by a doctor of its choice on April 25, 2001.⁸ The Applicant refused to attend this examination. However, when the parties appeared before Arbitrator Evans on May 16, 2001, they reported having entered into an agreement under which the Insurer would reinstate the Applicant's income replacement benefits as of June 26, 2001, on the condition that she attend another medical examination scheduled for that day. The parties also informed Arbitrator Evans that the Applicant had recently received a payment of almost $15,000 in relation to her November 1, 1995 motor vehicle accident. This payment, together with the reinstatement of benefits, led Arbitrator Evans to conclude that the Applicant's motion for interim benefits was premature.

Arbitrator Evans then set October 29, 2001, and following, as the hearing dates for the arbitration of the balance of the issues. He listed as an issue for arbitration the Applicant's entitlement to income replacement benefits from the termination date in November 2000.⁹

When the matter came on for hearing on October 29, 2001, the Applicant was still receiving income replacement benefits pursuant to the Insurer's decision to reinstate and the Insurer did not dispute her entitlement to continue receiving those benefits as of that date. In Mr. Dean's words, the Insurer was "not opposing the Applicant's position that she currently satisfies the test for income replacement benefits."

The Applicant's reason for requesting an order:

The Applicant sought an order establishing her entitlement to income replacement benefits. Such an order would, according to Mr. Wilson, afford the Applicant the procedural protection contemplated by section 287 of the Insurance Act. Section 287 reads as follows:

287. An insurer shall not, after an order of the Director or of an arbitrator, reduce benefits to an insured person on the basis of an alleged change of circumstances, alleged new evidence or an alleged error, unless the insured person agrees or unless the Director or an arbitrator so orders in a variation or appeal proceeding under sections 283 or 284 of the Insurance Act.

Mr. Wilson maintained that once an order establishing his client's entitlement to income replacement benefits has been issued, section 287 will operate to prohibit the Insurer from reducing or terminating those benefits without obtaining a superceding order by way of an appeal or an application to vary or revoke under sections 283 or 284 of the Insurance Act. There is, apparently, no clear case law on this point. Mr. Wilson did not, however, expect me to decide the point as the Applicant's benefits have not been reduced or terminated; he only requested that I issue an order establishing his client's entitlement to income replacement benefits.

My jurisdiction to issue the order requested:

Mr. Dean, on behalf of the Insurer, challenged my jurisdiction to issue the order requested. He submitted that I only have jurisdiction with respect to disputed issues and that once benefits were reinstated and the Insurer acknowledged entitlement at the hearing, the issue of the Applicant's entitlement to income replacement benefits was no longer in dispute. In support of this argument, Mr. Dean pointed to various provisions of the Insurance Act and the Dispute Resolution Practice Code, in particular sections 279(1) and 282 (3) of the Insurance Act which read as follows:

279. (1) Disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled shall be resolved in accordance with sections 280 to 283 and the Statutory Accident Benefits Schedule.

280. (3) The arbitrator shall determine all issues in dispute and such other issues as the parties may agree.

Mr. Dean also argued that an order establishing the Applicant's entitlement would "change the nature of the relationship between the parties." He submitted that I only had the authority to effect such a change after first conducting an adversarial proceeding, involving evidence and argument, and then exercising my quasi-judicial function to adjudicate the claim for benefits. Having not been required to adjudicate the Applicant's claim for income replacement benefits, the most I could do in this case, he submitted, was to note in my decision that the parties agreed at the hearing that the Applicant satisfied the test for entitlement at that time. If I went further and issued an order based only on the parties' agreement with respect to entitlement, I would be opening the floodgates: all recipients of ongoing statutory accident benefits could then apply for orders establishing their entitlement and, Mr. Dean predicted, many would apply for such orders so as to obtain whatever procedural protection section 287 of the Insurance Act is ultimately determined to provide.

Responding to Mr. Dean's floodgates argument, Mr. Wilson noted that the Applicant here only commenced an arbitration proceeding after her benefits were terminated by the Insurer; in other words, her request for an order is based on more than a simple payment of ongoing benefits. He submitted that if the Insurer had wanted to avoid the issuance of an order establishing entitlement, it should have demanded, as a condition of reinstatement, that the Applicant withdraw her application for arbitration. Only that, he said, would have put the parties back in the position they were in prior to the termination of benefits and the commencement of the arbitration. Mr. Wilson also argued that the opening words of section 279(1) "Disputes in respect of any insured person's entitlement to statutory accident benefits . . ." are wide enough to give me the authority to issue the order requested.

On my analysis of this issue, it is important to begin by noting that the agreement of the parties only dealt with entitlement; it did not address the issue of the Applicant's request for an order establishing entitlement. Nor did it, or could it, resolve the question as to whether I have the authority to issue an order establishing the Applicant's entitlement. The parties were quite entitled to make submissions with respect to my authority in this regard but even if they had agreed or simply assumed that I had this authority, my order would still be a nullity if issued without jurisdiction. As I said to Mr. Dean at the hearing, a jurisdictional question is never just an "issue in dispute between the parties"; it is also a question which the arbitrator must consider, even if not raised by the parties, and answer before purporting to decide the issue in dispute between the parties.

I read the opening words of sections 279(1) of the Insurance Act as conferring upon me the authority to decide any closely-related jurisdictional, procedural or remedial issue even if the underlying issue of entitlement or quantum is not disputed.

In addition, I refer to and rely upon a decision of a Director of Arbitrations which held that this tribunal has an inherent power to control its own process and, as such, is not bound to accept a withdrawal as putting an end to a case without further orders or consequences.¹⁰

I, therefore, find that I have both a statute-based and an inherent power to issue the order requested by the Applicant despite the fact that the underlying entitlement issue was effectively withdrawn by agreement of the parties and was not the subject of adjudication.

My reason for exercising that jurisdiction in the Applicant's favour:

I further find that I should exercise my jurisdiction to issue an order establishing the Applicant's entitlement to benefits. In my view, the Applicant is entitled to this order because the issue of her entitlement to benefits since termination was identified at the pre-hearing as an issue for arbitration. In other words, despite its decision to reinstate benefits, the Insurer had reserved its right to come before me at the hearing and contest the Applicant's entitlement to benefits since termination. Having decided not to contest the Applicant's entitlement, I fail to see how my issuing an order establishing her entitlement results in any unfairness or prejudice to the Insurer. I have made no finding about the effect of this order. Both parties retain all their rights to dispute the effect of the order. In any event, it is also not clear to me how the issuance of the order "changes the nature of the relationship between the parties." Even if section 287 does afford the Applicant the procedural protection described by Mr. Wilson, a point which remains to be determined, the Applicant will still be required to satisfy the applicable rules of eligibility.

On the other hand, I clearly see how my refusing to issue an order establishing entitlement results in both unfairness and prejudice to the Applicant: unfairness in that entitlement was not contested by the Insurer, though it could have been; prejudice in that, without the order, the Applicant can make no argument about its effect. An order establishing the Applicant's right to income replacement benefits will, therefore, be issued.

Before leaving this issue, I want to express my doubt that this decision will lead to the flood of applications anticipated by Mr. Dean. In an application for arbitration seeking an order establishing entitlement on the ground that benefits are currently being paid by the insurer, one would expect the only issue for arbitration to be the applicant's request for an order, not the applicant's entitlement to benefits. In the present case, the pre-hearing letter identified the Applicant's entitlement to benefits since termination as an issue for arbitration. This fact, and the fact that the Insurer did not contest entitlement at the hearing, are central to my decision to issue the order requested in this case.

Issue 2: Vacation Pay:

The facts:

The Applicant's income replacement benefit was calculated by averaging her income in the four weeks prior to the accident. A letter from the employer confirms that it "contributed" an amount equivalent to 10 percent of the Applicant's wages towards the "accrual of vacation pay."¹¹ It is this amount which the Applicant alleges the Insurer incorrectly refused to include in the calculation of her income replacement benefit.

The Applicant testified that as of May 4, 2000, the date of the accident, she had been working for a Toronto hotel, the Hilton, for 25 years and that she was entitled to take five weeks of paid vacation per year. She stated that she was permitted to "carry forward" any untaken vacation from year to year and that she did not always take five weeks of vacation per year. Her testimony was that between November 1995 and January 1999 she took no vacation at all. She testified that the last time she took a vacation prior to the accident was during the month of February 2000. According to pay slips entered for that month,¹² she appears to have taken three weeks vacation at that time.

None of this evidence was challenged or contradicted but I nevertheless note that I have given careful consideration to the Applicant's rather surprising evidence that she took no vacation between November 1995 and January 1999. It would clearly be an unusual employee who would work for that length of time without taking the vacation time to which he or she was entitled. However, I am satisfied that the Applicant was such an employee. Paragraph 4 of her Affidavit in support of her motion for interim benefits contains the following uncontested statements:

At the time of the first accident, on November 1, 1995, I had been working two full time jobs, and had been doing so for many years. At the Weston Harbour Castle, I was a linen room attendant which involved the dusting, vacuuming and general cleaning of rooms and the making of beds. I worked this job from 3:30 p.m. to midnight. As well, from 6:30 a.m. to 3:00 p.m. I worked at the Toronto Hilton, also as a linen room attendant, however, with significantly lighter duties. My usual pattern was to work six days a week. For four days a week, I would work sixteen hours per day and for the fifth and sixth days, would work eight hours per day.

The Applicant did not testify about whether she had an established "vacation year," that is, the start date and the end date for the year to which the employer allocated her five weeks annual vacation. However, judging by the "year-to-date" vacation entries on the pay slips and the Applicant's testimony, it is clear that the employer was using the calendar year to keep track of her taken vacation time in the year of the accident.

The last pre-accident pay slip issued by the employer contains the entry "Vacation acc. $3,124.42."¹³ The Applicant testified that this figure represented the amount of unpaid vacation pay accumulated with respect to her untaken vacations. She testified that she was entitled to receive this money in the event her employment relationship ended, which it had not as of the date of the hearing, but that while she was working, she was only able to access her vacation account by taking vacations. She could not request the money instead of taking vacations.

The law and analysis:

Both counsel referred to the recent decision in the case of Howden and Pafco Insurance Company.¹⁴ In that case, the Insurer's exclusion of accrued vacation pay from the income replacement benefit calculation was upheld by an arbitrator and by a Director's Delegate on appeal. Mr. Wilson sought to distinguish the present case from the Howden case on the facts; Mr. Dean submitted that no such factual distinction could be made. The importance of the facts to a proper determination was emphasized in the Howden decision itself when the Director's Delegate wrote:

Vacation pay is income from employment. The problem is in determining the period to which it should be allocated. Ms. Howden argues that vacation pay should always be allocated as it accrues.

Decisions have not established a single method of attribution. Rather, the approach is flexible, depending on the facts. In my view, that is as it should be. The accrual method does not meet all situations and can give rise to harsh results.

I consider it necessary, before analysing the Howden case, to set out the facts of that case as I understand them, noting the relevant similarities and differences with the present case.

Like the Applicant's, Ms. Howden's income replacement benefit was calculated by averaging her income in the four weeks prior to the accident. Like the Applicant, Ms. Howden was entitled to five weeks paid vacation per year and her accrued vacation pay was calculated at the rate of 10 percent of her base pay. Like the Applicant, Ms. Howden could not request her accrued vacation pay instead of taking vacations. Unlike the Applicant, Ms. Howden could not "carry forward" any untaken vacation from year to year; she was in what might be colloquially called a "use it or lose it" situation. Like the Applicant, Ms. Howden could claim any accumulated vacation pay if her employment was terminated but, unlike the Applicant, she was terminated after her accident.

Unlike the Applicant, whose vacation account included accrued vacation pay for all untaken vacations over previous years, Ms. Howden only received her remaining vacation pay for the year of her termination; earlier accumulations would have either been taken as vacation or wiped out. Like the Applicant, Ms. Howden had taken a significant portion of her annual vacation entitlement before the accident but not in the four weeks before the accident.

On the facts of the Howden case, the Director's Delegate held:

In my view, this case turns on its facts. The purpose of vacation pay is to ensure that employees continue to receive wages during holiday periods when they are not working. Ms. Howden was paid her full salary for the four weeks [before the accident]. Under the collective agreement, vacation time had to be taken within the vacation year. Vacation was not payable unless Ms. Howden took a paid vacation in lieu of working or was terminated, neither of which happened in the relevant time [ie, in the four weeks before the accident]. According to the evidence, at the time of the accident, Ms. Howden was well on her way to having taken the vacation time to which she was entitled in the year before the accident. In other words, paid vacation was included in her annual income, not on top of it. I read the arbitrator's decision as coming down to whether application of the accrual method over the four weeks reasonably reflected Ms. Howden's earnings picture.

I am not persuaded, given the facts, that the arbitrator erred as a matter of law in concluding that the accrued vacation pay paid out after the accident was not income from employment for the four weeks before the accident.

This passage, and the passage previously quoted from the Howden decision, appear to me to be based on the following logic.

Vacation pay is income but, unlike regular pay which an employee actually receives each pay period, vacation pay is a fixed percentage of regular pay which is held back by the employer in order to accumulate the funds necessary to continue the employee's regular pay during his or her vacations. Normally, vacation pay is paid out as regular pay during vacation periods with the result that the employee's average income per pay period is simply the amount he or she received each pay period, including the periods of paid vacation. In the normal cycle, the employee's "earnings picture" can be accurately determined using the "income when received" approach. No consideration need be given to accrued vacation pay or to the "accrual" approach.

I understand the Director's Delegate to be saying that accrued vacation pay can also be excluded from the benefit calculation in a case like Howden because the motor vehicle accident there did not seriously interrupt the normal cycle. Ms. Howden's employer held back vacation pay in the year of the accident and then paid out a significant portion of it for vacations taken before the accident ever happened. Any remaining vacation pay remitted to Ms. Howden after her termination can be ignored because it was not paid in respect of any vacation or termination in the four weeks before the accident.

In the present case, the Applicant had probably also taken a significant portion of her annual vacation entitlement for the year of the accident before the accident ever happened. It is also clear that the Applicant took no vacation and was not terminated in the four weeks before the accident. I nevertheless distinguish the present case from the Howden case on the following basis.

The Applicant was not constrained, as was Ms. Howden, to take her annual vacation in accordance with the normal cycle described above. In fact, between November 1995 and January 1999, the Applicant took no vacation at all but rather took her accrued vacation pay through annual contributions to her vacation account.

I recognize that the Applicant's employer holds this money in trust and must, eventually, pay it out to the Applicant, just as the employer in the Howden case had to pay Ms. Howden her remaining vacation pay on termination. However, in the Howden case, the employer's payment was only necessary in order to reconcile Ms. Howden's vacation entitlement for the year of termination. It did not form part of Ms. Howden's normal "earnings picture"; in the normal year, Ms. Howden was forced to take her vacation pay in the form of paid vacations. The Applicant, on the other hand, was not forced to take her vacation in the form of paid vacations. She was permitted to take her vacation pay in the form of contributions to her vacation account. Moreover, the available evidence regarding her recent employment history confirms that she most frequently, though not always, took her vacation pay in the form of contributions to her vacation account.

In my view, it would be unfair to a long-term employee like the Applicant to determine her "earnings picture" for vacation pay purposes by exclusive reference to the year of the accident. Evidence with respect to the years preceding the accident should also be considered. But like any still photograph, an "earnings picture" can only capture one version of reality. Taking the evidence in this case as a whole, I find that the most accurate, single "earnings picture" for the Applicant would show her taking her vacation pay in the form of contributions to her vacation account, not in the form of paid vacations. These contributions constituted additional income to the Applicant, over and above the regular pay she earned by actually working through pay periods when she could have been on paid vacation. It follows that the Applicant's income replacement benefit should replace this lost income, not just her lost regular pay.

Accordingly, I find that the Applicant's accrued vacation pay income must be included in the calculation of her income replacement benefit.

EXPENSES:

This matter may also be spoken to at the resumption of the hearing on December 14, 2001.

November 16, 2001

David Leitch

Arbitrator

Date

Neutral Citation: 2001 ONFSCDRS 165

FSCO A01-000215

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

PAMELA SIMPSON

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

ARBITRATION ORDER

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

1. I have the jurisdiction to issue, and I issue, the following order: on November 1, 2001, the last day of the hearing, the Applicant continued to be entitled to receive income replacement benefits payable by the Insurer.

2. Accrued vacation pay is included in the calculation of the Applicant's income replacement benefit.

November 16, 2001

David Leitch

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96 and 303/98.
2. 2Exhibit 4, Tab 1.
3. 3Exhibit 4, Tab 2.
4. 4Exhibit 4, Tab 3.
5. 5Exhibit 4, Tab 4.
6. 6Exhibit 4, Tab 5.
7. 7Exhibit 4, Tabs 6 and 7.
8. 8Exhibit 4, Tabs 8, 9 and 10.
9. 9Exhibit 13, p. 2.
10. 10Chapman and Allstate Insurance Company of Canada and Wellington Insurance Company OIC P-001897 & P-001898, October 6, 1994.
11. 11Exhibit 3, Tab 1, p. 2.
12. 12Exhibit 3, Tabs 4 and 5.
13. 13Exhibit 3, Tab 6.
14. 14Appeal P00-00028. It should be noted that once I informed counsel that I considered myself bound by this decision, Mr. Wilson decided not to make any argument before me with respect to two other quantum issues which arise in this case but which he acknowledged are resolved by the Howden decision: CPP contributions and Employment Insurance Premiums.