Allstate Insurance Company of Canada v. Progressive Casualty Insurance Company of Canada, 2002 ONFSCDRS 109

Neutral Citation: 2002 ONFSCDRS 109

Appeal P00-00052

Appellant

and

Respondents

Before:

Stewart McMahon, Director’s Delegate

Counsel:

Meredith Jackson Donohue (for Allstate)

Pamela A. Brownlee (for Progressive)

David Hayward (for Mr. Saliba)

APPEAL ORDER*

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

Paragraph 2 of the arbitration order dated August 28, 2000 is revoked and replaced with the following:

2(a) With respect to supplementary medical and rehabilitation expenses incurred after the surgery, but prior to January 28, 2002, Allstate and Progressive shall indemnify Mr. Saliba in equal measure, subject to their respective limits of $500,000. Any expenses incurred after January 28, 2002, are the responsibility of Progressive, subject to its limits.

2(b) With respect to the attendant care expenses incurred after the surgery, Allstate and Progressive shall indemnify Mr. Saliba in equal measure, subject to their respective limits.

Progressive shall pay Mr. Saliba’s appeal expenses.

July 19, 2002

Stewart M. McMahon Director’s Delegate

Date

REASONS FOR DECISION

I. THE ISSUE

Mr. Saliba sustained typical whiplash type injuries in two separate motor vehicle accidents that occurred approximately three months apart. The Appellant, Allstate Insurance Company of Canada (“Allstate”), insured Mr. Saliba with respect to the first accident on January 28, 1992. The Respondent, Progressive Casualty Insurance Company of Canada (“Progressive”), insured him at the time of the second on May 3, 1992.

Mr. Saliba’s recovery was complicated. Following the first accident, he remained off work continuously until September 1992, when he entered a graduated return to work program. Unfortunately, this program proved unsuccessful. Mr. Saliba’s symptoms worsened, and in July 1993, he left work and did not return. Four years later, in July 1997, Mr. Saliba underwent a cervical laminectomy to relieve compression in his spinal cord. The results were disastrous. Mr. Saliba awoke from the surgery with partial quadriplegia. Since that time, he has required the assistance of an attendant. He has also incurred significant supplementary medical/rehabilitation expenses, including the costs associated with the purchase and renovation of a house.

The proceedings have been relatively protracted. Prior to the surgery, Mr. Saliba applied for arbitration seeking payment of ongoing income replacement benefits (“IRBs”). Although the surgery occurred before the arbitration hearing took place, the matter continued in relation to IRBs only. In a decision dated September 16, 1999 (“the first decision”), Mr. Saliba was awarded ongoing IRBs. In the course of this decision the arbitrator determined that both Insurers were obliged to respond to Mr. Saliba’s claim, and that each accident gave rise to a “fresh set of statutory accident benefits.” However, she went on to find that Progressive was entitled to deduct the IRBs paid by Allstate, effectively reducing its obligations to zero. Neither Insurer appealed this ruling.

In a decision dated August 28, 2000 (“the second decision”), another arbitrator ordered both Insurers to respond to Mr. Saliba’s claims for supplementary medical/rehabilitation benefits and attendant care benefits. However, he went on to find that Progressive was only responsible for those portions of the expenses that exceeded the limits of the Allstate policy. Allstate appeals this ruling. It submits that the arbitrator should have ordered the Insurers to split the expenses equally.

One of the central issues in the second decision, and in this appeal, is the extent to which the Insurers’ obligations regarding supplementary medical/rehabilitation benefits and attendant care benefits were determined by the general findings in the first decision relating to causation and the Insurers’ obligations to respond to Mr. Saliba’s claims. In the event that the Insurers’ respective obligations for these benefits are not res judicata, the second issue in this appeal is how to structure the payments between the two Insurers.

After this second decision, a third arbitration hearing was conducted with respect to Mr. Saliba’s entitlement to expenses related to the purchase and modification of a family home. There is no appeal pending with respect to this decision. The question of how to divide responsibility for this expense between the Insurers was not litigated on the understanding that, because it is a supplementary medical and rehabilitation expense, its division would be disposed of by the order in this appeal.

II. HISTORY OF THE PROCEEDINGS

To put the res judicata argument in context, it is necessary to trace the proceedings and the positions advanced by the parties at the various stages.

Following the first accident, Allstate paid Mr. Saliba IRBs for approximately seven months. Progressive paid benefits for almost three years. Each Insurer took the position that when it terminated the benefit, Mr. Saliba was capable of returning to his own occupation. The Insurers also took the position that the subsequent surgery was not necessitated by the injuries sustained in the accidents. Alternatively, each Insurer took the position that the other was responsible for any IRBs that were owing.

Mr. Saliba filed two separate Applications for Arbitration, seeking an order for the payment of ongoing IRBs from each Insurer. The arbitrator concluded that Mr. Saliba suffered a “substantial inability to perform the essential tasks of his...occupation or employment” from the time of the first accident onward, and consequently, met the test for IRBs set out in s. 12(1) of the SABS-1990.[1] She also found that he was continuously prevented “from engaging in any occupation or employment for which he...was reasonably suited by education, training or experience” and hence remained entitled to benefits beyond 156 weeks.[2] In addition, she concluded that there was a “causal connection” between the surgery and the accidents.

The arbitrator was also asked to determine which Insurer was responsible for paying Mr. Saliba’s IRBs, and if both, how responsibility should be divided. She reviewed a number of competing opinions about the relative gravity of the two accidents. She determined that beyond a finding that each of the accidents made a material contribution to Mr. Saliba’s condition, it was not necessary to apportion responsibility precisely, because rather than splitting a single benefit, each of the accidents gave rise to a “fresh set of...benefits.” It is worth quoting the arbitrator’s reasoning on this issue:

In my view, neither the Act nor the Schedule contemplate apportionment of statutory accident benefits in such circumstances. Rather, each accident gives rise to entitlement to a fresh set of statutory accident benefits. Each insurer remains fully responsible for Mr. Saliba’s statutory accident benefits since each 1992 accident was a cause of his impairment. In the case of weekly income benefits, deduction of collateral benefits [s. 12(4)9b)] prevents double compensation. I do not need to apportion Mr. Saliba’s benefits on a precise basis, given my findings.

The combined effect of these determinations was that each Insurer was responsible for the payment of IRBs, but Progressive was entitled to deduct the IRBs paid by Allstate, thereby reducing its obligation to zero.

Following the release of the first decision, the parties were unable to resolve their differences concerning Mr. Saliba’s entitlement to supplementary medical/rehabilitation benefits, and attendant care benefits, prompting Mr. Saliba to file two further Applications for Arbitration seeking reimbursement of these expenses from each of the Insurers.

It is worth noting what was not in issue at the start of the second proceeding. When the Insurers’ counsel drafted their respective Responses, each quoted and relied on the passage reproduced above setting out the arbitrator’s view on apportionment.

Allstate’s starting point was that neither Insurer had appealed the first decision, and therefore the general comments regarding causation, and the statements that each accident gave rise to a fresh set of accident benefits, and those benefits should not be apportioned, were all res judicata. However, it argued that the supplementary medical/rehabilitation benefit and attendant care benefit sections of the SABS do not contain a provision for the deduction of collateral benefits similar to those found in s. 12(4)(b). In these circumstances, it argued that the Insurers should split the benefits equally.

Progressive agreed that the parties were bound by the arbitrator’s ruling that each of the accidents gave rise to a fresh set of accident benefits, and that by virtue of the ruling on the causation issue, each Insurer was “fully responsible for Mr. Saliba’s statutory accident benefits.” However, it relied on s. 9(1) of the SABS, which it argued operates in the same fashion as s.12(4)(b). It took the position that it had no obligation to pay benefits until the limits of Allstate’s policy were exhausted.

With respect to the claim for attendant care benefits, s. 7(2) of the SABS provides that the maximum monthly benefit is $3,000, to a limit of $500,000 per insured. Each Insurer took the position that Mr. Saliba was limited to a single monthly claim of $3,000. Allstate argued that this amount should be split equally. Progressive argued that it did not owe anything until such time as Allstate’s $500,000 limit was exhausted.

Mr. Saliba took the position that the entire matter was res judicata. He argued that each Insurer was responsible for responding to his claims. However, he “expected that Progressive would continue to employ the collateral benefits sections of the Schedule to avoid payment – at least as long as similar benefits are available under the Allstate policy.” With respect to the attendant care expenses, Mr. Saliba took the position that because he had been involved in more than one accident, he could claim up to $3,000 per month from each insurer.

In effect, the real dispute at the second arbitration was over the scope of, or implications of, the prior ruling that benefits should not be apportioned.

The arbitration decision with respect to these issues (the “second decision”) was released on August 28, 2000. The hearing arbitrator listed three substantive issues for the hearing. The first two were framed in very broad terms that could relate to any claim for benefits: (1) Which Insurer is required to pay Mr. Saliba’s accident benefits? (2) If both Insurers are required to pay, should Mr. Saliba’s benefits be apportioned? The third issue related specifically to the claim for attendant care benefits: (3) Is Mr. Saliba entitled to claim beyond the limits of one policy of insurance under the Statutory Accident Benefits Schedule, or is he restricted by the limit contained in subsections 7(2) and 7(3) of the Schedule for his entire claim?

The arbitrator disposed of the first two issues on the basis of res judicata. He made reference to Mr. Saliba’s assertion that all the issues before him had already been determined, but interestingly, made no mention of the concessions made by the Insurers. His conclusion that the first two issues were res judicata was based on two principal grounds. One, he concluded the “factual underpinnings” made by the arbitrator in the first decision regarding liability for IRBs were “essentially the same as those necessary for a finding on the care and medical/rehabilitation benefits.” Second, he referred to the fact that in the “Order” the arbitrator used general language, stating that each of the Insurers was responsible for paying Mr. Saliba’s “claims for accident benefits,” rather than restricting herself to ordering that each of the Insurers was responsible for paying IRBs.

Having disposed of the first two issues, the arbitrator went on to state that this left him with the question of whether Mr. Saliba was restricted to a maximum of $3,000 per month for care benefits, and “with no agreed way to structure the payment of Mr. Saliba’s care needs by the Insurers.”

The arbitrator agreed with Mr. Saliba’s contention that he was entitled to recover up to $6,000 per month in attendant care benefits. He stated that the payment of these benefits should be consistent with the allocation of weekly benefits in the first decision. He applied a version of the notion of “excess insurance,” finding that the Allstate policy provided primary coverage, and the Progressive policy provided excess coverage. In addition, he relied on the collateral benefits provisions of s. 9(1). He concluded: “[f]ollowing the priority scheme set up in [the first decision], Progressive need not make any payments towards Mr. Saliba’s care expenses unless the total amount payable in any month exceeds Allstate’s limit of $3,000 . . .”

Curiously, the arbitrator referred only to attendant care benefits, and makes no explicit reference to the “structuring” of supplementary medical/rehabilitation benefits. In any event, on appeal, the parties proceeded on the basis that the intent of the order was that the same “priority scheme” would apply to the payment of supplementary/medical benefits and that accordingly, Progressive would only be responsible for the payment of these benefits once Allstate’s limits were exhausted.

III. THE POSITIONS ON APPEAL

As noted at the start of these reasons, Allstate has appealed the second decision. It argues that the second arbitrator erred by over extending the first arbitrator’s comments on apportionment. It also argues that the second arbitrator erred in applying a notion of primary and excess insurance with respect to the attendant care claims.

Progressive agrees that by virtue of the first decision, both Insurers were “clearly exposed” to the payment of supplementary medical/rehabilitation benefits and attendant care benefits. To this point, the two Insurers are on common ground. However, Progressive maintains that the comments regarding apportionment apply to Mr. Saliba’s claims as a whole. It argues that the second arbitrator did not err in applying a notion of primary and excess insurance. It submits that Allstate, as the Insurer on risk at the time of the first accident, must respond to all claims first, and that Progressive need only respond once Allstate’s limits are exhausted.

Mr. Saliba’s only concern was that any division between the Insurers did not interfere with his right to complete indemnity for his expenses. His attendant care expenses have typically exceeded $3,000 per month. Initially, there was some confusion as to whether the Insurers were challenging the arbitrator’s ruling that Mr. Saliba was entitled to be indemnified for these expenses up to a maximum of $6,000 per month. During a pre-hearing conference on November 3, 2000, the Insurers confirmed there was no such challenge, and that the only issue was the division of the expenses between the two Insurers.

IV. ANALYSIS

A. Did the arbitrator err when he concluded that the Insurers’ respective obligations regarding the payment of supplementary medical and rehabilitation expenses was res judicata?

The common law plea of res judicata can take two forms: cause of action estoppel, and issue estoppel. In the first, the defendant seeks to strike the action on the basis that it has already been adjudicated. In the second, the defendant concedes that the subsequent action is different, but maintains that a crucial issue common to both proceedings has already been determined, and cannot be revisited in the second proceeding. See Angle v. Canada (Minister of National Revenue), [1975] 2 S.C.R. In this case, we are concerned with the second variant, issue estoppel.

The three requirements for a plea of issue estoppel are: (1) the same question has been decided; (2) the decision giving rise to the estoppel was final; and (3) the parties or their privies are the same as the parties to the first decision. See Angle v. Canada, supra. As noted by the arbitrator, only the first requirement – the identity of the issue – was in question.

The question common to the proceedings must be on all fours. A similar question is not sufficient to found a plea of res judicata. In addition, as noted in Angle v. Canada, supra, “it will not suffice if the question arose collaterally or incidentally in the earlier proceedings or is one which must be inferred by argument from the judgement.” In addition, it must have been fundamental to the decision arrived at in the earlier proceeding.

In this case, the Insurers conceded, with good reason, that the findings that each accident had materially contributed to Mr. Saliba’s condition, that the subsequent surgery was causally connected to the accidents, and most importantly, that each accident gave rise to a “fresh set” of accident benefits, were all res judicata. In accordance with those findings, Mr. Saliba asserted separate claims against each Insurer seeking indemnity for this supplementary medical/rehabilitation and attendant care expense.

However, in my view, the second arbitrator went too far when he concluded that the question of how to structure the payment of all benefits had been determined in the first proceeding. The first arbitrator was not asked to, nor did she rule on, how to structure the payment of benefits in general. It is true that in some places she used general language to describe the Insurers’ respective obligations. However, these general statements must be read in context. The issue before her was Mr. Saliba’s entitlement to IRBs, not benefits in general. The focus on IRBs, rather than benefits in general, is reflected in paragraph 3 of the “Results.” In the opening sentence, the arbitrator indicates that Mr. Saliba’s benefits – a general statement – should not be apportioned. However, she then goes on in the second sentence to specifically refer to the payment of IRBs and, more importantly, to calculate the amount Progressive should pay by incorporating the collateral payment provisions of s. 12(4), which do not apply to supplementary medical/rehabilitation or attendant care benefits.

Part of the difficulty in ascertaining the scope of the first decision can be traced to the first arbitrator’s use of the term “apportionment” to signify a number of related but distinct concepts. In one sense, the arbitrator was addressing the question of whether Mr. Saliba was restricted to a single set of benefits to be split, or “apportioned,” between the two Insurers. The Insurers conceded that they were bound by the determination that each accident gave rise to a fresh set of benefits. The first arbitrator also appears to have used the term in the context of a debate over the degree to which the two accidents contributed to Mr. Saliba’s condition. Again, the Insurers conceded that each accident made a material contribution to Mr. Saliba’s condition. However, the second arbitrator took the matter further. He took the first arbitrator’s comments to signify a “priority scheme” that required Allstate to respond to all claims first, with Progressive responsible only for any amount beyond Allstate’s limits.

This latter question, which the second arbitrator adeptly refers to as structuring the payment of benefits, turns in large measure on the collateral benefits provisions in the various parts of the SABS. There is no single provision that governs the deduction of collateral benefits. Section 12(4)(b) provides a deduction in the IRB context, whereas s. 9(1) governs supplementary medical/rehabilitation and attendant care benefits. It does not necessarily follow that s. 12(4)(b) and s. 9(1) operate in the same way. Consequently, it is incorrect to say the issues in the two hearings were the same. In addition, the “factual underpinnings,” to use the arbitrator’s phrase, are not the same. Allstate was already paying, or was under an obligation to pay IRBs when Progressive’s obligation to start paying IRBs arose. In contrast, the extraordinary expenses that this proceeding relate, to did not arise until after the second accident.

As a result, I accept Allstate’s submission that the issue of how to structure the payment of supplementary medical/rehabilitation benefits and attendant care benefits was not res judicata.

B. How should the payment of Mr. Saliba’s expenses be divided as between the Insurers?

Although the ultimate question of how to divide responsibility between the two Insurers was not determined in the first decision, a number of the sub-issues that form the foundation of the issue were. It is worth repeating some of these, together with a couple of basic principles.

First, each accident triggers the right to apply for a “fresh set of benefits.” Second, each accident materially contributed to the condition that necessitated the surgery. Third, Mr. Saliba’s present needs were triggered by the unforseen effects of the surgery. By virtue of these three findings, Mr. Saliba may apply to either, or both, of the Insurers for his supplementary medical/rehabilitation benefits and attendant care benefits, and each is bound to indemnify him to the limits of its own policy. In this case, Mr. Saliba applied to both Insurers.

With respect to the claims for supplementary medical/rehabilitation benefits, two limits apply. One, each Insurer is responsible for the payment of these benefits for a period of ten years.[s. 6(3)] In the case of the first accident, Allstate’s obligations begin on January 28, 1992 and end on January 28, 2002. In the case of the second accident, Progressive’s obligations begin on May 3, 1992 and end on May 3, 2002. During the period following the surgery, and ending January 28, 2002, the Insurers’ obligations for these benefits overlap. From January 28, 2002 to May 3, 2002, only Progressive is potentially liable. In addition, the maximum monetary amount each Insurer is liable for is $500,000.[s. 6(8)] In the case of attendant care benefits, the ten year limit does not apply, but the $500,000 limit remains. In addition there is a maximum monthly payment of $3,000.

The basic principles I alluded to are as follows. One, any division of responsibility as between the two Insurers cannot interfere with Mr. Saliba’s ability to be fully indemnified, subject only to the limits of each policy. The second is the rule against double compensation. Notwithstanding the fact that Mr. Saliba may apply to each Insurer for a fresh set of benefits, he cannot be compensated twice for the same expense.

In the IRB context, the problem of double compensation was avoided by the operation of s. 12(4)(b), which provides that when computing the amount of the benefit, payments for loss of income from collateral sources are to be deducted. In Mr. Saliba’s case, the second accident materially contributed to his disability, and consequently he was entitled to collect IRBs from Progressive. However, at that time, he was already receiving IRBs [a form of payment for loss of income] from Allstate. Consequently, Progressive was entitled to a credit for the IRBs being paid by Allstate, effectively reducing its obligation to zero. By virtue of the finding that the first accident continued to make a material contribution to Mr. Saliba’s disability (and will do so indefinitely), Progressive can continue to claim this credit.

Progressive argues that in the supplementary medical/rehabilitation and attendant care context, the problem of double compensation is avoided by the operation of s. 9(1), which provides that an insurer is not obliged to pay any portion of a supplementary medical/rehabilitation expense or attendant care expense that “is reasonably available to the insured person under any insurance plan ...” [the complete text of s. 12(4)(b) and s. 9(1) are reproduced in the Appendix to these reasons]. It argues that the second arbitrator was correct in creating a “priority scheme” that obliges Allstate to respond first to all claims. As the second payer, Progressive would be in a position to avoid making any payments on the basis that Mr. Saliba’s expenses were available from Allstate.

In opposition to this proposition, Allstate argues that it does not owe any greater duty to respond first, merely by virtue of the fact that it was on risk at the time of the first accident. By way of example, it notes that if an insured person lost an arm in an accident one day, and a leg in a second accident the next day, the first insurer would be obliged to pay for the arm prosthesis but would have no responsibility for the prosthetic leg. Why it asks then, should the first insurer owe some higher obligation than the second insurer, if two months later the insured person requires counselling to help him deal with the loss of his limbs.

I agree with this argument. I see no reason why the first insurer should automatically be under some higher obligation than the second, to pay for an expense that did not arise until after the second accident. This situation must be contrasted with the claim for IRBs, where the disability upon which the IRB claim was founded, pre-dated the second accident. Where the expense does not arise until after the second accident, and it is not possible to attribute the expense solely to one of the accidents, each insurer has an equal obligation to respond to the claim. However, if each insurer has an equal obligation to respond to the claim, each would have an equal right to rely on s. 9(1) to assert that it need not pay the expense because it was reasonably available from the other insurer. This situation is untenable because the insured person would effectively be left without benefits.

In these circumstances, Allstate submits that resort should be made to the doctrine of equitable contribution among insurers, which provides that insurers underwriting overlapping policies of insurance should, as between themselves, share the burden of the loss pro rata.

The Supreme Court of Canada recently discussed this concept, and the related problem inherent in two insurers each trying to rely on a second payer clause in competing policies covering the same risk. In Family Insurance Corporation v. Lombard Canada Ltd., [2002] S.C.C. 48, the Court held that where two second payer, or excess clauses, are irreconcilable and would leave the insured with no primary coverage, the solution is to treat the conflicting clauses as “mutually repugnant and inoperative.” The Court went on to hold that the result is that “each insurer is independently liable to the insured for the full loss . . .” but that the loss should be borne equally by each insurer until such time as one of the policy limits was exhausted, at which point the remaining policy would cover the entire loss, subject to its remaining limits.

The doctrine of equitable contribution among insurers generally applies in cases of overlapping policies responding to the same event or accident. In the statutory accident benefits context, the “priority” rules set out in s. 262(2) of the Insurance Act supplants this doctrine. However, in a case like this where the priority rules do not apply, and each insurer must respond, it is equally problematic to apply traditional tort principles of apportionment and contribution.

I conclude that there is no directly applicable common law principle, nor is there a provision in the SABS, that resolves the question of how to ensure full indemnity while avoiding double recovery. In the circumstances, I agree with Allstate’s submission that the only appropriate solution is to order the Insurers to indemnify Mr. Saliba in equal measure. This result honours all parties’ rights and obligations, and is in keeping with the general tone set by the Court in Family Insurance Corporation v. Lombard Canada Ltd. supra.

V. CONCLUSION

Allstate’s appeal is allowed. Paragraph 2 of the arbitration order dated August 28, 2000 is revoked.

With respect to supplementary medical and rehabilitation expenses incurred after the surgery, but prior to January 28, 2002, Allstate and Progressive shall indemnify Mr. Saliba in equal measure, subject to their respective limits of $500,000. Any expenses incurred after January 28, 1992, are the responsibility of Progressive, subject to its limit of $500,000.

With respect to the attendant care expenses incurred after the surgery, Allstate and Progressive shall indemnify Mr. Saliba in equal measure, subject to their respective limits.

VI. EXPENSES

Counsel for the Insurers acknowledged that Mr. Saliba is entitled to his reasonable appeal expenses. They also acknowledged that there is no provision for an order of expenses by one Insurer in favour of the other. In the circumstances, they jointly submitted that the appropriate disposition was an order that the unsuccessful Insurer would bear Mr. Saliba’s expenses. In accordance with this agreement, Progressive is responsible for Mr. Saliba’s expenses.

July 19, 2002

Stewart M. McMahon Director’s Delegate

Date

APPENDIX

PART IV WEEKLY BENEFITS

Income Benefit

12.(4)(b) 80 per cent of the insured person’s gross weekly income from his or her occupation or employment, less any payments for loss of income, except Unemployment Insurance benefits,

(i) received by or available to the insured person under the laws of any jurisdiction or under any income continuation benefit plan, or

(ii) received under any sick leave plan. R.R.O. 1990, Reg. 672, s. 12 (4).

Exception

(1) The insurer will not pay any portion of an expense referred to in subsection 6 (1) or (2) or subsection 7 (1) for a service that is reasonably available to the insured person under any insurance plan or law or under any other plan or law that will pay the expense. R.R.O. 1990, Reg. 672, s. 9 (1).

Minor error corrected in the Order and Reasons for Decision on September 4, 2002, as authorized by the Dispute Resolution Practice Code and the Statutory Powers Procedure Act.

1The Statutory Accident Benefits Schedule — Accidents between June 22, 1990 and December 31, 1993, Regulation 672, R.R.O. 1990, as amended by Ontario Regulations 660/93 and 779/93.

2S. 12(5)(b).