Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 4

Appeal P00-00027

OFFICE OF THE DIRECTOR OF ARBITRATIONS

BRIAN P. HENDERSON

Appellant

and

LOMBARD GENERAL INSURANCE COMPANY

Respondent

Before:

David R. Draper, Director of Arbitrations

Counsel:

Alex W. Demeo (for Mr. Henderson)

Albert Conforzi (for Lombard)

APPEAL ORDER

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

1. The appeal is dismissed and the arbitration orders dated March 31, 2000 and April 10, 2001 are confirmed.

2. The parties will bear their own appeal expenses.

January 7, 2002

David R. Draper

Director of Arbitrations

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Henderson appeals from arbitration orders dated March 31, 2000 and April 10, 2001. Although he was largely successful, including obtaining a large special award ($65,000) against Lombard General Insurance Company (Lombard), he claims the arbitrator erred in failing to order interest that reflects the delays caused by Lombard's failure to adjust his claim properly.

II. ANALYSIS

Interest is payable under s.68 of the SABS-1994,¹ which provides as follows:

68. If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day the amount is overdue from the date the amount became overdue at the rate of 2 per cent per month compounded monthly.

The question is when Mr. Henderson's benefits became "overdue." He claims that although he did not submit a formal application for accident benefits until January 1997, more than two years after the accident, Lombard should not escape the payment of interest as a result of deflecting his claim to the workers' compensation system. The proper approach, he argues, is to award interest from the date on which he would have applied for benefits and obtained services if Lombard had acted appropriately.

It is hard to quarrel with Mr. Henderson's contention that an insurer should not be able to improve its position by failing to meet its obligations. However, for reasons that follow, I am not persuaded that is what happened here. On the contrary, I conclude that the arbitrator carefully applied the special award and interest provisions to the unique facts of this case to fashion a just result.

A. Background

Mr. Henderson, a professional truck driver, was seriously injured on November 1, 1994, in an accident in Minnesota. He was asleep in the rear bunk of a tractor-trailer truck, when his partner lost control and the truck overturned. After being treated in hospital for a couple of days, he returned to Ontario, but was unable to return to work.

Where, as here, the incident is covered by workers' compensation, the general rule is that the insured person is not entitled to accident benefits. Subsection 76(1) of the SABS-1994 provides that the insurer "is not required to pay benefits under this Regulation in respect of any insured person who, as a result of an accident, is entitled to receive benefits under any workers' compensation law or plan." However, there is an exception. If the insured person makes an election under the workers' compensation legislation to bring an action in court instead of receiving workers' compensation benefits, he or she can claim accident benefits, as long as the election to sue was not made primarily for the purpose of obtaining accident benefits.²

The problem in this case is that Mr. Henderson made choices that were not fully informed. According to the arbitrator, the process got off track at an early stage. Mr. Henderson spoke with Lombard's adjuster in November 1994, approximately three weeks following the accident, after he had already completed an application for workers' compensation benefits in Ontario. The adjuster did not advise Mr. Henderson of his options, but simply told him to come back to Lombard if the Workers' Compensation Board (WCB)³ turned him down. The arbitrator found that this was a breach of Lombard's duty under s.59 of the SABS-1994 to provide forms and information about accident benefits, leading directly to Mr. Henderson's decision to pursue workers' compensation benefits.

The WCB accepted Mr. Henderson's claim, covering his medical and rehabilitation expenses, as well as paying compensation for wage loss (total temporary disability benefits). Nothing in the arbitration decision suggests that he was compromised during this initial period as a result of obtaining his compensation through the WCB. Nor was I pointed to any such evidence during the appeal.

In May 1995, six months after the accident, Mr. Henderson contacted Lombard a second time. This was because the WCB had refused to pay for some personal items lost or damaged in the accident. Lombard responded by letter dated May 15, 1995, stating that it would not pay for the items because his claim was being handled through workers' compensation.

The arbitrator found that Lombard again failed to meet its obligations during this second contact. In his view, Mr. Henderson should have been given information about accident benefits, the relevant claims forms and an explanation of how to challenge the refusal to pay the benefits claimed. The result, according to the arbitrator, was that the eventual payment of accident benefits was delayed.⁴

Also in May 1995, Mr. Henderson contacted a lawyer in the United States about a possible tort action. The record suggests that neither he nor his lawyer realized that having chosen to claim workers' compensation benefits, he was not entitled to sue for damages. In any event, an action was commenced.

Mr. Henderson continued to receive workers' compensation benefits until the summer of 1996, approximately 18 months post-accident. At that time, the WCB learned about the court action. On July 8, 1996, Mr. Henderson was advised that he could not proceed with the court action and also continue receiving workers' compensation benefits. He was told that if he wanted to continue in court, he would have to withdraw his claim for workers' compensation, although he could then claim accident benefits. In this letter, the WCB also stated:

As of today, the Board has paid you $53,456.00 in temporary total benefits and $21,443.37 in health care for a total of $74,899.37. The Board is not prepared to enter into any agreement with your lawyer whereby the Board would be reimbursed from the proceeds of any settlement or Judgment . . .

The arbitrator interpreted this letter to mean that the WCB would not allow Mr. Henderson to withdraw from its system unless he repaid his benefits in full. Mr. Henderson disagrees with this interpretation, claiming that reimbursement was only raised because he suggested that he would repay the WCB out of his tort settlement. In my view, this is a factual finding that should not be disturbed on appeal. In any event, if Mr. Henderson's interpretation were correct, the arbitrator might have wondered why he did not re-elect at that time if repayment was not an impediment, particularly as his U.S. lawyer was in contact with the WCB about its position.

On July 16, 1996, Mr. Henderson sent a copy of the WCB letter to Lombard, demanding that it repay the WCB benefits. For reasons that Lombard did not adequately explain, he did not receive a response until December 1996, five months later. In the meantime, the WCB stopped paying benefits entirely in September 1996. The record reveals that the main reason was that Mr. Henderson had not withdrawn his court action. However, the WCB also determined that he was able to return to his pre-accident work and, therefore, not entitled to any future economic loss (FEL) benefits.

According to the arbitrator, Mr. Henderson started working in September 1996 as a full-time supervisor at an auto body shop, and continued working fairly steadily as an automobile and truck mechanic. As a result, he had an income during the period after the WCB terminated his benefits. I note, however, that Lombard eventually agreed to pay income replacement benefits (IRBs) beyond September 1996, although at a reduced rate due to Mr. Henderson's earnings.

When Lombard finally responded to Mr. Henderson's July 1996 contact, it refused to pay accident benefits unless and until Mr. Henderson made an election under s.10 of the Workers' Compensation Act and provided an approved assignment under s.76(5) of the SABS-1994. In addition, it advised him that there was a two-year time period post-accident to present his claim, suggesting that he was already out of time.

The arbitrator found that Lombard mishandled this third contact with Mr. Henderson in a number of respects. First, it provided no reason for the lengthy delay in responding. Second, it acknowledged that the information provided about the two-year time limit was incorrect. Although the arbitrator did not find any evidence that Lombard meant to deceive Mr. Henderson, he found that it fell short of meeting its obligations. Third, the arbitrator found that Lombard repeated its previous mistakes by failing to inform Mr. Henderson about his options and his right to challenge its refusal to pay accident benefits.

I would add that there seems to have been an unfortunate confusion in this case between election and assignment. The focus should have been on whether Mr. Henderson elected, or re-elected, to proceed in court instead of receiving workers' compensation benefits. It is this election that would allow him to claim accident benefits. The relevance of an assignment under s.76(5) of the SABS-1994 is far less obvious. That subsection is meant to deal with situations where there is some question whether the person is covered by workers' compensation. In those cases, the automobile insurer is obliged to pay pending determination, but only if it is protected by an assignment. That was not the situation here. Mr. Henderson clearly was covered by workers' compensation. The only question was whether he would remain in that system or elect to proceed in court.

After receiving Lombard's December 1996 letter, Mr. Henderson retained his current lawyer. This was more than two years post-accident. Mr. Demeo immediately wrote to Lombard and started the mediation process. On January 29, 1997, he sent Lombard a formal application for accident benefits and supporting documents, including an assignment form signed by Mr. Henderson.⁵ Lombard did not acknowledge the application or respond in writing. Instead, it contacted Mr. Demeo on March 7, 1997, taking the position that Mr. Henderson was not entitled to switch to accident benefits at this point.

Mr. Henderson continued to press his claims, asking Lombard to fund certain assessments and rehabilitation. No benefits were paid. Mediation took place on April 10, 1997, but was unsuccessful. Shortly thereafter, Mr. Henderson provided Lombard with a breakdown of the benefits paid by the WCB and asked Lombard to repay them. He also applied for arbitration, claiming accident benefits from the date of the accident, interest and a special award.

At the arbitration pre-hearing, held in November 1997, Lombard maintained its position that Mr. Henderson could not re-elect out of the workers' compensation system. In doing so, it relied on the arbitration decision in Davis and Pafco Insurance Company, (OIC A96-000640, February 3, 1997). However, in July 1997, before this pre-hearing, I had released an appeal decision in that case.⁶ Although I dismissed the appeal, I held that an insured person can claim accident benefits after receiving compensation benefits, subject to at least two exceptions. First, he or she cannot re-elect to sue after receiving non-economic loss (NEL) or future economic loss (FEL) benefits under the Workers' Compensation Act. Second, the re-election cannot be made primarily for the purpose of claiming accident benefits.

The pre-hearing arbitrator scheduled a preliminary hearing on Mr. Henderson's right to re-elect. Before this hearing, scheduled for March 1998, Lombard conceded that Mr. Henderson could re-elect and agreed to pay benefits. Its first payment was made in May 1998, followed by further discussions and additional payments.

In October 1998, Mr. Henderson used the proceeds from the settlement of his court action to repay the WCB for all the benefits it paid, apparently with no requirement that he pay interest. As I understand it, Lombard eventually reimbursed Mr. Henderson for the full amount that he repaid, and also paid ongoing weekly income benefits from one week after the accident.

As a result of these developments, the arbitration hearing proceeded on a limited number of issues. According to the arbitrator, Mr. Henderson was successful "on nearly all issues in his claim." Not only was Lombard ordered to pay virtually all his claims for outstanding benefits, it was ordered to pay a special award of $65,000 for unreasonably withholding or delaying the payment of benefits. The arbitrator also ordered interest as follows: on IRBs from July 22, 1997 (the date of the appeal decision in Davis); on medical and rehabilitation benefits from October 1, 1998 (the date Mr. Henderson repaid the WCB); and on the Aetna evaluation and services from May 1, 1998 (allowing five days from Mr. Henderson sending the report and 14 days for Lombard to respond).

Lombard did not appeal. According to its counsel, it decided to "take its lumps," and comply with the order. In his appeal, Mr. Henderson asks for additional interest, as summarized on the chart below:

BENEFIT

ARBITRATOR ORDERED INTEREST FROM

MR. HENDERSON SEEKS INTEREST FROM

Income replacement benefits

July 22, 1997 - the date of the appeal decision in Davis

November 21, 1994 - 14 days after the start of his entitlement

Medical and rehabilitation benefits initially paid by the Workers' Compensation Board

October 1, 1998 - the date Mr. Henderson repaid the Workers' Compensation

Board

September 21, 1995 - the mid-point of the period during which the Workers' Compensation Board paid benefits

Aetna Health Management (Aetna) evaluation and the services it recommended

May 1, 1998 - allowing 5 days from Mr. Henderson sending the report and 14 days for Lombard to respond.

January 1, 1995 - the presumed date by which the evaluation would have been done and the services would have been completed if Lombard had handled the claim properly

B. Conclusions

Mr. Henderson submits that Lombard should be held responsible for paying interest from his first contact because it failed to provide the forms and information necessary to process the claim. He asks the following subsidiary questions:

(i) Is an insurer estopped from denying its obligation to pay interest where the denial is founded on the insurer's breach of duty to its insured?

(ii) Can an insurer deny that benefits are "overdue" to an insured because the insured did not properly apply for those benefits, even though the failure to properly apply was caused by the insurer?

(iii) Can an insurer avoid its obligation to pay interest on benefits it was obliged to pay because those benefits were temporarily funded by the WCB?

While these are interesting questions, I find no indication that the arbitrator held, as a matter of law, that interest cannot run until a formal application for accident benefits is submitted, or if someone else "temporarily" provides payment. Instead, he looked at the particular facts of the case and determined when the various types of benefits became overdue. This was within his authority and I find no error of law in his conclusions.

(1) Income replacement benefits

As noted above, s.68 of the SABS-1994 provides for mandatory interest at 2 per cent per month compounded monthly from the date the benefit became overdue. Section 62 describes when IRBs become overdue; the insurer must mail or deliver a "benefit that is payable" within 14 days after it "receives an application for the benefit," and at least once every two weeks thereafter "while the person remains entitled to receive the benefits." If it fails to do so, the benefit is overdue and interest runs.

Therefore, the time for responding runs from the date the insurer receives the application — an approved form under s.94 of the SABS-1994. While I would not rule out the possibility of a " deemed " application in certain circumstances, there must be an application. None of the decisions upon which Mr. Henderson relies suggests otherwise. For example, in Persofsky and Liberty Mutual Insurance Company,⁷ probably the most helpful decision on this point, the arbitrator ordered interest on housekeeping benefits from a date before the insurer received a formal application for that type of benefit. However, this was based on a specific finding that in an earlier application, the insured person had notified the insurer that she could not do her housework, effectively asserting a claim that was ignored.

In this case, not only was there no earlier application, Mr. Henderson was receiving workers' compensation benefits and, therefore, was ineligible for accident benefits. In these circumstances, I find no error in the arbitrator's conclusion that IRBs were not overdue at any point before Lombard received the formal application in January 1997.

Further, the arbitrator's treatment of interest must be seen in context. It cannot be said that he ignored Lombard's failings, or was unsympathetic to Mr. Henderson's claim. He found, using strong language, that Lombard failed to treat Mr. Henderson with utmost good faith and meet its obligations under the SABS-1994. This delayed the payment of accident benefits. Appropriately, the arbitrator dealt with this under the special award provision in s.282(10) of the Insurance Act, which provides for a lump sum payment of up to 50 per cent of the benefits owing, including interest, where the insurer unreasonably withholds or delays the payment of benefits. In deciding on the amount of the special award, he considered the whole history of the claim, stating as follows:

Although Lombard has made payments to Mr. Henderson as a mitigating factor in its favour ($53,139.84 since May 1998), it committed serious breaches over a long period of time. Lombard failed to send Mr. Henderson claim forms and information about accident benefits, neglected its duty to evaluate and respond to his claims, delayed answering his queries, mis-stated the limitation period, and refused to honour his entitlement rights under established precedent. I find that Lombard's numerous failures of duty caused or significantly contributed to the unreasonable delay and withholding of Mr. Henderson's accident benefits from the time he initially contacted the company in November 1994 to the date of the hearing.⁸

The special award of $65,000, roughly 40 per cent of the amount owing, was the largest ever ordered at that time. Although a special award does not replace interest, Lombard paid for its failures. Consequently, I find little strength in Mr. Henderson's contention that the arbitrator erred in allowing Lombard to put itself in a better position by failing to meet its obligations.

I also find little strength in Mr. Henderson's estoppel argument. As Director's Delegate Naylor held in Offeh and Allstate Insurance Company of Canada, (FSCO P-006494, July 3, 1996), a decision Mr. Henderson cites in support of his position, estoppel is largely a question of fact: "Whether an insurer is estopped from enforcing, or has waived, requirements of the policy is a question of fact, based upon the particular circumstances of the case."

In this case, the arbitrator found that Lombard should have given Mr. Henderson an application for accident benefits and more information about his options. He did not find, however, that Lombard ever waived the requirement of an application, or led Mr. Henderson to believe that interest would run even if he did not pursue his claim until some later date. Nor did he find that Mr. Henderson relied on any such representation — an essential component of estoppel.⁹

Alternatively, Mr. Henderson argues that interest should run from his first contact with Lombard based on promissory estoppel, as distinct from estoppel based on its representations. In his submission, Lombard promised to process his claim for accident benefits if the WCB denied his claim for any reason. It follows, he argues, that when Lombard learned of the WCB's refusal to pay certain benefits in May 1995, and again in July 1996, it was bound to deal with his claim.

That is not how I read the decision. In my view, the arbitrator simply found that Lombard invited Mr. Henderson to return if the WCB denied coverage, which it did not do. Therefore, the promissory estoppel argument fails.

The decisions cited by Mr. Henderson suggest, at their highest, that by failing to provide an application form, Lombard might have been prevented from relying on the time limit in s.59 of the SABS-1994 for applying for accident benefits. They fall well short of establishing that an insurer that deflects a claim will be responsible for paying interest where the insured person applies for and receives benefits from the other source. Unlike these other cases, Lombard's actions did not leave Mr. Henderson without benefits or services,¹⁰ or force him to fund treatment and rehabilitation out of his own pocket, or rely on the goodwill of his treatment providers.¹¹ It is not obvious, therefore, what purpose interest would serve other than penalizing Lombard, a role already filled by the special award.

The question of interest following the application is somewhat more difficult. At page 22 of his decision, the arbitrator states: "Arbitrators have consistently stated that the [interest] provision was intended to promote timely payments when an insurer is provided with sufficient documentation to determine claims." On the facts of the case, he held that although Lombard had all the information necessary to determine Mr. Henderson's claim for IRBs by mid-March 1997, approximately ten weeks after he submitted his application, his right to re-elect was not established until the release of the appeal decision in Davis on July 22, 1997. As a result, he ordered interest on IRBs from this date.

While unusual, I am not persuaded the arbitrator erred in choosing this date. The problem throughout this case was Mr. Henderson's involvement in three different claims that do not easily fit together: workers' compensation benefits in Ontario, the court action in the United States and his claim for accident benefits. Therefore, when he applied for accident benefits, the central issue was not whether he had provided sufficient information to determine his claim, but whether he had a right to claim accident benefits at all. This distinguishes the situation from other arbitration and appeal decisions dealing with interest.¹²

According to s.76 of the SABS-1994, Lombard had no obligation to pay accident benefits until Mr. Henderson made an election under the workers' compensation legislation to proceed in court instead of receiving workers' compensation benefits. Even at that point, the legislation provides that it would only be responsible for paying accident benefits from the date of the election onwards.¹³ The missing piece was when, if ever, Mr. Henderson made this election. To my knowledge, no election form was ever completed. In the circumstances, it is my view that the arbitrator could have found that Mr. Henderson did not remove himself from the workers' compensation system until October 1998, when he repaid the WCB out of his tort settlement. However, he chose an earlier date, concluding that by July 22, 1997, Lombard knew that re-elections were possible and, therefore, IRBs became overdue from that date. In the unique circumstances of this case, I am not persuaded this was an error of law.

(2) Medical and rehabilitation expenses incurred by the WCB

Mr. Henderson received medical and rehabilitation benefits from the WCB from the date of the accident until August 1996, totalling over $25,000. At arbitration, he argued that Lombard should pay interest on this amount from July 8, 1996, when the WCB demanded repayment upon learning of the court action. Alternatively, he argued that interest should run from shortly after April 15, 1997, when his lawyer faxed Lombard information about the WCB payments and demanded repayment.

The arbitrator held that Mr. Henderson did not claim repayment until April 1997 and, therefore, interest could not run from an earlier date. However, even at that point, Mr. Henderson still had been given approval to re-elect out of the workers' compensation system. The arbitrator held that it was not until October 1, 1998, when he repaid the WCB out of his tort settlement that he was in a position to complete the re-election. As a result, he ordered interest from that date.

On appeal, Mr. Henderson takes a somewhat different approach. He submits that interest should be payable from September 21, 1995, the mid-point of the period during which the WCB paid medical and rehabilitation expenses. I do not agree. In my view, this approach is inconsistent with SABS-1994, which makes interest payable from the date benefits become overdue.

In my opinion, it was within the arbitrator's authority to determine that benefits were not overdue until he repaid the WCB and, therefore, I have no basis for interfering. Further, because the WCB did not demand interest, Mr. Henderson was not "out-of-pocket" for the medical and rehabilitation expenses until he made the repayment. Therefore, as with the IRBs, it is not obvious what purpose would have been served by ordering additional interest, other than penalizing Lombard, a role already filled by the special award.

(3) Aetna Health Management evaluation and related services

At arbitration, Mr. Henderson claimed the cost of an assessment done at Aetna Health Management (Aetna) in May 1997 and the treatment recommenced by the assessors: a program of occupational therapy/functional living skills, speech pathology treatment, a structured program at the Hand and Upper Limb Clinic, and an interdisciplinary evaluation of his needs. The arbitrator largely accepted this claim, ordering Lombard to pay the cost of the assessment and the recommended treatment, except for the interdisciplinary evaluation.

This part of the order was not challenged on appeal. Mr. Henderson submits, however, that the arbitrator erred in ordering interest from May 1, 1998. In his submission, interest should run from January 1, 1995, when he says the assessment and related services would have been done if Lombard had met its obligations.

I find little merit in this argument. First, the factual assertion is suspect. Second, Mr. Henderson did not assert the claim until March 1998, almost a year later, when he sent the report to Lombard. The arbitrator allowed five days for delivery and 14 days from Lombard to respond, ordering interest from May 1, 1998. In my view, this was appropriate, and certainly within the arbitrator's authority.

III. APPEAL EXPENSES

Since the amendments to the Insurance Act in November 1996, appeal expenses can be awarded to either party. The factors to be considered are set out in Ontario Regulation 664, R.R.O. 1990, as amended. While this appeal raised some novel issues and was well argued, I am not persuaded that it was sufficiently meritorious that Lombard should be required to pay Mr. Henderson's expenses. Therefore, the parties will bear their own expenses.

January 7, 2002

David R. Draper

Director of Arbitrations

Date

Footnotes

1. 1Ontario Regulation 776/93, as amended, the Statutory Accident Benefits Schedule—Accidents after December 31, 1993 and before November 1, 1996.
2. 2SABS-1994, s.76(2).
3. 3Now the Workplace Safety & Insurance Board.
4. 4Although Lombard eventually paid Mr. Henderson's claim for personal items, there is no related claim for interest before me.
5. 5Mr. Henderson sent the correct form, Assignment of Workers’ Compensation Benefits, in February 1997.
6. 6Davis and Pafco Insurance Company Limited, (FSCO P97-00010, July 22, 1997).
7. 7(FSCO A99-000598, June 23, 2000), currently under appeal.
8. 8Arbitration decision, p.25.
9. 9Offeh and Allstate Insurance Company of Canada, cited above.
10. 10Quarrington and Jevco Insurance Company, (OIC A-010804, July 17, 1995).
11. 11Persofsky and Liberty Mutual Insurance Company, (FSCO A99-000598), under appeal.
12. 12For example, Bajic and Pafco Insurance Company Limited and Zurich Insurance Company, (FSCO P00-00050, June 5, 2001); Mendez and AXA Insurance (Canada), (FSCO A96-001355, January 25, 2000); and Sebastian and Canadian Surety Company, (FSCO P96-00032, July 28, 1998).
13. 13SABS-1994, s.76(3).