Joyce Swain v. Zurich Insurance Company, 2002 ONFSCDRS 44

Financial Services Commission of Ontario

Neutral Citation: 2002 ONFSCDRS 44 FSCO A97-002019

Between: Joyce Swain, Applicant and Zurich Insurance Company, Insurer

Reasons for Decision

Before: Eban Bayefsky Heard: By telephone conference call on May 4 and September 14, 2001.

Appearances: James E. S. Allin for Mrs. Swain Ian M. Boundy for Zurich Insurance Company

Issues:

The Applicant, Joyce Swain, was injured in a motor vehicle accident on September 4, 1995. She applied for and received statutory accident benefits from Zurich Insurance Company ("Zurich"), payable under the Schedule.¹ A dispute arose as to the quantum of Mrs. Swain's benefits. The parties were unable to resolve their disputes through mediation, and Mrs. Swain applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. I heard this matter in April and May 1999, and issued a decision on October 8, 1999. In that decision, I held that the dividend income Mrs. Swain received in the 52 weeks prior to the accident was to be included in her gross annual income for the purposes of calculating the quantum of her income replacement benefits ("IRBs").

I further held that unemployment insurance premiums were not to be deducted from Mrs. Swain's gross annual income in calculating the quantum of her IRBs. Finally, in light of the insufficient information then before me, I remitted to the parties the issue of the exact quantum of benefits owing to Mrs. Swain. The parties were unable to resolve this matter and eventually returned to the Commission for a ruling on the following questions:

1. Should the Canada Pension Plan ("CPP") contributions Mrs. Swain's employer made on her behalf be included in the calculation of her income replacement benefits, pursuant to section 10(1) of the Schedule?

2. Is Zurich entitled to assess Mrs. Swain's Loss of Earning Capacity Benefits ("LECBs") on the basis of the report of the Residual Earning Capacity Designated Assessment Centre ("REC DAC"), despite other medical reports suggesting that Mrs. Swain's REC is zero, pursuant to sections 23 and 28 of the Schedule?

3. Is Zurich entitled to deduct from Mrs. Swain's weekly benefits the $9,081.30 Imperial Life Assurance Company ("Imperial Life") paid Mrs. Swain between September 1995 and April 1996, despite a November 1999 settlement reached between Mrs. Swain, Imperial Life and Zurich?

Result:

1. The CPP contributions Mrs. Swain's employer made on her behalf should not be included in her income for the purposes of calculating IRBs.

2. Zurich is entitled to assess Mrs. Swain's LECBs on the basis of the REC DAC report.

3. Zurich is not entitled to deduct from Mrs. Swain's weekly benefits the $9,081.30 Imperial Life paid Mrs. Swain between September 1995 and April 1996.

EVIDENCE AND ANALYSIS

CPP Contributions:

Mr. Allin and Mr. Boundy differed as to whether the CPP contributions Mrs. Swain's employer made on her behalf should be included in the calculation of her income replacement benefits. In a report dated February 21, 2001, Mr. Ian Wollach, of the accounting firm of Rich Rotstein Limited, calculated Mrs. Swain's weekly income replacement benefits to be $444.02, payable from September 11, 1995, in part on the basis that the employer's CPP contributions should be included in the calculation of Mrs. Swain's IRBs. Mr. Allin submitted that the Schedule establishes a distinction between "gross" and "net" income and that CPP contributions are to be included in the former in calculating post-accident IRBs. Mr. Boundy submitted that, while Mrs. Swain might benefit from the CPP contributions her employer made on her behalf, the contributions did not form part of her pre-accident income and should, therefore, not be included in the IRBs to which she is entitled following the accident.

In my view, the appeal decision in Howden and Pafco Insurance Company² is determinative of this issue. I am bound by (and, in any event, agree with) the conclusion of the Director's Delegate. While the case was decided under Bill 59, I find the decision directly applicable to the case at hand. I note, in particular, that the only specific statutory references made by the Director's Delegate were to provisions that are identical in Bill 59 and Bill 164. Section 61(1) of Bill 59 is identical to section 81(1) of Bill 164 and is cited by the Director's Delegate for the proposition that "CPP contributions are not viewed as income." The Director's Delegate noted that section 61(1) "speaks of the 'contribution payable on the gross annual income.'" I accept the conclusion of the Director's Delegate to the effect that an employer's CPP contributions are not the same as, and should not be included in, an insured's income for the purposes of calculating IRBs.

REC Deductions:

In his February 2001 report, Mr. Wollach calculated Mrs. Swain's Loss of Earning Capacity Benefits on the basis that Mrs. Swain's Residual Earning Capacity was zero. Mr. Wollach stated that this was done on the advice of counsel. Mr. Allin submitted that, on the basis of at least two medical reports, Mrs. Swain strongly disputes the conclusion of the December 1998 REC DAC that she was capable of employment as a part-time telephone solicitor/telemarketer (with an annual wage of $7,546.87), and that her residual earning capacity should be deemed to be zero pending a final determination of the issue of IRBs. Mr. Boundy submitted that Mrs. Swain should have, but did not challenge the findings of the REC DAC (pursuant to section 23(4) of the Schedule), that her REC has been determined to be something other than zero and that this must be deducted from her LECBs.

Mr. Allin submitted two medical reports, which dispute the REC DAC's conclusion that Mrs. Swain is capable of employment as a telephone solicitor/telemarketer. In the first, dated January 8, 1999, Dr. Michael MacDonald, a psychologist, finds that such a recommendation is "completely inappropriate...for someone that is suffering from the injuries and disabilities" documented in his previous report on Mrs. Swain. In the second report, dated January 11, 1999, Dr. Manfred Harth, an internal medicine specialist, concluded that, in light of Mrs. Swain's experience during the testing (as recorded by the DAC assessors), he could not "understand why one would consider Mrs. Swain is employable as a telephone solicitor/telemarketer or employable at all."

While these two reports clearly raise questions about the appropriateness of the DAC's conclusions, I agree with Mr. Boundy that they cannot be assumed to be correct and that, in the absence of a proper challenge to the DAC's assessment of Mrs. Swain's residual earning capacity, her REC cannot be assumed to be zero. Mr. Allin maintained that he has been repeatedly told by the Commission that he needs to resolve the IRB issue before he can litigate the LECB issue. He, therefore, maintains that his experience is different than what section 23(4) of the Schedule provides, namely, resolving disputes about pre-accident earning capacity and residual earning capacity in accordance with the dispute resolution provisions of the Insurance Act and the Schedule. However, he acknowledges that, if I decide that I do not have the jurisdiction to fix Mrs. Swain's REC at zero, then the matter should be remitted to the parties to be determined in the normal course.

As stated, I find that I cannot assume that Dr. MacDonald's and Dr. Harm's assessments are correct. While they (along with any other relevant medical opinions) would play a significant role in an evaluation of the merits of the DAC's conclusions, I find that, at this stage of the parties' interaction, the REC DAC report must be given more weight. Section 23(2) states that an insured person who rejects the insurer's REC offer "shall be assessed under section 27" (the REC DAC provision). Section 23(4) states that if an insured person rejects the insurer's offer in respect of both pre-accident earning capacity and residual earning capacity, the dispute may be resolved through the dispute resolution process, but that, other than filing for mediation, no steps in that process shall be taken until the DAC delivers its report. Section 23(5) states that if an insured person rejects the REC component of the insurer's offer, the insurer may pay LECBs based on its PEC determination and the DAC's REC assessment. Finally, section 27(6) states that if the DAC concludes that there is no suitable and available employment for the insured person (as defined in section 30(2)), "the person's residual earning capacity shall be deemed to be zero."

In my view, these provisions establish the DAC assessment as an objective assessment of the REC issue and suggest that the DAC's report is to be given greater prominence until otherwise challenged through the dispute resolution process. I find section 27(6) particularly significant in that it establishes the REC DAC's conclusion as determinative of whether a person's REC is to be deemed to be zero (subject presumably to the dispute resolution process). I find that the REC DAC report is intended to carry more weight than either the insured's or the insurer's independent examinations. For this reason (and in light of section 27(6)), I find that Dr. MacDonald's and Dr. Harth's opinions cannot be assumed to take precedence over the REC DAC's conclusions so as to establish Mrs. Swain's REC as zero. I find that, at this stage, the DAC's assessment must govern the parties' dealings on the issue of Mrs. Swain's REC.

I acknowledge Mr. Allin's submission to the effect that the Commission has told him he cannot litigate LECB issues until he has finally resolved related IRB issues. While this may be the case, I do not find that this alters the statutory scheme which (as discussed above) appears to accord greater significance to a DAC report in the preliminary assessment of a person's residual earning capacity. I, therefore, find that, on the basis of the materials before me, I do not have the authority to fix Mrs. Swain's REC at zero. I find that Zurich is entitled to assess Mrs. Swain's REC on the basis of the DAC report.

Settlement Credit:

In November 1999, Mrs. Swain, Zurich and Imperial Life entered into a settlement concerning a tort action between Mrs. Swain and Imperial Life, as well as Zurich's treatment of monies paid by Imperial Life to Mrs. Swain. By the terms of the settlement, Imperial Life was to pay Mrs. Swain a total of $60,000, consisting of a $45,000 disability payment and $15,000 in costs and disbursements. By letter to Imperial Life dated November 9, 1999, Mr. Allin indicated that Zurich needed to be a party to the settlement and that it must agree that "only the $45,000.00 will be deducted from Mrs. Swain's income replacement benefits and/or LECB payments." Mr. Allin also stipulated that the "$45,000.00 will be deducted from the period[ic] payments made by Zurich to Mrs. Swain at the rate of 20% of the amount of the periodic payments until the amount of the full $45,000.00 has been repaid in full."

By letter dated November 19, 1999, Mr. Gordon Jermane, Imperial Life's Assistant General Counsel, confirmed Imperial Life's acceptance of the settlement. The same day, Mr. Ronald Henry, a Senior Claims Representative at Zurich, wrote Mr. Allin, copying Mr. Jermane, confirming the settlement between Mrs. Swain and Imperial Life, and indicating that "this agreement and settlement is acceptable to Zurich Canada." Mr. Henry further indicated as follows: "We agree that the amount of $45,000.00 will be deducted from Ms. Swain's current disability benefit at a rate of 20% of the amount of weekly benefits, until such time as the total and full amount of $45,000.00 has been repaid in full."

Mr. Boundy submitted that, in addition to the $45,000 credit towards Mrs. Swain's weekly disability benefits set out in the settlement, Zurich was also entitled to a credit of $9,081.30, which represented the weekly disability payments Imperial Life had made to Mrs. Swain between September 1995 and April 1996. Mr. Boundy submitted that, in accepting the $60,000 settlement, Mr. Henry was only taking credit for the "new money" Imperial Life was to pay Mrs. Swain, namely, the $45,000, and that the settlement discussions had made no mention of the $9,081.20 Imperial Life had already paid to Mrs. Swain. Mr. Allin submitted that Mr. Henry's November 19, 1999 letter fully and accurately set out the terms of the settlement and that only $45,000 was to be deducted by Zurich from Mrs. Swain's future weekly disability benefits.

On the basis of the materials before me, I find that the parties had agreed that Zurich would only be entitled to deduct the $45,000 Imperial Life was to pay Mrs. Swain. I agree with Mr. Boundy that no mention was made of the $9,081.30 Imperial Life had already paid to Mrs. Swain. However, I find that this supports the view, as reflected in the relevant correspondence, that the parties only intended Zurich to receive a credit for the $45,000. I note, in particular, Mr. Allin's letter of November 9, 1999, in which he stated that Zurich needed to be a party to the settlement and that it must agree that "only the $45,000.00 will be deducted from Mrs. Swain's income replacement benefits and/or LECB payments." He also stated that the $45,000 would be deducted from the periodic payments made by Zurich to Mrs. Swain at the rate of 20% of the amount of the periodic payments until the amount of the full $45,000 had been repaid in full. In his letter of November 19, 1999, Mr. Henry accepted the settlement and reiterated that the $45,000 would be deducted from Mrs. Swain's weekly disability benefits until the $45,000 had been repaid in full.

I see no basis for the conclusion that the settlement did not incorporate the monies Imperial Life had already paid Mrs. Swain or that Zurich would be entitled to deduct amounts in addition to the $45,000 specified in the settlement. I, therefore, do not agree with Mr. Boundy that the settlement was only to deal with the "new money" Imperial Life was to pay Mrs. Swain. I find that Zurich is not entitled to deduct from Mrs. Swain's weekly benefits the $9,081.30 Imperial Life paid Mrs. Swain between September 1995 and April 1996.

EXPENSES:

If required, the parties may now make submissions on the issue of expenses.

March 8, 2002

Eban Bayefsky Arbitrator

Neutral Citation: 2002 ONFSCDRS 44 FSCO A97-002019

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN: JOYCE SWAIN Applicant and ZURICH INSURANCE COMPANY Insurer

ARBITRATION ORDER

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

1. The CPP contributions Mrs. Swain's employer made on her behalf shall not be included in her income for the purposes of calculating IRBs.

2. Zurich is entitled to assess Mrs. Swain's LECBs on the basis of the REC DAC report.

3. Zurich shall not deduct from Mrs. Swain's weekly benefits the $9,081.30 Imperial Life paid Mrs. Swain between September 1995 and April 1996.

March 8, 2002

Eban Bayefsky Arbitrator

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended by Ontario Regulations 635/94, 781/94, 463/96 and 304/98.
2. 2Howden and Pafco Insurance Company (FSCO appeal P00-00028, June 22, 2001)