Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2002 ONFSCDRS 93

Appeal P01-00042

Appellant

and

Respondent

Before:

David R. Draper, Director of Arbitrations

Counsel:

Harry P. Brown (for Commercial Union)

Gurcharan Anand (for Manjit Singh)

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

The appeal is dismissed and the arbitration order dated September 11, 2001, is confirmed.
Commercial Union Assurance Company shall pay Manjit Singh’s reasonable appeal expenses.

June 12, 2002

David R. Draper

Director of Arbitrations

Date

This is an appeal by Commercial Union Assurance Company (“Commercial Union”) from an arbitration decision dated September 11, 2001. In its submission, the arbitrator erred in law in ordering a special award of 50 per cent ($61,829.52), the maximum allowed under the legislation.

On November 29, 2000, just days before the start of a four-day arbitration hearing, Commercial Union agreed to pay Mrs. Singh’s claim. It reinstated her weekly income replacement benefits (“IRBs”) and paid $60,956.86 for past benefits, plus interest of $27,472 C a total of $88,428.86. Although this resolved the main issue in dispute, Mrs. Singh pursued her claim that Commercial Union should be ordered to pay a special award under s. 282(10) of the Insurance Act, which provides:

(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

Commercial Union argued that once the dispute was resolved, the arbitrator had no jurisdiction to order a special award. The arbitrator rejected this argument, and the hearing proceeded. For reasons set out in her decision, the arbitrator found that “Commercial Union’s behaviour in terminating and withholding Mrs. Singh’s income replacement benefit amounted to flagrant misconduct,” and that, “such egregious behaviour . . . entitles Mrs. Singh to the maximum special award of 50 percent.” She dealt with the amount as follows:

The amount of income replacement benefits that the Insurer owed Mrs. Singh at the time of the arbitration amounted to $60,956, plus interest of $27,472, for a total of $88,428.86. The formula generally accepted by arbitrators for determining the amount of the special award, is calculated by adding: Benefits Withheld or Delayed, plus two percent per month overdue interest, plus 2 percent per month special award interest.

Applying this formula, the amount to be considered for the special award is $123,659.04. Accordingly, I find that Mrs. Singh is entitled to a special award of $61,829.52. [footnotes omitted]

On appeal, Commercial Union does not challenge the arbitrator’s finding that it unreasonably withheld or delayed the payment of benefits. At issue is the arbitrator’s decision to impose the maximum award possible. In Commercial Union’s submission:

the arbitrator failed to consider Mrs. Singh’s failure to mitigate in not promptly challenging the decision to terminate her IRBs;
the arbitrator failed to consider aspects of its handling of the claim that should have reduced the size of the award;
the arbitrator failed to require a reasonable level of proof with respect to key factual findings; and
the arbitrator erred in calculating a special award because, as a result of the settlement, no benefits were owing.

Commercial Union does not seek to avoid paying a special award entirely. It suggests that the special award be reduced to $37,617.04, the amount it has already paid, and which was approved in my stay order dated October 29, 2001. While another arbitrator might have ordered a special award in this range, I find no error of law that would justify interfering with the order.

A. Failure to mitigate

Commercial Union contends that Mrs. Singh failed to fully and promptly exercise her right to challenge its decision to stop paying IRBs, and that the arbitrator erred in not taking this into account. It relies on the concept of mitigation, arguing that Mrs. Singh had an obligation to mitigate her losses. In response, Mrs. Singh submits that previous arbitration, appeal and court decisions have held that mitigation does not apply to statutory accident benefits or other contract-based benefits.¹ In the alternative, she submits that the duty to mitigate is limited to the specific requirements set out in sections 55 and 56 of the SABS-1996.

I accept that the insured person’s actions are a relevant consideration in determining whether a special award should be ordered and, if so, how much. As Director’s Delegate Naylor held in Mario Rocca and AXA Insurance Company, (FSCO P99-00020, August 1, 2000), special awards must be considered within the total context of the case, including the actions of both the insurer and the insured person. I adopt the following analysis from that decision:

. . . the inquiry involves looking at the total context in which the decisions relating to the insured’s benefits were made. This includes, in judging whether an insurer’s actions were unreasonable, consideration of the conduct on the insured. The conduct of both the insurer and the insured are also factors for consideration in the exercise of the arbitrator’s discretion to determine the amount of the award. Section 282(10) limits the maximum amount of an award. The higher end of the percentage scale should be reserved for especially egregious conduct on the insurer’s part, without mitigating factors. It is important that the parties are given an explanation both of the basis of a finding that benefits were unreasonably withheld and the factors taken into account in fixing the amount of the award. [p.13]

Because the interest component in s. 282(10) means the amount that can be ordered increases dramatically with the passage of time, delay is a factor that should be considered. In this case, Mrs. Singh was advised in early April 1998 that Commercial Union planned to stop paying IRBs effective June 28, 1998. At that point, she could have requested an assessment by a Designated Assessment Centre (“DAC”) or proceeded directly to mediation. Commercial Union submits that the arbitrator should have considered that by not requesting a DAC assessment, and not applying for mediation until September 1999, Mrs. Singh delayed the resolution of the dispute for more than a year.

On appeal, Mrs. Singh claims the DAC issue was not raised at the arbitration hearing. However, at page 8 of Commercial Union’s arbitration submissions, it notes that Mrs. Singh did not request a DAC assessment, and then states as follows:

The applicant did not dispute the termination of her IRBs. The insurer therefore had no knowledge of the applicant’s disagreement with the termination of her IRBs until receipt of an application for mediation one and half years later.

In my view, Commercial Union’s position was clear C it should not be criticized for failing to deal with Mrs. Singh’s situation when she did not take the steps available to her, including requesting a DAC assessment, that would have alerted it to her disagreement with the decision to stop paying IRBs. However, the arbitrator addressed this argument:

I find the first point made by Commercial Union to be spurious [that she did not dispute the termination of her IRBs until September 1999]. I agree with Mrs. Singh’s submission that Commercial Union had a positive obligation to reinstate benefits once it became aware of information confirming her entitlement to such benefits. I find Commercial Union was obliged to re-evaluate Mrs. Singh’s claim regardless of whether or not a dispute was raised by her, particularly when Commercial Union knew that Mrs. Singh suffered from a psychiatric disability which might impede her ability to deal with the accident benefits claim. In any case, as Mrs. Singh submitted, when she did dispute her termination of benefits on September 9, 1999, Commercial Union continued to maintain its denial and refused to adjust her benefits until just before the arbitration hearing. (p.44)

This is not a case where the notice of intention to stop paying benefits was met with silence. Mrs. Singh continued to provide reports in support of her entitlement.

While it may have been a risky strategy to do so without requesting a DAC assessment or promptly challenging the decision by applying for mediation, the arbitrator agreed with her assertion that it was unreasonable for Commercial Union to turn a blind eye to “very significant medical evidence” supporting Mrs. Singh’s disability.² In my opinion, this conclusion was open to her. While not strictly discretionary, the decision to impose a special award is highly dependent on the arbitrator’s assessment of the evidence.³ If she had been satisfied that Mrs. Singh was responsible for delaying the process, as suggested by Commercial Union, the outcome likely would have been different.

Consequently, I find no error of law.

B. Payment of Benefits

Commercial Union submits that the arbitrator failed to consider aspects of its handling of the claim that should have reduced the size of the award. There are two parts to this argument. First, Commercial Union submits that its agreement to pay Mrs. Singh’s IRB claim prior to the arbitration hearing should have reduced the amount of the special award below the maximum. Otherwise, it argues, insurers would have little incentive to reconsider their position. Second, Commercial Union submits that it settled the other aspects of Mrs. Singh’s claim well in advance of the hearing, another factor removing it from the kind of extreme case that should attract a maximum special award.

(1) Payment of IRBs

I agree that Commercial Union’s decision to pay Mrs. Singh’s claim for IRBs is a relevant consideration. However, at page 44 of the decision, the arbitrator specifically addresses it:

The fact that an insurer decides to pay up an applicant’s benefit just before the arbitration hearing might in certain circumstances be a mitigating factor. However, based on the facts of this particular case; the length of time during which benefits were withheld (over three years); the overwhelming amount of medical evidence from both Mrs. Singh’s medical practitioners and Commercial Union’s own medical assessors supporting Mrs. Singh’s claim; and the very detrimental effect that the withholding of these benefits have had on Mrs. Singh’s life and that of her family, I do not find that it was a significant mitigating factor to pay Mrs. Singh her benefits prior to the arbitration hearing. In fact, when one reviews the evidence, it is clear that Commercial Union is the one who benefited from not proceeding to arbitration on the issue of entitlement.

Although not essential to my decision, I would express the importance of payment somewhat more strongly. In my view, an insurer that reconsiders its position and agrees to pay benefits in advance of the hearing should generally get some “credit” for doing so. However, it is only one factor. It is open to the arbitrator to order a special award at the maximum rate if there are reasons to discount the significance of the payment, or if other aspects of the insurer’s behaviour are particularly egregious.

In this case, the arbitrator found that Commercial Union refused to reconsider its position despite overwhelming medical evidence supporting Mrs. Singh’s claim, and despite being aware that Mrs. Singh was the family’s only wage-earner. It agreed to pay the claim at the last minute and then used the payment to attempt to avoid the imposition of a special award on jurisdictional grounds. On this view of the evidence, I find no error of law in the arbitrator’s decision to impose a special award at the maximum amount allowed by the legislation.

(2) Payment of other benefits

The subject of the special award was Commercial Union’s unreasonable delay in paying IRBs. While its approach to other benefits might have assisted the arbitrator in evaluating the manner in which the IRB claim was handled, it is not directly relevant to the amount of the special award. The reverse is also true. Mrs. Singh was not allowed to bolster her argument in respect of the special award by complaining about Commercial Union’s handling of other aspects of her claim. This is reflected in the following excerpt from page 35 of the decision:

Although Mrs. Singh provided very detailed evidence regarding Commercial Union’s unreasonable conduct and treatment of her claim from as soon as she applied for accident benefits (including not only her claim for income replacement benefits, but also med/rehab benefits and housekeeping) up until the settlement of her claim on November 29, 2000, I have based my decision on the conduct of Commercial Union only in respect of the issues set down for the arbitration on December 4, 2000, namely, her entitlement to income replacement benefits and the amount of the benefits.

Reading the decision as a whole, I am satisfied that the arbitrator considered the appropriate factors. Commercial Union’s real objection is to her evaluation of the evidence.

C. Level of proof

In considering the size of the special award, the arbitrator found that Commercial Union’s actions created “a great deal of harm to Mrs. Singh and her family”:

Not only did Mrs. Singh suffer frustration from the callous way Commercial Union treated her, but she and her family suffered enormous hardship.

In order to survive, Mr. Singh and her husband had to go into debt and borrow money from relatives and friends. Their mortgage and property taxes fell into arrears. They had to use food banks in order to eat. Because of lack of money their children were deprived from participating in the normal social and school activities. Their eldest son, a high school student, had to obtain employment to help support the family. This same son was admitted to a psychiatric facility for depression in the fall of 2000 and dropped out of high school.

Commercial Union knew at all times that Mrs. Singh was the sole supporter of her family when it terminated and continued to deny her weekly benefits.

[p. 45, footnote omitted]

Commercial Union initially objected to two parts of this excerpt, claiming there was no evidence of any connection between its refusal to pay benefits and the family’s use of food banks or the son’s psychiatric problems. At the appeal hearing, counsel for Commercial Union appropriately withdrew its challenge to the food bank finding when a portion of the transcript supporting the arbitrator’s finding was brought to his attention. There is more strength in Commercial Union’s second objection. I am unable to find any evidence to tie the son’s psychiatric problems to Commercial Union’s action. However, this does not undermine the arbitrator’s general finding that the Singh family was particularly vulnerable and suffered serious consequences as a result of Commercial Union’s delay in paying Mrs. Singh’s claim for IRBs. This was an appropriate consideration and, therefore, I find no basis for interfering with the decision.

D. Benefits owing

According to s. 282(10) of the Insurance Act, arbitrators can order a special award “in addition to awarding the benefits and interest to which the insured person is entitled” of “up to 50 per cent of the amount to which the person was entitled at the time of the award . . .” Despite its suggestion that the special award be reduced to the amount already paid, Commercial Union’s final argument is that because it paid Mrs. Singh’s IRBs in full before the arbitration hearing, there were no benefits owing and, therefore, no basis for calculating a special award.

To some extent, this is a reformulation of the argument advanced at the arbitration hearing that arbitrators have no jurisdiction to order a special award if the dispute about benefits has been resolved. As the arbitrator notes, I considered this issue in Chafe-Moote and Prudential of America General Insurance Company (Canada), (FSCO P99-00044, September 8, 2000), and agreed with previous arbitration and appeal decisions which held that “insurers cannot avoid a special award by paying benefits shortly before the arbitration hearing.” While I found the wording of s. 282(10) of the Insurance Act somewhat problematic, I concluded that “[t]o hold otherwise would take delayed payments out of the equation, a result that clearly was not intended.” Nothing in this case has changed my view.

This does not relieve the arbitrator from determining the amount of the benefits that were unreasonably withheld. That is what determines the potential size of the special award. In situations where the payment is based on some type of unspecified global settlement, that could be a problem. However, in this case, Commercial Union paid the entire claim. In my view, therefore, it was appropriate for the arbitrator to base the special award on the amount paid, plus the additional interest contemplated by s. 282(10).

For all these reasons, the appeal is dismissed.

III. APPEAL EXPENSES

At the appeal hearing, Commercial Union agreed that it would pay Mrs. Singh’s appeal expenses whatever the outcome.