Neutral Citation: 2003 ONFSCDRS 117

FSCO A01-000215

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

PAMELA SIMPSON

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before:

David Leitch

Heard:

September 27, 2002 and June 13, 2003

Appearances:

David S. Wilson for Ms. Simpson

John D. Dean for Allstate Insurance Company of Canada

Issues:

The Applicant, Ms. Pamela Simpson, was injured in a motor vehicle accident on May 4, 2000. She applied for and received statutory accident benefits from Allstate Insurance Company of Canada ("Allstate" or "the Insurer") payable under the Schedule.¹ I have now issued four decisions, dated November 16, 2001, February 6, 2002, March 11, 2003 and April 4, 2003, dealing with disputes between the parties. The issues in this further hearing are:

1. When Allstate reinstated the Applicant's income replacement benefits with arrears, was it entitled to set-off against the benefit arrears a deductible lump sum payment of collateral benefits received by the Applicant prior to reinstatement or was it required to recover the full amount of the deductible lump sum payment through 20 per cent reductions in the Applicant's reinstated benefits?

2. What is the amount owing by Allstate to the Applicant in respect of her hearing expenses?

Results:

1. Allstate was entitled to set-off the deductible lump sum payment from the arrears of the Applicant's reinstated income replacement benefits.

2. Allstate shall pay the Applicant $15,912.54 in respect of her hearing expenses.

Issue 1:

Background

As indicated in my earlier decisions, Allstate paid the Applicant income replacement benefits from one week after the accident of May 4, 2000, i.e, from May 11, 2000 to November 22, 2000 when it terminated benefits. In early May 2001, Allstate reinstated the Applicant's income replacement benefits, retroactively for the period November 22, 2000 to April 25, 2001, and ongoing from June 26, 2001. However, a dispute developed as to whether Allstate was entitled to deduct from the Applicant's reinstated benefits the lump sum amount she received from Trafalgar Insurance a few days prior to her benefits being reinstated by Allstate. Trafalgar's payment related to the Applicant's claim, in respect of an earlier accident, to a weekly supplement under section 32 of the 1993-1996 Schedule.²

In my decision of February 6, 2002, I ruled that Allstate was entitled to deduct the Trafalgar payment from Ms. Simpson's income replacement benefits. My decision also referred to Mr. Dean's letter to Mr. Wilson dated May 31, 2001. In this letter, which was written before the commencement of the hearing in late October 2001, Mr. Dean maintained that Allstate was entitled to deduct the Trafalgar payment and set out the method by which Allstate intended to recover the deduction.³ This method involved setting-off most of the Trafalgar payment against the benefit arrears and recovering the balance of the deduction through 20 per cent reductions in Ms. Simpson's reinstated benefits.

After receiving my decision confirming that Allstate was entitled to deduct the Trafalgar payment, Mr. Dean sent Mr. Wilson a further letter dated May 23, 2002.⁴ This letter reconfirmed the method by which Allstate intended to recover the deduction. The only change from Mr. Dean's letter of May 31, 2001 was an increase in the rate of the income replacement benefit as a result of my decision of November 16, 2001 ruling that Ms. Simpson's vacation was to be included in the calculation of that benefit.

By letter dated June 5, 2002,⁵ Mr. Wilson took the position that Allstate's proposed method of recovering the deduction was contrary to section 47 of the Schedule⁶ A hearing with respect to this issue was conducted on September 27, 2002 and my decision was issued on March 11, 2003.⁷ On receipt of this decision, Mr. Wilson submitted that I had failed to decide an issue that was argued on September 27, 2002, namely, whether Allstate was entitled to set-off the deductible lump sum payment from the reinstated income replacement benefit arrears or whether it was required to recover the full amount of the deductible lump sum payment through 20 per cent reductions in the Applicant's reinstated benefits. That is the issue I have characterized as Issue 1 in this decision. Mr. Dean disagreed, submitting that I had decided this issue and that, in any event, the issue was now res judicata.

In these circumstances, I convened another hearing on June 13, 2003. I identified two preliminary questions: whether I had failed to decide Issue 1 and, if so, whether I could still decide that issue. I then re-heard the parties' arguments on Issue 1.

Did I fail to decide Issue 1?

In support of his argument that I had not failed to decide Issue 1, Mr. Dean referred to page 12 of my decision of February 6, 2002 in which I referred to section 47(1)(c) of the Schedule and then wrote:

Mr. Wilson did not dispute that in the event I reached the conclusion which I have now reached, this provision would apply and that Allstate has complied with the requirements imposed by the other subsections of section 47. Accordingly, Allstate was, and may still be, entitled to deduct 20 percent from each payment of the Applicant's reinstated income replacement benefits in order to recover the agreed amount in respect of the section 32 benefit she received from Trafalgar. (My emphasis in this decision, not in the original)

Mr. Dean further cited page 3 of my decision of March 11, 2003 in which I wrote:

In my decision of February 6, 2002, I decided that Allstate was entitled to make this deduction. I also noted that the parties had agreed on both the amount to be deducted and the method by which it would be deducted. (My emphasis in this decision, not in the original)

I certainly understand why Mr. Dean relied upon these passages. Nevertheless, I can assure the parties that these passages were not intended to decide Issue 1. In fact, it is now apparent to me that I failed to fully appreciate the implications of the arguments made before me on September 27, 2002. On that date, I did indeed hear arguments for and against the "set-off" of the deduction against the benefit arrears. However, in writing my decision, I mistakenly assumed that the only issue I was required to decide was whether the Applicant was entitled to interest on her reinstated benefits to the date of reinstatement. Since I concluded that I could decide that issue without referring to the set-off arguments, my decision of March 11, 2003 did not refer to or analyse these arguments. Nor did any of my other decisions in this proceeding. In short, at no point in these proceedings have I decided Issue 1.

Can I still decide Issue 1?

Rule 65.6 of the Dispute Resolution Practice Code (4th edition) allows me to clarify the ambiguity created by the passages quoted above. However, having now clarified that these passages did not decide Issue 1, can I still decide that issue?

Mr. Dean certainly did not suggest that I was functus officio. Mr. Wilson argued that I could not be functus officio as further decisions were required to clarify how the deduction was to be made and how interest was to be calculated.

In my view, I am not functus officio. On the contrary, I have now heard argument with respect to Issue 1 on two occasions without discharging my duty to make a decision on that issue. Neither party objects to my issuing a decision; both parties request that I do so. I conclude, therefore, that I retain the authority to make a decision with respect to Issue 1.

Res judicata

Mr. Dean took the position that the issue of Allstate's method of recovering the deduction was res judicata. He submitted that Mr. Wilson failed to register any objection to this method despite the fact that it was clearly described to him in Mr. Dean's letter of May 31, 2001, well prior to the commencement of the hearing.

Mr. Wilson responded by alleging that on December 14, 2001, the day the deduction issue was argued, he asked me to remain seized of issues related to the "arithmetic implementation" of my decision. In a written submission dated April 9, 2003, Mr. Wilson wrote:

I had in mind the potential dispute that existed with respect to the calculation which was yet to be made, however, since the dispute would have been moot if you had found that the supplement was not deductible, I was of the view that there was no point in making extensive submissions with respect to the method of calculation of an overpayment in circumstances where you might find that there was no overpayment to be deducted.⁸

In his written submission in reply dated April 16, 2003, Mr. Dean wrote:

What Mr. Wilson now seeks to argue is not simply arithmetic, but rather in my submission, is revisiting the principles to be applied to the deduction and it is not appropriate that that matter be raised now when it could have been raised at the hearing.⁹

As I noted at page 5 of my decision of March 11, 2003, "there was a regrettable lack of precision at the outset of these proceedings about the issues of which I was to remain seized." Despite this, my notes of Mr. Wilson's opening statement on October 29, 2001 do confirm that he specifically requested that I remain seized of "the principles to be applied in the calculation of the benefit" in the event the deduction was allowed. Neither my notes nor my memory suggest that Mr. Dean objected to this request or that I denied it.

I conclude, therefore, that Issue 1 is not res judicata.

Allstate's right to set-off

The parties agree that the total amount of the Trafalgar deduction was $12,465. I accept Mr. Dean's calculation that the total amount of the benefit arrears on reinstatement was $8,024.70.¹⁰Using these figures, the opposing arguments about how the deduction is to be recovered may be simply stated.

Relying upon section 47 of the Schedule, Mr. Wilson submitted that Allstate was required to recover the entire deduction, $12,465, through 20 per cent reductions in the Applicant's reinstated benefits.

Relying upon section 60 of the Schedule, Mr. Dean submitted that Allstate was entitled to set-off the deduction against the $8,024.70 in benefits arrears and was only required to recover the remaining balance of $4,440.30 through 20 per cent reductions in the Applicant's reinstated benefits.

The most immediate, but not the only, difference between the two methods arises from Mr. Wilson's claim that, according to his argument, the benefit arrears have never been paid and have, therefore, accrued interest since the date of reinstatement at the rate of 2 per cent per month compounded monthly, in accordance with section 46(2). In his written submission dated April 9, 2003, Mr. Wilson estimated that his client was already owed interest on the benefit arrears in the amount of $6,000.¹¹ Mr. Wilson acknowledged that interest also accrues on amounts repayable under section 47, in accordance with section 47(6), but at the much lower bank rate.

However, there is another significant difference between the two methods. The method advocated by Mr. Dean would allow his client to make an immediate recovery of the deduction in the amount of the benefit arrears, whereas the method advocated by Mr. Wilson would allow his client to repay the entire deduction at a much slower pace. The method advocated by Mr. Wilson would, in effect, give his client access to a fund of money, initially in the full amount of the benefit arrears but dwindling with time and subject to interest at the bank rate.

I begin my analysis of these competing arguments by noting that my authority, as an arbitrator, to allow the set-off sought by Allstate must arise by necessary implication from the relevant sections of the Schedule. This was established by a Director's Delegate's appeal decision in the case of Boodhai and Allstate Insurance Company of Canada where it was also observed that: "The provisions, context and purpose of the particular legislative scheme must be examined in order to determine whether a right to order set-off arises by necessary implication."¹²

I set out below the provisions of the Schedule which I believe must be examined for present purposes, namely, sections 4.1, 7(1)1i, 35(4), 60(1)1 and (3)(c), and 47(2) and (5).

INCOME REPLACEMENT BENEFITS

Eligibility Criteria

4. The insurer shall pay an insured person who sustains an impairment as a result of an accident an income replacement benefit if the insured person meets any of the following qualifications:

5. The insured person was employed at the time of the accident and, as a result of and within 104 weeks after the accident, suffers a substantial inability to perform the essential tasks of that employment.

Collateral Payments for Loss of Income and Maximum Amount of Benefit

7. (1) Despite subsection 6 (1) but subject to subsections 6 (2) to (6), the weekly amount of an income replacement benefit payable to a person shall be the lesser of the following amounts:

8. The amount determined under subsection 6 (1), reduced by,

i. net weekly payments for loss of income that are being received by the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, and

Payment of Income Replacement, Non-earner or Caregiver Benefit

35. (4) An insurer that is required to pay an income replacement, non-earner or caregiver benefit shall pay the benefit at least once every second week.

Other Collateral Benefits

60. (1) The insurer may deduct the following amounts from the amount payable to an insured person as an income replacement or non-earner benefit:

61. Any temporary disability benefits being received by the insured person in respect of a period following the accident and in respect of an impairment that occurred before the accident.

(3) In this section,

"temporary disability benefit" means,

(c) benefits paid under Part II, III or IV or section 32 of Ontario Regulation 776/93,

Repayments to Insurer

47. (2) If a person is required to repay an amount to an insurer under this section,

(a) the insurer shall give the person notice of the amount that is required to be repaid; and

(b) if the person is receiving an income replacement or caregiver benefit, the insurer may give the person notice that the insurer intends to collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit.

(5) An insurer that has given the notice referred to in clause (2) (b) may collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit.

In keeping with the name of the benefit, the income replacement benefit, I read sections 4.1, 7(1)1i and 35(4) as establishing that the purpose of this benefit is to replace the stream of income the insured person is no longer able to earn as a result of the accident but without allowing the insured person to recover for that loss more than once. The words "income continuation benefit plan" found in 7(1)1i, or similar language found in the earlier Schedules, may not always be easy to interpret and apply.¹³ The more recent Schedules also contain many other potentially problematic provisions, like section 60, regarding the deductibility of "collateral benefits." Nevertheless, the basic principle that collateral benefits are deductible clearly serves one of the main purposes of the income replacement benefit. That purpose was described by Mr. Justice Laskin in the case of Bapoo v. Co-operators General Insurance Company (1997) 1997 CanLII 6320 (ON CA), 36 O.R. (3d) 616 at p. 622. Dealing specifically with section 12(4)(b) of the OMPP (Bill 68) Schedule, the equivalent of section 7(1)1i applicable in the present case, Mr. Justice Laskin wrote:

A second purpose of s. 12(4) of the Schedule is to ensure that injured insureds are not overcompensated. This section does so by precluding injured persons from recovering full income replacement benefits both from their car insurer and their disability carrier and, therefore, from receiving more than their actual wages. In preventing over-compensation, the Schedule attempts to treat recipients and non-recipients of collateral benefits equally. (My emphasis)

In the present case, I find that I would not be able to achieve the goal of equality between insured persons, without regard to entitlement to collateral benefits, if I were to require Allstate to recover the deduction in a way which gave Ms. Simpson an advantage not given to an insured person who was not entitled to collateral benefits. In my view, requiring Allstate to recover the deduction in the method advocated by Mr. Wilson would give Ms. Simpson such an advantage, in particular, access to a fund of money, initially in the full amount of the benefit arrears but dwindling with time and subject to interest at the bank rate. This is not an advantage which most insured persons who were not entitled to collateral benefits could obtain.

I acknowledge that there may be some situations in which insured persons not entitled to collateral benefits might seek the same advantage now sought by Ms. Simpson. For example, an insured person whose statutory accident benefits were initially paid at an erroneously high rate, then terminated and finally retroactively reinstated might, like Ms. Simpson, argue that the insurer was not entitled to set-off the overpayment (caused by the erroneous rate calculation) from the benefit arrears but was instead required to recover the overpayment through 20 per cent reductions in the reinstated benefits.¹⁴ However, it is unlikely that most insured persons not entitled to collateral benefits would have this or any other way of seeking the advantage now sought by Ms. Simpson. On the other hand, any insured person who received collateral benefits in the manner Ms. Simpson received them could seek the advantage she now seeks.

It is clear that I could deprive Ms. Simpson of this advantage, at least in part, by finding that Allstate's right to set-off arose by necessary implication from "the provisions, context and purpose of the particular legislative scheme."¹⁵ However, I cannot make this finding without also considering the effect of sections 47(2) and (5).

In my view, these sections also serve an important purpose. Just as the provisions referred to above attempt to prevent over-compensation, these sections attempt to prevent the short-term under-compensation that would result if an insured person were deprived of more than 20 per cent of his/her income replacement or caregiver benefit.

However, while I have identified how the purpose of avoiding over-compensation would be frustrated by not allowing the set-off sought by Allstate, I am unable to see how the purpose of avoiding under-compensation would be frustrated by allowing Allstate this set-off. In practical terms, the Trafalgar payment effectively reinstated Ms. Simpson's income replacement benefits at the rate of 100 per cent. In addition, I have decided that Ms. Simpson is entitled to both interest on the benefit arrears and a special award for the unreasonable termination of her benefits.

Moreover, I reject Mr. Wilson's argument that an insurer who decides to reinstate benefits with arrears may only recover repayments through 20 per cent (or less) reductions from each payment of the reinstated benefit. Section 47(2) states that this restriction applies "if the person is receiving an income replacement or caregiver benefit" (my emphasis). It is not apparent to me how this language prohibits an insurer from reinstating benefits subject to the recovery of an amount owed to it by the insured person from the benefit arrears. In my view, as long as the insurer has given the insured person notice of the reduced amount owed, in accordance with section 47(2)(a), prior to the actual reinstatement of benefits, sections 47(2)(b) and (5) apply only to the payment of the reinstated benefits, not to the arrears. In the present case, Allstate gave the required notice in May 2001 but did not actually reinstate Ms. Simpson's benefits until June 2001.

Finally, I reject Mr. Wilson's submission that "the timing of the events in this matter ought not to affect the result."¹⁶ More particularly, he argued that since Allstate's method of recovery would have been restricted by section 47 had Ms. Simpson received the Trafalgar payment after her income replacement benefits were reinstated, Allstate should not be in any better position merely because the Trafalgar payment was actually received before her benefits were reinstated. The simple answer to this argument is that my decision must be, and is, based on the facts as I have found them and the legislation as I read it. I would nevertheless add that where Mr. Wilson sees an anomaly which favours Allstate, I see an anomaly which favours his client over most insured persons not entitled to collateral benefits, namely, she still enjoys access, at the bank rate, to the amount of the deduction which was not recovered through set-off from the benefit arrears.

I, therefore, conclude that Allstate's right to set-off the deduction against the benefit arrears arose by necessary implication from "the provisions, context and purpose"¹⁷ of the Schedule.

Issue 2: Expenses

The amount owing by Allstate to the Applicant in respect of her hearing expenses is $15,912.54. Given that the hearing of June 13, 2003 was only made necessary by my error, I find that each party should bear its own expenses in relation to that hearing.

At the request of the parties, I retain jurisdiction to deal with any payment issues arising out of the implementation of my previous order regarding vacation pay and the impact of Director's Delegate Makepeace's appeal decision on that issue.¹⁸ The parties will inform me if they have not been able to agree on these issues by or before August 29, 2003.

July 31, 2003

David Leitch Arbitrator

Date

Neutral Citation: 2003 ONFSCDRS 117

FSCO A01-000215

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

PAMELA SIMPSON

Applicant

and

ALLSTATE INSURANCE OF CANADA

Insurer

ARBITRATION ORDER

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

1. Allstate was entitled to set-off the deduction from the arrears of the Applicant's reinstated income replacement benefits.

2. Allstate shall pay the Applicant $15,912.54 in respect of her hearing expenses.

3. At the request of the parties, I retain jurisdiction to deal with any payment issues arising out of the implementation of my previous order regarding vacation pay and the impact of Director Delegate Makepeace's decision on that issue. The parties will inform me if they have not been able to agree on these issues by or before August 29, 2003.

July 31, 2003

David Leitch Arbitrator

Date

He wrote:

Arbitrators can and should make a sensible order arising from the issues before them. The arbitrator here was dealing with a number of questions about the amount owing. He could have ordered Mr. Younathan to repay the difference between the weekly rate paid and the proper amount, plus interest at the bank rate under section 27 of the Schedule. After eliminating the overpayment, however, GAN would have owed Mr. Younathan weekly income benefits from the date of termination. This would have involved an order that GAN pay benefits from the date of termination to the decision, a period of more than two years, plus interest at 2 per cent per month under section 24 of the Schedule.

Instead, the arbitrator gave GAN credit for the amount it had already paid, allowing it to set-off the overpayment against the additional weekly income benefits it was obliged to pay, with no interest to either party. In my view, this was within the arbitrator's authority and was a sensible order in the circumstances. Therefore, I am not prepared to interfere.

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 2, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98, 114/00 and 482/01.
2. 2The 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.
3. 3Exhibit 3, Tab 3.
4. 4Exhibit 15.
5. 5Exhibit 16.
6. 6Mr. Wilson also maintained that Allstate's method conflicted with page 19 of my decision of February 6, 2002. However, it became clear during the course of argument that the point made by Mr. Wilson on page 1 of his letter of June 5, 2002 does not affect the resolution of Issue 1.
7. 7The delay in issuing the decision was due to the fact that, shortly after the hearing, I was informed that the parties were close to settling all issues. It was not until late January 2003 that I was informed that the matter had not settled and that a decision was required.
8. 8Exhibit 20.
9. 9Exhibit 21.
10. 10Exhibit 21. This amount did not include vacation pay.
11. 11Exhibit 20. Mr. Wilson also calculated the amount of the benefits arrears to be approximately $8,000, even though he included vacation pay.
12. 12Appeal (FSCO P-004002, September 18, 1996), p 6.
13. 13see Economical Mutual Insurance Company and Wilcox appeal (FSCO P99-00015, March 2, 2000).
14. 14These were the facts in the Gan Company of Canada, Ltd. and Younathan appeal (FSCO P96-00088, July 29, 1997). While that case was decided under a different Schedule, with no equivalent of sections 47(2) and (5), it is worth noting that the Director's Delegate recognized the arbitrator's authority to delay the date of reinstatement as a way to allow the insurer to recoup the overpayment resulting from the erroneous calculation of the benefit rate.
15. 15Boodhai, footnote 12.
16. 16Exhibit 20.
17. 17Boodhai, footnote 12.
18. 18(FSCO P01-00057, June 6, 2003)