Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2003 ONFSCDRS 177

Appeal P03-00019

OFFICE OF THE DIRECTOR OF ARBITRATIONS

HAROLD TROTTIER

Appellant

and

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA

Respondent

Before:

David R. Draper

Representatives:

Andrew Kerr for Mr. Trottier

Peter Trueman for Royal

Hearing Date:

November 21, 2003

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 allowed in part. The arbitration order, dated April 29, 2003, is amended as follows:

Paragraph 1 is revoked and replaced with the following:

1. Royal shall pay income replacement benefits of $237.05 from May 26, 2002, plus interest on this amount calculated at 2 per cent per month compounded monthly.

Paragraph 2 is revoked and replaced with the following:

2. Mr. Trottier shall repay to Royal the income replacement benefits he received for the 12-month period ending November 21, 2002, to the extent of the long term disability payments he received from Clarica Life Insurance Company that are deductible from those benefits.

3. If the parties cannot agree on appeal expenses, or the calculation of the benefits payable under this order, they may request a determination by writing to the Commission within 30 days.

December 15, 2003

David R. Draper

Director of Arbitrations

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal involves the repayment provisions in s. 47 of the SABS–1996.¹ Harold Trottier challenges the Arbitrator’s order, dated April 29, 2003, that he must repay $40,267.52, plus interest of $475.16, to his automobile insurer, Royal & SunAlliance Insurance Company of Canada (“Royal”), as a result of receiving long term disability (“LTD”) benefits from Clarica Life Insurance Company (“Clarica”).

The Arbitrator also ordered Royal to pay Mr. Trottier interest of $230.55 on his income replacement benefits (“IRBs”) and a special award of $350. On appeal, Mr. Trottier submits that the Arbitrator erred in setting these amounts too low.

II. REPAYMENT

A. Background

Mr. Trottier was injured in an automobile accident on December 20, 1999.² He suffered neck and back injuries, which prevented him from carrying out his job as a custodian at a secondary school. Through his employment, Mr. Trottier was covered by an LTD policy issued by Clarica, which provided benefits to injured workers at 66 2/3 per cent of their usual gross monthly pay, but only if they were “totally disabled.”

On the advice of his employer, Mr. Trottier did not apply to Clarica for LTD benefits due to the policy’s strict disability test. It was his hope, as well as his employer’s, that he would recover and return to his custodial job.

On December 30, 1999, ten days after the accident, Mr. Trottier applied to Royal for accident benefits. His claim for IRBs was based on the less-strict, “own occupation” test in s. 4 of the SABS-1996.³ As required, Mr. Trottier filed an Employer’s Confirmation of Income form, which Royal received on January 20, 2000. This form notified Royal of the Clarica policy.

Royal responded to Mr. Trottier’s application in an Explanation of Benefits Payable form, dated January 27, 2000, which stated as follows:

We have received your employer’s confirmation of income and disability certificate. We see on your [employer’s] form you are eligible to receive an income benefit from Clarica Life Ins. under [policy] number 04056-5. We require written confirmation as to the amount you are receiving per week. Once this information is received we will be able to calculate your entitlement to receive an income replacement benefit.

Royal’s position was based on the rule that automobile insurers are secondary or residual payers. Subsection 7(1) of the SABS-1996 provides that the insured person’s IRBs are 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

ii. net weekly payments for loss of income that are not being received by the person but are available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, unless the person has applied to receive the payments for loss of income.

After receiving more information about the Clarica policy, Royal began paying IRBs at the rate of $393.73 per week, with no deduction for collateral benefits. This is reflected in its Explanation of Benefits Payable, dated February 15, 2000.

In June 2000, Royal notified Mr. Trottier of its intention to stop paying IRBs effective July 4, 2000, on the basis that he no longer met the disability test. Mr. Trottier asked for an assessment by a Designated Assessment Centre (“DAC”) and, as required by the legislation, Royal continued paying IRBs pending the outcome of the DAC assessment. In early November 2000, the DAC concluded that Mr. Trottier continued to meet the pre-104 week disability test – he was substantially unable to perform the essential tasks of his pre-accident employment. As a result, Royal continued paying IRBs.

In January 2001, Royal again raised the issue of collateral benefits. In Explanation of Benefits Payable forms, dated January 18 and 19, 2001, Royal advised Mr. Trottier that he had to provide proof of his application to Clarica and Clarica’s response, and indicate whether he was appealing any denial.

On February 2, 2001, Mr. Trottier applied to Clarica for LTD benefits. His employer explained to Clarica that he did not apply earlier because it was not felt that he would meet the disability test in the policy. By letter dated March 30, 2001, Clarica denied the claim on the basis that Mr. Trottier had applied too late and was not totally disabled. In September 2001, Mr. Trottier retained his current counsel, Mr. Kerr, to pursue his claim for benefits from Clarica.

On December 3, 2001, Royal notified Mr. Trottier that it intended to terminate his IRBs on the basis that he did not meet the post-104-week, “complete inability” test in s. 5(2)(b) of the SABS-1996. Again, Mr. Trottier asked for a DAC assessment, which was done over several days in March 2002. The DAC report was issued on May 2, 2002. It concluded that Mr. Trottier did not meet the demands of his previous employment as a custodian/stationary engineer. The DAC further concluded that “if Mr. Trottier were to match a specific [job’s] physical demands, [then] he would not be considered to be substantially disabled, as each potential job will have different demands.”

In March and May 2002, Mr. Trottier provided Royal with two reports, raising significant questions about his ability to return to alternative employment. Nevertheless, Royal stopped paying IRBs, as of May 26, 2002, relying on the DAC report.

Mr. Trottier also sent the new reports to Clarica and, in May 2002, served a Statement of Claim. On June 28, 2002, Clarica advised Mr. Trottier that his claim had been accepted. Included with this letter were cheques totaling $42,107.87 for the period April 20, 2000 to June 30, 2002. This works out to a net benefit, after tax, of $367.65 per week. Mr. Kerr charged Mr. Trottier $12,750.61 for his legal work in pursuing these benefits.

On July 22, 2002, Mr. Trottier advised Royal that he was in receipt of benefits from Clarica. On August 14, 2002, Royal advised him that the Clarica payments were collateral benefits and, as such, were deductible from his IRBs. According to s. 47 of the SABS-1996, insurers are entitled to repayment of any “income replacement . . . benefit . . . to the extent of any payments received by the person that are deductible from those benefits under this Regulation.” However, this is subject to a time limitation. Subsection 47(3) states that, absent wilful misrepresentation or fraud, the insured person is not required to repay benefits unless the insurer provides notice of the overpayment “within 12 months after the payment was made.”

Royal filed for mediation at the Commission on August 23, 2002, claiming a repayment of $42,107.87, the full amount of the initial Clarica payment. On September 16, 2002, Mr. Trottier’s lawyer wrote to Royal, stating that its letter of August 14, 2003 did not comply with the SABS-1996, in part, because it did not specify the amount of the repayment being claimed.

By this time, the broader dispute between the parties on Mr. Trottier’s entitlement to IRBs was already in arbitration. On September 24, 2002, a week before the pre-hearing conference, Royal advised Mr. Trottier that it was conceding his continuing entitlement to IRBs after the 104-week mark. However, no benefits were paid, apparently due to inadvertence.

On October 3, 2002, the parties mediated the repayment issue. The Report of Mediator notes that Royal claimed a repayment of $42,107.87. The matter did not settle.

By letter dated November 21, 2002, Royal provided Mr. Trottier with notice of the amount of the overpayment – $40,267.52 – and the manner in which it was calculated. Royal stated that “previously, the amount indicated was not the overpayment, but rather the total amount of income replacement benefits paid by us to Mr. Trottier.”

In October 2002, at the request of Clarica, Mr. Trottier applied for Canada Pension Plan (“CPP”) disability benefits. In late November, CPP advised Mr. Trottier that he had been approved for benefits at the rate of $204.82 per week in 2001 and $210.97 per week for 2002. These benefits reduced the amount of his Clarica benefits on a dollar-for-dollar basis. Consequently, CPP paid the retrospective benefits for the period October 1, 2001 to November 30, 2002, totalling $12,718.91, directly to Clarica.

The CPP payments also affected the calculation of Mr. Trottier’s IRBs. Because his accident was before January 1, 2002, the CPP benefits were not deductible from his IRBs.⁴ However, because they reduced his LTD benefits, the amount by which his IRBs would be reduced would be less (assuming they were deductible). As a result, the impact would be an increase in his entitlement to IRBs.

At the arbitration hearing, Mr. Trottier argued that the Clarica benefits were not “payments for loss of income,” within the meaning of s. 7(1) of the SABS-1996 and, therefore, were not deductible from his IRBs. The Arbitrator ruled against him on this point, and Mr. Trottier is not challenging this part of the decision in his appeal.

Having concluded that Royal was entitled to reduce Mr. Trottier’s IRBs by the amount he received from Clarica, the next question involved the benefits Royal had already paid. Royal claimed it was entitled to repayment of $40,267.42, reflecting overpayments back to April 20, 2000, when Mr. Trottier’s LTD benefits started. Mr. Trottier argued that according to s. 47(3) of the SABS-1996, Royal was only entitled to recover benefits overpaid within the 12-month period before it provided notice.

The Arbitrator accepted Royal’s position. His reasons are relatively brief:

The Insurer complied with section 47(2) by giving the Applicant notice of the amount to be repaid on November 21, 2002. Pursuant to section 47(3), the obligation to repay applies since the notice was given within 12 months after the payment was made.

The Applicant suggested that he should only be required to repay his benefits 12 months back from the date of the notice. I reject this. The Insurer gave the Applicant full notice of the amount to be repaid within 12 months of the payment being received. I note that, as early as January 2000, the Insurer had suggested to the Applicant that his LTD benefits would be deducted from his IRBs. This was confirmed in January 2001. Section 47(1)(c) makes clear that a person’s IRBs are to be repaid to the extent of “any” payments that are deductible. This suggests that the Applicant must repay all LTD benefits received by him. I see no significance in the fact the LTD benefits were paid in relation to a two-year period, for even if the Applicant were right in his interpretation of section 47(3), in the present case, the Applicant only received the benefits as of June 2002 and the Insurer gave notice of the repayment within 12 months of this time. I find that the Applicant’s situation falls squarely within the terms of section 47 and that he must repay the amount noted by the Insurer, namely, $40,267.52.⁵

On appeal, Mr. Trottier submits that the Arbitrator erred in ordering him to pay the full amount of the LTD benefits he received from Clarica.

B. Analysis

The parties agree that the Arbitrator’s order must be amended. Royal concedes that because the lump sum received from CPP reduced Mr. Trottier’s LTD benefits from Clarica, the overpayment should be reduced by the amount of the CPP payment. Therefore, the overpayment, at its highest, is $27,548.61 ($40,267.52 - $12,718.91 = $27,548.61).

The disputed issue involves the repayment provisions in s. 47 of the SABS-1996, particularly s. 47(3), which states that the obligation to repay does not apply unless the insurer provides notice of the overpayment “within 12 months after the payment was made.” Does it mean, as the Arbitrator held, that Royal can recover the full amount of the LTD payments because it gave Mr. Trottier notice within 12 months of the “payment” of those benefits? Or, as Mr. Trottier contends, does “payment” in s. 47(3) mean the payment of accident benefits, limiting the repayment to the IRBs paid in the 12 months preceding the notice? Put differently, Mr. Trottier submits that s. 47(3) creates a general amnesty for benefits paid more than 12 months previously – unless they were paid as a result of wilful misrepresentation or fraud.

1. Legislative history

Examining previous versions of the SABS helps put s. 47 in context. The SABS-1990⁶ dealt with overpayments in s. 27, as follows:

27.(1) A person must repay to the insurer any benefit received under this Regulation that is paid to the person through error or fraud.

(2) A person must repay to the insurer any benefit received under sections 12 and 13 that is paid to him or her if the person or the person in respect of whom the payment was made was disqualified from payment under section 17 [Exclusions].

(3) A person must repay to the insurer any benefit received under sections 12 and 13 to the extent of any payments received by the person that are deductible from benefits under subsection 12(4) or 13(3).

This section is clearly about the repayment of accident benefits. It creates three categories of repayment – benefits paid through error or fraud; weekly benefits paid to someone who was disqualified or excluded from receiving them; and weekly benefits paid to a person who receives collateral payments to the extent that the collateral payments are deductible.

Most of the decisions under this section have dealt with the meaning of “error,” which arbitrators and judges have interpreted narrowly. Insurers are only entitled to repayment if the insured person contributed to the overpayment in some material way.⁷ In State Farm Mutual Automobile Insurance Co. v. Kong, [1997] O.J. No. 4011,⁸ Kennedy J. provided the following explanation for this approach:

An insured who applies for no fault benefits and is candid and prompt in his responses to an insurer’s request for financial information is an innocent party who relies on the insurer to properly interpret and apply the relevant statutory and policy provisions in fixing the quantum of weekly benefits. An insured must be confident that if he fulfils his obligations of providing full and timely disclosure of financial information, as requested by the insurer, the insurer will competently perform its obligation of determining the correct quantum of weekly benefits, and that the resultant loss of any inadvertent miscalculation of the quantum of those benefits will be borne by the insurer in such circumstances.

An innocent insured cannot be expected to receive his no-fault benefits with a mere hope that the quantum is correct and a fear that he will be asked to repay them at a later date, should the insurer decide to acquire an accounting opinion after the fact. Instead, the insured is entitled to rely on the insurer’s expertise in calculating the quantum of no fault benefits and is further entitled to assume the quantum of benefits, as represented by the insurer’s payment, is correct. Absent any contributing material act or omission by the insured, the insurer, must bear the loss which results from its inadvertence in calculating the quantum of no fault benefits, and cannot shop for opinions based on accounting imagination after the fact, in an attempt to create an error justifying repayment of benefits by the insured. That is what happened in this case. [p. 5]

I made similar comments in Lunn and State Farm Mutual Automobile Insurance Company, (OIC P-013860, April 30, 1997) about need for innocent insured persons to be able to rely on the benefits they receive, without being left vulnerable to a later claim for repayment based on new calculations or a different interpretation of the legislation.

The SABS-1994⁹ changed the rules. The relevant provisions are found in s. 70, as follows:

70. (1) A person shall repay to the insurer any benefit received under this Regulation that is paid to the person through error, wilful misrepresentation or fraud.

(2) The obligation to repay a benefit received under this Regulation that was paid to a person through error does not apply unless notice is given under subsection (5) within twelve months after the payment was made to the person.

(3) A person shall repay to the insurer any benefit received under Part II, III, V or VI that is paid to him or her if the person or the person in respect of whom the payment was made was disqualified from payment under Part XIV [Exclusions].

(4) A person shall repay to the insurer any benefit received under Part II to VI to the extent of any payments received by the person that are deductible from those benefits under this Regulation.

(5) If a person is required to repay an amount to an insurer under this section, the insurer,

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

(b) if the person is receiving weekly benefits under this Regulation, 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 weekly benefit from each payment of the weekly benefits.

As in the SABS-1990, this section is about the repayment of accident benefits. It retains the three categories of repayment, requiring insured persons to repay Aany benefit received under this Regulation that is paid to the person through error, wilful misrepresentation or fraud [adding “wilful misrepresentation”], “any benefit received under” the weekly benefit parts of the Regulation, other than caregiver benefits, if the person was disqualified under the exclusion provisions, and “any benefit received under” the weekly income parts of the Regulation “to the extent of any payments received by the person that are deductible from those benefits.”

The biggest change in the SABS-1994 was the introduction of a notice requirement. The insurer was required to give notice of the overpayment, including the option of collecting the overpayment from ongoing benefits. For one type of overpayments – overpayments resulting from “error” – the notice was required “within twelve months after the payment was made to the person.” Otherwise, the overpayment was not recoverable. Under this version of the SABS, arbitrators continued to interpret “error” as requiring some contribution by the insured person.¹⁰

This is the background to s. 47 of the SABS-1996, which states as follows:

47. (1) A person shall repay the insurer,

(a) any benefit under this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of wilful misrepresentation or fraud;

(b) any income replacement or non-earner benefit that is paid to the person if he or she, or a person in respect of whom the payment was made, was disqualified from payment under Part IX [“General Exclusions”]; or

(c) any income replacement, non-earner or caregiver benefit or any benefit under Part VI, to the extent of any payments received by the person that are deductible from those benefits under this Regulation.

(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.

(3) The obligation to repay the benefit does not apply unless the notice under subsection (2) is given within 12 months after the payment was made.

(4) Subsection (3) does not apply if the benefit was paid as a result of wilful misrepresentation or fraud.

This section brought in two major changes. First, “error” was expanded to include “an error on the part of the insurer, the insured person or any other person.” Second, the 12-month notice requirement was extended to cover all types of overpayment, except overpayments resulting from wilful misrepresentation or fraud.

In other respects, the repayment rules remained the same. Section 47 is still about the repayment of accident benefits. Subsection (1) answers the question, what must be repaid? In clause (a), it is “any benefit under this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of wilful misrepresentation or fraud” [emphasis added]. Similarly in clause (b), the insured person must repay “any income replacement or non-earner benefit that is paid to the person if he or she, or a person in respect of whom the payment was made, was disqualified from payment under Part IX” [emphasis added].

The interaction between these provisions and the 12-month notice requirement is straightforward. Reference to “the payment” in s. 47(3) can only mean the payment of accident benefits. Therefore, the insurer can only recover benefits paid within 12 months of giving notice.

The obvious consequence is that an insured person may get to keep benefits that he or she should not have received.

The wording in s. 47(1)(c) is slightly different. It states that the insured person must repay “any income replacement, non-earner or caregiver benefit or any benefit under Part VI, to the extent of any payments received by the person that are deductible from those benefits under this Regulation.” It does not include the phrase, “that is paid to the person,” as in clauses (a) and (b). In my view, however, this is not significant. Clause (c) is still about the repayment of accident benefits, specifically “any income replacement, non-earner or caregiver benefit or any benefit under Part VI.” The difference is that the benefits are only repayable to the extent that the collateral payments received by the insured person reduce his or her entitlement.

This interpretation is supported by s. 47(3), which restricts the insured person’s obligation to “repay the benefit.” Read in context, this can only mean the accident benefit. It follows, in my opinion, that “the payment” in s. 47(3) refers to the payment of the accident benefit, not the payment of collateral benefits. Therefore, the 12-month notice period applies in the same manner as the other types of repayments. Absent wilful misrepresentation or fraud, the insurer cannot recover accident benefits that were paid more than 12 months ago.

In contrast, Royal’s position would give “the payment” in s. 47(3) different meanings depending on the type of repayment. For clauses (a) and (b), it would mean the payment of accident benefits, but for clause (c), it would mean the payment of collateral benefits. This is an odd construction that offends the principle of consistent expression discussed in Driedger on the Construction of Statutes.¹¹

There is no doubt that one of the policies informing the SABS-1996 is that automobile insurers should only pay IRBs to the extent that the insured person is not entitled to payments for loss of income from some other source. However, another underlying principle is that insured persons should be able to rely on the benefits they receive to meet their current needs. To this end, the legislation establishes rules and time lines for applications, the determination of entitlement, procedures for dealing with disputes, and the recovery of overpayments. As Royal acknowledges, the SABS-1996 recognizes the special vulnerabilities of accident victims who will inevitably need to rely on the benefits they receive, and will have a limited ability to respond to any overpayment claims. Insurers are required to identify and provide notice of any overpayment within a relatively short period – 12 months – or lose the right to recover them.

In this case, Mr. Trottier met his initial obligations by notifying Royal of the accident and submitting his Application for Accident Benefits and Employer’s Confirmation of Income. He disclosed his Clarica policy and, when asked, provided additional information. Based on this information, Royal concluded that the Clarica policy was an “income continuation plan” under s. 7(1), set out above. Therefore, if Royal felt that Mr. Trottier was entitled to benefits under this policy, its remedy was to require him to apply for benefits, failing which it could deduct the amount “available” to him under s. 7(1)ii.¹² It did not do so. Instead, Royal paid IRBs with no reduction for collateral benefits.

In January 2001, a year after the accident, Royal reconsidered its position and demanded that Mr. Trottier pursue LTD benefits under his Clarica policy. Again, he cooperated by filing an application. Clarica denied the claim, strongly suggesting, if not determining, that Mr. Trottier did not have any collateral benefits available to him. This left Royal with an obligation under the SABS-1996 to pay IRBs, with no reduction for collateral benefits, which it did.¹³

Although Mr. Trottier may not have had any obligation to pursue his LTD claim further, he did. He retained counsel in September 2002, who obtained additional reports and issued a Statement of Claim against Clarica in January 2002. As noted above, by May 2002, Mr. Trottier also had to deal with Royal’s decision to terminate his IRBs. He was without weekly benefits until late June 2002, when Clarica agreed to pay LTD benefits back to April 2000, and then, in September 2002, Royal agreed to reinstate his IRBs.

As Mr. Trottier points out, Royal has benefited from his initiative in pursuing LTD benefits. It has been able to reduce his ongoing IRBs by the payments he receives from Clarica and, in addition, it is entitled to recover the overpayment going back 12 months. In my opinion, this is precisely what the legislation contemplates.

Therefore, paragraph 2 of the Arbitrator’s order cannot stand. The parties did not provide alternative calculations, so I am not prepared to substitute an order at this time. As well, I note that Director’s Delegate McMahon ordered Mr. Trottier to pay $5,000 toward the Arbitrator’s order, subject to the disposition of the appeal. This payment will obviously need to be considered in calculating the amount owing. If the parties are unable to resolve the matter, they can ask for a determination by writing to the Commission within 30 days of this decision.

III. LEGAL EXPENSES

Mr. Trottier claims the Arbitrator erred in failing to take into account the $12,750.61 in legal expenses he had to incur to obtain LTD benefits from Clarica. In his submission, his IRBs should only be reduced by the net benefits he received, including net of legal expenses.

At the appeal hearing, Mr. Trottier advised that he was only pursuing this argument if he lost on the interpretation of s. 47. As he was successful, it is unnecessary for me to decide this issue. For the sake of completeness, however, I note that I would not have been inclined to overturn the Arbitrator’s conclusion. In my view, s. 7(3) governs the determination of net weekly payments for loss of income, leaving little room for additional deductions.

IV. INTEREST

Royal stopped paying IRBs on May 26, 2002. Eventually, it agreed that Mr. Trottier was entitled to ongoing IRBs, but the parties could not agree on the interest owing on the overdue benefits. Although the Arbitrator determined that Mr. Trottier was entitled to $237.05 per week, after his LTD and CPP benefits were taken into account, he held that Royal should only be required to pay interest on the amount that would have been payable based on the information available at the time. His reasons follow:

Since the Applicant was entitled to receive LTD benefits from Clarica and since these were deductible, the quantum of his IRBs would be $26.08 per week ($393.73 per week for IRBs minus $367.65 per week for LTD benefits). However, the parties agree that, since the Applicant was entitled to CPP benefits and since these were deductible from his LTD benefits, the quantum of his IRBs increases to $237.05 per week ($393.73 per week for IRBs minus only $156.68 per week for LTD benefits).

The Insurer argued that it was only required to pay interest on the $26.08 per week as of May 26, 2002 (since that was the proper amount owing at that time) and that it need only pay interest on the higher rate as of the date the Applicant notified it of his entitlement to CPP benefits, namely, January 27, 2003. I agree that the Insurer cannot be said to have failed to pay an amount owing if it did not know until just prior to the hearing that the amount was, in fact, outstanding. Therefore, while the quantum of the Applicant’s IRBs is $237.05 per week as of May 26, 2002, the Insurer did not fail to pay that amount until January 27, 2003. The only outstanding amount not paid by the Insurer prior to that time was the $26.08 per week. Therefore, for the purposes of calculating interest, the amounts overdue are $26.08 per week from June 9, 2002 (the first bi-weekly payment date after the termination of IRBs on May 26, 2002) to January 26, 2003 and $237.05 per week from January 27, 2003 to April 29, 2003.

Pursuant to section 46(2), the Insurer must pay interest on the overdue payments from the date they became overdue at the rate of 2 per cent per month, compounded monthly. Interest at 2 per cent per month, compounded monthly, on $26.08 per week from June 9, 2002 to January 26, 2003 is $133.88. Interest at 2 per cent per month, compounded monthly, on $237.05 per week from January 27, 2003 to April 29, 2003 is $96.67. The Insurer must pay the Applicant interest of $230.55, on his income replacement benefits. (pp. 13-13)

Mr. Trottier argues that even if the Arbitrator’s approach is correct, the evidence does not support his factual findings. Royal concedes this point. Clarica had not started paying LTD benefits at the time Royal terminated his IRBs. That did not happen until more than one month later. Therefore, the benefits Royal should have been paying for the roughly one-month period following the termination of his IRBs was the full amount of $393.73. Using the Arbitrator’s approach, it should pay interest on this amount for the relevant period, even though Mr. Trottier’s entitlement was eventually determined to be less.

The broader question is whether the Arbitrator erred in not simply ordering interest payable on Mr. Trottier’s entitlement, as he found it, of $237.05 per week. In my view, Royal’s position would have been considerably stronger if it had been resisting interest on the basis that it had paid the correct amount of benefits, but a later change in Mr. Trottier’s situation meant that he was entitled to more. However, Royal was not paying any benefits. It makes little sense to me, therefore, to go back and reconstruct what Royal would have paid if it had been paying benefits. The more sensible approach, in my view, is for Royal to pay interest on the full amount of Mr. Trottier’s entitlement for the period they were withheld.

As Mr. Trottier points out, this approach does not necessarily work to the insured person’s advantage. For example, if Clarica had delayed the payment of LTD benefits until just before the hearing, Royal’s interpretation, accepted by the Arbitrator, would mean that it would be required to pay interest on an amount well in excess of Mr. Trottier’s actual entitlement.

V. SPECIAL AWARD

The Arbitrator concluded that Royal should pay a special award under s. 282(10) of the Insurance Act because it unreasonably relied on a flawed DAC assessment in terminating Mr. Trottier’s benefits. This conclusion is not challenged in the appeal. The issue is the amount of the special award. Mr. Trottier submits that the Arbitrator erred in concluding that the maximum he could order was $891.02, an amount he claims is too low. As a result, Mr. Trottier argues, the Arbitrator’s decision to order a special award of $350 was based on inappropriate considerations.

The Arbitrator carefully followed the steps outlined in Persofsky and Liberty Mutual Insurance Company, (FSCO P00-00041, January 31, 2003). In calculating the amount of the benefits Royal unreasonably withheld or delayed, he attempted to reconstruct what should have been paid based on the information available at the time – as he did with interest. This is consistent with the notion in Persofsky that only the benefits that were unreasonably withheld should be considered in calculating the maximum. While there may be some issues with this calculation, I am not persuaded the Arbitrator’s approach amounts to an error of law. The uncertainty about Mr. Trottier’s collateral benefits was a legitimate consideration in assessing the amount of the special award and, therefore, even if the maximum might have been somewhat higher, the Arbitrator was well within his authority in fixing the special award at $350.

VI. APPEAL EXPENSES

The parties did not address the question of appeal expenses. If they are unable to reach an agreement, they may request a determination by writing to the Commission within 30 days of this order, as set out in Rule 79.1 of the Dispute Resolution Practice Code.

December 15, 2003

David R. Draper

Director of Arbitrations

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2As the Arbitrator states in his decision, the hearing proceeded on the basis of a six-page agreed statement of fact, with a binder of supporting documents. I have substantially repeated the Arbitrator’s summary of the facts, with any additions based on the agreed facts.
3. 3According to this section, the insurer is required to pay IRBs to an insured person who sustains an impairment as a result of an accident if he or she “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.”
4. 4SABS-1996, s. 2(9) and (10).
5. 5(FSCO A02-000845, April 29, 2003), at pp. 11-12, emphasis in the original.
6. 6Statutory Accident Benefits ScheduleC Accidents Before January 1, 1994, R.R.O. 1990, Reg. 672.
7. 7See Levenson and The General Accident Assurance Company of Canada, (OIC A-000260, February 18, 1992); Randhawa and Royal Insurance Company of Canada, (OIC A-008734, December 8, 1995).
8. 8Upheld on appeal, [1997] O.J. NO. 4011 (C.A.).
9. 9The Statutory Accident Benefits Schedule – Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended.
10. 10See Worthman and AXA Insurance (Canada), (OIC A96-00486, January 30, 1997); Singh and Gore Mutual Insurance Company, (OIC A95-000257, July 3, 1998), upheld on appeal, (FSCO P98-00036, October 18, 2002).
11. 11Sullivan, Ruth (ed.), 3rd Edition (Toronto: Butterworths 1994), pp. 163-165.
12. 12I note that the SABS-1996 does not include the kind of trust arrangements for later payments that is seen in s. 267.8(9) of the Insurance Act.
13. 13This assumes that Mr. Trottier continued to meet the disability test, an issue that Royal raised again in December 2001.