Neutral Citation: 2003 ONFSCDRS 39

FSCO A02-000678

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JOZSEF SZABO

Applicant

and

CAA INSURANCE COMPANY (ONTARIO)

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

David J. Evans

Heard:

February 13, 2003, in London, Ontario.

Appearances:

Chris Nicolas for Mr. Szabo

Jonathan S.D. Wakelin for CAA Insurance Company (Ontario)

Issues:

The Applicant, Jozsef Szabo, was injured in a motor vehicle accident on September 2, 1999. On October 1, 1999, his counsel at the time submitted an application for statutory accident benefits to CAA Insurance Company (Ontario) ("CAA"), payable under the Schedule.¹ He initially represented to CAA that he was unemployed at the time of the accident. He subsequently claimed that he was employed. CAA now alleges that Mr. Szabo is not entitled to certain benefits because he wilfully made a material misrepresentation with respect to his application for benefits.

The parties were unable to resolve their disputes through mediation, and Mr. Szabo applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

Pursuant to s. 48 of the Schedule, is Mr. Szabo precluded from receiving income replacement benefits because he wilfully misrepresented material facts with respect to his application for benefits?

Result:

Pursuant to s. 48 of the Schedule, Mr. Szabo is precluded from receiving income replacement benefits because he wilfully misrepresented material facts with respect to his application for benefits.

EVIDENCE AND ANALYSIS:

Subsection 48(1) of the Schedule provides as follows: "If an insured person has wilfully misrepresented material facts with respect to an application for a benefit, the insurer may terminate payment of the benefit." [Emphasis added]

That Mr. Szabo misrepresented facts relating to his employment status when he applied to CAA for benefits, and did so wilfully, is set out in the Agreed Statement of Facts, as summarized in the next two paragraphs:

Mr. Szabo was injured on September 2, 1999. An occupational therapist attended at his home on September 10, 1999, and he told her that he had been receiving Workplace Safety and Insurance Board (WSIB)² benefits prior to the accident. In his September 30, 1999 Application for Accident Benefits Mr. Szabo repeated this information and indicated that he was unemployed on the accident date. He repeated this information once again in the Statutory Declaration he was asked to provide. Subsequent insurer examinations focused on Mr. Szabo's entitlement to non-earner benefits³ (NEBs) based on the relevant test.

However, on April 19, 2001, Mr. Szabo's current counsel advised the adjuster that Mr. Szabo was employed on and prior to September 2, 1999. Mr. Szabo had misrepresented his employment status to CAA "because he was afraid that if he informed CAA that he was employed this would cause WSIB to terminate his benefits." The adjuster immediately advised counsel that CAA considered itself prejudiced in the handling of the claim. Mr. Szabo is now seeking income replacement benefits⁴ (IRBs), and CAA relies on s. 48 to deny them.

Thus, the only issue is whether Mr. Szabo's employment status was material with respect to his application for weekly benefits. It was held in Awad⁵ that in a claim for physiotherapy expenses employment status was not relevant. However, employment status is clearly relevant in a claim for weekly benefits such as IRBs or NEBs⁶ because employment status is a determinative factor. Furthermore, as Mr. Szabo put it, his greatest potential benefit is if he was an employee.

Mr. Szabo argues that his employment status is not material because he did not obtain anything by misrepresenting it. For this relativistic view he cites Michalowskf⁷:

The question of whether the misrepresentation is "material" will depend on the facts of the particular case, and may include a consideration of, amongst other things, what is misrepresented, what is obtained as a result of the misrepresentation, the relationship in monetary and other terms between the misrepresentation and the potential benefit available, and the availability of other provisions to assist the insurer . . .

I am not convinced that this formulation goes so far as to say stupidity excuses cupidity. In any event, I find that Michalowski is distinguishable as it dealt with an applicant's failure to advise an insurer of post-accident income and not with a fundamental aspect of the relationship between the two parties. A misrepresentation may be so basic or fundamental to this relationship — such as insurance coverage — that it may be found material without a profit and loss analysis:

It is trite law that concealing that you or your spouse has an insurance policy is "material" or significant in a claim against the insurer of a vehicle in which you were a passenger. The rule in subsection 268(5) of the Insurance Act,⁸ combined with the [liability to pay] hierarchy set out in subsection 268(2), makes this plain.⁹

I find it equally trite law that employment status is fundamental in an application for weekly benefits. Parts II (IRBs) and III (NEBs) of the Schedule make it plain that employment status determines the eligibility criteria, the amounts, and the commencement and termination dates for these weekly benefits. Ms. Elizabeth Pia, team leader for CAA, testified how these factors all affect a claim's adjustment. Furthermore, Mr. Szabo had maintained this misrepresentation for many months. I find that his employment status formed a sufficiently basic or fundamental aspect of the relationship between himself and CAA to be material.

Essentially, Mr. Szabo argues that employment status is material enough for him to receive IRBs but not material enough for him to be denied them. I do not see such a fine distinction. I have found that employment status is material. I further find that Mr. Szabo's failure to profit from his misrepresentation does not render an otherwise material fact immaterial.

Accordingly, I find that, pursuant to s. 48 of the Schedule, Mr. Szabo is precluded from receiving income replacement benefits in this case because he wilfully misrepresented material facts with respect to his application for benefits.

EXPENSES:

I reserve my decision on the entitlement to expenses incurred in this preliminary issue hearing.

March 14, 2003

David J. Evans Arbitrator

Date