Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2003 ONFSCDRS 82

Appeal P01-00016

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ALLSTATE INSURANCE COMPANY OF CANADA

Appellant

and

DANIEL COLE

Respondent

Before:

Nancy Makepeace

Representatives:

Ian D. Kirby for Allstate

David J. Levy for Mr. Cole

Hearing Date:

February 28, 2003

Written submissions completed on March 14, 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. Paragraphs 1 and 2 of the arbitration order, dated March 28, 2001, are revoked and replaced with the following:

2. Allstate shall pay Mr. Cole income replacement benefits from February 3, 1996, ongoing until the provisions of Part VI of the SABS-1994 have been complied with. The amount is to be determined in accordance with my reasons. If the parties are unable to agree on the amount owing, the appeal hearing may be reopened, within 30 days of this decision, for determination of any remaining benefit rate disputes.

2.(a) Allstate shall pay Mr. Cole interest on overdue income replacement benefits, pursuant to s. 68 of the SABS-1994, from December 16, 1999, to the date the benefits are paid.

2.(b) Mr. Cole is entitled to a special award under s. 282(10) of the Act. If the parties are unable to agree on the amount, the appeal hearing may be reopened, within 30 days of this decision, for determination of any remaining issues.

2. The parties shall bear their own appeal expenses.

May 23, 2003

Nancy Makepeace

Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Allstate appeals from the Arbitrator's order, dated March 28, 2001, on four points. The first two relate to post-accident income. Pursuant to s. 10(3) of the SABS-1994,¹ the insurer may deduct a percentage of an insured person's net post-accident employment income from the income replacement benefits ("IRBs") payable. Allstate raises two issues about Mr. Cole's post-accident income.

The first relates to a payment of $13,792 that he received when he was laid off from Northern Telecom Limited ("Nortel"). Allstate contends this was post-accident income, and challenges the Arbitrator's ruling that it fell within s. 87 of the SABS-1994. That section states, "payments of severance pay or termination pay shall not be included in a determination of a person's income."

The second issue concerns s. 10(4) of the SABS-1994, which states that 90 per cent of an insured person's net post-accident income shall be deducted from his IRBs except "if the insured person started the employment more than twenty-six weeks after the onset of the disability in respect of which the weekly income replacement benefits are paid and has been engaged in the employment for less than twenty-six weeks," in which case 75 per cent of net income is deducted. Mr. Cole returned to modified work about six months after the accident, but was laid off as part of Nortel's massive downsizing. He worked at temporary jobs for eight months, before starting his current job at Meritor Suspension Systems ("Meritor") on September 30, 1996. The Arbitrator ruled that the lower percentage applied to Mr. Cole's post-accident income from January 27, 1996, when he was laid off by Nortel, until March 31, 1997, 26 weeks after he started working at Meritor, a period of about 14 months. Allstate submits Mr. Cole was entitled to the 75 per cent deduction rate only for the first 26 weeks after his Nortel lay-off.

The two remaining issues are interest and a special award. Allstate concedes that interest on overdue IRBs is payable, under s. 68 of the SABS-1994, from 14 days after Mr. Cole's application for mediation, dated December 2, 1999, which it contends was its first notice that he was claiming ongoing benefits. Allstate submits that the Arbitrator erred in awarding interest on IRBs owing from 14 days after benefits were terminated on February 3, 1996.

Finally, Allstate challenges the special award. The Arbitrator found that Allstate was not "reasonably entitled to rely on" an ergonomist's report stating that Mr. Cole was capable of performing his pre-accident job because the report was "so obviously deficient in its consideration" of his pre-accident essential tasks and his residual disabilities. The Arbitrator ordered a special award of 15 per cent. Allstate disagrees with the Arbitrator's assessment of the report, and submits it acted reasonably in relying on it.

For the reasons that follow, I find that the Arbitrator erred in law in her interpretation of s. 10(4) and in her interest order. I find no error in her order with respect to severance pay or special award. The appeal hearing may be reopened if necessary to fix the amounts owing.

II. BACKGROUND

Mr. Cole, a machine operator at Nortel for 15 years, was injured in an automobile accident on June 17, 1995. It was a serious accident. His wife was also injured, and his step-daughter was rendered paraplegic. According to the Arbitrator, Mr. Cole's injuries included fractures of his jaw, nose and clavicle, lost teeth, a strain of his left acromioclavicular joint, and facial fractures and lacerations. He had surgery for his facial injuries, and stayed in hospital for 12 days. His jaw was wired for several weeks and he wore a clavicular strap (a figure eight sling) for almost two months. After his discharge, he was treated with physiotherapy, analgesics, cortisone injections, and psychological counselling. He was unable to return to work for some months, and received benefits from Nortel, supplemented by Allstate.

Allstate retained Functional Rehabilitation to provide case management services. Annemarie McDonough, an occupational therapist with the company, conducted a job site evaluation at Allstate's request in September and October 1995. Her reports described the physical demands of Mr. Cole's job to include standing (all job tasks were done while standing), frequent walking, occasional lifting and carrying of weights up to 25 pounds, frequent forward reaching, and reaching overhead ("essential with this job"), bending forward, motor co-ordination and dexterity. Cognitive demands included problem solving, sequencing, attention, concentration and perception.

Allstate had Mr. Cole assessed by Dr. G. D'Angelo, an orthopaedic specialist, on November 17, 1995. It was Dr. D'Angelo's opinion that Mr. Cole could return to work, but should restrict lifting to 10-15 lbs. maximum. He also recommended that Mr. Cole avoid above-shoulder work and repetitive back and forth shoulder movements, which would aggravate his left shoulder tendinitis.

On December 4, 1995, Dr. A.A. Kennedy, Mr. Cole's family doctor, completed a questionnaire sent by Functional Rehabilitation. He stated that Mr. Cole could return to work, but should not lift more than 10 pounds. Dr. Kennedy thought his shoulder tendinitis was not accident-related, but might be related to his physiotherapy treatment. The Arbitrator preferred Dr. D'Angelo's opinion that the tendinitis was likely accident-related.

Based on Dr. Kennedy's opinion, Allstate issued its first stoppage letter, under s. 64 of the SABS-1994, dated December 14, 1995. It told Mr. Cole that his benefits would be terminated on December 27, 1995, if he did not return to work. It also invited Mr. Cole to give written notice, within 14 days, if he disagreed with this position, in which case a DAC assessment would be arranged.²

Mr. Cole did not dispute the notice and did not request a DAC assessment. He returned to work at Nortel on December 19, 1995, though not as a machine operator. He now worked as a repair/update operator on a half-time basis. His return to work plan, arranged by Allstate and Functional Rehabilitation, was to increase his hours to 5 hours a day on January 8, 1996, to 6 hours a day a week later on January 15, and full-time a week after that (January 22, 1997). Allstate reinstated Mr. Cole's IRBs pending completion of the return to work plan.

Ms. Barbara Weatherston, an ergonomist with Functional Rehabilitation, conducted a further work site assessment on January 18, 1996. At that time, Mr. Cole was working six hours a day, and the lifting restrictions had been lifted. Based on her observations, Nortel's physical demands analysis, and comments from the Nortel floor manager and a union representative, Ms. Weatherston concluded that Mr. Cole was "able to perform the job of grade 5 repair/update operator with no restrictions." She also concluded he "would be fully capable of performing the demands of the job he did at the time of the accident."

Mr. Cole began working full-time hours at the repair/update job on January 22, 1996. He was laid off shortly thereafter. Allstate issued a second Explanation of Assessment, terminating his benefits effective February 3, 1996, 14 days after his return to full-time work.

The lay-off complicates this case. At the time of the accident, Mr. Cole already knew he was going to be laid off, but he did not know when this would happen. His pre-accident job as a machine operator ceased to exist before he returned to work in December 1995. However, his collective agreement prevented the employer from laying off a disabled worker. That is why he was laid off as soon as he returned to full-time work. There was no dispute that Nortel created the repair/update job to show that Mr. Cole was no longer disabled.

Mr. Cole did not remain unemployed after his lay-off. Over the next eight months, he worked at temporary jobs before starting work at Meritor on September 30, 1996. He was still doing that job at the time of the appeal hearing. According to the Arbitrator, his new job as a set-up operator "requires very little or no overhead reaching and has fewer cognitive demands than his pre-accident job at Nortel."³

In December 1998, Mr. Cole applied for mediation of a dispute about entitlement to loss of earning capacity benefits ("LECBs") under Part VI of the SABS-1994. When mediation failed, he commenced arbitration proceedings. However, pursuant to s. 21 of the SABS-1994, an insured person is not entitled to an LECB offer unless he qualifies for income replacement benefits and continues to qualify for them 104 weeks after the accident. This meant Mr. Cole had to establish his entitlement to ongoing IRBs before receiving an LECB offer.

On December 2, 1999, Mr. Cole applied for mediation with respect to his claim for IRBs after February 3, 1996. Allstate raised a preliminary issue, arguing that the application was time-barred under s. 281(5) of the Insurance Act and s. 72 of the SABS-1994 because it was brought more than two years after benefits were terminated. The issue came before Arbitrator Killoran in July 2000. She ruled that Allstate's first stoppage notice did not "start the clock ticking" because Mr. Cole did not disagree with it. He returned to work on December 19, 1995, and his benefits were extended to February 3, 1996. Allstate's second stoppage notice was also ineffective because Arbitrator Killoran concluded it did not provide the information prescribed in s. 64. Therefore, the limitation period had not begun to run, and the arbitration was not time-barred.

The hearing on the merits of the claim was held over three days in March 2001. Mr. Cole claimed IRBs from February 3, 1996 and ongoing. Allstate submitted that the only reason for Mr. Cole's lay-off was economic. It had nothing to do with the accident. Allstate contended that any residual problems Mr. Cole was having as a result of the accident did not render him substantially unable to perform his pre-accident job as a machine operator.

The Arbitrator heard from Mr. Cole, his sister, and Wanda Rumsam, Allstate's rehabilitation service adviser. April Belbeck also testified. She is an occupational therapist who conducted a functional assessment of Mr. Cole in November 1999, concluding that overhead reaching was his main functional impairment relating to his machine operator job. Although Mr. Cole testified that "he might have been able" to do his job with the aid of a step-stool, the Arbitrator preferred Ms. Belbeck's opinion that this was impractical. She also accepted the opinion of Dr. Andy Cancelliere, a clinical psychologist, who concluded, based on three days of neuropsychological testing, that Mr. Cole suffered a head injury in the accident leading to intellectual and cognitive impairments.

Ms. Rumsam testified that Allstate terminated Mr. Cole's IRBs based on Mr. Weatherston's conclusion that he could return to his pre-accident duties and hours. The Arbitrator rejected Mr. Weatherston's report. She concluded that Mr. Cole's left shoulder impairment and cognitive impairments continued to render him substantially unable to perform his pre-accident job as a machine operator 104 weeks after the accident. Therefore, he was entitled to ongoing IRBs, interest "from the time the benefits first became payable," and an LECB offer. She then turned to the issues which form the basis for this appeal.

The Arbitrator was unable to fix the amount of IRBs owing because of outstanding questions about what payments he received from Nortel. She ordered the parties to determine the amount based on her reasons, and invited them to ask that the hearing be re-opened if they were unable to agree. The appeal was commenced in late April 2001. I referred the outstanding production issues (mainly about Mr. Cole's Nortel records) for disposition by an Arbitrator. It was not until November 2002 that the parties obtained the necessary documents. In light of the delays, they agreed it would be more cost-effective to proceed directly to appeal on all the outstanding quantum questions, including those not yet determined by the Arbitrator. In the end, they were able to resolve these latter issues by the time of the appeal hearing on February 28, 2003. As a result the issues before me are the issues decided by the Arbitrator.

III. ANALYSIS

A. Deduction of Post-Accident Income under s. 10(4): 75% or 90%?

Returning to work does not necessarily disqualify an insured person from receiving IRBs. If the insured person remains substantially unable to return to his pre-accident job because of accident-related injuries, he is entitled to ongoing IRBs. However, s. 10(3) of the SABS-1994 allows the insurer to deduct a percentage of "the net income received by the insured person in respect of any employment subsequent to the accident." Subsection 10(4) prescribes the amount of the deduction:

(4) The percentage mentioned in subsection (3) shall be,

(a) 75 per cent, if the insured person started the employment more than twenty-six weeks after the onset of the disability in respect of which the weekly income replacement benefits are paid and has been engaged in the employment for less than twenty-six weeks; and

(b) 90 per cent, in any other case.

The parties disagree about the application of this section to Mr. Cole. The Arbitrator broke the issue down into four periods of time:

(iii) She held that Allstate is entitled to deduct 90 per cent of Mr. Cole's net Nortel income from December 19, 1995 (when he returned to work) to January 27, 1996 (when he was laid-off) "because he started that employment within 26 weeks of the accident."

(iv) Between January 27, 1996 and September 30, 1996, when he worked at temporary jobs, the Arbitrator held that Allstate could only deduct 75 per cent of his net income "because each job lasted less than 26 weeks."

(v) She also concluded that the lower deduction applied from September 30, 1996, when Mr. Cole started at Meritor, "until he had been in that employment for 26 weeks." That period ended on March 31, 1997.

(vi) Thereafter, Allstate was entitled to deduct 90 per cent of Mr. Cole's post-accident income.

Allstate submits that the 26-week period for which the lower deduction is available started in February 1996, when Mr. Cole started his first job after the Nortel lay-off, and ended at the end of June 1996. It contends that the Arbitrator erred in finding that the lower deduction rate applied until March 31, 1997. Allstate relies on Wright and Allstate Insurance Company of Canada, in which Director's Delegate Draper commented that the lower deduction rate is available "for up to twenty-six weeks of employment," and "seems designed to offer an extra incentive for those whose situation is becoming long-term."⁴ Allstate contends that since Mr. Cole's lay-off from Nortel was entirely economic, the fact that he changed jobs several times after the accident should not affect the benefit rate. In Allstate's view, it does not matter whether the insured person changed jobs or stayed in one job after returning to work. In either case, there is a single 26-week period in which s. 10(4)(a) applies.

Mr. Cole submits that s. 10(4)(a) does not contain a restriction based on the number of job changes or the reason for them. He contends it applies to the first 26 weeks of income from each and every job the insured person starts more than 26 weeks after the onset of disability. He submits that the protection offered by s. 10(4)(a) is limited, even on his interpretation, because the insured person only becomes eligible 6 months after the onset of disability, and the LECB provisions take effect 18 months later, if the insured person continues to qualify for benefits.

Much of the oral argument centred on the significance of the drafters' use of the definite article, "the," in s. 10(4)(a), instead of referring to "an employment." Allstate submits this was merely a stylistic choice. Mr. Cole argues the choice was significant. He contrasts s. 10(4)(a) with s. 14, which addresses temporary return to employment in the following terms:

14. (1) A person receiving weekly income replacement benefits under this Part may return to or start an employment at any time during the 104 weeks following the onset of the disability in respect of which the benefits are paid without affecting his or her entitlement to resume receiving benefits under this Part if, as a result of the accident, he or she is unable to continue in the employment.

(2) After the 104-week period referred to in subsection (1), a person receiving weekly income replacement benefits under this Part may return to or start an employment for periods of up to ninety days without affecting his or her entitlement to resume receiving benefits under this Part if, as a result of the accident, he or she is unable to continue in the employment. [italics added]

Section 14 preserves an insured person's right to resume benefits if a return to work after an accident is unsuccessful. I do not accept that the use of the indefinite article, "an," limits its protections to a single return to work. It is clear to me that s. 14 uses "an," in the sense of "any," since the section refers only to the timing and duration of the return to work, not the number of jobs attempted. Therefore, I do not agree that the meaning of s. 10(4)(a) would be different if it referred to "an employment" rather than "the employment."

Nor do I find the use of the definite article, "the," significant in s. 10(4)(a). I find that the reference to "the employment" in that section refers back to s. 10(3), which says the insurer may deduct a percentage of "the net income received by the insured person in respect of any employment subsequent to the accident." [emphasis added] "The employment" referred to in s. 10(4)(a) is the employment referred to in s. 10(3) – "any employment subsequent to the accident." It should be noted that s.10(3) is not concerned with post-accident employment, but post-accident employment income. This helps clarify the meaning of s. 10(4), which sets out the rules for the deduction permitted in s. 10(3). Reading s. 10(4)(a) together with s. 10(3), I find that it does not matter whether the insured person starts one or several jobs more than 26 weeks after the onset of disability. In either case, the lower deduction rate applies to his net income received in respect of any employment he receives for 26 weeks after starting. There is only one 26-week period in which the lower deduction rate applies.

This is consistent with the purpose of s. 10(4)(a). Although Mr. Cole submitted that Delegate Draper's comments in Wright were obiter, he was unable to suggest any other legislative purpose. I agree that the purpose of the lower deduction rate is to "offer an extra incentive for those whose situation is becoming long-term." I considered whether there might be a secondary purpose consistent with Mr. Cole's interpretation – providing a further incentive to those who are having difficulty finding a secure job because of accident-related injuries. However, this would create significant differences in the way similarly situated persons are treated, with Mr. Cole receiving the benefit of the lower deduction rate for 14 months, while someone who starts a lower paid but secure job enjoys the benefit for only six months. Moreover, this position might encourage an insured to change jobs in order to retain the benefit. I am not persuaded the legislature concerned itself with the number of job changes and the reason for them when drafting this provision.

To summarize, I find that the Arbitrator erred in law by giving Mr. Cole the benefit of s. 10(4)(a) for more than a single 26-week period. His entitlement to the 75 per cent deduction rate was limited to the 26-week period beginning on February 3, 1996.

B. Severance Pay or Termination Pay

Section 87 of the SABS-1994 states:

For the purpose of this Regulation, payments of severance pay or termination pay shall not be included in a determination of a person's income.

Mr. Cole received two lump sum payments when he was laid off from Nortel. He received $13,792 on January 21, 1996, and another $24,245.40 on June 2, 1996. The Arbitrator found that s. 87 applied to both payments.

On appeal, Allstate initially questioned the nature of the $24,245.40 payment, arguing that it was a "retirement allowance" to which s. 87 did not apply. At the appeal hearing, Allstate conceded the point, on the basis that the Nortel form signed by Mr. Cole expressly characterized the payment as "severance pay." However, Allstate continues to dispute the application of s. 87 to the smaller payment of $13,792. Because of the change in Allstate's position, I gave both parties a brief opportunity to make written submissions on the issue after the hearing.

Allstate submits that the reference to "termination pay" in s. 87 applies only where an insured person is involuntarily terminated without notice. Allstate submits that Mr. Cole was given an option of continuing to work out his 80-day notice period, but chose to sever the employment relationship immediately. Further, on Allstate's understanding of the facts, Mr. Cole's termination date was February 19, 1996, a month after he received the payment. Therefore, Allstate argues, the payment was not related to his termination or severance, and should be counted as income.

The drafters of the SABS-1994 did not define "severance pay" or "termination pay," but they are defined in the Employment Standards Act (the "ESA").⁵ Subsection 57(1) of the ESA prohibits an employer from terminating an employee who has been employed for three months or more unless the employer gives the specified amount of notice (eight weeks for an employee whose period of employment is eight years or more) and the notice has expired. Subsection 57(14) gives the employer the option of terminating the employee without notice if the equivalent wages are paid. In the case of a mass lay-off, like the one at Nortel, the ESA requires an additional payment of at least 16 weeks severance pay.⁶ The parties agree that the $13,792 Mr. Cole received is equivalent to 80 days (16 weeks) pay.

The Arbitrator accepted Mr. Cole's testimony that he did not have a right to continue working, and nothing in the Nortel file suggested otherwise. A January 22, 1996 letter from Patti Russell, a Nortel manager, indicated that Mr. Cole's last day of work would be January 19, 1996, and he would receive 80 days pay in lieu of notice. Ms. Russell did not give Mr. Cole the option of continuing to work. Based on this evidence, the Arbitrator dismissed Allstate's claim that Mr. Cole could have worked longer than he did. I find that the Arbitrator did not err: there is no evidence that Mr. Cole was given the option of continuing to work.

Allstate makes another argument. It contends that rather than being terminated, Mr. Cole's lay-off was temporary. Subsection 57(10) of the ESA states that the termination pay provisions to do not apply to temporary lay-offs. Subsection 58(1) defines "termination" to mean "a lay-off, including a lay-off effected because of a permanent discontinuance of part of the business of the employer at an establishment, that equals or exceeds thirty-five weeks in any period of fifty-two consecutive weeks." The regulations made under the Act define "termination of employment" to include "a lay-off . . . or a period longer than a temporary lay-off," and "temporary lay-off" is defined in restrictive terms.⁷ Once a lay-off goes on longer than the temporary lay-off period, " the employment of that person shall be deemed to have been terminated upon the first day of the lay-off and the employer shall pay to that person an amount calculated in accordance with subsection 57(14) of the Act, as though the employment of the person had been terminated forthwith without notice."⁸ These provisions allow employers to defer their termination pay obligations in the hope the lay-off will be temporary, but not to avoid or unduly delay payment where there is no prospect of recall in the near future. In this case, there is no evidence that either Mr. Cole or Nortel treated his departure from the company as temporary. Indeed, Nortel's payment indicates it considered Mr. Cole's lay-off to be permanent.

Finally, s. 7(4) of the ESA answers Allstate's argument about the timing of the payment. That provision requires the employer to make any termination payments to which the employee is entitled "not later than seven days after termination." It does not require payments to be made after termination. In any event, the situation speaks for itself. I agree with Mr. Cole that Nortel had embarked on a mass lay-off and was not about to make employee pay-outs ex gratia. These payments were made in respect of Mr. Cole's termination, and this finding is not affected by their timing.

For these reasons, I am not persuaded the Arbitrator erred in concluding this payment was termination pay and therefore, pursuant to s. 87 of the SABS-1996, excluded from Mr. Cole's income for purposes of calculating his income replacement benefits.

C. Interest on Income Replacement Benefits

Allstate accepts that Mr. Cole is entitled to interest on IRBs owing from 14 days after his application for mediation, dated December 2, 1999, pursuant to s. 68 of the SABS-1994. However, Allstate submits that the Arbitrator erred in law by awarding interest from 14 days after benefits were terminated on February 3, 1996.⁹ According to Allstate, it had no reason to believe Mr. Cole was claiming ongoing benefits at that time, since they knew he had found other work immediately after being laid off from Nortel, and they received no notice from Mr. Cole to the contrary. Almost four years passed before Mr. Cole commenced mediation about IRBs.

Mr. Cole does not dispute Allstate's claim that his application for mediation was the first communication in which he requested a resumption of his IRBs after they were terminated. However, he submits that Allstate knew he claimed a continuing inability to perform his pre-accident job as a result of the accident. He submits that the interest provisions of the SABS-1994 are mandatory, and that interest is payable as of right upon an Arbitrator's ruling that benefits were payable for the period concerned.

Subsection 68 of the SABS-1994 states:

If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day the amount is overdue from the date the amount became overdue at the rate of 2 per cent per month compounded monthly.

Pursuant to s. 62, an insurer must mail or deliver an income replacement benefit "within fourteen days after the insurer receives an application for the benefit," and "at least once every second week while the insured person remains entitled to receive the benefits." An amount is overdue if the insurer fails to comply with these requirements. The only exceptions (not applicable to this case) are for pre-payment, or delayed provision of a medical certificate requested by the insurer.

Commission adjudicators have considered s. 68 on several occasions,¹⁰ each time reaffirming the principle, already established in respect of the SABS-1990,¹¹ that interest is mandatory, compensatory, and flows from late payment of overdue benefits. There is no need for a finding of insurer misconduct. Accordingly, upon a finding of entitlement, interest flows even though the insurer had legitimate reasons for questioning the claim or requiring more information.

Mr. Cole concedes that Allstate may have had difficulty calculating the amount of benefits payable, because of Nortel's delays and the parties' disputes about various benefit calculation issues. Allstate concedes that it is now well-established that interest is not forfeited just because the insurer had difficulty calculating the amount of benefit owed. The only exception to the rule, as stated by Delegate Draper in Bajic, is that interest may not run "if the insured person acts in a manner that effectively prevents the insurer from assessing his or her entitlement."¹² Allstate does not allege this exception applies. The only issue is Mr. Cole's delay in asking Allstate to reinstate his IRBs.

The SABS-1994 does not require a second application for benefits when a return to work is unsuccessful. Subsection 72(1) helps clarify the legislative intent. It provides an exception to the two-year time limit where the insured temporarily returned to work (s. 14) or school (s. 17) after the accident:

A mediation proceeding under section 280 of the Insurance Act or an arbitration or court proceeding under section 281 of the Act in respect of a benefit under this Regulation shall be commenced within two years from the insurer's refusal to pay the amount claimed or, if the person has engaged in an employment as permitted by section 14 or has returned to elementary, secondary or post-secondary education as permitted by section 17, within two years of the insurer's refusal to pay further benefits. [emphasis added]

The reference to "the insurer's refusal to pay further benefits" suggests that the insured person requested further benefits because he could not sustain a return to work.

If not for the deficiencies in the second stoppage notice, Mr. Cole's case would be factually similar to Toteda and Zurich Insurance Company, another SABS-1994 case.¹³ Zurich terminated Mr. Toteda's IRBs in June 1997, about a year after the accident. By that time, he had returned to his school co-op program. However, over the next year or so, he began to have problems again, and was unable to complete the 1998-1999 school year. He applied for arbitration in February 2000. Zurich argued the application was out of time.

Arbitrator Novick agreed with Zurich that its initial notice of termination was clear and unequivocal and had never been revoked. Further, she stated, "The result does not change when the intervening events are considered:"¹⁴

The Applicant asserts that he was unable to return to employment in May 1999, as required by his academic program. He did not, however, make a request to the Insurer that his benefits be reinstated at that time. If he had done so, this situation would arguably fit within the language of subsection 72(1) of the Schedule which extends the limitation period in cases in which an applicant temporarily returns to employment. While I do not agree with the Insurer's contention that section 14 only applies to insured persons who are receiving benefits under that part of the Schedule at the time they are returning to or starting work, I find it is implicit in subsection 72(1) that a request be made that benefits be reinstated before the limitation period can be extended beyond the two years after the initial refusal.

Mr. Toteda made no request for reinstatement or payment of further benefits at any point after May 1, 1999. The Insurer was therefore not required to respond. In other words, there was no refusal "to pay further benefits" as contemplated by subsection 72(2), because there had not been any such request. Consequently, the date of the Insurer's initial refusal, namely June 25, 1997, remains the start date for the two-year limitation period.¹⁵

Mr. Toteda relied on Delegate Draper's ruling in Wright that "the insured person's right to assert a later claim is preserved when he or she attempts to return to work." The issue in that case was whether Mrs. Wright was precluded from receiving weekly benefits because she worked more than 90 days after 104 weeks had passed since the onset of her disability. Delegate Draper confirmed the Arbitrator's finding that s. 14 preserved her entitlement to resume benefits.

Wright did not assist Mr. Toteda. Arbitrator Novick quoted Delegate Draper's decision:

In my view, what subsection 14(1) preserves is the insured person's right to assert a claim for IRBs based on an accident-related disability. If he or she returns to work at an early date, as obliged to do if possible, the insurer cannot assume that entitlement has ended or require a new application if faced with a subsequent claim. The insured person is entitled to go back to the insurer and ask that his or her IRBs be reinstated. The longer the return to work, the more difficult it is likely to be to establish the claim, but section 14 preserves the right to assert it. (emphasis added)¹⁶

She concluded:

Mr. Toteda alleges that he was unable to work as of May 1, 1999. His application for arbitration was not filed until February 28, 2000, some ten months later. He did not "go back to the insurer and ask that his . . . IRBs be reinstated, " as set out in the above excerpt. I was not advised of what, if anything, was communicated between the Applicant and Zurich during that period. While I agree with the above statement that section 14 preserves an insured person's right to claim continued benefits if he or she returns to work on a temporary basis, the insured person is still obliged to request that the benefits be reinstated in a timely manner. In the absence of such a request or corresponding "refusal to pay further benefits" as contemplated in subsection 72(1) of the Schedule, I find that Mr. Toteda is precluded from proceeding with his claim for income replacement benefits. [at p. 8]

I agree with Arbitrator Novick that s. 72(1) contemplates a request and refusal after a failed return to work.

This is an unusual case. The circumstances of Mr. Cole's Nortel lay-off meant Allstate had good reason to believe he had accepted its decision to terminate benefits. He did not challenge that decision by requesting a DAC assessment, commencing mediation, or communicating his views in some other way for almost four years. At the arbitration hearing, on cross-examination, he admitted that he "had absolutely no medical treatment for his . . . accident injuries" since the summer of 1996.¹⁷ He applied for mediation of the IRB issue only after commencing mediation and arbitration claiming LECBs. His IRB application seems to have been prompted by the need to establish ongoing qualification for weekly benefits in order to pursue the LECB claim.

It can be argued that Allstate should have known Mr. Cole would claim ongoing IRBs after he applied for mediation of his LECB claim in December 1998. However, Mr. Cole did not request IRBs at that time, and without more specific information, Allstate had little reason to enquire into the matter. In the circumstances of this case, the Arbitrator erred in imposing the cost of the delay on the Insurer. I find that any ongoing benefits to which Mr. Cole is entitled after February 3, 1996 were not "overdue" until December 16, 1999 (14 days after his application for mediation on IRBs).¹⁸

D. Special Award

Subsection 282(10) of the Act states that an adjudicator shall order a special award if she finds that an insurer "unreasonably withheld or delayed payments." The Arbitrator found that Allstate acted unreasonably in relying on Ms. Weatherston's work site assessment report in the face of contradictory information that was available to the Insurer. She ordered "a special award of 15 per cent of the amount to which Mr. Cole is entitled together with interest on all amounts owing to him (including unpaid interest) at the rate of two per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule." Allstate submits the Arbitrator erred in law by awarding a special award in any amount.

The basis for the special award was Allstate's reliance on Ms. Weatherston's conclusion, in January 1996, that Mr. Cole "would be fully capable of performing the demands of the job he did at the time of the accident." The Arbitrator rejected this conclusion "entirely":

In my view, it is inconceivable that Ms. Weatherston could have made this assertion had she any reasonable understanding of Mr. Cole's ongoing symptoms arising from the accident, had she considered Dr. D'Angelo's opinion, had she spoken with Mr. Cole about his pre-accident job or had she read the job site evaluation dated September 1, 1995 prepared by Annemarie McDonough, an occupational therapist employed by the same company [Functional Rehabilitation] as Ms. Weatherston. Ms. Weatherston's assertion ignores all the major differences between Mr. Cole's pre- and post-accident jobs.¹⁹

The Arbitrator accepted that:

The circumstances of Mr. Cole's return to work at Nortel, in a "made up job," as Mr. Cole characterized it, and his subsequent layoff once he was ready to work an eight hour day were somewhat unusual.²⁰

The disappearance of Mr. Cole's pre-accident job for economic reasons is irrelevant to his entitlement to accident benefits. It neither entitles him nor disentitles him. The question was whether he remained substantially unable to perform the essential tasks of that job. Nevertheless, Allstate had reason to question Mr. Cole's ongoing entitlement. Because the machine operator job had ceased to exist, the Insurer was forced to assess Mr. Cole's functional level without the evidence of a work trial in that job. What it had was Ms. Weatherston's work site assessment, which was based on Nortel's physical demands analysis and comments made by Mr. Cole's manager and his union representative. According to the Arbitrator, when asked, on cross-examination, "if he felt he could have done the overhead reaching part of his machine operator job with the assistance of a step-stool, he replied that he might have been able to do it."²¹ (The Arbitrator preferred Ms. Belbeck's opinion that this would not be practical because of the extensive modifications needed.) The Arbitrator also recognized that Mr. Cole did not challenge the termination of his benefits "until years later," despite being represented by counsel. In fact, he has worked continuously since benefits were terminated.

However, there was ample evidence for the Arbitrator's conclusion that the machine operator job was the more demanding, and that Mr. Cole's residual impairments would have made it difficult for him to return to that job. Amongst the strongest evidence was that of Dr. D'Angelo, who had assessed Mr. Cole for Allstate just two months previously. He recommended that Mr. Cole avoid above-shoulder work and repetitive back and forth shoulder movements. These restrictions had not been removed, and Mr. Cole was not reassessed before benefits were terminated. The most glaring omission in Ms. Weatherston's report was any mention of the different demands of the two jobs. In two short paragraphs, she moved from her conclusion that Mr. Cole could do the repair/updater job to her conlusion that he was "fully capable" of working as a machine operator. She gave no basis at all for this inference.

Allstate contends it was entitled to rely on the report of its expert. An insurer has an ongoing obligation to weigh all the available information when considering whether to terminate benefits.

It is not entitled to rely on a single sentence, offered without supporting reasons, without further enquiry.

This was not a compelling case for a special award. However, an arbitrator's finding of unreasonableness deserves deference because it "is highly dependent on the arbitrator's view of the evidence."²² I find that the Arbitrator asked herself the right question – whether Allstate terminated benefits unreasonably – and did not err in concluding there was no information that would reasonably support Allstate's decision to terminate benefits.

Given my rulings on interest and the deduction rate for post-accident income, the amount payable pursuant to the Arbitrator's 15 per cent award is likely to be relatively small. I will leave it to the parties to calculate the amount. If they are unable to agree, the hearing may be re-opened before me to fix the amount of the special award, in accordance with the principles set out in Persofsky and Liberty Mutual Insurance Company.²³

IV. EXPENSES

The parties shall bear their own appeal expenses.

May 23, 2003

Nancy Makepeace

Director's Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended.
2. 2Pursuant to s. 64 of the SABS-1994, Mr. Cole had the option of requesting a disability assessment at the Designated Assessment Centre nearest his home. If the DAC supported his disability claim, Allstate would have been obliged to pay income replacement benefits pending the resolution of any dispute about his entitlement to them.
3. 3Arbitration decision, p. 10.
4. 4(FSCO P98-00051, January 19, 1999), at p. 5. Application for judicial review dismissed, May 17, 2000 (Div.Ct. File No. 1103/99).
5. 5As it read at the time of these events. The Employment Standards Act gives employees certain mandatory minimum rights. Mr. Cole's collective agreement may have entitled him to enhanced termination and severance entitlements, but these were not in issue before the Arbitrator or me.
6. 6Section 4 of Regulation 327, Termination of Employment, as amended to O. Reg. 382/95, and s. 58(2) of the ESA.
7. 7Section 1 of the regulation.
8. 8Subsection 8(4) of Regulation 327.
9. 9The Arbitrator said little about interest, and did not specify the date when interest began to accrue, but stated simply interest was payable "from the time the benefits first became payable under the Schedule." (p. 12). By implication, this meant 14 days after the date benefits were terminated, February 3, 1996.)
10. 10Mark and Dominion of Canada General Insurance Company, (FSCO A96-000341, January 27, 1999); Bajic and Pafco Insurance Company and Zurich Insurance Company, (FSCO P00-00050, June 5, 2001); and Singh and Gore Mutual Insurance Company, (FSCO P98-00036, October 18, 2002). To the same effect is Amoa-Williams and Allstate Insurance Company of Canada, (FSCO A97-001864, October 24, 2001), with respect to the SABS-1996.
11. 11Sebastian and Canadian Surety Company, (FSCO P96-00032, July 28, 1998); Trendle and Economical Mutual Insurance Company, (OIC P96-00009, July 11, 1996); and Windsor and Zurich Insurance Company, (FSCO A-954390, October 12, 2000).
12. 12Bajic and Pafco Insurance Company and Zurich Insurance Company, (FSCO P00-00050, June 5, 2001), at p. 21.
13. 13(FSCO A00-000246, April 17, 2001)
14. 14At p. 6 of Toteda.
15. 15At p. 7 of Toteda.
16. 16See also Kirkham and State Farm Mutual Automobile Insurance Company, (OIC P96-00069, January 27, 1997), in which Delegate Draper considered s. 16 and s. 26(1) of the SABS-1990 (the Statutory Accident Benefits Schedule - Accidents before January 1, 1994, O. Reg. 672/90, as amended). He explained (at p. 10) that insured persons who return to school or work after the accident "are allowed to reassert their claim for weekly benefits if they are unable to continue at school or work, and are given two years from the insurer's subsequent refusal to challenge the decision." An application for judicial review of Delegate Draper's rejection of the "rolling time limits" approach was dismissed (Divisional Court, March 31, 1998) and the Court of Appeal refused leave to appeal (July 9, 1998).
17. 17Arbitration transcript, March 5, 2001, p. 133.
18. 18See also: Bejia Smith and Allstate Insurance Company of Canada, (FSCO A97-001789, July, 4, 2001); and Coles and Dominion of Canada General Insurance Company, (FSCO P02-00018, December 18, 2002).
19. 19Arbitration decision, p. 9.
20. 20Arbitration decision, p. 13.
21. 21Arbitration decision, p. 8.
22. 22Maas and State Farm Mutual Automobile Insurance Company, (OIC P96-00080, December 8, 1997). The standard of review - "significant error" - has been adopted and applied in numerous appeal decisions.
23. 23Persofsky and Liberty Mutual Insurance Company, Insurance Bureau of Canada, Ontario Trial Lawyers Association and Ministry of Finance (intervenors), (FSCO P00-00041, January 31, 2003).