Neutral Citation: 2004 ONFSCDRS 121
FSCO A02-001475
FINANCIAL SERVICES COMMISSION OF ONTARIO
BETWEEN:
MARK SMITH
Applicant
and
WAWANESA MUTUAL INSURANCE COMPANY
Insurer
REASONS FOR DECISION
Before:
William J. Renahan
Heard:
July 13, 2004, at the offices of the Financial Services Commission of Ontario in Toronto.
Written submissions were received on July 16, 2004.
Appearances:
Charlia D. von Buchwald for Mr. Smith
Adam Moras for Wawanesa Mutual Insurance Company
Issues:
In a decision dated May 28, 2004, I found that Wawanesa had unreasonably withheld and delayed the payment of the correct income replacement benefit to Mr. Smith and invited submissions so that I could determine the amount of a special award I should make under section 282(10) of the Insurance Act. I also invited submissions on the issues of entitlement to and amount of expenses.
Mr. Smith was self-employed at the time of the accident. The parties resolved the principal amount of income replacement benefit due from the time of the accident, on August 10, 1999, up to the end of Mr. Smith's fiscal year ending December 31, 2002.
In the decision, I found that income replacement benefits under the Schedule1 were due and outstanding from June 28, 2002. The parties agreed that the principal income replacement benefit outstanding at June 28, 2002 was $28,904.31. They also agreed that the monthly income replacement benefit for the months from July 2002 to December 2002 was $684.36 per month. I heard no argument that the multiplier Ms. von Buchwald used to calculate interest was not accurate, and I adopt it. For the purpose of the calculations, Mr. Smith conceded that the amount which was overdue was paid to him on March 30, 2004, a period of 21 months since the first payment was due. I set out in a chart the calculation upon which a special award is based. I deal with an additional calculation to account for the dispute as to when that part of the income replacement benefit which exceeded $400 per week was overdue.
In Column A, I set out the date the principal was due, the interest rate multiplier used to calculate interest at 2 per cent per month calculated monthly, and the number of months up to March 30, 2004 the payment was outstanding. In Column B, I set out the principal outstanding for that period. Column C is the principal plus 2 per cent per month compounded monthly for the number of months the principal was outstanding as required by section 46 of the Schedule. In Column D, I take the figure from Column C and add a further 2 per cent per month compounded monthly for the number of months the principal and interest were outstanding as required by section 282(10) of the Insurance Act. The total of Column D is the notional amount resulting from the calculation required by section 282(10) of the Insurance Act. I have the discretion to award up to 50 per cent of this amount as a special award.
| A | B | C | D |
|---|---|---|---|
| Date and interest rate multiplier | Principal | B + section 46 interest | C + section 282(10) interest |
| June 28, 2002 for 21 months x .5157 | $28,904.31 | $43,810.26 | $66,403.21 |
| July 2002 for 20 months x .4860 | 684.36 | 1,016.96 | 1,511.20 |
| August 2002 for 19 months x .4569 | 684.36 | 997.04 | 1,452.59 |
| September 2002 for 18 months x .4283 | 684.36 | 977.47 | 1,396.12 |
| October 2002 for 17 months x .4003 | 684.36 | 958.31 | 1,341.92 |
| November 2002 for 16 months x .3728 | 684.36 | 939.49 | 1,289.73 |
| December 2002 for 15 months x .3459 | 684.36 | 921.08 | 1,239.68 |
| $74,634.45 |
The amount of $74,634.45 is the first component of the notional amount calculated under section 282(10).
Mr. Smith was entitled to a further $4,312.10. This amount represents the amount by which his weekly income replacement benefit exceeded $400 per week because his reasonable business losses increased his income replacement benefit to more than $400 per week by operation of sections 6(5) and (6) of the Schedule. Prior to the decision Welsh and Economical Mutual Insurance Co.2 it was arguable that business losses could not increase an income replacement benefit to more than $400 per week. Welsh decided that business losses can increase the income replacement benefit to more than $400 per week. In view of this decision, it was unreasonable for Wawanesa to withhold income replacement benefits which exceeded $400 per week.
The Welsh decision was released on October 7, 2003. I accept Wawanesa's argument that Welsh was new information within the meaning of section 32 of the Schedule and that Wawanesa had 30 days to consider this information. Accordingly, the amount of income replacement benefit which exceeded $400 per week was not overdue until November 7, 2003. The principal amount of $4,312.10 was unreasonably withheld for a period of four months.
Ms. von Buchwald calculated the amount of interest payable on $4,312.10 for five months. I reduce the section 282(10) notional calculation to approximately four months as follows: $4,312 principal plus section 46 interest of 2 per cent per month for four months is about $4,700 plus section 282(10) interest of 2 per cent per month for four months is about $5,200.
The total notional amount calculated in accordance with section 282(10) of the Insurance Act is $74,634.45 plus $5,200 or $79,834.45. I have discretion to award up to one-half of this amount, or $39,917.22, as a special award.
The principles I should apply to determine the amount of a special award are set out in Liberty Mutual Insurance Company and Persofsky and others, (FSCO P00-00041, January 31, 2003). Director Draper wrote that "The purpose of s. 282(10) is to punish insurers that unreasonably fail to pay accident benefits promptly, as required by the SABS, and to deter that company and others from acting similarly in the future."
To summarize from my earlier decision, the blameworthy conduct I found was threefold: (1) Wawanesa failed to pay the proper income replacement benefit when it had ample reliable evidence that the benefit it was paying was inadequate; (2) Wawanesa failed to either send an accountant to Spanish or retain a local accountant to review Mr. Smith's accounting records in order to calculate the correct income replacement benefit in the circumstances I describe in the decision; and, (3) Wawanesa failed to promptly follow the Welsh decision and pay an income replacement benefit which exceeded $400.
Director Draper also refers for the need to ensure that the:
. . . consequences imposed on the insurer are rationally related to the misconduct at issue. . . . the award should be proportionate to: (i) the blameworthiness of the insurer's conduct; (ii) the vulnerability of the insured person; (iii) the harm or potential harm directed at the insured person; (iv) the need for deterrence; (iv) the advantage wrongfully gained by the insurer from the misconduct; and (vi) should take into account any other penalties or sanction that have been or likely will be imposed on the insurer due to its misconduct.
Ms. von Buchwald argued at the hearing and in written submissions that Wawanesa's conduct demonstrated ongoing intransigence. No one from Wawanesa testified to explain its conduct. On the one hand, Wawanesa paid for rehabilitation until the policy limits were exhausted and Mr. Smith found that help useful. On the other hand, I find it likely that Wawanesa relied on its professional advisers when it came to determining the amount of the income replacement benefits and any intransigence is due to McCully & Associates not having all the medical and personal information Wawanesa had concerning Mr. Smith's life and business. This is the only reasonable explanation I can find for McCully continuing to ask for documentation and for not accepting Mr. Smith's invitation to go to Spanish to review his records. This is not to say that an insurer should share personal information with its accountants. But, an insurer should make entitlement decisions based on all the information it has, and not rely solely on the opinion of its accountants. In this case, Wawanesa knew, or should have known, that Mr. Smith was doing his best to provide the information Wawanesa required.
Further, as I discuss under expenses, Wawanesa's counsel took unreasonable positions during the hearing. In the absence of any evidence from Wawanesa's representative to explain its conduct, I find that Wawanesa likely either delegated its decision-making responsibility to its advisers or relied on opinions that were clearly unreasonable. Wawanesa is responsible for its agent's unreasonable conduct.
The significant factors I discuss in the decision which reflect upon the amount of the special award concern the vulnerability of Mr. Smith, the harm that was directed to him, the need for an insurer to provide the same level of service to an insured who lives some distance from a large urban centre in Ontario as it would to an insured living in an urban centre, and the unreasonableness of Wawanesa's conduct. Having regard to these factors I find that a special award of $39,900 is proportionate.
EXPENSES:
The criteria for determining entitlement to and amount of expenses are set out in Ontario Regulation 664, R.R.O. 1990, as amended. The significant factors are that Mr. Smith was successful and Mr. Moras unnecessarily prolonged the hearing.
The first sitting was on December 15, 2003. The hearing was adjourned on the basis that McCully would go to Spanish and meet with Mr. Smith's accountant and prepare a report on the amount of the income replacement benefit so that the parties could attempt to settle the amount. Mr. Moras refused to produce the report to Ms. von Buchwald and I convened a teleconference to deal with Ms. von Buchwald's request for the report. Mr. Moras wrote that he would not participate in a teleconference to deal with the production of McCully's accounting report and asked me to confirm that I would not convene the teleconference. I took this as a refusal to participate in a teleconference which I had convened.
At the next sitting on January 29, 2004, Mr. Moras made arguments that had no merit. He argued that I did not have jurisdiction to deal with the production of documents. I ruled that I had jurisdiction. He argued that he needed an adjournment to deal with production of the report. I found that he had enough time to prepare for the issue and that it was unfair to the Smiths who had travelled from Northern Ontario to testify. I refused the adjournment. Mr. Moras argued that the report was privileged. I ruled that it was not privileged because the intent was for the parties to share information for the purpose of settlement.
Once Mr. Moras produced the report, the parties settled the issue of the amount of the income replacement benefit except for whether I was bound by the Welsh decision. Mr. Moras' argument that I was not bound, again, had no merit.
As well, Mr. Moras took the unreasonable position of arguing that Mr. Smith was better off financially after the accident with an income replacement benefit of $65.70 per week, even though the evidence was that he had to pay others to work for him and borrow more than $67,000 because of the accident.
Having regard to the expense criteria, I award Mr. Smith his expenses of the arbitration proceeding.
The hearing took place over three days, and during the course of the hearing most of the issues were settled. Ms. von Buchwald claims 89 hours at $150 per hour for her time for preparation and attendance and 15.8 hours for a junior lawyer at $70.35 per hour, and 26.8 hours for a clerk at $23.00 per hour. In the past, I have applied a factor of between 1 and 4 hours of preparation time to each hour of attendance time as reasonable. Ms. von Buchwald prepared for a number of issues, including the complex issue of the amount of income replacement benefit. Although she showed a high degree of expertise and preparedness, the hours claimed exceed the ratio of 4 hours of preparation to one hour of attendance by about 15 per cent. I allow the $150 per hour she charged but reduce the total fee including G.S.T. by about 15 per cent from $16,135.64 to $13,700.
Mr. and Mrs. Smith drove from Spanish to Toronto for two one-day sittings and claimed meal and accommodation costs for two days for each sitting. Since they drove, I find that two days per sitting is reasonable. Section 6(3) of the Schedule to Ontario Regulation 664/90 allows a maximum of $150 per person per night. The accommodation claim of $1,123.80 is within the maximum and I allow it.
Under section 5(3) of the Schedule, the maximum amount that may be awarded for the attendance of an expert witness is $200 per hour of attendance, up to a maximum of $1,600. The Schedule does not allow for preparation of the witness. I heard no argument that Mr. Smith's accountant attended for more than three hours. I therefore reduce the disbursement for this expert witness from $1,500 to $600 plus G.S.T.
I have no authority to award an amount to cover a witness's lost wages. I therefore do not allow $224 claimed for Mrs. Smith's lost time from work.
I assess total expenses of the arbitration proceeding at $16,118.80.
August 20, 2004
William J. Renahan
Arbitrator
Date
Neutral Citation: 2004 ONFSCDRS 121
FSCO A02-001475
FINANCIAL SERVICES COMMISSION OF ONTARIO
BETWEEN:
MARK SMITH
Applicant
and
WAWANESA MUTUAL INSURANCE COMPANY
Insurer
ARBITRATION ORDER
Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:
- Wawanesa Mutual Insurance Company shall pay Mark Smith $56,018.80.
August 20, 2004
William J. Renahan
Arbitrator
Date
Footnotes
- The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98, 114/00 and 482/01.
- (FSCO P02-00024, October 7, 2003)