Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2004 ONFSCDRS 150 Appeal P02-00018

OFFICE OF THE DIRECTOR OF ARBITRATIONS

PINA COLES Appellant/Respondent

and

DOMINION OF CANADA GENERAL INSURANCE COMPANY Respondent/Appellant

Before: David R. Draper

Representatives: Altor Shields for Ms. Coles Kevin Mitchell for Dominion

Hearing Date: May 3, 2004

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

Dominion of Canada General Insurance Company shall pay Pina Coles $51,377.21, plus interest calculated according to s. 24(4) of the SABS-1990 from October 15, 2001.
If the parties are unable to resolve the issue of arbitration and appeal expenses, they may contact me within 30 days of this decision.

October 8, 2004

David R. Draper Director of Arbitrations Date

REASONS FOR DECISION

I. ISSUES

This case has a lengthy history. The accident was on October 30, 1990. Over the years, the parties have disputed Ms. Coles' entitlement to weekly income benefits and the amount of those benefits. The history is set out in my previous decision dated December 18, 2002. In this hearing, the issues are the deductibility of Ms. Coles' collateral benefits and the date from which interest should run on any benefits owing.

II. DEDUCTIBILITY OF COLLATERAL BENEFITS

According to s. 268(1), statutory accident benefits are "set out in the Schedule and any amendments to the Schedule, subject to the terms, conditions, provisions, exclusions and limits set out in that Schedule." The relevant version of the Schedule is the SABS-1990.¹ Section 12 governs the calculation of weekly income benefits, including the following section that establishes the amount payable:

(4) Subject to subsection (5), the weekly benefit under subsection (1) will be the lesser of,

(a) $600 plus, if Optional Benefit 2 has been purchased, the amount of the benefit chosen; and

(b) 80 per cent of the insured person's gross weekly income from his or her occupation or employment, less any payments for loss of income, except Unemployment Insurance benefits,

(i) received by or available to the insured person under the laws of any jurisdiction or under any income continuation benefit plan, or

(ii) received under any sick leave plan.

During the course of this litigation, the parties have presented various calculations of Ms. Coles' pre-accident income. They now agree that her gross weekly pre-accident income was $1,419.66. Because weekly income benefits are based on 80% of gross weekly income, subject to a $600 maximum, Dominion of Canada General Insurance Company ("Dominion")² concedes that unless Ms. Coles' collateral benefits are deductible, she is entitled to the maximum weekly amount of $600 for the full 156 weeks of her entitlement. The parties also agree that Ms. Coles earned post-accident income of $880, and that Dominion has paid weekly benefits totaling $41,342.79. Therefore, the amount owing, subject to the collateral benefits issue, is $51,377.21, plus interest, calculated as follows:

Gross weekly pre-accident income $ 1,419.66

x 80%

Weekly income benefits $ 1,135.73

Total weekly income benefits payable @ $600/wk for 156 weeks $93,600.00

Less amount paid $41,342.79

$52,257.21

Less post-accident income $ 880.00

$51,377.21

The question is whether Ms. Coles' collateral benefits are deductible. More specifically, are they " payments for loss of income . . . received by or available to the insured person . . . under any income continuation benefit plan?"

Ms. Coles received payments under four insurance policies. The first, and most significant, is the "Premier Gold Plan" policy issued by The Citadel Assurance ("Citadel"). Ms. Coles received $4,000 a month for the maximum period of 24 months (November 29, 1990 - November 30, 1992) under this policy, for a total of $96,000. The other three policies were group policies issued by the Dominion Automobile Association ("DAA"). Ms. Coles received a total of $22,400 under these policies — $200 per week for 104 weeks based on total disability, followed by an additional 16 weeks at $100 per week based on partial disability.

Dominion concedes that if the Citadel payments are not deductible, Ms. Coles is entitled to the maximum weekly income benefit of $600 whether or not the DAA payments are deductible.

I dealt with the deductibility issue in Wilcox and Economical Mutual Insurance Company, (FSCO P99-00015, March 2, 2000) under the virtually identical wording in the SABS-1994.³I upheld the Arbitrator's conclusion that Ms. Wilcox's collateral benefits were not deductible. In doing so, I followed the analysis of the Court of Appeal in Cugliari v. White (1998), 1998 CanLII 5505 (ON CA), 38 O.R. (3d) 641, 159 D.L.R. (4th) 254 (C.A.),⁴ applying it in the context of statutory accident benefits.

Dominion argues that Wilcox should be revisited in light of more recent jurisprudence, particularly the Court of Appeal decisions in Gignac v. Neufield (1999), 1999 CanLII 2182 (ON CA), 43 O.R. (3d) 741 and Kosanovic v. Wawanesa Mutual Insurance Co., 2004 CanLII 18689 (ON CA), [2004] O.J. No. 1234. In its submission, the Court has held that the collateral source rule was developed in the tort context and does not apply to statutory accident benefits, which are contractual. Ms. Coles responds that these cases involved fundamentally different legislative language and, contrary to Dominion's assertion, the Court's analysis in Kosanovic supports the approach taken in Wilcox.

I accept that the collateral source rule is based in tort. As discussed in Kosanovic, it is a common law exception to the general rule against double recovery. The rationale for the exception is twofold: individuals should be encouraged to protect themselves and their dependants from disabling injuries, and the benefit of their having done so should not be passed on to the tortfeasor. The application of the collateral source rule, or private insurance exception, allows an injured person to recover twice for the same injury: once from the tortfeasor and once from the private insurer.⁵

It is also clear that the collateral source rule can be overridden by legislation. Indeed, a number of cases have reached the Ontario Court of Appeal on the interpretation of legislative provisions designed to prevent or limit double recovery. For example, Cugliari, Chrappa v. Ohm (1998), 1998 CanLII 893 (ON CA), 159 D.L.R. (4th) 215, 38 O.R. (3d) 651, and Bannon v. McNeely (1998), 1998 CanLII 4486 (ON CA), 159 D.L.R. (4th) 223, 38 O.R. (3d) 659 deal with s. 267(1)(c) of the Bill 68 version of the Insurance Act, which provides that "damages awarded to a person in a proceeding for loss or damage arising directly or indirectly from the use or operation of an automobile shall be reduced by . . . all payments that the person has received or that were available for loss of income under the laws of any jurisdiction or under an income continuation benefit plan and by the present value of any such payment to which the person is entitled . . ."

Gignac, Kosanovic and Quiroz et al. v. Wallace (1998), 1998 CanLII 3246 (ON CA), 40 O.R. (3d) 737, all involve s. 2(1)(b) of the Schedule to O. Reg. 676, R.R.O. 1990, which limits the insurer's obligations under its uninsured motorist coverage.⁶ It states that the insurer is not liable to make payments "where a person insured under the contract is entitled to recover money under any valid policy of insurance other than money payable on death, except for the difference between such entitlement and the relevant minimum limits determined under clause (a)."

All of these decisions emphasize the importance of the particular wording used in the legislation. This is illustrated in the most recent decision — Kosanovic.

The facts in Kosanovic are straightforward. Mr. Kosanovic was injured in an automobile accident in September 1997. The driver of the other vehicle — who was at fault — left the scene and was never identified. Mr. Kosanovic was insured by Wawanesa Mutual Insurance Company under a standard Ontario automobile policy that included unidentified driver coverage of up to $200,000. He also had insurance coverage with Great West Life that paid him $102,400 as a result of his disability arising from the accident. The parties agreed that Mr. Kosanovic met the threshold, allowing him to sue for non-pecuniary damages and up to 80 percent of his net income loss or net loss of earning capacity. They also agreed that a court would assess his damages in an amount exceeding $200,000, the limit of his unidentified driver coverage.

The question was whether Wawanesa was entitled to deduct the money Mr. Kosanovic received from Great West Life. In other words, did it have to pay $200,000 or $97,600? The relevant legislation was s. 2(1)(b) of the Schedule to O. Reg. 676, as amended,⁷ which limited Wawanesa liability to the difference between the minimum policy limits and any amounts Mr. Kosanovic was entitled to recover "under any valid policy of insurance":

(1) The insurer shall not be liable to make any payment,

(b) where a person insured under the contract is entitled to recover money under any valid policy of insurance other than money payable on death, except for the difference between such entitlement and the relevant minimum limits determined under clause (a).

The motions judge held that this provision was not sufficient to oust the common law private insurance exemption, which had been reaffirmed by the Supreme Court of Canada in Cunningham v. Wheeler, 1994 CanLII 120 (SCC), [1994] 1 S.C.R. 359, because the common law could not be changed by "[a]nything less than a clear and express provision in a statute."

The Court of Appeal overturned this decision. It held, as it had in previous decisions, that where the legislature makes contractual entitlement subject to "the terms, conditions, provisions, exclusions and limits" prescribed in a regulation, one must look to the regulation to determine entitlement. In the Court's words:

The statute does not prevail over the regulation. They must be read together. Thus, the common law can be abrogated by statute, or where the statute so authorizes — as it has under s. 265(1) of the Act — by regulation . . .

The Court went on to hold that Mr. Kosanovic's Great West Life policy was a "valid policy of insurance" and, on a plain reading of s. 2(1)(b), Wawanesa was entitled to deduct any payments made under that policy. However, the court noted that, in previous decisions, it had qualified the insurer's right to a deduction under s. 2(1)(b) in two ways, consistent with the purpose of the section — preventing double recovery. These qualifications have been referred to as: apples should only be deducted from apples [Quiroz and Bannon]; and payments should only be deducted once [Gignac]. The Court held that neither qualification applied to Mr. Kosanovic and, therefore, Wawanesa was only required to pay him $97,600.

I am not persuaded that Kosanovic undermines the analysis in Wilcox. On the contrary, it reinforces the importance of the particular wording used in the legislation. While the Court held that the disability benefits Mr. Kosanovic received from Great West Life reduced the insurer's obligation to pay uninsured motorist coverage, its conclusion was based, in part, on a related finding that they were not payments "for income loss or loss of earning capacity" under s. 267.8(1)2 of the Insurance Act:

Payments under the Great West Life policy do not meet the statutory criteria for a deduction under s. 267.8(1)2 of the Act. Mr. Kosanovic did not have to be employed at the time of the accident to receive disability benefits under his policy. These payments to him did not depend on his suffering an income loss and he did not have to prove an income loss to receive them. Because the payments Mr. Kosanovic received from Great West Life cannot be deducted from a tort award they are properly deducted under s. 2(1)(b) of O. Reg. 676 from the minimum policy limits of $200,000 for which Wawanesa is liable.

Indeed, the disability payments Mr. Kosanovic received from Great West Life are akin to the Canada Pension Plan disability benefits Ms. Gignac received, which Charron J.A. held could be deducted under s. 2(1)(b) of O. Reg. 676. The CPP benefits were payable whether or not Ms. Gignac was employed when she became disabled. Therefore, they were not "payments . . . for loss of income" and were not deductible from the damages award. Deducting them under s. 2(1)(b) would not produce a double deduction.

In this case, Dominion must establish that the amounts Ms. Coles received from Citadel and DAA were "payments for loss of income . . . received by or available to the insured person under the laws of any jurisdiction or under any income continuation benefit plan" — the same wording used in s. 267(1)(c) of the Insurance Act as it read at the time of this accident, and similar to s. 267.8(1)2, considered in Kosanovic. In my opinion, therefore, the approach in Wilcox remains appropriate.

Dominion points out that the SABS-1996⁸ was amended, effective January 1, 2002, to define " payments for loss of income under an income continuation benefit plan" as including disability pension benefits under the Canada Pension Plan and periodic payments of employment-based insurance where the benefits are tied to the person's income from employment. It is difficult to see, however, how this amendment helps Dominion's position. Even if it were appropriate to view the change as reflecting previous legislative intention, the amendment only affects the SABS-1996, not the SABS-1990, and according to s. 2(9), it only applies to accidents that occur on or after January 1, 2002.

A. The Citadel Policy

On or about April 11, 1989, Ms. Coles applied for insurance coverage with Citadel — the "Premier Gold Plan." Her medical condition was a relevant consideration. The application form indicates that a temporary insurance receipt would not be issued if she had certain medical problems, or had been unable to perform any of the usual duties or her regular occupation at the time of the application or for more than 30 or more consecutive working days in the previous five years. Ms. Coles' financial situation was also relevant. For disability coverage, she had to provide information about her income for the past three years.

Citadel issued a policy, with coverage effective May 4, 1989. In exchange for a fixed annual premium of $1,132.80, payable in monthly installments, Citadel was required to pay Ms. Coles a monthly benefit of $4,000 if she was "totally disabled." This benefit became payable on the "benefit commencement date" (the 31st day) and continued during the "maximum benefit period" (two years) while Ms. Coles remained "totally disabled." The policy also provided for "residual disability benefits" in certain circumstances.

Dominion submits that the Citadel policy was designed to protect against income loss and, therefore, the benefits Ms. Coles received are "payments for loss of income . . . received by or available to the insured person . . . under any income continuation benefit plan," within the meaning of s. 12(4)(b) of the SABS-1990. Ms. Coles argues that the Citadel benefits are not deductible under s. 12(4)(b) for the same reasons set out in Wilcox. She relies, in particular, on the fact that the benefits were not based on her pre-accident income, but were a fixed amount payable on the happening of an event — her becoming totally disabled as a result of an accident. Therefore, she argues, the benefits cannot be an "income continuation benefit plan."

There is some strength in Dominion's position, just as I found strength in the insurer's argument in Wilcox. There are clearly income and employment aspects to the Citadel policy. However, as in Wilcox, I conclude that s. 12(4)(b) should be interpreted narrowly, consistent with the approach taken in Cugliari, where the Ontario Court of Appeal interpreted the same wording in s. 267(1)(c) of the Insurance Act.

Unfortunately, the parties made contrary assertions about a key aspect of the Citadel policy, without providing any evidence or caselaw on the point. Dominion argues that Ms. Coles had to be working at the time of her accident to qualify for benefits. In support of this proposition, it relies on the definition of "Total disability" in Part 1, paragraph 12, of the policy, which states:

Total Disability means that due to Injury or Sickness, you:

cannot perform the substantial duties of your Regular Occupation and,

are not engaged in any other gainful occupation; and

are receiving from a Physician, care which is appropriate for the condition causing the Disability.

According to paragraph 7, "Regular Occupation" means the occupation(s) in which the insured person is engaged at the time of the disability.

Dominion also submits that the connection to loss of income is seen in the definition of "Residual Disability" in paragraph 13, as follows:

Residual disability means that due to Injury or Sickness:

you are able to perform some of the duties of your Regular Occupation but cannot perform one or more of the substantial duties; or you are not able to perform the duties of your Regular Occupation for the same amount of time spent at that occupation prior to disability; and

your Monthly Income from your Regular Occupation or another occupation is less than 80% of your Indexed Pre-Disability Monthly Income and;

you are receiving from a Physician, care which is appropriate for the condition causing the Disability.

Ms. Coles argues that nothing in the policy states that she must be working at the time of the accident. She also submits that the benefits are not contingent on proof of income loss, pointing to the "Presumed Total Disability" provision in Part 2, paragraph 4, of the policy, which states that the insured person will be considered Totally Disabled if he or she suffers certain disabilities due to injury or sickness. She also refers to Part 1, paragraph 15, which allows the insured person to go back five years in determining his or her pre-disability monthly income — similar to the Canada Pension Plan disability benefits at issue in Cugliari.

I am not prepared to read the Citadel policy as narrowly as Dominion suggests. According to the covering page, Ms. Coles had the right to keep the policy in force until she turned 65 "by paying each premium when due." This right is not limited by any provision, seen in some other policies, making coverage contingent on continuing employment, or employment at the time of the injury or sickness. Nor was Statutory Condition 3, requiring Ms. Cole to notify Citadel if she moved to a more hazardous occupation, included in the policy. In my view, therefore, the policy should be seen as providing a certain level of ongoing monetary protection for Ms. Cole in exchange for her premium as a cushion against the possible consequences of injury or sickness. The benefits are not sufficiently tied to any specific loss of income to be considered "payments for loss of income . . . received by or available to the insured person . . . under any income continuation benefit plan."

For these reasons, I conclude that the benefits Ms. Coles received from Citadel are not deductible from her weekly income benefits under s. 12(4)(b) and, therefore, she is entitled to $600 per week. This means that, according to the calculation set out above, Dominion owes $51,377.21, plus interest. Although this is sufficient to dispose of the dispute, I will deal with the other insurance policies for the sake of completeness.

B. The Dominion Automobile Association Policies

Prior to her October 1990 automobile accident, Ms. Coles purchased three insurance policies from DAA, all entitled "Group Accident Insurance Benefits." The "Metro Members" policy offered three benefit levels. Ms. Coles chose option A. This meant that if, within seven days of an accident, she suffered injuries that disabled her wholly and continuously, and prevented her from performing any and every duty pertaining to her regular occupation or employment or normal activities, and required medical treatment, DAA was required to pay her $50 per week starting on the eighth day of medical treatment and continuing during the period of her disability, but not more than 104 consecutive weeks. This policy also provided up to 16 weeks of partial disability benefits of $25 per week if Ms. Coles' injuries prevented her from performing two or more important daily duties pertaining to her regular occupation or employment or normal activities and required medical treatment.

The other two DAA policies had a fixed level of benefits — $100 per week for total disability and $50 per week for partial disability under the "Canadian Gold Members" policy, and $50 per week for total disability and $25 per week for partial disability under the "Vanguard Gold Members" policy. The payment provisions were the same under both policies. Total disability benefits were payable if, within seven days of the accident, Ms. Coles' injuries disabled her wholly and continuously and prevented her from performing any and every duty pertaining to her regular occupation or employment or normal activities and required medical treatment. As in the " Metro Members" policy, these total disability benefits were payable starting on the eighth day of medical treatment and continued during the period of her disability, but not more than 104 consecutive weeks. These policies also provided up to 16 of partial disability benefits if Ms. Coles' injuries prevented her from performing two or more important daily duties pertaining to her regular occupation or employment or normal activities and required medical treatment.

As Dominion points out, the DAA policies use the term "indemnity." However, nothing in the policies makes coverage contingent on maintaining employment, or being employed at the time of the accident. Nor are the benefits tied to any specific loss of income. This leads me to the conclusion that, as in Cugliari, Wilcox and the Citadel policy discussed above, these benefits are not "payments for loss of income . . . received by or available to the insured person . . . under any income continuation benefit plan," within the meaning of s. 12(4)(b) of the SABS-1990.

III. INTEREST

Section 24 of the SABS-1990 deals with interest. The relevant provisions are set out below:

24.c(2) Amounts payable under Part IV [weekly benefits] are overdue if not mailed or otherwise delivered by the insurer within ten days after it has received a completed application for statutory accident benefits or if the insurer fails to make a payment required by subsection (3).

(3) Payments under Parts IV and V shall be mailed or otherwise delivered at least once every second week while the insurer remains liable to the insured person.

(4) The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2 per cent per month.

The Arbitrator held that because Ms. Coles waited until September 2001, during final submissions, to argue that her collateral benefits are not deductible, interest should only run from October 15, 2001. Ms. Coles appealed on this issue, claiming that interest should run from the date each payment became due. In my first decision, I rejected this argument, concluding as follows:

Ms. Coles' position has some initial attraction. Insured persons often rely on the insurer to determine the amount of their benefits. In this case, however, Ms. Coles was represented by counsel from an earlier stage who took an active role in negotiating the amount of the weekly income benefits. She not only accepted the deductibility of her collateral benefits, she actively argued that they were deductible before the Divisional Court, after Cugliari and the arbitration decision in Wilcox had already been released. She did not challenge the deductibility of her collateral benefits until the last day of the arbitration hearing — October 15, 2001.⁹ In the circumstances, I agree with the Arbitrator that the benefits cannot be viewed as "overdue," within the meaning of s. 24(4) of the SABS-1990, at any point before that date. (p. 21)

When the appeal hearing resumed, Dominion argued that interest should run from a later date because Ms. Coles still had not provided necessary information about her collateral insurance policies. While I agree there is some scope to find that benefits are not overdue if the insured person acts in a manner that effectively prevents the insurer from assessing his or her entitlement,¹⁰ I conclude that interest should run from the date selected by the Arbitrator. By that time, Dominion was aware of the claim and, although I would be slow to criticize it for continuing to investigate, it could have paid the amount claimed. Therefore, interest is payable on the benefits owing from October 15, 2001.

IV. ARBITRATION AND APPEAL EXPENSES

The parties agreed to defer the issue of legal expenses pending the outcome of the appeal. If they are unable to resolve the issue, either party may contact me within 30 days of this decision and oral submissions will be scheduled.