Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2004 ONFSCDRS 45

Appeal P03-00015

OFFICE OF THE DIRECTOR OF ARBITRATIONS

JOZSEF SZABO

Appellant

and

CAA INSURANCE COMPANY (ONTARIO)

Respondent

Before:

Nancy Makepeace

Representatives:

Chris Nicolis for Mr. Szabo

Jonathan S.D. Wakelin for CAA

Hearing Date:

October 7, 2003 in London, Ontario

Written submissions completed by November 24, 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 dismissed and the arbitration order, dated March 14, 2003, is confirmed.

2. The parties may contact me within 30 days if they are unable to agree on appeal expenses.

March 31, 2004

Nancy Makepeace

Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal raises several issues about s. 48(1) of the SABS–1996,¹ which states:

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.

The Arbitrator found that Mr. Szabo was precluded from receiving income replacement benefits (“IRBs”) because he wilfully misrepresented material facts with respect to his application for benefits. Mr. Szabo appeals.

The interpretive issues in dispute on this appeal arise because of the unusual facts, which can be briefly stated. In his application for accident benefits, Mr. Szabo falsely stated that he was unemployed before the accident, although he was, in fact, employed. CAA never paid him any weekly benefits, though it considered his entitlement to non-earner benefits (“NEBs”). The parties disagree about whether CAA was prejudiced by the misrepresentation, and whether prejudice is necessary for materiality. They also disagree as to whether s. 48, which says an insurer “may terminate payment of a benefit,” allows an insurer to refuse benefits where none have been paid.

After changing counsel, Mr. Szabo told the truth and submitted a second application, based on his pre-accident employment. He now seeks IRBs. The parties disagree as to whether this second process was a new or corrected application for benefits.

I am not persuaded the Arbitrator erred in law. My reasons follow.

II. BACKGROUND

The Arbitrator relied on the parties’ Agreed Statement of Facts, and heard oral evidence from Mr. Szabo and from Ms. Elizabeth Pia, team leader for CAA. The agreed facts, as found by the Arbitrator, are as follows.

Mr. Szabo was injured in a motor vehicle accident on September 2, 1999. On October 1, 1999, his solicitors wrote CAA to advise that they represented Mr. Szabo, and enclosed a completed application for accident benefits, activities of normal life form, disability certificate, and various medical and prescription expense receipts. The application was dated September 30, 1999 and signed by Mr. Szabo. In Part 5, “Applicant Status,” the insured person is required to check off the box that “best describes your employment situation at the time of the accident.” The “Unemployed” box was checked off, and a handwritten note stated “receiving WSIB.”² Part 9 of the form, “Other Insurance or Collateral Payments,” requires the insured person to report any income received from a disability benefit plan during the last 52 weeks. The completed form indicated that Mr. Szabo had been receiving monthly workers’ compensation benefits of $498 since 1995. No other sources of income were reported. The parties did not dispute that Mr. Szabo signed the form or that these were the facts he provided to his former lawyer. Similarly, the completed activities of normal life form made no reference to work activities.

In accordance with the information provided, CAA assessed Mr. Szabo’s application as a claim for NEBs under s. 12 of the SABS-1996. Ms. Jessica Black, CAA’s accident benefits adjuster, arranged an occupational therapy assessment at Mr. Szabo’s home. In her report, dated September 17, 1999, the occupational therapist stated,

At the time of the accident, Mr. Szabo was receiving Workplace Safety Insurance Board benefits for his back L4-L5 disc resulting from an injury at Siemens in 1992.

In response to Ms. Black’s request, pursuant to s. 33 of the SABS-1996, Mr. Szabo provided a Statutory Declaration answering ten questions. Question 7 related to the test for entitlement to NEBs:

Prior to this accident, what were your normal daily activities? Please list all household duties you were responsible for, and approximate number of hours per week spent on each.

Mr. Szabo’s statutory declaration, sworn on November 1, 1999, included the following:

Prior to the accident, I was on WSIB. I worked at Siemens in London. In 1992, I suffered a back injury while at work, on the assembly line. I have been off work and on compensation since 1995.

CAA issued an Explanation of Benefits Payable form, dated October 13, 1999, stating that Mr. Szabo was not eligible for NEBs because, “You do not suffer from a complete inability to carry out a normal life. There is a 6 month waiting period for this benefit.”³ A second explanation form, dated November 10, 1999, stated, “6 month waiting period applies. You will be assessed to determine if you meet eligibility requirements.”

In March 2000, as the 6-month waiting period expired, CAA had Mr. Szabo assessed in a multi-disciplinary insurer examination, under s. 42 of the SABS-1996, by a neurologist, a neuro-psychologist, an orthopaedic specialist and a dentist. The questions asked in the Insurer’s referral letters were based on Mr. Szabo’s reported unemployed status before the accident. CAA provided the reports to Mr. Szabo and his solicitors. The assessors concluded that Mr. Szabo did not suffer an inability to carry on a normal life.

In May 2000, Mr. Szabo’s former solicitors wrote to CAA, advising that Mr. Szabo had retained his present counsel, Mr. Karl Arvai. On July 28, 2000, Ms. Jennifer Serota, another CAA adjuster, wrote to Mr. Arvai and Mr. Szabo, stating that Mr. Szabo was not entitled to NEBs based on the insurer examinations conducted in March 2000. The enclosed explanation form stated, “Based on the medical documentation on file, you do not suffer a complete inability to carry on with your normal daily activities as a result of the injuries sustained in this accident.”

On August 14, 2000, Mr. Arvai’s colleague, Chris Nicolis, wrote to CAA to confirm their retainer and address several other matters not related to Mr. Szabo’s weekly benefits claim. The Agreed Statement of Facts indicates that CAA wrote Mr. Szabo’s solicitors four more letters between August 2000 and February 2001. On April 18, 2001, CAA advised they would be closing the file.

The next day, Mr. Nicolis advised Paula Gagnon, another adjuster, that Mr. Szabo had in fact been employed as a drywaller before the accident,⁴ but had feared that this would jeopardize his workers’ compensation benefits.⁵ Ms. Gagnon replied that the misrepresentation had prejudiced CAA’s position, “including their ability to adjust and investigate the claim properly,” and that any further investigation or adjustment of the claim would be conducted without prejudice to CAA’s reliance on the misrepresentation to “terminate all benefits.” Ms. Gagnon confirmed this in her letter of August 23, 2001.

On September 20, 2001, Ms. Gagnon sent Mr. Nicolis an application package, stating “we require Mr. Szabo to submit an additional application to us within 30 days.” She also requested another disability certificate. Mr. Szabo’s completed application was dated October 22, 2001. He completed Part 1 (“Person Applying”), Part 2 (“Representative”), Part 5 (“Applicant Status”) and Part 8 (“Income Replacement Determination”), and wrote “see Sept. 30/99 application” beside the other parts. In Part 5, he checked off “employed and working.” In Part 8, he stated that he worked variable hours as an insulator for a drywall company between June 1 and September 1, 1999, earning gross income of $8,608 over the three months, and he earned $2,920.75 from self-employment as a mover between August 1998 and May 1999.

At the arbitration hearing, Mr. Szabo conceded that he wilfully misrepresented his employment status. The only disputed issue was materiality. The Arbitrator rejected Mr. Szabo’s argument that his misrepresentation was not material because he did not obtain any benefits thereby. He concluded that Mr. Szabo’s employment status was “a sufficiently basic or fundamental aspect” of his relationship with CAA to be “material without a profit and loss analysis.” Further, his failure to profit from the misrepresentation did not “render an otherwise material fact immaterial.” Therefore, Mr. Szabo was “precluded from receiving income replacement benefits . . . because he wilfully misrepresented material facts with respect to his application for benefits.”

III. ANALYSIS

A. The Law

Section 48 of the SABS-1996, entitled “Termination of Benefits for Material Misrepresentation” is as follows:

48. (1) 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.

(2) The insurer shall not terminate payment under subsection (1) unless the insurer provides the insured person with notice of the reasons for terminating payment.

B. The Parties’ Positions

Mr. Szabo made three main points in his submissions. First, he submitted that s. 48 is an exclusion clause, and therefore, in accordance with well-settled law, must be given a narrow construction. He submitted that the Arbitrator erred in law by failing to apply the appropriate principles of statutory interpretation. He relied on Michalowski and St. Paul Fire & Marine Insurance Co., (FSCO A98-001492, July 9, 1999), the first arbitration decision to consider s. 48. Mr. Michalowski, a long-haul truck driver before the accident, had not returned to work when he applied for income replacement benefits, but he later worked part-time in a restaurant for about a month, and failed to report it. He had stopped working by the time the insurer started paying IRBs, and did not return to his pre-accident truck-driving work until several months later. No benefits were ever paid, because the insurer relied on s. 48. In finding that Mr. Michalowski’s misrepresentation was not material, the Arbitrator described his approach to materiality:

Turning to the requirement that the misrepresentation be “material,” St. Paul submits that this term means “important.” That is indeed one of the definitions of “material” found in the Concise Oxford Dictionary of Current English (8th Edition, Oxford: Clarendon Press, 1990). The same entry, however, also defines “material” as “essential,” which I find goes significantly beyond the meaning of the word “important.”

A major consideration in determining the correct meaning of the adjective “material” as used in section 48 must be the remedy available to the Insurer. Both parties herein submit that the effect of section 48 is to deny an insured all further entitlement to the benefit in respect of which the misrepresentation was made. Therefore, in this case, if the requirements of section 48 were met, Mr. Michalowski would be denied entitlement to any further weekly income replacement benefits, regardless of the extent of his disability.

Assuming, without deciding, that this draconian result indeed follows from section 48, I find that the facts misrepresented must not be merely “important,” but rather must be “sufficiently basic or fundamental”⁶ to justify the relief submitted to be available under section 48. 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 (such as section 47 which deals with repayments).

Turning to the facts of this case, I find that there were no monies improperly paid to Mr. Michalowski. Further, I find that if the Insurer had not become aware of the post-accident income, the overpayment would have amounted (based on six hours a week at five dollars an hour, plus delivery bonus and tips) to probably less than ten per cent of the weekly rate of $628.03 calculated by St. Paul. Further, this overpayment would have occurred for only a few weeks until the Applicant terminated this part-time employment. In addition, as submitted by the Applicant, if there had been an overpayment, section 47 of the Schedule would allow St. Paul to have this amount repaid, including the ability to collect these monies by deducting up to 20 per cent of further weekly payments to Mr. Michalowski. In light of these considerations, I do not find the alleged misrepresentation to be “material” within the context of section 48. (pp. 7-8)

Michalowski has been followed in several arbitration decisions,⁷ and in Toma v. Publicover et. al, an unreported decision of Morissette J.⁸

Mr. Szabo submits that the Arbitrator erred in finding that his misrepresentation was material. Applying the Michalowski criteria, he submits the Arbitrator should have found that his misrepresentation was not material because it did not result in any overpayment of accident benefits and it was motivated by fear of losing his workers’ compensation benefits, not desire to obtain accident benefits to which he was not entitled.

CAA submits that this case presents clearer facts than Michalowski in that Mr. Szabo persisted in his misrepresentation for a longer time, and it related to his employment status, an essential fact in assessing his entitlement to weekly benefits. CAA argues that a profit and loss analysis is not required: the misrepresentation is material because it affects his entitlement to weekly benefits.

Mr. Szabo’s second submission is that s. 48 does not apply to him because CAA has never paid him any weekly benefits, and therefore there were no benefits to terminate. Mr. Szabo argues that s. 48 does not allow an insurer to refuse or deny benefits before any benefits are paid. CAA submits that “terminate” in s. 48 means “terminate entitlement to benefits,” and therefore extends to refusing benefits where none have been paid.

Thirdly, Mr. Szabo submits that even if CAA was entitled to refuse him NEBs, s. 48 does not authorize it to refuse or terminate payment of IRBs based on a misrepresentation about entitlement to NEBs. He argues that his claim for IRBs must be treated separately from his NEB claim. Since he has now truthfully disclosed that he was working before the accident, qualifying him for IRBs, there is no authority for refusing or terminating such benefits based on an earlier misrepresentation when claiming NEBs, another type of benefit.

Further, Mr. Szabo submits that his claim for IRBs in October 2001 was a new application for benefits that must be treated separately from his application for NEBs in September 1999. As he made no misrepresentation in this application, CAA cannot rely on s. 48 to refuse him IRBs. This latter argument was presented for the first time, at the appeal hearing. Therefore, I gave CAA time after the hearing to make written comments on the point, and gave Mr. Szabo time to respond.

CAA objects to Mr. Szabo raising a new argument on appeal that was not made at arbitration. It disputes the characterization of Mr. Szabo’s ultimate truthful disclosure as a new application for benefits. In any event, it argues that Mr. Szabo’s initial application was an application for unspecified weekly benefits – it was the Insurer who decided to pay NEBs based on the information provided. Therefore, Mr. Szabo’s misrepresentation about his employment status affects any weekly benefit he might claim. I need not address CAA’s procedural objection because I accept CAA’s submission that Mr. Szabo made a single application for weekly benefits.

C. Was Mr. Szabo’s Misrepresentation Material?

At the appeal hearing, counsel for both parties offered different explanations for Mr. Szabo’s behaviour. The Arbitrator made no findings of fact about Mr. Szabo’s motivations, and it would be inappropriate for me to do so. There is no dispute that Mr. Szabo misrepresented his employment status in his initial application for benefits, and did so wilfully. Mr. Szabo conceded this at the arbitration hearing.

This leaves several questions, however. Does it matter if Mr. Szabo’s misrepresentation was intended to protect his workers’ compensation benefits rather than obtaining accident benefits to which he was not entitled? Does it matter that the likely effect of the misrepresentation was to reduce the amount of weekly benefits he would receive? Does it matter that he did not receive anything as a result of his misrepresentation?

In the context of pre-contract misrepresentations, it is well established that materiality is a question of fact, and that a misrepresentation is material if it affects a reasonable insurer’s decision whether to underwrite the risk or it affects the premium charged.⁹ A similar approach has been applied in the context of the SABS misrepresentation exclusion found at s. 30(3) of the SABS-1996, and previously at s. 58(3) of the SABS-1994 and s. 17(3) of the SABS-1990.¹⁰

In a claim for accident benefits, I agree with the Arbitrator that “employment status is fundamental in an application for weekly benefits” because it “determines the eligibility criteria, the amounts, and the commencement and termination dates for these benefits.”¹¹ Further, in adjusting the claim based on Mr. Szabo’s misrepresentation about his employment status, CAA incurred a number of expenses. These included, at least, the out-of-pocket expenses of an occupational therapy assessment and multi-disciplinary insurer examination, and the administrative cost of obtaining and reviewing the application forms and statutory declaration. These costs were likely significant, and they were thrown away on a groundless NEB claim.¹² For these reasons, I have no hesitation in concluding that Mr. Szabo’s misrepresentation was material to his NEB claim, and CAA need not establish that benefits were overpaid as a result.

Was it also material to his IRB claim? Mr. Szabo’s disclosure of the truth, about a year and a half into the claim, forced the Insurer to embark on a new investigation with respect to his entitlement to IRBs. As a result of Mr. Szabo’s misrepresentation, CAA lost the opportunity to conduct a timely investigation of his IRB claim. All else being equal, this makes Mr. Szabo’s misrepresentation material to his IRB claim too.

But Mr. Szabo submits that the two claims must be treated separately. Assuming he qualified for IRBs, he made no misrepresentation with respect to his second application for benefits. He argues he should not be prejudiced with respect to his IRB claim because of a misrepresentation with respect to another benefit. He relies on Awad and State Farm Mutual Automobile Insurance Company, (FSCO A98-000212, January 4, 2000), in which the insured person’s misrepresentations about her pre-accident employment status and income were found to be irrelevant to her claim for physiotherapy expenses, though they undermined her credibility and the Arbitrator stated they would have been “detrimental” to a claim for income replacement benefits or weekly benefits. In that case, the main issue was whether the insured person had been struck by a car, as she claimed; the Arbitrator accepted her evidence.

I do not accept that a misrepresentation with respect to NEBs is immaterial to IRB entitlement. NEBs and IRBs are alternative and mutually exclusive¹³ weekly benefits, and deciding which applies is a critical early decision an insurer makes in adjusting an accident benefits claim. It should be noted, as well, that the insured person does not “elect” or designate IRBs or NEBs on his accident benefits application. Instead, he is required to explain his employment status, and the insurer considers entitlement to weekly benefits on that basis. The relation between NEBs and IRBs is different from the relation between NEBs and, for example, medical and rehabilitation benefits. As in Awad, it is not difficult to imagine a misrepresentation that is material to the insured person’s weekly benefits claim but is not material to his claim for medical benefits, which involve a different claims process and serve a different purpose under the SABS. The situation is different with respect to weekly benefits.

There are two other reasons for rejecting Mr. Szabo’s “separate applications” approach. In letters dated August 23, 2001, September 20, 2001, and November 6, 2001, CAA made it clear that it was “proceeding on a without prejudice basis” to consider Mr. Szabo’s claim for IRBs based on his pre-accident employment. This was the right decision, because it avoided further delay in adjusting the weekly benefits claim pending adjudication on the s. 48 issue. In my view, Mr. Szabo’s argument would have the very effect CAA was entitled to avoid by proceeding “without prejudice.”

In addition, I am not persuaded Mr. Szabo’s truthful disclosures in 2001 should be regarded as a new application. As noted, Mr. Szabo himself treated the second application form as supplementary, including only the corrected information, and referring the reader back to his initial application. I accept CAA’s submission that the new documents he submitted were intended to rectify his initial claim. Mr. Szabo’s “separate applications” approach would allow him to benefit from his own wrong, which cannot have been legislative intent. I agree with the Arbitrator that this case is distinguishable from Michalowski. Mr. Szabo’s misrepresentation was not trivial. He lied about his employment status, a fundamental aspect of his weekly benefits claim, and he “maintained the misrepresentation for many months.”¹⁴ As a result of his misrepresentation, CAA wasted money adjusting the claim as an NEB claim, and lost the opportunity for an early assessment of his entitlement to IRBs. I find that Mr. Szabo’s misrepresentation about his employment status was material to his IRB entitlement as well as NEB entitlement.

One issue remains: can CAA rely on s. 48 to “terminate” benefits when none have been paid?

D. Section 48 in Context

Mr. Szabo submits that s. 48 authorizes an insurer to “terminate payment” of a benefit, but not to refuse benefits where none have been paid. CAA submits that the phrase “terminate payment,” in this context, means “terminate entitlement.”

This issue calls for examination of s. 48 in its context. Three other provisions help clarify its legislative purpose – s. 30 (exclusions), s. 47 (repayment) and s. 37 (refusal and stoppage process).

Section 48 is found in Part X of the SABS-1996, entitled “Procedures for Claiming Benefits.” In contrast, s. 30, the exclusion provision, is the only section in Part IX of the SABS-1996, entitled “General Exclusions.” Subsection 30(2)(a) creates a misrepresentation exclusion:

30(2) The insurer is not required to pay an income replacement benefit, a non-earner benefit or a benefit under section 20, 21 or 22,

(a) in respect of any person who has made, or who knows of, a material misrepresentation that induced the insurer to enter into the contract of automobile insurance or who intentionally failed to notify the insurer of a change in the risk material to the contract;

The SABS-1990 and SABS-1994 also contained similarly-worded misrepresentation exclusions,¹⁵ but s. 48 had no predecessor in the previous accident benefits schemes. There seems little doubt it was introduced as an additional anti-fraud measure.¹⁶ That s. 48 is a termination provision, not an exclusion provision, is apparent, not only from its title and placement in the SABS-1996, but in its very wording. The phrase “terminate payment” is used three times in s. 48. In contrast, the remedy for misrepresentation in s. 30 is that “the insurer is not required to pay” certain benefits.

There are other differences between the two provisions. The scope of excluded benefits is different. The exclusions in s. 30 apply to weekly benefits and certain expenses, but not medical or rehabilitation benefits, whereas s. 48 authorizes an insurer to terminate payment of “a benefit” in respect of which the insured person misrepresented material facts. The two provisions are also aimed at different types of misrepresentation. Section 30(2)(a) addresses material misrepresentation “that induced the insurer to enter into the contract” and failure to notify the insurer of a change in the risk “material to the contract.” In contrast, s. 48 is concerned with misrepresentations “with respect to an application for a benefit.”

A related issue is the relation between s. 48 and s. 47 of the SABS-1996, entitled “Repayments to Insurer.” Subsection 47(1)(a) states, “A person shall repay to the insurer, . . . 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.” The insurer must give notice of repayment. The repayment obligation generally does not apply unless the notice is given within 12 months after the payment was made, but pursuant to s. 47(4), the 12-month limitation “does not apply if the benefit was paid as a result of wilful misrepresentation or fraud.” Similarly, s. 48(2) requires the insurer to give notice of its reasons for terminating payment. In Michalowski, the Arbitrator held that availability of an alternative remedy – repayment – was pertinent to deciding whether a misrepresentation was material. Section 47(1)(a) permits an insurer to recover benefits paid as a result of wilful misrepresentation (or error or fraud). It is broader than s. 48 in that benefits may be repayable for a number of reasons, not all of them relating to culpable conduct on the part of the insured person.

Section 37, entitled “Refusal or Stoppage of Income Replacement, Non-Earner or Caregiver Benefit,” also helps frame s. 48. Sections 37(1) and (2) describe the process to be followed:

37(1) If the insurer determines that a person is not entitled or is no longer entitled to receive an income replacement, non-earner or caregiver benefit, the insurer shall give the person notice of its determination, with reasons,

(a) within 14 days after receiving an application for the benefit; or

(b) if the insurer has been paying the benefit to the person, no later than the date the next payment of the benefit is due.

(2) If notice is given under clause (1) (b), the insurer shall specify in the notice a date for stopping the benefit and the insurer may stop payment of the benefit in accordance with the notice.

Special rules, including referral for a DAC assessment, apply “if notice is given under clause (1)(b) for the reason that the person no longer has a disability that entitles the person to continue to receive the benefit,” but these rules do not apply where the insurer determines that the insured person does not qualify for a weekly benefit based on the information initially provided. Accordingly, s. 37 authorizes an insurer to refuse or stop benefits based on misrepresentation (or other grounds) subject to review pursuant to the dispute resolution process in sections 279-283 of the Insurance Act.

If s. 37 allows insurers to refuse or stop benefits, and s. 47 allows them to recover benefits overpaid as a result of misrepresentation, this prompts the question: what was the legislative objective underlying s. 48? In my view, s. 48 was intended to provide an additional remedy for misrepresentation in an application for accident benefits.

To see how this works, consider two hypothetical examples. Assume the insured person earned $300 a week gross before the accident, but states on his application that he earned $600 a week. He is paid the maximum IRB of $400 per week based on his misrepresentation, but later tells the truth. If his misrepresentation was wilful, s. 47 allows the insurer to recover the difference between the benefit paid and the benefit to which the insured person was entitled. Without s. 48, the insurer would arguably be required to re-adjust the claim based on the accurate figures. In my view, s. 48 was likely intended to allow the insurer an additional remedy – terminating payment of the benefit entirely. Any other reading makes s. 48 superfluous, given the presence of s. 47.

Take another example. The insured person falsely states that he was working before the accident, and the insurer pays IRBs of $400 per week based on the income claimed. When the truth is revealed, s. 47 allows the insurer to recover the difference between the $400 paid and the $185 NEB to which the insured person is entitled, but the insurer would arguably be required to re-adjust the claim as an NEB claim. Again, I find that s. 48 was likely intended to allow the insurer to go further and terminate payment of the weekly benefit entirely.

What makes Mr. Szabo’s case difficult is that he misrepresented himself as unemployed before the accident, which almost certainly guaranteed he would receive a lower weekly benefit, and for a shorter period of time, than if he had been truthful. In this situation, overpayment was unlikely, and in fact, no benefits were paid. The phrase “terminate payment” is at least awkward in this situation. However, Mr. Szabo’s interpretation makes s. 48 superfluous and flies in the face of the legislative objective underlying the section. Section 48 is not an exclusion clause, but neither is it simply procedural (like s. 37) or restitutionary (like s. 47). I conclude it was intended to impose a penalty beyond repayment in cases of wilful material misrepresentation. The penalty is that Mr. Szabo cannot claim weekly benefits.

E. Conclusion

Therefore, I conclude the Arbitrator did not err in law in finding that Mr. Szabo was precluded from receiving IRBs.

IV. EXPENSES

The parties may contact me within 30 days if they are unable to agree on appeal expenses.

March 31, 2004

Nancy Makepeace

Director’s Delegate

Date

I accept the submissions of both parties that section 48 was introduced into the Schedule as part of an effort by the Legislature to deal with fraud. I am provided with excerpts from Ontario Hansard for Thursday, June 13, 1996, wherein Mr. Sampson, in moving second reading of Bill 59, stated that:

we have taken some steps to deal with fraudulent claims . . . Insurers will now have the ability to suspend accident benefit payments if there is wilful and material misrepresentation made by the insured.

Footnotes

1. 1The Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2Benefits from the Workplace Safety and Insurance Board under the workers’ compensation legislation in effect at the time of his workplace injury in 1992.
3. 3SABS-1996, s. 12(7).
4. 4In September 2001, Mr. Nicolis advised that Mr. Szabo had also been self-employed as a mover, though not in the four weeks before the accident.
5. 5Documentation contained at Arbitration Exhibit 2, Tab 40, indicates Mr. Szabo was granted a Future Economic Loss (“FEL”) award under s. 43 of the ABill 162” version of the Workers’ Compensation Act, which was in effect at the time of his injury on September 18, 1992. The FEL benefit is a long-term monthly wage loss benefit, equal to 90 percent of the difference between a worker’s pre-accident net average earnings and his projected net average earnings. In its September 15, 1998 decision letter, the WSIB stated that workers in receipt of FEL benefits are required to report a material change in circumstances, including any change in income or a return to work.
6. 6S.M. Waddams, The Law of Contracts (3rd Edition, Chapter 13, Toronto: Canada Law Book Inc, 1993). [footnote in original]
7. 7Tran and Pafco Insurance Company Limited, (FSCO A97-002186, June 15, 2000); Rovella and State Farm Mutual Automobile Insurance Company, (FSCO A01-001012, March 26, 2003); and Fisk and ING Insurance Company of Canada, (FSCO A02-001682, July 2, 2003), appeal pending.
8. 8Court File 28803/98, May 6, 2003.
9. 9Insurance Law in Canada, 2nd ed., Brown and Menzies (Carswell, 1991), para. 5:3:1-5:3:9. There are many decisions on materiality in various contexts. The leading insurance case is Mutual Life Ins. Co., N.Y. v. Ontario Metal Products Co., 1924 CanLII 336 (UK JCPC), [1925] 1 D.L.R. 583 (J.C.P.C.), affg 1923 CanLII 8 (SCC), [1924] 1 D.L.R. 127 (S.C.C.). See also: Henwood v. The Prudential Insurance Company of America, 1967 CanLII 17 (SCC), [1967] S.C.R. 720.
10. 10See the discussion at pp. 12-13 below. The SABS-1994 is the Statutory Accident Benefits Schedule – Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended. The SABS-1990 is the Statutory Accident Benefits Scheduled – Accidents before January 1, 1994, Ontario Regulation 672, as amended. FSCO decisions: Le and Dominion of Canada General Insurance Company, (OIC A-005561, December 20, 1994); Aujla and Kingsway General Insurance Company, (OIC A-015276, January 19, 1996); Byford and Economical Insurance Mutual Insurance Company et. al, (OIC A95-000110, April 17, 1996); Kuntz and Royal Insurance Company of Canada, (OIC A-006818, June 28, 1996); Fagundes and Kingsway General Insurance Company, (OIC A96-001111, December 22, 1997); and Fan and State Farm Mutual Automobile Insurance Company, (FSCO A01-000819, September 13, 2002). Also, see, for example, Wynn v. Belair Direct, 2002 CanLII 79683 (ON SC), [2002] O.J. No. 4180 : The plaintiff failed to advise the insurer of her move from Montreal to Campbellford, Ontario less than 90 days before the accident. On a motion by the plaintiff, Pedlar J. found that the Insurer had not proven her move was material: “If in fact the change in the risk occasioned by her change in residence favored the Plaintiff’s position by resulting in lower premiums, then it would not be a ‘material’ change within the meaning of section 30(2)(a) of the regulation.” (Para. 12) The insurer’s submission that any move constitutes a change in the risk was specifically rejected.
11. 11Arbitration decision, p. 4.
12. 12See also Jimcaale and TTC Insurance Company Limited, (FSCO A00-001311, February 27, 2002), mentioned in the arbitration decision, at p. 4.
13. 13Subsection 12(1)1 provides for NEB entitlement only where the insured person does not qualify for an IRB. Caregiver benefits are the other type of weekly benefits, but not pertinent to this discussion. Section 36(1) states that only one weekly benefit – an IRB, an NEB or a caregiver benefit – may be paid to a person in respect to a period of time. If the person’s application for benefits indicates he may qualify for more than one of these benefits, the insurer must offer him an election: s. 36(2).
14. 14Arbitration decision, p. 4.
15. 15As noted above on p. 9.
16. 16See Michalowski at p. 8: