Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2004 ONFSCDRS 55

Appeal P03-00028

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ING INSURANCE COMPANY OF CANADA

Appellant

and

DARREN FISK

Respondent

Before:

Nancy Makepeace

Representatives:

John H. Hornak for ING

Edward Tawkin for Mr. Fisk

Hearing Date:

December 11, 2003, by telephone conference

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 denied, and the arbitration order, dated July 2, 2003, is confirmed.

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

April 21, 2004

Nancy Makepeace

Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

The main issue in this appeal, as in my recent decision in Szabo and CAA Insurance Company (Ontario), (FSCO P03-00015, March 31, 2004), is what makes a misrepresentation material for purposes of s. 48 of the SABS–1996.¹ ING Insurance Company of Canada ("TNG") appeals from the Arbitrator's decision that Mr. Fisk's deliberate failure to disclose his post-accident employment does not preclude him from receiving weekly benefits because the misrepresentation was not material.

I am not persuaded the Arbitrator erred in law.

II. BACKGROUND

The main facts are agreed. Mr. Fisk was involved in an automobile accident on October 13, 2000. He applied for accident benefits, and received Income Replacement Benefits (' IRBs") of $400 a week, under Part II of the SABS-1996, from October 20, 2000 to June 10, 2002. At the time of the accident, he was employed in a family business, Northwoods Inc., operating heavy equipment to clear bush.

In May 2002, ING learned that Mr. Fisk was employed by Dorsey Contracting from April 11, 2001 to May 22, 2001. According to the Arbitrator, Mr. Mark Ilot, the owner and operator of Dorsey, advertised "for a person to work in his shop and operate a skidder."² During that six week period, Mr. Fisk earned $3,700 from Dorsey, and received IRBs of $2,400 from ING. It is agreed that Mr. Fisk did not work after May 22, 2001.

On June 10, 2002, ING terminated Mr. Fisk's IRBs based on s. 48 of the SABS-1996, which 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.

The Insurer also demanded repayment of the IRBs paid after April 8, 2001, in the amount of $24,000.

At the arbitration hearing on April 14-15, 2003, ING submitted that Mr. Fisk wilfully misrepresented a material fact in an application for an accident benefit by failing to disclose his job at Dorsey to ING or to Dr. C. Hoy, a physiatrist who examined him for ING on April 10, 2001, the day before he started work at Dorsey. The Arbitrator accepted without deciding that s. 48 applies to a misrepresentation made at an insurer examination. There was no dispute about this issue on appeal.

The Arbitrator heard oral evidence from Mr. Fisk, Ms. Cherie Lengyel, his wife (who is also the owner and operator of Northwoods), Mr. Ilot, Mr. Rob Neill (the independent adjuster who handled the claim for ING), and Mr. Pottker (the vehicle appraiser).

The first issue was the date of the Dorsey job offer. Mr. Fisk testified that Mr. Ilot did not make a job offer until the evening of April 10, 2001, after he and his wife returned from their appointment with Dr. Hoy in Winnipeg. The Arbitrator preferred Mr. Ilot's evidence that they had already finalized their agreement. She found that Mr. Fisk knew that he would be starting work the next day when he completed a questionnaire for Dr. Hoy. Under the heading, "work status today," Mr. Fisk indicated he was receiving benefits. The Arbitrator concluded Mr. Fisk's answer was not a misrepresentation since it was truthful at the time it was made.

The next issue was whether Mr. Fisk was obliged to disclose this information to Dr. Hoy in any event. The Arbitrator relied on Michalowski and St. Paul Fire & Marine Insurance Company for the proposition that “in some circumstances, an omission, or silence, may amount to a wilful misrepresentation in circumstances where the evidence has persuaded 'the finder of fact that both the requisite intent and the requisite materiality have been established'."³ This finding was not disputed on appeal. The Arbitrator did not accept that Mr. Fisk “intentionally or deliberately set out to mislead Dr. Hoy or ING when he failed to indicate that he would be starting work the next day."⁴ She found it significant that Dr. Hoy did not ask Mr. Fisk personally about his employment status.

The Arbitrator took a less favourable view of Mr. Fisk's failure to advise ING about the job.

Mr. Neill testified that he confronted Mr. Fisk about the Dorsey job after Mr. Ilot told him about it in May 2002. According to Mr. Neill, Mr. Fisk claimed he had sent him a letter about the job. When Mr. Neill disputed this, Mr. Fisk brought him a copy of an undated letter. Mr. Neill testified he had not seen it before and did not have a copy in his file. His report to ING led to the termination of Mr. Fisk's benefits.

Mr. Fisk testified he had sent the letter within a day or two of starting the job. He said the letter had a handwritten date on it, which did not show up on the copy. Ms. Lengyel corroborated his evidence. The Arbitrator rejected their evidence as implausible and lacking in detail and consistency. She did not accept that Mr. Fisk sent a letter to Mr. Neill before bringing it to his office in May 2002.

Mr. Fisk also testified that he did not question his receipt of ongoing IRBs while he worked because he believed they were intended to offset his property damage claim. This explanation was inconsistent with his testimony about the letter. The Arbitrator rejected it, finding there was no evidence Mr. Fisk had pursued his property damage claim. She concluded his failure to tell ING about the Dorsey job was a wilful misrepresentation

The next question was whether the misrepresentation was material for purposes of s. 48. The Arbitrator considered the two arbitration decisions that had been issued at that point: Michalowski and St. Paul, mentioned above, and Szabo and CAA Insurance Company.⁵

In Michalowski, as in this case, the issue was the materiality of the insured person's failure to disclose post-accident employment. A couple of months after the accident, the insured person, a long-haul truck driver, took a part-time job delivering Chinese food for about six hours a week; he earned $5 an hour plus delivery fees and tips. He resigned the job after about a month.

The Arbitrator in Michalowski was not persuaded the misrepresentation was wilful because there were other less culpable explanations, including procrastination, ignorance of his obligations, and "resignation that benefits were not going to be paid" (p. 6). Although this was enough to dispose of the misrepresentation claim, the Arbitrator turned to the question of materiality:

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). (p. 7)

The Arbitrator concluded the misrepresentation was not material, considering that no benefits were paid as a result of it and if benefits had been paid, the overpayment, recoverable under s. 47, would have been minimal.⁷

The insured person in Szabo did not receive benefits as a result of his misrepresentation either. On his application for accident benefits, he stated he was receiving workplace insurance benefits at the time of the accident. In fact, he was working. He probably misrepresented his employment status to CAA so as not to jeopardize his workplace insurance benefits. At the arbitration hearing, he relied on Michalowski for the view that a misrepresentation is not material if it does not bring the insured person additional benefits. The Arbitrator in Szabo found Michalowski distinguishable because,

. . . it dealt with an applicant’s failure to advise an insurer of post-accident income and not with a fundamental aspect of the relationship between the two parties. A misrepresentation may be so basic or fundamental to this relationship — such as insurance coverage — that it may be found material without a profit and loss analysis:

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

I find it equally trite law that employment status is fundamental in an application for weekly benefits. Parts II (IRBs) and III (NEBs) of the Schedule make it plain that employment status determines the eligibility criteria, the amounts, and the commencement and termination dates for these weekly benefits. (p. 4)

In the decision below, the Arbitrator distinguished the Szabo arbitration case, "where the applicant's misrepresentation of his employment status affected his eligibility for benefits, the amounts and the commencement and termination dates for weekly benefits." In contrast, she found that Mr. Fisk's misrepresentation was not material, considering the limited duration of his employment and his limited post-accident employment income: ". . . Mr. Fisk failed to report post-accident income and ING has a remedy available to it for the recovery of any overpaid benefits during that period."¹⁰

ING submits this was an error of law. It argues that Mr. Fisk's misrepresentation was material because the Insurer relied on it to its detriment, paying IRBs to which Mr. Fisk was not entitled during the six weeks he worked at Dorsey. In this respect, the case presents clearer facts than Szabo, in ING's submission. The amount of the overpayment was not insignificant: Mr. Fisk received IRBs of $2,400 while earning $3,700 from Dorsey. In any event, insurance contracts are contracts of utmost good faith (uberrimae fides), and a misrepresentation that affects benefit entitlement goes to the nature of that relationship. ING submits that s. 48 provides insurers with an additional remedy beyond repayment of benefits that were overpaid as a result of the misrepresentation: it allows insurers to terminate benefits that would otherwise be payable.

Mr. Fisk sees the facts differently from the Insurer. He claims he is totally disabled as a result of the accident, and there seems to be little dispute the Dorsey job was less demanding than his pre-accident job at Northwoods. The Arbitrator stated, "[t]he extent of Mr. Fisk's disability is not in dispute."¹¹ Mr. Fisk notes that the SABS-1996 contemplates an insured person returning to work¹² and continuing to receive IRBs, subject to the deduction permitted by s. 6(2), if he remains disabled from doing his pre-accident job.¹³ Indeed, the SABS-1996 requires an IRB claimant to try to return to appropriate work.¹⁴ ING has demanded repayment of all the IRBs paid since he started working at Dorsey, but Mr. Fisk argues this penalty would be disproportionate to his misrepresentation. Finally, Mr. Fisk submits that ING's appeal raises an issue of mixed fact and law, whereas s. 283(1) of the Act limits FSCO appeals to questions of law alone.

III. ANALYSIS

In the Szabo appeal, the main issue was the materiality of the insured person's misrepresentation about his pre-accident employment status. I came to the following conclusions:

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. [footnote omitted] 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-1990.¹⁵

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."¹⁶ 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 multidisciplinary 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. [footnote omitted] 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. (pp.

In this case, the prejudice to ING seems obvious: it overpaid Mr. Fisk’s weekly benefits while he worked at Dorsey. As well, though the Arbitrator made no finding on point, it can be imagined that ING would have adjusted the claim differently had it known about Mr. Fisk’s work at Dorsey.

On appeal, the parties disagree on whether s. 48 applies to a failure to disclose post-accident employment. In Mr. Fisk’s view, it is limited to misrepresentation of material facts with respect to "an application for a benefit," as defined in s. 69 and s. 32(2)(a) of the SABS-1996.¹⁷ He submits that repayment is the appropriate remedy for non-disclosure of post-accident employment, once the claimant has made a completed application for benefits. ING submits that s. 48 was intended to impose a strict penalty for any wilful material misrepresentation made over the course of a claim for a benefit. It would make no sense for the legislature to limit the termination penalty to the application process, while ignoring misrepresentations made during the subsequent course of the claim. This dispute raises an interesting interpretive question as to the role of s. 48 in the context of the other remedies for non-disclosure in the SABS-1996 and the [Insurance Act].¹⁸ Given the relative novelty of the issue, the limited submissions I received, and the implications for other SABS issues,¹⁹ this question is best left for another day. In any event, I need not decide it because of my conclusion on the materiality issue.

These were the Arbitrator’s reasons:

I rely on the analysis in Michalowski and Szabo, and find that a consideration of materiality must be made with reference to the specific facts of the case. An important consideration is whether the fact misrepresented is fundamental to the relationship between insurer and insured. In this case, Mr. Fisk misrepresented the fact that he returned to work for a period of approximately six weeks and that he earned approximately $3700 in income. It is undisputed that Mr. Fisk has not returned to work since May 22, 2001. The extent of Mr. Fisk’s disability is not in dispute. Section 47 of the Schedule permits a repayment to ING of any overpaid benefits during the six-week period of employment.

In consideration of these factors, I find that Mr. Fisk's misrepresentation was not "material" within the context of Section 48 of the Schedule. I find that Mr. Fisk's return to work for a period of six weeks is not a sufficiently fundamental aspect of the relationship between himself and ING to be material. This case is distinguishable from Szabo, where the applicant’s misrepresentation of his employment status affected his eligibility for benefits, the amounts and the commencement and termination dates for weekly benefits. In this case, Mr. Fisk failed to report post-accident income and ING has a remedy available to it for the recovery of any overpaid benefits during that period. (pp. 12-13)

I agree that a misrepresentation is material if it undermines the very basis of the claim, as in Szabo (employment status) or Jimcaale (other insurance coverage). In other circumstances, a misrepresentation may be material because the insurer relied on it to its detriment by overpaying benefits or foregoing an opportunity to properly adjust the claim. Disregarding these factors would be an error of law. Further, while the nature of s. 48, as a penalty provision, is an appropriate interpretive factor, s. 48 cannot be disregarded simply based on an arbitrator’s view about what is an appropriate penalty in the circumstances.

Though this case may be close to the line, I am not persuaded that is what the Arbitrator did. As I read her decision, she considered the nature of Mr. Fisk’s misrepresentation and its effect on ING in the context of the claim as a whole. These were the appropriate factors, in my view. Another arbitrator might have concluded that Mr. Fisk’s was not the sort of trivial omission or quickly corrected misrepresentation that may fall below the notice of s. 48 on de minimis grounds. But a finding on materiality depends heavily on the Arbitrator’s assessment of the evidence. In this case, the Arbitrator considered the circumstances, including the short time Mr. Fisk worked, the amount of the overpayment, and the extent of his ongoing disability from his heavier pre-accident job. I am satisfied her conclusion was within her authority, and I am not persuaded I should interfere.

I am not persuaded the Arbitrator erred in law in finding that Mr. Fisk’s failure to tell ING about the Dorsey job was a misrepresentation "of a material fact with respect to an application for a benefit."

IV. EXPENSES

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

April 21, 2004

Nancy Makepeace

Director's Delegate

Date

A person receiving an income replacement benefit 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 benefit is 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.

The insurer may deduct from the amount of the income replacement benefit payable to an insured person 80 per cent of the net income received by the insured person in respect of any employment subsequent to the accident. [emphasis added]

Based on the figures provided by Mr. Fisk (Tab 4, Respondent's written submissions), it appears he was overpaid by about $2,300.

An insured person who is entitled to an income replacement benefit shall make reasonable efforts to,

(a) return to the employment in which he or she engaged at the time of the accident; or

(b) obtain employment for which he or she is reasonably suited by education, training or experience.

Each of the following documents shall be in a form approved by the Superintendent:

1. The application forms referred to in clause 32(2)(a).

Section 32(2)(a) does specify what application forms must be provided, but simply says:

The insurer shall promptly provide the person with,

(a) the appropriate application forms.

The application package was published in Bulletin A-10/96, dated October 23, 1996.

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2Arbitration decision, p. 5.
3. 3Arbitration decision, p. 6, referencing (FSCO A98-001492, July 9, 1999), p. 6.
4. 4Arbitration decision, p. 6.
5. 5(FSCO A02-000678, March 14, 2003), recently confirmed on appeal, (FSCO P03-00015, March 31, 2004).
6. 6S.M. Waddams, The Law of Contracts (3rd Edition, Chapter 13, Toronto: Canada Law Book Inc, 1993). [footnote in original]
7. 7Section 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, but under s. 47(4), the 12-month notice requirement in s. 47(3) "does not apply if the benefit was paid as a result of wilful misrepresentation or fraud." Repayment can be triggered at any point during or after the benefit period.
8. 8"[I]f a person is a named insured . . . or the person is the spouse or same-sex partner . . . of a named insured, the person shall claim statutory accident benefits against the insurer under that policy." [footnote in Szabo, arbitration decision]
9. 9Jimcaale and TTC Insurance Company Limited (FSCO A00-001311, February 27, 2002), second decision on a preliminary issue. [footnote in original] On her application for benefits with respect to her accident on April 19, 2000, Ms. Jimcaale indicated that she was not covered under any policy. In fact, her husband was insured by RBC. Section 268(5) of the Act made RBC the priority insurer. Mr. Jimcaale applied to TTC for benefits shortly after settling a claim against RBC arising out of her accident on April 14, 2000.
10. 10Arbitration decision, p. 13.
11. 11Arbitration decision, p. 12.
12. 12He cites s. 11, which states:
13. 13Subsection 6(2) states:
14. 14Section 56(1) states:
15. 15The 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.
16. 16Arbitration decision, p. 4. [footnote in original]
17. 17Mr. Fisk completed the "application package" approved by the Superintendent under s. 69 of the SABS-1996, which states:
18. 18Section 30(2)(a) of the SABS-1996 (insurer is not required to pay a weekly benefit or certain other benefits in respect of a person who "intentionally failed to notify the insurer of a change in the risk material to the contract"), s. 33(2) of the SABS-1996 (benefit is not payable for any period before the claimant provides certain information or documentation requested by the insurer), and s. 447(2)(a.2) of the Insurance Act (wilfully failing to inform an insurer of a material change within 14 days is an offence punishable by fine and/or restitution).
19. 19What defines an application for a benefit has been disputed in the context of the time limit for giving notice of the claim and applying for benefits – for example, H 'ng and Keng and Allstate Insurance Company of Canada, (FSCO A96-000988, March 7, 1997), confirmed on appeal, (OIC P97-00017, October 1, 1997), approved, [2000] O.J. No. 3589 (Ont.Div.Ct.); the two-year limitation period for commencing mediation and arbitration – Kirkham and State Farm Mutual Automobile Insurance Company, (OIC P96-00069, January 27, 1997), approved, [1998] O.J. No. 6459 (Ont.Div.Ct.), leave to appeal to the Ontario Court of Appeal dismissed July 9, 1998; and the SABS interest provisions – for example, Cole and Allstate Insurance Company of Canada, (FSCO P01-00016, May 23, 2003).