Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 106

FSCO A03-000780

BETWEEN:

BEATA HEJNOWICZ

Applicant

and

COACHMAN INSURANCE COMPANY

Insurer

PRELIMINARY ISSUE ON INTEREST

Before:

Joyce Miller

Heard:

October 8, 2004, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Howard R. Blitstein for Ms. Hejnowicz

Jamie Pollack for Coachman Insurance Company

Issues:

The Applicant, Beata Hejnowicz, was injured in a motor vehicle accident on January 3, 1999. She applied for and received statutory accident benefits from Coachman Insurance Company ("Coachman"), payable under the Schedule.¹ Coachman denied Ms. Hejnowicz' claim for two treatment plans dated May 17, 2000 and March 22, 2003 for massage therapy. The parties were unable to resolve their disputes through mediation, and Ms. Hejnowicz applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. An arbitration hearing was held on March 1, 2 and 3, 2004.

The issues in this arbitration were as follows:

Is Ms. Hejnowicz entitled to receive a medical benefit for massage therapy pursuant to two treatment plans dated May 17, 2000 and March 22, 2003 in the amount of $5,190 claimed pursuant to section 14 of the Schedule?
Is Ms. Hejnowicz entitled to interest for the overdue payment of benefits pursuant to subsection 46(2) of the Schedule?
Is Coachman liable to pay Ms. Hejnowicz' expenses in respect of the arbitration under subsection 282(11) of the Insurance Act?
Is Ms. Hejnowicz liable to pay Coachman's expenses in respect of the arbitration under section 282(11) of the Insurance Act?

On March 19, 2004 I issued the following decision:

Ms. Hejnowicz is entitled to receive a medical benefit for massage therapy pursuant to two treatment plans dated May 17, 2000 and March 22, 2003 in the amount of $5,190 claimed pursuant to section 14 of the Schedule.
Ms. Hejnowicz is entitled to interest on the overdue payment of benefits pursuant to subsection 46(2) of the Schedule.
If needed, the parties may now speak to the issue of expenses.

The parties were able to deal with the issue of expenses between themselves, however, they both requested a hearing on the issue of when interest on the medical benefit I found owing starts to run. A hearing was held on October 8, 2004. After the hearing, I determined that pursuant to Rules 43.1 and 65.6 of the Dispute Resolution Practice Code² I lacked the jurisdiction to deal with this issue. On November 25, 2004, I wrote to the parties notifying them that they should write to the Director of Arbitrations requesting the formal appointment of an arbitrator. By letter dated December 8, 2004, the Director of Arbitrations appointed me as arbitrator to hear this issue. Both parties advised that they had no further submissions in addition to those given at the hearing held on October 8, 2004.

The issue in this arbitration is:

What is the correct amount of interest owing?

Result:

Coachman shall pay interest 14 days after denial of the May 17, 2000 treatment plan until the date of payment, at the rate of 2% per month compounded monthly pursuant to subsection 46(2) of the Schedule.
If needed, the parties may speak to me on the issue of expenses within 30 days of receipt of this decision.

BACKGROUND:

In my decision on March 19, 2004, I found that Ms. Hejnowicz had had a serious car accident. She suffered multiple injuries including a hip dislocation, a pelvic fracture, a left knee injury and facial cuts. She underwent two operations and remained in the hospital for 16 days. Although Coachman had a number of medical reports upon which to assess Ms. Hejnowicz' claim, it relied on two Designated Assessment Centre ("DAC) reports, dated August 1, 2000 and July 4, 2003, to refuse payment of Ms. Hejnowicz' medical benefits. In arriving at my decision to award Ms. Hejnowicz her medical expenses for massage therapy, I made the following findings.

... I give little weight to Coachman's evidence in support of its position that the treatment plans should be rejected as being unreasonable and unnecessary. The medical reports presented by Coachman clearly recognize the seriousness of Ms. Hejnowicz' injuries as a result of the accident, and the pain that she continues to suffer as a result of these injuries. None of these medical reports had any adverse comment to make about Ms. Hejnowicz' credibility. In fact, the tort defendant report specifically noted that Ms. Hejnowicz down plays her symptoms.

I also, give no weight to the conclusion of the first DAC dated August 1, 2000 because of the superficiality of the report and more specifically the lack of reasons for the conclusion it came to. While I give some weight to the second DAC on July 4, 2003, in that it acknowledges that massage therapy can give temporary relief to pain and that Ms. Hejnowicz should focus on increasing her muscular strength and endurance, I note that it does not address the important point of how the massage therapy can support the goal of Ms. Hejnowicz to increase her muscular strength and endurance. On this latter point, I accept the practical experience of Ms. Hejnowicz supported by her massage therapist and the case law which states that pain relief is a legitimate treatment goal.

This decision was not appealed.

SUBMISSIONS

Coachman's Submissions

Coachman submits that based on the appeal decisions of Allstate and Amoa-Williams, Allstate and Khaledi, Glinka and Dufferin Mutual, and Langdon and Pafco, (hereinafter referred to as the " Appeal Cases")³ where a DAC has found that the claim for medical rehabilitation benefits were not reasonable and necessary (a "negative DAC"⁴), an insurer is not required to pay interest on medical rehabilitation benefits claimed by an insured until the date of an arbitration decision finding the applicant entitled to payment of the account.

Coachman submits that pursuant to the appeal case of Vo and Maplex,⁵ I am bound to follow the decision of the Director's Delegate.

Accordingly, Coachman submits, as Ms. Hejnowicz' claim for her expenses for massage treatment was found not to be reasonable or necessary by two DACs, no interest is owing until my decision of March 19, 2004.

Ms. Hejnowicz' Submissions

Ms. Hejnowicz submits that the facts in her case can be distinguished from the facts in the Appeal Cases. Ms. Hejnowicz submits that the Appeal Cases did not have to deal with the quality of the DAC reports and the effect that an unreasonable DAC would have on the interest provisions. Ms. Hejnowicz submits that the August 1, 2000 DAC dealing with her treatment plan of May 17, 2000 was unreasonable on the face of the report. She submitted that my decision outlined the flaws in the DAC report, namely, that the qualifications of the DAC assessors were not noted and there was no indication whether the assessors had any expertise or experience in assessing the issue of massage therapy. Moreover, the assessors did not provide any reason or explanation for their conclusion that the treatment was not reasonable or necessary.

Accordingly, Ms. Hejnowicz submits the denial of payment by Coachman based on the August 1, 2000 DAC report was unreasonable and the Insurer cannot rely on a flawed DAC report to deny interest on her claim until the date of my subsequent decision.

Ms. Hejnowicz advised through her counsel that the interest owing with respect to her claim for massage treatment based on her treatment plan of March 22, 2003 was not at issue in this hearing.

The Law:

The relevant legislation and case law to be considered are as follows:

1. Legislation

Section 14 of the Schedule provides that an insurer shall pay an insured person for all reasonable and necessary medical expenses incurred by or on behalf of the insured person as a result of the accident.

Subsection 46 (1) of the Schedule provides:

An amount payable in respect of a benefit is overdue if the insurer fails to pay the benefit within the time required under this Part.

Subsection 46(2) of the Schedule provides:

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

Subsection 38(11) of the Schedule provides:

If the application is not withdrawn under subsection (9), the insurer shall pay for goods and services described in the notice under subclause (8) (a) (i) or (ii) within 30 days after receiving an invoice for them.

Subsection 38(14) of the Schedule provides that:

Subject to the determination of a dispute relating to the expense in accordance with sections 279 to 283 of the Insurance Act,

(a) if a report from the designated assessment centre states that, in the opinion of the person or persons who conducted the assessment, an expense is reasonable and necessary for the insured person's treatment or rehabilitation, the insurer shall pay for the expense;

(b) if a report from the designated assessment centre does not state that, in the opinion of the person or persons who conducted the assessment, an expense is reasonable and necessary for the insured person's treatment or rehabilitation, the insurer is not required to pay for the expense.

2. Case Law - SABS-1994

The case law before the Appeal Cases articulated the principle that the interest provisions in the Schedule are not punitive - they are remedial and designed not only to compensate an insured for the value of money withheld but to further the system's fundamental goal of ensuring prompt payment of benefits.

In the arbitration case of Urquhart and Canadian Surety Co.,⁶ the Arbitrator commenting on the interest provisions in the Schedule made the following findings:

One of the principal purposes of the interest provisions is to compensate the insured for the delay in being reimbursed for out-of-pocket expenses, and hence there is merit to the argument that in the absence of such an expense there is nothing upon which to pay interest. However, in my view the interest provisions are in a more general sense designed to compensate the person for the delay in receiving what was properly their due, in this case, the services of a homemaker. The delay is compensated for by the imposition of interest on the value or cost of the service that was withheld. It does not matter, in my view, that the delay related to the provision of a service, rather than the payment of money.

In addition to the specific intent of compensating the insured for the delay in obtaining the benefit, it cannot be ignored that the interest provisions are part of a larger scheme designed to encourage Insurers to pay benefits in a prompt fashion. In many cases insured persons are not in a position to pay for supplementary treatments or services out of their own resources. [Emphasis added]

This reasoning was also affirmed by the Director's Delegate in Sebastian v. Canadian Surety Co.⁷ wherein she stated:

Canadian Surety characterised the interest rate as punitive, designed to punish insurers for reprehensible behaviour. In my view, the interest component in the benefits scheme should be seen as remedial. It is designed not only to compensate applicants for the value of money withheld but to further the system's fundamental goal of ensuring prompt payment of benefits for an injured person's medical and vocational rehabilitation, their care of their day-to-day financial support.

In part, relying on Sebastian, similar findings were made by the Director's Delegate in Bajic and Pafco and Zurich.⁸ In Bajic, the Director's Delegate rejected the insurer's argument that benefits were not "overdue" and interest was not payable until the dispute resolution process was completed. He stated:

In my opinion, Pafco's interpretation goes too far. It suggests that interest rate is only payable if the insurer fails in its duties — a test similar to s.282(10) of the Insurance Act for special awards. While "overdue" must be given meaning, I find no indication that the legislative intention is to relieve insurers from paying interest whenever the insured person's entitlement is questionable. On the contrary, the high rate of interest imposed by s.68 is clearly meant to encourage insurers to pay benefits in a timely fashion.

Pafco's interpretation would be far more attractive if the legislation included an option to order interest at a lower rate. However, it does not. Pafco suggests this is an oversight, but I find no basis for this assertion. As Director's Delegate Naylor stated in Sebastian and Canadian Surety Company, (FSCO P96-00032, July 28, 1998), the interest provisions are remedial, not punitive. They are "designed not only to compensate applicants for the value of money withheld but to further the system's fundamental goal of ensuring prompt payment of benefits for an injured person's medical and vocational rehabilitation, their care or their day-to-day financial support."⁹ I agree with this analysis, although as I held in Trendle and Economical Mutual Insurance Company, (OIC P96-000009, July 11, 1996), there are limits. If the insured person acts in a manner that effectively prevents the insurer from assessing his or her entitlement, interest may not run."

In a decision of the Court of Appeal for Ontario, Attavar v. Allstate,¹⁰ Justice Laskin held that the interest provision pursuant to the Schedule, which is above the bank rate, is compensatory, not punitive. He went on to state "The provision is designed to compensate insureds for the time value of money and to encourage insurers to pay accident benefits promptly. Without a provision like s. 68, insurers would have an incentive to delay paying benefits properly owing, thus forcing insureds to litigate their claims." In coming to this conclusion Justice Laskin quoted the Urquhart and Sebastian cases.

The recent case of Mercier v. Royal and SunAlliance Insurance Co. of Canada¹¹from the Court of Appeal of Ontario adopted the reasoning of Attavar with respect to the underlying principles of interest in the Schedule, namely that the interest provisions are "compensatory, not punitive" and were "designed to compensate insureds for the time value of money and to encourage insurers to pay accident benefits promptly." This decision, which was issued after the arbitration Appeal Cases were issued, did not comment on the reasoning in these Appeal Cases or its departure from the accepted principles of interest, except to say that the Director's Delegate relied on the SABS-1996 provisions governing medical benefits and the explicit rules concerning whether such payments were overdue.

3. Appeal Cases - SABS1996

In the Appeal Cases, the Director's Delegate departs from the general principle outlined above and states that, under the SABS - 1996, interest is no longer to be considered compensatory and, to encourage prompt payment, interest is now to be considered a "penalty" and an "incentive designed to encourage the insurer to pay within the "time frames" set out in the parts of the SABS."

In the Appeal Cases, the Director's Delegate dealt with the issue as to when interest starts to run in cases where a DAC opinion has been given on a medical rehabilitation benefit pursuant subsection 38(14).

The Director's Delegate provided the same analysis in all the Appeal Cases. In his analysis, the Director's Delegate states that, in his view, subsection 46(1) stands for the proposition that: "An amount payable in respect of a medical benefit is overdue if the insurer fails to pay the benefit within the time required by s. 38." [emphasis added]

The Director's Delegate then goes on to note that Section 38(14) is silent "on the time required" for when a benefit must be paid. That is, the subsection does not provide any time lines to satisfy the proposition outlined above. To deal with this omission the Director's Delegate read into paragraph 38(14)(a) that "the time required to pay" the benefit as a result of a positive DAC should be within 30 days of receipt of invoice by the insurer. He deems this to be a reasonable time which is consistent with, for example, subsection 38(11).¹² Accordingly, the Director's Delegate concludes that pursuant to paragraph 38(14)(a) the medical rehabilitation expenses are "overdue" if the insurer fails to pay them within 30 days of receipt of the invoice, and interest is payable on these "overdue" payments in accordance with subsection 46(2).

The Director's Delegate interpreted paragraph 38(14)(b) and the phrase "is not required to pay" to mean that, "once the [negative] DAC is released, the insurer's prior obligations are displaced, and its ongoing obligations, pending adjudication, are determined by the outcome of the DAC." That is, where a negative DAC report is received, the insurer is not obligated to pay any benefits until a determination is made by an adjudicator to pay the benefit.

He stated: "I can see no basis for a finding that the insurer's failure to pay, in advance of the adjudicator’s ruling, can be characterized as a failure to pay the benefit within the time required by s. 38."

The Director’s Delegate then goes on to state, that from the period when a negative DAC report is received, pursuant to subsection 46(1), the insurer is not required to pay interest on any amounts later found owing by an adjudicator from the time of the negative DAC until the adjudicator’s decision.

To support his interpretation of the legislation the Director's Delegate made the following findings:

The provisions of the legislation have become more complex overtime, therefore, "... It is too simple to say that the interest provisions are part of a larger scheme designed to encourage prompt payment." In his view, there is now a new purpose for the interest provision which is that now interest is "part of a larger scheme designed to encourage the insurer to pay in accordance with the rules and time-frames set out in the SABS." (The Director’s Delegate, however, does not explain, how or why encouraging payment within "the rules and time-frames" is any different than encouraging prompt payment of benefits under the previous Schedule).
The Director's Delegate further states that interest owing can now be seen as a penalty. In his view, "[t]his penalty component is the incentive designed to encourage the insurer to pay within the time frames set out in the parts of the SABS that define the insurer's payment obligation. Imposing interest in the event of non-compliance encourages the insurer to meet its obligations. However, this incentive is negated if the interest is payable in any event."
Another reason for disallowing an applicant from claiming interest, according to the Director's Delegate, is based on the fact that "[a] positive DAC report triggers an obligation to pay for disputed benefits pending the outcome of the litigation." In his view, this obligation "is a significant departure from the traditional contract principles and represents a significant advantage in favour of the claimant." In his view, "[t]he inability to claim interest after a negative DAC is part of the balancing integral to this system."

ANALYSIS AND FINDINGS:

In Vo and Maplex Insurance,¹³ the Director of Arbitrations held that "Decisions of the Director, to the extent they cannot be distinguished are binding on the arbitrators." She further noted that cases may be distinguishable because of their factual basis or a new interpretive argument.

For the following reasons I find that the facts in the present case can be distinguished from the Appeal Cases, and pursuant to my analysis and findings below, I find that interest is owed on the outstanding amounts within 14 days after the treatment plan dated May 17, 2000 was presented to Coachman.

In the Appeal Cases, as one of the reasons given for his interpretation, the Director's Delegate relies on traditional contract principles to support his interpretation. However, it is clear that the contractual relationship between an insured and an insurer in this instance is not the same as a private contractual relationship. In this case, the terms in the policy are dictated by Statute.

Assistant Chief Justice MacKinnon of the Ontario Court of Appeal in the case of July v. Neal¹⁴ M made the following findings, which I find applicable in the present case:

... Insurance policies are statutory contracts and the wording of the terms as in the instant case normally are not the words of the insurer but the words of the statute or of the regulation. To such terms the contra proferentem rule does not apply. However, the insurance industry is consulted and does have input with regard to legislation affecting the industry. The individual insured has none. His role is to pay the premium for the expected indemnity. It appears to me that if there is doubt in the legislation establishing and governing the cover, and there are two possible interpretations of any aspect of the cover, the one more favourable to the insured should govern

It is generally accepted that the no-fault legislation is remedial legislation, and, in accordance with the usual principles of statutory construction, must be accorded a broad and liberal interpretation that best achieves the object and intent of the legislation, namely, the provision of fair, adequate and speedy compensation.

This is supported in the general rules of statutory interpretation as noted in E.A. Driedger's text, Construction of Statutes, (Butterworths, 1983) at page 33:

When two constructions are open, the courts must make a choice, and in making that choice such factors as absurdity, injustice, anomaly, hardship, and inconvenience are relevant. Generally speaking, as was indicated in R. v. Judge of the City of London Court, the courts will adopt a construction that will avoid such consequences. If the language is equivocal and there are two reasonable meanings of that language, the interpretation that will avoid a penalty is to be adopted. [Emphasis added]

I find that on the facts of this case the interpretation of paragraph 38(14)(b) in the Appeal Cases leads to a clearly unfair result that penalizes an applicant and that a reasonable interpretation that avoids a penalty should be adopted.

In this case, Coachman denied Ms. Hejnowicz her claim for medical benefits based on two DAC reports. As noted above in my arbitration decision on the substantive issue, I found that one of the DAC reports Coachman relied on was obviously flawed on its surface, and that the other DAC was weak because it did not address the important point of whether or not massage therapy could support Ms. Hejnowicz' goal to increase her muscular strength and endurance. In addition, and most importantly, I found that Coachman had ample medical reports, which it produced into evidence at the hearing, to support the credibility of Ms. Hejnowicz' claim. Nevertheless, Coachman denied her claim on the basis of the two DAC reports.

As a result of Coachman's denial, Ms. Hejnowicz was forced to borrow money for her treatment and apply for arbitration to get her benefit paid. If the Appeal Cases were to be applied to this fact situation, interest would not be payable and Ms. Hejnowicz would not be compensated for the expenditure of her money and the time spent arbitrating her case even when an adjudicator later finds that her medical claim has been reasonable and necessary all along.

In the Appeal Cases, the Director’s Delegate assumes that a DAC report’s opinion is a final and binding decision on the parties until an arbitrator finds otherwise. That is, once an insurer receives a negative DAC, the insurer is not obligated to pay on a claim until an arbitrator decides otherwise.

In my opinion, this interpretation easily leads to an incentive for insurers to delay paying benefits if interest would not be found owing from the period of a negative DAC until an arbitrator or judge decides otherwise. More significantly, this interpretation makes no allowance for the insurer’s obligation to adjust the file by weighing and balancing all the evidence it has before denying or maintaining the denial of a claim. Succinctly, it would allow an insurer who has received a flawed negative DAC report to rely on the report and, despite ample evidence to the contrary, force the insured to litigate and avoid paying any interest on any amounts later found owing.¹⁵ Also, where an insured has outstanding medical bills that are pressing, it can result in an improvident settlement.

In addition, the interpretation in the Appeal Cases gives more power and legal responsibility to the DAC and overrides the ultimate findings of an adjudicator on the issue of interest. The end result is that from the time an insurer terminates an insured’s benefit based on a negative DAC, the claim is deemed to be unreasonable and no interest is owing for this period even though an adjudicator later finds that the expense was all along reasonable and the claim should not have been denied.

In the case of Walker and State Farm,¹⁶ which was upheld on appeal,¹⁷ the Senior Arbitrator held that a DAC assessor's findings is only opinion evidence. She stated that, "It is not sufficient [for an arbitrator] to simply accept or adopt the judgement of the DAC assessor, who does not have the legal responsibility or opportunity to hear and weigh all the available evidence in a particular case ... The Legislature has ultimately given the statutory decision-making authority to the arbitrator."

In the Appeal Cases, the Director's Delegate in his interpretation treats the negative DAC report like an interim order that stops the running of interest. Succinctly, the interpretation in the Appeal Cases binds and fetters an arbitrator's or a judge's decision making power from the time of the negative DAC until the arbitration or trial decision. That is, when it comes to dealing with the issue of interest, the negative DAC's conclusion is given precedence to an arbitrator's or judge's findings that the amounts claimed by an insured pursuant to section 14, and denied by the insurer, were in fact reasonable all along.

In my view, a fair and reasonable interpretation of the words in subsection 38(14) "subject to the determination of a dispute" would be to interpret those words to mean what they plainly say, that is, the "time required to pay" an expense pursuant to subsection 46(1) is "subject to the determination of a dispute." That is, it is not the opinion of either a positive or negative DAC report that ultimately decides when an expense is "overdue," but rather when an adjudicator decides it is overdue.

I am reinforced in my opinion by the fact that paragraph 38(14)(a) is silent as to the time required to pay a benefit pursuant to a positive DAC report. The Director's Delegate interpreted this as an omission by the legislators that can be corrected by reading in the amount owing becomes overdue "within 30 days of receipt of an invoice" when a positive DAC report finds the claim to be reasonable and necessary.

It should be noted, that the Director's Delegate reading into paragraph 38(14)(a) the term "within 30 days of receipt of an invoice" is derived from subsection 38(11). This subsection deals with the situation where an insurer has agreed to pay all or part of a treatment plan pursuant to subsection 38(8). The Director's Delegate in his interpretation does not consider the situation, for example, where an insurer initially denies a treatment plan, an insured goes into debt to pay for treatment, but does not submit any invoices to the insurer because the treatment plan was denied, and sometime later a DAC finds that the treatment plan was reasonable and necessary all along. In this scenario the reading into the paragraph 38(14)(a) that the time required to pay is "within 30 days of receipt of an invoice" would unfairly penalize and deprive an insured of any interest for a valid claim despite a positive DAC.

In my view, the Legislature did not accidentally omit "the time required to pay" in subsection 38(14), but, consistent with the wording of the subsection, the drafters left it open for an adjudicator to determine the time required to pay. That is, the wording in paragraph 38(14)(a) gives an adjudicator the discretion, based on the facts of the particular case in dispute, to determine when a medical benefit is overdue and the time from which interest may run. This discretion not only allows an insured in the above situation to be eligible for interest on a valid claim, but it also allows for the situation noted by the Director's Delegate in Bajic that if an insured person acts in a manner that effectively prevents the insurer from assessing his or her entitlement, an arbitrator could determine that no interest is owing for a period of time, if at all, when otherwise it would have been.

Paragraph 38(14)(b), which deals with a negative DAC, states that "subject to the determination of a dispute" relating to a medical rehabilitation expense, an insurer "is not required to pay" for the expense where in the opinion of the DAC assessors the expense is not reasonable or necessary.

As noted above, the Director's Delegate interpreted this paragraph to mean that from the time an insurer denies or terminates an insured's benefit based on a negative DAC report no interest is owing until an adjudicator finds the expense is reasonable and necessary. In making this interpretation the Director's Delegate does not rely on any specific direction from the legislation, but on his interpretation of what "overdue" pursuant to subsection 46(1) means "within the time required" pursuant to subsection 38(14)(b).

It should be noted, however, that the language in paragraph 38(14)(b), which states what an insurer is to do when it receives a negative DAC, is permissive, as opposed to mandatory.¹⁸The words used are "is not required" to pay as opposed to "shall not" pay. That is, the provision allows for the fact that the insurer can still make a choice whether to pay or not to pay the expense after the receipt of a negative DAC.

In my view, the permissive language of the provision takes into consideration that in the normal course of adjusting a file a negative DAC report is only one part of the evidence that a responsible insurer must consider when denying a claim. An insurer is always under an ongoing obligation to adjust an insured's file in a reasonable and prompt manner.

The obligation to determine an insured's claim in a prompt manner is reinforced in the legislation in subsection 38(7) wherein it states that: "On receiving the application, the insurer shall promptly determine whether the insurer is required to pay for the goods and services contemplated by the treatment plan." [emphasis added]

The Director's Delegate's interpretation of paragraph 38(14)(b), however, makes no room for the facts in the present case where on the surface a DAC is not reasonable, and there is ample evidence that supports the applicant’s claim. The end result is that an applicant in the present case scenario is unfairly penalized by the interpretation in the Appeal Cases.

In my view, taking into consideration that the Schedule is remedial legislation and in accordance with the general principles of statutory construction the provisions should be interpreted broadly and liberally, it is only fair and reasonable when there are two possible interpretations of paragraph 38(14)(b) to interpret this paragraph so that it does not create an unfair and unjust result.

I find the reasoning in Khaledi and Allstate supports this view. In that case, the arbitrator was dealing with interest on "amounts" owing on a medical benefit. In support of her view that interest was owing, she stated: "...given the remedial nature of the interest provisions and the comments cited in the Bajic appeal regarding their purpose, I find that when an amount [or in this case a medical benefit] is subsequently determined by an arbitrator to be reasonable, it is implicit that it was reasonable all along.¹⁹ It would then follow that an applicant would be entitled to interest on the benefits owing at the prescribed rate from the date the amount first became owing."

As well, it should be noted that this interpretation of paragraph 38(14)(b) gives an arbitrator the discretion to deny interest where an insured had unreasonable thwarted the insurer’s ability to properly adjust the claim, even when an arbitrator finds the claim was reasonable and necessary all along.

CONCLUSION:

The interpretation of the interest provisions in the Appeal Cases is a marked departure from the accepted principles, as articulated in numerous Commission arbitration and appeal decisions and upheld in the recent Court of Appeal cases of Attavar and Mericier,(supra), that interest under the Schedule is compensatory and meant to encourage prompt payment of benefits.

In my view, if the drafters of the Schedule wished to depart from the basic accepted principles underlying the interest provisions in the Schedule, including giving a negative DAC report’s opinion precedence over an arbitrator’s decision making power, then it could have articulated such a significant change.

It is clear from the above analysis that subsection 38(14) can lend itself to two interpretations. In my view, the interpretation of subsection 38(14) in the Appeal Cases, which did not deal with the evidence in this case, clearly acts as a penalty to an applicant, who, as in the present case, has a legitimate claim, but because of an unreasonable negative DAC report, is forced to go into debt to pay for reasonable and necessary medical treatment and then commence an arbitration to collect a benefit that was clearly due to them.

Accordingly, I find that in applying the principles of statutory construction in interpreting subsection 38(14), on the facts of this case, "the interpretation that will avoid a penalty is to be adopted." I find on a plain reading of subsection 38(14) a reasonable interpretation of the phrase "the time required to pay" is that it is "Subject to the determination of a dispute ... in accordance with sections 279 to 283 of the Insurance Act."

Succinctly, I find that "the time required to pay" pursuant to paragraph 38(14)(b) is to be determined by an adjudicator based on the facts of the particular case in dispute, and interest starts to run from the time determined by an adjudicator, as opposed to it being determined by a "negative" DAC.

Accordingly, for all these reasons, I find that interest is owed by Coachman for the amount of the May 17, 2000 treatment plan within 14 days²⁰ from the time the treatment plan was submitted to Coachman. I make no finding with respect to the interest owed on the second treatment plan dated March 22, 2003 as counsel for Ms. Hejnowicz advised at the commencement of the hearing that the interest regarding this treatment plan was not at issue in this hearing.

EXPENSES:

If needed, the parties may speak to me on the issue of expenses within 30 days of receipt of this decision in accordance with Rule 79 of the Dispute Resolution Practice Code.

August 4, 2005

Joyce Miller Arbitrator

Date