Wawanesa Mutual Insurance Company v. Luciano Amato, 2005 ONFSCDRS 140

Financial Services Commission of Ontario

Neutral Citation: 2005 ONFSCDRS 140 Appeal: P04-00002

OFFICE OF THE DIRECTOR OF ARBITRATIONS

WAWANESA MUTUAL INSURANCE COMPANY Appellant

and

LUCIANO AMATO Respondent

Before: David Evans

Representatives: Stephen B. Macaulay for Wawanesa Joseph Brian Donnelly for Mr. Amato

Hearing Date: January 24, 2005

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 of the arbitration order, dated July 18, 2003, is dismissed.

2. The appeal of the arbitration order, dated December 31, 2003, is allowed with respect to paragraph 3 (special award), which is revoked and replaced with the following:

Wawanesa shall pay a special award of $10,000, less any amounts already paid.

3. If the parties are unable to agree on appeal expenses, they may contact me in accordance with Rule 79 of the Dispute Resolution Practice Code.

October 3, 2005

David Evans Director’s Delegate

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Amato sustained injuries in an automobile accident on June 6, 2000. Wawanesa does not appeal the arbitrator's finding that, pursuant to the SABS–1996,¹ Mr. Amato remains entitled to ongoing income replacement benefits ("IRBs") as a result of the accident. Wawanesa challenges the preliminary issue decision dated July 18, 2003, to exclude the report and testimony of Dr. Howard Seiden. Dr. Seiden was to be a replacement witness for Dr. Frank Deegan, who had died in June 2002. Wawanesa also challenges the granting of the special award in the decision dated December 31, 2003, which the arbitrator ordered under s. 282(10) of the Insurance Act, on the basis that payments were both "unreasonably . . . delayed" and "unreasonably withheld."

II. BACKGROUND

On January 9, 2001, Wawanesa sent Mr. Amato a cheque in payment of the IRBs for the period from June 13, 2000 (one week after the accident) to October 24, 2000. Wawanesa delayed making IRB payments until satisfied that Mr. Amato had worked the required 26 out of the 52 weeks before the accident.² The arbitrator found that Wawanesa had sufficient information by September 27, 2000 to indicate that he met this threshold, and accordingly had unreasonably delayed paying any IRBs until January 9, 2001.

Also on January 9, 2001, Wawanesa advised Mr. Amato that it was not prepared to pay IRBs after October 24, 2000, in part on the basis of an insurer's examination ("IE") conducted by the late Dr. Frank Deegan at Seiden Health Management.³ The arbitrator found ambiguous Dr. Deegan's conclusion that "Mr. Amato is partially disabled from resuming his pre-accident level of employment as a forklift operator (as he described the work to me and as I understood it). . . ."⁴ Dr. Deegan also recommended that Mr. Amato engage in active treatment of upwards of two hours per day. Considering this, and the FAE's finding that Mr. Amato did not have the necessary job strength, the arbitrator concluded that at the time Dr. Deegan saw Mr. Amato, he was substantially unable to perform the essential tasks of his employment. The arbitrator held that these findings, along with other reports in Mr. Amato's favour, meant Wawanesa acted unreasonably in failing to have Mr. Amato re-examined before it terminated his benefits.

With respect to the amount of the special award, the arbitrator found that "the unreasonable withholding of benefits unnecessarily caused Mr. Amato financial hardship which affected his health." Accordingly, she concluded: "In the circumstances of this case and taking into consideration the unreasonable conduct of Wawanesa and the resulting hardship suffered by Mr. Amato, I consider a special award of $40,000 inclusive of interest to be an appropriately severe penalty."

III. ANALYSIS

I will first deal with the exclusion of Dr. Seiden's evidence, since Wawanesa claims that the arbitrator's refusal to accept it affected the special award in the main hearing. However, arbitrators have a great deal of discretion on such procedural matters, absent an error of law.

Short of a re-hearing of the preliminary issue, which is not what Wawanesa seeks, it is virtually impossible to determine what the final order might have been if the matter had proceeded differently.

The issue arose because Mr. Amato indicated shortly before the hearing that he wished to cross-examine Dr. Deegan on his IE report of October 11, 2000. Wawanesa then discovered that Dr. Deegan had died. The hearing started on February 24, 2003, with Mr. Amato moving that Dr. Deegan's report, along with the associated FAE report dated October 10, 2000, should not be entered into evidence. Wawanesa opposed the motion, but it also contacted Dr. Deegan's employer, Dr. Seiden, and obtained a report from him dated February 25, 2003. Wawanesa submitted that he should be allowed to testify on the reports as a replacement witness. The main hearing proceeded over four days, and then adjourned. The preliminary issue hearing proceeded before the main hearing resumed.

At the preliminary issue hearing, the arbitrator allowed Wawanesa to file Dr. Deegan's report. However, she did not accept Dr. Seiden's report or allow him to testify. Wawanesa presented two cases to the arbitrator where a court admitted a deceased expert's report on condition that another expert in the same area of expertise comment on the report: Tulshi v. Ioannou, [1994], O.J. No. 1472 (Gen. Div.), and Colley v. Travellers Insurance Co., [1998] N.S.J. No. 405 (N.S.S.C.). In Tulshi, the expert was available for cross-examination in respect of the conclusions reached by the deceased. In Colley, the expert was called to determine for the benefit of the court whether the deceased's opinions were reliable. By way of contrast, Dr. Seiden was being called to provide his own opinion about Mr. Amato's disability, not just his opinion on the reliability of Dr. Deegan's report. Further, his opinion was based on medical evidence beyond what Dr. Deegan had before him. Thus, Dr. Seiden's role exceeded that of the replacement witnesses testifying in the court cases. Therefore, once the arbitrator determined that Dr. Deegan's report could be filed without additional testimony, the only ground on which Dr. Seiden could testify or his report be admitted would be pursuant to the rules set out in the Dispute Resolution Practice Code — Fourth Edition.⁵

I also see little prejudice to Wawanesa. Until the day the hearing started, it was prepared to rely solely on Dr. Deegan's report. In the end, it was able to file the report. I find the arbitrator made no error of law in excluding Dr. Seiden's evidence.

Turning now to the issue of the special award, Wawanesa appeals the arbitrator's finding that it unreasonably delayed and unreasonably withheld payments. It also appeals the amount of the special award.

Subsection 282(10) provides that a special award is payable where an insurer has unreasonably withheld or unreasonably delayed payments. Subsection 282(10) reads as follows:

If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

The arbitrator found that by September 27, 2000, Wawanesa had enough information to start paying IRBs. Wawanesa had questioned whether or not Mr. Amato had worked a sufficient period of time in the 52 weeks before the accident to qualify for IRBs. Implicitly, Wawanesa did not act unreasonably in seeking this information up to September 27, 2000. The arbitrator found that Wawanesa unreasonably delayed making the initial IRB payments to January 9, 2001, when it sent benefits for the period from June 13, 2000 to October 24, 2000. She referred to this delayed payment in calculating the special award "on the basis that Wawanesa not only unreasonably delayed paying Mr. Amato his income replacement benefits, but also it unreasonably terminated Mr. Amato's income replacement benefit. . . ." Her calculations of the special award was based on the post-termination benefits that were withheld.

Wawanesa submits that the arbitrator erred in ordering a special award for the delayed payment, in that it did not have sufficient information until mid-December 2000. However, the arbitrator referred to evidence such as a letter from Mr. Amato's employer that set out Mr. Amato's employment status until he was forced into retirement by the plant closing. There was no error of law in her finding.

Wawanesa submits that the arbitrator erred in the calculation, in that she should have applied the delayed payment rationale only to the delayed payments. However, s. 282(10) provides for a special award ". . . in addition to awarding the benefits and interest to which an insured person is entitled. . . ." Since the arbitrator awarded no benefits and interest to the Applicant for the delayed payments, I am unable to see how she could calculate a special award strictly based on those delayed payments.⁶ On the other hand, those delayed benefits were only unreasonably delayed from September 27, 2000 to January 9, 2001. The insurer owed about $60 interest for the delay in paying about 19 weeks of benefits. By necessity, the arbitrator calculated the special award based on the total amount of benefits unreasonably withheld, which as set out below came to about $40,000 in interest for the delay in paying 166 weeks of benefits. Considering the proportional difference between the amounts at stake, the unreasonable delay should only have formed a small part of the total special award.

With respect to the arbitrator's finding that Wawanesa unreasonably withheld payments after October 24, 2000, Wawanesa submits that she misapprehended Dr. Deegan's conclusion, in that, it submits, she found it was Dr. Deegan's opinion that Mr. Amato suffered from a substantial inability to perform the essential tasks of his employment. However, she did not make any such error. Instead, she extrapolated from Dr. Deegan's findings of partial disability and need for treatment, as well as from the FAE finding, to conclude that Mr. Amato met the substantial inability test. She reached her own conclusion based on the evidence before her.

Wawanesa submits that the arbitrator erred in finding unreasonable withholding in the face of conflicting medical opinions. However, the issue is Wawanesa's conduct of the claim. The arbitrator found that Wawanesa acted unreasonably in failing to have Mr. Amato re-examined before it terminated his benefits. Aside from referring to the ambiguity in Dr. Deegan's findings, she also referred to other evidence in Mr. Amato's favour at the time of termination, including a DAC assessment dated December 14, 2000 stating that Mr. Amato required attendant care assistance in the amount of $279.59 per month for help in a number of daily activities, assistance which Wawanesa paid for up to the two-year mark:

If Mr. Amato could not dress, bath or walk up and down stairs without assistance, then one can only reasonably conclude that it would not be possible for Mr. Amato to carry out the duties of his employment as a fork lift operator.

The arbitrator also referred to post-termination information available to Wawanesa, such as a medical rehabilitation DAC which indicated that Mr. Amato was suffering from pain and required additional treatment.⁷

Accordingly, the arbitrator had evidence and grounds upon which to grant a special award for unreasonably withholding benefits.

I will now turn to the amount of the special award. I reproduce the arbitrator's reasons for arriving at the special award:

I find, on the facts in this case, that Mr. Amato is entitled to a substantial special award. I make this finding on the basis that Wawanesa not only unreasonably delayed paying Mr. Amato his income replacement benefits, but also it unreasonably terminated Mr. Amato's income replacement benefit on October 24, 2000. Moreover, Wawanesa continued to unreasonably withhold this benefit after October 24, 2000 in the face of cogent, reliable medical evidence that should have been considered. The result of the unreasonable withholding of benefits unnecessarily caused Mr. Amato financial hardship which affected his health.

Pursuant to subsection 282(10) of the Insurance Act, a special award is calculated on the principal amount of the benefit owing plus interest. The appeal case of Persofsky and Liberty Mutual⁸ requires that I give a specified amount as opposed to a percentage of the benefits owing.

I calculate that from October 25, 2000 to the present that Mr. Amato is entitled to an income replacement benefit of $400 a week for 166 weeks. This amounts to approximately $66,400, plus interest from the date these benefits are owing. In the circumstances of this case and taking into consideration the unreasonable conduct of Wawanesa and the resulting hardship suffered by Mr. Amato, I consider a special award of $40,000 inclusive of interest to be an appropriately severe penalty.

Persofsky sets out a seven-step approach to calculating a special award. The arbitrator appears to have made a reasonable attempt to calculate the unpaid benefits and interest that were subject to a special award. Implicitly, considering the size of the special award, the arbitrator must have also calculated the additional interest component set out in s. 282(10). These are the required first four steps in Persofsky. To echo what the Director's Delegate stated in Sorokin and Wawanesa Mutual Insurance Company, (FSCO P04-00008, August 9, 2005), I cannot fault the arbitrator for basing her order on a ballpark estimate:

I agree with the Director's seven-step approach, which, as he stated, reflects the prevailing consensus amongst FSCO adjudicators. I also agree that "explicit and consistent use of these steps can only improve the transparency and predictability of special awards," though I would not find an award erroneous on the sole basis that the arbitrator's analysis, or some part of it, was implicit, as long as the decision, as a whole, clearly answered the questions asked in each of the seven steps.

With respect to these calculations, Wawanesa paid approximately $103,000 in principal and interest after the hearing. By my calculation, the maximum special award is approximately $80,000, so the arbitrator's $40,000 special award represents approximately 50 per cent of the maximum.

However, I believe that, because of the evidence the arbitrator relied on to award IRBs after the 104-week period,⁹ it was unfair for her to also apply the special award to those post-104 week IRBs. In that regard, the arbitrator admitted the report of Mr. Amato's family doctor, Dr. John Castiglione, dated February 18, 2003, which was served less that 30 days before the first day of the hearing.¹⁰ The insurer submitted that it should not be admitted, due to the late service. At page 88 of the February 24, 2003 arbitration transcript, after several pages of submissions, the following appears:

THE ARBITRATOR: Do you know what? I will give it little or no weight for the conclusions but I do think it will clarify the hand-writing, so I will ignore the last pages. I will probably use it as a reference, but I won't accept it as a report.

MR. MACAULAY: I mean, I've made my objection to the report going in.

THE ARBITRATOR: No, I'm not going to take it as that.

Instead, the arbitrator quoted the last pages of the report, including Dr. Castiglione's conclusion that, given Mr. Amato's education, training and experience "he is effectively unemployable."

Dr. Castiglione's report also played a significant role in the arbitrator's determination that Mr. Amato met the post-104 week test, as set out at p. 29 of her decision: "I accept Dr. Castiglione's conclusion in his report of February 18, 2003 that given Mr. Amato's education, training and experience, Mr. Amato was effectively unemployable." She then awarded a substantial special award because "Wawanesa continued to unreasonably withhold this benefit after October 24, 2000 in the face of cogent, reliable medical evidence that should have been considered." However, Dr. Castiglione's report could not have been reasonably considered by Wawanesa, having been completed six days before the start of the hearing. In light of the weight the arbitrator placed upon the report, and considering that she had ruled she was not going to rely on it, I find that there should be no special award on the benefits owed after June 6, 2002. Instead of 166 weeks, the special award shall be based on the 84 weeks from the date of termination to June 6, 2002. That represents approximately half of the outstanding benefits, so the special award will be reduced by at least that much.

I find that the arbitrator failed to consider the last steps for calculating the special award, as set out in Persofsky:

5. Consider all relevant factors . . . to determine an appropriate lump sum special award, not a percentage, that responds to the facts of the case and bears a reasonable relationship to other special awards, and does not exceed the maximum.

6. Provide reasons for concluding that the special award is payable, and for the amount of the award.

7. In the order, express the special award as a specific, lump sum amount. No interest is payable on this amount, except as part of the enforcement process.

I agree with the Director, who in Persofsky held that step 5 of the special award analysis requires consideration of rationality and proportionality. I will focus in particular upon proportionality: "Proportionality refers to the need to ensure that the consequences imposed on the insurer are rationally related to the misconduct at issue."

The award should be proportionate to the blameworthiness of the insurer's conduct and to the harm or potential harm directed at the insured person. In that regard, the arbitrator particularly relied on a paragraph from Dr. C.M. Vigna's psychological assessment of November 1, 2002, and Mr. Amato's withdrawal from his RRSPs in 2001:

On November 1, 2002, Mr. Amato had a psychological assessment with Dr. Vigna. In his report of January 9, 2003, Dr. Vigna recorded that "Mr. Amato described his present mood as somewhat down. He attributed this to financial worries. He reported that his wife has not previously worked outside of the home, and that he was the lone bread-winner. He is concerned about using up their savings, and then needing to manage. At times, he has urges to cry, and at times he does cry. . . ."

I find that Wawanesa's conduct in terminating Mr. Amato's benefits and continuing to withhold the benefits was not only unreasonable but additionally contributed to the exacerbation and deterioration of Mr. Amato's health. This is supported in Dr. Vigna's report of January 9, 2003 wherein he states that Mr. Amato's mood is down, because of financial worries and his concern about his savings and needing to manage.

The post accident tax return shows that in 2001 Mr. Amato had to withdraw almost $32,000 from his RRSP savings. It also showed that he could not afford to pay the full taxes of $2,688.49 owing and asked to be billed on the installment plan for a partial payment. Clearly, due to Wawanesa's withholding benefits, Mr. Amato suffered financial hardship that ultimately impacted on his mental health.

However, these factors do not apply to the delayed payment, since they all occurred after payment was made. For the reasons discussed above, the delayed payment should only amount to a small proportion of the total special award.

Thus, the most substantial portion of the special award should derive from the withheld payments. Withheld payments will generally cause a certain amount of financial distress. However, Wawanesa submits that the arbitrator overemphasized the mental distress. Wawanesa submits that Dr. Vigna's psychological assessment has to be seen in context. It submits that it is the only evidence that Mr. Amato suffered mentally because of financial hardship and that Mr. Amato and his family did not testify about any financial hardship or its effect on him over the several days they appeared before the arbitrator. Similarly, it submits that the family doctor, Dr. Castiglione, did not mention this mental distress in his reports or in his testimony.

However, Dr. Vigna's assessment is still evidence before the arbitrator about mental distress. On the other hand, I note that the hearing started on February 24, 2003, and Dr. Vigna's report is dated January 9, 2003, or less than seven weeks before the hearing. His report appears to be the first notice to Wawanesa that Mr. Amato was suffering mentally due to financial hardship. The fact that Wawanesa was advised so late in the process of Mr. Amato's mental distress due to money worries should have served as a mitigating factor, especially in light of the arbitrator ordering a special award on the basis of a failure to reconsider.

The award should be proportionate to the vulnerability of the insured person. Although the arbitrator referred to Mr. Amato's withdrawal of funds from his RRSP, she did not refer to his testimony that he withdrew the funds at least in part to finance a trip to Italy and to pay for a car. These facts suggest a lesser vulnerability on Mr. Amato's behalf than that implied in the arbitrator's recitation.

Wawanesa submits that an additional mitigating factor is that Mr. Amato did not seek a disability DAC after being advised of his termination. However, Wawanesa terminated Mr. Amato's benefits retroactively; by the time he learned his benefits had been terminated, three months had already passed from the termination point. Within four months, he sought mediation.

Given Wawanesa's own actions in this case, and the reasonably prompt action by Mr. Amato in seeking redress through the dispute resolution system, I do not believe the arbitrator erred in law in not considering this as a mitigating factor.

Wawanesa submits that the arbitrator failed to consider awards in other cases. It refers to the reference in Persofsky to an average range of $5,000 to $8,000. However, that case is now several years old. Also, it would be more helpful if the insurer provided cases where special awards were ordered in similar circumstances. I do not find the arbitrator erred in law in not referring to that figure from Persofsky, which is a general figure based on many different special awards.

In conclusion, the arbitrator failed to fashion a proportional award by failing to consider the mitigating factors. Instead, she focused on the insurer's failure to reconsider, but, especially in setting a substantial award for the post-104 week benefits, she relied on reports that the insurer had little or no time to consider. The arbitrator essentially was awarding a special award because the insurer was wrong, which is not the test. Mr. Amato is entitled to a special award, and insurers should be deterred from failing to reconsider their positions in light of further medical evidence, especially where the evidence they are relying on is ambiguous. However, the award has to be reduced at least by half to reflect my finding that it should not have applied to the post-104 week period. There should be a further reduction to take account of the failure to consider the proportionality of the award, especially with respect to the delayed payment. I find that the need for deterrence is amply met by a reduced but still substantial award of $10,000. As Wawanesa already paid $10,000 in February 2004 as a result of the Director's partial stay order, no further amount remains to be paid.

IV. EXPENSES

If the parties are unable to agree on appeal expenses, I may be contacted in accordance with Rule 79 of the Dispute Resolution Practice Code.

October 3, 2005

David Evans Director’s Delegate

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2A SABS criterion for IRB claimants unemployed at the time of the accident is employment "for at least 26 weeks during the 52 weeks before the accident": s. 4.2.ii. Wawanesa also questioned Mr. Amato's desire to keep working, but the arbitrator found plausible his evidence of his intention to work after his early retirement.
3. 3A Functional Abilities Evaluation ("FAE") conducted at the same time concluded that, while Mr. Amato did not demonstrate the strength limits for a forklift operator, he did not maximize his effort. The arbitrator accepted the first proposition but rejected the second.
4. 4Arbitration Exhibit 3, Tab 16, p. 17. Emphasis in Dr. Deegan's original report.
5. 5See for instance Rule 39 of the Code, which requires that, to be introduced at a hearing, experts' reports must be served on the other party at least 30 days before the first day of the hearing.
6. 6It was not argued that the arbitrator had no power to order a special award for benefits that had been paid even before the commencement of any dispute resolution proceedings.
7. 7The arbitrator noted that a Medical Rehabilitation DAC on October 1, 2001 recommended that Mr. Amato receive psychological treatment to help him develop pain coping strategies.
8. 8Persofsky and Liberty Mutual Insurance Company (FSCO P00-0004, January 31, 2003)
9. 9The insurer is not required to pay an income replacement benefit for any period longer than 104 weeks of disability, unless, as a result of the accident, the insured person is suffering a complete inability to engage in any employment for which he or she is reasonably suited by education, training or experience: SABS-1996, s. 5(2)(b).
10. 10See Rule 39 of the Code, 4th edition.