Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 37

Appeal P04-00025

OFFICE OF THE DIRECTOR OF ARBITRATIONS

JEVCO INSURANCE COMPANY Appellant

and

ROBERT LACROIX Respondent

Before: David Evans

Representatives: Jamie Pollack for Jevco David J. Gillespie for Mr. Lacroix

Hearing Date: December 14, 2004

APPEAL ORDER

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

The appeal is allowed in part. Paragraph 4 of the Arbitrator's decision of June 16, 2004 is revoked and replaced with the following order:
1. Mr. Lacroix's post-accident employee benefits are a deductible collateral benefit.
With respect to paragraph 1, the matter is referred back to the Arbitrator to determine at what point the parties agreed to convert income replacement benefits to loss of earning capacity benefits, in order to determine the interest owing on the loss of earning capacity benefits.
Paragraphs 2 and 3 of the Arbitrator's decision of June 16, 2004 are confirmed.

March 23, 2005

David Evans Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal of the second of two decisions by the Arbitrator involving the quantum of benefits under the SABS–1994.¹ The benefits are payable because, as a result of a June 10, 1994 accident, Mr. Lacroix has not been able to return to his job as a General Motors of Canada utility welder.

II. BACKGROUND

In decision 1 (June 27, 2002), the Arbitrator found that Mr. Lacroix had zero residual earning capacity ("REC"). He also ruled on a number of calculations related to Mr. Lacroix's income replacement benefits ("IRBs") and loss of earning capacity benefits ("LECBs"). For instance, he held that Jevco is not entitled to use the income tables under section 82 of the Schedule to calculate Mr. Lacroix's net weekly income from employment; he determined the value of the employer's private pension contributions (these were included in calculating Mr. Lacroix's pre-accident income); he found that Mr. Lacroix's base pay for the four weeks preceding the accident was $4,459.68; and he held that Mr. Lacroix's disability pension benefits are not a deductible collateral benefit.

The parties were unable to agree on the precise amounts owing to Mr. Lacroix pursuant to these findings and returned before the Arbitrator. In decision 2 (June 16, 2004), the Arbitrator made further rulings on matters arising out of decision 1, and in some cases decided new issues. Jevco appeals only decision 2.

III. ANALYSIS

Jevco appeals aspects of the Arbitrator's calculation of both the pre- and post-accident periods.

A. Pre-accident Period

IRBs and LECBs are based on the insured person's pre-accident gross annual income ("GAI"). In decision 1, and consistent with Commission case law,² the parties agreed to include the employer's private pension contribution made on behalf of Mr. Lacroix in the calculation of his GAI. However, the parties disagreed as to the value of that contribution to include in the GAI calculation. The Arbitrator found that the value should be only 2.97 percent of Mr. Lacroix's annual wages, not the 11.4 percent sought by Mr. Lacroix.³

In decision 2, the Arbitrator was asked to determine whether that contribution was taxable. Pursuant to s. 81(1), the calculation of an insured's net weekly income from employment involves a deduction from the GAI of the income tax payable on it. If a source of income such as the employer's pension contribution is taxable, that reduces the net weekly income — and the IRBs and LECBs. Mr. Lacroix submitted that, while the employer's pension contribution formed part of his GAI, it was not taxable.

The Arbitrator found no documents suggesting that the pension contributions were taxable at the time of the accident. He cited Jevco's accountant, who agreed that

an employee would not have to report the employer's pension contributions in his or her annual tax returns, but stated that the employee would have to include them in his or her income when the pension was received. . . . [He] maintained that, even though tax is only payable when the pension is received, since the value of the employer's pension contributions is included in an insured's gross annual income for the purpose of calculating statutory accident benefits, the pension contributions should be treated as though they are taxable now.⁴

The Arbitrator rejected this proposition. He noted that s. 81(1) indicates that a person's net weekly income from employment is calculated, in part, by deducting from the person's gross annual income from employment the income tax "payable" on that income. Although he did not specifically say so, the Arbitrator's implication is that, since no income tax was payable on the employer's pension contributions, there should be no deduction for an imputed income tax on those contributions. I agree.

On appeal, Jevco argues that the Arbitrator effectively allowed Mr. Lacroix to treat the pension contributions as tax-free. Indeed, income tax legislation makes them tax-free. Accordingly, the Arbitrator committed no error in so treating them. Jevco's argument is essentially circular: since tax-free benefits are included in pre-accident income, they are taxable. Jevco's argument goes against the provisions of s. 81(1) and tries to circumvent the consistent case law at the Commission, as set out in Howden:

There have been a number of arbitration decisions in which it has been held that payments in respect of the relevant period made by an employer for the benefit of an employee for the purposes of paying for employment benefits such as under a group insurance plan or pension plan can be treated as part of the employee's income from employment. The taxable or non taxable status of the payments has not been found to be determinative. . . . In De Frias v. Lumbermens Casualty Co., [2000] O.J. No. 603, also under SABS-1994, the issue whether employment benefits were income was ultimately conceded, leaving the judge to sort out the treatment of employment benefits continuing after the accident.⁵ [Emphasis added.]

Jevco relies on the arbitration decision in Thorning,⁶ submitting that the Arbitrator erred by "only considering the chronological dates upon which pension contributions were made and what chronological dates tax payments were due." In Thorning, the applicant discovered during the hearing that she was entitled to a retroactive payment from her employer. The Arbitrator held that this payment should be included in her pre-accident income. I fail to see how Thorning applies in this situation. I find that Jevco is confusing two different things — the pension contribution and the ultimate pension benefit. The retroactive payment in Thorning was not a pension benefit but simply a delayed payment of pre-accident earnings.

I find no error in the Arbitrator's ruling on this point.

B. Post-accident Period

With respect to the post-accident period, Jevco sought to maximize deductions for collateral benefits (s. 75): pursuant to s. 75(1)1 of the SABS, an insurer is entitled to deduct from various weekly benefits (including IRBs and LECBs) net payments for loss of income that have been received by the insured person as a result of the accident under any income continuation plan.

(i) Deductibility of post-accident employee benefits

Jevco sought to have certain payments made by GM Canada post-accident treated as collateral benefits deductible from the LECBs on the basis that they were payments under an income continuation plan.

Although the parties and the accountants called these payments "employee benefits," they were in fact employer's contributions: GM Canada paid contributions towards various employee benefit plans both before and after the accident, namely an extended health coverage plan and miscellaneous other plans (a legal plan and a bursary scholarship programme). Mr. Lacroix's accountant, Ian Wollach, referred to these contributions as the "employer cost of employee benefits," and they were calculated as a percentage of annual salary⁷: extended health care benefits represented 5.2 percent and other benefits represented 1.27 percent of the pre-accident income of $57,976.

Part of the confusion around this matter is Mr. Wollach's changing position on how to treat these contributions. In his report of October 31, 2002,⁸ he thought that the miscellaneous contribution of 1.27 percent stopped after the accident and excluded the employer cost of extended health care benefits of 5.2 percent from both the pre- and post-accident calculations. Therefore, he made no deductions for those contributions post-accident. However, in his report of October 30, 2003,⁹ he changed his position: he included the employer cost of extended health care benefits of 5.2 percent in the pre-accident GAI calculation,¹⁰ and recognized that the miscellaneous contribution of 1.27 percent continued after the accident. He considered the post-accident contributions to be earned income and not deductible collateral benefits. Although post-accident "earned income" is deductible from IRBs,¹¹ it is not deductible from LECBs. Therefore, Mr. Wollach deducted the value of the contributions from the IRBs but, starting at 104 weeks post-accident, not from the LECBs.

Before the Arbitrator, Mr. Lacroix emphasized that GM Canada made these contributions before and after the accident under his Collective Agreement on the basis that he was still a GM Canada employee. Jevco claimed that the continuing payments should be treated as deductible collateral benefits under s. 75(1)1 as net payments for loss of income received as a result of the accident under an income continuation plan. It alleged that these payments were likely related to his accident and, therefore, deductible. It also submitted that, given the Arbitrator's finding in decision 1 that Mr. Lacroix's REC was zero, Mr. Lacroix could not argue that these payments constituted non-deductible employment income; otherwise, Mr. Lacroix was receiving double recovery.

The Arbitrator found that these were not payments for loss of income as a result of the accident. He made two essential points: first, that Mr. Lacroix maintained his status as an employee after the accident, so presumably the contributions represented income and not income replacement, and second, as I understand it, that a person can receive full loss of earning capacity benefits and receive post-accident income:

While some of the health care benefits Mr. Lacroix has received since the accident may be related to the accident, I see no basis for the conclusion that they are for the loss of income or are payable, as a general matter, as a result of the accident. I accept Mr. Lacroix's undisputed position that these benefits are payable under the collective agreement by virtue of his previous and continuing status as an employee of General Motors. While Mr. Lacroix's continued health care coverage may, in some measure, be related to his receipt of LTD benefits, I find that the primary reason for his receipt of these benefits, as well as the legal plan and bursary programme, is his pre- and post-accident status as an employee of General Motors. Finally, section 75(1)1 of the Schedule only permits the deduction of certain benefits, regardless of the extent of a person's residual earning capacity. Given the clear language of the provision, the issue is the nature of the benefits received, not the degree to which the insured can earn income following an accident. I, therefore, do not find it relevant that this may result in a person receiving full loss of earning capacity benefits, as well as the value of certain employment benefits.¹²

The use of the word "benefits" to refer to the contributions is confusing. To recapitulate, Mr. Lacroix's employer was paying contributions to preserve his membership in several plans. These contributions were included in his pre-accident income, so the contributions formed part of his pre-accident income. By the time he received LECBs,¹³ he was no longer working, but GM Canada continued making these contributions on his behalf. This confusion about the nature of these payments affects Mr. Lacroix's own counsel, who writes the following in paragraph 40 of his appeal submissions:

The Respondent submits that the arbitrator was correct in his approach and conclusion that health and other benefits are not deductible from an LEC benefit and in the alternative if the Appellant were successful on this issue there was no evidence at either arbitration hearing as to the value of those benefits and further if those bene-fits are found to be a deductible collateral benefits correspondingly they should be included in the Respondent's pre-accident income.

The amounts in question were not health and other benefits but contributions made by GM Canada towards various plans. There was evidence as to the value of these contributions, as set out above. And, indeed, these payments were included in Mr. Lacroix's pre-accident income.

In its appeal, Jevco submits that the Arbitrator erred in law by implicitly characterizing these payments made after the accident as earned income. It submits that the Arbitrator erred in not considering or applying the definition of "employment" in s. 5 of the SABS. It submits that the Arbitrator incorrectly characterized the nature of the payments "as the evidence was that the Respondent was only entitled to these benefits due to his continued receipt of long-term disability benefits as a result of the accident." Jevco relies on De Frias, already noted above in the citation from Howden. In that case, Brockenshire J. determined that similar payments were not post-accident income from employment (or "earned income," as Mr. Wollach called it) but rather were part of an income continuation plan.

In De Frias, the plaintiff received certain benefits (including payments made for certain benefit plans, as in this case) before the accident under the Collective Agreement. The insurer conceded that pre-accident income included these payments, which then continued after the accident. The insurer submitted that the post-accident payments should be deducted under s. 10(3) as post-accident income. Brockenshire J. rejected this:

I think clearly, if there were benefits that continued after the accident, they did not arise from employment (as defined in Section 5 of the Regulation) that was subsequent to the accident. The intervening definition in Section 10(3), in my view, prevents the simplistic approach that what was income before the accident is equally income thereafter.¹⁴

For the purposes of the SABS, s. 5 provides that "a person is employed if, for salary, wages, other remuneration or profit, the person is engaged in employment, including self-employment, or is the holder of an office, and 'employment' has a corresponding meaning." In turn, s. 10(3) provides for the deduction from IRBs of "a percentage of the net income received by the insured person in respect of any employment subsequent to the accident." Brockenshire J. appears to be saying that, since the applicant was no longer able to work after the accident he was not engaged in employment, so the continued post-accident payments made on his behalf by his employer were not income "in respect of any employment subsequent to the accident." Those payments were therefore not deductible from IRBs.

The insurer in De Frias then submitted that the continued post-accident payments by the employer should be considered as deductible collateral benefits. Brockenshire J. first described how these payments arose:

I understood from Mr. Brown's argument, raised for Lumbermens, that the plaintiff was receiving or had received in addition to disability payments, a continuation of benefits presumably such as dental and drug plan benefits. The argument was that the value of these should be deducted as being amounts received under an income continuation plan. It was conceded that the value of such benefits [payments], or at least of the taxable portion thereof would be treated as part of the gross income of the claimant, before the accident.¹⁵

Thus, as in this case, the plaintiff’s employer made payments towards certain plans, the value of those payments was included in his GAI, and the payments continued after the accident. Brockenshire J. then considered the nature of these payments:

I was not directed to any specific provisions under the Collective Agreement defining the limits on the continuation of such benefits. I assume, for the purpose of this decision, that these benefits are available to employees, and that a person not at work, but receiving short-term or long term benefits, retains the status of an employee under the Collective Agreement, so that the continuance of the benefits is tied directly to that status.¹⁶

Again, the situation is on all fours with that of Mr. Lacroix. The Arbitrator accepted Mr. Lacroix's position that the payments were made under the Collective Agreement by virtue of his previous and continuing status as an employee of GM Canada. However, Brockenshire J. reached a different conclusion on the effects of that employee status:

I conclude that the continuance [of] these benefits, per the terms of the Collective Agreement, would be . . . part of an income continuation plan for the sick or injured employee. The resulting deduction of their value after the accident is consistent with the inclusion of their value before the accident.¹⁷

According to Brockenshire J., therefore, a person can remain an employee after an accident, but if the employee is not working or "engaged in employment," continued payments that were part of pre-accident income are not post-accident income but rather a continuation of income: an income continuation plan. Brockenshire J. emphasized that point in the remainder of the paragraph, while referring to arbitral case law:

The result I reach is the same as that of the learned arbitrators in Prouse, Mouawad, and Crevier-Lamarche. However, for clarity, the result I reach is not that these benefits are income, but that they are part of an income continuation plan.¹⁸

Brockenshire J. emphasized the point in the last sentence because of an apparent conflict in the arbitral case law in dealing with the kinds of continued payments at issue here. In Mouawad, the Arbitrator considered the continued payments to be more in the nature of an income continuation plan, whereas in Crevier-Lamarche and Prouse the arbitrators suggested that the ongoing contributions were post-accident income. However, only in Mouawad did the arbitrator have to consider the point, and in the other two cases, the fact that the deductibility of the contributions depended on whether they were treated as income or as part of an income continuation plan was not discussed.

In Mouawad, the arbitrator had to consider, first, whether continued post-employment payments were part of income and, second, whether they should be deducted from post-accident benefits. On the first point, Mr. Mouawad had stopped working at a construction company, D. S. Construction, before the accident due to a work-related incident. Before the work incident, the company deducted from the applicant's salary a portion that was paid to his union towards certain benefits. The arbitrator concluded that the total hourly wage paid by D.S. Construction before the work accident, inclusive of the portion allocated for union benefit programs, was income from employment. However, the company continued to make those payments after the work accident. The evidence showed that the post-work payments made by the employer were intended to maintain health and welfare and pension coverages under the union benefit programs during periods of unemployment due to injury. The arbitrator concluded, with respect to the period before the motor vehicle accident, as follows:

On the facts before me, I am not satisfied that monies paid by D.S. Construction after the Applicant left work on July 25, 1991, are "income from his occupation or employment" which should be included in the calculation of gross weekly income under section 12(7).¹⁹ Rather, these payments are more in the nature of a benefit continuation program specifically designed to maintain benefit coverage during periods when the Applicant was not employed and was not receiving income from his labours.²⁰ [Emphasis in the original.]

The arbitrator then considered the effects of the ongoing contributions by D. S. Construction after the motor vehicle accident. First, as with IRBs under the SABS-1994, the insurer could deduct post-accident income.²¹ The arbitrator referred to her finding that the payments made after the work accident were not income, and wrote: "It therefore follows that these contributions are not deductible as 'income received or available from any occupation,'subsequent to the date of the car accident under section 15 of the Schedule."²² Consistent with this finding, she then held that the ongoing contributions were deductible as part of an income continuation plan.²³

This brings out a difference between the deductions for an income continuation plan under the 1990 and 1994 SABS. In the 1994 version, the deduction is only for "[n]et payments for loss of income that have been received by the insured person as a result of the accident under . . . any income continuation plan." [Emphasis added.] In Mouawad, the company made ongoing payments not as a result of the automobile accident but because of the work-related accident, yet due to the provisions of the SABS-1990, which did not require that the payments have been received as a result of the accident, they were deductible.

In Crevier-Lamarche, a SABS-1994 case, the employer also made contributions towards various plans. Unlike in Mouawad, the employer paid the contributions directly to the plans, and not through the union. The Arbitrator found that made no difference, and applied Mouawad to find that the contributions formed part of the applicant's pre-accident income. Then, the Arbitrator was advised that the contributions may have continued after the accident:

In submissions, it was suggested that Mme. Crevier-Lamarche continued in her status as an employee of the Ottawa General Hospital for some time after the accidents. If the employer continued to make payments on her behalf for the benefit package because of her status as an employee, such payments may be viewed as income from employment to Mme. Crevier-Lamarche. Thus, a percentage should be deducted from the recalculated weekly income replacement benefit payable to Mme. Crevier-Lamarche, pursuant to subsection 10(4) of the Schedule.²⁴

The last part of this passage was repeated by the Arbitrator in Prouse, who agreed with the approach, although the issue of post-accident benefit premiums was not expressly before her in that case.

However, what was not before the arbitrators in Crevier-Lamarche and Prouse was the effect of considering the post-accident contributions as income from employment: that is, they would be deductible only from IRBs and not LECBs. To return to the point made by Brockenshire J. in De Frias, the intervening definition in s. 10(3) suggests that what was income before the accident is not equally income thereafter. Subsection 10(3) refers to "employment subsequent to the accident," and s. 5 in turn states that "a person is employed if, for salary, wages, other remuneration or profit, the person is engaged in employment, including self-employment, or is the holder of an office, and 'employment' has a corresponding meaning."

Mr. Lacroix was not an office-holder,²⁵ so only if Mr. Lacroix was engaged in employment subsequent to the accident could the contributions be considered post-accident income. However, a main point from decision 1 was that Mr. Lacroix could not engage in any employment as he had no REC. He was not engaged in employment, so the contributions were not income. I agree with the arbitrator in Mouawad and with Brockenshire J. in De Frias on this point. In turn, I find the Arbitrator in this case misconstrued the nature of these payments.

I now return to the two essential points made by the Arbitrator. First, the Arbitrator considered Mr. Lacroix's continuing status as an employee to be decisive. I find the Arbitrator erred by not applying the definition of "employment" in the SABS. Although Mr. Lacroix apparently maintained his status as an "employee" for the purposes of the Collective Agreement, he was not "engaged in employment." The same applied in De Frias, where the plaintiff also retained the status of an employee under the Collective Agreement, but as Brockenshire J. noted, "if there were benefits that continued after the accident, they did not arise from employment (as defined in Section 5 of the Regulation) that was subsequent to the accident."²⁶ I find that the Arbitrator's emphasis on Mr. Lacroix's continued status as an employee under the Collective Agreement was misplaced. I find the Arbitrator should have considered the SABS definition of employment and not that of the Collective Agreement. Seen in that light, Mr. Lacroix's continued status as an employee was not determinative of the status of the post-accident contributions.

Second, the Arbitrator essentially decided that post-accident earned income is not a collateral benefit. Indeed, LECBs are based upon an assessment of post-accident earning capacity, and so theoretically should take into account income earned from employment subsequent to the accident. That is why Part VI of the SABS-1996, which deals with LECBs, has provisions for various situations, such as where a person who is engaged in post-accident employment becomes temporarily disabled²⁷ or suffers a permanent deterioration in impairment,²⁸ and also provides for mandatory reviews to allow adjustments based on changes in REC.²⁹ The contributions in this case would never be considered in these adjustments, since they do not relate to REC, but rather to pre-accident employment. However, since the contributions are not income from employment subsequent to the accident, they may fit within the criteria of a collateral benefit under s. 75(1)1. I find it difficult to conceive of a purer income continuation plan: the contributions were income before the accident, and then were continued after the accident, but were not income from employment subsequent to the accident. The Arbitrator wrote:

While Mr. Lacroix's continued health care coverage may, in some measure, be related to his receipt of LTD benefits, I find that the primary reason for his receipt of these benefits, as well as the legal plan and bursary programme, is his pre- and post-accident status as an employee of General Motors.

As already noted, the Arbitrator placed too much emphasis on Mr. Lacroix's status as an employee. That leaves the linkage to the receipt of LTD benefits, which puts this case on all fours with De Frias, where the contributions were available to employees not at work but receiving short-term or long-term benefits who retained the status of an employee under the Collective Agreement, so that the continuance of the benefits was tied directly to that status. I agree with the court's conclusion that the continuance of these benefits would be, together with the disability payments, part of an income continuation plan for the sick or injured employee: "The resulting deduction of their value after the accident is consistent with the inclusion of their value before the accident."³⁰ This dovetails with what Mr. Lacroix stated in his own submissions: "[I]f those benefits are found to be a deductible collateral benefit correspondingly they should be included in the Respondent's pre-accident income."

Accordingly, I find that Mr. Lacroix's post-accident employee benefits are a deductible collateral benefit pursuant to s. 75 of the Schedule.

(ii) Tax rate on deductible collateral benefits

Jevco sought to lower the tax rate on certain deductible collateral benefits.

Mr. Lacroix was laid off by GM Canada on November 17, 1995, because his accident-related limitations could not be accommodated. Mr. Lacroix received extended disability benefits commencing the next day. He then elected early retirement in order to access his pension. In decision 1, he accepted that, pursuant to s. 75 of the SABS, the long-term disability ("LTD") benefits paid by Clarica Life Insurance Company under the extended disability plan are a deductible collateral benefit. However, he submitted that, unlike the LTDs, the disability benefits he receives under his pension plan are not deductible. The Arbitrator found that the disability pension benefits Mr. Lacroix receives are more in the nature of typical pension benefits than payments for the loss of income under an income continuation plan. Therefore, they were not deductible.

In decision 2, the Arbitrator had to decide an issue Jevco raised with respect to the taxation of the LTD benefits; as just noted, the parties agreed that the LTDs were deductible as collateral benefits.

Jevco sought to minimize the effect of taxation on the LTDs by treating them as if they were his only post-accident income. The LTDs would be assessed at a lower tax rate than if combined with the pension benefits. Mr. Lacroix would then be deemed to receive more LTDs, increasing the LECB deduction and reducing the amount payable. Taking 2001 as an example, Jevco's accountant calculated the tax rate on the LTDs, treated separately, as 5.012 percent, whereas Mr. Lacroix's accountant calculated the tax rate on the LTDs, treated as combined with the pension benefits, as 16 percent.

The Arbitrator found that the cases cited by the parties did not speak directly to the proper tax treatment of Mr. Lacroix's LTD benefits.³¹ He held that the guiding principle is that the deduction should reflect the monies actually received by Mr. Lacroix. He held that, in fairness, the tax on the LTDs should be based on Mr. Lacroix's total post-accident income and not as if he received only the LTDs as income. He held this was consistent with s. 75(1)1 of the SABS, which provides that an insurer "may deduct ... [n]et payments for loss of income that have been received by the insured person as a result of the accident ... under any income continuation plan." The Arbitrator emphasized the word "received."

Jevco submits that the Arbitrator erred in emphasizing the word "received" and in relying on Bapoo, as it was not a SABS-1994 case. However, the Arbitrator only relied on Bapoo for the general principle that the tax treatment should reflect what Mr. Lacroix actually received. The Court of Appeal considered the dictionary definition of "receive" to include "accept delivery of," "take or accept into one's hands or one's possession," "be provided with or given," "acquire" and " get," and wrote:

Applying this meaning, Bapoo "received" only the net disability income payments because, as commonly occurs, the disability carrier, Canada Life, withheld the income tax payable and remitted it to Revenue Canada. Because Canada Life withheld the tax payable, Bapoo took the net payments into his hands or his possession. That is all he got.

The Court then considered the purposes of the SABS and decided that "received" should reflect net disability income (a principle incorporated into s. 75(1)1 of the SABS-1994). It did this despite recognizing that, in another context, the word "received" could be interpreted more broadly to include amounts withheld for income tax. In light of the analysis in Bapoo and the reasons for which the Arbitrator referred to it, I do not find he placed too much emphasis on the word "received."

An additional submission of Jevco is that the Arbitrator failed to apply ss. 75(8) and (9). Subsection 75(8) sets out the protocol for converting gross collateral benefits to net, by setting out that "net payments for loss of income" are the gross payments less "the income tax payable" on them. Subsection 75(9) allows an insurer that has so elected to rely on a Commission table to determine the net payments. In particular, Jevco relied on the Neshkewe³² decision to submit that "the income tax payable" does not, in its words, "merely refer to the numerical values found on an insured's income tax return."

The plaintiff in Neshkewe was a registered Indian whose pre-accident income was not taxable. The insurer had elected to make the calculation of the insured's income pursuant to a Commission table, as allowed by s. 82(1) of the SABS-1996 if an insurer has made the appropriate election. The court upheld the insurer's decision to treat the income as if it were taxable. However, all the Neshkewe decision means is that, in certain circumstances, the tax calculation may have no bearing on the actual tax paid. That does not detract from the principle set out by the Arbitrator that tax treatment should reflect what Mr. Lacroix actually received, absent a finding that Jevco was entitled to rely on s. 75(9).

I find no error in the Arbitrator's approach, which is more realistic and places no inappropriate weight on the meaning of "received."

C. Interest

If an insurer fails to remit outstanding LECBs at least once every two weeks, they become overdue, and interest is payable on them.³³

The Arbitrator found that Mr. Lacroix's LECBs became overdue at the two-year mark and that Jevco was required to pay interest from that time.

The law in this area has recently been examined by the Court of Appeal. It interpreted the interest provisions of the SABS-1994 in dealing with loss of earning capacity benefits in Attavar,³⁴ and weekly caregiver benefits in Mercier.³⁵ These outstanding weekly benefits became overdue when they were not mailed or delivered at least once every second week. The court contrasted this simple rule with the explicit rules governing medical benefits. The fundamental principle expressed in Mercier was that "absent express language that a payment is not overdue," interest applies. As the Director's Delegate held in Cole,³⁶ "... interest is mandatory, compensatory, and flows from late payment of overdue benefits. There is no need for a finding of insurer misconduct." However, Laskin J.A. in Attavar quoted with apparent approval the trial judge's comment that "failing unusual circumstances brought on by the complexity of the action and/or the applicant's own behaviour 'it is the insurer not the insured who must bear the consequences of a decision not to pay benefits that are found later to be owing.'"³⁷

Jevco argues that the unusual circumstances relating to Mr. Lacroix's conduct or the complexity of the action mean that it should not be liable for interest until a later date. However, in decision 1, the Arbitrator held that interest was payable, and that order was not appealed. And, as noted, absent express language that a payment is not overdue, interest applies. With respect to Mr. Lacroix's conduct, he consistently pursued his case, unlike the applicant in Cole. There were also no findings in decision 1 that Mr. Lacroix was not co-operating with Jevco.

With respect to complexity, that is a matter largely at the discretion of the Arbitrator, keeping in mind the principle from Sebastian³⁸ that the insurer bears the consequences of deciding not to pay benefits. Furthermore, the Arbitrator found that even if Jevco's information was limited at some points,

this was only one aspect of Jevco's LECB determination. Jevco made certain determinations on its own, namely, that it had the right to employ the income tables under section 82 of the Schedule and could deduct Mr. Lacroix's disability pension benefits. I found that Jevco erred on these points.³⁹

Therefore, he concluded, Jevco's LECB offer to Mr. Lacroix did not rest simply on limited financial information.

I find that the Arbitrator properly refused to exercise his discretion to delay the date from which LECBs were overdue.

However, there is one aspect of the Arbitrator's decision that remains to be determined. The problem is that in decision 1, the Arbitrator wrote that Jevco paid Mr. Lacroix IRBs "until the parties agreed to commute his IRBs to LECBs, pursuant to section 24 of the Schedule. Jevco ... has been paying Mr. Lacroix LECBs since February 17, 1998." In decision 2, he found that interest was owing from June 10, 1996, meaning that LECBs were overdue at that point. There is a contradiction between the two decisions. I do not have the evidence to determine at what point the parties agreed to convert the IRBs to LECBs. Accordingly, the matter will be referred back to the Arbitrator to determine this point

IV. EXPENSES

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