Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 131

Appeal P05-00024

Appellant

and

Respondent

Before:

Nancy Makepeace

Representatives:

Jamie Pollack for Coachman

Howard R. Blitstein for Mrs. Hejnowicz

Hearing Date:

February 8, 2006

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

The appeal is dismissed, and the arbitrator's decision, dated August 4, 2005, is confirmed.
If the parties are unable to agree on appeal expenses, a hearing may be requested in accordance with Rule 79 of the Dispute Resolution Practice Code.

August 3, 2006

Nancy Makepeace Director's Delegate

Date

This appeal concerns the interaction of the interest and med-rehab¹ DAC provisions of the SABS-1996.² It requires me to revisit four concurrently-released appeal decisions in which Director's Delegate McMahon held that where s. 38(14)(b) allows an insurer to refuse benefits based on a "negative" med-rehab DAC report,³ interest under s. 46(2) does not begin to accrue until the date of the arbitrator's order.⁴

The arbitrator reached a different conclusion in the decision under appeal. Coachman appeals. It submits that the arbitrator was bound by the appeal decisions, which were correct in any event.

I find that the arbitrator erred in failing to follow the appeal decisions on a directly applicable question of law. However, I am not so bound, and I am unable to concur with the earlier appeal decisions.

The background facts are undisputed and easily stated.

The only issues in dispute in the arbitration were two treatment plans, dated May 17, 2000 ($3,360) and March 22, 2003 ($1,830), for massage therapy claimed in relation to Ms. Hejnowicz' automobile accident of January 3, 1999. In her decision of March 19, 2004 (the first decision), the arbitrator concluded that both claims were payable as medical benefits under s. 14 of the SABS-1996. She ordered Coachman to pay the $5,190 claimed plus "interest for the overdue payment of benefits pursuant to subsection 46(2) of the [SABS-1996]." She invited the parties to contact her if they were unable to agree on arbitration expenses.

The principal amounts owing were paid, and the parties were able to resolve the expenses issue. There was no dispute about interest payable on the second treatment plan (March 22, 2003), but Coachman submitted that interest on the first treatment plan (May 17, 2000) commenced on the date of the arbitrator's first decision (March 19, 2004). In the decision under appeal, the arbitrator rejected that argument and concluded that interest began to accrue 14 days after Coachman received the first treatment plan.⁵

A. The issue: interest on benefits owed after a negative med-rehab DAC

Section 46 of the SABS-1996 requires an insurer to pay interest on overdue accident benefits:

(1) 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.

(2) 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.

Similar provisions were found in the SABS-1990 and the SABS-1994.⁶

The leading cases on SABS interest are Sebastian and Canadian Surety Company, (FSCO P96–00032, July 28, 1998) and Bajic and Pafco Insurance Company, (FSCO P00-00050, June 5, 2001). I reviewed the established principles in a recent appeal decision, stating that interest:

is mandatory, compensatory, and flows from late payment of overdue benefits. There is no need for a finding of insurer misconduct. Accordingly, upon a finding of entitlement, interest flows even though the insurer had legitimate reasons for questioning the claim or requiring more information.⁷

In other words, the SABS put the risks of delayed payment on insurers. However, payment is not "overdue" until the claimant has provided the required information in support of the claim:

Though interest does not accrue until a payment becomes "overdue," this does not require the claim to be established to an insurer's or an arbitrator's satisfaction. Only where "the insured person acts in a manner that effectively prevents the insurer from assessing his or her entitlement," will interest accrual be delayed.⁸

Despite the high interest rate mandated under the SABS, adjudicators have consistently rejected attempts to characterize SABS interest as punitive, "designed to punish insurers for reprehensible behaviour." Instead, as Director’s Delegate Naylor said in Sebastian, "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 or their day-to-day financial support."⁹ Delegate McMahon approved this principle in the appeal decisions, pointing out that he had made similar comments in Urquhart a few months earlier.¹⁰

Coachman’s appeal does not challenge these principles, at least not directly. It concerns a narrow issue: when does a medical or rehabilitation benefit become overdue in the face of a negative DAC report? This has proven a difficult question for at least four reasons. First, there are different rules in the SABS for payment of weekly benefits, which are intended to provide an ongoing income stream while the claimant qualifies for the benefit, and med-rehab benefits, which pay for specific accident-related expenses on a claim by claim basis. Second, each successive amendment of the SABS has added new steps to the claims adjustment procedure, complicating the question when payment becomes overdue. Third, the SABS requires that some benefits be paid pending resolution of any dispute, and uses similar language ("the insurer is required to pay") in describing an insurer's procedural obligation to pay benefits on a "pending dispute" basis and its substantive or ultimate obligation to pay benefits to which the claimant is entitled. Finally, questions about the role of the DACs have influenced the analysis of the interest rules.

In the appeal decisions, Delegate McMahon reasoned that because an insurer is not required to pay the benefit, subject to dispute resolution, after a negative DAC, it follows that the payment is not "overdue" unless an arbitrator or judge concludes the claimed treatment or rehabilitation was reasonable and necessary as a result of the accident.

B. Is this case distinguishable from the appeal decisions?

Coachman submits that the arbitrator was bound by the appeal decisions and that her failure to apply them was an error in law. Coachman relies on Vo and Maplex General Insurance Company and Insurance Bureau of Canada, (OIC P-002777, December 12, 1997), in which the former Director of Arbitrations stated that "decisions of the Director, to the extent they cannot be distinguished,¹¹ are binding on the arbitrators."¹² Coachman submits that the distinction drawn by the arbitrator has no validity in law. According to Coachman, the arbitrator could have stated her disagreement with the appeal decisions while applying them in this case, but she did not have the option of making an order inconsistent with them.

Ms. Hejnowicz argued that her case was distinguishable from the appeal decisions, which "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." The arbitrator agreed:

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.¹³

I am not persuaded this case can be distinguished from the appeal decisions. The issue in the appeal decisions was whether interest commences after a negative DAC report in light of an arbitrator's finding that the insurer is required to pay. Inevitably, in that situation, the arbitrator will have rejected the DAC report and preferred the evidence led by the claimant. Delegate McMahon did not consider the validity or persuasiveness of any particular DAC report because this was irrelevant to his reasoning. Rather, the appeal decisions turned on his reading of the SABS.

Finally, the arbitrator’s attempt to distinguish the appeal decisions is inconsistent with her own reaffirmation of the principle that SABS interest is compensatory, not punitive. If the appeal decisions fly in the face of that principle, as stated by the arbitrator, that may suggest they are wrong, but it does not suggest they are distinguishable. I agree with Coachman that unless every case is distinguishable from every other, there was no valid basis for distinguishing this case from the appeal decisions.

C. Stare Decisis

Though the arbitrator was bound by the appeal decisions, I am not. Again, Vo is the leading case.¹⁴ Director Sachs addressed the issue in the following terms:

Just as arbitrators are not bound by each other’s decisions, I am not bound by my own or a Director’s Delegate’s decision on the same issue. The interpretation and application of the formula in section 12 of the Schedule remains a live issue at the appeal level when submitted for decision. Given my conclusion that Director’s decisions are binding on arbitrators, it is patent that departure at the appeal level from a previous interpretation of a statutory or regulatory provision should only occur in clear and cogent circumstances.¹⁵

Director Sachs concluded that the prerequisites for departing from an earlier appeal decision were satisfied in the case before her: the statutory language was ambiguous, yet subsequent authorities had adopted the arbitrator’s view in the decision under appeal:

Since this case was first arbitrated and the appeal filed, numerous arbitrations and two court cases [footnote omitted] have considered the interpretation of the section. It is fair to say that generally Maplex' argument is accepted in the majority of decisions, but for different reasons. A refinement in the interpretation, favouring an individualized analysis of the circumstances of a claimant’s employment history has also been considered, but largely abandoned.

As these approaches show, there is little unanimity on the section’s clarity. That three different interpretations of the section have commended themselves to adjudicators points to an inherent ambiguity. I also cannot find the section has a clear and obvious meaning on its face. . . .¹⁶

The Director went on to conclude that the arbitrator’s interpretation was the correct one, although it disagreed with appellate authority at that time.¹⁷

For similar reasons, in this case, I am persuaded the appeal decisions deserve a second look.

D. Evolution of the Law

When the appeal decisions were released, the issue was relatively novel. Apart from an unreported letter decision, the first arbitration decision on point was Glinka and Dufferin Mutual Insurance Company, (FSCO A99-000849, November 21, 2000), in which Arbitrator Joachim dealt with the issue in one paragraph, stating that where the med-rehab DAC is negative, benefits are not payable until so ordered by an adjudicator, and therefore interest commences on the date of the decision. Until the appeal decisions, this was the only FSCO decision to reach this conclusion.

In Khaledi and Allstate Insurance Company, (FSCO A99-001072, September 27, 2001), Arbitrator Novick, after considering the recently released Bajic appeal decision, made the following statement:

The application of subsection 46(1), namely that a benefit is overdue if the insurer fails to pay within the time required, is not obvious in this scenario. On the one hand, the provision permits the insurer not to pay the expense claimed if the DAC assessors opine that it is not reasonable. On the other hand, that right is clearly subject to the dispute being determined at arbitration. In my view, 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 is subsequently determined by an arbitrator to be reasonable, it is implicit that it was reasonable all along. 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.¹⁸

In Langdon and Pafco Insurance Company Limited, (FSCO A00-000065, June 7, 2002), Arbitrator Alves preferred the reasoning in Khaledi to that in Glinka. Finally, Arbitrator Sapin came to the same conclusion in Amoa-Williams and Allstate Insurance Company, (FSCO A97-001864, October 24, 2001). After quoting the leading passage from Bajic, she noted Delegate Naylor's statement, in Sebastian, that "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." She concluded: "I find this general principle applies equally where an insurer relies on a DAC opinion that medical rehabilitation benefits are not reasonable or necessary and stops paying benefits as a result."¹⁹

These were the four arbitration orders dealt with by the concurrently released appeal decisions. By the time of the appeal hearing in April 2002, the matter had also been considered by two judges of the Ontario Superior Court and by the Court of Appeal.

In Faraj v. Prudential of America General Insurance Co., [1999] O.J. No. 4574, the insurer had terminated weekly benefits in accordance with a negative DAC report, which was further supported by a subsequent insurer examination. However, when the IE assessor changed his opinion based on new information, the insurer reinstated benefits. After determining the amount payable, Justice Thompson considered when payment was "overdue" under s. 68 of the SABS-1994. He concluded the plaintiff was entitled to pre-judgement interest under the Courts of Justice Act between the date of termination and date of the IE doctor's opinion supporting the claim, and SABS interest therafter.

Justice Quinn rejected this approach in Mercier, another SABS-1994 decision, stating:

Where it has been adjudged that benefits have been withheld improperly from a plaintiff, I can see no reason in law or logic why those benefits should not attract interest. In my view, the court in Faraj put too sharp a point on the meaning of "overdue." A finding that an amount is overdue is a finding that it was always overdue.²⁰

Further support for this reading of "overdue" came from the weekly benefit payment rules:

. . . pursuant to s. 62(2), the defendant is obliged to "mail or deliver weekly benefits . . . to the insured at least once every second week while the insured person remains entitled to receive the benefits." And, under s. 62(4), an amount so payable " is overdue if the insurer fails to comply with subsection . . . (2)."²¹

In Attavar and Allstate Insurance Company of Canada, 2003 CanLII 7430 (ON CA), [2003] O.J. No. 213, 63 O.R. (3rd) 199, the Court of Appeal (Laskin J.A., writing also for Simmons and Gillese JJ.A.), upheld the finding at trial level that interest is payable on the loss of earning capacity benefits ordered from 14 days after the insurer received the application, though the REC DAC report supported the insurer’s position that no benefits were payable because the plaintiff’s residual earning capacity exceeded her pre-accident earning capacity. The decision turned on the wording of s. 62 of the SABS-1994 and the policy underlying s. 68.

With respect to the wording of the payment provisions, the reasoning of the Court relied on the initial obligation to pay and the absence of any provision stating that no interest is owed if the insurer is entitled to rely on a negative DAC:

46Under s. 62(2), an insurer is required to mail or deliver an LECB at least once every second week while the insured person remains entitled to the benefit. Under s. 62(4), an amount payable under Part VI (Loss of Earning Capacity Benefits) of the Schedule is overdue if the insurer fails to comply with s. 62(2). Thus, under these provisions, Ms. Attavar was entitled to the amount of the LECB found owing by the trial judge by the second week after her weekly education benefit ended. Any amounts not paid by the insurer from that date were overdue and thus attracted interest under s. 68.

47Had the drafters of the Schedule intended that insurers avoid s. 68 by paying the amount recommended by the REC/DAC assessment, they could have said so. For example, by contrast, s. 62(5) of the Schedule expressly states that a payment is not overdue where an insured person fails to furnish a health practitioner's certificate in response to a request for one from an insurer. Section 62 does not contain a similar provision saying a payment is not overdue if the insurer pays the amount recommended in a REC/DAC.

48Moreover, I do not consider as sound the analogy drawn by Allstate between an interim order and a REC/DAC recommendation. Certainly, as the Director's Delegate said in M.D. v. Halifax Insurance Company, supra, (at para. 17): "The DAC Report is not just another opinion." And, under s. 23(5) of the Schedule, the insurer may begin paying an LECB based on a REC/DAC determination. But the Schedule does not treat a payment in accordance with a REC/DAC recommendation as a binding interim order that stops the running of interest. Still, an insurer has an incentive to pay the LECB recommended by a REC/DAC assessment, for in doing so it will either reduce or eliminate the amount of the benefit that will attract interest under s. 68.

The Court reaffirmed the Commission’s approach to SABS interest:

49Although the amount of interest provided for in s. 68 is above the bank rate, I, like several arbitrators, regard s. 68 as compensatory, not punitive. 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.

This was the state of the law at the time the appeal decisions were released.

Delegate McMahon preferred the analysis in Faraj:

In Mercier v. Royyal and Sun Alliance Company of Canada, 2003 CanLII 21638 (ON SC), [2003] O.J. No. 1233, Justice Quinn rejected the reasoning in Faraj, stating that in his view, the court put "too sharp a point on the meaning of 'overdue.'" He expressed the view that "[w]here it has been adjudged that benefits have been improperly withheld from a plaintiff, I can see no reasons in law or logic why those benefits should not attract interest." With respect, I disagree. I do not think it is possible to put too fine a point on the definition of overdue. To the contrary, a determination of entitlement to interest pursuant to s. 68 turns on a finding of overdue.²²

As Delegate McMahon read the Mercier and Attavar decisions, they reinforced the link between the payment provisions and the interest provisions in the SABS He concluded that the payment rules for medical and rehabilitation benefits required a different analysis.

When Delegate McMahon decided the appeal decisions, he did not have the advantage of the Mercier appeal decision, which was released a year later. In Mercier, the Court of Appeal expanded on the Attavar analysis of the payment rules under the SABS. Justice Gillese, writing also for McMurtry, C.J.O. and Blair J.A., rejected the appellant's insurer's attempt to distinguish Attavar on the basis that it involved a "pay pending dispute" benefit:

33The appellant argues that Attavar is distinguishable because in Attavar there was an ongoing obligation to pay (although the parties did not agree on the amount of the payment) whereas in the instant case, as a result of having received a negative DAC report, s. 64(11) expressly permitted the appellant to cease making payments. Given that the appellant was empowered to stop making the benefits, so the argument runs, it cannot be said that the insured was "entitled to receive a benefit" and therefore payments could not have been overdue.

34In my view, Attavar cannot be distinguished on this basis. In Attavar, the insurer followed the procedure set out in s. 23 of the SABS-1994 for determining the insured's LECB and found the amount to be paid was $132.44 bi-weekly. Despite the insurer''s compliance with the results of a DAC assessment report (known as a REC/DAC), the insured was held to be entitled to receive the LECB amount set by the trial judge ($291.03 per week) and the insurer was required to pay s. 68 interest on the difference between the amount that was set based on the REC/DAC assessment and the amount set by the trial judge.

35The appellant also argues that s. 64(13) specifies what must happen if an insured successfully challenges a negative DAC. Section 64(13) provides that the insurer must (1) resume payment of benefits and (2) pay the benefits that were not paid. The appellant says that as s. 64(13) does not specify compound interest, it cannot be intended that the insurer is to pay s. 68 interest in such situations.

36This same argument is addressed in Attavar and the reasoning applies in the instant case. In Attavar, Laskin J.A. interpreted silence in respect of the interest to be paid to mean that the drafters intended the compound interest provisions in s. 68 to apply. As he said, at p. 211:

Had the drafters of the [SABS-1994] intended that insurers avoid s. 68 by paying the amount recommended by the REC/DAC assessment, they could have said so. For example, by contrast, s. 62(5) of the [SABS-1994] expressly states that a payment is not overdue where an insured person fails to furnish a health practitioner's certificate in response to a request for one from an insurer. Section 62 does not contain a similar provision saying a payment is not overdue if the insurer pays the amount recommended in a REC/DAC [emphasis added].

The implication of Mercier is that interest does not turn on the insurer’s payment obligations pending resolution of any dispute but rather on its obligation to pay the benefits to which the insured is entitled under the SABS.

The question, then, is whether s. 38 of the SABS-1996 requires a different result. In Mercier, the Court of Appeal dealt with the appeal decisions (referring to Langdon specifically) in this way:

37I do not find that the case of Langdon v. Pafco Insurance Co. Limited, [2003] O.F.S.C.I.D. No. 105, also relied upon by the appellant, offers support for its position. In Pafco, Director’s Delegate McMahon considered the following question:

[I]f a Designated Assessment Centre ("DAC") reports that a medical expense is not reasonable and necessary, but an arbitrator ultimately decides that some, or all, of the expenses are payable, is the insured person entitled to interest on these expenses?

Director’s Delegate McMahon concluded, at para. 7, that:

[I]f a disputed expense is submitted to a DAC assessment, and the report does not state the expense is reasonable and necessary, s. 38 does not impose any payment obligations, short of a finding by an adjudicator that a benefit is owing. In the absence of an obligation to pay in advance of the order, there is no foundation for a finding that the amount was payable prior to the order [footnotes removed].

38While this conclusion may appear to support the appellant’s argument, it does not.

39Unlike the situation in Pafco and contrary to the appellant’s claim, in the present case there was an ongoing requirement to pay. The ongoing obligation was established by operation of s. 62(2). As Laskin J.A. noted in Attavar, under s. 62(2) an insurer is required to mail or deliver weekly benefits at least once every second week while the insured person remains entitled to the benefit. Indeed, in Attavar, Laskin J.A. found that weekly benefits in the form of LECB in the amount set by the trial judge were payable prior to the date that the trial judge’s decision was rendered. Unlike Pafco, where the medical benefits in question were a disputed expense, weekly benefits are benefits that an insurer is required to pay.

40It is significant also that Director’s Delegate McMahon expressly distinguished Pafco from Attavar on the basis that the provisions governing medical benefits contain explicit rules concerning whether such payments are overdue. This accords with Laskin J.A.’s comments set out above that absent express language that a payment is not overdue, s. 68 applies. [emphasis added]

These comments fall short of an endorsement. As the issue in Mercier was interest on weekly benefits payable under s. 62 of the SABS-1994, the court was not required to engage in a close reading of s. 38 of the SABS-1996. In any event, the distinction is valid if "the provisions governing medical benefits contain explicit rules concerning whether such payments are overdue." I will turn to that task now.

E. Interest on Medical and Rehabilitation Benefits after a negative DAC

I agree with Delegate McMahon that s. 46(2) of the SABS-1996 must be read in the context of s. 38(14)(b):

At the risk of seeming to over-simplify an issue that has engendered a lot of debate, s. 46(1) of the SABS-1996, defines overdue. It states "[a]n amount payable in respect of a benefit is overdue if the insurer fails to pay the benefit within the time required under this Part" [emphasis added]. Part X, which is entitled "Procedures for Claiming Benefits," contains the rules governing payment of the various benefits contained in the SABS. The specific rules relating to medical and rehabilitation benefits are found in s. 38. Therefore, for our purposes, s. 46 (1) can be read as follows:

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.

In light of this, the first step in establishing a claim for interest pursuant to s. 46(2) is identifying the applicable payment obligation imposed by s. 38. The second step is to ascertain if the insurer has fulfilled that obligation within the stipulated time. I have highlighted the words "within the time required," because they suggest to me that careful attention must be paid to the point at which the insurer is obliged to make a payment. This temporal connection is reinforced by the wording of s. 46(2), which states that interest is payable "from the date the amount became overdue."²³

After setting out his general approach, the delegate reviewed the procedure mandated by s. 38. He concluded:

With one exception, [which] I discuss below,²⁴ if a disputed expense is submitted to a DAC assessment, and the report does not state the expense is reasonable and necessary, s. 38 does not impose any payment obligations, short of a finding by an adjudicator that a benefit is owing. [footnote omitted] In the absence of an obligation to pay in advance of the order, there is no foundation for a finding that the amount was payable prior to the order.²⁵

This statement is, I believe, the key to the appeal decisions.

Delegate McMahon recognized three points where the SABS states the insurer shall pay the benefits claimed. First, if the insurer gives notice that it will pay some or all of the benefits claimed in the application, s. 38(11) requires the insurer to pay within 30 days of receiving the invoice. Payment is also required if the treatment claimed falls within the pay pending dispute rules [s. 38(16)] or in the case of a positive DAC report [s. 38(14)(a)], but s. 38 does not say when payment must be made in these circumstances. Delegate McMahon noted the absence of an express time limit in the latter two situations, but concluded: "to be consistent, the insurer should pay for these services within 30 days of receipt of the invoice."²⁶ In contrast, he noted, s. 38(14)(b) states that, subject to dispute resolution, "the insurer is not required to pay for the expense" if the DAC report is negative. Delegate McMahon concluded:

The insured person can decide to pursue the treatment and commence legal proceedings, but the insurer is under no obligation to pay the expenses until there is a positive decision from a judge or arbitrator that the treatment was reasonable and necessary. This finding will oblige the insurer to pay for the expenses incurred by the claimant. The question remains, does it also trigger an obligation to pay interest pursuant to s. 46(2)? To my mind, the answer is no.

I read these provisions differently. I find it significant that s. 38 is silent on when an insurer must pay benefits that are payable pending dispute under s. 38(16) or benefits that are supported by a positive DAC under s. 38(14)(a). Indeed, the only provisions in s. 38 that specify a time within which benefits must be paid apply at the earliest stages of the process, on receipt of an invoice [s. 38(11)] or an application [s. 38(18)], where the insurer accepts the claim. In my view, this is no accident. Similarly, the weekly benefit payment rules in s. 37 say nothing about when benefits must be paid after a DAC because the initial obligation arises from s. 35(2), which uses very similar language to describe the insurer’s obligations on receipt of an application.

I accept that the SABS-1996 is in general a "prior approval" scheme for medical and rehabilitation benefits. This is explicit in s. 38(1):

Before expenses in respect of which a medical or rehabilitation benefit may be payable are incurred, the insured person shall submit an application for the benefit to the insurer.

However, s. 38(17) allows an insured person to submit a claim within 30 days after incurring the expenses, and s. 38(18) requires the insurer, within 30 days, to pay or give notice of its reasons for not paying. In any event, s. 38(1) (prior approval) does not mean that the insurer is not required to pay the benefits claimed unless there is a positive DAC report or a positive decision of a judge or arbitrator. Subsection 38(7) states:

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]

Whether the insurer "is required to pay" the claim is determined by s. 14 (medical benefits) or s. 15 (rehabilitation benefits), which, like all the other benefit provisions, begin by stating "[t]he insurer shall pay an insured person who sustains an impairment as a result of an accident" "a medical benefit" [s. 14] or "a rehabilitation benefit" [s. 15]. Therefore, what the insurer must determine, pursuant to s. 38(7), is whether it is required to pay the claim pursuant to s. 14 or 15. The requirement to pay is not contingent on a positive DAC or a decision by a judge or arbitrator.

As noted in the appeal decisions, the weekly benefits rules are different because the insurer must pay benefits pending the DAC report if a claimant requests a DAC on receipt of a stoppage notice [s. 37(3)(c)]. These rules do not apply to medical benefits, except for the benefits provided in s. 38(16). However, the "pay pending DAC" rules apply at a second stage of the process – where the initial claim is refused or the insurer seeks to stop ongoing benefits. They do not affect the parties' obligations at the initial application stage. In any event, nothing in s. 46 suggests that the requirement to pay interest is restricted to benefits that are payable pending dispute resolution.

After the DAC issues its report, the same rules apply to all benefits. Pending dispute resolution, the insurer is required to pay in accordance with a positive DAC, or is bound by a catastrophic impairment designation, and is not required to pay the claim if the DAC was negative. Just as s. 38(14)(b) provides the insurer "is not required to pay" for a medical expense if not supported by the DAC, s. 37(4) states the insurer "may stop paying" a weekly benefit after a negative DAC, and similarly, an attendant care DAC report or catastrophic impairment DAC report is binding on the insured person and insurer subject to dispute resolution. None of these provisions prevents an insurer from paying the disputed amount, and there is no authority for the view that a negative DAC prevents interest accruing on weekly benefits found owing by an arbitrator. The same reasoning suggests interest follows upon a finding of entitlement to med-rehab benefits as well, despite a negative DAC.

I find further support for this conclusion from the decision of Director’s Delegate Evans in Sivananthan and State Farm Mutual Automobile Insurance Company, (FSCO P05-00001, October 14, 2005). In that case, the insurer attempted to extend the reasoning of the appeal decisions to weekly benefits, arguing that interest does not accrue under s. 46 of the SABS-1996 on weekly benefits found owing after a negative disability DAC. The arbitrator found the appeal decisions were distinguishable and awarded interest from the date of termination. Delegate Evans agreed there are differences in the provisions governing payment of weekly benefits (s. 37) and medical benefits (s. 38), but "hesitate[d] to place a great deal of weight" on them:

For instance, the distinction between saying that, after a negative DAC, the insurer "may stop paying the benefit" [s. 37(4)] and "the insurer is not required to pay for the expense" [s. 38(14)(b)] is not immediately apparent.²⁷

I agree. Like Delegate Evans, I would focus on the similarities between the language of the weekly payment provisions in the SABS-1994 and the SABS-1996 and the provisions governing an insurer’s obligations after a negative disability or med-rehab DAC:

Both Mercier and Attavar concerned weekly benefits: a reduction in loss of earning capacity benefits ("LECBs") after a residual earning capacity DAC in Attavar, and termination of caregiver benefits after a disability DAC in Mercier. As in the SABS-1996, weekly benefits are overdue under the SABS-1994 if they are not paid every two weeks. The 1994 and 1996 provisions with respect to payment of weekly benefits use very similar language. Subsection 62(4) of the SABS-1994 provides that an amount payable for IRBs, LECBs or caregiver benefits "is overdue if the insurer fails to comply with subsection . . . [62] (2)" — that is, mail or deliver the IRBs "at least once every second week while the insured person remains entitled to receive the benefits." Subsection 35(4) of the SABS-1996 provides that an "insurer that is required to pay an income replacement. . . benefit shall pay the benefit at least once every second week."²⁸ The two SABS use identical language with respect to interest on overdue payments.²⁹

Moreover, Delegate Evans noted that both versions of the SABS contain express provision that "a payment is not overdue" [s. 62(5) of the SABS-1994] or "no benefit is payable" [s. 34(4) of the SABS-1996] when a claimant fails to furnish a [disability] certificate in response to the insurer's request for one. Not coincidentally, these provisions are found at the earliest stage of the process and apply to the basic documentation a claimant must provide to enable an insurer to adjust the claim. In this respect, the SABS-1994 and SABS-1996 codify the early Commission authorities that focused on the "completed application" as the point when the risk of non-payment shifts from the claimant to the insurer. For example, Delegate Evans noted my decision in lankilevitch and CGU Insurance Company of Canada, (FSCO P03-00013, August 31, 2004), which concerned the claimants duty to provide information, set out in s. 33(1) of the SABS-1996, and the penalty for non-compliance set out in s. 33(2):

Section 33(2) states: "The benefit ss not payable for any period before the person complies with subsection (1)." Whether these words authorize delayed payment or forfeiture of benefits is the main question in this appeal. . . . In my view, the effect of s. 33(2) is to exempt an insurer from s. 35 [duty to pay promptly] until the insured person provides the information requested under s. 33(1). It likely delays the accrual of interest, since benefits are not "overdue," under s. 46, until the claimant complies with s. 33(1). . . . [Emphasis added; footnotes omitted.]

Again, as noted by Delegate Evans, this language is similar to the explicit language of s. 62(5) of the SABS-1994, noted by the appeal court in Attavar, implying that no interest accrues while the certificate is outstanding. Similarly, s. 38(2)-(6) of the SABS-1996 set out the requirements for the initial application for med-rehab benefits. However, nowhere does s. 38 state that payment is not overdue. Instead, the requirement to pay arises only after the insured complies with the application requirements. Again, this is consistent with the general scheme of the SABS, which imposes application and disclosure duties on the claimant at the outset, then places the burden of delay on the insurer. As Delegate Evans stated, noting the policy reasons for treating the post-DAC period differently:

unlike the cases where an insured has failed to take some necessary step, such as provide a certificate within the time required, in the case of a negative disability DAC, the insured has taken the necessary steps but been found able to work. Although the insurer may have done everything it was required to do under the SABS, so had the insured. In that regard, interest is not imposed as a penalty on the insurer: as the arbitrator noted, the submission that interest is punitive has been dealt with and rejected on numerous occasions.

In summary, I do not accept that the requirement to pay medical benefits depends on a positive DAC report or a favourable decision by a judge or an arbitrator. Despite the differences between weekly benefits and medical benefits, s. 38 imposes a requirement to pay within 30 days of receiving the invoice or application for benefits to which the claimant is entitled. This obligation is not displaced by a DAC referral or the commencement of dispute resolution proceedings.

I need only address one other issue. The appeal decisions distinguish interest owed under s. 46 of the SABS from pre-judgement interest under s. 128 of the Courts of Justice Act:

. . . pre-judgement interest is payable whenever a party is entitled to an order for the payment of money. The event that triggers an obligation to pay interest in a civil proceeding is a finding that money is payable. In contrast, the event that triggers an obligation to pay interest pursuant to s. 46(2) of the SABS-1996 is not merely the determination that a benefit is owing – on the basis that the latter flows from a finding that money is payable. In contrast, the event that triggers an obligation to pay interest pursuant to s. 46(2) of the SABS-1996 is not merely the determination that a benefit is owing – it requires an additional finding that the insurer failed to pay the benefit within the time required by s. 38.³⁰

I agree with Delegate McMahon that interest will not be ordered under the SABS or the Courts of Justice Act absent a finding that there is a principle amount outstanding from a particular date. However, the SABS requires the payment of interest on overdue benefits even if no dispute is ever brought under sections 279-284 of the Insurance Act. Arbitrators do not order "pre-judgement" or "post-judgement" interest; interest under the SABS is contractual.³¹

This is a difficult case. The payment rules in the SABS are ambiguous, and I do not depart lightly from the earlier appeal decisions. However, I conclude that my reading of s. 38 is faithful to its wording and its statutory context, and is consistent with the legislative objectives underlying the SABS, including early access to medical and rehabilitation benefits and prompt payment of accident-related expenses. Subject to determination of any dispute, an insurer need not pay a medical expenses claim where it concludes there is no entitlement and the DAC report is negative. Once an arbitrator decides the insurer is required to pay, it follows the insurer was required to pay on receipt of the properly documented application or invoice. In my view, nothing in s. 38 justifies a departure from the well-established principles governing SABS interest: it is mandatory, compensatory, and flows from a finding that benefits were payable and were not paid on receipt of the required application documents.

F. Procedural Fairness

Coachman submits that the Arbitrator's reasons went beyond the submissions and authorities presented by the parties. It submits that while Ms. Hejnowicz attempted to distinguish the appeal decisions, she did not attempt to argue they were wrongly decided. According to Coachman, the arbitrator decided that issue on her own initiative, and without giving the insurer an opportunity to make submissions on that point.

The record of this proceeding contains no indication that the parties disagreed about when interest began to accrue until after the arbitrator released her first decision. That was not unusual. The parties were focused on Ms. Hejnowicz' benefits claim, and she would not be entitled to interest at all unless she established entitlement to benefits. In her first decision, the arbitrator ordered interest on overdue benefits pursuant to s. 46(2), but did not fix the amount owing or discuss the basis for calculating interest. Again, that was normal practice.

After the first decision was issued, Coachman paid the principal amounts ordered, and the parties eventually reached an agreement about arbitration expenses, but they disagreed on whether interest was payable after the DAC. The arbitrator heard their submissions on this point on October 8, 2004. Mr. Blitstein concedes that his submissions were limited to arguing that Ms. Hejnowicz' case was distinguishable from the appeal decisions. On March 4, 2005, Mr. Blitstein wrote to enquire about the status of the interest decision. He also made note of the decision of the Court of Appeal in Mercier, which, he stated, "has helped clarify the issue of at what point benefits are considered overdue and interest is payable." Mr. Blitstein continued, "I am not attempting to make a further submission on the issue however, I believe it's appropriate that [the arbitrator] is aware of this recent decision." The arbitrator invited Mr. Pollack to comment, but he did not do so.

I am not persuaded the arbitrator erred. While both parties gave rather summary submissions on the interest issue, Mr. Blitstein's attempt to distinguish the appeal decisions and his reliance on the Court of Appeal decision in Mercier should have put Coachman on notice that he would need to defend the appeal decisions. In any event, the correctness of the appeal decisions was clearly at issue in the appeal, and both parties presented comprehensive submissions on that issue.

IV. EXPENSES

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

August 3, 2006

Nancy Makepeace Director's Delegate

Date

Bajic built on the rationale in an earlier decision, Trendle and Economical Mutual Insurance Company, (OIC P96-000009, July 11, 1996), a SABS-1990 case. In Trendle, Delegate Draper agreed that the interest provisions "are clearly meant to encourage the prompt payment of accident benefits," but confirmed the arbitrator's conclusion that payments were not overdue where it was impossible for the insurer to determine the amount of weekly benefits payable without, as stated by the arbitrator, the "several days of hearing and the careful testimony and documentation of many witnesses to sort through the maze of half truths provided by Mr. Trendle. " In the circumstances, the delegate concluded payments were not overdue until final disposition of the dispute resolution process, including the appeal. See also Cole and Allstate Insurance Company of Canada, (FSCO P01-00016, May 23, 2003) and J.C. and Progressive Casualty Insurance Company, (FSCO P04-00036, February 15, 2005).

After concluding that McNaughton was wrongly decided, Laskin J.A., writing for the Polowin panel, considered whether to overrule it. Despite the values underlying stare decisis-– consistency, certainty, predictability, sound judicial administration, and the legitimacy and acceptability of judge-made law, Justice Laskin stated: there is, of course, a price to be paid for rigid adherence to precedent: injustices in individual cases, continued application of legal principles long since outdated as society has changed, and uncertainty bred by judges who draw overly fine distinctions to avoid stare decisis. Most modern judges disavow both a rigid adherence to precedent and an unrestrained right to depart from their court's previous authority. Instead, they apply stare decisis flexibly, seeking a reasonable point on the spectrum . . . . [paras. 121-122] After discussing several formulations of the test for overturning the Court's prior decisions ("manifestly wrong," for example), the Polowin panel preferred "to weigh the advantages and disadvantages of correcting the error in a previous decision." [para. 127] Though several factors worked against overruling McNaughton, the Court identified seven considerations that, taken together, justified that result. "First, and perhaps most important," the decision had been questioned by other courts. Other factors included the continuing relevance of the statutory interpretation issues, and the fact that McNaughton was novel when decided and "of relatively recent vintage." [paras. 130-144]

Footnotes

Medical expenses (s. 14 of the SABS-1996) and rehabilitation expenses (s. 15).
The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as it read prior to the amendments to s. 38 that took effect on October 1, 2003, when Ontario Regulation 281/03 introduced pre-approved frameworks guidelines. Section 38 was again amended when Ontario Regulation 575/06, effective March 1, 2006, eliminated the DACs. Neither party made submissions as to the effect of these changes, they were not discussed in the arbitration decision, and I was not asked to address them. Accordingly, I refer throughout to the SABS as it read prior to these amendments.
A "negative" DAC is, to quote s. 38(14)(b), a report that "does not state that, in the opinion of the person or person who conducted the [DAC] assessment, an expense is reasonable and necessary for the insured person's treatment or rehabilitation."
The " appeal decisions" are Amoa-Williams and Allstate Insurance Company of Canada, (FSCO P01-00052, July 17, 2003), Glinka and Dufferin Mutual Insurance Company, (FSCO P01-00002, July 17, 2003), Khaledi and Allstate Insurance Company of Canada, (FSCO P01-00046, July 17, 2003), and Langdon and Pafco Insurance Company Limited, (FSCO P02-00017, July 17, 2003).
The arbitrator erred in imposing a 14-day payment rule. Subsection 35(2) of the SABS-1996 requires weekly benefits to be paid 14 days after receiving the application, but medical expenses are payable within 30 days after receiving the invoice [s. 38(11)] or the application [s. 38(18)]. There are, however, several 14-day notice requirements in s. 38.
Subsection 24(4) of the SABS-1990 reads: "The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2 per cent per month." The SABS-1990 is the Statutory Accident Benefits Schedule – Accidents before January 1, 1994, Ontario Regulation 672, R.R.O. 1990, as amended. Section 68 of the SABS-1994 reads: "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." The SABS-1994 is the Statutory Accident Benefits Schedule – Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended.
Sorokin and Wawanesa Mutual Insurance Company, (FSCO P04-00008, August 9, 2005), at p. 23, quoting from Cole and Allstate Insurance Company of Canada, (FSCO P01-00016, May 23, 2003), at p.16. See also, for example, Virk and Liberty Mutual Insurance Company of Canada, (FSCO P04-00027, July 5, 2005), at p. 13.
Sorokin and Wawanesa Mutual Insurance Company, (FSCO P04-00008, August 9, 2005), at p. 23, referring to Bajic and Pafco Insurance Company, (FSCO P00-00050, June 5, 2001), a SABS-1994 case. In that decision, Director's Delegate Draper confirmed the arbitrator's conclusion that the insurer's legitimate questions arising out of the medical certificate provided by the claimant's family doctor did not delay the "overdue" date. In rejecting the insurer's submission that SABS interest is punitive, the delegate approved Sebastian, stating, however, ". . . 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. " [at p. 21]
At p. 11.
At p. 5 of Urquhart, referenced at p. 6 of Amoa-Williams. Urquhart was a SABS-1990 case about homemaker services. After finding the claimant was entitled to the benefits, the arbitrator concluded the insurer must pay interest on them from 30 days after it received a completed application, despite the fact the claimant was not out-of-pocket for the expenses because her family members helped her without payment. There was no suggestion the insurer had improperly withheld benefits. As the arbitrator stated, "the imposition of interest pursuant to section 24 [of the SABS-1990] automatically follows a finding that the benefit is overdue. . . ."
For example, cases may be distinguishable because of their factual basis or a new interpretive argument not previously made or change in the environment in which the Act or Schedule operates. [footnote in original]
At p. 10. Followed most recently in Gurney and Allstate Insurance Company of Canada, (FSCO P05-00005, January 27, 2006).
Arbitration decision, p. 14. Detailed reasons for rejecting the DAC reports were given at pages 16-18 of the first arbitration decision.
The issue was whether a worker who was laid off at the time of the accident, but had worked 33 weeks in the 52-week earnings period before the accident, could average his income over the 33 weeks he actually worked or must average it over the entire 52-week period, resulting in significantly reduced weekly benefits. This involved interpretation of s. 12(7) of the SABS-1990. In an earlier decision, Scavuzzo and Canadian Home Assurance Company, (OIC P-000626, June 19, 1992), Director's Delegate Richardson had confirmed an arbitrator's ruling that the SABS allowed a claimant to average his actual income over the number of weeks worked, and did not restrict him to electing the 4 week or 52 week period described in s. 12(7). The arbitration decision under appeal in Vo came to the contrary conclusion despite the previous appeal decision directly on point. This forced the question whether the Director of Arbitrations was bound to follow the earlier Scavuzzo appeal decision. Director Sachs found she was not bound.
At p. 11.
Ibid.
The Ontario Court of Appeal took a similar approach in David Polowin Real Estate Ltd. v. the Dominion of Canada General Insurance Co. (2005), 2005 CanLII 21093 (ON CA), 76 O.R. (3d) 161, [2005] O.J. No. 2436, which reversed the Court's earlier decision, McNaughton Automotive Ltd. v. Co-operators General Insurance Co. (2001), 2001 CanLII 21203 (ON CA), 54 O.R. (3d) 704.
At p. 5.
At pp. 21-22.
Para. 162. Despite the negative DAC report, interest was awarded on the caregiver benefits owed from the date of termination.
Para. 163.
At p. 8.
Amoa-Williams, at pp. 2-3.
The pay pending dispute requirement in s. 38(16). As stated above, s. 38(16) does not apply to the claims in dispute in this case. [footnote added].
Amoa-Williams, at pp. 2-3.
Amoa-Williams, at p. 4.
At p. 3.
The phrases are equivalent, since an insured person is entitled to receive the benefits from an insurer that is required to pay them, and an insurer is required to pay the benefits to an insured person who is entitled to receive them. [footnote in original]
See s. 68 of the SABS-1994. [footnote in original]
At pp. 4-5.
See, for example, Singh v. Gore Mutual Insurance Company, (FSCO P98-00036, October 18, 2002) and Thangarasa and Gore Mutual Insurance Company, (FSCO A02-001360, August 9, 2005), under appeal.

Coachman Insurance Company v. Beata Hejnowicz, 2006 ONFSCDRS 131

Case Summary

A. The issue: interest on benefits owed after a negative med-rehab DAC

B. Is this case distinguishable from the appeal decisions?

C. Stare Decisis

D. Evolution of the Law

E. Interest on Medical and Rehabilitation Benefits after a negative DAC

F. Procedural Fairness

IV. EXPENSES

Footnotes