Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 54

FSCO A05-000196 and A05-000197

BETWEEN:

DENISE UDELE PETERS and DIANE ANDREA PETERS

Applicants

and

AVIVA CANADA INC.

Insurer

REASONS FOR DECISION

Before: John Wilson

Heard: December 15, 2005, in Whitby, Ontario

Appearances: David J. Gillespie for Ms. Peters Catherine A. Temple for Aviva Canada Inc.

Issues:

The Applicants, Ms. Denise Peters and Ms. Diane Peters, were the daughters of Mrs. Eulynis Peters who died of injuries sustained in a motor vehicle accident on December 22, 2003. They applied for survivors' death benefits from Aviva Canada Inc. ("Aviva"), payable under the Schedule.¹

Aviva chose to pay a spousal portion of the benefits to Mr. Hilroy Peters who was the separated spouse of the late Mrs. Eulynis Peters, notwithstanding that Denise and Diane had claimed the spousal portion pursuant to section 25(2)3 of the Schedule. The parties were unable to resolve their disputes through mediation, and Mrs. Peters' daughters applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

It will be noted that this claim was initiated against Primmum Insurance, which claimed that Pilot (later Aviva) should properly respond to the claim. Aviva accepted responsibility for dealing with the claim.

Both parties have treated the adjustment of this claim as a continuous process, regardless of the identity of the individual insurer. Notwithstanding any recourse Aviva may have against Primmum for any actions it took in the adjustment of this file, for the purposes of this decision and any orders arising from this decision, references to the "Insurer" will be taken to mean Aviva, which has accepted responsibility for the handling of this claim.

The issues in this hearing are:

1. Are Denise and Diane Peters entitled to a payment of a supplementary death benefit pursuant to section 25(2)3 of the Schedule on the basis that Mr. Hilroy Peters was no longer a "spouse" of Mrs. Eulynis Peters at the time of the accident by reason of the separation and the executed separation agreement which purported to release any claims Mr. Peters might have against Mrs. Peters or her estate?

2. Is Aviva required to pay a Special Award, pursuant to section 282(10) of the Insurance Act, by reason of its failure to pay the above amount to Denise and Diane Peters?

3. Is either party liable to pay the other's expenses in respect of the arbitration under subsection 282(11) of the Insurance Act?

Result:

1. Denise and Diane Peters are entitled to a payment of a supplementary death benefit to section 25(2)3 of the Schedule on the basis that Mr. Hilroy Peters was no longer a "spouse" of Mrs. Peters at the time of the accident by reason of the separation and the executed separation agreement.

2. Aviva is required to pay a Special Award, pursuant to section 282(10) of the Insurance Act, by reason of its failure to pay the above amount to Denise and Diane Peters.

EVIDENCE AND ANALYSIS:

There seems to be no controversy as to the fact that Eulynis Victoria Peters and Hilroy Peters took part in a valid form of marriage in August 22, 1975, apparently in Toronto. It is the process of the breakdown of this marriage, and the consequences of the subsequent actions of the parties to the marriage upon their status as spouses under the Insurance Act that is at the centre of this dispute.

There are very few facts in issue in this accident benefit dispute between the adult daughters of Mrs. Peters and Aviva Insurance. Indeed, the parties filed a joint statement of agreed facts, setting out the situation giving rise to the claim for death benefits and its chronology.

Mrs. Peters and her two daughters lived together at their home in Ajax Ontario at the time of her motor vehicle accident on December 22, 2003. Diane Peters was a student at the Canadian College of Naturopathic Medicine, while her sister Denise attended George Brown College. Mrs. Peters was a nurse at the Toronto Western Hospital, on leave for disability at the time of the accident. It is agreed by both parties that Denise and Diane were dependent on Mrs. Peters at the time of her death.

Mr. Hilroy Peters, the girls' father, lived at a different address in Toronto, and although not divorced, had been separated from Mrs. Peters since August 1999. The consequences of this separation, as between the parties to the marriage, were defined by a separation agreement dated June 15, 2000. At paragraph 9 of that agreement was a mutual release of spousal support under both the Divorce Act and the Family Law Act. There was no provision for spousal support in the agreement.

Prior to the accident, Mrs. Peters had, in her tax returns, listed her status as "separated."

Following the accident Mr. Peters assisted his daughters in making the burial arrangements, and made the initial payment to the funeral home.² Perhaps as a result of this involvement, the Proof of Death issued by the funeral home listed Mrs. Peters as the married spouse of Mr. Peters.

The two daughters filed a claim for accident benefits on January 14, 2004. Their claim consisted of a request for a death benefit of $22,500 each as well as the payment of funeral and associated expenses. A subsequent claim was made for visitor's expenses.

On February 18, 2004, Primmum Insurance paid $10,000 each as a death benefit, as well as $6,000 for funeral and $4,353.60 for visitor's expenses. Primmum explained that the shortfall in the amounts paid for the death benefits was due to Mr. Peters' entitlement to a spousal death benefit.

According to the agreed statement of facts, at that time, Mr. Peters had not applied for any such benefits, and was content that the daughters share the full death benefit.

On March 24, 2004, however, apparently after contact from Primmum advising of his entitlement to a spousal benefit, Mr. Peters changed his mind about the spousal benefit.

The accident benefit dispute was then further complicated by a priority dispute between Primmum and Aviva, Mr. Peters' own insurer. Ultimately the claim was transferred from Primmum to Aviva.

On August 24, 2004, Mr. Peters finally filed a written Application for Death and Funeral Benefits with Aviva. On September 9, 2004, Aviva paid Mr. Peters $25,000 as a spousal death benefit.

It is of some note that Denise and Diane were represented by legal counsel from the start of their claim, and that Mr. Gillespie, their lawyer, advised the insurers from the beginning of Mrs. Peter's status as a separated spouse, and his client's position that, due to the separation, Mr. Peters had no claim for a spousal benefit.

As early as January 14, 2004, Mr. Gillespie had provided Primmum with a copy of the separation agreement, as well as a copy of the decision of the Court of Appeal in AXA Insurance Company of Canada v. Prince et al.³ "wherein the Ontario Court of Appeal took the position that the separation agreement must be taken into account to determine if the claimant spouse is entitled to the death benefit."⁴

It is also clear from the correspondence that Mr. Gillespie communicated his client's position to continue to claim the full death benefit, and to oppose any spousal payments to their father, Mr. Peters.

The Law:

Section 25(1) of the Schedule provides that an insurer "shall pay a death benefit in respect of an insured person if he or she dies as a result of an accident."

Section 25(2), paragraph 1, provides for "a payment to the insured person's spouse of, $25,000." Section 25(2)3 provides:

If no payment is required by paragraph 1, an additional payment to the insured person's dependants and the persons, other than a former spouse of the insured person, to whom the insured person had an obligation at the time of the accident to provide support under a domestic contract or court order, to be divided equally among the persons entitled, in an amount equal to $25,000....

Section 2(1) of the Schedule states that "spouse" has the same meaning as in Part VI of the Insurance Act.

Part VI of the Insurance Act at section 224(1) provides for the following definition of "spouse":

"Spouse" means either of two persons who,

(a) are married to each other,

(b) have together entered into a relationship that is voidable or void, in good faith on the part of the person asserting a right under this act, or

(c) have lived together in a conjugal relationship outside marriage,

(i) continuously for a period of not less than three years, or

(ii) in a relationship of some permanence, if they are the natural or adoptive parents of a child.

For the purposes of this benefit then, a spouse is a person who is "married" to another person. Needless to say, "marriage" is not defined in the Insurance Act, although it is usually taken to mean someone whose conjugal relationship has been formalized by a celebration of "marriage."

On a very simplistic reading of the section it is easy to see how Primmum could take the position it has. Mr. and Mrs. Peters had taken part in a ceremony of marriage. No decree of any court had ever declared that marriage over before Mrs. Peters died. Therefore Mr. Peters remained the spouse of Mrs. Peters at the time of her death and was entitled to the spousal death benefit.

Indeed there is jurisprudence preceding AXA, which would support such a literal interpretation. Counsel for Aviva cited some earlier FSCO cases, and a lower court decision which took such an approach. In this context it is important to note the changes in the judicial approach to the definition of marriage that have taken place in the last decade or more. At the same time as the courts have recognized changes in the nature of marriage itself, they have also recognized changes in the pattern and consequences of dissolution.

Notwithstanding their appearances as simple words in the English language, "spouse" and "marriage" have a long history of inciting debate, not only as to the meaning and effect of these terms, but as to the appropriate source of the governing law.

In Ontario, the law relating to the solemnization of marriage is the domain of the provincial legislature. The laws relating to the status of marriage and divorce are the responsibility of the federal parliament. In addition, the laws relating to the annulment of marriages consist of the law of England as it existed on the 15th day of July 1870 "as altered, varied, modified or affected" by any other act of the United Kingdom, Canada or Ontario. The common law which followed the enactment of the Constitution Act 1791⁵ has also played a significant role in the definition of marriage and spousal status.⁶

Given the disparate sources of law, it is not surprising that there has been some controversy as well as some significant evolution of the meaning of marriage in the more than two centuries since Ontario left the French civil law behind.

Most early definitions of spousal status were a function of the moral and cultural climate in an Ontario that was almost uniformly Christian and English-speaking. Early law in this area, as in others, drew directly from English precedent⁷, unless modified by the colonial assembly.

Perhaps the most well-known high watermark of the English ethnocentric approach to the definition of marriage was the decision in Hyde v. Hyde and Woodmansee⁸ in which Wilde J.O. enunciated the famous (or notorious) definition of marriage as "the voluntary union for life of one man and one woman to the exclusion of all others."

Wilde J.O. however further conditioned that definition by adding:

There is no doubt in those countries adapted to this state of things laws which regulate the duties and define the obligations of men and women standing to each other in these relations. It may be, and probably is, the case that the women there pass by some word or name which corresponds to our word "wife". But there is no magic in a name, and if the relation there existing between men and women is not the relation which in Christendom we recognise and intend by the words "husband" or "wife", but another and altogether different relation, the use of a common term to express these two separate relations will not make them one and the same, though it may tend to confuse them to a superficial observer.

The courts in Canada, while obviously influenced by the prevailing judicial climate in the United Kingdom, were far from universal in accepting such an inflexible meaning to marriage. While the English Court of Divorce and Matrimonial Causes could not bring itself to accept a Mormon union as constituting marriage, the courts in Ontario were comfortable accepting the celebration of marriage according to the custom of the Comox⁹ tribe of British Columbia, even though "polygamy was an acknowledged right amongst the Comox tribe."¹⁰ Likewise, the courts had also recognized marriage by cohabitation and reputation,¹¹ as well as marriages, potentially within the prohibited degrees under English law.¹²

It is important to note that the status of marriage had significant consequences at that time. Marriage was the framework for the recognition of an obligation of support. It was the key to a claim for dower rights in property of a deceased spouse, and the foundation for a finding of legitimacy without which children could not take in an intestacy. Consequently, the question of marriage was not examined in a vacuum, but in the context of public concerns and social policy.

Roach J.A. in Smith v. Smith¹³ touched on this aspect of public policy in marital relations:

But the duty of the husband is also a public obligation, and can be enforced against him by the State under the Vagrancy Acts and under the Poor Relief Acts. When the marriage is dissolved the duty to maintain arising out of the marriage tie disappears. In the absence of any statutory enactment the former wife would be left without any provision for her maintenance other than recourse to the poor law authorities. In my opinion the statutory powers of the Court to which I have referred were granted partly in the public interest to provide a substitute for this husband's duty of maintenance and to prevent the wife being thrown on the public for support.

What is important to note is that neither the nineteenth nor the twentieth century courts in Canada viewed the definition of marriage as rigid or fixed. They viewed it contextually, as part of the mischief addressed by the legislation or rule of law in question, not to mention as part of the application of prevailing social values.

Statutory interpretation nowadays is both more highly developed and sophisticated than the analytical tools available to nineteenth century jurists. The Supreme Court in BellExpressVu has approved the approach adopted by Driedger in examining more than just the bare words of an enactment:

"Today there is only one principle or approach, namely, the words of an act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the act, the object of the act, and the intention of Parliament." Driedger's modern approach has been repeatedly cited by this court as the preferred approach to statutory interpretation across a wide range of interpreted settings ... I note as well that in the federal legislative context, this court's preferred approach is buttressed by s.12 of the Interpretation Act, R.S.C. 1985, c.I-21,¹⁴ which provides that every enactment "is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects."¹⁵

That said, in considering the interpretation given to the words "spouse" and "marriage" used in the Insurance Act, consideration must be given to the purposes of the accident benefit legislation in Ontario.

Eberhard J., in Gill v. Zurich, 1999 CanLII 36826 (ON SC), [1999] O.J. No. 4333 at p.14, made the following comments on the purposes of the statutory accident benefit scheme:

I adopt the statement of purpose articulated by Arbitrator Mackintosh at page 12 in Edgar v. Wellington Insurance Co. [1994] O.I.C.D. No. 34 File A-005441 that SABS is remedial, that is to be interpreted in a broad and liberal way, and that its principal object is to provide a "fair and adequate income stream to those who are injured and disabled from work". The victim is to receive an approximation of wages, and not be compensated more or less.

Gonthier J., in Smith v. Co-operators General Insurance Co., speaking in connection with an accident benefit matter, stated:

There is no dispute that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance.¹⁶

Amongst accident benefits, the death benefit provisions have their own history. Historically, an action against a wrongdoer died with the person, as summarized by the legal maxim actio personalis moritur cum persona.¹⁷ The editors of Black's Law Dictionary further comment:

The maxim was originally applied to almost every form of action, whether arising out of contract or tort, but the common law was modified by the Statute of 4 Edward the III.

Lord Campbell's Act,¹⁸ passed in 1846, first provided for actions to compensate dependant survivors for the death of another.

The enactments we are to keep in mind are that "wherever the death of a person has been caused by such wrongful act, neglect, or default as would (if death had not ensued) have entitled the party injured to maintain an action and recover damages in respect thereof, in such case the person who would have been liable if death had not ensued shall be liable to an action for damages, notwithstanding the death of the person injured, and although the death has been caused under such circumstances as amount to in law to felony" and that every such action shall be for the benefit of the wife, husband, parent, and child of the person whose death has been so caused.¹⁹

Death benefits pursuant to section 25 of the Schedule are the no-fault offshoot of such actions for wrongful death. Instead of waiting for an action to proceed through the courts, the vulnerable dependants of an insured, or deemed insured, can receive something to meet necessary and ongoing expenses, while sorting out the complexities of the deceased's estate.²⁰

As often noted, the development of "no-fault" benefits "deprived the plaintiff of his common law right to sue for damages for loss of income due to another's negligence."²¹ As Gauthier J. put it most succinctly:

The purpose of the death benefit is intended to provide "modest but not insignificant, short term financial assistance" to those persons who lose their principal source of financial support or care.²²

All of this is by way of background and context to the decision of the Court of Appeal in AXA Insurance Co. of Canada v. Prince et al. In a situation similar to that of the Peters family, Mr. Sherbanuk died in a motor vehicle accident, leaving, potentially two different persons who might come within the definition of "spouse." One such person was married, but separated from Mr. Sherbanuk. The other person was one who could potentially claim such status by reason of living with Mr. Sherbanuk continuously for a period of at least a year prior to the accident. The issue was squarely whether the release of all claims arising from the marriage by the "married" spouse in the separation agreement served to bar her claim for spousal benefits under the Schedule.

Osborne J.A. decided that:

...where a husband and a wife have decided to consensually resolve their differences to achieve, among other benefits, stability in their futures, their agreement should be taken into account to determine if the claimant spouse (here the respondent for purposes of this analysis) is entitled to share in the death benefit. This interpretation of s. 51(7) seems to be consistent with the language of the section and in harmony with the general policy objectives of the mandatory no-fault death benefit provisions.

The purpose of the death benefit is to provide some economic assistance to persons (spouses and dependants) who are assumed, in the statutory no-fault scheme, to be economically disadvantaged as a result of an insured person's death. To view the entitlement provisions on the narrow basis suggested by the respondent would ignore these policy objectives.

While the court was considering an earlier wording of the death benefit provision,²³ the concept of the claimant being the spouse of the deceased at the time of the death of the insured remains consistent throughout the various permutations of the legislation. As well, there is no indication in the legislation or the jurisprudence that the underlying social policy which drove the AXA decision has in any way changed.²⁴

I do not accept, as urged by the Insurer, that AXA speaks only to cases of competing, multiple spouses. Rather, it speaks to a broad and equitable interpretation of the status of spouse, with the intention of bringing that interpretation in line with contemporary societal and legal values. It speaks to all situations where there are competing claims for a spousal death benefit.

While there may have been, for a time, some confusion among lower court judges and arbitrators about how a final separation agreement should interact with spousal death benefits prior to AXA, the Court of Appeal put an end to it. Until and unless the Supreme Court speaks on that issue, or the Court of Appeal reverses itself, Osborne J.A.'s approach in AXA stands.

That said, I do not find that the current definition of spouse contained in the Insurance Act is necessarily at odds with Osborne J.A's approach.

The wording, specifying two parties who are married to each other, clearly constitutes an action that is ongoing. While it could possibly encompass a couple whose marital bonds had yet to be dissolved, an examination of this wording in the context of the statutory definition of marriage suggests otherwise. As noted earlier, the definition of marriage is a federal responsibility. The Civil Marriage Act, S.C. 2005 c.33, defines marriage as "the lawful union of two persons to the exclusion of all others."

It is common ground in this matter that Mr. Hilroy Peters was living in a long-term relationship with another at the time of the death of Mrs. Peters, his nominal spouse. It is hard to reconcile the current living arrangements of Mr. Peters, and his complete severance of economic relationships with the late Mrs. Peters, with any kind of ongoing marital relationship with the late Mrs. Peters intrinsically worthy of protection by the courts or tribunals.

Clearly, in the light of AXA, the provisions of section 25 of the Schedule must be understood as meaning that, at most, while the existence of the formalities of marriage raises a prima facie case or a rebuttable presumption for claiming the spousal death benefit, that is not necessarily the end of the fact-finding process. It is, according to AXA, permissible to find the paper entitlement displaced by other actions of the nominal spouse which point to a manifest rejection of ongoing spousal status. While the Peters may have had limited spousal status for the purposes of obtaining a final divorce, or for the purposes of the solemnization of a new marriage, for the purposes of dependant relief legislation there was no longer any such status.

Such a concept is not a stranger to accident benefit litigation. Estoppel by conduct and otherwise has long been accepted as sufficient to bar a party from enforcing a right Likewise, a spouse who intentionally killed another in a motor vehicle accident could not be expected to receive a death benefit, even though spousal relations may have endured to almost the very end and there was no formal divorce. Spousal entitlement to death benefits is not absolute.

I have no hesitation in finding that in this matter, by waiving all future rights against his nominal spouse in the separation agreements, Mr. Hilroy Peters waived the right to put forward a claim for death benefits, as well.

It is common ground that Denise and Diane Peters were the sole dependants of their mother at the time of the accident, and it is their uncontradicted evidence that their mother's death left them in economic straits.²⁵

In life, Mr. Peters would have been barred from enforcing an economic claim against Mrs. Peters because of the final nature of the separation agreement he voluntarily signed.²⁶ It would be a strange and aberrant justice if Mrs. Peters in death was more beholden than in life to her former spouse, to the detriment of her acknowledged dependants, her daughters.

Consequently, I find that Mr. Peters had voluntarily withdrawn himself from the class of eligible spouses provided for in section 25 of the Schedule, by reason of his complete separation and the acknowledgement of the end of his spousal obligations and privileges outlined in the separation agreement he executed on June 15, 2000. Consequently, no payment to a spouse was required pursuant to section 25(2)1 The monies then became available for the daughters to claim pursuant to section 25(2)3 of the Schedule.

To find otherwise would be to fly in the face of current jurisprudence on the effect of final separation agreements, modern day social practice, and binding precedent on this very issue from the Court of Appeal.

I will also deal quite briefly with the claim by the Insurer that Denise and Diane Peters in some way waived their right to object to the Insurer's handling of the matter by reason of their failure to participate when put on notice in the "priority dispute" between the two insurers. As counsel expressed the position:

The fact that Denise and Diane did not object to the priority dispute initiated on the basis that Mr. Peters was Mrs. Peters legal spouse is a tacit admission that they accept he is Mrs. Peter's legal spouse for the purposes of paying death benefits under the SABS.

Counsel for the insurer at the hearing was unable to provide any support for the above assertion, nor any law that would suggest that any conclusion ought to be drawn from the failure of an insured to intervene in a dispute between insurers about who would ultimately pay the bill. Consequently, I draw no inference from the non-participation of the Peters²⁷ in the inter-company priority dispute.

Special Award

Counsel for the Peters has requested that a maximum Special Award be made in this matter due to what he views as the unreasonable conduct of the Insurer in this matter. Section 282(10) of the Insurance Act provides the legislative foundation for special awards against insurers.

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.

Since a special award is unique to the arbitration process, there has been little judicial commentary on its use and its parameters. Within the arbitration unit, the Director of Arbitrations has made the following comments on special awards:

The purpose of s. 282(10) is to punish insurers that unreasonably fail to pay accident benefits promptly, as required by the SABS, and to deter that company and others from acting similarly in the future. The size of the special award should be aimed at that purpose. While I am not prepared to say that special awards must be "modest," whatever that means, it is not obvious that they should exceed the amounts typically awarded in bad faith claims involving more serious misconduct.²⁸

While there is a definite punitive aspect to a special award, it is also important to note the compensatory element of an award. It is awarded specifically to an insured as compensation²⁹for the innumerable problems that arise from the failure of an insurer to properly fulfill its role in the prompt payment of benefits. Like the death benefit, an insured is not required to prove resulting damages from the unreasonable delay, in order to found a special award.³⁰ The scheme simply assumes such resulting damages³¹, while giving the arbitrator significant discretion as to the amount of the award.

As demonstrated by the terms of the legislation, an arbitrators discretion with regard to a special award relates mainly to the quantum. The Insurance Act mandates such an award once there is a finding that benefits were unreasonably withheld. Once such a finding is made, the only element of discretion is as to the amount of the award that an arbitrator decides is appropriate to the conduct in question. The amount can vary from a token dollar amount to a maximum of 50% of outstanding benefits including interest.

The Insurer has taken the position that it was right in seeking out Mr. Peters and paying him the spousal death benefit, since the section meant what it plainly said. "Spouse" posed no interpretation problem and meant, in this case, the, as yet, un-divorced spouse of Mrs. Peters.

Denise and Diane Peters, on the other hand ask for a maximum special award since the Insurer not only delayed payment of a clear entitlement, but officiously intermeddled, prompting Mr. Peters to claim something he originally had no intention to claim³² and to which he had no right in law.

As noted earlier, counsel for the Peters was fastidious in providing both the application documentation, and a copy of the Court of Appeal case they relied upon in pursuing the alternative to spousal benefit. It would appear that the Insurer had everything in hand that it needed to process the benefit, and pay the claim, within a reasonable time.

The provision of the AXA decision, along with other supporting documents, is important to note, since it should have put the adjusters for the insurer on notice that entitlement to the spousal benefit in this case was a legal issue, and that the highest court in the province seemed to support an interpretation of the legislation that would justify a payment of the spousal benefit to the dependant daughters of Mrs. Peters.

Clearly, the insurer's adjuster didn't accept the interpretation offered by counsel for the Peters family, for reasons, either personal or substantive. We have no idea of what motivated the decision. Ms. Paragua's³³ testimony didn 't shed much light on the decision-making process, other than the fact that it did not involve anyone legally trained. Apart from the formal communications made by the Insurer to the Peters family, there is not much information as to what drove initially Primmum and then Aviva to refuse to consider the daughters' claim. No-one from Aviva itself testified³⁴, although the conduct and state of mind of both insurers were clearly at issue in this arbitration.

We do know however, from the agreed statement of facts what the outcome of the adjustment process was. A decision was made by adjusters as to what constituted a "spouse", a decision which neither insurer re-considered.

There would have been other material or knowledge in the hands of one insurer or another that would have served to address the issue of the allegations of unreasonable withholding of the balance of the death benefit. None was provided.

Sopinka J., in Farrell v. Snell, using an analysis based on inference rather than "burden of proof" confirmed that where one party has a particular knowledge of underlying facts, it is permissible to draw inference based on even a little affirmative evidence.³⁵

In many malpractice cases, the facts lie particularly within the knowledge of the defendant. In these circumstances, very little affirmative evidence on the part of the plaintiff will justify the drawing of an inference of causation in the absence of evidence to the contrary.

In this case the procedures and enquiries undertaken by the adjusters in dealing with the claim advanced by the Peters are particularly in the knowledge of the insurer who chose to call only one witness³⁶ to the adjustment process, and to file none of its records relating to the adjustment process, other than the various notices sent to the Peters . I can only surmise that any other "inside" evidence would not have helped the Insurer's case.

Indeed, as part of the hearing, counsel for Aviva conceded that Primmum did not retain legal counsel to advise them as to who was entitled to benefits.

Whether or not the Insurer agreed with the Peters' interpretation of their entitlement to the enhanced death benefits, it had certain obligations when faced with their request and the supporting material. It had an obligation to treat its insured fairly and investigate the claim.³⁷Since it was faced with a question of legal interpretation, a wise insurer would have asked for a legal opinion advising on the effect of the AXA decision on the Peters' claim.³⁸

There was no evidence that any opinion was requested or provided at the time that the initial decisions were made.³⁹ Ignoring the legal consequences of the AXA decision upon the Peters claim constituted at the very least, wilful blindness⁴⁰ on the part of the Insurer.

Had the adjusters read the AXA decision they would have noted the prudent course for an insurer to take in a situation where it acknowledged that a payment was owing but was aware of a dispute concerning the appropriate recipient. In AXA, the insurer quite rightly paid the death benefit into court pursuant to section 271 of the Insurance Act.

In addition, section 203(1) of the Insurance Act provides:

Where an insurer receives sufficient evidence of,

(a) the happening of the event upon which insurance money becomes payable;

(b) the age of the person whose life is insured;

(c) the right of the claimant to receive payment; and

(d) the name and age of the beneficiary, if there is a beneficiary,

it shall, within thirty days after receiving the evidence, pay the insurance money to the person entitled thereto.

From the chronology in the agreed statement of facts, it is clear that by January 14, 2004 the requirements of section 203(1) had been substantially fulfilled.

For some unknown reason no payment had been made under section 203(1) nor was a payment into court under section 271. Either, if undertaken, would have had an important effect on the outcome of this dispute, especially the special award.

Had the Insurer paid the disputed monies into court, the various members of the Peters family could then have applied to the court to have the benefit paid out, if they wanted the money. If Mr. Peters was not inclined to apply, the payment to his daughters could have been made promptly, without implicating the Insurer in an inter-family dispute.

Outside of Toronto the delays in access to the courts are not so acute. A simple application to pay money out of court⁴¹ could have been brought on relatively quickly.⁴² In all, it might well have been an appropriate strategy had the Insurer wished to avoid the appearance of favouring the interests of one insured over another.⁴³

The reference in the agreed statement of facts to Mr. Peters' change of position on the spousal benefit issue following a telephone call from the Insurer to Mr. Peters advising him of his entitlement, taken with the comments by counsel at the hearing, suggest that the Insurer was not particularly concerned about any appearance of preference.

As Denis Boivin noted in his article La bonne foi et l'indemnisation des personnes assurees⁴⁴(Good Faith and the compensation of insured persons):

Le devoir de bonne foi protege les assures lors de l'execution du contrat de la meme facon que ce devoir protège les assureurs lors de la formation du contrat; cette obligation empeche une partie contractante d'exploiter la vulnerabilité de l'autre en lui allouant unilateralement un risque.⁴⁵

In this case the, joint conduct of the insurers, in not dealing directly with the claim and supporting law put forward by the Peters, by presenting a fait accompli to the claimants in paying their father under quite unusual circumstances⁴⁶ amounted to taking advantage of the vulnerability of the two sisters.

An examination of the Insurer's written communications to the Peters and their family, including the explanation of benefits payable, show that the Insurer never dealt directly with the issues raised by the AXA decision, which formed an integral part of their claim. If the Insurer had a different reading of the decision, or some other, binding decision or, even an informed opinion on the decision, it never communicated such to the Applicants.

In Kusalic c. Zurich Cie d'assurances, Borenstein J. wrote, in a decision relied upon by Laskin J.A. in his dissent at the Court of Appeal level in Whiten v. Co-operators:⁴⁷

Le contrat d'assurance en est un "uberimma fides", de bonne foi la plus évidente. L'assureur doit agir de bonne foi et prendre consideration les interêts de son assuré aussi bien que les siens. Il doit lui divulger, dans un délai raisonnable, tous les renseignements pouvant affecter les décisions de l'assuré dans ces negotiations de réglement ou dans son litige.⁴⁸

The Insurer had reasonable choices available to it. It could have investigated the matter fairly, without preconceptions or bias. It could have paid the claim as put forward by counsel in January 2005. It also could have paid the disputed monies into court, promptly, and allowed the court to resolve that matter. Instead, it took another, more contentious line that ultimately brought us to this arbitration.

While there is no need for a person claiming a special award to demonstrate either bad faith or some other independent actionable circumstance, it would be reasonable to conclude in this case that Aviva, and its predecessor on the file, acted in a manner that was contrary to its good faith duties to the Applicants.

It should be remembered that the legislature has specifically mandated a wider and less focussed mandate for special awards than bad faith alone. In fact, the conduct of the insurer may be a lesser consideration than the effect on the insured of the withdrawal of benefits, provided only that the pre-condition that "an insurer has unreasonably withheld or delayed payments" has been met.

Given the lower threshold for a special award, it would seem that conduct that would support a finding of a breach of an insurer's good faith obligations in the determination of entitlement to benefit would also support a special award when those same benefits were withheld.

Arbitrator Blackman stated in Murray and Wawanesa Mutual Insurance Company⁴⁹ stated: "The effect of the Insurer's unreasonable withholding or delaying of payments on the Applicant is also a factor to be taken into consideration in making a special award."

Indeed, in Persofsky⁵⁰, the Director recognized this element in setting a special award.

To paraphrase, the award should be proportionate to: (i) the blameworthiness of the insurer's conduct; (ii) the vulnerability of the insured person; (iii) the harm or potential harm directed at the insured person; (iv) the need for deterrence; (iv) the advantage wrongfully gained by the insurer from the misconduct; and (vi) should take into account any other penalties or sanctions that have been or likely will be imposed on the insurer due to its misconduct. [emphasis added]

I will deal briefly with some of the considerations identified by the Director in dealing with Special Awards.

Vulnerability:

As agreed by the parties, the Applicants in this matter were full-time students and dependent on Mrs. Peters. Mrs. Peters' estate was insolvent, and there was a large mortgage on the house where they lived. They had no income to speak of. Their father was not supporting them. Financially they were vulnerable.

It goes without saying, as well, that following the sudden death of their mother, and the disruption of their family life, they were emotionally vulnerable as well.

Gravity of the Conduct of the Insurer:

While in the grand scale of things it is easy to imagine conduct more outrageous than the actions of the Insurer in refusing to pay the full death benefit claimed by the Peters' sisters, in the context of the provision of accident benefits, the Insurer's conduct amounted to a repudiation of its responsibilities to vulnerable claimants. I would have no hesitation in describing its conduct as both wrong-headed and ill-advised.

It forced two young women of limited means to retain counsel and go to arbitration over something that could have been dealt with more expeditiously, had the Insurer not failed in its duties to the insured.

It has been frequently said that a contract of insurance is intended to provide peace of mind to insureds at a difficult time. Instead of peace of mind, the Peters sisters found aggravation and a refusal to consider what the actual state of the law was.

The Insurer wasn't even prepared to inform itself of its insured's rights and its own duties. It did not seek out a legal opinion, so convinced it was of the tightness of its pre-conceived opinion on entitlement.

By not addressing the issues and delaying the payment process some years, the Insurer's actions ran counter to one of the basic purposes of the death benefit, that is, the provision of "modest but not insignificant, short term financial assistance"⁵¹ in the period following the accident.

A British Columbia court once observed of another insurer's conduct:

I accept that the insurer's conduct may not evidence "malice" if by that is meant conduct deliberately or intentionally designed to inflict harm. But at the very least, Sun Life was wilfully blind to its good faith duty and the consequences of a breach of that duty on the insured.⁵²

Although there is no need to prove malice to support a special award, the same failure to adhere to a good faith duty can support a lesser finding of unreasonableness.

In this matter, Aviva and its predecessor were not prepared to look at the Peters claim with an open mind. They were prepared to favour one insured over another in settling the claim. They were also prepared to pit family member against family member by persuading⁵³Mr. Peters to file a claim and assuring him that he was "entitled" to the money.

They were prepared to be blind to the current state of the law, and to alternatives available to them to address any conflict between claimants.

In the circumstances of this case, I have no hesitation in finding that Aviva and its predecessor were not only wrong, but unreasonable in the handling of this case. Consequently, the delay in paying the benefit to Diane and Denise Peters was itself unreasonable.

This case is about $25,000 in total, divided between two claimants. Given the relatively small amounts at stake here, and the extent to which the Applicants have had to go to have the Insurer fairly address this claim, I am satisfied that even the maximum special award would not adequately address the additional difficulties and distress caused to two vulnerable people at a difficult time in their lives. Nor would it serve as any sort of adequate deterrence to a company the size of Aviva.

Unfortunately 50% of the withheld amount plus interest is the limit that can be awarded under this provision and I so order, subject to the issue of the setting of the exact amount of the award which follows.

Interest

In the materials filed before me at the hearing there were no calculations or submissions regarding the appropriate manner of calculating the statutory interest accumulated to date in this matter. The parties shall have 30 days to agree on the amounts due under the interest claim, failing which I will receive brief written submissions on the quantum of the interest award.

Calculation of the Special Award

I have found that Diane and Denise Peters are entitled to a special award claim at the maximum rate permitted by the Insurance Act. Since the calculation is based on not only the benefit withheld, but also interest outstanding, the parties shall have 30 days to agree on the amounts due as a special award, failing which I will receive brief written submissions on the quantum of the special award.

EXPENSES:

Denise and Diane were successful in all aspects of their claim. I am aware of no formal offers to settle that would affect an expense award. Therefore, Denise and Diane Peters shall have their expenses in this matter paid by Aviva.

Denise and Diane should serve and file a Bill of Costs within the next 30 days. If the parties are unable to agree on the quantum of the expense award, I may be spoken to briefly on that issue.

April 10, 2006

John Wilson Arbitrator

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 54

FSCO A05-000196 and A05-000197

BETWEEN:

DENISE UDELE PETERS and DIANE ANDREA PETERS

Applicants

and

AVIVA CANADA INC.

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Aviva shall pay to Denise and Diane Peters each $12,500 as payment of a supplementary death benefit under section 25(2)3 of the Schedule.

2. Aviva shall pay statutory interest at the rate of 2 percent per month, compounded monthly on the above death benefit. The parties shall have 30 days to agree on the amounts due under the interest claim, failing which I will receive brief written submissions on the quantum of the interest award.

3. Aviva shall pay Diane and Denise Peters a special award at 50 per cent of the withheld death benefit together with interest on all amounts owing to them, the maximum rate permitted by the Insurance Act. Since the calculation is based on not only the benefit withheld, but also interest outstanding, the parties shall have 30 days to agree on the amounts due as a special award, failing which I will receive brief written submissions on the quantum of the special award.

4. Diane and Denise Peters were successful in all aspects of their claim. I am aware of no formal offers to settle that would affect an expense award. Therefore, Denise and Diane Peters shall have their expenses in this matter paid by Aviva.

5. Aviva is liable to pay Denise and Diane Peters' expenses of this arbitration. The Applicants shall serve and file a Bill of Costs within 30 days of the date of this decision. If the parties are unable to agree on the quantum of the expense award, I may be spoken to briefly on that issue.

April 10, 2006

John Wilson Arbitrator

On the one hand the compensatory goal camouflages the fact that the conduct of the defending party is the factor which drives an award for examplary damages (dommages-interets majores). On the other hand, this goal brings together under the heading of aggravated damages a range of non-pecuniary damages including mental distress, anxiety, humiliation and harm to dignity. (my translation - with apologies to Denis Boivin)

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2The two daughters subsequently repaid the funeral expenses initially paid by their father.
3. 3AXA Insurance Company of Canada v. Prince et al. 1998 CanLII 7123 (ON CA), 40 O.R. (3d) 66 (AXA)
4. 4Letter from David Gillespie to Primmum dated January 14, 2004.
5. 5As noted in Whitby (Town) v. Lascombe 23 Gr. 1, "The first Legislative Act of the new Province was, to abrogate the laws of Canada, that is, the French laws, and any laws or edicts which were in force in regard to property and civil rights, within the Province of Quebec; and they accompanied this abrogation with an enactment, that in all matters of controversy relative to property and civil rights, resort shall be had to the laws of England, as the rule of decision of the same.
6. 6Given the different sources of law on marriage, it is hard to see how any presumption of "consistent expression" could apply, as urged by the Insurer.
7. 7The source was primarily religious, specifically Church of England, which was reluctant to recognize the validity of marriages not made under its umbrella, and even more reluctant to admit that a marriage, once solemnized, could ever be dissolved.
8. 8Hyde v. Hyde and Woodmansee [1861-73] All E.R. Rep. 175
9. 9Variously spelled "Comex" or "Comox" in the decision.
10. 10Robb v. Robb 1891 CanLII 216 (ON SCJ), 20 O.R. 591
11. 11Phipps v. Moore 5 U.C.R. 16 (U.C.Q.B.)
12. 12Hodgins v. McNeil 9 GR. 305 (U.C.C.C.)
13. 13Smith v. Smith 1955 CanLII 155 (ON CA), [1955] O.R. 695-712
14. 14In this case, see The Interpretation Act, R.S.O. 1990 c. I 11
15. 15Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559
16. 16Smith v. Co-operators General Insurance Co. [2002] S.C.R. 129
17. 17Black's Law Dictionary renders its meaning as "A personal action dies with the person."
18. 18Lord Campbell's Act Imp. Statute 9-10 Vict. ch 93, R.S.O ch. 128 (as re-enacted in Ontario)
19. 19Lett v. St Lawrence and Ottawa Railway Co.
20. 20The purpose of the accident benefit legislation has been characterized as follows by Cameron J. in Youden v. Economical Insurance Co. 1996 CanLII 8010 (ON CTGD), [1996] O.J. No. 2044: "This is remedial legislation. The "no fault" legislation deprived the plaintiff of his common law right to sue for damages for loss of income due to another's negligence. The Regulation provides for prompt payment of an income benefit to replace income lost due to the accident without need to prove fault and in lieu of any amount the plaintiff might have been awarded and recovered at common law."
21. 21Even though the right to claim under tort for certain damages has been restored, there are still restrictions and a large deductible that keeps Cameron J.'s comments relevant.
22. 22Willard v. Zurich Insurance Co. 2004 CanLII 34777 (ON SC), 73 O.R. (3d) 309
23. 23See section 18 of The Interpretation Act, R.S.O. 1990 c. I 11- re effects of change of legislation.
24. 24The Supreme Court in Miglin v. Miglin 2003 SCC 24, [2003] 1 S.C.R. 303, has again confirmed the necessity of respecting the intent of separation agreements, except in those limited cases where the mechanism of the agreement itself is impugned.
25. 25The materials outline monies owed by Mrs Peters at the time of death including an overpayment of an LTD claim, mortgage balances and an outstanding Revenue Canada assessment at a time when both daughters were students. Indeed, the parties are agreed that the "estate owes the two girls $27,655.02 because they used their own funds to pay the debts of the estate."
26. 26Neither the validity nor the finality of the separation agreement are at issue in this arbitration.
27. 27Since section 2 of Regulation 283/95, dealing with disputes between insurers, provides that the first insurer receiving an application will pay benefits pending resolution of the priority dispute, there would be no interest in the Peters becoming parties to that dispute. Indeed, since section 9 provides that "the costs of the arbitration for all parties shall be paid by the unsuccessful parties to the arbitration", there is a positive disincentive for an insured to become involved in a priority dispute.
28. 28Liberty Mutual Insurance Company and Persofsky, (FSCO P00-00041, January 31, 2003)
29. 29Denis Boivin suggests that even in punitive damage cases more is at stake than just the punishment of the defendant: "D'une part, l'objectif compensatoire camoufle le fait que le comportement de la partie defenderesse est un facteur qui motive generalement l'attribution de dommages-interets majorés. D'autre part, cet objectif rassemble sous la rubrique de dommages-interets majorés une gamme de prejudices non pecuniaires, y compris les souffrances morales, l'anxiété, l'humiliation et l'atteinte à la dignité." Revue de droit de McGill/McGill Law Journal (1998) 43 R.D. McGill 221.
30. 30Both of which are appropriate to a scheme whose aim is "prompt payment of an (income) benefit to replace income lost due to the accident without need to prove fault and in lieu of any amount the plaintiff might have been awarded and recovered at common law." Youden v. Economical Insurance Co. supra
31. 31Although Persofsky makes reference to punitive damages, the "unreasonably withheld" criterion of a special award could also contain elements of aggravated as well as exemplary damages.
32. 32See agreed statement of fact
33. 33Ms. Jennifer Paragua, a representative from Primmum, testified. No-one testified from Aviva, the company which actually received the mediation application and then, subsequently, paid Mr. Peters.
34. 34Lord Mansfield in Blatch v. Archer (1774), 1 Cowp. 63 stated: "It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted."
35. 35Farrell v. Snell1990 CanLII 70 (SCC), [1990] 2 S.C.R., 311
36. 36Ms. Jennifer Paragua (Primmum) essentially revisited the documents contained in the agreed statement of facts and advised that the claim was reviewed with an "analyst", not a lawyer.
37. 37Cumming J. in Bullock v. Trafalgar Insurance Co. of Canada [1996] O.J. No. 2566 "The duty is not a fiduciary duty but includes certain elements akin thereto. A fiduciary who owes a duty of individual loyalty to his/her principal and in exercising powers of discretion arising from the fiduciary relationship must treat the principal's interest as paramount. In contrast, an insurer in fulfilling its contractual obligations may give consideration to its own interests. However, the insurer must give as much consideration to the welfare of the insured as it gives to its own interests."
38. 38It is reasonable to conclude that no informed opinion, let alone a legal opinion was requested by the Insurer. The sole correspondence specifically dealing with the rejection of the daughters claim refers to the AXA decision as "arbitration decisions regarding this issue." Although both were provided to the Insurer, it is hard to conceive anyone with some knowledge of insurance law mistaking the Court of Appeal for arbitrators at FSCO. As noted earlier the admission that no legal advice was sought was not made until the middle of the hearing.
39. 39Bullock (supra) "the insurer may not treat the insured as an adversary whose interests may be disregarded. This encompasses a duty to settle claims without litigation in appropriate cases: This implies a reasonable and competent investigation to determine whether a claim will be honoured."
40. 40In R. v. Sansregret, the doctrine of wilful blindness was outlined. ...wilful blindness arises where a person who has become aware of the need for some inquiry declines to make the inquiry because he does not wish to know the truth. He would prefer to remain ignorant. The culpability in recklessness is justified by consciousness of the risk and by proceeding in the face of it, while in wilful blindness it is justified by the accused fault in deliberately failing to inquire when he knows there is reason for inquiry. R. v. Sansregret 1985 CanLII 79 (SCC), [1985] 1 S.C.R. 570
41. 41Rule 72.03 Rules of Practice
42. 42Since it would not have been a dispute between an insurer and an insured over accident benefits, an application could likely have been made without even the prerequisite of mediation.
43. 43Aviva was both the Insurer of Mr. Peters, and by accepting its priority, the deemed insurer of Mrs. Peters.
44. 44Revue de droit de McGill/McGill Law Journal (1998) 43 R.D. McGill 221
45. 45The duty of Good Faith protects the insureds at the time of the performance of the contract in the same way as this duty protects the insurers at the time of the formation of the contract. This obligation prevents a contractual party from exploiting the vulnerability of the other by unilaterally allocating a risk to the other party. (my translation-with apologies to Denis Boivin)
46. 46There was no claim filed by Hilroy Peters until August 24, 2004. The Insurer paid this claim on September 9, 2004. The OCF 9 gave no reasons why Mr. Peters' claim was preferred over that of his children. Denise and Diane Peters had already filed for mediation on July 16, 2004.
47. 47Whiten v. Co-operators (1999) 1999 CanLII 3051 (ON CA), 42 O.R. (3d) 641. Laskin J.A's dissent was in turn relied upon by the Supreme Court in overturning the decision of the Court of Appeal, and reinstating the significant award of punitive damages.
48. 48Kusalic c. Zurich Cie d'assurances [1995] A.Q. No. 1425, "The contract of insurance is one of 'uberrima fides' of utmost good faith. The Insurer must act in good faith and take into consideration the interests of its insured as well as its own. It must divulge (to its insured) in a reasonable timeframe all the information capable of affecting the decisions of the insured in his (or her) settlement negotiations or in litigation."
49. 49(OIC A-003224, August 23, 1996)
50. 50Supra
51. 51Willard v. Zurich Insurance Co. supra
52. 52Fidler v. Sun Life Assurance Co. of Canada 2004 BCCA 273, [2004] B.C.J. No. 982 (B.C.C.A.)
53. 53Ms. Paragua conceded that Mr. Peters was agreeable to foregoing the spousal benefit but changed his mind in the course of the Insurer's conversation with him.