Financial Services Commission of Ontario Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 62 FSCO A02-001646

BETWEEN:

KULAVEERASINGAM RAMALINGAM Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Insurer

REASONS FOR DECISION

Before: Jeffrey Rogers Heard: By written submissions completed on March 22, 2006.

Appearances: David S. Wilson, solicitor for Mr. Ramalingam Todd McCarthy, solicitor for State Farm Mutual Automobile Insurance Company

Issues:

In my decision of August 29, 2005, I made the following orders. For ease of cross-referencing, I will retain the paragraph numbers of the Order:

State Farm shall pay to Mr. Ramalingam a special award upon the sum of $15,202.76, plus interest of $10,959.96, paid on March 22, 2005 for IRB's for the period July 26, 2002 to April 28, 2003.
State Farm shall pay a special award to Mr. Ramalingam upon interest on 27 weeks of IRB's paid on November 10, 2003, unreasonably delayed from March 15, 2005 until the date of payment.
State Farm shall pay a special award to Mr. Ramalingam upon interest on 22 weeks of IRB's paid on April 22, 2004, unreasonably delayed from March 15, 2005 until the date of payment.
State Farm shall pay a special award to Mr. Ramalingam upon 39 weeks of housekeeping benefits paid on January 22, 2004, April 23, 2004, May 26, 2004 and June 6, 2005.
State Farm shall pay a special award to Mr. Ramalingam upon interest on 39 weeks of housekeeping benefits paid on January 22, 2004, April 23, 2004, May 26, 2004 and June 6, 2005.
State Farm shall pay a special award to Mr. Ramalingam upon interest owed on $900 paid to Dr. Miller on July 30, 2004, unreasonably delayed from July 30, 2004 until the date of payment.
State Farm shall pay a special award to Mr. Ramalingam upon $3,700 for the treatment plan of Dr. Miller dated April 7, 2003, unreasonably delayed from DAC approval of the plan in July 2003 to payment on July 4, 2005.
State Farm shall pay a special award to Mr. Ramalingam upon interest on the above amount unreasonably delayed from DAC approval of the plan in July 2003 to the date of payment.
State Farm shall pay a special award to Mr. Ramalingam upon $2,232.17 for miscellaneous prescriptions and incontinence products submitted in February and March 2003, unreasonably delayed from the date of receipt of the report of Dr. Baldwin, dated May 26, 2003 until payment on July 30, 2004.
State Farm shall pay a special award to Mr. Ramalingam upon interest on the above amount, unreasonably delayed from the date of receipt of the report of Dr. Baldwin, dated May 26, 2003 until payment.
State Farm shall pay a special award to Mr. Ramalingam upon $2,574 plus interest, for the treatment plan of Dr. Fuller dated July 11, 2003 unreasonably delayed from 31 days after it Dr. Fuller's treatment plan was submitted, until payment on June 21, 2005.

I also ordered Mr. Ramalingam to provide State Farm with a statement showing the amounts upon which the special awards are to be calculated, while remaining seized of the issue of the amounts of the special awards. Mr. Ramalingam has provided a statement prepared by Zysman Forensic Accounting Inc. He filed a copy with the Commission on December 23, 2005. By letter of January 16, 2006, State Farm acknowledged that the statement correctly sets out the maximum amounts upon which the special awards could be calculated. The parties have not been able to agree on the amounts of the special awards.

At Mr. Ramalingam's request, I accepted further written submissions on the amounts of the special award. Those submissions were completed on March 22, 2006.

As noted in my decision of August 29, 2005, by the time the hearing concluded, State Farm had either paid or agreed to pay almost all benefits in dispute. Mr. Ramalingam was not successful on the remaining minor items in dispute. I found interest on disputed benefits to be outstanding, rejecting State Farm's position that interest is not payable until benefits are found to be owed. I ordered special awards for unreasonable delay in paying interest. I did not order State Farm to pay the outstanding interest. State Farm still has not paid all of the interest owed. Mr. Ramalingam therefore seeks an amendment of my Order pursuant to Section 21.1 of the Statutory Powers Procedure Act and Rule 65 of the Dispute Resolution Practice Code, so that payment can be enforced.

The issues in this hearing are:

What is the amount of the special award that State Farm is liable to pay Mr. Ramalingam pursuant to subsection 282(10) of the Insurance Act?
Should my order of August 29, 2005 be amended pursuant to Section 21.1 of the Statutory Powers Procedure Act and Rule 65 of the Dispute Resolution Practice Code to require State Farm to pay interest under section 46 of the Schedule, found to be owing in paragraphs 3, 4, 6, 7, 9 and 11 of the Order?

Result:

State Farm shall pay Mr. Ramalingam a special award in the amount of $26,250.
My Order of August 29, 2005 is amended by adding the following:

State Farm shall pay Mr. Ramalingam interest owing on benefits referred to in paragraphs 3, 4, 6, 7, 9 and 11, in the amount of $8,286.82, plus further interest, from May 1, 2006, pursuant to section 46(2) of the Schedule.

EVIDENCE AND ANALYSIS:

Quantum of Special Award

For ease of reference, the amounts I found to have been unreasonably delayed are summarized in the table below. "HK" refers to housekeeping benefits:

Paragraph of Order	Benefit	Date due	Date paid	$ Benefit	$ Interest	$ for fixing of Award
2	IRBs	various	26/03/05	15,202.76	10,959.96	39,572.01
3	IRBs	15/03/05			1,461.29	1,810.30
4	IRBs	15/03/05			403.85	500.29
5 & 6	HK	various	various	3,900.00	3,363.37	11,771.67
7	Med.	30/07/04			397.51	492.45
8 & 9	Med.	July 03	benefit 04/07/05	3,700.00	1,512.39	8,351.33
10 & 11	Med.	07/03	benefit 30/07/04	2,232.17	1,148.41	5,034.38
12	Med.	08/03	21/06/05	2,574.00	1,695.97	6,570.35

Section 282 (10) of the Insurance Act sets the maximum amount of a special award at "a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.'

The approach to calculating the maximum amount of the special award was established in Liberty Mutual Insurance Company and Persofsky.¹ That decision also established the approach to fixing the amount of a special award, which I summarize as follows: The purpose of a special award is to punish the insurer for its misconduct and to deter it, and others, from future, similar action. The arbitrator should consider all relevant factors to determine an appropriate lump sum, within the maximum percentage, that responds to the facts of the case and bears a reasonable relationship to other special awards, thus satisfying the principles of rationality and proportionality established by the Supreme Court of Canada regarding punitive damages.²

Persofsky also gives guidance on the factors to be considered. The factors relevant to this decision are:

the blameworthiness of the insurer's conduct;
the harm or potential harm directed at the insured;
the need for deterrence;
the amount of the benefits unreasonably withheld or delayed;
how long the benefit is withheld or delayed;
breach of important obligations under the Schedule; and
mitigating factors.

Benefits July 26, 2002 to April 22, 2003

In keeping with the approach that similar conduct should attract like consequences, I will first fix the award resulting from undue delay in payment to Mr. Ramalingam of IRBs and housekeeping benefits for the period July 26, 2002 to April 22, 2003 (Paragraphs 2, 5 and 6 of Order). The IRBs were paid, with interest on March 26, 2005. Therefore the period of delay is about 32 months for the earliest payable benefits and about 23 months for the latest payable benefits. The housekeeping benefits were paid in 4 instalments between January 22, 2004 and June 6, 2005. That makes the delay about 17 months for the first payable benefits and 25 months for the last payable.

I found that State Farm unreasonably relied on flawed medical opinions in refusing to pay these benefits and, instead of re-assessing the basis of its refusal upon receipt of further evidence of Mr. Ramalingam's ongoing impairment, State Farm focussed its efforts on obtaining rebuttal evidence. State Farm is to be credited with finally re-assessing its position, but that credit is devalued by its confounding decision to pay interest on the IRBs, while refusing to pay interest on the housekeeping benefits, unless ordered to do so.

Not surprisingly, Mr. Ramalingam was financially vulnerable. State Farm became aware of the details of his financial difficulties when he applied for interim benefits in April 2003. However, the effect of State Farm's refusal to pay these benefits must have been lessened by Mr. Ramalingam's success on the motion for interim benefits and State Farm's compliance with the order in November 2003.

The total amount of the benefits is $19,102.76. Interest is $14,223.33 with $3,363.37 remaining unpaid. After adding "special award interest", the maximum special award is $25,671.84. I find that, in fixing a punitive award, the highest penalty should generally be reserved for the most egregious conduct. This approach may not apply, where the amounts are so small that anything but the maximum would have no deterrent effect. That is not the case here. In these circumstances, I fix the special award at $18,000.

Unpaid Interest

In this section is will fix the award where the only unreasonable conduct is refusal to pay interest on benefits already paid (paragraphs 3, 4 and 7 of the Order). I found that State Farm should have paid interest on 49 weeks of IRBs on March 15, 2005, when it conceded entitlement to ongoing IRBs. I found that, because State Farm was not required to pay interest by the interim order under which these benefits were paid, it was insulated from a finding of unreasonable delay, as long as entitlement remained disputed. Once entitlement was conceded, there was no reasonable basis for continued refusal to pay interest. Similarly, I found that State Farm did not unreasonably delay payment of $900 to Dr. Miller on July 30, 2004, but that interest should have been paid as well. State Farm has compounded its unreasonable conduct by its continued refusal to pay the outstanding interest, unless ordered.

The delay so far is about 12 months on the IRBs and about 20 months on Dr. Miller's account. The outstanding amounts total $2,262.65, with the maximum special award being $1,401.52. Mitigating in State Farm's favour is its decision to pay the benefit, without being ordered. I also accept the submission that non-payment of interest should generally attract a smaller penalty, than non-payment of benefits. In these circumstances, I fix the special award at $400.

DAC Approved Treatment (Paragraphs 8 and 9)

I found that State Farm unreasonably withheld payment of $3,700 for a treatment plan by Dr. Miller, approved by a Med/Rehab DAC in July 2003. State Farm refused to pay because Mr. Ramalingam had not attended a requested IE. I found State Farm's reason for refusal to be irrelevant to its binding obligation to pay the expense, imposed by section 38(14.1) of the Schedule. State Farm's payment, about 2 years delayed, does little to mitigate in its favour, in the face of a blatant breach of an important obligation under the Schedule. Again, State Farm compounded its misconduct by continuing refusal to pay interest. The maximum special award is $4,175.66. An award approaching the maximum is necessary for the required deterrent effect. I fix it at $3,800.

Incontinence Medication

In paragraphs 10 and 11 of the Order, I found that State Farm unreasonably delayed payment of $2,232.17 for incontinence medication from July 2003 until July 2004. Interest of $1,148.41 is still unpaid. The maximum special award is $2,517.19. Given the relatively short delay in the payment of the benefit, with interest only remaining unpaid, I fix the award in this regard at $1,250.

No DAC offered

In paragraph 12 of the Order I found that State Farm unreasonably delayed payment for the treatment plan of Dr. Fuller in the amount of $2,574. That amount should have been paid around August 2003. It was paid, with interest of $1,695.97 on June 21, 2005, about 21 months late. State Farm also breached the obligation imposed by section 38(12) of the Schedule, when it failed to offer the option of a DAC. The maximum special award is $3,285.17. Here again, an award approaching the maximum is warranted for the required deterrent effect. I fix it at $2,800.

Total Award

The total special award is $26,250. I am satisfied that this award adequately penalizes State Farm for its overall misconduct in the circumstances of this case.

Amendment of Order of August 29, 2005

By letter of September 20, 2005, I informed the parties that I did not omit payment of interest from my Order by oversight. I indicated that, in the circumstances, I had not considered it necessary to make an order for payment, but that I would amend the Order, if necessary, for enforcement. I find jurisdiction to do so in Section 21.1 of the Statutory Powers Procedure Act and Rule 65 of the Dispute Resolution Practice Code.

I have therefore amended the Order. For ease of enforcement, I have included the total of the specific amounts of interest owed to April 30, 2006, as set out in the statement prepared by Zysman Forensic Accounting Inc.

April 25, 2006

Jeffrey Rogers Arbitrator

Date