Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 107

FSCO A03-001712

BETWEEN:

LINTON HUTCHINSON

Applicant

and

SECURITY NATIONAL INSURANCE CO./MONNEX INSURANCE MGMT. INC.

Insurer

REASONS FOR DECISION ON AN APPLICATION TO VARY OR REVOKE THE ORDER ISSUED ON AUGUST 19, 2004

Before:

Richard Feldman

Heard:

June 19, 20 and 21, 2006 and February 26, 2007, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

David S. Wilson for Mr. Hutchinson

Donald Harvey for Security National Insurance Co./Monnex Insurance Mgmt. Inc.

The Applicant, Linton Hutchinson, was injured in a motor vehicle accident on August 23, 2002. He applied for and received statutory accident benefits from Security National Insurance Co./Monnex Insurance Mgmt. Inc. ("Security National"), payable under the Schedule.¹ Disputes arose between the parties concerning Mr. Hutchinson's entitlement to certain benefits. The parties were unable to resolve their disputes through mediation and Mr. Hutchinson applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

On July 19, 2004, the date upon which the hearing of this matter was to commence, the parties reached a settlement whereby they jointly requested that the Commission issue an order in accordance with the signed Consent of the parties, filed with the Commission. That consent order was issued by Arbitrator Renahan on August 19, 2004. Amongst other terms to which the parties had agreed, the order provided that:

"1. The insurer shall pay ongoing income replacement benefits at a rate of $400.00 weekly from July 16, 2004."

On October 15, 2004, Security National ceased paying income replacement benefits to Mr. Hutchinson on the basis of new medical reports it obtained. Mr. Hutchinson challenged this decision by the Insurer and, ultimately, commenced his own application for arbitration of the dispute (File No. A05-000327). He also argued, through his counsel, that Security National had no right to terminate his income replacement benefits unless and until the order of August 19, 2004 was varied or revoked. Security National finally conceded this point and, on April 28, 2005, it paid the income replacement benefits that it had withheld for the period October 15, 2004 through April 29, 2005 (plus interest). On or about June 30, 2005, Security National paid the benefits that were owing for the period from April 30, 2005 through July 15, 2005 (plus interest). Thereafter, Security National has paid weekly income replacement benefits to Mr. Hutchinson of $400.00. Security National was not, at that point in time, conceding that Mr. Hutchinson was entitled to income replacement benefits due to his medical condition; rather, the Insurer reinstated payment of these benefits because it conceded that it was compelled by the terms of the order of August 19, 2004 to continue making such payments until such time as that order was varied or revoked by a subsequent order of the Commission.

On July 25, 2005, Security National filed this application to vary the Order of Arbitrator Renahan dated August 19, 2004 on the basis that the test for entitlement to Income Replacement Benefits changed at the 104-week post-accident anniversary (August 23, 2004) and that, based upon new medical information concerning his condition, Mr. Hutchinson no longer met the test for entitlement to such benefits. This, argued the Insurer, constituted a material change in the circumstances of the insured that, pursuant to section 284 of the Insurance Act and Rule 61.1 of the Commission's Rules of Procedure², justified a variation of the Order dated August 19, 2004. Pursuant to subsection 284(2) of the Insurance Act and Rule 63 of the Code, the Director of Arbitrations delegated the hearing of this application for variation/revocation to me, to be heard concurrently with Mr. Hutchinson's application.

The issues in this hearing are:

Whether, as a result of a material change in Mr. Hutchinson's circumstances, paragraph 1 of the consent order dated August 19, 2004 ought to be varied to read as follows:

"The Insurer shall pay ongoing income replacement benefits at a rate of $400.00 weekly from July 16, 2004 to August 23, 2004."

Under section 282(11) of the Insurance Act, is Mr. Hutchinson liable to pay Security National's expenses in respect of its application to vary/revoke the order of August 19, 2004?
Under section 282(11) of the Insurance Act, is Security National liable to pay Mr. Hutchinson's expenses in respect of this application to vary/revoke the order of August 19, 2004?

The Insurer's application to vary/revoke the order of August 19, 2004 is dismissed.
The decision on expenses is deferred at the request of the parties.

The hearing of this application to vary the order of August 19, 2004 was heard concurrently with the application filed by Mr. Hutchinson (File No. A05-000327) on June 19, 20 and 21, 2006 and on February 26, 2007. I received into evidence numerous documents tendered by the parties. On June 20, 2006, I heard testimony from Ruth Billet (a vocational expert) and Dr. Stephen Halman (orthopaedic surgeon). On June 21, 2006, I heard testimony from Dr. Richard Lee-Sing (family physician) and dealt with a number of evidentiary and procedural matters.

On February 26, 2007, counsel for the Insurer advised me that Security National was conceding that Mr. Hutchinson qualifies for income replacement benefits under the "post 104-week" test.³ The Insurer is, therefore, not relying on any of the evidence it has adduced at this hearing. Nevertheless, I was advised by Mr. Harvey on February 26, 2007 that Security National is taking the position that the change in the test for entitlement to income replacement benefits as of August 23, 2004 constituted a material change in circumstances and it requested that the order dated August 19, 2004 be varied so that the Insurer's obligation under that order to pay income replacement benefits ends on August 23, 2004.

The Applicant, through his counsel, objected to this request on two grounds.

First, it was submitted that the issue raised in this application by the Insurer, as identified in the pre-hearing letter of October 12, 2005, was whether or not Mr. Hutchinson was entitled "to income replacement benefits under the post-104 week test in Part II of the Schedule from October 16, 2004 and ongoing." Mr. Wilson submits that the Insurer's application must be dismissed since the Insurer is now conceding that Mr. Hutchinson is entitled to income replacement benefits from October 16, 2004 onwards (at least up to the last day of hearing). Security National was originally relying both upon the change in the test for entitlement and new medical evidence concerning Mr. Hutchinson's condition. Mr. Wilson submitted that the Insurer should not be able to change its theory of the case and argue at the hearing (for the first time) that the change in the test for entitlement at 104 weeks of disability in and of itself constitutes a material change in circumstances that warrants a variation of the consent order.

Second, and in the alternative, it was submitted by Mr. Wilson that if I permitted the Insurer to proceed with this argument, that the Insurer's application ought to be dismissed as the Insurer's position is devoid of merit.

1. Can Security National proceed with its argument that the change in the test of entitlement constitutes a material change in circumstances?

A careful reading of Schedule "A" to the Insurer's Application for Variation/Revocation reveals that the Insurer was taking the position that there were two material changes in circumstances: (1) new medical evidence that suggested that Mr. Hutchinson did not meet the test for entitlement to income replacement benefits; and, (2) since the consent order was made prior to 104 weeks of disability, the Insurer was taking the position that the change in the test for entitlement to income replacement benefits at 104 weeks of disability constituted a material change in circumstances.

At the commencement of the hearing in June 2006, Mr. Harvey made it clear in his opening statement that the Insurer was advancing the following two alternative arguments: (1) it constituted a material change in circumstances that, on or after August 23, 2004, Mr. Hutchinson did not suffer a complete inability to engage in any employment for which he was reasonably suited by education, training or experience; and (2) the change in the test for entitlement to income replacement benefits on August 23, 2004 constituted a material change in circumstances.

Mr. Wilson conceded on February 26, 2007 that the Applicant was not prejudiced by having to respond to this latter theory since it was a legal, not a factual, issue and he had over seven months to prepare a response. I therefore permitted the Insurer to make its argument that the change in the test for entitlement to income replacement benefits as of August 23, 2004, in and of itself, constituted a material change in the circumstances of Mr. Hutchinson.

2. Does the change in the test for entitlement to income replacement benefits as of August 23, 2004, in and of itself, constitute a material change in the circumstances of Mr. Hutchinson that warrants a variation of the order dated August 19, 2004?

The Insurer takes the position that when, on July 19, 2004, it consented to an order that it "shall pay ongoing income replacement benefits at a rate of $400.00 weekly from July 16, 2004," it did not intend that this order would extend beyond August 23, 2004 (the date upon the test for entitlement changed). The Insurer adduced no evidence to support this assertion. It suggests, however, that this is a reasonable inference.

The Insurer also relies upon the decision of Arbitrator Alves in Ramalingam and State Farm Mutual Automobile Insurance Company⁴ In that case, Mr. Ramalingam had been involved in an accident on January 9, 2002 and State Farm had paid the benefits in question until July 2002. In an earlier order in the same case, Arbitrator Alves granted the applicant's motion for interim benefits and ordered State Farm to pay interim income replacement and housekeeping and home maintenance benefits to the Applicant from April 29, 2003 pending the final order in the arbitration.⁵ At the time that order was issued, the hearing was scheduled to commence on September 15, 2003 which, Arbitrator Alves noted, was still within the 104-week period.⁶

The hearing, however, was delayed and did not commence on September 15, 2003. Because of a change in the test for entitlement (as of January 9, 2004) and new evidence concerning the condition of Mr. Ramalingam, State Farm brought an application to vary the interim benefits order so that it terminated at the 104-week mark. In the event that State Farm's application was granted, Mr. Ramalingam brought a new motion for interim benefits.

Arbitrator Alves found that the change in the disability test Mr. Ramalingam had to meet after the 104-week period was a material change in Mr. Ramalingam's circumstances because he was required to satisfy a more onerous test in order to establish entitlement to income replacement benefits and housekeeping benefits at that juncture. In the alternative, Arbitrator Alves found that new medical evidence that indicated that Mr. Ramalingam's condition had worsened both physically and psychologically also satisfied her that there had been a material change in Mr. Ramalingam's circumstances. As a result, Arbitrator Alves terminated her previous order for interim benefits as of January 9, 2004 (the 104-week mark) and issued a new order for interim income replacement benefits (under the post 104-week test) for the period from January 10, 2004 pending the final order in the arbitration.

Mr. Wilson argued that from the wording of paragraph 1 of the consent order of August 19, 2004, and in the absence of any other evidence concerning the intention of the parties, it is not a reasonable inference that the Insurer's obligation under that order to pay income replacement benefits was intended to end on August 23, 2004. He also argued that the Ramalingam decision upon which the Insurer relies⁷is distinguishable on its facts from the present case. I agree with Mr. Wilson on both points.

At the time the parties reached their settlement in this case, they were both represented by counsel. There is no allegation of mistake or fraud or duress or anything else that would invalidate their agreement. The term of their agreement concerning payment of income replacement benefits is clear and unambiguous. Security National consented to an order requiring it to pay "ongoing income replacement benefits at a rate of $400.00 weekly from July 16, 2004." If Security National had intended there to be a time limit on this order, it would have been a simple matter to have included one. The 104-week mark was only five weeks away from the date upon which the parties reached this agreement and the change in the test for entitlement ought reasonably to have been contemplated by the parties at the time they made their agreement.

With respect to the change in the test for entitlement, I agree with Arbitrator Alves that such a change may constitute a material change in the circumstances of an insured person, depending upon all of the relevant circumstances. In my view, it is not appropriate to consider that one factor in isolation. When Arbitrator Alves made her original order for interim benefits in Ramalingam, it was anticipated by her and by the parties that the hearing would commence within a couple of weeks from the date she issued the order and that the application would likely be resolved prior to the change in the test for entitlement. As a result of a substantial delay in the commencement of the main hearing, Arbitrator Alves found it to be appropriate to limit the original interim order and conduct a new hearing to determine whether Mr. Ramalingam ought to be granted a new order for interim benefits under the post-104-week test. In these circumstances, she found the change in the test to be a material change in Mr. Ramalingam's circumstances. I do not believe that she intended to imply that the expiration of 104 weeks will always constitute a material change in circumstances of every insured person claiming income replacement benefits; if that is actually what this case stands for then I respectfully disagree with that proposition.

In my view, to determine whether there has been a material change in the circumstances of an insured person, one must consider all of the relevant circumstances of that person. Rarely will it be sufficient or appropriate to consider a change in the test for entitlement in isolation from, and without consideration of, the other circumstances of the insured person. For instance, in the extreme case of an applicant who is in a coma, it should be obvious that, as long as the insured person remains in a coma, not only will that person suffer a substantial inability to perform the essential tasks of their pre-accident employment but they will also have suffered a complete inability to engage in any employment for which he or she is reasonably suited by education, training or experience; for such a person, the change in the test of entitlement will be irrelevant. Similarly, in the present case, where the Insurer consented to an order shortly before the change in the test without insisting on any time limit within that order and where the Insurer now concedes that Mr. Hutchinson suffers a complete inability to engage in any employment for which he is reasonably suited by education, training or experience, the change in the test does not constitute a material change in the circumstances of Mr. Hutchinson.

Based upon the submissions of Mr. Harvey, it is apparent that Security National is prepared to pay income replacement benefits to Mr. Hutchinson at this time but it would prefer that the part of the consent order that requires it to pay income replacement benefits be, in essence, cancelled. In that way, if Security National obtains new information in the future that leads it to conclude that Mr. Hutchinson is no longer entitled to income replacement benefits, it can terminate those benefits without having to bring an application to vary or revoke that order. This appears to me to be little more than a thinly veiled attempt by Security National to have the Commission relieve Security National from the consequences of its bargain with Mr. Hutchinson, without any legal justification for so doing.

For these reasons, Security National's application to vary the order of August 19, 2004 is dismissed.

EXPENSES:

At the conclusion of the hearing on February 26, 2007, the parties asked that I defer the issue of entitlement to expenses of this application. If the parties cannot agree on the issue of entitlement or amount, they may now make submissions on both issues in accordance with Rule 79 of the Dispute Resolution Practice Code.

May 25, 2007

Richard Feldman Arbitrator

Date