Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 186

FSCO A06-002398

BETWEEN:

PHILOMENA TSUI

Applicant

and

LOMBARD GENERAL INSURANCE COMPANY OF CANADA

Insurer

Before: Edward Lee

Heard: July 19, 2007, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: James Chow for Ms. Tsui Pamela M. Stevens for Lombard General Insurance Company of Canada

Issues:

The Applicant, Philomena Tsui, was injured in a motor vehicle accident on March 16, 1995. She applied for and received statutory accident benefits from Lombard General Insurance Company of Canada (“Lombard”), payable under the Schedule.¹ Lombard terminated weekly benefits on November 3, 2005. The parties were unable to resolve their disputes through mediation, and Ms. Tsui applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

Were the weekly benefits paid to Ms. Tsui from March 15, 1997 to November 2005 Income Replacement Benefits (IRB) or were they Loss of Earning Capacity Benefits (LECB)?

Result:

The weekly benefits received from March 15, 1997 to November 2005 were Income Replacement Benefits.

EVIDENCE:

No vive voce evidence was called. The parties agreed that the chronology of events as set out in the “Chronology and Supporting Documents” at Tab 1of Ex. R-1 was correct. The parties also agreed that the letters and documents filed in Tabs 2 to 23 had been exchanged. The parties disagreed as to the nature of the benefit paid to Ms. Tsui from March 1995 to November 2005. Lombard argued that it was at all times paying an Income Replacement Benefit. Ms. Tsui’s position was that although the benefit was initially an Income Replacement Benefit, at some later time, it was converted to and continued to be a Loss of Earning Capacity Benefit.

The facts, as set out in Tab 1, can be resumed briefly as follows:

Ms. Tsui was injured in a motor vehicle accident on March 16, 1995.
Ms. Tsui was originally paid an Income Replacement Benefit of $185.00 per week based on the Explanation of Benefits Form, dated July 5, 1995.
The IRB’s were increased to $598.01 per week on October 15, 1996.

4 IRB’s were terminated by Lombard on March 14, 1997.

Weekly benefits were reinstated by Lombard on December 5, 1997, ten days before mediation was to take place on this issue at the Ontario Insurance Commission.
Weekly benefits were increased to $718.23 per week on July 2, 1998.
Ms. Tsui sent a signed OCF-14 form for a REC DAC to be arranged pursuant to S.27 of the SABs on June 21, 1999.
A Loss of Earning Capacity Benefit Offer was sent to Applicant’s Counsel on November 1, 2000.
Payment of the weekly benefit continued, and no REC DAC ever took place.
The weekly benefit was increased to $738.91 to include an indexation change.
The weekly benefits were terminated by Lombard on November 3, 2005.

The parties agreed that Ms. Tsui qualified for IRBs from the time of the accident on March 16, 1995, and the documentary record shows that the amount of the payment was increased several times, apparently due to an initial lack of information in regard to Ms. Tsui’s employment. There was also no dispute that Ms. Tsui qualified for IRB’s, and continued to qualify for them, 104- weeks after the onset of the disability, despite Lombard’s initial attempt to terminate the IRBs on March 14, 1997, two days before the end of the 104-week mark.

ARGUMENT

Insurer’s Argument

Lombard submitted that an examination of the chain of correspondence and documentation filed in Ex. R-1 supported their position that IRBs had been paid continuously (except for the stoppage from March 1997 to December 1997) to Ms. Tsui since March 16, 1995 to November 2005. Lombard argued that they had been following the procedure leading to the transition of IRBs to LECBs as set out in Sections 20 and following of the SABs.

Lombard directed me to Tab 4, The Explanation of Assessment Form which shows that Lombard was initially paying Ms. Tsui IRBs at $185.00 per week. This was increased to $598.10 per week in October 1996 (as shown in Tab 4), and further increased to $718.23 per week in July 1998 at Tab 10.

Lombard argued that Tab 10 was the first indication that it was still paying IRBs after the 104-week mark. That Explanation of Assessment Form (dated July 3, 1998) referred to the benefit as an “Income Replacement Benefit.” The notation (which includes a retroactive payment to March 23, 1995) reads as follows: “Bi-weekly IRB now $1436.45 from $1196.02. Payment due of $16, 297.50 (payment sent separately). Period covering 23/3/95 to 29/6/98. $1, 436.45 Bi-weekly payment to continue.” [emphasis mine]

On June 21, 1999 (at Tab 11), Lombard sent a request to Ms. Tsui’s Counsel for an OCF-14 to arrange a REC DAC in accordance with Section 27 of the SAB’s. According to Lombard, the two-year mark had long passed, and the Insurer was then contemplating that the Insured undergo a REC DAC.

At Tab 12 is Ms. Tsui’s Counsel’s response, dated June 25, 1999, indicating his belief that LECBs were already being paid and that no review of the Insured’s physical condition should take place until March 2000.

No response to Ms. Tsui’s Counsel was made until November 1, 2000 (at Tab 13). On that date, an LECB offer was made at $359.40 per week, significantly less than the weekly benefit amount of over seven hundred dollars paid to that point. Lombard submitted that this offer was made in accordance with their obligations under section 21 of the SABs, and included provisions advising Ms. Tsui that if she was not in agreement with the offer, she would have to attend an assessment under section 27 of the SABs.

Lombard’s next communication to Ms. Tsui’s Counsel is found at Tab 14. In that letter dated February 8, 2001, Lombard informed Counsel that the LECB offer of November 1, 2000 had expired, although they are still waiting his “opinion with reference to [their] LECB offer of $359.40 per week…”.

At Tab 15 is a letter dated April 22, 2002 sent directly to Ms. Tsui from Lombard, informing her that Lombard believed Ms. Tsui’s Counsel was on vacation. That letter also requested that Ms. Tsui completed an OCF-14 form to allow them to proceed with a REC DAC.

The next communication from Lombard, dated September 9, 2002 (at Tab 16) to Ms. Tsui’s Counsel, again requested an OCF-14 and informed him that Ms. Tsui’s benefits would be “suspensed” (sic) within 30 days.

Lombard’s next letter at Tab 17 (dated December 18, 2002), repeated the request “for REC DAC form to be completed and returned.” This letter includes the following inscription: “if we do receive a response, Ms. Tsui’s disability benefits will suspend.”

At Tab 18 is Ms. Tsui’s Counsel’s reply to Lombard dated April 23, 2002. The letter states that a completed OCF-14 was being provided and informed the adjuster that she [the adjuster] had previously sent the wrong form. He also requested that his client be sent to a REC DAC assessment centre near her home.

At Tab 19, is a copy of a Designated Assessment Referral, dated May 22, 2003, that appears to have been intended for a DAC center. It is unsigned.

At Tab 21 is another letter from Lombard sent to Ms. Tsui’s Counsel dated June 15, 2004 asking again for an OCF-14 to arrange a REC DAC.

At Tab 22 is another letter from Lombard, dated August 9, 2005, again requesting an OCF-14 and informing Ms. Tsui’s Counsel that his refusal to send an OCF-14 had prejudiced the insurer’s position. It also states that IE’s were to be set up pursuant to section 65 to determine the client’s eligibility for the LECBs.

Lombard submitted that this documentary record proved that although a LECB offer had been made in November 2000, it was never accepted and the offer expired. Although forms to order an REC DAC were filled, no REC DAC ever took place. Throughout this entire time period up to November 2005, Lombard continued to pay a weekly Income Replacement Benefit. Because there was never a conversion, that benefit never became a Loss of Earning Capacity Benefit.

Insured’s Argument

Ms. Tsui’s interpretation of the documentation and correspondence (at Ex. R-1) differed from that of Lombard.

Ms. Tsui’s position was that the record demonstrated that the initial weekly IRBs paid to her were converted to LECBs shortly after the passage of the 104-week mark in March 1997, or alternatively, after February 2001. The transition from IRBs to LECBs did not comply fully with the formal offer and acceptance process of sections 21 and following of the SABs, but took place because the parties agreed to the switch, as evidenced through conduct and correspondence.

Ms. Tsui also relied on a presumption of regularity to explain certain gaps in the documentary record.

According to Ms. Tsui, there was no reason for the initial termination of her weekly benefits on March 14, 1997, a scant two days before the passage of the two-year mark after which she would have been entitled to an LECB offer. That termination was disputed, and mediation was scheduled. Ms. Tsui’s benefits were reinstated on December 5 1997, ten days before the mediation was to take place.

Ms. Tsui then directed me to Tab 9, the letter from Lombard informing the Ontario Insurance Commission that the issues in that mediation had been settled. That letter includes the following statement: “Weekly Benefits—were reinstated, with interest, and are ongoing. No issue…. Loss of Earning—we continue to pay benefits.” [Emphasis mine]

According to Ms. Tsui, this letter was an indication that Lombard had already made the switch to LECBs as early as December 5, 1997. Ms. Tsui relied on section 24 of the SABs, which permits the parties to agree in writing to convert from IRBs to LECBs. In this case, the switch occurred through conduct and was confirmed by correspondence.

On June 21, 1997, Lombard made a request for an OCF-14 to proceed with a REC DAC in accordance with section 27 (at Tab 12).

Ms. Tsui’s response at Tab 12 on June 25, 1999 was unequivocal and clearly demonstrated her belief that the transition to LECBs had already taken place. In that letter Ms. Tsui informed Lombard that the three-year review of section 33 was not due until March 2000. Ms. Tsui also invited a response from Lombard in that regard.

No response came until over a year later. On November 1, 2000, Lombard delivered a Loss of Earning Capacity offer to Ms. Tsui (Tab 13). Ms. Tsui’s argued that this offer was consistent with her position that LECBs had been paid since March 1997, because Section 33 of the SABs mandates a first review three years after the commencement of the payment of LECBs. At that point in November 2000, approximately three years had passed since LECB payments had commenced (presumably in March 1997), and the LECB offer of November 2000 had to have been made as a result of the three-year review of Section 33.

The November 1, 2000 offer was rejected by Ms. Tsui. Lombard then wrote to Ms. Tsui on February 8, 2001. Ms Tsui’s Counsel argued that this letter was an invitation to continue negotiating the offer, as the SABs specifically permits deadlines to be extended under section 21(8) of the SABS.

In her argument, Ms. Tsui emphasized the importance of Lombard continuing to pay the weekly benefit at the same rate of approximately $700.00 per week before and after the February 2001 correspondence. Lombard, by continuing to pay Ms. Tsui an LECB in the same amount, had accepted that there had been no change in her condition.

Finally, Ms. Tsui argued that the letter of August 9, 2005 at Tab 22 was yet another confirmation that LECBs had been paid since March 1997 since Section 33 of the SAB mandates a second review at the eight-year mark. Not only is August 2005 approximately eight years after March 1997, but the letter also specifically refers to examinations to determine Ms. Tsui’s eligibility for the LECB.

Thus, all weekly payments made to Ms. Tsui since 1997 (or alternatively since February 2001) have been in the nature of LECBs.

ANALYSIS:

There was a paucity of evidence in this file. The record suggested that both parties were unclear as to what actually occurred in the long history of this matter. Neither party called witnesses to fill the numerous and quantum gaps in their interpretations of the facts, and it was surprising that so little documentation existed in a file that was over twelve years old at the time of this hearing. Counsel were able to direct me to but one decision in their analysis of the law pertaining to this complicated series of provisions.

I am not able to accept Ms. Tsui’s argument that the IRBs initially paid to her were converted to LECBs at the passage of the two-year mark, after February 2001, or at any time after.

I make this ruling for the following reasons.

First, the jurisprudence is clear that the transition from IRBs to LECBs takes place through a complex process set out in Part VI of the SABs. Although much of Williams, the case referred to me by the parties is obiter, the general comments made by the Arbitrator in that decision concerning the IRB to LECB transition are universally accepted.

LECBs are intended to compensate for permanent or long-term loss or reduction in earning capacity. …LECBs are payable during the insured’s lifetime. The amount is based on the difference between the person’s pre-accident earning capacity and post accident earning capacity, as defined. The amount is subject to mandatory review twice—three years and eight years after LECBs are first paid….These provisions are intended to provide those with long term disability some measure of security and stability.

LECBs are quite distinct from IRBs and other weekly benefits. They don’t have the same eligibility rules. However, weekly benefit requirements dictate where LECBs come into play. The pivotal time, generally, is the situation at 104 weeks.

Part IV of SABS-1994 deals with LECBs. They are paid instead of IRBs or other weekly benefits, if payment is authorized. Subsequent provisions set out a process by means of which payment of an LECB is authorized. They provide a road map for ascertaining what must be paid to those who qualify. The start of the route is the insurer’s obligation to make an LECB offer after two years. Alternatively, LECBs may be substituted for weekly benefits without the need to go through the formal process, if the insured is entitled to a weekly benefit and the parties agree to the switch.² [Emphasis mine]

The general scheme as set out at section 21(1) of the SABs obliges the Insurer to deliver promptly a “written offer to an insured person with respect to the payment of weekly Loss of Earning Capacity Benefits.” I accept, as argued by Ms. Tsui, that in some cases, the parties may circumvent the formal offer process and agree to the conversion of IRBs to LECBs on their own initiative. I also accept, as suggested by Tab 10, that the parties may have even engaged in some discussions regarding this conversion as early as December 16, 1997 when Ms. Tsui provided an OCF-14 in response to Lombard’s request to conduct a DAC at Tab 8.

Nevertheless, section 24 requires that any agreement to authorize the payment of LECBs (before any offer is made) must be in writing. In the case at bar, there is just no such document. Ms. Tsui suggested that such an agreement might be inferred by conduct and through correspondence. She suggested that Tab 8, Lombard’s letter to the Ontario Insurance Commission of December 5, 1997, confirmed that payment of LECBs had already commenced at that time.

I agree that the letter by Lombard to the OIC is ambiguous and could induce misunderstanding in regard to the type of payments being made. One paragraph states: “Loss of Earning—we continue to pay benefits.”, and suggests that LECB payment has already commenced, but another paragraph references other “Weekly Benefits” which could suggest IRBs. I am not convinced that this document alone amounts to an agreement pursuant to section 24. It is neither a direct communication to Ms. Tsui, nor does it contain the basic elements that one might expect to find in such an agreement, such as an explicit declaration of the amount of the LECB to be paid.

Further, any confusion caused by this letter would have been remedied by the delivery of the Loss of Earning Capacity Benefit Offer on November 1, 2000 at Tab 13. Ms. Tsui argued that this offer was in fact an offer made after the three-year mandatory review of section 33 of the SABs. Again, I am not able to accept this position. First, the document is described in both the cover letter accompanying the offer and in the offer itself as a “Loss of Earning Capacity Benefit Offer pursuant to section 21 of the SABs.” Second, the offer itself states at paragraph two: “This document constitutes our written offer to you pursuant to section 21(1).” Finally, page two of the offer contains the following clause: “A review of the amount is required per section 33 of the SABs three years after the first payment, and again eight years after the first payment, unless you have by those dates reached the age of 65:” If this document were itself the offer made pursuant to the first three year review, as suggested by Ms. Tsui, then there would be no need to inform the offeree of the impending three-year review. Thus, Ms. Tsui’s argument can not stand and I find that the LECB offer of November 1, 2000 was the initial LECB offer of section 21(1), and not an offer made after the three-year review of section 33.

Therefore, all payments made before the issuance of the LECB offer of November 1, 2000 had to have been IRBs, as the delivery of the LECB offer is the first step in the process of the transition from IRB to LECB.

Both sides agreed that the offer of November 1, 2000 was rejected, although it appears that negotiations to determine the LECB amount continued to as late as February 8, 2001 as shown in Tab 14. I accept Ms. Tsui’s submission that up to that time, and possibly for a time afterward, discussions were still underway to determine the final LECB amount.

Nevertheless, during this whole period from February 2001 and up to November 2005, Lombard continued paying weekly benefits to Ms. Tsui, at the rate of approximately $700.00 per week, despite the fact that the LECB rate in their offer of November 1, 2000 was only $359.40 per week. Ms. Tsui argued that by continuing to pay at the $700.00 per week rate, Lombard had implicitly agreed to the conversion of IRBs to an LECB of approximately $700.00 per week.

Again, I am unable to accept this conclusion. Nothing in the documentary record after Tab 14 suggests an agreement between the parties finalizing an LECB amount. Instead, the very next document at Tab 15 (dated April 22, 2002), is a request from Lombard to Ms. Tsui to provide an OCF-14 to “… proceed with the necessary REC DAC assessment.”

The request at Tab 15 is consistent with the statutory scheme. Section 23(2) of Part VI under the heading: “Procedure if No Agreement”, reads as follows:

Section 23(2) An insured person who rejects the insurer’s offer in respect of residual earning capacity shall be assessed under section 27, and the insurer shall give notice to the insured of that requirement.” [Emphasis mine]

Section 27 then describes the laborious procedure required to have the Insured assessed at a Designated Assessment Centre and the obligations of the Designated Assessment Centre to issue a report and its requirements following that assessment.

In the case at bar, the parties agreed that no assessment was done. Lombard has suggested that it was because the Insured did not produce an OCF-14. I am not convinced this was the case. The record shows that the Insured produced at last two OCF-14’s at the request of the Insurer, one as early as December 1997 (see Tab 9). Tab 19 shows that a referral to a Designated Assessment Centre for a REC DAC was finally prepared for Ms. Tsui by Lombard on May 23, 2003, but the referral itself was unsigned. Whatever the case, I do not attribute the lack of a REC DAC assessment to any fault on the part of Ms. Tsui. I also find the letter of Tab 22 rather self-serving.

Nevertheless, I am still not convinced that the continued payments of weekly benefits to Ms. Tsui during this time amounted to LECBs, despite Ms. Tsui’s suggestion that the IRBs had been transformed to LECBs by the operation of Sections 23(5) and 23(5.1). These provisions read as follows:

Section 23(5) Subject to subsection (8), if an insured person rejects the insurer’s offer in respect of residual earning capacity or both residual earning capacity and pre-accident capacity, the insurer may commence paying weekly loss of earning capacity benefits to the insured person 14 days after receiving the report from the designated assessment centre under section 27(5).

Section 23(5.1) The benefits paid under subsection (5) shall be based on,

(a) an insurer’s offer made under section 21, in respect of the insured person’s pre-accident earning capacity; and

(b) the determination made by the designated assessment centre of the insured persons’ gross annual income, in respect of the person’s residual earning capacity.

Section 23(5) allows the Insurer to commence paying loss of earning capacity benefits to the Insured 14 days after receiving the report from the DAC centre. The amount of that LECB must be based on the determination of the Pre-accident Earning Capacity in the Insurer’s offer under section 21, and the determination of the Residual Earning Capacity made by the DAC centre (section 23(5.1). Here, no REC DAC was done, so it would have been impossible for the Insurer to use a determination by the REC DAC of the Insured’s REC.

Section 23(6) of the SABs provides a solution if the assessment centre is unable to make a REC DAC report: it allows the Insurer to commence paying LECBs if the DAC centre does not submit a report and the DAC centre informs the Insurer that the Insured failed to co-operate.

Nevertheless, even if one accepts that this provision can be used when there is no report detailing the Insured’s refusal to co-operate, this conversion requires the LECB payments to be “based on the Insurer’s offer under section 21.” In the case at bar, the Insurer did not pay at the rate set out in its offer under section 21 ($359.40). Instead, it merely continued paying weekly benefits at the previous rate. Therefore, I am unable to find that the IRBs were converted to LECBs by the operation of these sections as suggested by Ms. Tsui.

What then were the nature of the weekly benefits paid to Ms. Tsui during this entire period?

In Martins and Commercial Union Assurance Company the Arbitrator examined whether an Insurer was required to pay an Insured an IRB from the period after it made an LECB offer until 14 days after the Insurer received a REC DEC report. He held the following:

In conclusion, the insurer is not authorized to substitute a loss of earning capacity benefit until the release of the REC DAC. Section 31 provides that no weekly benefits are payable after either the loss of earning capacity benefits begin to be paid, or there has been a determination that none are owing. It follows that in the interim, Ms Martins is entitled to income replacement benefits, unless the Insurer has properly terminated the benefit in accordance with section 64.³

In Gan Canada and Rocca, the Appeals Delegate held the following:

I agree with the proposition that notwithstanding that 104 weeks have passed, a insurer continues to be obligated to pay IRBs under the usual rules until they are properly terminated. The issue then is whether IRBs cease to be apply once an offer of LECBs has been made pursuant to section 21 and rejected pursuant to section 23.⁴

In that same decision, she examined section 23(8) and decided the following:

… Notwithstanding the language used elsewhere, construing the provisions to read that IRBs continue to be payable after an insurer’s offer has been made and rejected, respects the language used and gives coherence to the various parts of the legislation.

She also held:

In conclusion I find that subsection 23(5) does not evidence an intent to relieve an insurer from paying IRBs after it has made an offer pursuant to section 21 and that offer has been refused. I also conclude that subsection 23(5), and the amendments giving effect to it, were not intended to allow an insurer the discretion to pay LECBs based on its own assessment of residual capacity, in the face of a REC DAC determination. Rather the changes were intended to permit the insurer, pending resolution of a dispute, to replace IRBs with LECBs, based on the insurer’s offer of pre-accident earning capacity and the REC-DAC’s determination of residual earning capacity.⁵

In Jevco Insurance Company and Blake, the Director’s Delegate made the following ruling on appeal:

The arbitrator followed three arbitration decisions, two decided after Lehman, holding that where the insured person rejects the insurer’s offer in respect of residual earning capacity or both residual earning capacity and pre-accident earning capacity, the insurer can not switch to LECBs until 14 days after receiving the REC DAC report. This interpretation was recently approved by the Director’s delegate Naylor in her appeal decision in Rocca. Therefore, there is considerable support for the arbitrator’s approach.⁶

In the face of these decisions I find that Lombard’s interpretation of the facts of this case is more correct. The Insurer was paying IRBs after the 104-week mark following the onset of the disability and continued to pay IRBs even after its offer of LECBs was made in November 2000. At no time were the IRBs converted to LECBs.

EXPENSES:

I leave the award of expenses of this preliminary issues hearing to the arbitrator who conducts the full hearing of this matter.

October 1, 2007

Edward Lee Arbitrator

Date