Wawanesa Mutual Insurance Company v. Maria Michalski, 2007 ONFSCDRS 241

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 241

Appeal P06-00003

OFFICE OF THE DIRECTOR OF ARBITRATIONS

WAWANESA MUTUAL INSURANCE COMPANY

Appellant

and

MARIA MICHALSKI

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

Elizabeth Scott for Wawanesa

Scott M. Merrifield for Mrs. Michalski

HEARING DATE:

September 11, 2006, with further submissions received through October 19, 2006

APPEAL ORDER

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

1. The appeal of the arbitration order dated December 13, 2005 is dismissed. The appeal of the arbitration order dated August 10, 2006 is allowed with respect to paragraphs 3 and 4, which are revoked and replaced with the following:

2. Wawanesa Mutual Insurance Company shall pay Maria Michalski interest on housekeeping benefits in the amount of $7,618.49 pursuant to s. 46(2) of the SABS–1996.

3. Wawanesa Mutual Insurance Company shall pay Maria Michalski a special award in relation to attendant care benefits and housekeeping benefits in the amount of $50,000.

4. If the parties are unable to agree on appeal expenses, they may contact me in accordance with Rule 79 of the Dispute Resolution Practice Code.

December 5, 2007

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Wawanesa appeals arbitration decisions dated December 13, 2005 and August 10, 2006. The issues on appeal are whether the arbitrator erred in granting a special award pursuant to s. 282(10) of the Insurance Act, in setting its amount, and in fixing a credit for attendant care benefits paid.

II. BACKGROUND

A special award is payable if an arbitrator finds that the insurer unreasonably withheld or delayed the payment of benefits. In the first decision, the arbitrator found a special award was warranted, and in the second, set the amount at $150,000. Generally, the arbitrator found that a special award was payable because Wawanesa failed to fully advise Mrs. Michalski of the benefits she was entitled to, improperly reduced them, and delayed arranging assessments to determine her attendant care needs and whether she was “catastrophically impaired.” A roughly chronological review of the factors considered by the arbitrator in making these findings follows.

In a motor vehicle accident on October 24, 2001, Maria Michalski suffered soft tissue injuries, fractured ribs, and a seizure-inducing head injury. Hospitalized until October 31, 2001, her condition was set out in the insurer-funded Occupational Therapy report of November 14, 2001:

This therapist [Ms. Kay Sellars, occupational therapist with Rehability Occupational Therapy Inc.] attended with Mrs. Michalski on November 8, 2001. She was in the company of an attendant care worker, Nancy, from St. Elizabeth Health Care. Mrs. Michalski was sleeping at the time of this therapist’s arrival and was awoken by her attendant. She was noted to be disoriented upon awakening and unresponsive to greetings…. Monosyllabic answers to questions were noted to be provided by the client during the initial interview. There was no eye contact and this therapist had to repeat questions two or three times to elicit an answer. Of particular concern is the fact that Mrs. Michalski denied being involved in an MVA, instead reporting that she had been attacked and stabbed by a man. Her attendant, Nancy, indicated that the client was noted to be referring to this often, usually upon waking. Echolalia was also noted to be present. This is the repeating of words spoken by another person, in this instance, the OT. Mrs. Michalski was noted to repeat one word from a sentence approximately ten times, before changing the word or responding to the comment or question. The client was also noted to point randomly around the room throughout this therapist’s visit and to maintain a somewhat quizzical expression on her face. Movements were noted to be slow and deliberate.¹

At the time of the accident, Mrs. Michalski was living with her husband, Krzysztof Michalski, and their two younger children. After she was released from hospital, they provided housekeeping and attendant care services beyond that initially provided by St. Elizabeth’s. For instance, Ms. Sellars reported in her In-Home Occupational Therapy Assessment of January 3, 2002: “Mrs. Michalski is also in receipt of attendant care services, Monday through Friday, 8:30 a.m. to 5:30 p.m., whilst her husband is at work…. In terms of homemaking tasks, it is apparent that the client had responsibility for completion of these tasks prior to the MVA. At this time her husband has assumed this responsibility.”²

Although Wawanesa determined that Mrs. Michalski was entitled to attendant care benefits pursuant to s. 16 of the SABS–1996³ and initially hired St. Elizabeth’s to provide these services for 16 hours a day, it only paid benefits at the maximum for non-catastrophic injuries⁴ and did not pay the family members for their services. The arbitrator found that, other than for a 19 day period in early 2002, Mrs. Michalski never required less than 24 hours of care, so her husband and children were entitled to be paid for the attendant care they provided. Mrs. Michalski was eventually assessed at the Kaplan and Kaplan catastrophic impairment designated assessment centre (CAT-DAC). The August 2003 assessment was positive: based on a file review, the CAT‑DAC concluded that Mrs. Michalski suffered a catastrophic impairment because she had scores of 6, 8 and 9 out of 15 on the Glasgow Coma Scale (GCS) on three assessments within a reasonable period after the accident.⁵ The arbitrator agreed with this conclusion.

A key aspect of the special award is the arbitrator’s finding that, from the outset, Wawanesa knew Mrs. Michalski was catastrophically impaired because:

• it hired Ms. Becky Whittingham as a case manager, and payment for a case manager is only a benefit for the catastrophically impaired⁶;
• by November 14, 2001, it received the report of Ms. S. Korsmit, occupational therapist at Rehability Occupational Therapy Inc., who stated: “Due to the client’s current cognitive and emotional status she requires monitoring 24 hours daily. The client’s family is typically with her during nighttime hours and therefore she requires specific supervision 16 hours daily”⁷;
• by November 18, 2001, it received the application for statutory benefits that, the arbitrator found, confirmed Mrs. Michalski’s catastrophic impairment; and,
• the arbitrator found that Mrs. Michalski’s completed application advised Wawanesa that she was applying for attendant care benefits, housekeeping benefits and a determination that she was catastrophically impaired.

The arbitrator found that, commencing in November 2001, Wawanesa disregarded its obligations under s. 32 of the SABS–1996, Notice and Application for Benefits, to identify benefits for Mrs. Michalski, to provide her with a written explanation of the benefits available to her, or to provide information to assist her in applying for benefits.⁸ She found that Wawanesa failed to inform Mrs. Michalski or her husband that family members could be paid for their services despite knowing that they were providing those services and that she needed an enhanced level of attendant care benefits.

The arbitrator then considered the effect of the accident on the family, noting that the children Sandra and Michael lost their mother’s care and guidance, and at the same time they had responsibility thrust on them for her care because Wawanesa failed to meet its obligations. The arbitrator also found that the family had to assume extra housekeeping duties because Wawanesa failed to advise Mrs. Michalski that she could be compensated for their housekeeping services as well. Accordingly, the arbitrator found Mrs. Michalski was entitled to a special award for both caretaking and housekeeping services.

The arbitrator also found that Wawanesa failed to follow s. 40 of the SABS, Determination of Catastrophic Impairment.⁹ She found that within 30 days after it received Mrs. Michalski’s application for benefits, the insurer was obliged to notify Mrs. Michalski whether it determined that she was or was not suffering a catastrophic impairment [ss. 40(2)(a) and (b)], or whether it required her to be assessed by a CAT-DAC in accordance with s. 43 [s. 40(2)(c)]. If the insurer made the initial determination that the impairment was catastrophic, then, the arbitrator found, Wawanesa was liable to pay attendant care benefits beyond the non-catastrophic maximum immediately without waiting for a CAT-DAC. The arbitrator found that Wawanesa had determined Mrs. Michalski was catastrophically impaired but failed to so advise her pursuant to s. 40(2)(a) and only offered her the maximum $3,000 attendant care for non-catastrophic claimants. Furthermore, the arbitrator found that Wawanesa failed to inform Mrs. Michalski about the CAT-DAC process within 30 days of receiving her application for benefits.¹⁰ The arbitrator found that Wawanesa did not provide the necessary information or forms for applying for a CAT-DAC until March 2003, following inquiries by her lawyer.¹¹ The arbitrator also found that, since an important issue was the amount of the benefit, the CAT-DAC should have been arranged in December 2001.

Having reviewed the arbitrator’s consideration of the original adjustment of the claim, I will now turn to the second reason for ordering a special award – the arbitrator’s consideration of the subsequent reduction in Mrs. Michalski’s benefits. By way of overall background, the arbitrator set out the reductions, indicating that according to the Form 1s, attendant care was reduced to 10.14 hours on March 6, 2002, to 7.5 hours on March 27, 2002 and to 5.13 hours on July 5, 2002.¹² Mrs. Michalski’s benefits were not increased until The Ontario March of Dimes conducted an attendant care DAC in August 2004. Their report, dated September 3, 2004, concluded that Mrs. Michalski was entitled to a monthly benefit of $5,330.57 for 24 hours per day of attendant care, mainly provided by Mr. Michalski and their adult daughter, Ms. Julita Wdowikowski. Mrs. Michalski has been receiving benefits in that amount since then.

The initial reduction in benefits involved Dr. S. Dobrowolski, psychiatrist, who treated Mrs. Michalski before and after the motor vehicle accident. The arbitrator found that, given Dr. Dobrowolski’s knowledge of his patient, the frequency with which he saw her over time, and his expertise in psychiatry, she accepted his opinion regarding Mrs. Michalski’s condition, deterioration, and need for constant attendant care.

On January 31, 2002, Dr. Dobrowolski and Ms. K. Sellars, the occupational therapist retained by Wawanesa, agreed to a trial reduction in Mrs. Michalski’s attendant care. Ms. Sellars and the case manager agreed to keep Dr. Dobrowolski involved. However, Dr. Dobrowolski soon concluded that the trial reduction made matters worse, writing: “[Mrs. Michalski] is fully disabled at present, unable to work certainly, and still requiring full time supportive care as is presently in place. Although small improvements were noted in the past two visits, today I note that she is much more confused again, cannot recall very basic things about herself and her life and is emotionally more labile, depressed and regressed.”¹³ The arbitrator found that Wawanesa nonetheless continued to pay reduced attendant care benefits without consulting Dr. Dobrowolski and in opposition to the Michalski’s wishes.¹⁴ For instance, she found that neither Ms. Sellars nor Ms. Whittingham, the case manager, sought Dr. Dobrowolski’s opinion with respect to Mrs. Michalski’s needs, and that the case manager’s comments that he reported further improvement were unsupported. Ms. C. Currado, the next occupational therapist, further reduced Mrs. Michalski’s attendant care; the arbitrator found her reasoning for doing so illogical. The arbitrator found that “in recommending and effecting further reductions in Mrs. Michalski’s attendant care, the occupational therapists and the case manager shut their eyes to relevant information which they agreed would be sought in making that decision, and were wilfully blind.” She also found that “Wawanesa could not have been unaware of the reductions in care, or unaware that those reductions were achieved by ignoring the significant cognitive and emotional impairments Mrs. Michalski sustained in the motor vehicle accident” since it received regular reports.¹⁵

The arbitrator noted that, in July 2002, Mr. Michalski wanted an increase in his wife’s attendant care. However, Ms. Whittingham only recommended doubling the number of allocated hours while paying the same monthly amount – an increase the arbitrator described as illusory. The decreases in benefits and then the refusal to increase them played a role in the arbitrator’s finding that Wawanesa breached its duties to arrange attendant care DACs pursuant to s. 39 of the SABS–1996, Attendant Care Benefit:

Wawanesa failed to comply with its obligations to arrange attendant care DACs on at least four successive occasions during the period in question: once at the beginning of her claim, on two or more occasions when it reduced the amount of the paid attendant care, and when Mrs. Michalski sought an increase in attendant care benefits.¹⁶

The difficulty with this conclusion is that s. 39 was amended to specifically include these requirements only as of October 1, 2003, by O. Reg. 281/03.¹⁷ The section as it read during the relevant period only required a DAC if an attendant care benefit was denied [s. 39(4)] and did not specifically deal with reductions in benefits. If the insured person required an increased level of attendant care, instead of requiring the insurer to arrange a DAC, the provision in 2002 required the insured person to submit a new application [s. 39(8)]. I make this point now because s. 39 played a significant role in determining the special award.

About a year after the accident, Mrs. Michalski retained a lawyer, Mr. Merrifield, who tried to get her benefits increased. His role is relevant to the special award because the arbitrator found that the delay in arranging the attendant care DAC was solely Wawanesa’s fault. On October 7, 2002, Mr. Merrifield wrote to Ms. Whittingham, noting the references in the materials to family members providing attendant care services and asking if they were being paid, as well as asking what assessment had been done of Mrs. Michalski’s housekeeping and home maintenance needs. On November 4, 2002, he suggested that Mrs. Michalski’s attendant care needed to be assessed by a DAC. However, on November 7, 2002, he withdrew the request on the assumption that there would be a new attendant care needs assessment. This did not take place, as set out in Mr. Merrifield’s letter of November 25, 2002, because Mrs. Michalski terminated her involvement with the occupational therapist. Nevertheless, Mr. Merrifield asked Wawanesa to pay the maximum non-catastrophic benefit of $3,000, since he anticipated that any updated assessment would require benefits in at least that amount. In February 2003, Mr. Merrifield indicated to Wawanesa that Mrs. Michalski should have a substitute decision maker appointed in order to make a formal application for a catastrophic impairment designation but, in the interim, asked if there was any doubt she met that test. On February 25, 2003, at the request of Mrs. Michalski, Ms. Nancy Robinson, occupational therapist, prepared an assessment of attendant care needs suggesting that Mrs. Michalski required over $6,000 monthly in benefits.

As an aside, I note that in early 2003, Mrs. Michalski also underwent insurer examinations. On January 20, 2003, Dr. M. Kuiack, a psychologist, assessed Mrs. Michalski. The arbitrator found that Dr. Kuiack’s report squarely put into question the assessments of the occupational therapists and case manager. Dr. J. Mount, a psychiatrist, on January 27, 2003, concluded that Mrs. Michalski was incapable of functioning in an interview setting, and was incapable of giving informed consent. The arbitrator found this evidence did not support the insurer’s position.

Based on Ms. Robinson’s report, in March 2003, Mr. Merrifield requested payment of $6,000 for attendant care retroactive to the date of Mrs. Michalski’s discharge from hospital. On March 7, 2003, Mr. Merrifield also formally requested a determination of catastrophic impairment. On March 27, 2003, Wawanesa’s adjuster forwarded an application for determination of catastrophic impairment and, on April 3, 2003, he advised that Wawanesa would only pay the attendant care as per the last Form 1 completed by Rehability ($1,568 per month), that he required a separate application if greater expenses were being sought, and that he required an application for housekeeping expenses. He also set up an insurer’s examination, to which Mr. Merrifield objected on the basis that, until a guardian was appointed, Mrs. Michalski could not consent to it. On April 22, 2003, Mr. Michalski was named as his wife’s guardian of person and property.

Mrs. Michalski was then referred to the CAT-DAC assessment with Kaplan and Kaplan in August 2003, which as already noted was positive. Wawanesa did not increase the benefit at that time due to the ongoing dispute between the parties: Mrs. Michalski had filed for mediation, and the mediator issued his report on September 17, 2003. Mrs. Michalski then filed for arbitration on September 30, 2003. On November 19, 2003, the adjuster at Wawanesa proposed to increase the attendant care benefit to the $3,000 non-catastrophic limit pending an attendant care DAC, if Mrs. Michalski agreed to attend one.¹⁸ Mr. Merrifield replied in his letter of November 25, 2003:

…[I]t seems to me that the concession from Wawanesa ought to be payment of the non catastrophic limit retroactive to the date of the accident less payments actually made. As previously discussed in numerous items of correspondence, the need for 24 hour care was obvious from the medical reports and the reports of your case manager. The fact that someone decided to exclude attendant care hours provided by family members was without justification either in law or fact.¹⁹

Finally, as a result of a pre-hearing on March 8, 2004, the parties agreed that Wawanesa would pay $3,000 per month, less amounts already paid. This was retroactive to October 24, 2002, which was around the time that Dr. Dobrowolski reported Mrs. Michalski had a seizure outside his office. The Ontario March of Dimes subsequently conducted its attendant care DAC in August 2004, which as noted above recommended a monthly benefit of $5,330.

The issue of housekeeping settled just before the arbitration hearing started in October 2004. In the first decision of December 13, 2005, the arbitrator set out the amount of interest to be paid on housekeeping benefits agreed to up to October 29, 2004 at $7,062.18. The arbitrator found that Mrs. Michalski was entitled to claim enhanced attendant care benefits because she was catastrophically impaired. She also found that Mrs. Michalski was entitled to be compensated for those attendant care benefits provided by her family for the period between October 31, 2001 (the date of her release from hospital) and September 2, 2004 (the day before the attendant care DAC report was issued), in addition to what she was paid for those benefits provided by professionals²⁰ because Mrs. Michalski required constant attendant care from the time she was released from the hospital. The arbitrator rejected the rationale that family members should not be paid during the evening hours – after the professionals left – simply because they would have been at home in any event. She found that providing care and supervision to someone functioning at Mrs. Michalski’s level was different from simply being with an adult who is functionally unimpaired. She concluded that Mrs. Michalski’s caregivers should be compensated on a 24 hour basis.

The arbitrator concluded that Wawanesa owed Mrs. Michalski $178,928.33 for attendant care benefits. She did not allow Wawanesa a “straight credit” for amounts it had paid:

According to the case manager, between October 31, 2001 and July 2002, Wawanesa arranged for fewer hours of paid care, and paid for that care at higher rates than contemplated by the Schedule and by Wawanesa’s own assessments. The case manager testified that rates of up to $22 per hour were paid, when the Schedule prescribes rates of $7, $9 and $15 per hour, depending on the level of care.

I agree with the Applicant that Wawanesa is entitled to a credit; however, I find that credit should be based on the hours of care provided at the rates prescribed by the Schedule. To do otherwise would mean that Mr. Michalski and his children would receive less for the care they provided than they would be entitled to receive under the Schedule.²¹

In the second decision, the arbitrator allowed a credit of $78,140.68, based on figures agreed between counsel. At the appeal hearing, the parties agreed that the difference between the credit allowed by the arbitrator and the straight credit for benefits paid is $8,525.38.²² Wawanesa seeks an additional credit in that amount.

Also in her first decision, the arbitrator considered a special award. She cited s. 282(10) of the Act and the seven step approach to determining a special award set out by the Director of Arbitrations in Liberty Mutual Insurance Company and Persofsky, (FSCO P00‑00041, January 31, 2003), as well as the Director’s comment that a special award should be both rational and proportionate. Over the following pages, she set out why she determined that Wawanesa should pay a special award for unreasonably withholding or delaying payment of the attendant care and housekeeping benefits.

The arbitrator found that Wawanesa had failed to follow its obligations under ss. 32, 39 and 40. She found that Wawanesa failed to act with sound and moderate judgment in reassessing evidence from its own assessors when it preferred the opinions of the occupational therapists and the case manager to the opinions of the psychiatrist and psychologist it retained (the insurer examinations of early 2003).

The arbitrator rejected Wawanesa’s submission that the blame for the manner in which the claim unfolded rested with Mr. and Mrs. Michalski. She accepted Mr. Michalski’s evidence that until hiring counsel he was unaware that he and his children could be paid for the attendant care and housekeeping services they provided. She also criticized Wawanesa for requiring a further application for expenses when Mrs. Michalski claimed a higher benefit – but as noted above this criticism was based on the SABS as it read in November 2003,²³ not in 2002, when the higher benefit was claimed. In any event, the arbitrator found that with the exception of the amount being claimed for services provided by Mr. Michalski and his children, all the information requested in the expenses claim form was in Wawanesa’s possession. She also found that Wawanesa knew the number of hours it was paying for attendant care and knew that the family members were providing the balance of Mrs. Michalski’s care. She found that Wawanesa could have calculated what they were owed using its own assessments, so the blame rested with Wawanesa, suggesting a higher special award was required.

Finally, the arbitrator rejected Wawanesa’s submissions that it was protected from a special award because it paid Mrs. Michalski’s attendant care benefits on the basis of the Form 1s from Wawanesa’s occupational therapy assessments. First, the arbitrator found that between November 2001 and July 2002 Wawanesa paid for fewer hours and at higher rates than were contemplated in the assessments and Form 1s. Second, she found that such shelter is not afforded to an insurer where opinions are erroneous and unsound because the assessors are wilfully blind to the information in their possession.

The arbitrator then turned to the amount of the special award. Although she set out the final figure in the second decision based on the information she received about the amounts owing and the interest thereon, the first decision indicates her reasons why she felt the award should be at the high end of the scale. She found that Wawanesa committed serious breaches by failing to comply with its obligations under ss. 32, 39 and 40 of the SABS. She found that, in the absence of a supportive family, Mrs. Michalski would have been at significant risk to her health and safety. She found that the sanction should reflect that Wawanesa failed to meet its contractual obligations and was entirely to blame for the manner in which the claim unfolded. She found that Mrs. Michalski was a vulnerable applicant and that Wawanesa’s actions had an impact on her children. She summarized the matter as follows:

Mitigating factors are that Wawanesa responded promptly to Mrs. Michalski’s claim and hired a case manager, provided some assistance by way of paid attendant care, and increased the amount of her attendant care benefit pending the agreed upon DAC assessment. Aggravating factors are the degree of Mrs. Michalski’s vulnerability, the impact on her children, the number and persistence of Wawanesa’s breaches, their compounding effect, and blaming Mr. Michalski.²⁴

The arbitrator then considered cases where awards were made at the high end.²⁵ Finally, in the second decision, she summarized her earlier findings, determined the maximum special award to be $179,140.46, and awarded a special award of $150,000.

III. ANALYSIS

Appeals are only on questions of law.²⁶ In this case, the arbitrator referred to the relevant statute and its interpretation in Persofsky. While in the second decision the arbitrator did not appear to set out the considerations for making an award on the high end of the scale, she spent several pages in her first decision giving her reasons for doing so.

The arbitrator set out s. 282(10) of the Insurance Act:

282.(10) 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.

She then set out the seven steps that the Director concluded in Persofsky was the proper approach to special awards under s. 282(10) of the Insurance Act. The first four steps determine the maximum special award, and the last three determine how the appropriate amount should be determined. Wawanesa disputes both its obligation to pay a special award and the amount ordered. I will deal with both aspects in turn.

The initial step in determining the maximum special award is to establish the benefits owing to the insured person, including interest. With respect to the benefits, the insurer has appealed the arbitrator’s refusal to allow Wawanesa a “straight credit” for amounts it had paid. Wawanesa submits that the issue did not come up during the arbitration hearing, so it had no chance to respond or even to deal with the argument, and if it had not paid for the outside care worker at the rates demanded, it would have been criticized. The difference comes to about $8,500, which would affect the interest component and the size of the maximum special award. However, while it would have been preferable for the arbitrator to give notice to the parties that she was considering something other than a straight credit, I am not convinced that the arbitrator erred in making that ruling. Wawanesa, through its case manager, set up the attendant care and paid for it without otherwise consulting Mrs. Michalski. The appropriate rates for the various services are provided in the SABS, and the case manager could have limited payments to the levels provided in the legislation. There is no reason that the insurer’s error should be visited upon Mrs. Michalski. Accordingly, the appeal on this point is denied.

However, with respect to the interest on the housekeeping benefit, the arbitrator wrote in her second decision that she had awarded interest on housekeeping benefits of $7,062.18 on the express assumption that the agreed upon housekeeping benefits had been paid on October 29, 2004. She wrote that she was subsequently advised that the benefits were paid on or about February 24, 2006 and that further interest of $6,730.65 was payable. Accordingly, she awarded a total amount of interest on housekeeping benefits to December 13, 2005 of $13,972.83. In fact, the arbitrator was misinformed, although not purposely. Wawanesa paid for past housekeeping benefits by cheque issued on December 6, 2004, leaving only 38 days of further interest payable. The revised figure, agreed to by the parties,²⁷ is $7,618.49 and not $13,972.83, a difference of about $6,400. This affects the amount of the maximum special award.

The next steps are to determine if the insurer unreasonably withheld or delayed the payment of all the benefits (step 2), or, if not all, then determine those that were unreasonably withheld or delayed and the interest on them (step 3). The arbitrator found that step 2 applied, so the lump sum was based on the calculation under #1. In step 4, then, she took the amount in #1, added the additional interest component in s. 282(10), and based the maximum special award on 50 percent of this total. She arrived at a maximum special award of $179,140.46. Based on the revised housekeeping interest, the maximum should be reduced by $3,200 to approximately $176,000.

Wawanesa denies that it unreasonably withheld or delayed the payment of all the benefits in dispute. However, as the Director’s Delegate stated in McAngus and Guardian Insurance Company of Canada: “[a]rbitrators are entitled to ‘considerable leeway’ in deciding to give (or deny) a special award because a finding that an insurer has ‘unreasonably withheld or delayed benefits’ depends on the arbitrator’s assessment of the facts.”²⁸ Indeed, Mrs. Michalski’s submissions on this issue consist almost entirely of summarizing the facts upon which the arbitrator relied in reaching her decision.

The insurer relies on Caputo and Wellington Insurance Company, (OIC A‑000697, June 23, 1994) for the proposition that a “passive” approach by an insurer does not necessarily expose it to a special award. In that case, although it was found that the insurer’s approach was passive as opposed to proactive in recognizing the applicant’s need for homemaking services, there was no evidence that the insurer acted unreasonably, and a special award was denied. However, the arbitrator in Caputo also found that the evidence was vague with respect to what communication in fact took place, or when. She found that, although a more pro-active approach might have helped speed the insured’s recovery, the insurer legitimately had concerns about the claim: the significant number of hours of work claimed by family members, the questionable basis for the hourly rate, the absence of supporting evidence and uncertainty as to what tasks Mrs. Caputo was doing or could do. No similar concerns existed in this case. I find Caputo does not assist the insurer in these circumstances.

The insurer relies on the statements in Persofsky that the penalty should be imposed for not just delay but unreasonable delay, and the award should not be increased for delays caused by the insured person or are otherwise not meaningfully part of the insurer’s misconduct. Thus, delays by the insured in submitting applications should not be held against the insurer. With respect to submitting expense applications, the arbitrator found that Mr. Michalski was unaware until he retained counsel that Mrs. Michalski could claim payment for the work done by the family members. She also found that since Wawanesa initially told Mr. Michalski that the cost of his wife’s care exceeded the amount of the monthly attendant care benefit by $683 per month, Mr. and Mrs. Michalski could not be faulted for not submitting expense claims forms. I see no error in those findings.

The arbitrator then discussed the second time Wawanesa provided expense forms, namely after it received the report from Ms. Robinson and a Form 1 prepared by her. The arbitrator wrote: “At this point, Wawanesa had a Form 1, the Applicant’s attendant care assessment, and Dr. Dobrowolski’s support for increased attendant care. At this juncture, section 39 of the Schedule obliges an insurer to arrange an attendant care DAC.”²⁹ However, s. 39(8) at that time provided that an insured person requiring an increased level of attendant care had to submit a new application.

Relying on the arbitration decision in McIntosh, the arbitrator also stated that the expenses form is not a prescribed form which must be used by persons who seek to claim expenses and that, in such circumstances, “the focus of the analysis is not the form in which the information is provided, but the adequacy of that information and whether it is sufficient to allow the insurer to process and assess the claim.”³⁰ McIntosh was a time limitations case, and the issue was whether the insurer had received enough information to start adjusting the claim, not whether it had enough information to be liable for a special award for not paying the claim. As the Director’s Delegate noted in the McIntosh appeal: “Allstate was entitled to refuse benefits based on Mr. McIntosh’s failure to provide the required information and documentation.”³¹

Generally speaking, where the issue is entitlement to benefits, and especially in the case of a special award, a higher level of information is required than simply enough information to start adjusting a claim. However, the arbitrator focused on what Wawanesa knew and found that it knew what the professionals were providing and knew that the family was providing the remainder of the care. She noted that when, around March 2004, Mr. Michalski sent a list of the attendant care and housekeeping services the family provided, they provided little relevant information that Wawanesa did not already have. Accordingly, the fact that Mrs. Michalski did not submit a further application in April 2003 was of little consequence in the context where the arbitrator found that Wawanesa knew Mrs. Michalski was catastrophically impaired from the beginning and then reduced her benefits from $3,000 without justification.

Wawanesa submits that it should not be penalized for having appointed a case manager, which it submits is the effect of the arbitrator’s finding that, in appointing a case manager, it recognized Mrs. Michalski was catastrophically impaired without informing her of that fact. It also submits that the arbitrator was inconsistent in considering the appointment of a case manager as a mitigating factor. However, the arbitrator made a finding of fact that stands unless it was made in the absence of evidence or resulted from a misconstruing of the evidence. I am not convinced that happened here. Furthermore, the arbitrator was not necessarily inconsistent in her treatment of the appointment. The insurer recognized the importance of Mrs. Michalski’s injuries by appointing the case manager, but it failed in its execution by appointing one who, the arbitrator found, acted as an agent for the insurer and not as an assistant for the insured.

Although I do not necessarily agree with some of the arbitrator’s comments, such as her discussion of a generalized Smith³² standard for notices, or the suggestion that non-compliance with the provisions of the SABS is unreasonable on its face, I find the arbitrator adequately set out reasons supported by evidence why a special award should be granted. However, I find that the arbitrator erred in setting the amount of the special award.

The fifth step, as set out in Persofsky, is to consider all relevant factors to determine an appropriate lump sum special award, not a percentage, that responds to the facts of the case and bears a reasonable relationship to other special awards, and does not exceed the maximum. The arbitrator should then provide reasons for concluding that the special award is payable and for the amount of the award (step 6), and then express the special award as a specific, lump sum amount (step 7).

The Director stated at page 23 of Persofsky that the arbitrator should focus on the dollar amount of the special award, which is the penalty visited on the insurer – not the percentage:

In taking this view, I am heavily influenced by the Supreme Court of Canada's discussion of punitive damages in Whiten v. Pilot Insurance Company, 2002 SCC 18, [2002] S.C.J. No. 19.³³ In that case, Binnie J., speaking for the majority, held that while ratios are easy to apply, they are overly simplistic. More specifically, he held that it was inappropriate to adopt a fixed ratio between compensatory damages (which compensate the plaintiff for losses sustained as a result of the defendant's misconduct) and punitive damages (which are meant to punish defendants for conduct that is malicious, oppressive and high-handed).³⁴

However, the arbitrator avoided applying the percentage approach in name only, as can be seen from the following in her second decision:

I concluded that having regard to the arbitral case law, and the requirement that the award be both rational and proportionate, an award at the high end of the scale was appropriate. I relied on two cases which appeared to be most apt. In Henderson and Lombard General Insurance Company of Canada (FSCO A97-001019, March 31, 2000), Arbitrator Sampliner made an award of $65,000, which on a percentage basis was approximately 40%. This award was upheld on appeal. In Singh and Commercial Union (FSCO A99-001160, September 11, 2001), Arbitrator Miller made a special award of 50%.

In Persofsky, the Director of Arbitrations held that it is inappropriate to order a special award expressed as a percentage of benefits owing, plus interest, without also considering whether the amount when quantified was appropriate. I now quantify the amount.³⁵

She then determined that the maximum special award was around $179,000, which as noted above should be $176,000, and then found that, in all the circumstances of the case, an award of $150,000 was appropriate. Nonetheless, as can be seen from the quotation, she focused on the percentages in Henderson and Singh and not on the dollar amounts. While the percentage of the maximum special award granted in other cases may be a factor, it is also necessary to consider whether the resulting amount is appropriate in all the circumstances. For instance, the arbitrator in Stewart and Liberty Mutual Insurance Company, (FSCO A03‑000833, November 16, 2004)³⁶ wrote:

Were I to follow the method as set out in Persofsky and applied in Smith [and Wawanesa Mutual Insurance Company, (FSCO A02-001475, August 20, 2004)], I expect the maximum interest payable under 282(10) in the case before me would amount to several hundred thousand dollars. Mr. Stewart’s suggested special award of $25,000, hardly a nominal amount, would translate to a fairly modest percentage of the total payable under subsection 282(10). I find the “percentage” method is not helpful in this case.

In my view, however, a special award of $25,000, inclusive of interest, is appropriate. It represents a sufficiently serious penalty to impose upon Liberty for its conduct under the circumstances, and for its part in the delayed payment of the spousal death benefit.³⁷

The arbitrator here treated the “high end of the scale” as referring to the percentage of the maximum that was awarded instead of the actual dollar amounts of the special awards. She also took as her starting point the highest previous awards, instead of looking at the context of special awards in general. The award she made then far exceeded any other special award granted. Wawanesa in its supplementary written submissions lists 182 special award decisions to support its proposition that the special award in this case was significantly higher and disproportionate in comparison with other special awards. Mrs. Michalski submits that the relevance of the decisions “is extremely questionable in the absence of disclosure of the facts of the cases relied upon by the insurer.” However, the majority of the Court of Appeal took a broad, comparative view in Keays v. Honda Canada Inc. (2006), 2006 CanLII 33191 (ON CA), 82 O.R. (3d) 161,³⁸ similar to the approach urged by Wawanesa. In this wrongful dismissal case, the lower court had awarded punitive damages of $500,000. Rosenberg J.A. for the majority stated:

The punitive damage award in this case is on the same scale as awards in Whiten ($1 million) and Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130, [1995] S.C.J. No. 64 ($800,000). Punitive damage awards in other wrongful dismissal cases have been far more modest even in the face of serious misconduct such as slander of the employee. The awards in such cases have been in the range of $15,000 to $50,000 and, rarely, up to $75,000. In my view, a punitive damage award on the scale imposed in this case can be justified only by extraordinary circumstances of a similar nature to those in Whiten and Hill.³⁹

As in Persofsky, the Whiten case served as a template or exemplar and the Court of Appeal worked through the principles set out in Whiten. After considering the factual errors of the trial judge – that is, findings unsupported by evidence – the court considered that an award higher than most was warranted, but still reduced the punitive damage award to $100,000.

The Director stated in Persofsky that the amount of the special award should be considered within the context of the Insurance Act, but according to the same principles identified in Whiten for punitive damages: rationality and proportionality. Rationality refers to the need to relate the particular facts of the case to the underlying purposes of the legislation. In other words, what amount is large enough to further the goals of punishment and deterrence, but no larger than is needed to serve that purpose? Proportionality refers to the need to ensure that the consequences imposed on the insurer are rationally related to the misconduct at issue. 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;

(v) 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.

One of the relevant considerations set out in Persofsky is the failure to respect important obligations under the SABS. A higher special award may be required to serve the goal of deterrence. Thus, one of the grounds on which the arbitrator based the special award was Wawanesa’s failure to follow the procedures of s. 39. However, as noted above, the arbitrator considered the wrong version of s. 39 in reaching that conclusion. In that regard, she also made findings that were unsupported by the evidence. She stated:

Even when counsel for the Applicant brought the attendant care DAC provisions to Wawanesa’s attention, in November 2002, and again in April 2003, Wawanesa did not take steps to arrange an attendant care DAC. The motor vehicle accident occurred in October 2001. It was not until November 2003, that Wawanesa proposed the first and only attendant care DAC in relation to Mrs. Michalski’s care.

However, Mr. Merrifield withdrew the request for an attendant care DAC in November 2002 immediately after proposing it. As for April 2003, the only relevant reference I can find is in his letter of April 9, 2003, where he stated: “[T]he 14 day time limit for requesting a DAC assessment for attendant care expired on April 7, 2003. A DAC Assessment is no longer available.”⁴⁰

As for the arbitrator’s statement that it was “not until November 2003” that Wawanesa proposed an attendant care DAC, this leads to another relevant consideration: the length of time the benefit is withheld or delayed. The arbitrator held that Wawanesa was “entirely to blame for the manner in which this claim unfolded” including the delay until the attendant care DAC was finally conducted in September 2004. However, she failed to consider the tactical decision made by Mrs. Michalski’s counsel in November 2003 to refuse an attendant care DAC until Wawanesa made retroactive payments to his satisfaction. If not for that tactical decision, the attendant care DAC could have been held earlier by several months, so the arbitrator should have recognized that the period over which the delay was unreasonable was shorter by that amount.

The arbitrator correctly considered Mrs. Michalski’s vulnerability as an unrepresented applicant with limited facility in English. I am also not convinced the arbitrator erred in considering the effect of the insurer’s actions on the family. As the majority in Keays noted, Binnie J. in Whiten described the defendant’s attitude to the plaintiffs at paragraph 4 as “harsh and unreasoning opposition” and an attempt to “exploit a family in crisis.” The length of time the benefits were withheld was also relatively lengthy, but unlike in Whiten, there was no period of escalating misconduct up to the time of the hearing, but rather in the later stages an attempt to reach some accommodation. I conclude that while a substantial special award was warranted, the arbitrator erred in calculating the amount by focusing on the percentage aspect and by arriving at an award that was disproportionate. As stated in Keays, when dealing with the difficult problem of assessing the quantum of punitive damages, one must bear in mind the overarching principle that the award must be “that amount, and no less, [that is] rationally required to punish the defendant's misconduct” (Whiten at para. 96, emphasis in original). The court also held that in that case, there were no circumstances from which it could rationally be concluded that a lesser award would fail to achieve deterrence. I find the same here, especially in light of the cases the arbitrator relied on. For instance, she summarized Henderson and Lombard as follows:

Arbitrator Sampliner held that Lombard failed to send Mr. Henderson claim forms and information about accident benefits, neglected its duty to evaluate and respond to his claims, delayed answering queries, misstated the limitation period, and refused to change its position when the law changed. The arbitrator held that Lombard’s failures of duty caused or significantly contributed to the unreasonable delay and withholding of Mr. Henderson’s accident benefits from the time he initially contacted the company in November 1994 to the date of the hearing.⁴¹

It is difficult to see why the special award in this case should be more than twice as large as the one in Henderson, considering that Wawanesa paid at least some benefits throughout and, even excluding the portion of the payments it made for which it does not get credit, paid over 40 percent of the total attendant care claimed prior to the hearing.

In my view, a special award of no more than $50,000 can be justified. I have reduced the special award accordingly.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code. I would also agree to consider the arbitration expenses.

December 5, 2007

David Evans Director’s Delegate

Date

Footnotes

1. 1Arbitration Exhibit 7, Tab 10, pp. 1–2.
2. 2Arbitration Exhibit 7, Tab 13, pp. 2,3.
3. 3The Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
4. 4Section 16(5)(a) provided a maximum monthly benefit of $3,000 for non-catastrophic impairment, and 16(5)(b) provided a maximum of $6,000 for catastrophic impairment. See now s. 16(5)1. for accidents that occurred before October 1, 2003.
5. 5As defined under (e)(i) of the term “catastrophic impairment” in s. 2(1) of the SABS as in read in 2001. The catastrophic impairment for those injured in an accident that occurs before October 1, 2003 is now set out in s.2(1.1) of the SABS–1996, as amended by O. Reg. 281/03.
6. 6See s. 17 of the SABS–1996. For accidents after October 1, 2003, this is now an optional benefit: see s. 17(1)(b), as amended.
7. 7The monthly cost was assessed at $3,683.70. Wawanesa initially paid St. Elizabeth Health Care the maximum amount for non-catastrophic cases of $3,000 a month. Benefits were later reduced.
8. 8Subsection 32(2) provides that, after receiving notice of a claim, the insurer “shall promptly provide the person with … (b) a written explanation of the benefits available under this Regulation” and “(c) information to assist the person in applying for benefits….”
9. 9Since DACs have been abolished, the current provisions under s. 40, as amended by O. Reg. 546/05, are different.
10. 10Upon receiving a notice under s. 40(2)(b) [determination of non-catastrophic status], an insured could request a CAT-DAC.
11. 11Mrs. Michalski was originally represented by Mr. Michalski.
12. 12See footnote 16 below.
13. 13Report of February 18, 2002, Arbitration Exhibit 2, Tab 1, p. 3
14. 14The benefits eventually were lowered to $1,568.
15. 15Arbitration decision, p. 20.
16. 16According to the Form 1s, attendant care was reduced to 10.14 hours on March 6, 2002, to 7.5 hours on March 27, 2002 and to 5.13 hours on July 5, 2002. The July 10, 2002 reduction to 2.47 hours per week is stated to be in error. According to the case manager’s reports attendant care was initially 8 hours, reduced to 6 hours in May 2002, and to 3 hours in July, 2002. I am unable to determine the number of hours paid from the list of attendant care payments, as the levels of care were not provided. It appears that different rates may have been paid to the attendant caregivers. [Footnote in the original.]
17. 17This was the version appended to her decision and which she cited. However, even as amended, the section did not mandate a DAC at the beginning of the process. The process has once again been significantly modified by O. Reg. 546/05.
18. 18I note that it was only at this point that s. 39(8) had been amended by O. Reg. 281/03 – effective October 1, 2003 – to require an attendant care DAC if a person receiving an attendant care benefit applies for an increase and the insurer determines the person is not entitled to the increase.
19. 19Arbitration exhibit 7, tab 55.
20. 20There was a deduction for a brief period of hospitalization and the period when an attempt was made to reduce the amount of attendant care.
21. 21First arbitration decision, p. 25.
22. 22Appellant submissions, ¶ 38.
23. 23S. 39(8) at the relevant time, as set out in O. Reg. 403/96, provided: “If the insured person requires an increased level of attendant care, the insured person shall submit a new application to the insurer.”
24. 24Arbitration decision, p. 40.
25. 25Henderson and Lombard General Insurance Company of Canada, (FSCO A97-001019, March 31, 2000), and Singh and Commercial Union, (FSCO A99-001160, September 11, 2001).
26. 26Insurance Act, s. 283(1).
27. 27Ms. Scott set this out in her letter of October 19, 2006, in which she indicated that Mr. Merrifield took no issue with the revised figure.
28. 28(FSCO P98-00049, January 10, 2000), at p. 18. The leading decision on the standard of review of a an arbitrator’s special award decision is Maas and State Farm Mutual Automobile Insurance Company, (OIC P96-00080, December 8, 1997).
29. 29Arbitration decision, p. 36.
30. 30McIntosh and Allstate Insurance Company of Canada, (FSCO A02-001277, April 23, 2004), confirmed on appeal (FSCO P04-00019, March 15, 2005).
31. 31McIntosh appeal decision, p. 11.
32. 32Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129.
33. 33Also reported at 2002 SCC 18, [2002] 1 S.C.R. 595 and 2002 SCC 18.
34. 34Whiten v. Pilot, at para. 36 and 127. [Footnote in the original.]
35. 35Arbitration decision, p. 5.
36. 36Reversed on other grounds, (FSCO P04‑00038, December 7, 2005).
37. 37Stewart, pp. 30–31.
38. 38Leave to appeal to the Supreme Court granted: see [2007] O.J. No. 4309.
39. 39Keays, paras. 104–105.
40. 40Arbitration exhibit 7, tab 47.
41. 41First arbitration decision, p. 40.