Philomena Tsui v. Lombard General Insurance Company of Canada, 2008 ONFSCDRS 60

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2008 ONFSCDRS 60

Appeal P07-00031

OFFICE OF THE DIRECTOR OF ARBITRATIONS

PHILOMENA TSUI

Appellant

and

LOMBARD GENERAL INSURANCE COMPANY OF CANADA

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

James Chow for Ms. Tsui

Pamela M. Stevens for Lombard

HEARING DATE:

February 20, 2008

APPEAL ORDER

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

1. Ms. Tsui’s appeal from the arbitrator’s preliminary issue decision dated October 1, 2007 is dismissed.
2. The expenses of the appeal hearing will be determined by the arbitrator who presides over the main arbitration hearing.

April 18, 2008

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Ms. Tsui was seriously injured in an automobile accident on March 16, 1995. As a result, she started receiving weekly income replacement benefits (IRBs) from Lombard General Insurance Company of Canada (Lombard) pursuant to the SABS–1994.¹ Lombard terminated the weekly benefits in March 1997 but reinstated them retroactively in December 1997 after Ms. Tsui filed for mediation. Lombard continued paying weekly benefits, until an insurer’s examination (IE) led it to terminate them in 2005, whereupon Ms. Tsui instituted the current proceedings.

A preliminary issue hearing was scheduled to determine the nature of the weekly benefits that Lombard paid for the period from March 15, 1997 to November 3, 2005: were they IRBs or loss of earning capacity benefits (LECBs)? This is important because, unlike IRBs, LECBs, set out in Part VI of the SABS, are lifetime benefits and can only be changed or terminated at mandatory three- and eight-year reviews (discussed below).²

Ms. Tsui appeals the arbitrator’s finding that these benefits were IRBs, not LECBs.

II. BACKGROUND

The arbitration hearing proceeded without any oral evidence. While the parties agreed on the chronology of events and the documents filed, they disagreed on their effect. I will set out the basic time line in relation to LECBs. This discussion is taken from the delegate’s decision in Williams and General Accident Assurance Company of Canada, (FSCO P00–0004, December 29, 2000), cited by the arbitrator. I will refer to the specific provisions of the SABS below as required.

As set out in Part VI of the SABS–1994, IRBs are among the weekly benefits converted to LECBs if payment is authorized to compensate for permanent or long-term loss or reduction in earning capacity. Payable during the insured’s lifetime, LECBs are based on the difference between the insured person’s pre-accident earning capacity and post-accident residual earning capacity. While LECBs are distinct from IRBs and other weekly benefits, weekly benefit requirements dictate where LECBs come into play.

LECBs generally come into play 104 weeks after the accident, since s. 21(1)1 provides that an insurer “shall promptly deliver a written offer to an insured person” with respect to the payment of LECBs if the insured person continued to qualify for IRBs more than 104 weeks after the onset of disability. The parties agreed that Ms. Tsui met that qualification, but did not receive an LECB offer in 1997. The arbitrator rejected Ms. Tsui’s submission that the IRBs were automatically converted to LECBs in 1997, since the jurisprudence is clear that the transition from IRBs to LECBs takes place through the complex process set out in Part VI of the SABS.

Alternatively, LECBs may be substituted for weekly benefits at any time without the need to go through the formal offer process if the insured is entitled to a weekly benefit and the parties agree in writing to the switch. The arbitrator rejected Ms. Tsui’s submission that such an agreed switch could be inferred from the parties’ conduct and correspondence – in particular a letter to the Ontario Insurance Commission³ on December 5, 1997 – related to the initial termination and eventual reinstatement of the weekly benefits.

If the offer is not accepted or no alternative agreement is worked out, the process pursuant to s. 27 allows for a determination of residual earning capacity at a designated assessment centre (REC DAC) if, say, the parties disagree over the REC. The parties agreed that no REC DAC took place, although at several points Lombard requested one (June 21, 1999, April 22, 2002, December 18, 2002, June 15, 2004, and August 9, 2005), and Ms. Tsui had also sent OCF‑14s giving permission for the disclosure of information for purposes of the REC DAC assessment (December 19, 1997, and April 23, 2004). Eventually, an IE was arranged in 2005, and it was on the basis of this IE that the benefits were terminated. Since no REC DAC was ever arranged, the arbitrator found that s. 23(5) did not operate to transform the IRBs to LECBs. That subsection allows the insurer to commence paying LECBs 14 days after receiving a REC DAC report. Since it never obtained a report, he held the subsection could not apply.

The arbitrator also found that s. 23(6) did not assist Ms. Tsui. This provision allows the insurer to commence paying LECBs if the DAC does not submit a report and informs the insurer that the insured failed to co-operate. The arbitrator found that, even if the subsection could apply in these circumstances, it required the conversion to be based on the insurer’s offer under s. 21, but Lombard continued paying weekly benefits based on the initial IRB rate.

To return to the procedures involving LECBs, once an LECB amount is determined, it can only be changed at a mandatory review. The first mandatory review is set out in s. 33(1)(a) at three years after LECBs are first paid, and the second is in s. 33(1)(b) at eight years. The three-year review came up when Lombard wrote to Ms. Tsui in June 21, 1999, enclosing an OCF‑14 in order to arrange a REC DAC pursuant to s. 27. As the arbitrator put it, Ms. Tsui’s response “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.” As noted before, Lombard did not make an LECB offer in 1997. It did eventually make an LECB offer on November 1, 2000, for about half of the IRBs that had been paid. This offer was not accepted and expired in February 2001. The arbitrator rejected Ms. Tsui’s argument that the offer was made in respect of the three-year mandatory review of section 33 of the SABS and not an initial s. 21 LECB offer. Accordingly, he found that 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 IRBs to LECBs.

Ms. Tsui made a similar argument that the letter from Lombard of August 9, 2005, requesting the IE in fact related to the eight-year review. Although the arbitrator did not specifically deal with this submission, he implicitly rejected it when – as noted above – he found that the IRBs could not be converted to LECBs in the absence of a REC DAC.

The arbitrator accepted that from the time the November 2000 LECB offer was made until it was rejected in February 2001, and possibly for a period afterwards, discussions were still underway to determine the final LECB amount. However, he did not find that any agreement had been reached that the payments were LECBs, noting that Lombard continued paying the higher IRB amount rather than the lower LECB offer throughout. He also rejected Ms. Tsui’s submission that Lombard had implicitly agreed to the conversion of IRBs to an LECB of approximately $700.00 per week because no document supported that submission and because in April 2002 Lombard asked Ms. Tsui to proceed with a REC DAC assessment.

Finally, after reviewing a number of cases discussing the nature of benefits paid after the 104 weeks but before a REC DAC, the arbitrator concluded that the benefits were more in the nature of IRBs than LECBs. Accordingly, he found that at no time were the IRBs converted to LECBs.

III. ANALYSIS

As set out in s. 283(1) of the Insurance Act, a party to an arbitration may appeal the order of the arbitrator to the Director or his delegate on a question of law. However, Ms. Tsui’s appeal is based almost entirely on questions of fact, namely, the interpretation given by the arbitrator to the documents. The arbitrator stated with respect to the material before him:

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 [Williams] in their analysis of the law pertaining to this complicated series of provisions.

I agree with the arbitrator that the system is too complex to assume that LECBs automatically replace IRBs at the 104 week mark. Shortly before the appeal hearing, I became aware of Hogan v. State Farm Mutual Automobile Insurance Co., [2008] O.J. No. 50 (O.S.C.J.) and provided copies to the parties for their comments. In that case, arising out of an accident on December 27, 1995, Crane J. assumed that the IRBs that were owing became LECBs at the 104 week mark. Significantly, though, there was no difference in the amount of IRBs as opposed to LECBs claimed (the maximum), and there was no dispute that the plaintiff was disabled. The case turned on the deductibility of post-accident income. Accordingly, I do not find this decision persuasive.

Furthermore, the arbitrator’s approach is consistent with the Commission’s case law, as he noted. He referred to GAN Canada Insurance Company and Rocca, (FSCO P99-00003, July 20, 1999), in which the delegate stated: “[C]onstruing 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.” Assuming that the offer made in 2000 was the LECB offer, a point I will return to, then the situation is parallel to Rocca.

The Williams case also offers some parallels. In that case, the insurer had terminated IRBs prior to the 104 week mark. The arbitrator found that Ms. Williams was entitled to IRBs for another 13 months, and on appeal it was found that the insurer was required to make an LECB offer. The delegate in Williams summarized the law with respect to payment after 104 weeks as follows:

At the core of the court and Commission jurisprudence is the recognition that IRBs do not automatically stop at 104 weeks. They continue until there is authority to end them. Therefore, insurers have been ordered to continue paying IRBs where benefits have been cut off without the benefit of a disability DAC or, pending resolution of a dispute, where the results of a DAC assessment are favourable to the insured. In the outcome of a dispute, where continuing disability is found, the insurer has been ordered to continue IRBs in accordance with the usual rules of entitlement.

Therefore, I agree with the arbitrator that the delivery of the LECB offer is the first step in the process of the transition from IRBs to LECBs, absent an agreement. Accordingly, the issue turns then on whether the arbitrator misinterpreted the events in finding that no agreement to the switch had been agreed upon.

Ms. Tsui submits that the arbitrator erred in his interpretation of the events of 1997. As briefly noted above, Lombard had terminated benefits around March 1997 and then reinstated them on December 5, 1997, ten days before mediation was to take place. The arbitrator accepted 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. This is based on s. 24 of the SABS—1994, which provides that a person who has not received an offer under s. 21 and who is entitled to receive IRBs “may agree in writing with the insurer that the insurer will pay the person weekly loss of earning capacity benefits instead….” The arbitrator also accepted 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 REC DAC assessment. However, he found that there was no agreement in writing to convert the weekly benefits. Ms. Tsui submits that the arbitrator erred because a letter written by Lombard to the Commission on December 5, 1997, confirmed that payment of LECBs had already commenced at that time. The letter’s relevant numbered paragraphs read as follows:

1. Weekly Benefits – were reinstated, with interest, and are ongoing. No issue.

2. Loss of Earning – we continue to pay benefits.

The arbitrator wrote with respect to this letter:

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.

Although Ms. Tsui submits that the arbitrator made a mistake in his legal analysis, I find that it really is an attack on the arbitrator’s fact-finding. The arbitrator interpreted the letter and gave reasons for his interpretation. I am not convinced that he was required to consider the contra proferentem principle in these circumstances where, as he notes, the letter is not a direct communication to Ms. Tsui, nor does it contain the basic elements one would expect of an agreement. I also agree with him that s. 24, dealing with agreements before offers, specifically requires any such agreement to be in writing.

Ms. Tsui submits that the arbitrator erred when he found that any confusion regarding the letter to the Commission in 1997 was cured by the offer in 2000. I agree with Ms. Tsui that it is difficult to see how some document could cure a defect three years after the fact. However, as set out above, that is not the only basis upon with the arbitrator concluded that the letter did not constitute an agreement.

Ms. Tsui submits that the arbitrator erred in the chronology he set out at the beginning of the decision. As noted above, in June 1999 Lombard sent Ms. Tsui a request to attend a REC DAC, and she responded that the 3-year review was not due until March 2000, on the assumption that LECBs had been paid since March 1997. The arbitrator in item 7 at the top of page 3 wrote:

7. 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.

It is true that the arbitrator mistakenly conflated two letters, namely the letter sent on June 21, 1999 by Lombard enclosing the OCF-14, and the letter of June 25, 1999, when Ms. Tsui rejected the DAC request. However, the arbitrator was clearly aware of the distinction between the letters and their content, as set out on page 7, in the portion of the decision entitled “Insured’s Argument”:

On June 21, [1999], Lombard made a request for an OCF-14 to proceed with a REC DAC in accordance with section 27….

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.

I am not convinced that the error the arbitrator made in his initial chronology had any effect on the outcome, given that he recognized in the passage quoted that Lombard sent the OCF‑14 and that Ms. Tsui responded by expressing her belief that Lombard was already paying LECBs.

Ms. Tsui submits that the arbitrator erred in finding that the November 2000 offer was an LECB offer and not an offer with respect to the three-year review. The arbitrator found that it was an LECB offer because both the cover letter accompanying the offer and the offer itself are described as a “Loss of Earning Capacity Benefit Offer” pursuant to s. 21 of the SABS. The offer itself stated 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.” The arbitrator wrote: “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.” Ms. Tsui submits that the arbitrator should have given no weight to that last point because it is a standard form letter and because, being delivered years late, it could not be construed as an offer pursuant to s. 21. However, the mere fact that it is a form letter should not necessarily detract from its weight. As the arbitrator pointed out, the letter and the offer are described as being pursuant to s. 21. I am also not convinced that an offer in the form of a s. 21 offer is converted into an offer with respect to the three year review by the mere passage of time.

Ms. Tsui submits that she was entitled to rely upon a presumption of regularity and that the onus was on the insurer to prove that things were not done correctly. Other than giving me the Latin version of that concept, she cited no cases relying upon it. I do not find it persuasive.

Ms. Tsui submits that the arbitrator should have applied the concept of estoppel and found that Lombard was bound to continue paying benefits as LECBs. However, I fail to see the basis for that on the record before the arbitrator.

In conclusion, I see no errors in law in the arbitrator’s decision. He was clearly frustrated by the limited evidence before him. However, he addressed the relevant principles and applied them to the facts as he found them based on the evidence. I see no reason to intervene. Accordingly, the appeal is dismissed.

IV. EXPENSES

The parties are content to leave the expenses of the appeal decision to the arbitrator who will be determining the case on its merits. I so order.

April 18, 2008

David Evans Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended.
2. 2Lombard relied on s. 64 of the SABS to terminate benefits, but s. 64 does not apply to Part VI – LECBs.
3. 3The predecessor of the Financial Services Commission of Ontario.