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

Neutral Citation: 2009 ONFSCDRS 41

FSCO A04-001504

BETWEEN:

DANIEL COLE

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

Minor errors on page 8 corrected on April 23, 2009 in accordance with the Dispute Resolution Practice Code and section 21.1 of the Statutory Powers Procedure Act.

Before: David Leitch

Heard: By telephone conference call on March 6, 2009.

Appearances: David Levy for Mr. Cole Ian D. Kirby for Allstate Insurance Company of Canada

Issues:

I refer to my previous decisions dated November 23, 2005 and June 27, 2007.

At the hearing on March 6, 2009, counsel informed me that the parties had finally agreed on the amount of Mr. Cole’s Loss of Earning Capacity Benefits (LECB)¹ but had been unable to agree on the date on which he became entitled to those benefits. The only issue argued was:

On what date did Mr. Cole’s LECB entitlement commence?

Result:

Mr. Cole’s LECB entitlement commenced on the date in May 2001 when Allstate made its original LECB offer.

The Arguments

For the Insurer, Mr. Kirby submitted that the question put to me has already been answered by the previous decisions of Arbitrator Palmer and Director’s Delegate Makepeace, dated March 28, 2001 and May 23, 2003, respectively.² Both of those decisions ordered Allstate to continue paying Mr. Cole Income Replacement Benefits (IRBs) “until the provisions of Part VI of the SABS-1994 have been complied with”. Part VI is that Part of the Schedule which deals with LECB; the relevant sections are set out below. Mr. Kirby pointed out that the evaluation of a Residual Earning Capacity Designated Assessment Centre (a “REC DAC”) is the last step of the dispute resolution process contemplated by this Part. While he acknowledged that disputes about Mr. Cole’s residual earning capacity (REC) ultimately went beyond that step to mediation and arbitration, he maintained that the provisions of Part VI were complied with on January 29, 2004 when the REC DAC evaluation was completed. Accordingly, he urged me to conclude that Mr. Cole’s LECB entitlement could only begin on that date and that any earlier date would be contrary to the unchallenged orders of Arbitrator Palmer and Director’s Delegate Makepeace.

Mr. Kirby also referred to the FSCO case law that required Allstate to continue paying Mr. Cole IRBs until the REC DAC evaluation was completed, even if Allstate’s own view was that he was not entitled to LECB. This case law, he argued, ensured that Mr. Cole remained entitled to IRBs until the REC DAC reported. He denied, however, that there was any case law, or any reason to create any case law, establishing Mr. Cole’s entitlement to LECB prior to that point.

Mr. Levy responded that there is no provision in the Schedule precluding me from recognizing Mr. Cole’s entitlement to LECB at a point prior to the completion of the REC DAC evaluation. He maintained that Mr. Cole’s entitlement to LECB should commence from either a date in March 2001, when Arbitrator Palmer ordered Allstate to make an LECB offer, or in May 2001, when Allstate made an LECB offer of zero. He denied that this result would be contrary to the decisions of Arbitrator Palmer and Director’s Delegate Makepeace. He maintained that neither of those decisions provided any reasons for their orders requiring Allstate to continue paying IRBs “until the provisions of Part VI of the SABS-1994 have been complied with.”

The relevant provisions of the Schedule

I set out below the provisions of the Schedule which I think are relevant: section 21(1) par. 1, section 23 and section 31, all found in Part VI of the Schedule. However, since section 23 was amended soon after the Schedule was adopted and since the effect of that amendment became the subject of arbitral comment, I also set out below the original section 23. It is the amended section 23 which applies in this case. The significant amendments were to subsection (5) and (8) of section 23 which are set out in bold in both versions.

section 21(1), paragraph 1

21(1) Subject to subsections (7) to (9), an insurer shall promptly deliver a written offer to an insured person with respect to the payment of weekly loss of earning capacity benefits if one or more of the following circumstances occurs:

The insured person qualified for weekly income replacement benefits under Part II and continues to qualify for those benefits 104 weeks after the onset of the disability in respect of which he or she first qualified for those benefits.

original section 23, repealed in December 1994

PROCEDURE IF NO AGREEMENT

23(1) An insured person who does not accept the insurer’s offer within forty-five days after receiving it shall be deemed to have rejected the insurer’s offer in respect of both residual earning capacity and pre-accident earning capacity.

(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 the person notice of that requirement.

(3) If an insured person rejects the insurer’s offer in respect of pre-accident earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on section 29 of this Regulation.

(4) If an insured person rejects the insurer’s offer in respect of both pre-accident earning capacity and residual earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on sections 29 and 30 of this Regulation, but no steps shall be taken under sections 279 to 283 of the Insurance Act, other than the filing of an application for mediation, pending receipt of the report of the designated assessment centre under section 27.

(5) Forty-five days after receipt by the insurer of the report from the designated assessment centre under subsection 27(5), the insurer shall commence payment of weekly loss of earning capacity benefits based on the insurer’s offer made under section 21 in respect of pre-accident earning capacity and the gross annual income determined by the centre in respect of residual earning capacity, unless the insured person disputes the report within thirty days of receiving it in accordance with sections 279 to 283 of the Insurance Act or has disputed the insurer’s offer in respect of pre-accident earning capacity in accordance with those sections.

(6) If, six months after the centre notifies the insured person under subsection 27(2), no report has been submitted under subsection 27(5) and the centre has informed the insurer that the report has not been submitted because of the insured person’s failure to cooperate, the insurer may, on notice to the person and until a report is submitted under subsection 27(5), pay the person weekly loss of earning capacity benefits based on the insurer’s offer made under section 21.

(7) By agreement between the insurer and the insured person,

(a) the forty-five-day period referred to in subsection (1) may be extended;

(b) the assessment referred to in subsection (2) may be delayed;

(d) the thirty-day period referred to in subsection (5) may be extended.

(8) Subject to subsections (5) and (6) and to subsection 281(4) of the Insurance Act, the insurer shall continue to pay benefits under Part II, section 15, Part IV or Part V pending resolution of a dispute under subsection (3) or (4), if the person continues to qualify for those benefits.

amended section 23

PROCEDURE IF NO AGREEMENT

(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 the person notice of that requirement.

(4) If an insured person rejects the insurer’s offer in respect of both pre-accident earning capacity and residual earning capacity, the dispute may be resolved in accordance with sections 279 to 283 of the Insurance Act, based on sections 29 and 30 of this Regulation, but no steps shall be taken under section 279 to 283 of the Insurance Act, other than the filing of an application for mediation, pending receipt of the report of the designated assessment centre under section 27.

(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 earning 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 subsection 27(5).

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

(a) the 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 person’s gross annual income in respect of the person’s residual earning capacity.

(5.2) Subject to subsection (8), if an insured person rejects the insurer’s offer in respect of pre-accident capacity but not residual earning capacity, the insurer may, upon receiving the rejection, commence paying weekly loss of earning capacity benefits to the insured person based on the insurer’s offer made under section 21.

(6) If, after the centre notifies the insured person under subsection 27(2), no report has been submitted under subsection 27(5) and the centre has informed the insurer that the report has not been submitted because of the insured person’s failure to cooperate, the insurer may, on notice to the person and until a report is submitted under subsection 27(5), pay the person weekly loss of earning capacity benefits based on the insurer’s offer made under section 21.

(7) By agreement between the insurer and the insured person,

(a) the forty-five day period referred to in subsection (1) may be extended;

(b) the assessment referred to in subsection (2) may be delayed;

(8) Subject to subsection (6) and subsection 281(4) of the Insurance Act, the insurer shall continue to pay benefits under Part IV or V pending the resolution of a dispute under subsection (3) or (4), if the person continues to qualify for those benefits.

section 31

31 No weekly income replacement benefits are payable to a person under Part II, no weekly education disability benefits are payable to a person under section 15, no weekly caregiver benefits are payable to a person under Part IV and no weekly disability benefits are payable to a person under Part V,

(a) after loss of earning capacity benefits begin to be paid to the person under this Part; or

(b) if the amount of the weekly loss of earning capacity benefits payable to the person has been determined in accordance with this Part to be zero.

Analysis and Conclusion

I think I know why Arbitrator Palmer and Director’s Delegate Makepeace gave no reasons for their orders requiring Allstate to continue paying IRBs “until the provisions of Part VI of the SABS-1994 have been complied with.” Without saying so, they were relying on the line of cases referred to by Mr. Kirby. These cases analysed the effect of the amendments to subsections 23(5) and (8) on the Insurer’s obligation to continue paying IRBs after making an LECB offer of zero. Some insurers argued that the amendments relieved them of the obligation to continue to pay IRBs as soon as they made LECB offers of zero, without having to wait for REC DAC evaluations. This argument was rejected in a series of Arbitrators’ decisions³ which were then affirmed by two Director’s Delegate’s decisions.⁴ However, as I read sections 23 and 31, the decisions interpreting them and the orders of Arbitrator Palmer and Director’s Delegate Makepeace, none of them is intended to govern the question now before me, namely, on what date did Mr. Cole’s LECB entitlement commence?

As I read it, Part VI has two purposes. The first is to stipulate the “procedure if no agreement” is reached prior to receipt of the REC DAC report, including the question of entitlement to interim IRBs. In Martins and Commercial Union Assurance Company⁵, as Arbitrator McMahon stated:

In conclusion, the insurer is not authorized to [stop paying IRBs and] substitute a loss of earning capacity benefit until the release of the REC DAC report. Section 31 provides that no weekly benefits are payable after either loss of earning capacity benefits begin to be paid, or there has been a determination that none are [sic] 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. (my emphasis)

Accordingly, Allstate could have refused to pay Mr. Cole both IRBs and LECBs once it received a REC DAC report which, together with the parties’ agreement on PEC, indicated that his LECB entitlement was zero. Relying on the language of section 31(b), Allstate could have correctly asserted that Mr. Cole’s LECB entitlement “has been determined in accordance with this Part to be zero.” (my emphasis)

The second purpose of Part VI is to determine the insured person’s LECB entitlement if he/she does not contest the REC DAC findings. As Arbitrator McMahon also observed in Martins: “the insured person may accept the conclusion of the REC DAC, in which case the DAC’s conclusion becomes the determination”. But Arbitrator McMahon further observed that if the insured person does not accept that determination, and exercises his/her right to challenge it in accordance with sections 279 to 283 of the Insurance Act, it is “the arbitrator’s or judge’s conclusion [which becomes] the ‘determination’”. I note that even an insured person who accepts a REC DAC determination only accepts it for the purpose of determining his/her REC, not for the purpose of determining the date his/her LECB entitlement commences.

In this case, disputes about Mr. Cole’s REC went beyond the procedure contemplated by Part VI to mediation and arbitration. Moreover, I note that those disputes have not been about whether Mr. Cole should have received interim IRBs pending receipt of the REC DAC report or about the “procedure if no agreement” was reached prior to receipt of the REC DAC report. They have been about what I might refer to as his permanent, as opposed to his interim, entitlement to LECBs, including now the question as to the date his LECB entitlement commenced. This question must be answered in order to determine Mr. Cole’s substantive entitlement to LECBs. However, in my view, the answer is not be found in either the “procedure if no assessment” or interim entitlements created by sections 23 and 31. It must be found elsewhere.

Looking first in the rest of the Schedule, I find no provision which specifically answers this question. On the other hand, I find that subsection 21(1) par. 1 points to the approach that should be taken. It states that the insurer shall promptly deliver an LECB offer to an insured person who remains entitled to IRBs 104 weeks after the accident. In my view, this section demonstrates a concern for consumer protection, a concern which has been echoed in the courts.⁶ In my view, the objective of consumer protection obliges an insurer to do more than simply deliver an LECB offer in a prompt fashion; it requires the insurer to obtain the relevant information and carefully consider the insured person’s entitlement to LECB before making an LECB offer.

I acknowledge that the insured person is already protected to some extent from the effects of delays and errors on the insurer’s part: he/she can request a REC DAC review of the insurer’s offer pursuant to section 23(2) and, as we have seen, he/she may also remain entitled to IRBs until the REC DAC report is received.⁷

Still, the insured person’s IRB rate may prove to be lower than his/her LECB rate, correctly calculated. I take it that this was true in the present case, at least for some periods. In addition, any errors in the insurer’s original offer will necessarily lead to delays in correcting those errors, whether corrected by the REC DAC or by an arbitrator or a judge. In the present case, there was a delay of nearly eight years between the time of Allstate’s original LECB offer of zero and the parties’ agreement about Mr. Cole’s LECB rate. Finally, I note that if the insurer erroneously delivers an LECB offer of zero and that erroneous offer is confirmed by the REC DAC, the insured person can be deprived of both IRBs and LECBs while waiting for the error to be corrected by an arbitrator or a judge.

In view of these possibilities, I think the goal of consumer protection is best served by making LECB entitlement commence from the date the insurer made its original LECB offer, or, if that offer was not made promptly, from the date it should have been made. I appreciate that in situations where the insured person’s IRB rate proves to be higher than his/her LECB rate, correctly calculated, this approach may not always maximize the insured person’s substantive entitlement. But, as I understand it, the goal of consumer protection does not mandate interpretations of the legislation which will always maximize the insured person’s substantive entitlement. It only mandates interpretations of the legislation which will protect the insured person from procedural unfairness.

In my view, it would be procedurally unfair to commence LECB entitlement from date of the REC DAC report merely because disputes about LECB entitlement proceeded to that step or beyond. I think it is procedurally fairer to commence LECB entitlement from the date of the insurer’s original LECB offer, or, if that offer was not made promptly, from the date it should have been made. Simply stated, if the insurer’s original LECB offer had been made promptly and correctly, the insured person’s LECB entitlement would have commenced from that point in time. Another insured person should not have his/her entitlement commence on a later point in time merely because the insurer’s offer was not made promptly or correctly and had to be corrected, probably much later, by a REC DAC, an arbitrator or a judge.

As I read them, the decisions in the case of McMichael and Belair Insurance Company Inc.⁸ support this approach. One of the issues in that case was whether Belair could be required to pay for attendant care services which it had previously denied. The evidence was that Mr. McMichael never received the attendant care due in part to his inability to pay for it without the assistance of the insurance benefit that Belair denied him. Belair nevertheless argued that since Mr. McMichael did not receive the attendant care, did not pay for it himself and did not incur a debt or obligation to pay for such care, he could not establish that he had “incurred” the expense of such care as required by section 16 of the Schedule applicable in that case. This argument was rejected by the Arbitrator, the Director’s Delegate and ultimately by the Divisional Court. At paragraph 21 of the Divisional Court’s decision, Justice Lane made the following observations:

Mr. McMichael made a contemporaneous and well-documented request for funding which was denied on a basis subsequently found to be invalid by the process established to determine disputes. Had the correct assessment been made, Mr. McMichael would have received the benefits and likely would have benefited from the care which ought to have been provided. Even if payment of the benefits is arguably a windfall to him, (and I do not see it as such), non-payment is certainly a windfall to the insurer. As between the two, the insurer is the one with the statutory obligation to pay, and the arbitrator and the Director’s Delegate have chosen an interpretation of “incurred” which requires the insurer to do now what it would have done if the assessment had been correct. In my view, this is entirely supportable on the case law. (my emphasis)

I acknowledge that this passage begins with the observation that Mr. McMichael “made a contemporaneous and well-documented request for funding”. There may well be situations where the insurer’s delay or error is partly the result of the insured person’s failure to provide complete information despite the insurer’s requests. Indeed, in the present case, some of the relevant information was not obtained until the matter came on before me, long after Allstate made its original LECB offer of zero. Nevertheless, in Smith, the Supreme Court of Canada stated that the objective of consumer protection “obliges the courts to impose bright-line boundaries between permissible and impermissible conduct without undue solicitude for particular circumstances that might operate against claimants in certain cases.”

In this case, I find that Allstate’s original LECB offer of zero was made promptly after Arbitrator Palmer’s decision. I, therefore, accept Mr. Levy’s submission that Mr. Cole is entitled to an order that his LECB entitlement commenced on the date in May 2001 when Allstate made that offer. I caution, however, that this result cannot be read as a comment on issues of interest, repayment or special award, none of which was raised before me.

Expenses

If counsel cannot agree on the expenses, they should follow the procedure set out in the Dispute Resolution Practice Code.

April 14, 2009

David Leitch Arbitrator