Mala Sharma-Singh v. Co-operators General Insurance Company, 2010 ONFSCDRS 23

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2010 ONFSCDRS 23

FSCO A07-000588

BETWEEN:

MALA SHARMA-SINGH

Applicant

and

CO-OPERATORS GENERAL INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before: David Leitch

Heard: January 13, 2010, at the offices of the Financial Services Commission of Ontario in Toronto

Appearances: Alexander Voudouris for Mrs. Sharma-Singh

Philippa Samworth for Co-operators General Insurance Company

Agreed Statement of Facts

The applicant, Mala Sharma-Singh, is a 44 year old woman who was involved in a motor vehicle accident on May 17, 2006 in Ontario.
As a result of the accident, Ms. Sharma-Singh was entitled to statutory accident benefits coverage under the Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996 from the insurer, The Co-operators General Insurance Company.
At the time of the accident, Ms. Sharma-Singh was, inter alia, employed by the Government of Canada, specifically the Treasury Board, where she worked as a Counsellor Assistant in the Department of Citizenship and Immigration.
Ms. Sharma-Singh commenced her employment with the Government of Canada on or about September 29, 1986.
At all material times, she was a full-time employee.
At the time of the accident, Ms. Sharma-Singh was earning $46,200 per annum from her said employment. In the four weeks prior to the accident, she earned $4,081.23.
The insurer calculated 80 percent of her net weekly income as being $680.30.
Therefore, in the absence of any deductions for LTD benefits, the quantum of Ms. Sharma-Singh’s income replacement benefits would be $400.00 per week.
On August 17, 2006, Ms. Sharma-Singh began receiving LTD benefits, from a Group Disability Insurance Plan underwritten by the Sun Life Assurance Company of Canada bearing policy no. 12500-G, payable monthly in arrears. The net weekly payment of LTD benefits as calculated by Co-Operators was $612.31 resulting in an income replacement benefit of $67.99, although Co-operators continues to pay income replacement benefits in the amount of $71.75 per week due to unrelated matters.
As Ms. Sharma-Singh continued to receive LTD benefits, Co-operators continued to deduct same from her income replacement benefits until they were suspended by Co-operators as of August 6, 2009. Income replacement benefits have been reinstated as of December 9, 2009 and continue to be payable.

Issue

The issue in this hearing is:

Are the payments received by the Applicant under her Sun Life policy deductible from her income replacement benefits pursuant to section 7(1) of the Schedule?

Result:

The payments received by the Applicant under her Sun Life policy are deductible from her income replacement benefits pursuant to section 7(1) of the Schedule.

ANALYSIS:

This is a dispute about the deductibility of collateral benefits. The relevant provisions of the Schedule¹ are sections 7(1) and section 2(9) and (10).

Collateral Payments for Loss of Income and Maximum Amount of Benefit

(1) Despite subsections 6 (1) and (5), but subject to subsection 6 (2), the weekly amount of an income replacement benefit payable to a person shall be the lesser of the following amounts:
The amount determined under subsections 6 (1) and (5), reduced by,

i. net weekly payments for loss of income that are being received by the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, and

ii. net weekly payments for loss of income that are not being received by the person but are available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, unless the person has applied to receive the payments for loss of income.

Definitions and Interpretation

(9) For the purpose of this Regulation, payments for loss of income under an income continuation benefit plan shall be deemed to include the following payments:
Payments of disability pension benefits under the Canada Pension Plan.
Periodic payments of insurance, if the insurance,

i. is offered by the insurer only to persons who are employed at the time the contract for the insurance is entered into, and

ii. is offered by the insurer only on the basis that the maximum benefit payable is limited to an amount calculated with reference to the insured person’s income from employment. O. Reg. 482/01, s. 1.

(10) Subsection (9) only applies in respect of accidents that occur on or after January 1, 2002. O. Reg. 482/01, s. 1.

For present purposes, the important words of section 7(1) are found in paragraph 1(i): “net weekly payments for loss of income ... under any income continuation benefit plan”. The words “payments for loss of income ... under any income continuation benefit plan” have long governed deductibility disputes in Ontario. However, this is one of the first cases to consider the effect of sections 2(9) and (10). It is, therefore, important to try to identify the possible effects of these provisions. I will refer them together as “the amendments”. Counsel identified some of the possible effects of these amendments but said nothing about the most important possibility, one that is at least raised in two previous decisions. That possibility is that the current method for resolving deductibility issues is no longer valid; indeed, that it was never valid.

Issue 1: Do the amendments invalidate the current method for determining deductibility?

A detailed history of the current method is found in Economical Mutual Insurance Company and Wilcox.² Director’s Delegate Draper observed that the “deductibility of collateral benefits has kept policy analysts, legislators, and adjudicators busy for many years.” Still, his analysis demonstrates that the current method for deciding deductibility originates in, and continues to be informed by, the common law distinction between indemnity payments, which are deductible, and non-indemnity payments, which are not. This method often goes under the name “the collateral source rule” or “the private insurance exception”, though neither name helps to understand the current method for resolving deductibility issues.

As has often been observed³, the current method has never been codified. Nonetheless, Director’s Delegate Draper cited the Court of Appeal’s decision in Cugliari v. White⁴ as authority for both its correctness and, in the absence of codification, for the continuing relevance of the common law. He wrote: “while the words of the legislation apply — common law rules are not determinative — they must be interpreted in light of the common law history and legislative responses.”

There was indeed a legislative response to the Court of Appeal’s decision in Cugliari. The Court had held that CPP disability payments were non-indemnity payments and, therefore, not deductible. Leave to appeal this decision to the Supreme Court of Canada had been rejected. The Legislature nevertheless adopted section 2(9) paragraph 1, effectively reversing the Cugliari decision by “deeming” CPP disability payments to be deductible from income replacement benefits under section 7(1). But this legislative response did more than reverse the result reached in Cugliari. It also raised questions about the validity of the current method for resolving deductibility issues.

In Coles and Dominion of Canada General Insurance Co.⁵, Director’s Delegate Draper was asked to reconsider his decision in Wilcox, in part, due to the advent of the amendments. The argument is not set out completely in the decision but since the case did not involve CPP disability payments or a post-2002 accident, the argument was that the amendments reflected what was called “previous legislative intention”. In other words, section 2(9) paragraph 1 confirmed that the Legislature had always intended to make all non-indemnity payments deductible, not just CPP disability payments.

Director’s Delegate Draper disposed of this argument briefly:

It is difficult to see ... how this amendment helps Dominion’s position. Even if it were appropriate to view the change as reflecting previous legislative intention, the amendment only affects the SABS-1996, not the SABS-1990, and according to s. 2(9) [sic, this is clearly a reference to section 2(10)], it only applies to accidents that occur on or after January 1, 2002. (my emphasis)

While it is not entirely clear, the Director’s Delegate appeared to leave open the possibility that the amendments could be read as reflecting a new legislative intention.

The opposite possibility, that they reflected previous legislative intention, was raised in Chun v. Primmum Insurance Co.⁶ While this case did involve CPP disability payments, the accident happened prior to 2002. Primmum did not seek a direct deduction from income replacement benefits but rather an indirect deduction. It accepted that the payments Ms. Chun received under her long-term term disability (“LTD”) plan were payments for loss of income under an income continuation plan and, therefore, deductible. But it argued that by using the words “net payments for loss of income”, the legislation only intended to “net out” the taxes payable on the LTD benefits, not the CPP disability benefits Ms. Chun received, even though these benefits were also “netted out” under the LTD plan’s “coordination of benefits” clause. As a result, Primmum took the position that for deductibility purposes, the LTD benefits should be calculated without regard to the CPP-offset, thereby reducing her entitlement to income replacement benefits.

In response, Ms. Chun made an argument based on section 2(9) paragraph 1. Again, the argument is not clearly explained in the decision but appears to have been to the following effect. The adoption of section 2(9) paragraph 1 confirmed that prior to its adoption, the Legislature accepted, and therefore intended, that CPP disability payments be treated as non-deductible when determining the insurer’s obligation to pay income replacement benefits. In order to achieve that result, however, it must have also been part of the legislative intention to make CPP disability payments deductible from income continuation plan payments, such as LTD benefits. Otherwise, as the Legislature would have surely known, insurers would have been allowed to do indirectly that which they could not do directly. Had the Legislature wanted to alter this intention for the period prior to 2002, it would have made section 2(9) paragraph 1 applicable to accidents prior to 2002. Its decision not to do so confirmed its pre-2002 intention to make CPP disability payments deductible from income continuation plan payments.

The Judge was able to decide the case in Ms. Chun’s favour without relying upon her section 2(9) paragraph 1 argument. Nonetheless, the judgment contains the following comments about that argument:

I am not persuaded by the plaintiff’s [Ms. Chun’s] argument. The inclusion of this provision [section 2(9) paragraph 1] in the current SABS [1996] could equally well have been a legislative response to Cugliari or, as the defendant [Primmum] suggests, a clarification of the previous state of the law, rather than, as the plaintiff suggests, an indication that the legislature intended that prior to 2002, CPP was deductible under section s. 75(1) [the section of SABS-1993/96 making loss of income payments under an income continuation plan deductible]. The fact that this provision exists in the current SABS therefore plays little role in my analysis of the interpretation of section 75(1). (my emphasis)

These comments appeared to leave open the possibility that the amendments were not intended to change the law but only to clarify or confirm the “previous state of the law”.

In the end, Coles and Chun made no determinations as to what the Legislature’s broader intentions may have been in adopting the amendments. Still, in my view, they indicate that questions have lingered about the effect of the amendments on the current method for resolving deductibility issues. Such questions are not necessarily easily answered. As observed by Justice Laskin in the Court of Appeal’s decision in Bapoo v. Cooperators General Insurance Company: “... legislative evolution should be used cautiously. The court may not be able to distinguish amendments that are meant to clarify or confirm the law from amendments that are meant to change the law.”⁷

Nevertheless, as the Bapoo decision itself goes on to illustrate, such questions must be answered. If the amendments were intended to confirm the Legislature’s previous intention, then that intention still governs a 2006 accident. On the other hand, if the amendments reflect a new legislative intention, then it is that new intention that governs a 2006 accident. Finding no assistance in Coles and Chun and finding no other decisions considering the possible broader effects of the amendments on the current method for resolving deductibility issues, I look for guidance in the general principles governing deductibility issues.

In my view, the governing principle was stated by Justice Austin in the Court of Appeal’s decision in Dall Estate v. Adams. That case involved the deductibility of the plaintiff’s survivor’s benefits from the damages she recovered as a result of an automobile accident. While the legislative provision authorizing deductions was very similar to section 7(1), the arguments advanced for opposing the deductions were based on another legislative provision. Still, during the course of his reasons, Justice Austin made the following observation: “In my view, having regard to the degree to which the non-deductibility of the type of benefits in issue in these proceedings had been established in Ontario, as well as elsewhere in Canada, it would have taken the clearest of language to displace it.”⁸

Borrowing this language, I find that having regard to the degree to which the non-deductibility of non-indemnity payments had been established in Ontario prior to the adoption of the amendments, as documented in Wilcox, it would have taken the clearest of language to displace it. I accept, of course, that the amendments displaced the current method for determining the deductibility of CPP disability payments in cases involving accidents after January 1, 2002. Indeed, the Legislature appears to have accepted the invitation issued by the Court of Appeal in Cugliari when it wrote: “had the Legislature intended CPP disability benefits to be deductible, it could have expressly so provided.” However, the Court immediately went on to observe: “The common law rights which existed prior to the enactment ... should only be displaced by clear and unambiguous language.” In my view, the amendments adopted in 2002 did not contain language capable of displacing the common law rule that non-indemnity payments are not deductible.

Issue 2: Do the amendments restrict the application of section 7(1)?

The amendments may not have displaced the common law rule that non-indemnity payments are not deductible but did they restrict the deductibility of indemnification payments, as argued by Mr. Voudouris?

Recognizing this possibility is entirely consistent with the approach taken by the Court of Appeal in Cugliari. Charron J. observed: “I agree that the categorization of payments as either indemnity or non-indemnity is not the determinative test. The deductibility of collateral benefits pursuant to s. 267 of the Insurance Act must be governed by the words of the statute.”

Mr. Voudouris submitted that since the Cugliari decision, “everyone agrees” that deductibility continues to turn on the distinction between indemnity and non-indemnity payments. He maintained, therefore, that section 2(9) paragraph 2 would serve no purpose if it were read as simply reiterating that distinction. He argued that since the Legislature “does not speak for no reason”, section 2(9) paragraph 2 must be given more meaning. In particular, it must be read as modifying the distinction restricting the deductibility of indemnification payments to those that are capable of satisfying the new requirements enunciated in paragraph 2.

I reject Mr. Voudouris’ argument as inconsistent with the words “deemed to include” found in the opening lines of section 2(9). In my view, these words confirm that the purpose of the amendments is not to exclude payments that might otherwise be covered by section 7(1). It is rather to include payments that might not otherwise be covered by section 7(1) and to ensure that other specified payments are covered by section 7(1).

That purpose is certainly consistent with paragraph 1. It includes CPP disability payments that would have otherwise been excluded in keeping with the decision in Cugliari. This purpose is also consistent with paragraph 2. In Bhola and Personal Insurance Company of Canada, Arbitrator Rogers accepted the Applicant’s submission that this paragraph “is probably intended to capture instances where an individual buys disability insurance, and not the typical employee group plan, which allows for coverage of new employees, without a new contract.”⁹

But regardless of how one interprets paragraphs 1 and 2, in my view, the opening words “deemed to include” prevent the amendments from being read as excluding payments that are otherwise covered by section 7(1).

Issue 3: Do the amendments cover the payments in this case?

Ms. Samworth submitted that section 2(9) paragraph 2 covers the payments in this case. I reject this submission as inconsistent with the word “only” found in subparagraph (i): “is offered by the insurer only to persons who are employed at the time the contract for the insurance is entered into.” Again, I rely on the decision of Arbitrator Rogers in Bhola. While the names and dates are different, Arbitrator Rogers’ analysis is as applicable to the present case as it was to the case before him. Indeed, he was analysing a group insurance policy issued by Sun Life that was either exactly the same or very similar to the policy at issue in this case. He wrote:

... the insurance must be “offered by the insurer only to persons who are employed at the time the contract for insurance is entered into”. Mr. Bhola was employed by Canada Post on January 1, 1994, the effective date of the [Sun Life] contract. However, the contract does not limit coverage to persons employed on that date.

Section 5 of the contract provides for coverage for “employees employed…after the inception date”. I therefore find that the [Sun Life] contract does not meet the requirements of section 2(9).

I agree with Mr. Bhola’s suggestion that the section is probably intended to capture instances where an individual buys disability insurance, and not the typical employee group plan, which allows for coverage of new employees, without a new contract.

Issue 4: Do the amendments remove the income continuation requirement?

In Codling-Mokoena and CAA Insurance Company (Ontario), I made the following comments:

In my opinion, the legislator’s choice of the word “continuation” in the phrase “income continuation benefit plan” must be respected. The 1990 reprint of the Shorter Oxford English Dictionary defines the word “continue” as follows: “1. To carry on, keep up, persist in (an action, usage etc.) 2. To cause to last or endure; to prolong (something external to the agent), to keep on, retain (in a place, condition, etc.) 3. To attach to 4. To take up (a narrative, etc.); to carry on in space, succession, or development ...”. The definition of the word “continuation” incorporates these concepts by using the words “continue”, “continuing”, “continuous” and “continuity”.

It follows, in my opinion, that the Crown Life policy could only qualify as an “income continuation benefit plan” if it called for the payment of benefits almost immediately after the onset of disability. It may be that very short waiting periods are compatible with the use of the word “continuation”; indeed, IRBs are not payable for the first week of disability. But a claimant who receives no benefits under the policy for 60 days after the onset of disability has plainly not had his/her income continued during that period and may suffer serious financial consequences as a result.

As pointed out by Arbitrator Alves in Lee and Certas Direct Insurance Company, a policy which pays nothing in the first four months after the onset of disability really only provides coverage “in the event of disability which lasted for longer than four months”, not income continuation coverage. [See note 23 below.] While the waiting period in the Crown Life policy was shorter, I find that it was still too long to fall within the ordinary meaning of “income continuation benefit plan”.¹⁰

I now think that this analysis was wrong because it overlooked the effect of the amendments on the interpretation of section 7(1). As stated above, in my opinion, the purpose of the amendments is to make certain specified payments deductible under section 7(1), not to restrict the application of section 7(1). While I recognize that the opening words of section 2(9) continue to refer to “income continuation benefit plan”, paragraph 2 deems “periodic payments of insurance” to be deductible regardless of whether they are paid or received “almost immediately after the onset of disability”. In my view, this deeming provision leaves no room for the kind argument I accepted in Codling-Mokoena. The Legislature is fully competent to deem a cow to be a horse for legislative purposes.

Of course, I have also already decided that section 2(9) does not apply in this case. Nonetheless, I am not prepared to find that the income continuation requirement exists when section 7(1) applies without any reliance on section 2(9) but does not exist when section 7(1) applies through section 2(9). That finding would introduce inequalities and disincentives into the legislative scheme. For example if, as Arbitrator Rogers found, section 2(9) paragraph 2 is “intended to capture instances where an individual buys disability insurance, and not the typical employee group plan”, then such an individual would see his/her “periodic payments of insurance” deducted, regardless of when he/she started to receive them, whereas a person who received similar payments under a long-term disability group plan, but not until several weeks or months after the accident, would be entitled to double recovery.

Interpreting very similar legislation in Bapoo, Laskin J. made it clear in his majority judgment that such outcomes are to be avoided. He was dealing with a different issue but his comments are still instructive. He wrote:

Section 12(4) [the section of SABS-1990 making payments for loss of income under an income continuation benefit plan deductible] is an equality provision, treating recipients and non-recipients of collateral benefits equally. The interpretation advanced by Co-operators turns s. 12(4) into an inequality provision. Moreover, because the car insurer is the residual payer, the interpretation of Section 12(4) advanced by Co-operators provides a disincentive to insureds to obtain collateral insurance benefits. These results ... fly in the face of the purposes of s. 12(4) of the Schedule. I agree with arbitrator Mackintosh in Edgar v. Wellington Company ... when she wrote, “I do not accept that it was the intention of the Legislature to penalize insureds who, through their own foresight or opportunity obtain collateral insurance benefits.”¹¹

Accordingly, I reject Mr. Voudouris’ argument based on my decision in Codling-Mokoena. While the present case involved a long-term disability plan with a significant delay in first payment, 13 weeks, I am no longer of the view that this fact alone prevents me from finding that section 7(1) applies to authorize the deductions sought by Co-operators.

Issue 5: Does the absence of a legislative formula for calculating “weekly payments” or the fact that the payments are paid monthly prevent the application of section 7(1)?

In my view, these arguments are both without merit. I note that I have never expressed agreement with Arbitrator Alves’ decision in Lee and Certas Direct Insurance Company¹², as suggested in Ms. Samworth’s written argument.¹³ I now express complete agreement with the decisions that have rejected Lee on this point: Arbitrator Rogers’ decision in Bhola, Cromwell v. Liberty Mutual Insurance Co.¹⁴ and State Farm v. Ramalingam.¹⁵

I note further that the majority of the Court of Appeal in Bapoo was un-daunted by the far more serious problems involved in calculating payments net of tax in the absence of a legislative formula, even when the subsequent Schedule provided a formula.

In any event, I fail to see how either side could seriously complain about a calculation that simply multiplied the monthly amount by 12 and then divided that total by 52 to arrive at a weekly amount.

Issue 6: Are the payments deductible under section 7(1)?

In Cugliari, the Court of Appeal stated that the language now found in section 7(1) was “enacted for the purpose of eliminating certain instances of double recovery.” (my emphasis) It follows that it is neither helpful nor correct to claim that the current method of resolving deductibility issues is designed to eliminate or prevent double recovery. It is, instead, designed to distinguish between those forms of double recovery that are allowed and those that are not. In deciding that CPP disability payments were not deductible, the Court specifically recognized that this could lead to double recovery in cases where recipients were employed at the time of the disability and able to demonstrate pecuniary loss. It nevertheless decided that such payments were not deductible because the conditions of eligibility for CPP disability payments required neither that the recipient be employed at the time of the disability nor that he/she be able to demonstrate a pecuniary loss. The Court concluded that CPP disability payments “cannot reasonably be construed as intending to indemnify a disabled person for loss of income”, even though they might coincidentally do precisely that with resulting double recovery. (my emphasis)

I am, therefore, unable to accept the following statement found in Ms. Samworth’s written argument: “The legislation and cases precedent are clear with respect to the elimination of double recovery – injured persons should not be compensated twice for the same loss.”¹⁶ Nor can I agree with the statement to the same effect in Bhola: “The purpose of the deductibility provisions is to prevent double recovery. While injured persons should not be penalized by having access to other benefits, they should not be compensated twice for the same loss.” These statements are too broad to be accurate descriptions of the current method for resolving deductibility issues, a method which the Legislature has yet to displace.

That said, I agree with both Ms. Samworth and Arbitrator Rogers, who analysed exactly the same or a very similar policy in Bhola, that payments made under the Sun Life policy at issue in this case were intended to be payments for loss of income. Again, Arbitrator Rogers’ analysis is as applicable to the present case as it was to the case before him. He wrote:

Section 5 of the policy requires an employee to be actively at work for coverage to commence and section 9 of the policy links the amount of the benefit to the insured’s earnings at the time of disability;
Section 6 of the policy provides for termination of coverage upon the termination of employment;
Section 4 of the policy links entitlement to inability to perform employment duties;
Section 9 provides for deductibility of post-disability income;
Section 8 gives [Sun Life] subrogation rights of claims for recovery of loss of income;
Section 9 of the policy provides for benefits ceasing on the employee’s 65th birthday, and;
The policy was arranged by Mr. Bhola’s employer.

There were only two provisions of the policy that did not clearly intend to indemnify disabled persons for loss of income. The first, on page 4-1, contemplated payment of benefits to former employees “where the context of the policy requires” and the second, on page 6-1, contemplated payment of benefits to employees “granted leave without pay.” I accept that such persons might not be able to demonstrate pecuniary losses as a result of their disablements.

Still, these provisions are not the general conditions of eligibility under the policy and do not prevent me from finding that the policy is generally intended to indemnify disabled persons for loss of income. Unlike with CPP disability payments, it would not be mere coincidence that most persons who become eligible for benefits under the policy would be both employed at the time of the disability and able to demonstrate pecuniary losses.

Accordingly, I conclude that payments made under this policy are deductible under section 7(1).

EXPENSES:

In the event the parties cannot agree on expenses, they will follow the procedure set out in the Dispute Resolution Practice Code, Fourth Edition Updated — October 2003. In addition, I will, for a period of 30 days from the date of this decision, retain jurisdiction to decide the interest issue that was raised but not argued at the hearing on January 13, 2010.

February 26, 2010

David Leitch Arbitrator

Date