Financial Services Commission of Ontario

Neutral Citation: 2010 ONFSCDRS 28 FSCO A08-000533

BETWEEN:

SALVATORE (SAM) PASSARELLO Applicant

and

WAWANESA MUTUAL INSURANCE COMPANY Insurer

REASONS FOR DECISION

Before: Edward Lee Heard: November 30, 2009, December 1, 2, 3, 2009, at the offices of the Financial Services Commission of Ontario in Toronto. Appearances: Michael S. Brown for Mr. Passarello Ian D. Kirby for Wawanesa Mutual Insurance Company

Issues:

The Applicant, Salvatore (Sam) Passarello, was injured in a motor vehicle accident on May 12, 2000. He applied for and received statutory accident benefits from Wawanesa Mutual Insurance Company (“Wawanesa”), payable under the Schedule.¹ Wawanesa terminated weekly income replacement benefits on March 6, 2006. The parties were unable to resolve their disputes through mediation, and Mr. Passarello applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

1. Is Mr. Passarello entitled to receive a weekly income replacement benefit from March 31, 2006 and ongoing, pursuant to section 4 of the Schedule?

2. What is the amount of weekly income replacement benefit that Mr. Passarello is entitled to receive pursuant to section 6 of the Schedule?

3. Is Wawanesa liable to pay Mr. Passarello’s expenses in respect of the arbitration under section 282(11) of the Insurance Act, R.S.O. 1990, c. I.8?

4. Is Mr. Passarello liable to pay Wawanesa’s expenses in respect of the arbitration under section 282(11) of the Insurance Act, R.S.O. 1990, c. I.8?

5. Is Mr. Passarello entitled to interest for the overdue payment of benefits pursuant to section 46(2) of the Schedule?

Result:

1. Mr. Passarello is entitled to receive a weekly income replacement benefit from March 31, 2006 and ongoing, pursuant to section 4 of the Schedule.

2. The amount of weekly income replacement benefit that Mr. Passarello is entitled to receive is $185.00 per week.

3. Mr. Passarello is entitled to interest for the overdue payment of benefits pursuant to section 46(2) of the Schedule.

Mr. Passarello was involved in a car accident on May 12, 2000. Following his accident, he was paid income replacement benefits of $400.00 per week by Wawanesa until March 31, 2006 when his benefits were terminated following a series of Insurer’s medical examinations.

A preliminary issue hearing was conducted by Arbitrator Fadel on July 27, 2009 to determine if Mr. Passarello was a self-employed individual or an employee before his motor vehicle accident. Arbitrator Fadel determined on October 16, 2009 that Mr. Passarello had been self-employed. Wawanesa now seeks a determination of whether Mr. Passarello is entitled to income replacement benefits (“IRBs”) after March 31, 2006, and the quantum of such IRBs, if any.

EVIDENCE:

Mr. Salvatore Passarello:

Mr. Passarello was fifty years old at the time of the accident in May 2000, and he was fifty-nine at the time of this hearing. He testified that he never completed Grade 11, and his employment history included working for 10 years for a building supply centre where he travelled from store to store, designing and merchandising. He also worked in the building and construction trades, doing renovations and upgrades, although his family had been in the locksmithing business. He trained, apprenticed and ultimately obtained his locksmithing certificate in 1996. He began his own locksmithing business in 1996, acquiring an existing business for $12,000.00. He worked full-time, from 6:00 a.m. to 11:00 p.m. or midnight at times.

As a locksmith, he cut keys, installed locks and made cold calls. He installed new locks, hinges and steel doors, and rekeyed locks. Soon after purchasing his business, he was able to increase annual sales to $50,000.00. In 1998, he incorporated the business and acquired Ace Locksmith Inc. He hired servicemen to work for him and his wife to work as an accountant.

Soon he quadrupled sales. His work included installing locks, concealed door closers and doors with half-inch panels of glass. He made installations on ladders. He also did safe work, changing the combinations of safes at businesses where employees had been fired or let go. Sometimes he made these changes on location; other times he removed these safes to make the repairs. He installed and replaced safe digital locks.

His clients included the City of Scarborough. He had contracts with Kenny Gas, Beaver and Shell. He worked often six or six-and-a-half days a week and weekends, as well as doing emergency calls at night. In 1998 and 1999 he did as much as $300,000.00 in sales. In late 1999, he was planning to buy his brothers’ locksmithing businesses.

In 1999 and 2000, he employed three servicemen. He handled the managerial and administrative duties of the business and also made service and cold calls. His tool belt weighed from 12 -15 pounds, and he often worked as many as 55 to 60 hours per week. He made quotations and cost recommendations. He was also involved in the retail aspect in the store. Much of his revenue was channelled back to the store, resulting in a low income on his T-4 slips. Sometimes he took no salary, returning the money back into the business.

All this changed after his accident on May 12, 2000. Mr. Passarello attended a hospital in Newmarket and was monitored until the next day. Immediately, he began to have problems with his low back, neck, arm numbness, migraine headaches and dizziness. He saw his physician and underwent brain scans and MRI’s. He received massage therapy for a year-and-a-half, and then began aqua-fitness. He took driving courses with the Young Drivers of Canada to alleviate driving anxiety.

After two years he returned to work in the summer of 2002 for approximately two hours a day, three days a week. He assumed the role of an administrator and overseer, mingling with customers and pricing invoices. After two hours, the work would become too strenuous, and the pain in his back, neck, right shoulder and leg too great. While working, he was able to get up and walk around when needed. He set his own hours. Gradually, he increased his hours, going to four hours, three to four days a week, but he found this more stressful and sometimes could not go in the next day.

In 2002, he merged his business with Imperial Lock and moved to a larger retail store. Things began to go downhill. After two-and-a half years the business moved to a smaller location. He continued doing administrative work, going in three to four hours a day, three to four times a week. He cut the odd key. He never returned to full duties, because he could not carry the toolbox. He could not climb ladders, go up stairs, or do safe or door work. Eventually he was doing 4-5 hours a day, 3-4 times a week, but by 2007, his hours had decreased to 10-12 hours a week because of anxiety and pain in his neck, back and leg.

The business began to face serious financial problems. They were audited and owed $20,000.00. He borrowed on his house to pay debts and lost his home. From October 2006 to October 2007 he would go in at 10:00 or 11:00 in the morning and leave by 2:00 p.m. He worked up to the day the landlord locked them out of the store in October 2007 because of non-payment of rent.

Since March 2006 he has continued aqua-fitness which he pays for himself. He has tried acupuncture and hot tub treatment for his chronic pain. Since his accident, he has been insomniac, waking when he moves in bed. He takes medications for his insomnia and his pain.

While on medications, he has problems operating machinery. He cannot carry plywood or power tools. He is unable to lift or bend. Sometimes he spends entire days in bed. He has been on medication for pain, depression and anxiety since 2002, and at times he takes as many as 7 to 8 Tylenol III’s per day. He is also on a patch for his pain.

He attended at Chronic Pain Solutions run by Dr. Gary Lee in 2008 and 2009 because of his chronic pain syndrome. He did not complete the three-stage programme because of extenuating personal circumstances including depression, marital problems and the loss of his home. He is now under the care of Dr. Teitel.

Dr. Gary Lee:

Dr. Gary Lee was the treating chiropractor from Chronic Pain Solutions and was one of the contributors to the report from Chronic Pain Solutions. He has practised in pain management for five to six years, the accepted means to gain this expertise in this field. Dr. Lee testified that he usually received patients when they were 1 to 2 years post motor vehicle accident, and treated them with a success rate of 15-20%. According to Dr. Lee, the earlier they came in, the better the rate of his success.

Mr. Passarello consulted Dr. Lee in January 2008, some seven-and-a-half years post accident, and was treated at the clinic until February 2009. At his assessment, Dr. Lee noted impairments, tenderness, trigger points, and decreased range of motion. Mr. Passarello complained of an inability to sleep and stress, and was consumed by pain. He had headaches, neck and back ache, which interfered with his daily activities. He had problems standing, crouching, lifting, carrying objects of weight, and meeting the physical demands of his pre-motor vehicle accident employment.

Dr. Lee diagnosed chronic post traumatic headache, chronic cervico-thoracic facet joint syndrome with suspected cervical radiculitis, and chronic mechanical low back pain with suspected radiculitis. In his letter of March 11, 2009, Dr. Lee made the following comment:

In my professional opinion, Mr. Passarello has sustained serious injuries of an important nature that have resulted in permanent impairments which will not likely resolve even with the passage of time. It is expected Mr. Passarello will experience aggravation of his condition periodically... at this juncture, Mr. Passarello’s overall prognosis for a full recovery is poor.²

Mr. Passarello was treated at the clinic until February 2009, and attended over thirty sessions, although he did not complete the three-phase programme designed for him. Dr. Lee testified he found Mr. Passarello credible and observed no malingering.

Ms. G. Gronkowska, cognitive and behavioural psychologist, performed the initial psychological assessment of Mr. Passarello for Chronic Pain Solutions, reached the following conclusion in her report:

Mr. Passarello presents with symptoms of mixed anxiety and depressed mood and based on the assessment, this is related to his motor vehicle accident. He also presents with a chronic pain disorder. He has been substantially traumatized by the accident, his injuries and his current inability to continue with his normal life ... overall the psychological test results and interview data reveal the following mental health impairments:

F412

Mixed Anxiety and Depressive Disorder

F45

Chronic Pain Disorder³

Marcel Jean:

Marcel Jean was the vocational evaluation specialist who conducted an insurer’s examination on Mr. Passarello in 2006. Mr. Jean determined Mr. Passarello had reading skills equivalent to Grade 7, spelling to Grade 5, and math to Grade 7. He concluded that Mr. Passarello was not completely disabled from performing a job for which he was suitable by education, experience and training. On page 16 of his report⁴, he listed jobs he considered suitable for Mr. Passarello, none of which required further training. The physical demands for these jobs were at the “limited” or “light” level. Some standing was required for the sales representative’s position, but not for the others.

In his report, Mr. Jean made the following statement:

... from a vocational perspective, Mr. Passarello does not suffer from a complete inability to engage in any employment for which he is reasonably suited by education, training or experience. He continues to demonstrate a comprehensive profile of residual vocational skills that would be considered competitive for employment. These skills would be transferable to other alternative types of employment. A listing of suitable employment options has been identified and included in this report for consideration.⁵

On cross-examination, Mr. Jean testified that he did not review the reports of the other assessors before producing the summary report. Most importantly, he did not take into account the hours of work a person could perform per day when considering whether a person could meet the post-104 week test. He agreed that Ms. Westbrook’s Functional Capacity Evaluation⁶ did not conclude that Mr. Passarello could do eight hours of work per day, but he relied on the opinion of Dr. Zarnett, an orthopaedic surgeon who said there was no contraindication to increasing Mr. Passarello’s hours of work.

Further, Mr. Jean recognized that Mr. Passarello had been self-employed and had worked flexible hours in his previous employment. He agreed that it would be harder for him to return to a structured employee-employer relationship, and that all the jobs he identified required such a structured relationship. It was relevant to Mr. Passarello’s ability to return to work that in a structured job he would be unable to modify his own work hours. This had not been taken into account in his report.

Mr. Jean acknowledged that being an alarm dispatcher required one to work an eight-hour shift, and that the jobs listed in his report were a step backward for someone who had been running his own business. Mr. Jean also agreed that Mr. Passarello would qualify for the identified occupations, but he could not say when Mr. Passarello would be ready to return to these jobs.

Importantly, Mr. Jean determined in his report that Mr. Passarello might “not meet employer expectations” in regard to physical tolerances.⁷ He agreed that this might inhibit his ability to get these jobs. He agreed that the most reliable indicator of return to work was an actual physical attempt. In his opinion, it was more difficult for people with Chronic Pain Syndrome to return to work.

He also stated that he had no reason to doubt Mr. Passarello’s credibility and saw no signs of malingering, and agreed that self-limiting behaviours could be due to pain, depression and anxiety.

Dr. Louise Koeffler:

Dr. L. Koeffler conducted a psychological evaluation as part of the insurer’s multidisciplinary examination. She interviewed Mr. Passarello in January 2006, and determined that the psychological factors preventing him from returning to full time employment were factors affecting his experience of pain. He felt pain in his nervous tissues, from an audit, from being estranged from his daughter, and other stressors affecting his condition. He felt he could not work because of his pain. In her report, she concluded as follows:

From a psychological perspective, Mr. Passarello does not suffer a complete inability as a result of the subject motor vehicle accident to engage in any employment for which he is reasonably suited by education, training or experience. This is despite the fact that he meets the diagnostic criteria for a Pain Disorder Associated with Psychological Factors and a General Medical Condition. Furthermore, the Vocational Evaluation conducted on January 26 as part of this Insurer Examination illustrated that Mr. Passarello continues to demonstrate a comprehensive profile of residual vocational skills that would be considered competitive for employment and, which would be transferable to alternative types of employment.⁸ [emphasis mine]

Later she made the following comment:

Mr. Passarello is convinced that his physical condition warrants surgery and that he will deteriorate as he gets older. He does not appear to have learned pain management strategies, ways to improve his sleep, or normalize his daily activities with the goal of getting back into some type of business. To this end, it is my opinion from a psychological standpoint that Mr. Passarello would benefit from a referral to a specialized multidisciplinary pain management and functional restoration program. From a psychological perspective, I see no need for other investigations or referral to specialists.⁹

On cross-examination, Dr. Koeffler testified that she believed Mr. Passarello had been working as much five hours per day, five days a week in 2006.

Dr. Koeffler also found him credible and saw no evidence of malingering. Importantly, her report indicated that Mr. Passarello was administered validity testing and the results showed no indication of undue attempt to exaggerate his cognitive difficulties or to present as unduly impaired.¹⁰

She stated that the medications he took slowed mental function, and diminished sleep. They were a factor in his becoming employed and in his competitiveness, although many people worked on medication. She opined that Mr. Passarello limited his participation in activities that caused pain, and that he had not learned techniques to deal with his pain or to normalize his activities. She agreed that self–employment was optimal for him.

Dr. Rick Zarnett:

Dr. Rick Zarnett was the orthopaedic surgeon who conducted an orthopaedic assessment as part of the insurer’s medical examinations in January 2006. In his report he noted that Mr. Passarello was currently taking the following medications: Meloxicam, Aspirin, Atenolol, Lisinopril, Nexium, and Effexor. Tylenol III was taken when needed.

He made the following conclusions:

At this point in time ... Mr. Passarello has reached maximal medical improvement from an orthopaedic perspective. It would appear he has developed chronic pain.

Based on the finding of the current physical assessment, I would expect that Mr. Passarello will continue to have some limitations as a result of his injuries. These limitations will include continuous standing, repetitive bending and heavy lifting.

... According to the results of the Functional Abilities Evaluation conducted on January 17, 2006 by the physiotherapist on this assessment team, Mr. Passarello demonstrated the physical abilities to complete work at the LIGHT level of strength. He did not demonstrate the ability to sustain this level for of work for an 8 hour day. From an orthopaedic perspective, there were no findings on examination which would preclude Mr. Passarello from performing work at this level. Although Mr. Passarello is currently only working on a part-time basis, from a musculo-skeletal perspective, I would see no contraindication to increasing his hours.

In my opinion, Mr. Passarello will have permanent restrictions with respect to prolonged standing, bending and lifting. However, from an orthopaedic perspective, the permanent restrictions do not prevent him from returning to a more sedentary type of employment. Indeed, as indicated above, Mr. Passarello reports he has returned to work part-time in an administrative capacity.¹¹ [emphasis mine]

In cross-examination, Dr. Zarnett stated that he had previously examined Mr. Passarello in December 2002, and in both examinations he discerned no credibility problems with Mr. Passarello’s presentation. In his previous report of December 2002 he had already determined that Mr. Passarello had reached maximum recovery, two-and-a-half years post accident.¹²

He agreed that in January 2006, Mr. Passarello was working only half the hours he had been working in December 2002, and he was showing deterioration rather than an improvement. Dr. Zarnett did not know how many hours one would have to work per week to meet the post-104 week test, and although he noted that Mr. Passarello could not sustain LIGHT work for eight hours in the FAE testing, he opined that there was no orthopaedic impairment to Mr. Passarello increasing his hours of work at the sedentary level. Nevertheless, he agreed that productivity was a factor in meeting the test of total disability.

THE LAW:

The test of eligibility for post 104- week income replacement benefits is found at Section 5(2)(b) of the Schedule:

5(2) The insurer is not required to pay an income replacement benefit,

(b) for any period longer than 104 weeks of disability, unless, as a result of the accident, the insured person is suffering a complete inability to engage in any employment for which he or she is reasonably suited by education, training or experience;

ARGUMENTS:

Wawanesa argues that Mr. Passarello is not completely disabled from engaging in employment for which he is reasonably suited by education, training or experience. They do not suggest that he could return to the full duties of his previous employment, but are of the opinion that despite his complaints, Mr. Passarello is capable of performing work of light or limited physical demand, and a vocational evaluator has identified the following jobs as suitable: Manager, Retail (Lock/Key Shop, Locksmith Service), Dispatcher, Service or Alarm System Monitor and Dispatcher, Sales Representative, Locksmith Service, Manufacturer’s Representative for Lock/Locksmith Supplies and Products, or a Final Assembler, Locks.¹³

Mr. Passarello argues that he is completely disabled from engaging in any employment for which he is reasonably suitable by education, training or experience. He states that he is currently fifty-nine years old. He was off work for two years following his accident in May 2000, and then returned to work on a part-time basis until October 2007. Since then he has not worked at all. In the past nine years, he has never been more than a part-time worker performing administrative functions. His physical impairments prevent him from doing any of the lifting, climbing, carrying and heavy work required in his previous position. Further, he has too much pain to do sedentary work on a full time basis. At the present time he is competitively unemployable. In the alternative, he argues that the jobs identified by the vocational evaluator are not reasonably suitable by education, training or experience.

It is clear from these arguments that I must first decide whether Mr. Passarello suffers from a “complete inability”. If Mr. Passarello does not suffer from such a complete inability, are the jobs suggested by Wawanesa suitable to him by education, training and experience?

ANALYSIS:

What is a “complete inability” within the meaning of section 5(2)?

The phrase “complete inability” has received much arbitral attention. In Terry and Wawanesa Insurance Company, the arbitrator held as follows:

It is not my sense of the test of paragraph 5(2)(b) that the meaning of “complete inability” is that the applicant has to suffer an inability to do more than 50 percent of the job, as Mr. Julian characterized it. Real world jobs should not be broken down into their component parts such that if an applicant is able to do a little more than half of any suitable job, that he should be found to be disentitled from receiving income replacement benefits (and an employer should be obliged to hire him for that job). As Arbitrator Sampliner pointed out in Lombardi, a literal reading of total disability clauses has been rejected in many previous cases and a literal reading of “complete inability” would mean an insured would have to be unable to perform any function of any job to qualify.

Somehow the ability to engage in a reasonably suitable job, considered as a whole, including reasonable hours and productivity must be addressed. In my view, Mr. Terry has convincingly demonstrated in his attempt at a work trial that he is completely unable to engage in a sedentary job for which I find he was reasonably suited. He would be unable to consistently attend and sustain a reasonable number of hours of employment as a taxi dispatcher or any similar job.¹⁴[emphasis mine]

In Spicer and State Farm Mutual Automobile Insurance Company the arbitrator held the following:

The injuries must prevent the applicant from performing the duties of the alternative work, not simply make the job more difficult, or make the applicant somewhat less productive. However the test is not limited to whether the applicant is physically capable of performing each component task of the job without risking further injury. The question is whether the applicant is substantially able to do the alternative job, considered as a whole, including reasonable hours and productivity.¹⁵[emphasis Mine]

Thus the section 5(2) test for complete inability encompasses more than a mere enumeration or breaking down of the component tasks of any job, and an analysis as to whether the applicant can perform those tasks individually. The applicant must substantially be able to do the alternative job, considered as a whole. It must also take into account “real world” demands, including questions of productivity, reasonable hours of work and employer expectations and requirements.

In the real world, Mr. Passarello would have to work eight hours per day, five days a week on a full time basis, in a structured employee-employer relationship answering to the demands of his employer and meet employer expectations.

Does Mr. Passarello meet the section 5(2) test for “complete inability”?

In the present case, witnesses from both sides agreed that Mr. Passarello suffered from chronic pain syndrome. Dr. Zarnett, the insurer’s orthopaedic surgeon, determined that Mr. Passarello had not only developed chronic pain, but also permanent restrictions with respect to prolonged standing, bending and lifting. Dr. Koeffler, the insurer’s psychologist, diagnosed Mr. Passarello with Pain Disorder Associated with Psychological Factors and a General Medical Condition. Nevertheless, both these witnesses opined that Mr. Passarello did not meet the post 104-week test because they believed he could perform a sedentary job of light or limited physical demand (as identified in the vocational evaluation of Marcel Jean).

The flaw with these opinions is that neither addresses whether Mr. Passarello would be able to do this work for an eight hour day on a full time basis, as required in the “real world”. Dr. Koeffler erroneously believed that Mr. Passarello worked as much as five hours a day five times a week in 2006, although Mr. Passarello’s testimony was that his hours increased to four to five hours a day, three to four days a week in April of 2006, they decreased to ten to twelve hours per week in 2007. Dr. Koeffler also relied on Marcel Jean’s vocational evaluation report and his list of suitable employments, but Mr. Jean testified that he did not take into account the hours of work a person needed to perform per day when evaluating them for the post 104-week test. Mr. Jean agreed that the Functional Capacities Evaluation only showed that Mr. Passarello could work two to six hours a day, and could not conclude that he could work up to eight hours a day.

Dr. Zarnett acknowledged that Mr. Passarello did not demonstrate the ability to maintain work at the “light” level for an eight-hour day, although he found that “[f]rom and orthopaedic perspective, there were no findings upon examination, which would preclude Mr. Passarello from performing work at this level.”¹⁶ He also extrapolated from Mr. Jean’s report (which detailed Mr. Passarello’s part-time work) to conclude that there was “no contraindication to increasing his [Mr. Passarello’s] hours.”¹⁷ Again, Mr. Jean never considered whether a person could work an eight hour day in the enumeration of his list of suitable jobs. Therefore, I am not convinced by these opinions that Mr. Passarello could work eight hour days, five days a week.

Marcel Jean, in his report, highlighted findings in the Functional Capacity Evaluation in regard to self-limiting behaviour:

Based on this evaluation, Mr. Passarello did not demonstrate the ability to sustain this LIGHT level of work for an 8-hour day. However as 2 of 3 of the endurance tasks were self-limited this is not considered to be a valid finding.¹⁸

I am not convinced that this observation of “self limiting” behaviour means Mr. Passarello was able to perform work at the LIGHT level for an eight-hour day. Even Mr. Jean admitted that self-limiting behaviours could be due to pain, depression and anxiety.

In this regard, I prefer the evidence proffered by Mr. Passarello himself. First, I note that all witnesses, including Dr. Zarnett, Dr. Koeffler and Mr. Jean, testified they found Mr. Passarello to have been credible. None discerned evidence of malingering on his part. Dr. Koeffler, psychologist, administered validity testing and found that he completed it appropriately with “no indication of undue attempt to exaggerate his cognitive difficulties or to present as unduly impaired.”

I also found Mr. Passarello a credible witness. He testified at length before me in a forthright manner, describing his work history and his continued attempt to work at and to maintain his business after his accident in 2000. The evidence convinced me that before his accident, he was a successful, self-made entrepreneur who built his business from a modest beginning. I accept his testimony in regard to the hours he worked, and the duties, level and intensity of the work he performed.

I accept also that he attempted to return to work part time, commencing some two years after his accident, and that because of pain and the other impairments resulting from his accident, he was only able to perform the sedentary administrative and managerial components of his former job. There was no evidence that at any time during the seven years when he continued the business that he worked eight hours a day, five days a week. At the most, it seems he was able to work four to five hours a day three to four days a week, but this declined to about ten to twelve hours per week in 2007.

I also accept his testimony that after his accident, business went downhill, despite his efforts. Arbitrators have held that the most reliable indicator of the ability to return to work is an actual physical attempt and I find that Mr. Passarello made an honest attempt to return to perform the sedentary, light level, administrative duties of his previous job. He was not able to do so on a full-time basis.

This conclusion is supported by findings in the Insurer’s own reports. Marcel Jean’s report mentioned that Mr. Passarello might not meet employer expectations in regard to physical tolerances. Mr. Jean recognized that Mr. Passarello was previously self-employed, and as an owner-operator, he could dictate his own hours and availability. Mr. Jean agreed that it would be harder for Mr. Passarello to return to a structured employee-employer relationship, and that all the jobs identified in his report were of this nature. Even Dr. Koeffler agreed that a self-employment situation was optimal for Mr. Passarello.

I find therefore that Mr. Passarello is incapable of working an eight-hour day on a consistent five day per week basis, because of his chronic pain situation and other impairments resulting from the accident. In the “real world”, without the ability to set his own part-time hours, Mr. Passarello would likely be unable to meet employer requirements and demands in terms of reasonable hours and productivity. All the identified jobs would require Mr. Passarello to work full time hours in a structured employer-employee relationship. I find that Mr. Passarello is completely disabled from performing them.

Had I found that Mr. Passarello was capable of working an eight hour day, five days a week, I would have then had to consider whether the jobs identified by Wawanesa were suitable for him by education, training and experience. Given my finding above, it is not necessary for me to undertake that analysis.

Is Wawanesa entitled to a set-off for amounts it overpaid to Mr. Passarello against future IRBs to be paid, if any?

The Insurer raised another issue in its arguments. It argued that if I determined that Mr. Passarello was indeed entitled to post 104-week Income Replacement Benefits, I should then determine the weekly amount of that Income Replacement Benefit. At that point, I should then compare the IRB rate I determined with the $400.00 a week IRB that was paid to Mr. Passarello by Wawanesa from May 2000 to March 2006. Wawanesa argued that if the IRB rate I ultimately determined was less than $400.00 per week, then Mr. Passarello would have been the beneficiary of an overpayment. In that event, I should allow Wawanesa to recover this amount from Mr. Passarello by setting off, or deducting the overpayment from future amounts it paid to Mr. Passarello in IRBs.

According to Wawanesa, they were not seeking a repayment, because if I were to find that Mr. Passarello was not entitled to IRBs after March 2006, Wawanesa would not attempt to recover any monies from Mr. Passarello. Wawanesa asserted that it only sought to set off future payments of IRBs against the overpayment.

Wawanesa argued that arbitrators have on occasion, allowed insurers to recover repayments through set-off. In Boodhai and Allstate Insurance Company of Canada, the arbitrator determined that it was within his jurisdiction to order a set-off, and allowed the insurer to credit expenses it was ordered to pay to the insured against a repayment it was owed.¹⁹

In the decision of Royal Insurance Company of Canada and Clark ²⁰, an arbitrator refused to allow an insurer to set off an overpayment made to the insured against future benefits.

Not surprisingly, Mr. Passarello objected to this argument. He noted that repayment was not listed as an issue at the present arbitration and it had not been the subject of mediation. Further, he argued that none of the requirements for seeking a repayment, including the giving of the twelve-month notice of section 47(2) of the Schedule, had been met. Thus I should not entertain the possibility of awarding a repayment to the insurer.

THE LAW:

Section 47 of the Schedule reads as follows:

47(1) A person shall repay to the insurer,

(a) any benefit under this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of willful misrepresentation or fraud;

47(2) If a person is required to repay an amount to an insurer under this section,

(a) the insurer shall give the person notice of the amount that is required to be repaid; and

(b) if the person is receiving an income replacement or caregiver benefit, the insurer may give the person notice that the insurer intends to collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit. O. Reg. 403/96, s. 47 (2).

47(3) The obligation to repay a benefit does not apply unless the notice under subsection (2) is given within 12 months after the payment was made. O. Reg. 403/96, s. 47 (3).

ANALYSIS:

It is clear that the Schedule sets out a scheme the insurer must follow before seeking a repayment of a benefit. The benefit must have been paid to the person “... as a result of an error on the part of the insurer, the insured or any other person, or as a result of wilful misrepresentation or fraud.”²¹ There are also notice requirements.²²

I note that in the Boodhai decision a repayment had been sought by the insurer and there had been a determination by the arbitrator that an overpayment had “resulted from error or fraud...”²³ on the part of the insured. Indeed, all the decisions cited to me were determined in the context of applications where the insurer sought a repayment under section 27 of the Schedule, analogous to the present section 47.

Mr. Boodhai knew that Allstate was seeking a repayment and opposed an award of expenses. The question of set-off only arose as an ancillary aspect of the arbitrator’s disposition of these issues.²⁴

The reasoning of the Director’s Delegate in Clark is worth noting:

On appeal, Royal submits that section 27(1) is not relevant because it is asking for set-off, not repayment. I am not persuaded this is a meaningful distinction. Whatever the means of recovery, the question is whether Mrs. Clark is required to reimburse Royal for the amount it paid above her entitlement under the Schedule. Arbitrations and appeal decisions have held that overpayments can be recovered from other amounts owing, including weekly benefits for further periods of entitlement and expenses. In each of these cases, however, there was an initial decision, explicit or implicit, that the overpayment was recoverable.²⁵

What is important is that in each of these decisions, the insurer sought a repayment and pursued the insured, applying section 27 of the Schedule to recover that overpayment. In each of the decisions, the insured had notice of the insurer’s intention to seek a repayment, and evidence and submissions were heard as to whether there had been error or fraud on the part of the insured (a requirement under section 27 and the current section 47) in regard to the payments made.

In the present case, none of that occurred. The insurer did not claim a repayment under section 47. Repayment was not listed as an issue in the pre-hearing letter and the insurer did not seek to add this as an issue at the commencement of the hearing. There was no evidence that the insurer provided the appropriate notice of section 47(2). Most importantly, little evidence was led as to the nature of the error alleged by the insurer or to prove that the insured’s conduct fell within the ambit of section 47.

The arbitrator’s jurisdiction to apply set-off does not arise from the purported exercise of equitable jurisdiction, but as the Director’s Delegate in Boodhai found, “… from a purposeful interpretation of the provisions of the Insurance Act and regulations.”²⁶ The Schedule has set out a scheme for the recovery of overpayments. It sets out what must be proven for an overpayment to be recoverable. None of those requirements were proven before me. The scheme, set out in sections 47 and following, was not followed by the insurer in the present case. To allow the insurer to merely set-off an amount without going through the process outlined in section 47 would allow an insurer to unfairly leapfrog procedural, evidentiary and other requirements of the Schedule. As noted by the Director’s Delegate in Royal, there must be a valid decision that an overpayment is recoverable.²⁷ There is no such decision here, and I am not convinced that I allow a set-off of any past amounts against future IRBs to be paid to the insured, as suggested by Wawanesa.

What is the quantum of the weekly Income Replacement Benefit payable to Mr. Passarello?

While adjusting Mr. Passarello’s claim, the insurer retained McCully and Associates Inc, Forensic Accountants and Claims Consultants, (“McCully”) to determine the quantum of the income replacement benefit payable to Mr. Passarello. Mr. Passarello was originally paid an IRB of $400.00 per week from May 2000 to March 6, 2006. After the decision of Arbitrator Fadel in October 2009, the insurer asked McCully to recalculate the IRB for Mr. Passarello as a self-employed individual. McCully prepared and filed a report²⁸ as part of this proceeding, and Mr. McCully testified before me.

Wawanesa argued that if I determined Mr. Passarello met the test for complete inability, then I should find that the quantum of the IRB payable was $109.27 per week, as determined in the McCully report. By the operation of section 6(1)(b) of the Schedule, this amount would then be increased to $185.00 per week.

Mr. Passarello argued that I should not accept the analysis of McCully and Associates Inc. Instead, I should calculate the IRB payable in accordance with either of two suggested methods.

Using the first method, Mr. Passarello calculated the IRB as follows: to obtain his gross income for the fifty-two weeks preceding his accident, he used figures extracted from the McCully Report at Appendix B. The McCully Report showed that Mr. Passarello’s gross income from January 1, 2000 to May 12, 2000 was $17,360.00. Mr. Passarello rounded this number to $17,000.00, and divided by 12 to obtain a monthly income of $1,416.67. This number was divided by 4.3 to obtain an income of $329.46 per week. In the 33 weeks from May 13, 1999 to December 31, 1999, Mr. Passarello earned an estimated $18,872.00. Therefore, in the 52 weeks preceding his accident, Mr. Passarello earned $28,232.00. Income Tax and CPP contributions were deducted from this gross income figure to arrive at a difference of $22,578.00. Eighty percent of this number was taken and then divided by 52 to obtain a weekly figure of $347.37. This was the amount of the weekly IRB sought by Mr. Passarello.

In the second method, Mr. Passarello used $24,486.00 as the gross income figure for the fifty-two weeks preceding the accident. This figure was also obtained from the McCully Report at Appendix B where the gross income figures for the periods August 1, 1999 to December 31, 1999 ($7,126.00) and the figure for January 1, 2000 to May 12, 2000 ($17,360.00) were totalled. The same calculations used in the first method were then applied to this figure to obtain a final weekly IRB of $301.89.

I find that the calculation used by McCully to arrive at a weekly IRB more closely meets the requirements for calculating income for self-employed individuals than the methods used by Mr. Passarello. Their calculations, set out at Appendix B of their report²⁹, take into account the expenses of the business as well as the revenues. Section 62 of the Schedule sets out how a self-employed person is to determine their income. It reads as follows:

62(1) For the purpose of this Regulation, a person’s income from self-employment shall be determined in the same manner as the person’s profit from the business in which the person was self-employed would be determined under the Income Tax Act (Canada) and the Income Tax Act (Ontario), but without taking into account,

(a) expenses that are eligible for capital cost allowance or an allowance on eligible capital property;

(b) capital gains or losses; or

(c) losses deductible under section 111 of the Income Tax Act (Canada). O. Reg. 403/96, s. 62 (1).

Arbitral case law has held that income from self-employed persons is calculated taking into consideration the expenses of a business as well as the profits. Such expenses might include travelling expenses, gas expense, leasing, automobile insurance expenses and telephone.³⁰

In the present instance, I find that the calculations suggested by Mr. Passarello do not take any business expenses into consideration. In fact, Mr. Passarello’s manner of calculation more closely approximates the method allowed under section 61 of the Schedule, which requires a deduction for income taxes, and CPP, although nothing was deducted by Mr. Passarello for employment insurance contributions. This method seems more appropriate for employed individuals, not self-employed persons.

Therefore, I reject the analysis of Mr. Passarello, and his suggested figures of $347.37 and $301.89 as weekly income replacement benefits. I accept the evidence of McCully and that presented in their report, which determines an IRB of $109.27 per week. This amount is then increased to the minimum of $185.00 per week.³¹

I find that Mr. Passarello is entitled to a Weekly Income Replacement Benefit of $185.00 from the date of termination in March 2006 and onward.

EXPENSES:

Neither party addressed themselves to the issue of expenses. I suggest that the parties attempt to resolve this issue themselves. If they are unable to come to agreement they may contact me in accordance with the provisions of section 75 and following of the Dispute Resolution Practice Code.

March 9, 2010

Edward Lee Arbitrator

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Mr. Passarello is entitled to receive a weekly income replacement benefit from March 31, 2006 and ongoing, pursuant to section 4 of the Schedule.

2. The amount of the income replacement benefit that Mr. Passarello is entitled to receive is $185.00 per week.

3. Mr. Passarello is entitled to interest for the overdue payment of benefits pursuant to section 46(2) of the Schedule.

March 9, 2010

Edward Lee Arbitrator

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2Ex A-1, Tab 2, letter of Dr. G. Lee, March 11, 2009
3. 3Ex A-1, Tab 6, G. Gronkowska, Initial Psychological Assessment, Chronic Pain Solutions, February 4, 2008
4. 4Ex I-3, Tab 18, Vocational Evaluation Report, February 24, 2006
5. 5Ex I-3, Tab 18, Vocational Evaluation Report, February 24, 2006 at page 18
6. 6Ex 1-3, Tab 18, Insurer Examination Summary Report, at page 5
7. 7Vocational Evaluation Report at page 11
8. 8Ex A-1, Tab 6, Insurer’s Examination, Psychologist’s Report, Louise Koeffler at page 9
9. 9Ibid., at page 10
10. 10Ibid., at page 5
11. 11Ex I-3, Tab 18, Orthopaedic Assessment, Dr. R. Zarnett, January 23, 2006 at page 4 and 5
12. 12Ex I-3, Tab 18, Orthopaedic Assessment, Dr. R. Zarnett, December 30, 2002 at page 5
13. 13Ex I-3, Tab 18, Vocation Evaluation Report, Marcel Jean, February 24, 2006, at page 16 and 17
14. 14(FSCO A00-000017, July 12, 2001)
15. 15(OIC A-10158, May 24, 1995)
16. 16Ex I-3, Tab 18, Orthopaedic Surgeon’s Report, February 24, 2006 at page 4
17. 17Ibid., at page 4
18. 18Ex I-3, tab 18, Vocational Evaluation Report, Marcel Jean, February 24, 2006 at page 2
19. 19(OIC P-004002 September 18, 1996), Appeal Order
20. 20(OIC P97-00008) Appeal Order
21. 21Schedule at section 47(1)(a)
22. 22Schedule at section 47(2) and (3)
23. 23Boodhai at page 1
24. 24Ibid., at page 3
25. 25Clark at page 4
26. 26Boodhai at page 8
27. 27Royal, see 25 supra
28. 28Ex I-9, Report: McCully and Associates Inc., Tab 2 at page 2
29. 29McCully report at Appendix B
30. 30McLellan and Aviva Canada Inc., (FSCO P06-00041, October 4, 2007) at page 4 (Appeal Order)
31. 31Ibid., at page 7