Financial Services Commission of Ontario

Neutral Citation: 2010 ONFSCDRS 98 FSCO A09-000900

BETWEEN:

SIVAKUMARU SINNAPU Applicant

and

ECONOMICAL MUTUAL INSURANCE COMPANY Insurer

Minor error on page 4, defining last three paragraphs of quote and text, in accordance with the Dispute Resolution Practice Code and section 21.1 of the Statutory Powers Procedure Act.

DECISION ON SPECIAL AWARD

Before: John Wilson Heard: January 28, 2010, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Alexander Voudouris for Mr. Sinnapu Ian Kirby for Economical Mutual Insurance Company

Issues:

The Applicant, Sivakumaru Sinnapu, was injured in a motor vehicle accident on June 22, 2006. He applied for and received statutory accident benefits from Economical Mutual Insurance Company (“Economical”), payable under the Schedule.¹ Economical terminated weekly income replacement benefits. The parties were unable to resolve their disputes through mediation, and Mr. Sinnapu 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. Sinnapu entitled to a special award?

Result:

1. Mr. Sinnapu is entitled to a special award.

EVIDENCE AND ANALYSIS:

This is the second arbitration hearing for Mr. Sinnapu in his claim for statutory accident benefits from his insurer, the Economical Insurance Company.

In the first hearing, Mr. Sinnapu brought forward a claim for interim benefits pending the final resolution or determination of his claim.

In my decision of October 16, 2009 on the interim benefit issue, I summarized Mr. Sinnapu’s claim as follows:

Mr. Sinnapu’s theory of entitlement was straightforward. Despite a serious accident in Montreal in January 1993 that involved a fall from a balcony and a lengthy hospitalization, some thirteen years later, immediately prior to this accident he was fully functional, and employed in a physically challenging work. The evidence lists his work as that of a “fishmonger”- not selling fish but receiving shipments, sorting, stacking, cleaning and shifting fish prior to being prepared for sale.

Mr. Sinnapu was unable to keep up this work following the motor vehicle accident, notwithstanding an attempt to return to work. According to his evidence he remained unable to work, a condition that was recognized by the Insurer in the payment of benefits up to and including the two-year mark.

After hearing evidence and submissions from both Mr. Sinnapu and Economical, I made an award of interim income replacement benefits to the Applicant.

My reasons for so doing rested upon my impression of the evidence presented by Mr. Sinnapu as to the nature and duration of his disability, and my evaluation of the likelihood of his succeeding in arbitration.

I also noted what I viewed as problems with the manner in which Economical evaluated both Mr. Sinnapu’s claim, and the information related to his disability, notably the approach taken by the Insurer’s key examining physician, Dr. Lexier.

A notable feature of the interim benefits hearing was the exclusion of certain surveillance evidence tendered by Economical due to its failure to abide by the provisions of the Dispute Resolution Practice Code with regard to the use of that evidence at arbitration.

While I awarded Mr. Sinnapu interim accident befits, I declined to consider a special award at that early stage of the proceeding.

Following the interim benefits decision Mr. Sinnapu and Economical were able to come to terms with all issues in dispute, save and except the issues of a special award and expenses. Consequently these returned to me for an ultimate decision. In this decision, I will deal with the special award only.

A special award is unique to the arbitration process. It is a statutory award that is outlined in subsection 282 (10) of the Insurance Act which provides:

Special award

(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

On the face of the provision, an arbitrator upon finding that a benefit has been unreasonably withheld must make a special award. Any discretion to the award rests in the amount of the award, which may range up to 50% of the amounts payable.

Despite its apparent simplicity, much ink has been spilled over special awards, whether over the analytical process an arbitrator is to use in considering such an award, or how the calculation of such an award should take place.

In my mind, as a provision unique to the process of statutory accident benefit arbitration, little can be gained from an analysis based on such onerous common law concepts as punitive damages, since the legislation simply does not invite such a comparison.

Rather, the threshold for such an award, reasonableness, is rather low and is merely triggered by a withholding or delay of payments that is unreasonable. No ill-will, no intent to harm an insured, delay, or intentionally withhold payments is necessary, merely that the delay or withholding be “unreasonable.”

It has long been established that an insurer, through its employees, has a responsibility to the insured. In Kingscourt Auto Enterprises Inc. v. General Accident Assurance Co. of Canada, Mr. Justice Herold identified the general standard of care imposed upon an insurance adjuster,

The standard of care imposed upon the adjusters in this case is not to be error-free but simply to take reasonable steps similar to those that a reasonably prudent and careful claims adjuster would take.

I noted in much jurisprudence “reasonableness” is not decided in a vacuum. “Unreasonable” conduct suggests a breach of a commonly understood obligation or standard. In an insurance context, while the standard of conduct of an insurance adjuster making decisions on benefit entitlement may not generally be as high as that demanded of a trustee, it is however significant.²

It has often been said that in general the relationship between an insured and an insurer is one of uberrimae fideis, utmost trust. Since the eighteenth century³ insurance law has required this “utmost faith” in the conduct of parties, both insured and insurer.

In the adjustment process this means that an insurer must make its decisions on the best available evidence, and it must not prefer its own interests over those of its insured. It is a standard of conduct that demands informed good-faith decisions. This reciprocal obligation has coloured the perception of an adjuster’s role in dealing with an insured.

O’Connor J.A. in 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s of London, stated that:

The duty of good faith also requires an insurer to deal with its insured's claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured's economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy.⁴

Likewise, Sutherland J. observed:

What constitutes bad faith will depend on the circumstances in each case. A court considering whether the duty has been breached will look at the conduct of the insurer throughout the claims process to determine whether in light of the circumstances, as they then existed, the insurer acted fairly and promptly in responding to the claim.⁵

The imposition of a duty good faith and a fiduciary duty are closely related. Both are situated on a continuum in which the law acknowledges a limitation on autonomous decision-making and imposes an obligation to respect the interests of the other. In an insurance context, however, the requirement of good faith on both parties is a generalized obligation while a fiduciary duty can only be found based on the facts of a particular case.⁶

While not ruling out the possibility of a fiduciary relationship between an insurer and an insured, the Court of Appeal in Plaza Fibreglass made it clear that a fiduciary duty should not be inferred from the obligation of good faith:

The fact that a contract is one of utmost good faith does not however mean that it gives rise to a general fiduciary relationship. The relationship between insured and insurer is not akin to the relationship between, say, guardian and ward, principal and agent, or trustee and beneficiary. In these latter instances, the inherent character of the relationship is such that the law has traditionally imported general fiduciary obligations. The insurer-insured relationship is contractual, the parties are parties to an arm's-length agreement. The principle of uberrima fides does not affect the arm's-length nature of the agreement, and, in my opinion, cannot be used to find a general fiduciary relationship.⁷

In the context of accident benefits, a failure to respect the standard of utmost good faith which results in a delay or withholding of benefits, may well attract a special award.

As noted earlier, in deciding the interim matter I placed much emphasis on what I viewed as inappropriate reliance on a report by Dr. Lexier, in the face of other information that suggested serious weaknesses in his analysis of Mr. Sinnapu’s disability.

It is important to note again that intent is not a fundamental part of a finding of unreasonable delay or withholding of benefits. An insurer with the best of intentions can fall below the standard of reasonable conduct.

That is not to say that intention is irrelevant. The presence of malice or malicious intent would serve to underline the unreasonableness of a particular decision and speak eloquently to the arbitrator’s discretion in fixing the amount of the special award.

In this matter, however, I find that there is no specific evidence of malice or intent to harm. Nor indeed was any specific malice alleged by Mr. Sinnapu. Rather, I find it more likely that Economical’s efforts to adjust this file for some unknown reason went off the rails at the two-year mark, and as a result decisions were taken that ignored Mr. Sinnapu’s reality and caused much tribulation to a vulnerable person.

Ms. Dawn Brillinger, the adjuster for Economical who handled Mr. Sinnapu’s claim, testified at the hearing. I am satisfied that she had an honest belief that she dealt with Mr. Sinnapu appropriately within the context of her normal claims adjustment procedure.

Such a finding, however, does not end the enquiry. Whether through inadvertence, overwork or failure to properly consider all the available information, Economical suspended payments to Mr. Sinnapu under circumstances that I have found to be unreasonable.

The refusal to pay benefits came from a belief that Mr. Sinnapu was indeed capable of undertaking further work to which he was suited by education, training or experience, and that he was making no efforts to do so.

It was also clear that Economical believed that any disability which might have plagued Mr. Sinnapu more likely arose from his earlier fall in Montreal, and not from the motor vehicle accident.

Economical may have been influenced in this regard by surveillance reports and videos that it had commissioned which showed Mr. Sinnapu apparently able to move freely about a shopping plaza, undertake minor tasks and converse and interact with others, over a significant period of time with no clear signs of disability.

As noted earlier, these surveillance tapes were ruled as inadmissible in the original hearing due to a failure to comply with the procedural requirements of the DRPC. I ruled, however, that they were admissible in this further hearing, given compliance with the Rules, since they could be relevant as part of the information available to the Insurer at the time that it made the decision to terminate benefits.

Having now viewed the video tapes, I accept that Economical could have easily come to a conclusion that Mr. Sinnapu was mobile, and not confined to his bed or a wheelchair, and was capable of normal movement and interaction in social situations with no obvious difficulties.

However, at no time has Mr. Sinnapu claimed that he was profoundly disabled in a social setting. The crux of his claim is that he has been unable to pursue work that involves heavy, repetitive lifting and standing, as well as any kind of endurance.

I emphasize that I have found that there was persuasive evidence that Mr. Sinnapu’s work as a fishmonger was both heavy and challenging, and that Mr. Sinnapu was neither skilled nor particularly well prepared for other occupations. Nor were his education and linguistic skill such as to make him easily employable.

I do not accept that the surveillance videos in fact did anything to demonstrate that Mr. Sinnapu was capable of prolonged heavy work, such as that entailed by his work as a fishmonger, nor that it demonstrated that he had any particular aptitude for other work to which he was suited by education, training or experience.

I would also point to the interpretation that Economical put on Mr. Sinnapu’s pre-accident problems. Throughout this process it took the position that Mr. Sinnapu’s post-accident disability was caused by a fall from a structure that took place in Montreal many years prior and which resulted in both a lengthy hospitalization and convalescence.

While intuitively it may have been tempting to credit this earlier and admittedly severe accident as the principal cause of any post-accident disability, Economical failed to consistently look at this causation issue in the context of Athey which has long been the test for causation in the accident-benefit arena. In Athey, Major J. reiterated the following well-established principles:

(1) The general, but not conclusive, test for proof of causation is the “but for” test, which requires a plaintiff to show that his or her injury would not have occurred but for the negligence of the defendant (para. 14).

(2) In certain circumstances, where the “but for” test is un-workable, causation may also be established where it is demonstrated that the defendant’s negligence “materially contributed” to the occurrence of the tort victim’s injury. It is not necessary for the plaintiff to establish that the defendant’s negligence was the sole cause of the injury (paras. 15 and 17).

Liability will be imposed on a defendant for injuries caused or materially contributed to by his or her negligence. That liability is not reduced by the existence of other non-tortious contributing causes

As E.A. Cronk J.A stated in Monks:

There is no indication in the SABS of a legislative intent that an insurer's liability for the accident benefits in issue in this case should be subject to discount for apportionment of causation due to an insured’s pre-existing injuries caused by an unrelated accident. The SABS simply states, in clear and unambiguous language, that an insurer “shall pay an insured person who sustains an impairment as a result of an accident”...⁸

Clearly, Economical in its analysis had some difficulty in getting over the earlier, major accident, and minimized the role of the motor vehicle accident as a material contributor to Mr. Sinnapu’s post-accident disability.

In any event, Economical was persuaded to pay income replacement benefits, at least up to the two-year mark on the basis of his inability to perform his relatively heavy work as a fishmonger. This brought Mr. Sinnapu to the stricter test for income replacement benefits that kicks in at the two-year mark.

The new challenge for the Insurer was in evaluating whether Mr. Sinnapu was capable of engaging in other employment for which he was reasonably suited by education, training or experience. In making a determination on this issue:

The proper test, which the trial judge recognized earlier in his reasons, is whether, “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”. It is not necessary that the insured person be formally qualified and able to begin work immediately in order for a particular employment to be considered a reasonably suitable alternative. A job for which the insured is not already qualified may be a suitable alternative if substantial upgrading or retraining is not required.⁹

Economical had to evaluate information relating to Mr. Sinnapu’s education, training or work experience, and analyze whether those personal qualifications could be transferred to employment that fitted within his physical limitations. In doing so Economical was obliged to consider the totality of the evidence¹⁰ available to it, not just its own expert opinions.

As of the beginning of 2007, Economical knew from its own assessors that Mr. Sinnapu had difficulties with heavy lifting, limited ability to stand and walk for prolonged periods, as well as limited right knee and ankle mobility.¹¹ It also knew that Mr. Sinnapu complained of pain, and indeed had been diagnosed with a pain disorder.

As of 2008, Economical had a functional abilities evaluation by Xenia Kavoun which reportedly declined to give a conclusive opinion on Mr. Sinnapu’s functioning “based on the observed level of inconsistencies, symptom magnifications, sub-maximal performance and a number of declined tests.”

In my interim decision I commented on Ms. Kavoun’s report as follows:

The prominence given in her report to the pain disorder makes her comments on Mr. Sinnapu’s inability to complete the balance test (“as he reported severe pain in his right lower extremity”) his refusal complete 3 trials of stair climbing (“reporting severe pain in his right knee”) and his refusal to attempt crouching and kneeling tests (“due to his right knee range of motion and strength limitations”) all the more puzzling.

These refusals due to pain seem to have triggered the comment that “Mr. Sinnapu was observed to be giving a submaximal effort throughout this test.”

In the context of a section on Reliability and Consistency of Effort Ms. Kavoun concluded not only that Mr. Sinnapu’s efforts had been “submaximal” but that “he was providing a submaximal effort due to his self-limiting, pain-focused behaviour.”

She went on however to consider Mr. Sinnapu’s performance to be consistent, however “submaximal… with 34 out of 51 consistency measures recorded as reliable.”

Even if one accepts the propriety of an occupational therapist in effect making a diagnosis of feigned pain, given Ms. Kavoun’s acknowledgement of Pain disorder at the outset I do not think that the ultimate import of the FAE was as noted by Dr. Lexier, that of “inconsistencies, symptom magnifications, submaximal performance.” Had Dr. Lexier read the report he would have noted the consistency between the reported pain disorder, and the observations made during the FAE.

Ms. Kavoun’s report was part of a multi-disciplinary assessment arranged by Economical to assist it in determining whether Mr. Sinnapu met or continued to meet the post-104 week qualifications.

Another important part of that examination process was an assessment done by Ms. Barbara Mair, a vocational rehabilitation consultant. In her report dated July 14, 2008, Ms. Mair concluded that “based on this process, there are no potential occupations.” The process Ms. Mair referred to included a detailed analysis of physical capacity, transferrable skills, education and employment background, earning history and vocational and hobby interests. It compared these attributes with the demands for a variety of employment, as set out in the standard NOC classifications. Ms. Mair gave detailed reasons as to why the various jobs would be inappropriate for Mr. Sinnapu.

As is clear from the legislation Mr. Sinnapu is entitled to an ongoing income replacement benefit if it is determined that he “is suffering a complete inability to engage in any employment for which he or she is reasonably suited by education, training or experience.” Ms. Mair, Economical’s own expert, opined that there were none that met the necessary criteria.

What followed was a strange confluence of circumstances. Economical then wrote back to the assessors as a group questioning Ms. Mair’s conclusions. In the letter, Economical operated on the premise that the FAE results were invalid, a conclusion that was not necessarily apparent from any complete analysis of the report.

Nor were the physical measurements arising from the FAE necessarily incongruent with other information available at that time to Economical describing Mr. Sinnapu’s disability.

For whatever reason, Economical solicited a further opinion from Dr. Lexier,:

We would ask you confirm if, in your opinion, Mr. Sinnapu is considered employable in any of the positions identified by Ms. Mair?

Dr. Lexier, as the introduction to his report notes, is a medical doctor and an orthopaedic surgeon. He appears to claim no expertise as a vocational analyst. It was following this last solicited update from Dr. Lexier that an OCF 9 was sent to Mr. Sinnapu stating:

Dr. Lexier has concluded you are considered employable in all of the positions which were identified by Barbara Mair in her report dated June 18, 2008. As such you do not qualify for an income replacement benefit pursuant to Section 5 of the Statutory Accident Benefits Schedule.

In my earlier decision I wrote:

That Dr. Lexier should have read and drawn his own conclusions from the report that he relied upon goes without saying. His failure to do so also brings into question the value of his own observations and examination of Mr. Sinnapu. As Dr. Lexier is one of the few experts who believes that Mr. Sinnapu is capable of a wide range of work, his shortcut, which suggests either a rushed assessment or a failure to live up to the professional standards expected of an expert witness, significantly weakens the Insurer's case in that regard.

Ms. Brillinger, Economical’s adjuster, in her testimony at the later hearing, stated that she went back to Dr. Lexier and asked for a supplementary opinion, an opinion that remained substantially unchanged. In her mind this satisfied Economical’s obligation to make further enquiries.

While Economical was right to take steps to obtain further expert evidence when faced with contradictory information, I do not accept that merely asking Dr. Lexier to reconsider his opinion discharged its obligation in this matter. Rather, it had an obligation to make a determination on entitlement based on the entirety of available evidence, a duty that it could not simply delegate to Dr. Lexier.

While Dr. Lexier’s initial role in providing an expert report was not specifically as an expert witness, in light of Economical’s “good faith” obligations to Mr. Sinnapu, in the adjustment of his file, his role remained equivalent to that of an expert witness in a court proceeding. As The Honourable Coulter A. Osborne observed of experts in the context of the Civil Justice Reform Project, November 2007:

There is also the issue of partiality. A common complaint was that too many experts are no more than hired guns who tailor their reports and evidence to suit the client’s needs. I know that this problem exists, but I hasten to add that not all experts should be tarred with the same brush.

Notwithstanding the clarification provided at this second hearing that the issue was referred back to Dr. Lexier for further comment, I maintain my earlier conclusion that Economical’s reliance on Dr Lexier’s opinion to terminate Mr. Sinnapu’s accident benefits was not only wrong, but fell below the standards to be expected of an insurer.

As noted earlier, Dr. Lexier’s report was filed as a medical legal report in this arbitration. At the time his assessment was done, however, there was no litigation in place, and, technically, at the time of the section 42 examination it was not a litigation report, with all the resultant obligations of fairness and objectivity.

That does not however discharge Dr. Lexier from his duty to be both fair and professional in assessing Mr. Sinnapu.¹² Nor does it permit Economical to rely blindly on Dr. Lexier’s conclusions in terminating Mr. Sinnapu.

That Dr. Lexier’s assessment would likely be used as a medical legal report ought to have been in the contemplation of Economical on August 25, 2008, given that correspondence on the record indicated clearly that Mr. Sinnapu was already represented by counsel in his dispute with the Insurer. As well, it was Dr. Lexier’s opinion alone that Economical relied upon in terminating benefits.

Even if Dr. Lexier was somehow relieved of the obligations of an expert witness in the litigation process at the time he answered Ms. Brillinger’s questions about the ability of Mr. Sinnapu to perform certain occupations, it is important to note that Dr. Lexier’s report was performed under section 42 of the Schedule which allows compulsory examinations for “the purposes of assisting an insurer determine if an insured person is or continues to be entitled to a benefit.”

While an insurer’s decision as to benefit entitlement may not be elevated to the level of a statutory power of decision, the use of the word “determination” (determiner) to describe the decision-making process suggests that the legislators have high expectations of the insurer’s decision-making process. Black’s Law Dictionary defines determination as follows:

1. A final decision by a court or administration agency <the court’s determination of the issue>

As Cory J. noted in Mahe v. Alberta ¹³, “It is a trite rule of statutory interpretation that every word in the statute must be given a meaning.” In this case, the use of “determination” in the context of an insurer’s decision to pay benefits suggests a somewhat more weighty process, one that is congruent with an insurer’s obligations under the doctrine of uberrima fides. I see no reason why a report submitted by an expert in aid of an insurer’s “determination” should not be subject to the same demands of objectivity and fairness as a formal litigation report.

Spiegel J. in MacDonald v. Sun Life observed:

The function of an expert witness is to provide an independent and unbiased opinion for the assistance of the court. An expert witness’ evidence should be and should be seen to be the independent product of the expert uninfluenced as to form and content by the exigencies of litigation.¹⁴

The nature of Economical’s letter to Dr. Lexier was such as to virtually solicit the opinion it actually received.

As noted earlier, I am not convinced that, in retrospect, Economical fully met its obligations to its client in making its determination not to pay further benefits to Mr. Sinnapu.

I say this because of the significant contrary evidence available to Economical, from its own experts and especially from Mr. Sinnapu’s treatment providers which casts doubt on Dr. Lexier’s position.

In addition, even the most naïve insurer should have been alerted by the references in Dr. Lexier’s comments that were identified in the interim decision, namely the reference to unread reports and clear hearsay as a foundation for the opinion.

Whether subsequently explained or not, such references can be indicia of a “cowboy” approach to assessment, one which strongly suggests that the assessor was either slipshod or was tailoring his report to suit what he perceived as Economical’s needs or his own prejudices. Dr. Lexier’s addendum report does nothing to dispels this impression.¹⁵

I note that despite the highlighting of the shortcomings of Dr. Lexier’s report in the interim decision, no attempt was made to call Dr. Lexier for the special award hearing to address these very issues, an omission that does little to reinforce Economical’s “spin” on his role in the assessment process.

As noted earlier, an insurer is obliged to consider the totality of the available evidence in making a determination as to entitlement, whether that evidence comes from its own experts, or the insured’s assessors or treating physicians.

The record, as furnished in this arbitration, suggests that, at the time that Economical accepted Dr. Lexier’s opinion (that Mr. Sinnapu had suffered only soft tissue injuries that did not appreciably alter Mr. Sinnapu’s ability to work), Economical already had access to over a dozen reports and letters confirming disability and suggesting that there were serious physical and psychological sequelae, including pain and depression that arose after the accident, all of which affected Mr. Sinnapu’s ability to return to the workforce.

Economical also had the benefit of an “examination on consent” ¹⁶ on August 18, 2006, in which its representatives had the opportunity to question Mr. Sinnapu about his condition both pre- and post-accident, and another, earlier, personal interview with an adjuster from Crawford. Mr. Sinnapu in both statements clearly identified pain and the aggravation of the previous leg and ankle injuries as limiting factors.

Economical should have also been aware that it had (quite properly) paid income replacement benefits to the two-year mark based on its own experts’ opinions that Mr. Sinnapu was unable to return to his own pre-accident work at Priyas, opinions that run counter to Dr. Lexier’s view of the relatively minor consequences of the motor vehicle accident in question.

I note as well that Ms. Mair, Economical’s own expert on vocational aptitudes, stood by her conclusion that there was no appropriate alternative employment available to Mr. Sinnapu, even when asked to reconsider her opinion.

Notwithstanding the above, and the provision of further reports by Mr. Sinnapu’s physicians, including Dr. Lloyd, Economical chose to rely on the sweeping opinion given by Dr. Lexier as to suitable employment.

I find that in accepting Dr. Lexier’s conclusions on employment, in the face of contradictory evidence from experts in that field, Economical acted unreasonably. It made no apparent attempt to reconcile conflicting reports, or to weigh the value of Dr. Lexier’s opinion in an area that was clearly outside his claimed expertise.

Consequently, the decision to discontinue benefits, based on this opinion, was unreasonable, a conclusion that in accordance with subsection 282 (10) of the Insurance Act mandates a special award.

Failure of the Insurer to comply with the Schedule in discontinuing benefits

Counsel for Mr. Sinnapu also urged that I consider an alternative argument to support a finding of unreasonableness.

Mr. Sinnapu has consistently alleged that the procedures set out in the Schedule for the discontinuance of benefits had not been followed by Economical, with the consequence that no valid refusal of benefits has ever been made. According to counsel, such a failure would justify an order reinstating benefits, and such would or should have been within the knowledge of Economical. Thus, it would have been unreasonable for Economical to continue to withhold payments if it was aware that the technical breach of the Schedule would in itself have supported ongoing payment.

This supposed technical misfeasance by the Insurer related to the service of Dr. Lexier’s report more than five business days after its receipt by the Insurer, in breach of subsection 37(5).

There is a wide spectrum of jurisprudence as to whether, under the current Schedule, a breach of the technical requirements for stoppage will result automatically in an ongoing entitlement. Most of those favouring automatic reinstatement rely on Gothier J.’s decision in Smith v. Co-operators, ¹⁷ as does Mr. Sinnapu.

It should be recalled that Economical relied upon Dr. Lexier’s report in terminating benefits, since Dr. Lexier was convinced that Mr. Sinnapu could undertake any number of different occupations, and hence did not meet the post-104 week IRB test.

While the legal maxim de minimis non curat lex, springs to mind in the face of such an argument, since the decision of the Supreme Court in Smith it is no longer enough to label a technical requirement in the Schedule as a trifle that can be ignored.

If the omission of a potentially immaterial reference to dispute resolution options (as in Smith v. Co-operators) can nullify an otherwise valid notice, it may well be that another apparently innocuous, but ignored timeline such as that referenced by counsel for Mr. Sinnapu could be equally fatal to the validity an Insurer’s termination notice.

Unfortunately, the jurisprudence on this issue has been mixed, with the most recent declarations suggesting that there is no automatic ongoing obligation to pay, even in the face of a flawed termination process.

In a case that came recently before the Court of Appeal, MacFarland J.A commented:

In my view, the trial judge’s reliance on Smith was misplaced. Smith was concerned with the applicability of the two-year limitation period in the Insurance Act. The legislation required that a claimant bring an action against an insurer “within two years after the insurer’s refusal to pay the benefit claimed or within such longer period as may be provided in the [SABS].” The SABS provided that where an insurer refused to pay a benefit, the insurer had to inform the claimant in writing of the procedure in the Insurance Act for resolving disputes relating to benefits...

The inadequate notice did not automatically entitle the insured to payment of benefits. She was still required, as the court acknowledged, to prove her claim. That same reasoning applies to the facts of this case. The inadequacy of the refusal notice did not entitle the respondent to payment of benefits in perpetuity until proper notice was given or a proper DAC assessment was carried out. The respondent was still required to prove that she was entitled to the continued payment of IRBs because of her continued substantial inability to perform the essential tasks of her employment.¹⁸

While there was no discussion in Stranges of just how breaches of the requirements of section 37 of the Schedule are to be addressed, if not by way of reinstatement pending curative measures, the decision suggests to me that there is no consensus as to automatic reinstatement of benefits in the face of a flawed termination. Consequently, it would be hard to fault an insurer’s decision to withhold payments for this reason alone.

While there may well still be the possibility of entitlement to ongoing benefits in the face of a flawed discontinuance of payments, what is important in the context of this special award is whether or not an insurer should have known that it was obliged to reinstate until such time as the defective notice is properly addressed.

Given the inconsistencies in the jurisprudence and this most recent statement from the Court of Appeal, I cannot accept that the Insurer can be somehow deemed to have such knowledge. Consequently, a withholding of benefits in the face of a flawed termination process need not necessarily be found unreasonable and so attract a special award.

Amount of Special Award:

Since the beginning of special awards at the Commission, efforts have been made to pin down the basic standard of reference for the conduct of an insurer's adjuster in handling a claim. In Plowright and Wellington¹⁹, Arbitrator Palmer enunciated the classic statement of an insurer’s standard of conduct in dealing with accident benefits:

The standard expected of an insurer's examiner and her supervisors is one of sound and moderate judgment.

I have found that the process of adjusting this claim particularly after the two-year mark fell below the standard set by Arbitrator Palmer. However, the actions of Economical in adjusting this claim were not in themselves malicious.

Without other considerations, the breakdown of the Insurer’s process of determining benefits would not alone justify a special award in the high range.

An analysis of all aspects of the determination process, including the knowledge of the Insurer and the consequences of its misguided termination, would however lead to a different conclusion.

A key concept in accident benefits is “prompt payment of an income benefit.” This is reflected in the wording of subsection 282(10) dealing with special awards. The lack of prompt payment is not only undesirable under the scheme of the Act, but also frequently has serious ramifications for the insured as well.

One does not have to read many arbitration decisions to extract the information that a significant portion of the “clientele” claiming accident benefits is drawn from the less privileged portions of society who lack alternative safety nets.

There is a strong representation of recent immigrants, and persons with low income or limited attachment to the work force amongst accident benefits claimants. This is precisely because of the deductibility of collateral benefits, whether through employment or private insurance schemes, which makes accident benefit claims irrelevant to much of the comfortably employed population.

Mr. Sinnapu’s fragile economic roots in Ontario and his position as an immigrant inevitably made him more vulnerable to arbitrary actions by his insurer. Certainly his testimony was that following the payment stoppage he lived a hand to mouth existence with even the hydro service to his home being cut for extended periods due to non-payment.

Mr. Sinnapu also testified to the serious family stresses that arose from his inability to contribute to household expenses, once his income replacement benefits were terminated.

In my earlier decision I summarized Mr. Sinnapu’s testimony as follows:

Although poverty in itself is not a precondition to accident benefits, Mr. Sinnapu has also provided credible evidence of his critical financial condition, and some of the consequences that have stemmed from his impecuniosity, evidence that is sufficient in my mind to justify dealing with this issue on an interim basis.

An arbitrator's discretion with regard to a special award relates mainly to the quantum. The Insurance Act mandates such an award once there is a finding that benefits were unreasonably withheld. Once such a finding is made, the only element of discretion is as to the amount of the award that an arbitrator decides is appropriate to the conduct in question.

The amount can vary from a token dollar amount to a maximum of 50% of outstanding benefits including interest.

As Arbitrator Blackman stated in Murray and Wawanesa Mutual Insurance Company,²⁰ “The effect of the Insurer’s unreasonable withholding or delaying of payments on the Applicant is also a factor to be taken into consideration in making a special award.”

Indeed, in Liberty Mutual Insurance Company and Persofsky et al., the Director recognized this element in setting a special award.

To paraphrase, the award should be proportionate to: (i) the blameworthiness of the insurer's conduct; (ii) the vulnerability of the insured person; (iii) the harm or potential harm directed at the insured person; (iv) the need for deterrence; (iv) the advantage wrongfully gained by the insurer from the misconduct; and (vi) should take into account any other penalties or sanctions that have been or likely will be imposed on the insurer due to its misconduct. ²¹

While I reject Director Draper’s belief that a special award is somehow similar to punitive damages²², I accept that the harm or potential harm to an insured should be a consideration in deciding on the amount of a special award.

It is clear to me from Mr. Sinnapu’s evidence and from the record that Mr. Sinnapu was in a vulnerable situation at the time his benefits were terminated. He had never had high-paying, high status jobs while in Canada. He had dabbled with the menial end of the self-employment spectrum working in a convenience store, in Montreal, and doing maintenance work at a small apartment building in which he had an interest. He had worked at physically challenging jobs such as his most recent work handling and gutting fish. He was not rich.

Mr. Sinnapu had difficulty with English. His educational qualifications were limited and from outside Canada, and did little to make him a marketable commodity in the Canadian job market.

According to his own physicians, he was suffering from pain and depression arising from the not insignificant motor vehicle accident. He was competitively unemployable.

This was all known to Economical, both from Mr. Sinnapu’s information, and from many of Economical’s own experts, when it chose to solicit and rely on an opinion on employment from a surgeon who claimed no expertise in that domain.

Although motor vehicle insurance, including accident benefit coverage, is compulsory in Ontario, a contract of insurance containing disability provisions remains a contract aimed at providing peace of mind to an insured.

As the Supreme Court noted in Fidler:

The bargain was that in return for the payment of premiums, the insurer would pay the plaintiff benefits in the case of disability. This is not a mere commercial contract. It is rather a contract for benefits that are both tangible, such as payments, and intangible, such as knowledge of income security in the event of disability. If disability occurs and the insurer does not pay when it ought to have done so in accordance with the terms of the policy, the insurer has breached this reasonable expectation of security.²³

Notwithstanding that there was no direct evidence of malice in Economical cutting Mr. Sinnapu adrift, I have no hesitation in finding that the serious repercussions suffered by Mr. Sinnapu, including undue stress, would have been foreseeable by Economical had they read the totality of the evidence available to them at the time benefits were terminated.

Consequently, I accept that the special award should be on the higher side of the spectrum, which I fix at 40% of the benefits and interest that were outstanding at the time that the issue of income replacement benefits was finally resolved by the parties.

I leave the exact calculation of this amount to the parties. If there is any disagreement in the calculation of this amount I may be spoken to briefly on this issue.

A final order in this matter will be issued once the contents have been agreed to by the parties or otherwise determined.

EXPENSES:

I also leave the issue of expenses both in the proceeding generally and in this matter to the parties.

Since Mr. Sinnapu has been successful in pursuing his claim, I would request that his counsel serve and file a cost outline indicating the expenses claimed in this arbitration within 30 days.

If the parties are unable to agree on the disposition of expenses I may be spoken to provided only that notice is given to all parties and the Commission within 60 days.

July 30, 2010

John Wilson Arbitrator

Date

Financial Services Commission of Ontario

Neutral Citation: 2010 ONFSCDRS 98 FSCO A09-000900

BETWEEN:

SIVAKUMARU SINNAPU Applicant

and

ECONOMICAL MUTUAL INSURANCE COMPANY Insurer

ARBITRATION ORDER

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

1. Economical shall pay Mr. Sinnapu a special award, in accordance with subsection 282(10) of the Insurance Act, at an amount to be determined by the parties, at the rate of 40 per cent of the income replacement benefits and interest that were outstanding at the time the issue of IRBs was finally resolved by the parties.

2. If the parties are unable to agree on the amount of special award and interest in the above calculation, I may be spoken to briefly on this issue. A final order in this matter will be issued once the contents have been agreed to by the parties or otherwise determined.

3. Mr. Sinnapu is awarded his expenses in this arbitration in accordance in accordance with Rule 79 of the Dispute Resolution Practice Code. If the parties are unable to agree on the amount of expenses, his counsel shall serve and file a cost outline indicating the expenses claimed in this arbitration within 30 days. If required, I may be spoken to provided that notice is given to all parties and the Commission within 60 days.

July 30, 2010

John Wilson Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2(1992), 1992 CanLII 15561 (ON CTPD), 8 C.C.L.I. (2d) 21, [1992] I.L.R. 1-2824 (Ont. Gen. Div.)
3. 3Carter v Boehm 3 Burr 1905 Lord Mansfield CJ
4. 42000 CanLII 5684 (ON CA), 184 D.L.R. 4th 687 (C.A.)
5. 5Kansa General International Insurance Co. v. Morden & Helwig Ltd 2001 CanLII 28077 (ON SC), 57 O.R. (3d) 58
6. 6See Lac Minerals Ltd. v. International Corona Resources Ltd. 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574.
7. 7Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Company et al. 1994 CanLII 653 (ON CA), 18 O.R. (3d) 663
8. 8Monks v. ING Insurance Co. of Canada 2008 ONCA 269, [2008] O.J. No. 1371
9. 9Burtch v. Aviva Insurance Co. of Canada [2009] O.J. No. 2462, at para. 24
10. 10See the above discussion of “good faith”
11. 11P. 14 in-home functional re-assessment, Julie Davis, O.T., dated December 31, 2007
12. 12As noted by Gillese J.A, in Conceicao Farms Inc. v. Zeneca Corp, “Expert opinion tendered by a party is a unique type of evidence. Although generally retained by one side to the litigation or the other, experts are expected to be neutral. Their testimony is meant to assist the court and the trier of fact, not to bolster the theory of the case presented by one of the two sides. Their status as experts derives, in significant measure, from the assumption that they will offer the court objective opinions on which the court is entitled to rely.”
13. 13(1990) 1990 CanLII 133 (SCC), 46 C.R.R. 193 Supreme Court of Canada.
14. 14MacDonald v. Sun Life Assurance Co. of Canada [2006] O.J. No. 4977
15. 15Dr. Lexier’s supplementary report of June 11, 2009 concluded: “Let me state categorically that Mr. Sinnapu’s physical status has not been appreciably altered as a result of the soft tissue injuries incurred in the motor vehicle accident of June 22, 2006. If he was capable of work prior to the motor vehicle accident, he remains capable of performing the identical work today.”
16. 16performed in the absence of Mr. Sinnapu’s lawyer.
17. 17Smith v. Co-operators General Insurance Company, 2002 SCC 30, [2002] 2 S.C.R. 129.
18. 18Stranges v. Allstate Insurance Company of Canada, 2010 ONCA 457
19. 19Plowright and Wellington Insurance Company (OIC A-003985, October 29, 1993)
20. 20(OIC A-003224, August 23, 1996)
21. 21(FSCO P00-00041, January 31, 2003)
22. 22In this context, I adopt my comments in Shaikh v. Aviva Canada Inc. [2009] O.F.S.C.D. No. 175
23. 23Fidler v. Sun Life Assurance Co. of Canada 2006 SCC 30, [2006] 2 S.C.R. 3