Nicola Federico v. State Farm Mutual Automobile Insurance Company, 2012 ONFSCDRS 161

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2012 ONFSCDRS 161

FSCO A08-001138

BETWEEN:

NICOLA FEDERICO

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before: Maggy Murray

Heard: Written submissions completed September 28, 2012

Appearances: David S. Wilson for Mr. Federico

Ian D. Kirby for State Farm Mutual Automobile Insurance Company

In a decision dated March 23, 2012, I found that State Farm unreasonably withheld or delayed payments of income replacement and housekeeping benefits to Mr. Federico. I asked the parties to make submissions so that I could determine the amount of a special award I should award under section 282(10) of the Insurance Act, which states that: an arbitrator “shall award a lump sum of up to 50% of the amount to which the person was entitled at the time of the award” plus interest if the arbitrator finds that an insurer has unreasonably withheld or delayed payments.

Issue:

What is the amount of the special award that Mr. Federico is entitled to?

Result:

Mr. Federico is entitled to a special award fixed at $58,000, inclusive of interest.

EVIDENCE AND ANALYSIS:

The principles I should apply to determine the amount of a special award are set out in Liberty Mutual Insurance Company and Persofsky.¹ Director Draper wrote that “The purpose of s. 282(10) is to punish insurers that unreasonably fail to pay accident benefits promptly, as required by the SABS, and to deter that company and others from acting similarly in the future.”

Director Draper also refers to the need to ensure that the:

... consequences imposed on the insurer are rationally related to the misconduct at issue ... 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; (v) the advantage wrongfully gained by the insurer from the misconduct; and (vi) should take into account any other penalties or sanction that have been or likely will be imposed on the insurer due to its misconduct.

To summarize from my earlier decision, Mr. Federico was a self-employed plumber at the time of the accident. The blameworthy conduct I found was that State Farm terminated income replacement benefits and housekeeping benefits despite its own assessors opining that Mr. Federico was unable to work and would have difficulty with various tasks. For example, the Insurer’s Functional Abilities examiner (“FAE”), Lisa Hanna, a kinesiologist, concluded that Mr. Federico had a substantial inability to perform many of his previous tasks of employment.² Ms. Hanna further concluded that Mr. Federico continued to require housekeeping and home maintenance assistance for heavier tasks.³

Dr. Ismail, a physiatrist, concluded that Mr. Federico’s prognosis to return to work was guarded given Mr. Federico’s pre-accident medical condition, although Mr. Federico worked full-time before the accident despite his medical problems. Dr. Ismail deferred to the FAE assessor regarding the strength required for the job that Mr. Federico was capable of doing, opining that he was not qualified to determine Mr. Federico’s ability to work at a heavy, medium, light or sedentary job. Despite this, Dr. Ismail concluded that Mr. Federico had no impairments from his accident that prevented him from working. I found that Dr. Ismail’s evidence was contradictory and gave it little weight.

The conduct of State Farm persisted throughout the course of the hearing, which was adjourned several times due to scheduling issues. For example, the insurer’s representative testified prior to an adjournment of several months that: (a) Dr. Ismail’s report was flawed and required clarification; (b) State Farm should not have terminated Mr. Federico’s benefits if it used the correct test for entitlement to benefits; (c) if the correct test for entitlement to benefits was used, the right thing to do would be to reinstate benefits. However, State Farm did not reinstate Mr. Federico’s benefits between the hearing adjourning and the hearing resuming, thereby adding several months of further delay.

State Farm persisted in its position that Mr. Federico was not entitled to benefits, despite the medical information it had and despite the evidence of its team manager who testified at the hearing. An insurer should make entitlement decisions based on all the information it has, and not rely solely on the conclusions in reports, as State Farm did when assessing Mr. Federico’s claim for income replacement and housekeeping benefits.

I found State Farm unreasonably withheld the payment of benefits to which Mr. Federico was entitled.

Consequently, I find that Mr. Federico is entitled to payment of a special award fixed at $58,000, which is approximately 20% of the withheld payments for income replacement and housekeeping benefits, based on Mr. Federico’s calculations, inclusive of interest.

EXPENSES:

Expenses were not addressed at the hearing. If the parties are unable to agree on the issue of entitlement to or amount of the expenses, they may make submissions on both issues in accordance with Rule 79 of the Dispute Resolution Practice Code − Fourth Edition.

December 10, 2012

Maggy Murray

Arbitrator

Date