Pamela Blakely v. State Farm Mutual Automobile Insurance Company, 2012 ONFSCDRS 3

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

Neutral Citation: 2012 ONFSCDRS 3

FSCO A09-003232

BETWEEN:

PAMELA BLAKELY

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON PRELIMINARY ISSUES

Before: Judith Killoran

Heard: November 7, 2011, at the offices of the Financial Services Commission of Ontario in Toronto. Written submissions received on November 15, November 23, and November 28, 2011

Appearances: David Preszler for Mrs. Blakely Bruce Chambers for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Pamela Blakely, was involved in a motor vehicle accident on August 18, 2005. She applied for statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mrs. Blakely applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issues are:

Should the hearing scheduled for November 7, 8, 9, and 10, 2011 be adjourned?
If Mrs. Blakely is found to be entitled to income replacement benefits, should payments of the child’s benefit under the Canada Pension Plan be included in subsection 2(9) of the Schedule as “payments of disability pension benefits under the Canada Pension Plan”?
Is Mrs. Blakely entitled to her expenses, and if so, what is the amount?

Result:

The hearing is adjourned to June 4, 5, 6, 7, and 8, 2012.
Subsection 2(9) of the Schedule which refers to “payments of disability pension benefits under the Canada Pension Plan” does not include the “child’s benefit” payable under the Canada Pension Plan.
State Farm shall pay to Mrs. Blakely her expenses of $11,960, inclusive of fees and disbursements plus applicable HST, payable forthwith and in any event of the cause.

EVIDENCE AND ANALYSIS:

ADJOURNMENT REQUEST

By letter dated October 24, 2011, State Farm refused to consent to a failure of the catastrophic determination issue in the case before me. Its consent might have allowed the issue to be added to the arbitration hearing scheduled to begin on November 7, 2011. As a result, Mrs. Blakely requested an adjournment of the arbitration hearing. The four grounds for her request were the following: the determination of catastrophic impairment was related to the issues in dispute; the insurer had refused to consent to a failure of the catastrophic impairment issue so that it could be added to the subject matter of the arbitration; all of the issues, income replacement benefits, attendant care and catastrophic determination should be heard at the same time in the interests of efficiency and fairness to avoid paying for expert witnesses twice; and the lack of availability of two of the applicant’s expert witnesses as they had been called to attend at court and give evidence on other matters.

On October 31, 2011, State Farm opposed the adjournment request on the grounds that it would cause a further delay and the four day hearing set for November 2011 could deal with the issues of entitlement to attendant care and income replacement benefits.

The arbitrator who was acting as the adjournment officer denied the adjournment request as it was late in the process and did not disclose extreme or unforeseeable reasons. He noted that the issue of catastrophic impairment should have been added at a resumed pre-hearing. He accepted State Farm’s submission that more time would likely be needed for the hearing and the expert witnesses related to the catastrophic designation issue would not be identical to those who would testify with respect to the substantive benefits. The arbitrator also agreed with State Farm that a bifurcated hearing process would be the most efficient means of dealing with all the outstanding issues; that is, the evidence related to entitlement to the benefits in dispute could be presented and the hearing arbitrator could reserve on the quantum of attendant care until after a determination was made on the catastrophic impairment issue. The adjournment officer concurred with State Farm that finding two consecutive weeks when counsel would be available would result in delaying the hearing for a long period of time, for an accident which occurred 6 years ago.

When the parties appeared before me on November 7, 2011, the request for adjournment was renewed by applicant’s counsel. At this time, State Farm, which was represented by Mr. Chambers rather than the lawyer at his firm who opposed the initial adjournment request, did not oppose the renewed adjournment request. State Farm conceded that it would have some of the same expert witnesses testifying with respect to the issue of entitlement to attendant care benefits and the issue of catastrophic impairment. Also, State Farm agreed that two consecutive weeks would not be needed for the rescheduled hearing.

I granted the request for an adjournment based on the inefficiency and unfairness of proceeding with the hearing in the circumstances. I found that it was necessary to deal with the issue of catastrophic impairment together with the other issues in dispute. Otherwise, many of the same witnesses would need to be recalled which would result in increasing both the time and expense of the process.

Consequently, the arbitration hearing scheduled for November 7, 8, 9, and 10, 2011 is adjourned to June 4, 5, 6, 7, and 8, 2012. The issues in dispute for the hearing are the following:

Does Mrs. Blakely meet the definition of “catastrophic” impairment in the Schedule?
Is Mrs. Blakely entitled to income replacement benefits from August 13, 2008 and ongoing?
Is Mrs. Blakely entitled to attendant care benefits from August 18, 2005 and ongoing at the monthly rate of $5,916.90?
Is either party liable to pay the other’s expenses in respect of the arbitration?
Is Mrs. Blakely entitled to interest for the overdue payment of benefits under the Schedule?

INCOME REPLACEMENT BENEFITS

The parties agreed that, in order to streamline the rescheduled hearing, they were prepared to make submissions on an issue in dispute relating to the quantum of income replacement benefits to which Mrs. Blakely might be entitled. I granted a short adjournment until 2:00 p.m. on November 7, 2011, when we convened for submissions from the parties.

Under the Schedule, the weekly amount of an income replacement benefit which is payable shall be reduced by payments for loss of income under an income continuation benefit plan.

Subsection 2(9) of the Schedule specifies the following:

For the purpose of this regulation, payments for loss of income under an income continuation benefit plan shall be deemed to include the following payments:

Payments of disability pension benefits under the Canada Pension Plan.

The parties agree that a CPP disability pension benefit is deducted from the amount of the income replacement benefit under the Schedule. However, they disagree on what constitutes a “disability pension benefit.” Mrs. Blakely submits that only $852.30 monthly for 2011 should be attributed to her as a CPP disability pension benefit and therefore, that is the amount that meets the definition of a payment “for loss of income under an income continuation benefit plan” under subsection 2(9) of the Schedule. State Farm submits that the entire amount of the monthly disability benefit for 2011, which includes the child’s benefit, that is, $1,070.80, should be deducted from any income replacement benefits, if Mrs. Blakely is found to be entitled.

In support of its submissions that the child’s benefits should be included in the definition of “disability pension benefits”, State Farm relied on Ruffolo v. Sun Life Assurance Co. of Canada², which was upheld by the Court of Appeal.³

In many group insurance policies, insurers have offset Canada Pension Plan (“CPP”) disability benefits from the long term disability (“LTD”) benefits payable under the policies. The plaintiffs in Ruffolo, Mr. Ruffolo and Ms. Lepage, were spouses who alleged that their disability policies did not authorize the offset of CPP benefits payable to their children, or alternatively, that these offsets were unlawful as contrary to public policy, as unconscionable, or as contrary to the reasonable expectations of the parties.

Sun Life was the successor to each of the original insurers of Mr. Ruffolo and Ms. Lepage. The trial judge agreed that the child’s benefit belonged to the children and not to Mr. Ruffolo or Ms. Lepage. He also did not dispute the line of authorities that hold that the CPP child’s benefit cannot be credited against child support otherwise owing under family law legislation as ruled in Sipos v. Sipos.⁴

However, the trial judge ruled that the conclusion that the CPP benefit belongs to the children does not resolve the issue of whether Sun Life cannot or ought not to offset the children’s benefit against the amount of LTD payable to the disabled contributor. In his words: “Whether Sun Life can offset CPP benefits is a matter of interpreting Sun Life’s insurance contracts. This is a matter mainly of private not public law.”

The trial judge stated that an important factor in determining the cost of LTD insurance is the amount of benefits that it is expected will be paid by the insurer. The more the coverage, the greater the cost to the employer of the group insurance. The amount of coverage can be reduced in a variety of ways. One way to reduce the amount of expected claims is by deducting or offsetting other sources of income replacement received by the employee, such as disability benefits provided by the CPP.

Mr. Ruffolo was an executive at Royal Plastics Limited who was covered under Prudential Policy 71170. The monthly LTD benefit under this policy was to be reduced by disability benefits paid under the CPP but the amount of the reduction depended on the integration method specified in the master application. In the case of Prudential Policy 71170, the master application provided six options, of which Royal Plastics chose option (a) which stated that the LTD benefit was to be immediately offset in all events, by all sources specified in the group policy. Another option available was not to offset the LTD payment by any dependent disability benefits payable under the CPP. Royal Plastics provided its employees with booklets which described the group insurance coverage as being offset by disability benefits under CPP/QPP (both primary and dependent).

The trial judge found that there was no ambiguity in the group insurance policy and the clear language of Prudential Policy 71170 authorized the offset of the child’s benefit. In his words, the unselected options support the interpretation that one of the background circumstances is that an employer purchasing group insurance can reduce the price of the insurance by reducing the benefits through offsets. The presence of other options reveals that there are narrower and less comprehensive offsets available, including an exemption for the child’s CPP benefit, which are more expensive, although the word “all” as in “all sources specified in the group policy” is clear enough. However, when one looks at option (a) in the context of the other options, it is obvious that it was meant to be the most encompassing provision designed to catch offsets exempted in the other options.

With respect to the argument that deducting the child’s benefit was contrary to public policy, the trial judge held that it is not the responsibility of private insurers to maintain any particular level of the social safety net provided by CPP benefits. There is nothing contrary to public policy in permitting the insurer and the insured to control and limit the amount of private LTD benefits.

Ms. Lepage received disability benefits under the West Nipissing Association for Community Living’s group policy, which was Mutual Life Policy 28459. Her policy states that the monthly benefit is reduced by the disability income to which the disabled member is entitled under a government plan (including benefits under the Canada/Quebec Pension Plan, including benefits for dependent children). She, too, received a booklet which stated that benefits for dependent children would be deducted from LTD insurance benefits.

Mr. Ruffolo and Ms. Lepage presented similar legal arguments that, as a matter of contract interpretation and according to principles of insurance law, the insurer should not be allowed to offset their disability payments with the child’s benefit. The trial judge found with respect to both insurance policies that the plain language of the policies stipulated that the monthly disability benefit is reduced by benefits under the CPP, including benefits for dependent children.

The Court of Appeal agreed that the language of the group insurance policies permitted Sun Life to deduct the CPP child’s benefit from the monthly LTD benefit. It found that the clear terms of the policies permitted the off-setting of the CPP child’s benefit. As with the trial judge, the Court of Appeal saw no public policy reasons for not interpreting the private contractual arrangements between Sun Life and its insureds as providing for an integration of CPP benefits and private disability benefits where CPP is the first payor of disability benefits and private disability benefits are designed to supplement those benefits to a level the policy holder and insurer negotiate.

I find that the Ruffolo case can be distinguished from the case before me in a number of ways.

I agree with the trial judge in Ruffolo who commented that the interpretation of a different reduction provision may not be persuasive in interpreting the reduction provision in [at] issue. That is the situation in the case before me.

The findings of both the trial judge and the Court of Appeal were with respect to 2 long term disability policies which were referred to specifically as Prudential Policy 71170 and Mutual Life Policy 28459 respectively. In setting rates, private insurers take into account whether there will be offsets for public insurance provided by the CPP. Both policies in dispute had particular contractual language which supported the deductibility of the child’s benefit from long term disability benefit payments. Other methods of integration which could have been selected by the employers included the option of excluding from deductibility the child’s benefit payable under the CPP. These options were not chosen. Such options did not exist for the applicant in the case before me.

The lower court carefully analyzed the terms of the individual policies in the context of contractual interpretation principles. It concluded that the language of the group insurance policies permitted Sun Life to deduct the CPP child’s benefit from the monthly LTD payments to both parties and the Court of Appeal agreed.

In the case before me, the integration section in question under the Schedule specifies that “payments for loss of income under an income continuation benefit plan shall be deemed to include the following payments: 1. Payments of disability pension benefits under the Canada Pension Plan.” The language is quite different in that the reference is to “payments of disability pension benefits” not to “disability benefits” or “disability income”. Relying on rules of statutory interpretation, I find that the word “pension” has been included for a reason. One reason is to distinguish the CPP disability pension benefit from the CPP child’s benefit.

Neither party referred me to the standard auto policy when making submissions with respect to the interpretation of “disability pension benefits”. I draw the inescapable conclusion that the contract between the insurer and the insured provides no assistance in the circumstances. This is unlike the Ruffolo case where the master policies provided clear contractual language for the interpretation of “disability benefits” or “disability income” under the CPP as including the CPP child’s benefit. I find that the terms “disability benefits” and “disability income” are more inclusive than “disability pension benefits”. Also, in the case before me, there is no clear contractual language which specifies that income replacement benefits are to be offset by disability pension benefits under the CPP, including the CPP child’s benefit.

Both parties agree that Mrs. Blakely receives a CPP disability benefit. In a letter dated May 17, 2011 from Human Resources Development Canada, a payment explanation statement was enclosed which shows the breakdown of the lump sum amount for the previous months and the amount paid to her, including the child’s benefit. In the attached explanation, it states, among other things, “Any benefits paid for your children are their income, even if you received the payment.” The purpose of the CPP child’s benefit is to pay children in trust and consequently, any benefits paid for the children is their income and the child benefit component is not subject to taxation in the hands of the parent.

The Payment Explanation Statement itemizes Mrs. Blakely’s total CPP disability payment of $20,086.20 for the period from 2009 to 2011 in the following fashion. The taxable benefit is $15,987, which represents the CPP disability pension, while the CPP child’s benefit is $4,098.68. Another document states that the total monthly amount of Mrs. Blakely’s CPP disability benefit is $1,070.80 monthly. However, the document specifies that this amount includes a CPP child’s benefit of $218.50 monthly. When the child’s benefit is excluded, Mrs. Blakely’s monthly CPP disability pension is $852.30.

I find that Mrs. Blakely’s CPP disability benefits are comprised of 2 distinct components: the disability pension benefit of $852.30 monthly in 2011 and the child’s benefit of $218.50 monthly in 2011. Consequently, I find that the correct interpretation of the Schedule requires that “payments of disability pension benefits under the Canada Pension Plan”, which in the case before me total $852.30 monthly, meet the definition of “payments for loss of income under an income continuation benefit plan” and the child’s benefit of $218.50 monthly does not meet the definition.

EXPENSES:

Subsection 282(11.1) of the Insurance Act gives an arbitrator the authority to issue an interim order of expenses. Rule 12(2) and the Expense Regulation set out the factors to be taken into consideration when making an award of expenses.

The applicant claims that she is entitled to an award of legal fees fixed at $7,155, which represents $150 per hour for counsels’ time preparing and attending the arbitration plus HST of $930 plus disbursements of $7,440 totalling $15,525.00 in expenses.

The applicant submits that the factors discussed below and found in the expense regulation apply to this case and support her entitlement to an expense award.

Written offers to settle

I disagree with the applicant and find that the issue of written offers to settle is not relevant to my determination with respect to this interim award of expenses.

The conduct of a party

By letter dated September 9, 2011, applicant’s counsel sought to have the issue of catastrophic impairment added to the arbitration scheduled for November. By letter dated October 24, 2011, State Farm advised that it would not consent to a failure of the catastrophic impairment issue and it would not consent to adding the issue to the arbitration hearing. State Farm also indicated that it was prepared to proceed with the November arbitration hearing.

On October 24, 2011, Mrs. Blakely sought an adjournment of the November 2011 arbitration hearing on the basis of the four grounds discussed earlier in this decision.

State Farm opposed the requested adjournment on the grounds that it was unnecessary, would cause further delay, and the 4-day hearing could deal with the outstanding issues of entitlement to attendant care and income replacement benefits. State Farm also stated that the experts testifying with respect to the catastrophic impairment designation claim would be different from those scheduled for the November hearing. The applicant maintained that State Farm’s position was incorrect in that the expert witnesses the insurer intended to call at the November hearing were the same witnesses retained by the insurer to testify about the issue the catastrophic impairment designation.

Mrs. Blakely submitted that bifurcating the hearing meant that she would have to call the same witnesses who testified with respect to her entitlement to attendant care benefits when addressing the catastrophic impairment issues. State Farm, at the outset of the hearing, conceded that it would have some of the same expert witnesses testifying for the issue of entitlement to attendant care benefits and the issue of catastrophic impairment. State Farm also conceded that a long delay and a hearing of two weeks’ duration would not be needed.

Whether any part of the proceeding was improper, vexatious or unnecessary

Mrs. Blakely submits that attendance at the arbitration hearing could have been avoided if State Farm did not oppose the request for adjournment in the first instance instead of waiting for the commencement of the arbitration to concede that an adjournment was necessary. Accordingly, Mrs. Blakely contends that the conduct of the insurer unnecessarily delayed and/or prolonged the hearing.

Time expended on preparation, expert witnesses, and attendance at the arbitration hearing

The applicant submits that a significant period of time was expended in preparing for the arbitration hearing. Counsel docketed 30.8 hours interviewing witnesses, reviewing expert reports and briefs, preparing questions for witnesses, conducting legal research and preparing submissions and briefs of authorities. An associate assisted in preparation, interviewing and legal research and docketed 16.9 hours. The applicant submits that this preparation work will have to be undertaken again prior to the next hearing. Also, expert witnesses have charged for their preparation time, attendance, travelling costs and cancellation fees. The applicant has been invoiced $6,660 plus HST of $780 by the various expert and medical witnesses.

State Farm submits that the hearing which commenced on November 7, 2011 was not adjourned as a result of any request or conduct by State Farm but rather on an arbitrator’s own initiative pursuant to Rule 72.4 of the Dispute Resolution Practice Code. Moreover, the hearing commenced on November 7, 2011, not as a result of any unreasonable refusal by State Farm to adjourn the hearing previously, but by order of an arbitrator dated November 1, 2011. State Farm submits that the circumstances leading the arbitrator to exercise her discretion to adjourn the hearing were caused by the Applicant’s failure to add the issue of catastrophic impairment to the arbitration earlier and the Applicant’s inconsistent request to seek catastrophic levels of benefits at a hearing which did not have jurisdiction to address the issue of catastrophic impairment. State Farm submits that there is no basis for an award of costs against it because the adjournment was not at the request of State Farm or the result of the insurer’s conduct. State Farm submits that the issue of costs ought to be reserved to the arbitrator ultimately adjudicating the issues in dispute.

I disagree with State Farm’s submissions. State Farm had a number of options before the commencement of the hearing. It might have consented to the adjournment request, which I believe would have been the most sensible option. The proper functioning of the dispute resolution process is predicated on the cooperation of the parties and their counsel. Although an arbitrator declined to order an adjournment of the hearing prior to its commencement, the arbitrator did not have the benefit of hearing the lengthy submissions which I heard from the parties on November 7, 2011. At that time, it was evident not only to me but to both parties that the hearing could not proceed prior to a determination on the catastrophic impairment issue, or if it did proceed, it would not comply with considerations of fairness and efficiency. State Farm had the requisite knowledge prior to the first day of the hearing, unlike the arbitrator acting as the adjournment officer, to prevent the waste of resources involved in the appearances of both parties on November 7, 2011. State Farm had a duty to cooperate with the opposing party and seek the most expeditious and fair means of dealing with the issues in dispute, which it declined to do.

I exercise my discretion to award Mrs. Blakely her expenses incurred as a result of the contested adjournment request and her expenses following her success with respect to the preliminary issue. I fix the amount for fees at $4,000 plus HST of $520 for a total of $4,520. I award the amount of $6,660 plus HST of $780 for a total of $7,440 for disbursements. Consequently, State Farm shall pay to Mrs. Blakely her expenses of $11,960, payable forthwith and in any event of the cause.

January 19, 2012

Judith Killoran Arbitrator

Date