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

Neutral Citation: 2012 ONFSCDRS 76

FSCO A09-002025

BETWEEN:

LAURA (CARPENTER) RAAYMAKERS Applicant

and

SECURITY NATIONAL INSURANCE CO./MONNEX INSURANCE MGMT. INC. Insurer

Before: Alec Fadel Heard: Hearing proceeded by way of written submissions which closed on December 16, 2011.¹ Appearances: Nancy M. McAuley for Dr. (Carpenter) Raaymakers William G. Woodward for Security National Insurance Co./Monnex Insurance Mgmt. Inc.

Issues:

The applicant, Laura (Carpenter) Raaymakers, was injured in a motor vehicle accident on April 12, 2007. She applied for and received statutory accident benefits from Security National Insurance Co./Monnex Insurance Mgmt. Inc. (“Security National”), payable under the Schedule.²

As a result of injuries sustained in the motor vehicle accident, the applicant began receiving a monthly disability benefit in the amount of $6,175.00 from RBC Insurance (“RBC policy”). Security National takes the position that this is deductible from any income replacement benefit paid as a result of section 7 of the Schedule. The applicant takes the position that the RBC policy does not fit the definition of “income continuation benefit plan” in section 2(9) of the Schedule since the monthly disability benefit does not “closely follow” her income at the onset of disability. Further, the applicant submits that the RBC policy is a non-indemnity policy and that the monthly payment being received because the applicant meets that policy’s definition of “total disability” is not deductible from her weekly income replacement benefit.

The preliminary issue is:

Is the monthly disability benefit paid through the RBC policy, considered a payment under an “income continuation benefit plan” and therefore deductible from the calculation of the income replacement benefit under section 7 of the Schedule?

Result:

The monthly disability benefit paid through the RBC policy is considered a payment under an “income continuation benefit plan” and is therefore deductible from the calculation of the income replacement benefit under section 7 of the Schedule.

EVIDENCE AND ANALYSIS:

The hearing proceeded by way of written submissions and although the parties did not provide an agreed statement of fact, I determined that the following are undisputed facts:

The applicant purchased the RBC policy in February 1998.
In applying for the RBC policy the applicant was required to provide information regarding her income.
In the most recent Policy Change Rider of March 28, 2007, the applicant was required to provide current proof of income for her requested increase in coverage to $6,175.00 per month.
Subsequent to the motor vehicle accident, the applicant completed an application for benefits through the RBC policy and provided information on her current annual salary.
The applicant began receiving the monthly disability benefit from the RBC policy 60 days after the motor vehicle accident.
The monthly disability benefit received from the RBC policy is indexed and non-taxable.
The monthly disability benefit continues to date and is paid on the basis that Dr. Raaymakers satisfies the RBC policy’s definition of “total disability.”

The relevant provisions from the Schedule are sections 2(9), 2(10) and 7(1). Section 7 sets out that “net weekly payments for loss of income that are being received by the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan,” are deductible from an income replacement benefit.

Paragraph 2 of section 2(9) states that periodic payments of insurance are deductible if they meet two criteria:

They are offered by the insurer only to persons who are employed at the time the contract is entered into; and,
They are offered by the insurer only on the basis that the maximum benefit payable is limited to an amount calculated with reference to the insured person’s income from employment.

Section 2(10) states that section 2(9) only applies to motor vehicle accidents which occurred on or after January 1, 2002.³

While the applicant concedes that the first criterion of section 2(9) is met as she had to be employed in order to receive the monthly disability benefit from the RBC policy, she argues that the RBC policy, as written, does not meet the second criterion. The applicant submits that at the time of the application for an increase in the future income option rider, her income was approximately $166,000.00 and the option chosen was for $6,175.00 a month or $74,100.00 per year. She asserts that Economical Mutual Insurance Company and Wilcox supports that an income continuation benefit has to protect the full income.⁴ The applicant also submits that at the onset of her disability she was not required to provide evidence of earned income and the calculation of her monthly disability benefit was not “limited to an amount calculated with reference to the insured person’s income from employment.”

The applicant submits that a review of the common law is required as section 2(9)2 is not an exhaustive list of requirements for an “income continuation benefit plan.” She referred to Sharma-Singh and Co-operators General Insurance Company, where the arbitrator found that the 2002 amendment to the Schedule “did not contain language capable of displacing the common law rule that non-indemnity payments are not deductible.”⁵ The applicant submits that the monthly disability benefit falls outside of both section 2(9) and a finding that the RBC policy is an indemnity policy.

I reject these submissions. First, it is agreed that at the time of entering into the initial application for insurance and the subsequent rider to increase the monthly benefit, the applicant had to provide updated income information. It is also evident on the underwriting worksheet completed at the time of the March 28, 2007 rider, that the applicant was allowed her requested increase to $6,175.00 after a consideration of her earned income and expenses showed a justification for an increase of up to $6,750.00. The policy referenced in Wilcox is distinguishable from the RBC policy as, in Wilcox, the applicant did not have to be employed at the time of disability in order to qualify for the benefit and it was found that the benefits were not tied to her income.

The second criterion from section 2(9) indicates that “the maximum benefit payable is limited to an amount calculated with reference to the insured person’s income from employment.” It is apparent when examining the underwriting worksheet that the maximum benefit allowed was calculated with reference to the applicant’s income from employment, exactly fitting into the requirement set by section 2(9). Also, section 2(9) does not suggest that the calculation of the maximum benefit payable must be done at the time of disability.

I agree with Security National that in this instance the monthly disability benefit paid from the RBC policy fits within the definition provided in section 2(9) and there is no need for any further inquiry.

I note that the Court of Appeal in Cugliari v. White, in determining the deductibility of CPP benefits pursuant to section 267 of the Insurance Act found that the categorization of payments as either indemnity or non-indemnity is not the determinative test.⁶ However, the Court held that the deductibility of collateral benefits was governed by the statute and that there was a sense of indemnification in “payments… for loss of income.”

The applicant submits that the RBC policy lacks the two main hallmarks of an indemnity policy, being:

(a) a stated intent to pay income security for loss of wages; and, (b) provisions designed to continue paying an amount of income that closely follows the claimant’s pay at the time of disability.⁷

The applicant also suggests her position is strengthened when looking at secondary factors referred to in Wilcox and Lee that will often be considered when assessing if a policy is one of indemnity or non-indemnity.

I find that the cases relied upon by the applicant are not relevant to the case before me. First, Wilcox, Lee and Cromwell all dealt with accidents that occurred prior to January 1, 2002 and therefore section 2(9) was not a consideration. Also, in Lee, the benefit was found to be payable at a rate not determined by the applicant’s income at the time of disability or at the time she purchased the policy.

Further, despite my finding that the monthly disability benefit from the RBC policy fits precisely within the definition provided in section 2(9), even if it did not, it is also apparent that the monthly disability benefit is intended to indemnify the applicant for lost income. There are many factors that convince me that the monthly disability benefit is meant to indemnify the applicant for her income loss, these include:

The applicant had to disclose her income at the time of the initial application for the RBC policy.
The applicant had to disclose her income when entering into a Policy Change Rider in order to increase her entitlement to the monthly disability benefit payable under the RBC policy.
The RBC policy is identified as “Disability Income Policy – Professional Series.”
The first sentence of the insurance certificate states that the company “will pay the benefits provided in this Policy for loss due to Injury.” (emphasis added)
Total Disability, as defined in the original RBC policy, includes the applicant being “unable to perform the important duties of Your Occupation,” and that the applicant is “not engaged in any gainful occupation.”
The Policy Change Rider dated March 28, 2007 notes “TYPE OF CHANGE: Exercised Future Income Option.”
Under the Renewal Option, the RBC policy states that after her 65th birthday she may continue the RBC policy but to be entitled to the total disability benefit she had to “remain actively engaged Full Time in a gainful occupation.”

CONCLUSION:

The monthly disability benefit being received by the applicant under the RBC policy for total disability is deductible from her income replacement benefit by virtue of section 7 of the Schedule. I find that the monthly disability benefit directly fits into the criteria provided in section 2(9) for “payments for loss of income under an income continuation benefit plan.” Further, even if the payments did not fit within these criteria, the RBC policy is clearly an indemnity policy for lost wages and is deductible from the applicant’s income replacement benefit pursuant to section 7 of the Schedule.

EXPENSES:

The parties did not address the issue of expenses in their submissions and this matter will be dealt with by the hearing arbitrator at the conclusion of the hearing on the main issues.

May 10, 2012

Alec Fadel Arbitrator

Date