Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2012 ONFSCDRS 98

Appeal P12-00022

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Appellant

and

NICOLA FEDERICO Respondent

BEFORE: Delegate Lawrence Blackman

REPRESENTATIVES: Mr. Ian D. Kirby for the Appellant, State Farm Mutual Automobile Insurance Company Mr. David S. Wilson, for the Respondent, Mr. Nicola Federico

HEARING DATE: By written submissions due June 8, 2012

PRELIMINARY APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

Pursuant to subsection 283(6) of the Insurance Act, R.S.O. 1990, c. I.8, the Arbitrator’s March 23, 2012 order that the Appellant pay $995 for an MRI is stayed.
The Arbitrator’s March 23, 2012 order that the Appellant pay interest for the overdue payment of benefits pursuant to subsection 46(2) of the Schedule in the amount of 2% per month, compounded monthly, is not stayed.
The legal expenses of this preliminary appeal decision are deferred to the conclusion of this appeal, subject to any further or other order of an appellate officer.

June 22, 2012

Lawrence Blackman Director’s Delegate Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL AND BACKGROUND

The Respondent, Nicola Federico, was injured in a motor vehicle accident on December 20, 2006. As a result, he applied to his first-party automobile insurer, the Appellant, State Farm Mutual Automobile Insurance Company, for statutory accident benefits under the Schedule.¹

Disagreeing on the Respondent’s entitlement to specific benefits, the parties came before Arbitrator Murray (the “Arbitrator”) in a nine-day hearing starting in November 2009 and ending in July 2011, with final written submissions completed in December 2011.

The Arbitrator’s March 23, 2012 decision awarded the Respondent the statutory benefits claimed, including weekly income replacement benefits (“IRBs”) of $400 ongoing from February 16, 2008 and weekly housekeeping and home maintenance benefits of $100 from January 13 to December 19, 2008. The quantum of a special award and the question of legal expenses were left to be determined.

The Appellant’s April 12, 2012 Notice of Appeal appealed two of the Arbitrator’s orders. First, the Appellant submits that the Arbitrator erred in law in ordering payment of $995 for an MRI, outlined in a January 30, 2007 OCF-22, when the invoice was paid by OHIP.

Second, the Appellant submits that the Arbitrator erred in law in ordering that interest beyond August 31, 2010 be paid at 2% per month, compounded monthly, rather than 1% per month, pursuant to the amendments to the Schedule effective September 1, 2010.

The Appellant seeks a stay of the Arbitrator’s March 23, 2012 orders regarding the $995 MRI and the 1% difference in interest subsequent to August 31, 2010.

Subsection 283(6) of the Insurance Act, R.S.O. 1990, c. I.8, provides that an appeal does not stay the order of an arbitrator, unless decided otherwise. In Guardian Insurance Company of Canada and Armstrong, (FSCO P00-00037, July 20, 2000), Delegate McMahon adopted the following criteria in determining whether a stay should be granted:

the bona fides of the appeal;
the substance of the grounds for appeal; and,
the hardship to the respective parties if the stay is granted or refused.

The Appellant’s initial stay submissions regarding both areas of appeal were extremely succinct. I set time lines for further submissions from the Appellant regarding its requested stay, as well as for responding and any reply submissions.

The Appellant’s April 27, 2012 letter argued, regarding the MRI, that as OHIP (whose coverage is in priority to that of the Schedule) had paid the account, the Respondent was not out of pocket and the award, including pre-judgment interest, represented more than double recovery.

Regarding interest, the Appellant argued that effective September 1, 2010, interest on overdue payments under the Schedule was reduced from 2% to 1% per month, compounded monthly under both provisions. The Appellant submitted that the question as to the effect, if any, of this change to the Schedule is brought in good faith, has broad application and is novel, there being no other decisions on this point. The Appellant further argues that the legislation is clear and plain and that there is a general presumption that changes to the wording of legislation are purposeful.

The Appellant states that other than these two areas of appeal, it has paid the arbitration award. Thus, it submits, there can be no suggestion of hardship on the Respondent’s part.

The Respondent requested a time extension for his response. The May 29, 2012 Response to Appeal stated that the Respondent did not object to a stay of the MRI award. The Respondent opposed the requested partial stay of the interest order, arguing that the Arbitrator’s reasons for ordering interest at the 2% rate were sound and appropriate.

The Respondent further argued that the Appellant made no submission that complying with the Arbitrator’s interest order would cause it hardship. Supported by affidavit evidence, the Respondent argued that the requested interest stay would cause him considerable hardship.

The Respondent stated that the Appellant has forwarded $143,484.40 towards his award, leaving (according to the Appellant’s calculations) $26,810.44 owing, excluding continuing interest accrual. From this sum, legal fees in excess of $110,000, including $20,000 in disbursements, are to be paid. A further $27,000 will go towards retiring his plumbing company’s line of credit (which was zero before the accident and, in particular, before the February 2008 termination of IRBs) and at least $20,000 (of a total of approximately $100,000) owed persons who provided housekeeping services or helped maintain the plumbing business.

The Respondent deposes that at the time of the accident he and his wife had virtually no debts. They are now both approaching 60 years of age. They have $158,000 in retirement savings and other savings of some $5,000. Since the accident, they have loaned the company some $36,000, in addition to the $27,000 line of credit. The partial payment of the Arbitrator’s award will go to paying some, but not all, of their debts. Since January 2011, in order to keep the plumbing company solvent, no wages have been paid to Mrs. Federico, who had previously been receiving $2,000 a month. The Respondent will be forced to continue to live on a very tight budget.

II. ANALYSIS

I accept that this appeal is brought in good faith, is of broad application and raises a novel question of law. I further agree that a stay of the MRI award, that the Respondent does not oppose, is appropriate based on the substance of that aspect of the appeal.

The second part of the appeal pertains to the more intricate question of whether the changes to the Schedule, in the words of the Arbitrator, “authorize an interference with a vested right under subsection 46(2) of the Old Regulation.” The Appellant’s stay submissions in this regard, even after a further opportunity to provide written argument, are so terse and generalized so as to render it presently difficult to gauge the substance of that part of the appeal.

The Appellant claims no hardship if its stay request is refused. The Respondent does, supported by his affidavit evidence. That evidence is not challenged, notwithstanding follow-up by this office as to whether any reply submissions would be forthcoming.

The IRB claims under the Schedule were determined more than four years after their termination, more than two years after the start of the arbitration hearing. Considerable legal expense has been incurred. Under the Schedule, those expenses can only partially be compensated. Presently, legal expenses have not been resolved, nor has the quantum of a special award.

In Sorokin v. Wawanesa Mutual Insurance Company, 2009 ONCA 152, the Ontario Court of Appeal held that the clear policy intent of the section 46 interest provision is compensatory, upholding the lower court decision, in Sorokin v. Wawanesa Mutual Insurance Company, 2008 CanLII 26265 (ON SC), that “interest arrears will themselves accrue interest.”

As stated in Armstrong, under subsection 283(6) of the Insurance Act, “a stay from the order of an arbitrator ruling on accident benefit claims is the exception rather than the rule.” Weighing the undisputed bona fides of the appeal against the disputed substance of this second aspect of the appeal and the unchallenged hardship to the Respondent in this long standing matter, I am not persuaded to exercise my discretion to stay, as requested, the Arbitrator’s March 23, 2012 interest award.

III. EXPENSES

The legal expenses of this preliminary issue decision are deferred to the conclusion of this appeal, subject to any further or other order of an appellate officer.