Christina Pellegrino v. Security National Insurance Co./Monnex Insurance Mgmt. Inc., 2017 ONFSCDRS 85

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

Neutral Citation: 2017 ONFSCDRS 85

FSCO A16-002497

BETWEEN:

CHRISTINA PELLEGRINO

Applicant

and

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

Insurer

REASONS FOR DECISION

Before:

Arbitrator M. J.Winer, Q.C.

Heard:

In person at ADR Chambers on February 6, 2017

Appearances:

Mr. Peter Murray, Lawyer and Ms. Sylvia Guirguis, Lawyer, participated for Ms. Christina Pellegrino

Ms. Danielle Koehn, Lawyer, and Mr. Edward Naumov, Student at Law, participated for Security National Insurance Co./Monnex Insurance Mgmt. Inc.

Issues:

The Applicant, Ms. Christina Pellegrino, was injured in a motor vehicle accident on August 28, 2015, and sought accident benefits from Security National Insurance Co./Monnex Insurance Mgmt. Inc. (“Security National”), payable under the SABS.¹ The parties were unable to resolve their disputes through mediation, and Ms. Pellegrino applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8, as amended.

The issue in this Hearing is:

Should Canada Pension Plan (“CPP”) payments by an employer be added in calculating “gross employment income” under the SABS?

Result:

CPP payments by an employer should not be added in calculating “gross employment income” under the SABS.

EVIDENCE AND ANALYSIS:

The determination of the issue turns on the interpretation of the definition of the term “gross employment income” in the new SABS.

PART II INCOME REPLACEMENT, NON EARNER AND CAREGIVER BENEFITS

Income Replacement Benefits

Interpretation

(1) In this Part,

“gross employment income” means salary, wages and other remuneration from employment, including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada), but excludes any retiring allowance within the meaning of the Income Tax Act (Canada) and severance pay that may be received.

“gross weekly employment income” means, in respect of an insured person, the amount of the person’s gross annual employment income, as determined under subsection (2), divided by 52.²

The Applicant claimed an Income Replacement Benefit (“IRB”).³ The Insurer advised the Applicant and her lawyer, by letter, based on the Employer’s Confirmation of Income Report, Form (OCF-2), and attached Williams and Partners Accountants’ Report, that her IRB was calculated at $205.84 weekly.⁴ The Applicant then forwarded an ADS Forensics Accounting Report.⁵ These accountants reached a different conclusion namely, $212.11 weekly.⁶

The parties agree that there was a difference because the Applicant’s accountants added in employer paid CPP payments (also called premiums or contributions) to “gross employment income”. The parties have filed written submissions on this issue. They referred to cases decided under the old SABS and upon legislative policies and in particular, a FSCO report.⁷

The Director’s Delegate, in Howden and Pafco Insurance Company Limited,⁸ decided under the old SABS to deny the addition of employer CPP payments to IRBs. Contrary to the case at bar, the look alike term, “gross income from employment” was not a defined term. He held as follows:

The uncertainty arises because “gross income from employment” is not defined anywhere in the SABS- 1996, although it is central to the calculation of benefits.⁹

He found that a provision in the old SABS allowing a deduction of employee paid CPP contributions worked as a bar to include employer contributions.¹⁰ He also held against the Applicant’s argument that including the employer CPP payments helps towards placing employer and employee inclusion in income on the same level.¹¹

In this case, the Applicant’s counsel and her accountants claim, under the new SABS, the accountant is free to calculate “gross income” under the new SABS by the use of general accounting principles because the bar to the inclusion of employer CPP payments is now absent from the new SABS. The Applicant in this case appears to have overlooked that “gross employment income” in the new SABS, is a defined term. (Emphasis added).

Also, the change in the SABS does not necessarily imply that employer contributions should now be added to “gross employment income”. Section 56(2) of the Legislation Act provides:¹²

The amendment of an Act or regulation does not imply that the previous state of the law was different.

Counsel for the Applicant states that the intention of the legislature is to blend the new SABS with tort damages.¹³ He also said that because there is no bar to the inclusion of CPP payments by the employer, then by a construction, “contra proferentem” (against the party putting forward), they should be added in, because the SABS is consumer protection legislation, especially for a vulnerable population. He referred to general policy reasons for the change from old SABS to new SABS to justify the inclusion of the employer CPP contributions. I don’t find these assertions relevant when the legislation is clear. I also believe that it is not too helpful to rely on cases based on inapplicable legislation containing a different formula for determining IRBs, and for reasons that follow, I prefer the Insurer’s submissions.

The Applicant’s counsel also made it difficult to follow and far afield, submissions to the effect that adding employer paid CPP contributions to gross employment income would assist parity between employed and self-employed individuals. These submissions are not germane to the task at hand, the definition of “gross employment income”. There is nothing in s. 4(1)¹⁴ about parity.

The Applicant’s accountants in their report, relied upon by the Applicant, justified the addition of CPP employer contributions as follows:¹⁵

To the amounts reported as gross income ... we have added the employer’s portion of CPP premiums. The Pafco and Howden appeal decision...explicitly excluded the employer’s portion of CPP premiums from gross income. However the case dealt with the pre- September 2010 period, when IRB’s were calculated on an after-tax basis, which was the stated reason for excluding the employer’s CPP premiums as a component of gross income. Post September 2010, the IRB calculation is based on pre-tax income. As such, all the issues raised by the arbitrator in his decision no longer apply, and there is now no reason to exclude employee paid CPP premiums from the insured’s gross income.

It is to be noted that the above report does not deal specifically with the new definition of “gross employment income” or that calculations under the old SABS and the new SABS are based on very different formulas. There “is reason to exclude employee paid CPP premiums from the insured’s gross income”. The directions in section s. 4(1) of the new SABS must be followed. The Applicant must establish entitlement to IRBs and contra proferentem (a term usual to contract law) does not apply, because there is no ambiguity in s. 4(1) of the new SABS. The SABS are “consumer protection legislation”, but the mere uttering of this phrase is not a cure all.

The Insurer replied to the accountant’s calculations by letter as follows:¹⁶

However CPP contributions made by the employer are not paid directly to the client and as such are not considered as income. As per SABS (S 4) “gross employment income”- means salary, wages and other remuneration from employment, including fees and other remuneration from holding office, and any benefits received under the Employment Insurance Act( Canada)....

The Insurer’s counsel states that the first place to look is the actual legislation and I agree.¹⁷ She submits that employer CPP contributions have never been part of the calculation for IRBs, pre and post new SABS. The old SABS did not define “gross income from employment” and had a different formula for determining “net weekly income”. The new SABS formula for weekly IRBs is very different and is based on a determination of “gross employment income”.¹⁸

The Applicant’s counsel did not refer specifically to the new SABS definition of “gross employment income” in his written or oral submissions, until he was prompted about it, near the end of his oral submissions, and he then relied upon the words, “other remuneration from employment” to support inclusion of employer CPP contributions to “gross employment income”. The Applicant’s accountants in their report do not appear to have applied their minds to the definition. It is essential to the solution of this case.

I believe the use of the word “means” and not the word “includes”, in s. 4(1) of the new SABS, provides a mandatory instruction on how to interpret “gross employment income”. The words “salary and wages” provide a genus (common characteristics) which, ejusdem generis (of the same kind), restricts the meaning of “other remuneration from employment” to money remuneration to and received by an employee. Perhaps gratuities, commissions, and bonuses would qualify as “other remuneration from employment”. Further, even the words coming after, namely, “including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada)”, indicate moneys paid to and received by an employee. (Emphasis added). There is a new definition in the new SABS for determining IRBs. It should be followed rather than relying upon cases decided on different formulas in the old SABS. They are of limited precedential value and becloud the issue. I believe the meaning is clear without the need of external aids and that the Insurer’s and its accountants’ calculations are correct. There is a clear indication of take home “weekly” pay in the IRBs.

The CPP premium payments by the employer are neither paid to nor received by the employee. They are paid to the government and go into a pool for eventual CPP pension payments at age 65. Allowing this addition can amount to a “double dip” when employees eventually collect their CPP. Perhaps CPP payments by an employer are considered as income in a tort case, or in some other financial statements, but there are differences between assessing damages for loss of earnings and earning capacity in tort law and defined IRBs payable under the SABS. The Applicant contends that because employer paid CPP premiums are applied in tort claims, they should also be applied under the SABS. I disagree.

The Director’s Delegate states in the Howden case:

The term “income” must be construed in the context of the specific legislation in which it appears.¹⁹

I accept that the payment of CPP premiums by an employer can be viewed as part of Mr. Howden’s overall compensation package. This is recognized in wrongful dismissal cases and other contexts. However we are not dealing with damages for wrongful dismissal or tort damages, but with statutory accident benefits.²⁰

In conclusion, CPP payments by an employer should not be included in calculating “gross employment income” under the SABS.

EXPENSES:

The parties have advised that they do not require me to assess expenses.

March 20, 2017

M. J.Winer, Q.C.

Arbitrator

Date