State Farm Mutual Automobile Insurance Company v. Kumuthakumary Kulaveerasingam, 2018 ONFSCDRS 110

Financial Services Commission of Ontario

Neutral Citation: 2018 ONFSCDRS 110

Appeal P17-00011

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Appellant

and

KUMUTHAKUMARY KULAVEERASINGAM

Respondent

BEFORE:

Edward Lee

REPRESENTATIVES:

Cary Schneider for State Farm

David S. Wilson for Mrs. Kulaveerasingam

HEARING DATE:

April 9, 2018

VARIATION ORDER

Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 as it read immediately before being amended by Schedule 3 to the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, and Regulation 664, R.R.O. 1990, as amended, it is ordered that:

1. The application to vary the Arbitrator’s order is allowed. Paragraphs 1 and 2 thereof are rescinded and replaced with the following:

2. Ms. Kulaveerasingam is entitled to ongoing Income Replacement Benefits at the rate of $269.74 per week.

3. Ms. Kulaveerasingam is entitled to interest for the overdue payments of benefits pursuant to section 51 of the Statutory Accident Benefits Schedule –Effective September 1, 2010 (“New Schedule”) at the rate of 1 percent per month, compounded monthly.

4. State Farm shall repay to Ms. Kulaveerasingam all moneys it has collected from her as a result of giving notice in the OCF-9s of January 26, 2016, February 16, 2016, and March 8, 2016, and deducting $80.00 weekly from her weekly IRB payments.

5. Ms. Kulaveerasingam is entitled to interest on the amounts ordered in paragraph 3 at the same rate set out in paragraph 2.

6. If the parties are unable to agree as to the expenses of this appeal, they may arrange an expense hearing in accordance with Rule 79 of the Dispute Resolution Practice Code.

Edward Lee

Director’s Delegate

May 30, 2018

REASONS FOR DECISION

I. NATURE OF THE VARIATION

This matter involves the SABS–2010.¹

The Applicant, State Farm Mutual Automobile Insurance Company (“State Farm”), seeks the variation of an arbitration order, dated February 6, 2015, which entitled Ms. Kulaveerasingam (“the Respondent”) to Income Replacement Benefits (“IRBs”).

After the arbitration order was issued, the Respondent began receiving CPP disability payments (“CPP”). CPP payments are deductible in the calculation of IRBs, and as a result, State Farm overpaid the Respondent. State Farm informed the Respondent of these overpayments, and began reducing the subsequent payments of the Respondent’s weekly IRBs.

The Respondent agrees the arbitration order should be varied, but contests any repayment of the amounts sought by State Farm. The Respondent also claims State Farm was not entitled to reduce her IRBs by the amount it has already collected, and must repay these amounts to her with interest.

II. BACKGROUND

The Respondent was injured in a motor vehicle accident on October 9, 2010. Her application for accident benefits was heard by Arbitrator Pressman (“the Arbitrator”), who, on February 6, 2015, ruled in her favour and made the following order:

1. Ms. Kulaveerasingam is entitled to ongoing Income Replacement Benefits at the rate of $400.00 per week.

2. Ms. Kulaveerasingam is entitled to interest for the overdue payment of benefits pursuant to section 51 of the Statutory Accident Benefits Schedule — Effective September 1, 2010 (“New Schedule”) at the rate of 1 percent per month, compounded monthly.²

In December 2015, the Respondent’s counsel informed State Farm that the Respondent had been approved for CPP benefits retroactively to approximately August 2014,³ and provided State Farm with a Payment Explanation Statement.⁴

State Farm then sent the Respondent three different OCF-9s, dated January 26, 2016, February 16, 2016, and March 8, 2016, respectively. Each of these notices informed the Respondent that because she was now receiving CPP, an overpayment had been made to her IRBs. The notices also advised that State Farm was seeking the repayment of those amounts, and that State Farm would be deducting 20 percent from her subsequent weekly IRB payments until the overpayment had been collected.

In its materials, State Farm argues the following:

1. it is entitled to deduct CPP benefits received by the Respondent from her quantum of IRBs

2. the Respondent is liable to repay State Farm, with interest, any amounts of IRBs she received in in excess of her entitlement pursuant to section 7(1) of the SABs

3. State Farm is entitled to an order varying the quantum of the IRB payable to the Respondent, as ordered by Arbitrator Pressman, based on the Respondent’s subsequent receipt of CPP benefits.

In response, Ms. Kulaveerasingam argues the following:

1. although State Farm is entitled to deduct CPP benefits from her quantum of IRB, any such deduction must be carried out in accordance with the SABs

2. Ms. Kulaveerasingam is not liable to repay any moneys to State Farm because the three notices sent by State Farm were flawed and therefore invalid

3. the amounts already deducted from her weekly IRB benefit ($80.00 per weekly payment, and continuing to date), were inappropriately deducted, and State Farm must repay those amounts to the Respondent with interest.

III. ANALYSIS

(a) Is State Farm entitled to a variation of the Arbitrator’s order?

At all times, the Respondent contended that it did not dispute that in principle, State Farm was entitled to a deduction from her IRBs, because the Respondent had been approved for CPP benefits after the Arbitrator’s order was issued.

Both parties also agree that sections 3(7)(d)(i), 4(1)(a), 7(1) of the SABs allow for the deduction of CPP disability payments from the calculation of the amount of an insured’s IRBs. They also agree that the formula to use to calculate the reduction is found at section 7(1) and (2). The calculation is made by taking 70 percent of the Insured’s “gross weekly employment income” to determine the “weekly base amount.” The IRB is then calculated by deducting the amount of the weekly payment for CPP from the weekly base amount. The remainder is the correct IRB to be paid to the Insured.

The parties now agree that the amount of the Respondent’s weekly base amount is $403.50. They also agree that in 2015, the weekly CPP payment made to the Respondent was $128.55. The difference between these two numbers, ($403.50-$128.55 = $274.95) would have been the correct IRB during that calendar year.

For the calendar year 2018, they now agree that the weekly CPP payment is $133.76. For 2018, the correct amount to be paid as an IRB is now $269.74/week.

I therefore find there was a material change in the circumstances of the insured in that she became entitled to CPP benefits after the issuance of the Arbitrator’s order, and State Farm is entitled to a variation of that order.

Nevertheless, the parties do not agree as to whether the variation order should be made retroactively. They disagree as to whether State Farm is entitled to the amounts it has overpaid the Respondent. They also disagree as to whether the Respondent is entitled to a repayment of the amounts State Farm has already collected through the weekly reduction of the Respondent’s IRB payments since 2015 and continuing to date.

I turn now to these remaining issues.

(b) Is State Farm entitled to the repayment of the moneys it has overpaid to the Respondent?

There is no doubt that State Farm may deduct any income replacement assistance (including CPP)⁵ received by the Respondent from the Insured’s “weekly base amount”.⁶ The weekly base amount is determined by taking 70 percent of the Insured’s “gross weekly employment income.”⁷

Nevertheless, the repayment of any such amounts overpaid by the Insured is governed by section 52 of the SABs. Section 52(2)(a) requires the Insurer to give a notice to the Insured of the amount required to be repaid. Section 52(3) provides that the notice under section 52(2) must be given within 12 months after the payment of the amount that is to be repaid, failing which, the Insured ceases to be liable to repay the amount unless the amount was originally paid to the Insured as a result of willful misrepresentation or fraud.

In the present case, there is no suggestion of fraud or misrepresentation. The Respondent argues that each of the three notices given to her by State Farm is flawed and unenforceable against her.

I will address this argument and each of the notices in turn.

(i) The Notice of January 2016

What constitutes a valid notice has been considered in arbitral and court jurisprudence. In Trottier and Royal Sun Alliance Insurance Company,⁸ Delegate Draper made these comments in regard to section 47 of the SABS-1996, a provision very similar to section 52:

… However, another underlying principle is that insured persons should be able to rely

on the benefits they receive to meet their current needs. To this end, the legislation establishes rules and time lines for applications, the determination of entitlement, procedures for dealing with disputes, and the recovery of overpayments. ... Insurers are required to identify and provide notice of any overpayment within a relatively short period — 12 months — or lose the right to recover them. [Italics mine]

In the decision of Knechtel and Royal Sun alliance, Arbitrator Sampliner sent out requirements for the notice under this section:

… In my view, any repayment request under section 47 of the Schedule should contain: a) the name of the specific benefit(s) the insurer claims it has overpaid; b) a statement of the appropriate weekly/monthly or lump sum amount sought; c) the payment date or applicable time span of the specific benefit(s) it has paid and seeks repaid; and d) calculation of the total repayment claim.

Just as an insured person is entitled to know the details of the insurance company’s decisions to honour or deny claims, the insurer should tell an insured the same information for repayment requests as a matter of basic consumer information. Conversely, repayment requests that merely mention a lump sum leave the insured in the dark and potentially add volatility to their relationship that is mutually destructive for the parties.⁹

I agree with comments of the Delegate in Trottier and approve of the requirements and reasoning set out by Arbitrator Sampliner as to why an insured must receive such information.

In Intact Insurance Company and Marianayagam, a Superior Court judge considered repayments sought under section 47 of the SABs and held the following:

Given that the proper amount of the deduction is sometimes debatable, in my opinion, the amount claimed need not be perfectly correct, it should be substantially correct.”¹⁰ [Emphasis mine]

Given these principles, I find that the Notice of January 26, 2015 fails to fulfill the requirements set out above. For instance, it does not correctly (or even substantially correctly) set out the total repayment claim. The OCF-9 in question states:

Your overpayment is calculated as follows:

For a total overpayment of from August 1/14 to January 20/16 of $9227.42. This will be deducted from your next payment which will be issued on January 28/16.”¹¹

This is clearly incorrect. The notice seeks a repayment for almost eighteen months. According to section 52(3), the Insurer must give its notice within twelve months of the payment that is to be repaid. Thus, only twelve months of repayment are recoverable from any notice. Further, the notice also states that the total overpayment of $9227.42 will be deducted from the “next payment”. This is also clearly incorrect.

I therefore find this notice is defective and does not constitute a valid notice of the repayment sought within. As a result, the State Farm may not rely on it to support its claim for repayment for this period.

(ii) The Notice of February 2016

This notice claims a repayment for an eighteen month period (August 2014 to February 2016). Accordingly, it too is defective and may not support State Farm’s claim for repayment.

(iii) The Notice of March 2016

This notice also fails because it claims a repayment for the period of January 25/15 to March 2/16, a longer period (13.5 months as opposed to 12 months) than permitted by the SABs. Nor do I find it was “substantially correct” for the insurer to claim 13.5 rather than 12 months. I note the comments by the judge in Marianayagam were limited to the quantum of the deduction sought (which he found “sometimes debatable”), not the duration of the time period claimed, which is capped at twelve months by section 52(2) of the SABs.

Finally, I find this notice also fails because in its first paragraph, the Insurer attempts to “piggy-back” upon the previous notice given in January 2016. Noting in the legislation or jurisprudence suggests that a coherent and proper notice may be cobbled together in such a manner.

In conclusion, I find all three notices provided by State Farm to the Respondent are flawed or otherwise defective and unenforceable against her.

(c) Is Ms. Kulaveerasingam entitled to be repaid the amounts State Farm has already collected?

Section 52(3) of the SABs permits an Insurer to give notice that it will collect the amount it seeks as a repayment by reducing the subsequent payments of the benefit by up to 20 percent. In the present case, each of the OCF-9s given by State Farm contained such a notice and State Farm has been reducing the weekly payments of IRBs up to the present day.

Nevertheless, I have already decided that each of the three OCF-9s was flawed and may not support a claim for repayment of the amounts in question. The Respondent also argued that State Farm was prohibited from using the “self help remedy”¹² of section 52(3) because section 287¹³ of the Insurance Act prohibits the Insurer from reducing benefits to an Insured after an arbitrator’s order unless the Director or an arbitrator so orders in a variation or appeal.

In the present case, it is not necessary for me to consider this further argument. If the flaws I have already cited in the notices were not already sufficient, I also find that the portion of the notices which dealt specifically with the collection of an amount for repayment is also defective because the Insurer has substantially miscalculated the amount by which it may reduce the payment of the IRB.

Section 52(2)(b) allows an insurer to give the person notice “… that the Insurer intends to collect the amount by reducing each subsequent payment of the benefit by up to 20 percent of the amount that would otherwise be the amount of the benefit.”

In this case, the Insurer has reduced the payment of each weekly benefit by $80.00, which is 20 percent of $400.00. The amount of the weekly IRB paid to the respondent was indeed $400.00, but that is not the amount from which the Insurer may calculate 20 percent. The Insurer may only reduce the benefit by up to 20 percent of the “amount that would otherwise be the benefit.”

In 2015, the amount that would otherwise be the benefit (meaning the amount that remains when the deduction for CPP is subtracted from the weekly base amount) is $274.95. According to section 53(2)(b), an Insurer may collect a maximum of 20 percent from this amount, or approximately $55.00. The Insurer has been collecting $80.00 per week, which is again substantially more than this maximum.

I therefore find the notices informing the insured that the insurer would be collecting 20 percent of the amount that would otherwise be the benefit were also substantially incorrect. They cannot support the Insurer’s claim for repayment. The Responded is thus entitled to a repayment of these amounts plus interest.

(d) Is the order for variation to be made retroactive?

At the hearing, I directed the parties to makes submissions as to the date on which the variation should be made effective. The Respondent submitted that such a date was only relevant in regard to the repayments State Farm was seeking, and would depend on my determination as to whether the notices were valid.

State Farm argued that the variation order should be effective from any of the dates of the three OCF-9s. Given my decision in regard to the validity of these OCF-9s, I reject this argument.

In the alternative, State Farm also argued that I should make the variation retroactive to July 2016, when State Farm’s written submissions for this appeal were served on the other party, because all the information required to provide a valid notice under section 52 was contained in those submissions.

I reject this argument as well. Nothing in those written submissions suggested that the Respondent should have construed them as a notice under section 52. Instead, the argument presented was that the three OCF-9s in the file were valid.

I therefore accept the Respondent’s submissions in this regard.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

Edward Lee

Director’s Delegate

May 30, 2018

APPENDIX

3(7) For the purposes of this Regulation,

(d) payments for loss of income under an income continuation benefit plan are deemed to include,

(i) payments of disability pension benefits under the Canada Pension Plan,

4(1)

“other income replacement assistance” means, in respect of an insured person who sustains an impairment as a result of an accident,

(a) the amount of any gross weekly payment for loss of income that is received by or available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, other than,

(i) a benefit under the Employment Insurance Act (Canada),

(ii) a payment under a sick leave plan that is available to the person but is not being received, and

(iii) a payment under a workers’ compensation law or plan that is not being received by the person because the person has elected under the workers’ compensation law or plan to bring an action and is not entitled to the payment, and

(b) the amount of any gross weekly payment for loss of income, other than a benefit or payment described in subclauses (a) (i) to (iii) that may be available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan but is not being received by the person and for which the person has not made an application. (“autre assistance au titre du remplacement du revenu”) O. Reg. 34/10, s. 4 (1).

Amount of weekly income replacement benefit

7. (1) The weekly amount of an income replacement benefit payable to an insured person who becomes entitled to the benefit before his or her 65th birthday is the lesser of “A” and “B” where,

“A” is the weekly base amount determined under subsection (2) less the total of all other income replacement assistance, if any, for the particular week the benefit is payable, and

“B” is $400 or, if an optional income replacement benefit referred to in section 28 has been purchased and applies to the person, the amount fixed by the optional benefit. O. Reg. 34/10, s. 7 (1).

(2) For the purposes of subsection (1), the weekly base amount in respect of an insured person is determined as follows:

1. Determine whichever of the following amounts is applicable:

i. 70 per cent of the amount, if any, by which the sum of the insured person’s gross weekly employment income and weekly income from self-employment exceeds the amount of the insured person’s weekly loss from self-employment, if the weekly income replacement benefit is for one of the first 104 weeks of disability, or

ii. the greater of the amount determined for the purposes of subparagraph i and $185, if the weekly income replacement benefit is for a week for which the person is entitled to receive an income replacement benefit after the first 104 weeks of disability.

Repayments to insurer

52. (1) Subject to subsection (3), a person is liable to repay to the insurer,

(c) any income replacement, non-earner or caregiver benefit under Part II or any benefit under Part IV, to the extent of any payments received by the person that are deductible under this Regulation from the amount of the benefit. O. Reg. 34/10, s. 52 (1).

(2) If a person is liable to repay an amount to an insurer under this section,

(a) the insurer shall give the person notice of the amount that is required to be repaid; and

(b) the insurer may, if the person is receiving an income replacement or caregiver benefit, give the person notice that the insurer intends to collect the amount by reducing each subsequent payment of the benefit by up to 20 per cent of the amount that would otherwise be the amount of the benefit. O. Reg. 34/10, s. 52 (2).

(3) If the notice required under subsection (2) is not given within 12 months after the payment of the amount that is to be repaid, the person to whom the notice would have been given ceases to be liable to repay the amount unless it was originally paid to the person as a result of wilful misrepresentation or fraud. O. Reg. 34/10, s. 52 (3).

(4) An insurer that has given a notice referred to in clause (2) (b) may obtain repayment in the manner described in the notice. O. Reg. 34/10, s. 52 (4).

Footnotes

1. 1The Statutory Accident Benefits Schedule — Ontario Regulation 34/10, as amended.
2. 2Page 8 of FSCO A13-004423
3. 3Tab B of materials
4. 4Tab C
5. 5Section 7(1)
6. 6Ibid
7. 7Section 7(2)(1)(i) of the SABs
8. 8Trottier and Royal Sun Alliance Insurance Company Appeal P03-00019 at page 13
9. 9FSCO A07-000011 at pager 24
10. 10Intact Insurance Company and Marianayagam 2016 ONSC 1479 at page 7
11. 11Tab D
12. 12Also mentioned by the judge in Marianayagam at page xx
13. 13Since repealed but still in force due to the transitional provisions