Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2018 ONFSCDRS 150

Appeal P16-00012

AGNIESZKA STEPIEN Appellant

and

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

BEFORE: Edward Lee

REPRESENTATIVES: Agnieszka Stepien represented herself Daniel Himelfarb for Security National

HEARING DATE: August 17, 2018

APPEAL 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:

The decision of the Arbitrator is rescinded in its entirety, and replaced with the following:
Security National is not entitled to deduct the amount that Ms. Stepien received as a lump sum for payment of past LTD benefits from Manulife Financial, less statutory deductions, from the amounts Security National owes for past IRBs.
Ms. Stepien is entitled to her expenses of the hearing.
The determination of the quantum of expenses of the hearing is remitted to a different arbitrator, if required.
If the parties are unable to agree about the 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

October 30, 2018

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This matter involves the SABS–1996.¹

Ms. Stepien (“the Appellant”) appeals a decision of Arbitrator Anschell (“the Arbitrator”) dated January 16, 2016. In that decision, the Arbitrator ruled that the entirety of a lump sum payment of long term disability benefits (“LTDs”) could be applied retroactively to reduce the amount of income replacement benefits (“IRBs”) Security National Insurance Co./Monnex Insurance Mgmt. Inc. (“the Respondent”) has now agreed to pay her.

For reasons that follow, I find the Arbitrator committed errors of law in her analysis and accordingly, I have overturned her decision.

II. BACKGROUND

Ms. Stepien was injured in a motor vehicle accident on November 2, 2009, and received IRBs from the Respondent until these benefits were terminated in December 2011. At the time, Ms. Stepien also had coverage with an LTD carrier, and she applied for LTD benefits in August 2010. The LTD carrier denied this application in September 2010.

Ms. Stepien disputed the Respondent’s termination of her IRBs and sought arbitration at the Financial Services Commission of Ontario. She also commenced litigation against her LTD carrier. From December 2011 and onward, she was in receipt of neither IRBs nor LTDs.

Finally, in March 2015, Ms. Stepien received a lump sum payment of $206,710.57 from her LTD carrier for arrears of LTDs up to February 28, 2015. This amount included interest of $7,507.40. Her LTD carrier also commenced paying monthly LTD benefits to her in the amount of $3,548.75 in March 2015.

In October 2015, Ms. Stepien and the Respondent settled her accident benefits claim on the eve of her arbitration hearing. The parties agreed that Ms. Stepien met the test for IRBs, and the Respondent would reinstate the Appellant’s IRB benefits. The Respondent also agreed to pay past income replacement benefits from the date of termination in December 2011 to the present. In regard to quantum, the Respondent’s position was that it could retroactively reduce the amount of any past IRBs it owed Ms. Stepien with the LTD lump sum payment she had received in March 2015. The Appellant disputed this position and the parties proceeded to arbitration on this issue.

The issue was set out as follows:

“Is Security National entitled to deduct the amount that Ms. Stepien received as a lump sum payment of past Long Term Disability (“LTD”) benefits from the Manufacturer’s Life Insurance Company (“Manulife Financial”), less statutory deductions, from the amounts owing by Security National for past Income Replacement Benefits (IRBs”)?”

The Arbitrator held that the Respondent was entitled to deduct the amount the Appellant received as a lump sum payment of past LTDs from the amounts owing to Ms. Stepien by the Respondent for past IRBs. The Arbitrator also determined that the Respondent was entitled to its expenses of the arbitration hearing.

For reasons that follow, I find the Arbitrator erred in law in her analysis of the SABs and in allowing the Respondent to make this deduction.

III. ANALYSIS

The legal basis for the Respondent’s argument is found at section 7 of the SABs, which deals with collateral benefits:

(1) Despite subsections 6 (1) and (5), but subject to subsection 6 (2), the weekly amount of an income replacement benefit payable to a person shall be the lesser of the following amounts:
The amount determined under subsections 6 (1) and (5), reduced by,

i. 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, and

ii. net weekly payments for loss of income that are not being received by the person but are available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, unless the person has applied to receive the payments for loss of income. [Emphasis mine]

The Appellant argues section 7(1) contemplates only two possibilities. In the first, section 7(1)(1)(i) requires an insured to be receiving collateral benefits during the period in question. This is because section 7(1)(1)(i) contemplates “net weekly payments for loss of income that are being received by the person …”

The second situation contemplates a situation where collateral benefits are not being paid. Subsection 7(1)(1)(ii) allows a reduction where collateral benefits “are not being received by the person, but are available … unless the person has applied to receive…” the collateral benefits.

The Appellant argues that the Respondent was not paying IRBs from December 2011 onward. During the same period, the Appellant was not receiving LTDs. She had applied for them, but they had been denied. Those LTDs were not being received by the Appellant at that time. Therefore, by a simple and plain reading of section 7, the Respondent is not entitled to reduce the amount of past IRBs by the amount the Appellant received as a lump sum payment of past LTDs.

The Respondent’s counter argument is that the legislative purpose of the SABs is to prohibit an insured from recovering from both an accident benefits carrier and an LTD carrier. Accordingly, the rule preventing double recovery would be rendered useless if an insurer were not entitled to a deduction for past LTD benefits from past IRBs that are owing. Further, the lump sum payment for LTDs was made for a period that corresponded to the period for which the insured has now agreed to pay IRBs. To rule otherwise would entitle the insured to a “windfall.”

At arbitration, the Arbitrator determined that she “prefer[ed]” the Insurer’s argument concerning double recovery and the legislative purpose of section 7(1) of the SABs. She cited from the decision of Delegate Makepeace in Allstate Insurance Company and De Rosa:

In my view the collateral benefits rules in the SABs are intended to achieve the same legislative purposes as the deduction from damages rules in the Insurance Act, - to prevent double recovery, give effect to rules about priority of payers, appropriate relief for accident victims, and minimize litigation.²

Nonetheless, the Arbitrator said little about why she preferred the Respondent’s arguments over the arguments of the Appellant. In fact, the SABs themselves clearly demonstrate the legislature itself did not contemplate an absolute prohibition against double recovery. This is evident from Section 47³ of the SABs, which sets out the process whereby an insurer might recover a benefit overpaid to an insured because of a payment of a collateral benefit.

Under that scheme, the insurer is first required to issue a notice for a repayment (s. 47(2)(a)). Subsection 47(2)(b) describes how and in what amounts the overpayment may be recovered. Subsections 47(3) and 47(4) state that an insured’s obligation to repay a benefit does not apply unless the notice is given within 12 months after the payment was made, except in cases of willful misrepresentation or fraud. [Emphasis mine]

Thus, the SABs envision scenarios where double recovery might occur, and this may be the case even when an insurer has been paying IRBs from the very start of a claim right up to the moment an LTD payment is made. This principle, that an insurer might only have a limited recovery for such overpayments (leading possibly to a double recovery), has been recognized and accepted in the jurisprudence.⁴

In the instant case, the Respondent has not paid IRBs since they were terminated in December 2011. Similarly, the LTD carrier did not pay any LTDs until March 2015. During that entire period, the Appellant received neither IRBs nor a similar collateral benefit, although she suffered (as is now recognized by the insurer), from a complete inability to engage in any employment for which she was reasonably suited by education, training, or experience. Further, there is no suggestion that the Appellant at any time engaged in fraud or willful misrepresentation.

In her analysis, the Arbitrator cited the decision of Cromwell v. Liberty Mutual Insurance⁵ as authority for the Respondent’s proposition that it might deduct a lump sum of LTDs from past IRBs, but I find she misread and misapplied that decision. In Cromwell, the lump sum payment of LTDs was not applied retroactively to reduce past IRBs, even though in Cromwell, as in the instant case, there had been past periods during which the insurer had terminated and not paid IRBs. Instead, the lump sum LTD payment was applied as a deduction from future payments of IRBs, in accordance with the scheme set out in section 47 of the SABs.

This was the same approach taken by the trial court in Vanderkop and The Personal Insurance Company of Canada⁶, another similar situation. In Vanderkop, the insured had both an accident benefits policy and a collateral benefits policy. She was injured in a motor vehicle accident in February 1997 and received IRBs until January 1998 when they were terminated. In June 1997, she applied for LTDs from her LTD carrier, but these were also denied. In June 1999, she commenced litigation for those LTDs. In January 2001, the accident benefits carrier paid her a lump sum of approximately $107,000.00 for IRBs it owed from January 1998 to January 2000. The accident benefits carrier continued to pay IRBs right up to Nov 27, 2002, when the insured settled her LTD claim with her LTD carrier for approximately $57,000.00. The accident benefits carrier then immediately ceased paying any further IRBs and sought to deduct the LTD lump sum from past IRBs paid.

The trial judge considered section 7(1)(ii) of the SABs. He cited the ruling of Chrappa v Ohm⁷ in the Court of Appeal “… which approved the analysis of Austin J. A. in Coderre, where he found that the plaintiff was not entitled to [LTD] benefits due to rejection of his claim by the collateral benefits insurer.”⁸

The trial judge then ruled that the “… LTD benefits were not available to the insured, and there is no claim for the deductibility of LTD benefits or repayment of IRBs paid due to LTD benefits being available to the plaintiff…”⁹ [Emphasis mine]

On appeal, the Court of Appeal considered section 7(1)(1)(ii) and ruled as follows:

[26] IRBs are to be reduced by LTD being received as a result of the accident. The legislation does not entitle Personal to set off hypothetical benefits applied for but refused. Ms. Vanderkop was not in receipt of LTD. As Manulife had denied her claim, she cannot be described as entitled to the payment of LTD. That is, LTD was not “available” to her. To treat LTD as being available would effectively oblige an insured to litigate with their collateral benefits insurer, at their own risk and expense, for the benefit and at the discretion of, their accident benefits insurer. In our view, SABs places no such obligation on an insured.¹⁰ [Emphasis mine]

The Court of Appeal applied the same contemporaneous approach to their analysis. During the time period in question, LTDs were not being received. The insured was not in receipt of LTDs (even though she was later paid a lump sum for LTDs). The insurer sought a reduction for LTDs from the quantum of IRBs paid to the insured. The Court of Appeal upheld the trial court and refused to allow the insurer to do so.

This is the same situation as the instant case. LTDs were not being paid to Ms. Stepien from December 2011 until March 2015. Ms. Stepien was not in receipt of LTDs during that period. To allow the Respondent to deduct this LTD amount from past IRBs would amount to an error of law and be contrary to the Court of Appeal’s approach.

I agree with the Appellant that subsections 7(1)(1)(i) and (ii) provide a complete scheme for the calculation of IRBs in regard to reductions for “net weekly payments for loss of income.” A party that is not within the ambit of those provisions may not avail itself of those reductions. Nor does the SABs contemplate a complete bar to double recovery in every instance. Other competing policy considerations include the following: the goal of reducing economic dislocation and hardship to accident victims, allowing insureds to rely on benefits to meet current needs, recognizing the special vulnerabilities of accident victims, and not requiring insureds to finance or pursue litigation against third parties before they can become eligible for certain benefits.¹¹

Accordingly, I find the Arbitrator erred in law when she applied section 7 of the SABs to allow the Respondent to reduce past IRBs it owed by the amount the Appellant received as a lump sum of LTDs in March 2015.

Having made this conclusion, I find it unnecessary to address any of the obiter or other matters the Arbitrator addressed which were not issues before her. Nor is it necessary for me to consider her findings concerning the deductibility of legal expenses from the lump sum amount paid to the Appellant.

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.