Aviva Canada Inc. v. Rahul Singh, 2018 ONFSCDRS 39

Financial Services Commission of Ontario

Neutral Citation: 2018 ONFSCDRS 39 Appeal: P17-00078

OFFICE OF THE DIRECTOR OF ARBITRATIONS

AVIVA CANADA INC. Appellant

and

RAHUL SINGH Respondent

BEFORE: Delegate Jeffrey Rogers

REPRESENTATIVES: Ms. Leanne Zabudsky, solicitor for Aviva Mr. Jeffrey W. Strype, solicitor for Mr. Singh

HEARING DATE: Heard by written submissions, completed on February 5, 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:

1. The appeal is allowed.

2. Paragraph 1 of the Arbitrator’s order is rescinded and the following is substituted: When calculating Mr. Singh’s weekly IRB quantum pursuant to s. 7 of the Schedule, the proper deduction for his Long Term Disability benefit is the gross amount.

3. 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.

February 16, 2018

Jeffrey Rogers Director’s Delegate

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Aviva appeals the Arbitrator’s order of September 26, 2017. The Arbitrator ruled that Mr. Singh’s Long Term Disability Benefit (LTD) is “gross employment income” and not “other income replacement assistance” and should therefore be deducted from Income Replacement Benefits (IRBs) at 70% of the gross amount received. Aviva submits that the Arbitrator made three errors of law:

• Failing to address the issue that the parties agreed to be in dispute
• Ruling that the LTD is “gross employment income” when the parties made no submissions in that regard, and
• Finding that the LTD is “gross employment income”.

For the reasons that follow, I agree. I find that the LTD is “other income replacement” and that the gross amount is to be deducted from Mr. Singh’s IRB.

II. BACKGROUND

Mr. Singh was injured in a motor vehicle accident on July 30, 2013 and sought accident benefits from Aviva. He applied for arbitration after mediation did not resolve disputes regarding his entitlement to further claimed benefits. This appeal arises from the Arbitrator’s Decision on a Preliminary Issue. The Arbitrator described the issue as follows, as the parties had agreed:

When calculating the Applicant’s weekly IRB quantum pursuant to s. 7 of the Schedule, is the proper deduction for “other income replacement assistance” the gross amount of the Long Term Disability benefits, the net amount of the Long Term Disability benefits, or 70% of the other income replacement assistance?

I have added the emphasis to show that, in describing the issue, the parties characterized the LTD as “other income replacement assistance”.

The facts are not in dispute. The hearing proceeded by way of an Agreed Statement of Facts, oral submissions and written submissions. Mr. Singh had been employed as a paramedic since 2002, but he was on sick leave and receiving LTD at the time of the accident. He had been off work since August, 2012. The parties agreed that Mr. Singh’s entitlement to IRBs would be zero if his gross LTD were deductible, but it may be greater than zero if the deduction were net of taxes, CPP and/or EI premiums.

The parties made submissions on whether the deduction for LTD is gross or net. There is nothing in the record to show that they made submissions on whether the LTD is “gross employment income”. The Arbitrator concluded that the LTD is “gross employment income” and consequently, 70% of the gross amount received is to be deducted from the IRB.

III. ANALYSIS

The Arbitrator owed the parties a duty of procedural fairness. That duty includes being given the opportunity to present their cases fully and fairly, including being given an opportunity to address all outcomes the Arbitrator wished to consider. In Scarlett v Belair Insurance, the Divisional Court described the duty as follows:

The basic principle underlying the duty of procedural fairness is that parties affected by a decision should have the opportunity to present their case fully and fairly, and have decisions affecting their rights, interests or privileges made using a fair, impartial, and open process [see Baker v. Canada (Minister of Citizenship and Immigration), 1999 CanLII 699 (SCC), 1999 CarswellNat 1124]. In my view, this duty of procedural fairness would include providing interested parties a reasonable opportunity to address caselaw, statutory provisions, and lines of argument which the arbitrator wishes to consider but which were not raised at the arbitration.¹

The Arbitrator breached the duty of procedural fairness by deciding that the LTD is “gross employment income”, without submissions from the parties. I accept Mr. Singh’s submission that an arbitrator has jurisdiction to resolve this dispute as the Arbitrator did. But the Arbitrator lost jurisdiction by deciding the issue without hearing from the parties. This appeal must be allowed for that reason alone. However, I also conclude that the Arbitrator erred in finding that the LTD is “gross employment income”. The parties correctly characterized the LTD as “other income replacement assistance”.

In the decision, the Arbitrator sets out the definition of “gross employment income” in s. 4(1) of the Schedule² and notes that the definition includes “any other benefits received under the Employment Insurance Act… ” (EI). The Arbitrator then notes that the definition of “other income replacement assistance” excludes EI. Next, the Arbitrator turns to the definition of insurable earnings in the Employment Insurance Act and notes that the definition includes income that an insured person has from insurable employment. Then, the Arbitrator stated that “according to s. 4(1) of the Schedule, LTD is to be considered ‘gross employment income’.”³ The Arbitrator then concluded as follows:

all the insurable earnings are grouped under one category entitled “any other benefit received under the Employment Insurance Act (Canada)” which is a different category than “other income replacement assistance”.⁴

That conclusion led to the Arbitrator’s ruling that the deduction for LTD is pursuant to s. 7(3) of the Schedule, being 70% of the gross income received.

The Arbitrator’s analysis is flawed in two respects. First, it treats LTD as a benefit received under the Employment Insurance Act, which it is not. Second, it assumes that LTD is included in the definition of “gross employment income”, but it is not. I will address these in turn.

It seems patently obvious that Mr. Singh’s LTD is not received under the Employment Insurance Act. The Arbitrator referred to the details of the LTD plan in the decision, showing that the payments Mr. Singh received were pursuant to a private contract of insurance. The Arbitrator noted that the payments were pursuant to a plan, fully funded by Mr. Singh’s employer. The Arbitrator noted that she had a statement of payments from the carrier, Manulife Financial.⁵ The Arbitrator did not consider these facts in ruling that the LTD payments were received under the Employment Insurance Act. The Arbitrator also did not consider the definition of “benefits” as set out in s. 2(1) of the Employment Insurance Act: “benefits means unemployment benefits payable under Part I, VII.I or VIII but does not include employment benefits”. Mr. Singh’s LTD is patently not “payable under Part I, VII.I or VIII” of the Employment Insurance Act.

This error led to the Arbitrator’s conclusion that the definition of “gross employment income” in s. 4(1) includes LTD. The definition does include benefits received under the Employment Insurance Act. So, by the Arbitrator’s logic, since Mr. Singh’s LTD was a benefit under that Act, it must be “gross employment income”. It is not.

The definition of “other income replacement assistance” in s 4(1)(a) of the Schedule contains a description that precisely fits Mr. Singh’s circumstances. The definition includes “any gross weekly payment for loss of income that is received…under any income continuation benefit plan…” If that leaves any doubt that payments like Mr. Singh’s, under a sick leave plan, are to be considered “income continuation” the definition goes on to exclude “payment under a sick leave plan that is available to the person but is not being received”. As the Arbitrator described the facts, Mr. Singh’s LTD is payment being received under a sick leave plan. The parties correctly characterized the LTD as “other income replacement assistance”. I now turn to the question the parties asked the Arbitrator to answer: Is the deduction from IRBs the gross LTD, the net LTD, or 70% of the gross LTD?

The rules for determining the amount of IRBs payable are set out in s. 7 of the Schedule. Section 7(1) sets out basic entitlement. That amount is the lesser of $400 (or a higher optional amount purchased) and the ‘weekly base amount” under s. 7(2):

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.

Section 7(2) gives the formula for calculating the “weekly base amount”:

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.

2. To the amount determined under paragraph 1, add 70 per cent of the amount of the insured person’s weekly loss from self-employment that he or she incurs as a result of the accident.

Section 7(3) sets out deductions from IRBs payable. Deductions are allowed for post-accident “gross employment income” and “income from self-employment”. This deduction is 70% of the gross:

The insurer may deduct from the amount of an income replacement benefit payable to an insured person,

(a) 70 per cent of any gross employment income received by the insured person as a result of being employed after the accident and during the period in which he or she is eligible to receive an income replacement benefit; and

(b) 70 per cent of any income from self-employment earned by the insured person after the accident and during the period in which he or she is eligible to receive an income replacement benefit.

The only mention of a 70% deduction is found in s. 7(3). That excludes LTD as a candidate for a 70% deduction, since it is neither “gross employment income” nor “income from self-employment”. The rules for calculating IRBs only refer to “other income replacement assistance” as a deduction from the “weekly base amount”. Section 7(1) states: “the weekly base amount determined under subsection (2) less the total of all other income replacement assistance”. It would be arbitrary to impose a 70% deduction. So the question is narrowed to whether the deduction is gross or net.

The debate arises because s. 4(1)(a) defines “other income replacement assistance” as “the amount of any gross weekly payment for loss of income that is received by the person or available to the person…” There appears to be tension between the words “gross” and “received”, since the insured person does not actually receive the total amount of the LTD. However, when the words are considered in the context in which they are used, and within the context of the overall calculation of IRB, it becomes clear that “gross” prescribes the amount that is deductible and “received” describes one of the circumstances for deduction. The other circumstance is when the payment is “available”. The definition continues this theme by excluding the deductibility of “payment under a sick leave plan that is available to the person but is not being received…⁶”

There is abundant jurisprudence on the deductibility of LTD from IRBs, but the disputes have not been about whether the deduction is gross or net. The disputes have been about whether the particular LTD payments are income replacement assistance, or some other, non-deductible form of payments which are received during sickness or disability. The only decision to address the specific issue in this case is Cousins and TD General Insurance Company⁷ where the Arbitrator ruled that the deduction is the gross amount. I agree with the Arbitrator.

The Schedule contains no provision for calculating net income. All of the references in the definitions in s. 4 and in the calculations in s. 7 are to gross income. As the Arbitrator in Cousins noted, this is a marked departure from the approach of the Old Schedule⁸ which based the IRB calculation on net income. Sections 61 and 63 of the Old Schedule contained a precise formula for arriving at net income, including details of the permissible deductions and tax credits. Any net deduction approach under the current Schedule would require creating a new formula for what net is, or importing the formula that the Legislature chose to omit. In fact, if the operative term is “received”, that excludes the old formula and any net formula, because the amount received will vary according to the circumstances of each recipient. Conceivably, the amount received could be net not only of taxes, CPP and EI premiums, but also of garnishments, of charitable contributions, and of any other deductions the insured person might choose to authorize.

That would result in insured persons being able to artificially inflate the amount of their IRB and it would also result in differing treatment for insured persons who share the same circumstances. Under the Old Schedule, the Legislature avoided this inequity by defining net income. The current Schedule takes a different approach to the same issue by treating both the amount upon which entitlement is based and the deductions from it in the same way. Both are based upon gross amounts. Therefore, the answer to the question the parties asked is: When calculating Mr. Singh’s weekly IRB quantum pursuant to s. 7 of the Schedule, the proper deduction for his Long Term Disability benefit is the gross amount.

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.

February 16, 2018

Jeffrey Rogers Director’s Delegate

Footnotes

1. 12015 ONSC 3635, at paragraph 39
2. 2The Statutory Accident Benefits Schedule — Effective September 1, 2010, Ontario Regulation 34/10, as amended.
3. 3At page 7
4. 4At page 8
5. 5At page 2
6. 6Section 4(1)(a)(iii)
7. 7(FSCO A16-003358, July 10, 2017) (After the hearing Aviva also brought to my attention a similar decision by the Safety, Licensing Appeals and Standards Tribunals Ontario in GK and Unifund Assurance Company, File No. 17-001274AABS, December 7, 2017)
8. 8The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.