Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2018 ONFSCDRS 61

Appeal P17-00026

OFFICE OF THE DIRECTOR OF ARBITRATIONS

CHRISTINA PELLEGRINO

Appellant

and

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

Respondent

Before:

David Evans

Representatives:

Peter Murray for Ms. Christina Pellegrino

Danielle Koehn for Security National Insurance Co./Monnex Insurance Mgmt. Inc.

Hearing Date:

December 11, 2017

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 Arbitrator's Order of March 20, 2017 is confirmed and this appeal is dismissed.
If the parties are unable to agree about the legal expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

March 26, 2018

David Evans Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Ms. Christina Pellegrino appeals the Arbitrator's order dated March 20, 2017, that Canada Pension Plan (CPP) payments by an employer should not be included in calculating "gross employment income" for the purposes of income replacement benefits under the SABS–2010.¹

Ms. Pellegrino submits that her IRB would be greater if these CPP payments were included in her income, and that the law has changed since the appeal decision in Howden and Pafco Insurance Co., (FSCO P00-00028, June 22, 2001) excluded those payments.

However, although the SABS has changed since Howden, the principles expressed in it still apply, with the only difference being that the relevant provisions to consult are those in the Income Tax Act (Canada) and not in the SABS.

II. BACKGROUND

Ms. Pellegrino sustained injuries in a motor vehicle accident on August 28, 2015.

Following the accident, Security National calculated Ms. Pellegrino's IRB at $205.84 per week.

Ms. Pellegrino later contested this amount based on calculations completed by ADS Forensics Inc. that suggested an IRB of $212.11 per week. ADS's calculation included employer-paid CPP contributions in the calculation of gross employment income, leading to the larger IRB. Security National maintained that employer-paid CPP contributions could not be included in calculating gross employment income.

The only issue in dispute at the arbitration was the treatment of employer-paid CPP contributions. The basis of the IRB calculation is the insured's "gross employment income," defined in s. 4(1) of the SABS-2010 as follows:

"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.

That definition then forms the basis for the definitions of "gross annual employment income" in s. 4(2) (varies if the insured was self-employed or not) and "gross weekly employment income" in s. 4(1) (the former divided by 52). In turn, pursuant to s. 7, for an employed person with no income replacement assistance, the IRB payable is the lesser of the weekly base amount (70 per cent of the gross weekly employment income) and $400.²

The Arbitrator noted that, in Howden and Pafco Insurance Co., (FSCO P00-00028, June 22, 2001), Director's Delegate Susan Naylor dealt with the meaning of "gross income from employment," a term not defined in the old SABS.³ In a wide-ranging decision dealing with a number of issues, she found that, based on specific provisions in the old SABS, employer-paid CPP contributions should not be included in gross employment income.

The Arbitrator noted that Ms. Pellegrino submitted that the bar in the old SABS to including employer-paid CPP contributions in gross employment income no longer exists in the new one. Accordingly, Howden is no longer applicable and, based on general accounting principles, employer-paid CPP contributions should be included in gross income.

Somewhat confusingly, while the Arbitrator did find that Howden no longer applies, he still found that employer-paid CPP contributions are not included in gross income. He rejected Ms. Pellegrino's submission that the intention of the legislature was to blend the new SABS with tort damages, that contra proferentem applies, or that general policy reasons supported her position. He preferred the Insurer's submission that the old SABS did not define "gross income from employment" and had a different formula for determining "net weekly income." He found that the new SABS formula for weekly IRBs is very different and is based on a determination of "gross employment income." After noting that counsel for Ms. Pellegrino relied on the words "other remuneration from employment" to support inclusion of employer CPP contributions in "gross employment income," he wrote as follows regarding the definition:

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.

III. ANALYSIS

On a preliminary point, Security National submits that I owe deference to the Arbitrator in his interpretation of the law. I do not. As the Court of Appeal stated at para. 28 of Pastore v. Aviva Canada Inc., 2012 ONCA 642, the Director's Delegate determines whether the arbitrator's decisions of law, including statutory interpretation, are correct.

As to general principles of statutory interpretation, Security National submits at para. 33 of its written submissions that excluding employer-paid CPP contributions from income

conforms to the public policy goals underlying the SABS-2010. One of these goals is the stabilization of costs in the insurance industry. To include employer paid CPP contributions in the calculation of income replacement benefits would fly directly in the face of the structural changes implemented in the SABS-2010 which aimed to stabilize costs. In enacting the SABS-2010, the provincial government clearly intended income replacement benefits to be part of the stabilization of costs. Despite a recommendation in the FSCO Five Year Review of Automobile Insurance to increase the maximum income replacement benefit to $500 per week,⁴ the provincial government chose to leave the income replacement benefit at the 1996 rate of $400, demonstrating legislative intent to restrict the quantum of income replacement benefits.

Indeed, to Security National's point, when the first SABS came out in June 1990, the minimum wage was $5⁵ and the maximum IRB was $600. The minimum wage has now tripled, but the maximum IRB is now only $400 and, further, has lost a third of its value since 1996.⁶ I therefore agree with Security National that there is a demonstrated legislative intent to restrict the quantum of IRBs. However, as Arbitrator Naylor noted at para. 21 in Howden, that very fact limits the effect of the inclusion of such benefits – especially since even tacking on the employer's CPP contribution to the gross weekly salary would have no effect most of the time.⁷ Therefore, I do not accept Security National's submission as a means of legislative interpretation.

As to the Arbitrator's interpretation of the definition of "gross employment income," he turned gross pay into net, as shown by his statement that: "There is a clear indication of take home 'weekly' pay in the IRBs." However, take-home weekly pay also excludes employee-paid CPP payments and the amounts deducted for income tax.⁸ Since the 2010 SABS determine IRBs on gross pay before such deductions, this analysis is incorrect.

Further, the verb "received" in the definition is not associated with salary, wages and other remuneration from employment, including fees and other remuneration for holding office. Rather, it only appears in the phrases dealing with employment insurance – "any benefits received under the Employment Insurance Act (Canada)" – and retiring allowances and severance pay – "but excludes any retiring allowance within the meaning of the Income Tax Act (Canada) and severance pay that may be received." Accordingly, neither the Arbitrator's analysis of "received" nor his application of the ejusdem generis rule that relied upon that analysis were correct.

I find the Arbitrator also erred in distinguishing Howden because IRBs were determined based on net income. However, Howden is still relevant because the starting point was gross employment income, just as in the new SABS. As Delegate Naylor noted at para. 11⁹:

Although SABS-1996 is significantly different than its predecessor,¹⁰ the formula for calculating net weekly income remains the same. Under both, the benefit amount depends on "gross income from employment" for set periods. This was also the case under the original 1990 version of SABS¹¹ but the benefit was based on gross, not net weekly income.

Whether worded as gross income from employment or gross employment income, the fundamental issue is identical: Are employer contributions under the CPP to be included in gross income? The only difference is that, rather than looking for the answer in the SABS, you look to the Income Tax Act (Canada), as I discussed in Perth Insurance Company and Surani, (FSCO P16-00022, August 18, 2017). That is, where once the SABS often mirrored provisions in the Income Tax Act, now you turn to the ITA itself.

This is why I agree with the Arbitrator in his conclusion and disagree with ADS Forensics Inc., Ms. Pellegrino's accountants, because I find the fundamental reason Delegate Naylor excluded the employer-paid CPP benefits from gross income still applies. First, here is the position taken by ADS as cited by the Arbitrator in his decision:

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.

However, ADS's analysis misses the point of Howden by not considering whether the Howden principles still apply in light of the ITA. To put the matter in context, s. 61(1) of the old SABS set out the formula for calculating net weekly income by deducting, for instance, employee-paid CPP contributions from gross income. Delegate Naylor dealt with employer-paid contributions under the heading 4. CPP Contributions at paras. 37-42. First, she noted that the employer made statutory remittances to the CPP, under which both employees and employers have separate obligations to contribute, with the employer matching the employee's contribution. As did the Arbitrator in this case, she then rejected the idea that, although in some contexts the employer contribution might be recognized as part of an overall compensation package, this is a statutory benefit context.

Delegate Naylor's key finding was at para. 39:

The formula in section 61(1) provides for the deduction from gross annual income of "the annual contribution payable by the person under the Canada Pension Plan (Canada) on the gross annual income from employment." Ms. Howden states that the deduction does not apply to the employer's share of premiums. However, since the employer matches the contribution paid by the employee, to include one and deduct the other results in a zero sum. The one cancels out the other. In other words, the exercise is essentially pointless. I do not believe this could have been the drafters' intent. It is presumed that statutory words are not meaningless and serve a purpose. [Footnote omitted.]

In light of my decision in Surani, I wrote to the parties before the appeal hearing as follows:

Where does it say in the Income Tax Act that employer-paid CPP payments are added to the employee's gross income?

My T4s show the CPP payments I made, and I can deduct those from my gross income. If the employer-paid CPP payments are added to gross income, then the same logic as in Howden applies, I suggest, and deducting only the employee-paid CPP payments nets me out at zero, which Howden says is illogical.

Indeed, although s. 6 of the ITA lists amounts to be included as income from office or employment, employer-paid CPP payments are not among them. The logic of Howden is therefore identical. If employer-paid CPP payments were included in income, but taxpayers could only deduct the CPP payments they made, they net out at zero, which is illogical.

Rather, the deductions for CPP payments go to those who make the payments. Thus, if a taxpayer has to hire someone as an assistant or substitute to perform their duties, and pays the employer's contribution under the CPP, they get the deduction from their income: see s. 8(1)(l.1)(ii), ITA. The conclusion is that the ITA sees employer-paid CPP contribution as part of the employer's income and not the employee's.

I do agree with the Arbitrator's conclusion, which was the same as Delegate Naylor's in Howden, that accident benefits arise in a particular context, so whether or not employer-paid CPP contributions are included in the employee's income for other purposes is not relevant.

I also agree with another point the Arbitrator made, namely that there is no presumption that an amendment to a law or regulation implies that the previous state of the law was different: Legislation Act, 2006, S.O. 2006, C. 21, Sched. F, s. 56(2). Accordingly, there is no presumption that the amendments since Howden means that the current law varies from the previous law.

In conclusion, I find that the Arbitrator's conclusion was correct: Employer-paid CPP contributions are not included in gross employment income.

Therefore, the appeal is dismissed and the Arbitrator's decision is affirmed.

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.