Mike Fiorentino v. State Farm Mutual Automobile Insurance Company, 2020 ONFSCDRS 4

Dispute Resolution Services

Services de règlement des différends

Neutral Citation: 2020 ONFSCDRS 4

A13-005592

BETWEEN:

MIKE FIORENTINO

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

REASONS FOR DECISION

*Minor error on page 2 and Order corrected on April 30, 2020. Under “Appearances” in accordance with the Dispute Resolution Practice Code and section 21.1 of the Statutory Powers Procedure Act.

Decision Rendered by: Edward Lee

Heard: May 30, 2017 and July 12, 2017 before Arbitrator Idemudia.

Submissions April 16, 2018, May 4, 2018, May 18, 2018, October 1, 2019, and November 30, 2019

Appearances: R. Matthew Barteaux and Daniel D’Urzo for Mr. Fiorentino

Hermina Nuric for State Farm Mutual Automobile Insurance Company

The Applicant, Mike Fiorentino, was injured in a motor vehicle accident on July 10, 2008. He applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ Disputes arose which the parties were unable to resolve through mediation, and Mr. Fiorentino applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

Issues:

Is Mr. Fiorentino entitled to interest for the overdue payment of benefits?
Should the surveillance report of Prolific Investigations Inc. be excluded from the evidence to be considered at this arbitration?
Is Mr. Fiorentino entitled to a special award?
Is State Farm liable to pay Mr. Fiorentino’s expenses in respect of the arbitration?
Is Mr. Fiorentino liable to pay State Farm’s expenses in respect of the arbitration?

Result:

Mr. Fiorentino is entitled to interest for the overdue payment of benefits at the rate of 2% per month compounded monthly from May 2, 2012 to January 31, 2017.
The surveillance report of Prolific Investigations Inc. is not excluded from the evidence to be considered at the arbitration.
Mr. Fiorentino is entitled to a special award of $36,280.00.
State Farm is liable to pay Mr. Fiorentino’s expenses in respect of this arbitration.

NATURE OF THIS PROCEEDING:

The arbitration hearing in this matter was conducted by Arbitrator Idemudia (“the Arbitrator”) on May 30, 2017 and July 12, 2017. At her direction, written closing submissions were filed by the parties. The hearing was thus completed, but the Arbitrator left the Financial Services Commission of Ontario before issuing a decision in this matter.

The parties were then contacted and informed of various options for this proceeding. They agreed to have the decision rendered by a different arbitrator, based upon the evidence before Arbitrator Idemudia, the rulings she made at the hearing, the transcript of the proceeding, and the written submissions of the parties.

This matter was then assigned to me in the late summer of 2019, and I confirmed receipt of all the relevant documentation in this proceeding.² Further submissions were provided to me in late 2019.

AGREEMENT AS TO FACTS:

The parties agreed to a statement of facts, provided in the applicant’s written submissions.³ Rather than repeat all those facts, I will briefly set out those that are relevant to each issue as addressed.

Mr. Fiorentino received income replacement benefits (“IRBs”) from State Farm, commencing one week after his accident to May 2, 2012. This benefit was terminated by State Farm on April 25, 2012, and Mr. Fiorentino applied for mediation and then arbitration at FSCO.

An arbitration hearing was scheduled, but prior to its commencement, State Farm conceded the issue of IRBs, paid Mr. Fiorentino IRBs retroactively from May 12, 2012 to January 11, 2017,⁴ and reinstated Mr. Fiorentino’s IRBs. The applicant continues to receive IRBs at this time.

Nonetheless, State Farm did not agree to pay interest on the IRBs, and this is the first issue to be addressed in this decision.

EVIDENCE AND ANALYSIS:

Is Mr. Fiorentino entitled to interest for the overdue payment of IRBs, and if so, when did that interest begin to accrue?

(a) Arguments of the parties:

Mr. Fiorentino argues that the SABs provide that the insurer shall pay interest on any overdue amounts of benefits. As State Farm conceded the issue of IRBs on the eve of the arbitration hearing and paid IRBs retroactively back to May 12, 2012, interest on the IRBs began to accrue on May 12, 2012 when the benefit was first overdue.

In contrast, State Farm argues that interest accrues from the date the insurer has sufficient information to be able to assess whether the benefit should have been paid.⁵ In its submissions, State Farm argues it could not have known that Mr. Fiorentino’s condition had deteriorated to the point that he met the test for entitlement to IRBs until State Farm received updated information in 2015.⁶

For the following reasons, I accept Mr. Fiorentino’s arguments and reject those of State Farm.

(b) Analysis:

The relevant provisions of the SABs are as follows:

51(1) An amount payable in respect of a benefit is overdue if the insurer fails to pay the benefit within the time required under this Regulation. O. Reg. 34/10, s. 51 (1).

51(2) If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount in accordance with this section for each day the amount is overdue. O. Reg. 236/14, s. 1. [Underlining mine]

These provisions are substantially unchanged from the provisions as they were at the time of the applicant’s accident.⁷

Further, the issues of which party bears the burden of paying interest on a benefit, and when that interest commences to accrue, are largely matters of settled law.

The Court of Appeal addressed this question directly in Attavar v. Allstate Insurance Company of Canada,⁸ when it determined a trial judge had made no error in ruling that interest accrued from the time the Applicant made his application, rather than from the date the judge issued his decision.

The Court cited and approved the trial judge’s ruling, which including the following statement:

42The trial judge ordered Allstate to pay interest under this section, 14 days after it had received Ms. Attavar's application for an LECB. He concluded at para. 4 of his supplementary endorsement dated March 8, 2001, that the insurer must bear the consequences of its decision not to pay benefits later found to be owing:

In reviewing the case law which is that of various arbitration awards, it is clear that the precedents establish that failing unusual circumstances brought on by the complexity of the action and/or the applicant's own behaviour "it is the insurer not the insured who must bear the consequences of a decision not to pay benefits that are found later to be owing", Canadian Surety Company v. Sebastian [infra] decision of Susan Naylor, Director’s Delegate. In this case [page 211] there are no unusual circumstances and consequently, I agree with the policy established by the Director's Delegate requiring that interest be paid in accordance with the calculations contained in Attachment A. [Underlining mine]

The Court of Appeal then went on to endorse other decisions of various Director’s Delegates from FSCO:⁹

49Although the amount of interest provided for in s. 68 is above the bank rate, I, like several arbitrators, regard s. 68 as compensatory, not punitive. The provision is designed to compensate insureds for the time value of money and to encourage insurers to pay accident benefits promptly. Without a provision like s. 68, insurers would have an incentive to delay paying benefits properly owing, thus forcing insureds to litigate their claims. I agree with the comments of Arbitrator McMahon in Urquhart v. Zurich Insurance Co., [1998] O.I.C.D. No. 34 at para. 14:

In addition to the specific intent of compensating the insured for the delay in obtaining the benefit, it cannot be ignored that the interest provisions are part of a larger scheme designed to encourage Insurers to pay benefits in a prompt fashion. In many cases insured persons are not in a position to pay for supplementary treatments or services out of their own resources.

And, with the similar comments of the Director's Delegate Naylor in Sebastian v. Canadian Surety Co., [1998] O.F.S.C.I.D. No. 130 (O.F.S.C.) at para. 31:

Canadian Surety characterised the interest rate as punitive, designed to punish insurers for reprehensible behaviour. In my view, the interest component in the benefits scheme should be seen as remedial. It is designed not only to compensate applicants for the value of money withheld but to further the system's fundamental goal of ensuring prompt payment of benefits for an injured person's medical and vocational rehabilitation, their care or their day-to-day financial support.

The binding decision of the Court of Appeal is clear and unambiguous. It is the insurer which bears the consequence of a decision not to pay benefits that are later found to be owing. The interest provisions are designed not only to compensate the insured for the value of money withheld, but to further the goal of ensuring prompt payment of benefits to insureds.

In the present case, State Farm argues that the ruling in the Superior Court decision of Mulhall v. Wawanesa¹⁰ could limit or delay the imposition of any interest State Farm might have to pay on overdue benefits, but I find State Farm has simply misread and misapplied the reasoning in Mulhall.

Mulhall was a decision of the Superior Court, where the applicant was injured in an accident on March 21, 2001. Following his discharge from the hospital, the applicant’s parents provided him with 24-hour attendant care. No attendant care claim was made by the applicant until he submitted a Form 1 on December 7, 2006. That Form 1 only referenced prospective attendant care needs commencing December 6, 2006 and did not claim retrospective attendant care dating from the early period following his accident in 2001.

It was not until August 2015 that the applicant submitted another Form 1 claiming and detailing his past attendant care needs from 2001 to 2006. The insurer argued that interest could not begin to accrue on these attendant care benefits until August 2015, when the Form 1 was submitted.

The judge in Mulhall reviewed the arbitration and court decisions regarding interest and accepted the following principles.

20A review of arbitration and court decisions reveals that these provisions have been interpreted with consistency. Interest is compensatory and not punitive; it is designed to compensate the insured for the time value of money and to encourage insurers to pay accident benefits promptly; no finding of fault against an insurer is required.⁹ [underlining mine]

He also made this ruling on which State Farm now relies:

37Following these underlying principles, I find that interest in this case should begin to accrue from the date that the insurer had sufficient information to be able to assess whether the benefit should have been paid regardless of whether or not the plaintiff or his parents specifically applied for attendant care expenses. [underlining mine]

Ultimately, the judge determined that although the insured had not even applied for attendant care until 2015, interest would accrue from 2001:

45I have no doubt that the insurer in this case had ample information, as in T.N., to begin to address the issue of attendant care benefits especially in light of the fact that in this case, as in the T.N. case, the applicant had been catastrophically impaired as a result of the accident. Clearly the defendant insurer contemplated that the defendant might require attendant care. [underlining mine]¹¹

Thus, the judge concluded the insurer only needed information to “… begin to address the issue of attendant care,” and an insurer has to “… [contemplate] that the defendant might require attendant care.”

In determining the insurer was obliged to pay interest which began to accrue in 2001 even before the claim was made in 2015, the Muhall judge also cited and approved another arbitral ruling where “… the arbitrator determined that the onus is on the insurer to identify which benefits to which the claimant is entitled even in circumstances where the claimant may never assert a claim for that benefit.”¹² [italics mine]

Thus, Mulhall is entirely consistent with the principles that it is the insurer which bears the consequence of a decision not to pay benefits, and that insurers are to be encouraged to pay benefits in a prompt fashion.¹³

Therefore, I reject State Farm’s argument that Mulhall somehow stands for the proposition that an insurer can unilaterally determine when interest accrues based on its own assessment as to whether an insured is entitled to a benefit. That is simply a misreading of all the decisions, including Mulhall.

Indeed, Mulhall and the line of jurisprudence it follows, demonstrate that it is the judge or arbitrator, not the insurer, who may, after a review of the history of the case, determine when interest begins to accrue. That starting point is not when the insurer believes it has “sufficient information” (which in Mulhall might have been in August 2015), but is when a judge determines an insurer had “sufficient information.”

Further, as confirmed in Attavar, the jurisprudence establishes “… that failing unusual circumstances brought on by the complexity of the action and/or the applicant's own behaviour ‘[it is] the insurer not the insured who must bear the consequences of a decision not to pay benefits that are found later to be owing.’”¹⁴

In the instant case, there has been no suggestion whatsoever by State Farm that the complexity of this action or the applicant’s own behaviour brought about unusual circumstances.

Finally, I also reject the argument in paragraphs 13 and following of State Farm’s submissions that an insurer’s knowledge or recognition of when a benefit is payable is relevant. As set out in the jurisprudence, the interest provisions in the SABs are compensatory and designed to ensure prompt payment to the insured. In this case, State Farm conceded the issue of IRBs before the arbitration hearing, and paid all overdue IRBs dating back to May 2, 2012, thereby implicitly recognizing that the IRBs had been overdue since that date. The jurisprudence set out in Attavar and the decisions of the Delegates apply to the instant case.

Therefore, I find that interest on the IRBs began to accrue when the benefit was overdue. That date is May 2, 2012, when the IRBs were initially terminated by the insurer.

Should the surveillance report of Prolific Investigations Inc. be excluded from the evidence to be considered at this arbitration?

Mr. Fiorentino argued the surveillance report of Prolific Investigations Inc.¹⁵ should be excluded from the evidence for the following reasons.

First, the report has no bearing on any issue in dispute as it does not speak to whether the applicant is entitled to interest, and does not speak to whether the decision to terminate the applicant’s benefits in 2012 was reasonable at the time, given that the surveillance took place after the benefits were terminated.

Second, the author of the report was not a witness and the contents of the report were not tested by cross-examination. Further, Mr. Fiorentino did not testify and did not have the opportunity to respond to the contents of the report.

Third, even if the report did speak to the matters at issue in the arbitration, its prejudicial value outweighs any probative value it may have, in terms of dealing with the issues in the arbitration.¹⁶

I will consider each of these arguments in turn.

First, I am not convinced that the contents of this surveillance report are irrelevant to the issues at this arbitration merely because the report was created after the decision to terminate the applicant’s IRBs in 2012.

In fact, Mr. Fiorentino claims he is entitled to a special award (another issue at this arbitration), but nothing in section 281.1(10) of the Insurance Act suggests an arbitrator (when considering such an award) is limited to examining evidence created solely at the moment of the termination of the benefit. Instead, section 281.1(10) requires the arbitrator to consider whether the insurer has “unreasonably withheld or delayed payments, …”¹⁷

Therefore, any evidence obtained during the entire period when that payment was “withheld” or “delayed” may be relevant. In the present case, the IRBs were terminated in 2012 and payment was withheld or delayed until April 2016. The surveillance was conducted in the fall of 2013 and following. This report could certainly be relevant in examining the period of the withholding or delaying of the payment,¹⁸ and I thus reject Mr. Fiorentino’s argument based on relevance.

Mr. Fiorentino’s second argument is founded on principles of natural justice, but I find it also fails.

First, he argued that the maker of the report was not a witness at the hearing and the report was not tested by cross-examination. Although the principles of natural justice grant a party the right to test and question any evidence presented, the transcript of the proceeding demonstrates that Mr. Fiorentino did not insist on this right at the arbitration hearing. In particular, I refer to the discussions between the parties and the arbitrator at pages 9 and 10 of Volume I of the July 12, 2017 sitting. At lines 7-13, the applicant makes his objection based on the lack of opportunity to cross-examine report’s maker. At lines 22-25, State Farm responded that it could easily call the investigator to testify or call the applicant to testify to rectify these issues. The applicant’s response is telling: “Even if you called the investigator, I would object to it going in.”¹⁹

Based on these discussions, I find State Farm would have brought the investigator in to testify and be cross-examined, had Mr. Fiorentino insisted. Mr. Fiorentino waived this right, and having done so, may not now have the report excluded for the reasons mentioned above.

Further, I find Mr. Fiorentino could have, at any time, testified in regard to the contents of the report, had he so chosen. That decision not to testify was his, and I find no violation of any principle of natural justice as a result. Therefore, I reject this second argument.

Mr. Fiorentino’s third argument is that the “prejudicial value [of the surveillance report] outweighs any probative value it may have, in terms of dealing with the issues in the arbitration.”²⁰

The applicant made this argument at page 15 of the transcript of Volume I of the July 12, 2017 sitting:

They want to put it in because presumably, there’s some things that paint Mr. Fiorentino in a negative light. We disagree that they do and we disagree that some of the things that are reported are accurate, factually accurate.

Nothing in the submissions expounds on what was so “prejudicial” about the surveillance evidence. An arbitration is an adversarial proceeding and every piece of evidence presented by one party is likely to be “prejudicial” to the other. Simply describing evidence as “prejudicial” or painting a party in a “negative light” is insufficient to lead me to exclude it.

Therefore, I find no reason to exclude the surveillance report of Prolific Investigations Inc.

Is Mr. Fiorentino entitled to a special award?

The special award is defined at section 281.1(10) of the Insurance Act.

281.1(10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule. R.S.O. 1990, c. I.8, s. 282 (10); 1993, c. 10, s. 1.

As mentioned, State Farm initially paid IRBs to the 104-week mark. After the first 104 weeks, the disability test changes and an insurer is not required to pay IRBs “… unless as a result of the accident, the insured person is suffering from a complete inability to engage in any employment or self-employment for which he is or she is reasonably suited by education, training or experience.” [Underlining mine]

When State Farm terminated IRBs in 2012, it possessed medical reports from its own experts, including those of Dr. Zakzanis,²¹ Dr. Prior,²² and Dr. Spivak,²³ as well as a Transferable Skills Analysis obtained from its own assessor, Julia Chladny.²⁴ State Farm also had a vocational assessment prepared by Mr. Fred Winch, which was submitted by the applicant.

Mr. Fiorentino argues that State Farm was unreasonable in selecting and relying upon the reports of its own assessors, and inexplicably rejecting others.²⁵

This argument is based upon a statement in each of three addendum medical reports provided by the aforementioned doctors:

… I am of the opinion that Mr. Fiorentino still does not suffer from a complete inability to engage in any employment or self-employment for which he is reasonably suited by education, training or experience as a result of the MVA and could engage in the noted job options. With this said, I must remark that the various potential job options listed on the Labour market survey, Vocational and transferable skills analysis do not provide the claimant with the same financial remunerations as he previously made prior to the MVA.²⁶ [Underling mine]

Each of those reports (from State Farm’s own medical assessors) recognized that the job options identified by State Farm’s vocational assessor did not provide the applicant with the same financial remuneration he received before the accident. In addition, the Transferable Skills Analysis contained the following observation in its listing of the possible occupations for the applicant:

#Occupations Wage information is not at the same rate as the claimant pre-MVA employment as an Electrical apprentice.²⁷

Thus, State Farm’s own experts noted the deficiency in wages for the job options it considered reasonably suitable by education, experience, and training.

Nevertheless, State Farm argues that remuneration is but one factor to be considered in determining whether an employment is reasonably suitable, and relies on the following dicta from the Wigle decision: “ … the fact that income from an alternative occupation may be less than that from a person’s former employment does not rule out the work, although it may be a consideration.”²⁸

A more full and accurate summary of the jurisprudence in this area is set out in the same decision at page 9:

A person is not considered to be totally disabled from engaging in “any” occupation if his condition would enable him to enter into an occupation reasonably comparable to his old occupation in status and reward, and reasonably suited in work activity in light of his education, training and experience.²⁹

The decision also holds the following:

Here, the arbitrator explicitly recognised that the nature, status and remuneration of the alternative employment must be taken into account, and that if any of these differed in a substantial respect from the person’s pre-accident position, the work might well be unsuitable.³⁰

Thus, all three factors, nature, status and renumeration, must be considered. The Wigle case only holds that an alternative employment is not necessarily ruled out if the income associated is less than the income from the former employment. In the present case, Mr. Fiorentino had previously worked as an electrician’s apprentice and was already studying to become an electrician at Humber College. I find State Farm’s adjusters made no consideration of whether the alternative jobs were suitable as to nature and status.

More importantly, State Farm ignored the conclusions of its own experts that the suggested occupations provided less remuneration than the applicant’s pre-accident employment. Nor do I accept State Farm’s argument that the remuneration was similar enough. A closer reading of the report shows that only 80% of the job seekers find salaries that fall within the range set out in the table, and there is no indication of where those jobs seekers may fall.³¹

Instead, the testimony of Mr. Balardo, a State Farm adjuster, confirmed that State Farm did not ask for further clarification from its three medical assessors who all opined that the job options did not provide Mr. Fiorentino the same remuneration he received from his pre-accident employment. Nor did State Farm request further clarification from its vocational assessor who made a similar observation.³²

In addition, there is no evidence that State Farm’s adjusters did anything with the vocational report of Mr. Fred Winch, which concluded that the job options identified for the applicant were not suitable.³³

I find State Farm did not critically analyze, assess, or evaluate any of these reports. It simply ignored the deficiencies identified by its own assessors, and ignored the Winch report. These actions amounted to “excessive, imprudent, inflexible, stubborn, unyielding, or immoderate behaviour.”³⁴

Further, Stare Farm did not “look into things further” until it received the reports of Dr. Theodropoulos and Dr. Salmon³⁵ in 2015 and did not reinstate the IRBs until receiving the August 2016 report of Dr. Zakzanis.³⁶

Finally, State Farm’s only comments about the surveillance evidence are found at paragraphs 76 to 78 of their written arguments.

State Farm’s convoluted argument seems to be that despite having surveillance evidence showing the applicant mowing his lawn in 2015, State Farm still reinstated his IRBs in 2016. According to State Farm, this somehow demonstrated the file was adjusted in “good faith and a special award is not warranted.”³⁷

I find little of merit in this argument. First, an insurer may act in good faith, but still be liable to pay a special award. Second, State Farm did not direct me to any evidence in regard to how their adjusters interpreted or viewed the surveillance in this file. In fact, surveillance was conducted as early as 2013 and the IRBs were not reinstated until August 2016. Third, State Farm reinstated the IRBs following the receipt by of the later neuropsychological report of Dr. Zakzanis.³⁸

Thus I find State Farm’s argument about the usage of the surveillance evidence is not only speculation but also irrelevant.

Therefore, I find State Farm unreasonably delayed or withheld the payment of IRBs to Mr. Fiorentino, and he is entitled to a special award.

What is the Quantum of the Special Award?

I directed the parties to provide written submissions in regard to the quantum of the special award. The total amount paid to the applicant for IRBs for the period from May 2, 2017 to January 11, 2017 was $98,000.00. This amount was paid on or about January 31, 2017. The total interest owed on the amount for that period is calculated to be $83,600.57. The sum of the two values is $181,400.00.³⁹

Bearing in mind the criterion and limits set out in the decision of Persofsky v. Liberty Mutual Insurance Company⁴⁰ and the behaviour and actions undertaken by State Farm (as set out in my conclusions in the previous section), I find it appropriate to make a special award in the amount of 20% of $181,400.00. The special award is fixed at $36,280.00.

EXPENSES:

I also directed the parties to provide submissions on expenses.

The criteria for determining an award of expenses are found at Rule 75.2 of the Dispute Resolution Practice Code.

I find criterion 75.2(a), “each party’s degree of success in the outcome of the proceeding;” to be the most relevant factor in this case.

The applicant was successful on all issues apart from the preliminary question regarding the admissibility of the surveillance evidence. Although State Farm was successful on that issue, the surveillance was largely irrelevant to any determinations I made in this proceeding. I find Mr. Fiorentino is entitled to his expenses.

Mr. Fiorentino submitted a Bill of Costs of $20,207.74 for legal fees and $5,676.36 for disbursements. The jurisprudence has held that a line-by-line assessment of expenses is neither appropriate nor desirable. A global assessment of reasonable expenses should be made.⁴¹

Bearing in mind the length of this proceeding, the evidence contested at the hearing, and the overall complexity of the issues in dispute and the arguments made, I find it reasonable to award the applicant $25,000.00 for expenses of this proceeding, inclusive of legal fees, disbursements, and HST.

February 27, 2020

Edward Lee Arbitrator

Date

ARBITRATION ORDER