Citation: Schuknecht v. Economical Insurance Company, 2022 ONLAT 19-013098/AABS

Licence Appeal Tribunal File Number: 19-013098/AABS

In the matter of an application pursuant to subsection 280(2) of the Insurance Act, RSO 1990, c I.8, in relation to statutory accident benefits.

Between:

Denise Schuknecht

Applicant

and

Economical Insurance Company

Respondent

DECISION

VICE-CHAIR:

Ian Maedel

APPEARANCES:

For the Applicant:

Gordon Harris, Counsel

For the Respondent:

Hermina Nuric, Counsel

HEARD:

By Way of Written Submissions

1The applicant was involved in an automobile accident on September 25, 2014 and sought benefits pursuant to the Statutory Accident Benefits Schedule Effective September 1, 2010 (including amendments effective June 1, 2016)("Schedule"). The applicant was denied an income replacement benefit ("IRB") by the respondent and submitted an application to the Licence Appeal Tribunal - Automobile Accident Benefits Service ("Tribunal").

2The respondent accepted the applicant was catastrophically impaired in December 2018. At the time of the accident she was 49 years old and was employed by Sun Life Financial.

3A case conference was conducted on July 9, 2020 and this matter was scheduled for a written hearing.

4Neither party disputes that the applicant is eligible for IRB. However, the parties disagree on the quantum of the benefit.

5Initially the insurer paid a weekly IRB in the amount of $400.00 based on the initial Employers Confirmation Form ("OCF-2") dated November 4, 2014. The applicant received Short Term Disability ("STD") collateral benefits from October 10, 2014 to March 26, 2015. She returned to work between February 9, 2015 and October 30, 2015. She has not returned to work since. She has been in receipt of Long Term Disability ("LTD") benefits since March 27, 2015. She also qualified for CPP-Disability ("CCP-D") benefits on April 9, 2019, retroactively effective to October 2017. These benefits are all taxable and offset the standard weekly IRB payment, as per ss. 4(1)(a) and (b) of the Schedule.

ISSUES

6The following issues are in dispute:

i. What is the quantum of IRB owed per week from October 2, 2014 to date and ongoing?¹

ii. Is the applicant liable to repay the respondent for IRB she received in the amount of $4,872.90?

iii. Is the applicant entitled to interest on any overdue payment of benefits?

RESULT

7The applicant is entitled to an income replacement benefit from October 2, 2014 to date and ongoing, minus any deductions for collateral benefits, as calculated in the DM accounting reports provided by the respondent, up to the age of 65.

8The applicant shall repay the respondent for an income replacement benefit received in the amount of $4,872.90, plus interest at the bank rate as per s. 52(5) of the Schedule.

9The respondent shall pay an income replacement benefit of $122.00 per week, after the applicant reaches age 65, as per s. 8 of the Schedule, as per the calculations set out in the RSM Accounting Report dated July 9, 2020.

10Is the applicant is entitled to interest on any overdue payments of IRB pursuant to s. 51 of the Schedule.

ANALYSIS

Legislation

11Section 4 of the Schedule applies to the calculation of the IRB benefit:

4(1) In this Part,

"gross employment income" means salary, wages and other remuneration from employment, including fees 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;

"gross weekly employment income" means, in respect of an insured person, the amount of the person's gross annual employment income, as determined under subsection (2), divided by 52.

"other income replacement assistance" means, in respect of an insured person who sustains an impairment as a result of the 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 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.

(2) The gross annual employment income of an insured person is determined as follows:

In the case of a person referred to in subparagraph 1 i of section 5 who was not a self-employed person at any time during the four weeks before the accident, the person's gross annual employment income is whichever the following amounts the person designates:

i. The person's gross employment income for the four weeks before the accident, multiplied by 13...

12Section 8 of the Schedule addresses adjustment of the benefit after age 65:

8(1) If a person is receiving an income replacement benefit immediately before his or her 65th birthday, the weekly amount is adjusted, on the later of the day of the person's 65th birthday and the second anniversary of the day the person began receiving the benefit, to the amount determined in accordance with the following formula...

13Section 52 of the Schedule addresses repayments to the insurer:

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

a) any benefit described in this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of wilful misrepresentation or fraud...

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.

(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 the 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.

(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....

(5) The insurer may charge interest on the outstanding balance of the amount to be repaid for the period starting on the 15th day after the notice is given under subsection (2) and ending on the day the repayment is received in full, calculated at the bank rate in effect on the 15th day after the notice under subsection (2) is given.

Quantum of IRB

14Together the parties have provided seven accounting reports to establish the quantum of the IRB in dispute. The applicant relies on reports by Collins Barrow ("CB") (later RSM Canada Consulting, or "RSM") and the respondent relies on reports from Davis Martindale ("DM"). After having reviewed both sets of reports, I find the DM reports more reliable, and therefore place weight upon their findings (with the exception of calculations related to post-65 IRB).

15In the initial Income Replacement Report provided by CB dated September 25, 2017, Ian Wollach, the author of the report indicates that he was instructed by applicant counsel to interpret the meaning of "received" in s. 4(1) as a net calculation, rather than gross. He further indicated to Mr. Wollach that a previous FSCO case, Cousins v. TD General² was wrongly decided, not binding, contrary to other caselaw including Anand and Belanger³, and contrary to the consumer protection mandate of the Schedule. This interpretation of s. 4(1) of the Schedule is incorrect at law, and will be addressed in this decision, however, I found it unnecessary that counsel would directly intervene to instruct the applicant's expert to interpret the Schedule in this manner.

16Regardless, two separate scenarios for the calculation of IRB were provided in the RSM report dated July 9, 2020; scenario one based on a net deduction, and scenario two, based on a gross deduction of taxable collateral benefits (STD, LTD, CPP-D). In the Income Replacement Benefit Report provided by DM dated November 22, 2017, I accept that CB may have understated pre-accident income by failing to correctly consider the applicant's target incentive, or yearly bonus when calculating the LTD, as part of the calculation of gross income, and thus understated the amount of the IRB payable. Similarly, in the calculation of the STD benefits when the applicant returned to work, the amounts varied depending on the number of hours worked. This was not reflected in the CB report, which simply considered the total amount of collateral benefits in 2015 and led to an overstated amount of IRB payable. In my mind, DM provided a more accurate calculation, breaking each period of entitlement down into four discrete periods where STD, STD and income, LTD and income, and solely LTD were calculated during this period.

17There is also a discrepancy between the 2019 RSM report and the 2019 DM report. RSM calculated the applicant's post-accident income from February 9 to October 8, 2015. However, the Statement of Earnings provided by the collateral benefits provider, Sun Life indicated she ceased work on October 30, 2015. This resulted in an overstatement of IRB payable as calculated by CB from October 9 to October 30, 2015. I accept the applicant ceased work on October 30, 2015, as laid out in the Statement of Earning and as per the DM report.

18Thus, for these reasons, I find the accounting reports provided by DM more persuasive relating to the calculation of the applicant's IRB, up to the date of her 65th birthday. Thus, I adopt the calculations set out in the DM reports dated November 22, 2017, December 23, 2019, February 23, 2021 related to the calculation of IRB for this period.

Gross versus Net Deduction

19The current version of the Schedule has been effective for almost twelve years, or since September 1, 2010. I am surprised that the issue of gross versus net deduction of "other income replacement assistance" (including STD, LTD and CPP-D benefits) pursuant to s. 4 continues to be disputed when calculating IRB pursuant to s. 7 of the Schedule.

20I addressed this specific issue in my 2017 decision of G.K. v. Unifund Assurance Company⁴ and I adopt my reasons therein. Specifically:

[24] Nowhere in section 4 of the Schedule does it describe or define any terms like "net employment income" or "net weekly employment income". One must infer that the lack of these terms is purposeful. Simply, if the legislature had intended these terms to be included, they would be defined therein.

[25] There is nothing in the Schedule indicating that gross weekly payments in section 4(1) are to be reduced by taxed amounts. Had the legislature intended for taxes to be included in the calculations of deductions for income replacement benefits, the Schedule would explicitly express it therein. It does not.

[26] The calculation of income replacement benefits is based on the gross employment income and not the net employment income of an individual. This gross employment income includes benefits like STD and LTD before tax.

[27] To parse out specific phrases like "received by" and "available to" in isolation is contrary to a harmonious reading and interpretation of the legislation as a whole. These phrases are constituent parts of a section that should not be read contrary to the spirit and tone of the entire section with regard to the calculation of income replacement benefits.

[29] I agree with the applicant's submission that the Schedule is remedial in nature and should be read with the over-arching goal of reducing the economic dislocation of victims of motor vehicle accidents. To infer that the Schedule is ambiguous regarding net employment income is more than an inferential leap. The wording of sections 4-11 are clear and unambiguous. In my view, there is no contradiction between the words "gross" and "received" in the language of section 4(1)(a) of the Schedule.

21To interpret s. 4 of the Schedule in such a way would result in an over-inflation of IRB and the potential of double recovery is counter to the wording of the current Schedule. As stated in Aviva Canada Inc. v. Singh,⁵ a net calculation could result in deductions for not only taxes, CPP, and EI benefits, but garnishments and charitable donations, which could all artificially inflate the amount of IRB received and result in different treatment for insured persons in similar circumstances. The legislature purposely removed the words "net income" in s. 7 and the precise formula for calculating net income that previously appeared in ss. 61 and 63 of the 1996 version of the Schedule. This clear change in legislative intent was also cited by Adjudicator Parish in the FSCO decision of Cousins v. TD General Insurance⁶ when she examined the changes between the 1996 and 2010 versions of the Schedule. While previous jurisprudence from FSCO and this Tribunal is not binding, certainly this interpretation of the Schedule appears to be an area of settled law.

22Conversely, the applicant references s. 267.8(1) and s. 267.8(9) of the Insurance Act⁷ in her submissions. These sections specifically address tort claims for income loss, loss of earning capacity, and deductions for contributory negligence. These sections of the Insurance Act are irrelevant to the interpretation of s. 4 of the Schedule as it relates to calculation of IRB. Similarly, decisions related to tort actions like Anand v. Belanger⁸, Farriugia v. Ahmadi et al.⁹, and Cadieux v. Cloutier¹⁰ have little practical application to cases where IRB is specifically calculated according to the Schedule.

23Thus, given the totality of evidence and the case law presented, I am satisfied that an IRB is based on gross income, or payments, and the respondent is permitted to make deductions to the applicant's IRB payable based on the STD, LTD, and CPP-D payments received by the applicant as per the wording of s. 4 of the Schedule.

Repayment

24I am satisfied the respondent is entitled to a repayment of benefits in the amount of $4,872.90 pursuant to s. 52 of the Schedule. The final quantum of the repayment flows directly from adjustments in the applicant's pre-accident income and her receipt of CPP-D benefits.

25The respondent is relying on a notice of repayment dated November 28, 2017 to establish its initial claim for repayment. The quantum of repayment sought at this time was $14,198.42 as listed in the DM report dated November 22, 2017.

26The quantum of the repayment was affected by the updated OCF-2 provided on November 18, 2019. The updated OCF-2 adjusted the applicant's pre-accident employment income. It was further adjusted by the applicant's approval for CPP-D benefits on April 9, 2019 that was paid in a lump sum payment for the period dating back to October 2017. The final quantum of repayment was reduced to $4,873.90 and notice was provided to the applicant on December 24, 2019. Specifically, $4,872.90 was the difference between the amount paid by the insurer to the applicant from October 2, 2018 to December 31, 2019 ($14,654.42) and the amount the insurer owed to the applicant based on its calculation of IRB ($9,781.52) in accordance with the updated OCF-2 provided.

27The variances in the quantum of the repayment sought were reflective of the changing circumstances relating to the benefits and information available to the respondent. I am satisfied the correspondence dated November 28, 2017 was proper notice of repayment. I am not otherwise persuaded that the varied amounts vitiated the valid notices of the repayment. Given this finding, I am not satisfied that s. 52(3) is operative in limiting the repayment to a period of 12 months, or from March 1, 2019, as the applicant submits.

28The applicant was solely in receipt of LTD benefits from October 30, 2015, forward, she clearly "received" these funds as per s. 4. As per the Schedule, the insurer is entitled to offset the amount of LTD paid, by the CPP-D benefits "received" (including the lump sum payout) in order to calculate the quantum of IRB. The CPP-D criteria of a "severe and prolonged" disability is irrelevant. The applicant "received" the CPP-D benefit, which factors directly into the taxable gross calculation of her income. Otherwise, this would mean the applicant could receive overlapping periods of LTD and CPP-D benefits, resulting in potential double-recovery, absent these deductions.

29Thus, pursuant to s. 52, I am satisfied the respondent is entitled to a repayment of $4,872.90 plus interest as per the bank rate pursuant to s. 52(5) of the Schedule. The interest shall be paid from December 13, 2017, the 15th day after the initial notice of repayment, also as per s. 52(5) of the Schedule.

Calculation of IRB Post-65

30The applicant is entitled to $122.00 per week of IRB upon reaching age 65, as per s. 8(1) of the Schedule.

31As per the Income Replacement Report by DM dated February 23, 2021, the respondent submits that the applicant's LTD and CPP-D benefits will terminate when she turns 65, as per s. 8(1). The amount of her post-65 IRB is calculated by determining the quantum "immediately before his or her 65th birthday" as per the wording of the Schedule. Given that 100% of the collateral benefits received (LTD/CPP-D) amount to more than 70% of her gross weekly pre-accident income earned (as per s. 7), the amount of IRB post-65 would be NIL, or zero.

32The respondent has provided no authority to advance this interpretation of the Schedule and devoted only one paragraph to this argument in its submissions.

33The applicant submits this interpretation of the Schedule is incorrect, as it would leave the applicant under-compensated, as the collateral benefits would cease and her entitlement to IRB would revert back to $400.00 per week on her 65th birthday. This quantum of $400.00 would then be ramped down after age 65 as per the formula in s. 8(1). I agree with this interpretation of the Schedule.

34The respondent's interpretation is contrary to the consumer protection mandate of the Schedule. It would lead to an absurdity by penalizing the applicant for having the foresight to obtain or apply for collateral benefits. This would indeed leave the applicant in a worse position after age 65, than if she had not obtained any collateral benefits. The applicant is catastrophically impaired, and this interpretation of the Schedule would deny her any IRB after age 65.

35In my view, the quantum of IRB should revert back to $400.00 upon the termination of the collateral benefits at age 65, and this is the quantum which is then adjusted utilizing the formula set out in s. 8(1), or the so-called "ramp down". Applying this formula to the base amount of $400.00 per week, I accept the calculation of $122.00 per week after the age of 65 as per Supplementary Schedule 2 of the RSM report dated July 9, 2020.¹¹

Interest

36Interest on any overdue payments of IRB is payable pursuant to s. 51 of the Schedule.

ORDER

37The applicant is entitled to an income replacement benefit from October 2, 2014 to date and ongoing, minus any deductions for collateral benefits, as calculated in the DM accounting reports provided by the respondent, up to the age of 65.

38The applicant shall repay the respondent for an income replacement benefit received in the amount of $4,872.90, plus interest at the bank rate as per s. 52(5) of the Schedule.

39The respondent shall pay an income replacement benefit of $122.00 per week, after the applicant reaches age 65, as per s. 8 of the Schedule, as per the calculations set out in the RSM Accounting Report dated July 9, 2020.

40Is the applicant is entitled to interest on any overdue payments of IRB pursuant to s. 51 of the Schedule.

Released: July 29, 2022