CITATION: Security National Insurance Co. v. Stepien, 2023 ONSC 5521
DIVISIONAL COURT FILE NO.: 776/18
DATE: 20231004
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Gomery, and Nishikawa JJ
BETWEEN:
SECURITY NATIONAL INSURANCE CO./MONNEX INSURANCE MGMT INC.
Applicant
– and –
AGNIESZKA STEPIEN
Respondent
Daniel Himelfarb, for the Applicant
Agnieszka Stepien, in person
Kari Chan, for the Financial Services Commission of Ontario
HEARD in Toronto: September 12, 2023
REASONS FOR DECISION
NISHIKAWA J.
Overview
[1] The Applicant, Security National Insurance Co./Monnex Insurance Mgmt. Inc. (“Security National”), brings this application for judicial review of a decision of the Director’s Delegate (the “Delegate”) of the Financial Services Commission of Ontario (“FSCO”) dated October 30, 2018 (the “Decision”). In the Decision, the Delegate held that Security National was not entitled to deduct a lump sum amount received by the Respondent, Agnieszka Stepien, for long-term disability (“LTD”) benefits from an amount owing for past income replacement benefits (“IRBs”).
Background
[2] The Respondent was injured in a motor vehicle collision in November 2009. At the time of the accident, she was working as a registered nurse.
[3] In August 2010, the Respondent applied for LTD benefits with her LTD carrier, Manufacturers Life Insurance Company (“Manulife”). Manulife initially denied the Respondent’s application for LTD benefits. As a result, the Respondent sued Manulife in February 2011.
[4] Security National paid the Respondent IRBs until December 19, 2011, when it terminated the benefits. Security National took the position that the Respondent did not suffer from any condition, as a result of the motor vehicle accident, that entitled her to benefits. After mediation failed to resolve the Respondent’s claim for reinstatement of IRBs as well as other benefits, she applied for arbitration through FSCO.
[5] From December 2011 to February 28, 2015, the Respondent received neither IRBs nor LTD benefits.
[6] In March 2015, Manulife settled the Respondent’s lawsuit against it. It paid her $206,710.57 in arrears of LTD benefits up to February 28, 2015 and $7,507.40 in interest. Manulife reinstated monthly LTD benefits in the amount of $3,548.75. Following the payment of the lump sum, the Respondent paid $46,716.58 in legal fees.
[7] On October 9, 2015, on the eve of the FSCO arbitration hearing giving rise to this proceeding, the Applicant and the Respondent entered into an agreement. Security National agreed that Ms. Stepien had been entitled to receive IRBs when they were terminated in December 2011. It agreed to reinstate her IRBs and to pay past IRBs from the termination date. The amount owing, from December 20, 2011 to October 13, 2015, was calculated as $130,595.30, including $39,998 in interest. Security National took the position, however, that pursuant to s. 7(1) of Statutory Accident Benefits Schedule,[^1] it was entitled to deduct the lump sum paid by Manulife from this amount.
[8] Since the lump sum paid by Manulife to the Respondent exceeds the arrears of IRBs plus interest owed by Security National, Security National maintained that it owed the Respondent nothing. As a result, it has not paid any amount in past IRBs to the Respondent.
The Arbitrator’s Decision
[9] The parties proceeded to arbitration on the sole issue of the deductibility of the lump sum paid by Manulife from past IRBs owing to the Respondent.
[10] In a decision dated January 16, 2016, the Arbitrator ruled that the entirety of the lump sum LTD payment could be applied to reduce the outstanding IRBs that Security National agreed to pay the Respondent. The Arbitrator accepted Security National’s argument that the legislative purpose of s. 7(1) of SABS is to prevent an insured person from receiving double recovery. The Arbitrator found that if Security National was not permitted to offset the LTD payment from IRBs, the Respondent would have double recovery for the relevant time frame. The Arbitrator concluded that for this reason, LTD benefits paid as a lump sum should not be treated differently from those paid monthly or weekly.
The Decision of the Director’s Delegate
[11] The Respondent appealed the arbitrator’s decision to FSCO.
[12] The Delegate allowed the appeal, finding that the Arbitrator erred in law in her interpretation of s. 7(1) of the SABS. The Delegate found that based on the plain wording of s. 7(1), the Respondent was not in receipt of the LTD payments at the time that the IRBs were due. The Delegate distinguished this case from others in which LTD payments were deducted from future IRB payments and found that s. 7(1) of the SABS does not apply to permit the deduction of an LTD payment retroactively to reduce past IRB payments.
[13] In addressing the Arbitrator’s finding regarding double recovery, the Delegate noted that the legislature did not intend an absolute prohibition on double recovery of benefits, as indicated by s. 47 of the SABS, which limits the ability to recover an overpayment where an insurer has overpaid a benefit because of collateral benefits.
Issues
[14] The issue in this application is whether the Delegate’s interpretation and application of s. 7(1) of the SABS was reasonable.
Analysis
The Standard of Review
[15] The parties agree that a reasonableness standard of review applies.
[16] As held in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, a reasonable decision is one that is based on an internally coherent and rational chain of analysis and is justified in relation to the facts and law that bore on the decision: Vavilov, at para. 85. The hallmarks of reasonableness are justification, transparency, and intelligibility: Vavilov, at para. 99. In Turkiewicz (Tomasz Turkiewicz Custom Masonry Homes) v. Bricklayers, Masons Independent Union of Canada, Local 1, 2022 ONCA 780, at paras. 55 to 58, the Ontario Court of Appeal identified the two types of error that may render an administrative tribunal’s decision unreasonable: a failure of rationality internal to the reasoning process, and the untenability of the decision, in light of the relevant factual and legal constraints that bear on it.
Was the Delegate’s Interpretation of s. 7(1) Reasonable?
[17] The Applicant submits that the Delegate’s interpretation of s. 7(1) was unreasonable because he decided the issue based solely on the language of the provision, and did not consider whether the lump sum LTD payment would give rise to an overpayment of IRBs. The Applicant submits that the purpose of s. 7(1), as has long been accepted in the jurisprudence, is to prevent double recovery. The Applicant takes the position that the Delegate erred in his interpretation and application of the relevant case law, specifically, Cromwell v. Liberty Mutual Insurance, 2008 CarswellOnt 470 (S.C.) and Vanderkop v. Personal Insurance Company of Canada, 2008 22926 (ONSC), aff’d 2009 ONCA 511.
[18] The Applicant further submits that the Delegate did not consider the irrational consequence of his interpretation of s. 7(1) in this case, which results in the Respondent receiving approximately 100 percent of her pre-accident net income, despite the 80 percent cap in s. 6(1) of the SABS.
[19] Subsection 7(1) of the SABS states as follows:
Collateral Payments for Loss of Income and Maximum Amount of Benefit
(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.
[20] In Vanderkop v. The Personal Insurance Company of Canada, at para. 81, Lofchik J. found that the settlement monies received by the insured for LTD benefits were a lump sum payment arrived after a lawsuit was commenced and negotiated as a compromise and, as a result, could not be characterized as “net weekly payments for loss of income that are not being received by the person as a result of the accident” within the meaning of the SABS. In affirming the decision, the Court of Appeal stated, at para. 26, as follows:
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.
[21] In Cromwell v. Liberty Mutual Insurance, the accident benefits insurer was not entitled to deduct a $160,000 lump sum payment made by the LTD insurer because no part of the lump sum was paid in respect of future LTD benefits. Similarly, in Co-Operators General Insurance Company v. Branden, 2022 ONSC 2473 (Div. Ct.), this Court relied on Cromwell to uphold a decision of the adjudicator who found that an LTD settlement could not be deducted from IRBs. In doing so, the Court noted that, once refused, LTD benefits were not “available” to the insured.
[22] In my view, the Delegate’s finding that the contemporaneous approach applied by the courts in Cromwell and Vanderkop applied to the circumstances of this case was reasonable. The rationale articulated by the Court of Appeal in Vanderkop applies to this case. Had Security National been paying IRBs during the relevant time period, and had Manulife been paying LTD benefits, it is clear that s. 7(1) would apply to allow Security National to deduct LTD benefits from IRBs. This is not, however, what happened. The Respondent received neither LTD benefits nor IRBs for a period of almost five years. As a result, she had no income-related benefits at a time when she was physically unable to work. Instead, she had to engage in litigation with both Manulife and Security National. It is only after Manulife agreed to pay the Respondent LTD benefits that Security National also agreed that she was entitled to IRBs.
[23] In the Agreed Statement of Facts that was before the Arbitrator, the parties characterized the lump sum payment made by Manulife as LTD benefits. Security National relies on this as determinative of the issue. That is, because the parties agreed that the lump sum was for LTD benefits, it follows that Security National was entitled to deduct the entire lump sum from the amount it owed for outstanding past IRBs. I do not accept that this is the necessary implication of the statement in the Agreed Statement of Facts. Had that been the case, it would not have been necessary to proceed to arbitration on the issue of deductibility. As was the case in Vanderkop, the LTD benefits were not available to the Respondent at that time.
[24] Moreover, while s. 7(1) may be intended to prevent double recovery, I am not convinced that payments received many years later and after protracted litigation result in “double recovery” in the same manner as when applied to concurrent, timely payment of LTD benefits and IRBs. Based on the language used in s. 7(1), it is not clear that the legislator intended to preclude the former. In my view, the consequences of which the Applicant complains are not the result of the Delegate’s misinterpretation of s. 7(1) of the SABS, but are the result of the Applicant’s failure to pay the amounts when they were owing.
[25] Security National further submits that the Delegate erred in relying on the limitation of recovery of an overpayment to a period of 12 months under s. 47 of the SABS to reject the Applicant’s position that s. 7(1) precludes double recovery in all cases. Section 47 states as follows:
Repayments to Insurer
- (1) A person shall repay to the insurer,
(c) any income replacement, non-earner or caregiver benefit or any benefit under Part VI, to the extent of any payments received by the person that are deductible from those benefits under this Regulation;
(2) If a person is required 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) if the person is receiving an income replacement or caregiver benefit, the insurer may give the person notice that the insurer intends to collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit.
(3) The obligation to repay a benefit does not apply unless the notice under subsection (2) is given within 12 months after the payment was made.
(4) Subsection (3) does not apply if the benefit was paid as a result of wilful misrepresentation or fraud.
[26] In my view, the Delegate’s interpretation of s. 7(1) in light of s. 47 was reasonable. The Delegate looked to s. 47 to address the Applicant’s position that the purpose of s. 7(1) was to prevent double recovery and found that double recovery is not prohibited in all cases. In addition, the Delegate identified other policy considerations, beyond the prevention of double recovery, from the case law that should inform the interpretation of s. 7(1) including “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.” It was entirely reasonable for the Delegate to take into consideration broader objectives of the SABS to put into context the Applicant’s singular focus on the prevention of double recovery.
[27] In my view, it is the Applicant’s proposed interpretation that is unreasonable because of the emphasis placed on the prevention of double recovery above all other policy considerations. Under the Applicant’s interpretation, an accident benefits insurer would in all circumstances be entitled to deduct a lump sum payment of LTD benefits from outstanding past IRBs, irrespective of the length of the period of time that had passed. If this were the case, an accident benefits insurer would invariably be better off not paying IRBs and waiting for the outcome of litigation between an insured and their LTD carrier. Section 47 would act as a disincentive for the accident benefits insurer to pay IRBs first and then seek to recover an overpayment resulting from the insured’s subsequent receipt of LTD benefits because the recovery of an overpayment is limited to 12 months. As a result, where an insured could be entitled to LTD benefits, there would be no incentive for the accident benefits insurer to pay IRBs until after the litigation between the insured and LTD insurer has been concluded.
[28] Moreover, while the Applicant claims that the result of the Decision would be a “windfall” to the Respondent because she would recover 100 percent of her income, it is difficult to accept that the payment in 2023 of IRBs owing for 2011 to 2015, after lengthy litigation and a substantial outlay in legal costs, constitutes a windfall or overpayment. While Security National submits that the outstanding amount bears interest, interest in 2023 cannot make up for the lack of benefits for a five-year period.
[29] For the foregoing reasons, I find that the Delegate’s interpretation of s. 7(1) was reasonable and that there is no basis on which to interfere with the Decision that the lump sum payment received from Manulife is not to be deducted from IRBs owing to Ms. Stepien. The Decision meets the criteria articulated in Vavilov and Turkiewicz. The reasoning is rational, intelligible, and transparent, in light of the relevant factual and legal constraints that bear on it.
Disposition
[30] The application for judicial review is dismissed.
[31] Ms. Stepien seeks $500 in costs for various filing fees and disbursements. She also seeks an order requiring that the Applicant pay the outstanding amount within 30 days. Both are reasonable requests in the circumstances. Costs of the application are fixed at $500. The Applicant is required to pay the outstanding amount and costs to the Respondent within 30 days of the release of this decision.
“Nishikawa J.”
“I agree: Backhouse J.”
“I agree: S. Gomery J.”
Released: October 4, 2023
CITATION: Security National Insurance Co. v. Stepien, 2023 ONSC 5521
DIVISIONAL COURT FILE NO.: 776/18
DATE: 20231004
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Gomery, and Nishikawa, JJ
BETWEEN:
SECURITY NATIONAL INSURANCE CO./MONNEX INSURANCE MGMT INC.
Applicant
– and –
AGNIESZKA STEPIEN
Respondent
REASONS FOR DECISION
Nishikawa J.
Date of Release: October 4, 2023
[^1]: Statutory Accident Benefits Schedule - Accidents on or After November 1, 1996, O Reg 403/96. Although this version of the SABS has since been revoked, it applies in this case because the regulation that replaced it, Statutory Accident Benefits Schedule, O Reg 34/10, came into effect on September 1, 2010, ten months after the Respondents’ accident.