CITATION: Intact Ins. Co. v. Allstate Ins. Co. of Canada, 2015 ONSC 4264

COURT FILE NO.: 4473-14

DATE: 2015/07/02

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Intact Insurance Company (Applicant)

AND:

Allstate Insurance Company of Canada (Respondent)

BEFORE: Justice R. Raikes

COUNSEL: Douglas Wallace, for the applicant

Todd McCarthy, for the respondent

HEARD: May 11, 2015

ENDORSEMENT

Overview

[1] The applicant, Intact Insurance Company (hereafter “Intact”), appeals from an arbitration decision dated October 16, 2014, in which the arbitrator found that Intact was liable to pay accident benefits to Paula, Destiny and Athena Chartrand (hereafter “Paula, Destiny and Athena”) arising from a motor vehicle accident on August 21, 2010. Paula, Destiny and Athena sustained their injuries while occupants of a motor vehicle owned and operated by Rhonda Lucuk. Intact was the insurer of Ms. Lucuk’s vehicle.

[2] At the time of the accident, Paula, Destiny and Athena resided at the home of Kyle Houghton (hereafter “Kyle”) in Sarnia, Ontario. Kyle owned two motor vehicles insured by the respondent, Allstate Insurance Company of Canada (hereafter “Allstate”).

[3] The issue for determination by the arbitrator was whether Paula, Destiny and Athena were principally dependent for financial support upon Kyle at the time of the accident. If so, then responsibility to pay accident benefits rests with Allstate; otherwise, responsibility lies with Intact. The arbitration was a priority dispute under s. 268(2) of the Insurance Act.

[4] Intact argues that the arbitrator applied the wrong legal test to the determination of dependency and, as such, his finding that Paula, Destiny and Athena were not principally financially dependent on Kyle should be reversed. Allstate argues that the arbitrator set out and applied the correct legal principles to the facts and evidence before him; his finding is a finding of fact or mixed fact and law which is entitled to deference.

[5] The arbitrator found that the relationship between Paula and Kyle was not permanent and was not likely to be permanent and, as a result, Paula, Destiny and Athena were not principally financially dependent on Kyle at the time of the accident. He applied a test of “permanence” or “likely permanence” in determining the appropriate time frame for the assessment of dependency. Intact argues that the application of a requirement to demonstrate permanence or likely permanence sets the bar too high. It led the arbitrator to improperly speculate as to the future prospects for the relationship between Paula and Kyle and consideration of events post-accident.

[6] This appeal by way of application raises the following issues:

1. Did the arbitrator err in applying a test of “permanence” or “likely permanence” to the determination of the appropriate time frame to be considered as part of the analysis of principal financial dependency?

2. Did the arbitrator err in selecting a twelve month timeframe for the analysis of principal financial dependency? Is that finding entitled to deference in this case?

Standard of Review

[7] The standard of review of an arbitrator’s determination of dependency depends on the characterization of the alleged error by the arbitrator. If the issue is the legal test applied by the arbitrator, i.e. whether the appropriate legal principles were used, the standard of review is correctness. If the issue is one involving findings of fact or the application of the law to the facts, the standard of review is reasonableness: Security National Insurance Co. v. The Wawanesa Mutual Insurance Company, 2013 ONSC 7589 at para. 70; Royal & Sun Alliance Company of Canada v. AXA Insurance Co., 2015 ONSC 217 at para. 10.

[8] Deference will be given to an arbitrator’s determination of a question of fact or mixed fact and law where the arbitrator has applied the correct legal principles. An appellate court will not show deference to an adjudicator’s decision on an issue of law: Gore Mutual Insurance Company v. Co-operators General Insurance Company, 2008 46914 (Ont. S.C.) at para. 6.

Legislative Framework

[9] Section 268(2) sets out the priority rules that apply when there are more than one motor vehicle liability policies that might respond to a statutory accident benefit claim by someone injured in a motor vehicle accident. As occupants of a vehicle at the time of the accident, the following rules with respect to priority apply:

(i) the occupant has recourse against the insurer of an automobile in respect of which the occupant is an insured;

(ii) if recovery is unavailable under (1), the occupant has recourse against the insurer of the automobile in which he or she was an occupant;

(iii) if recovery is unavailable under (1) or (2), the occupant has recourse against the insurer of any other automobile involved in the accident from which the entitlement to statutory accident benefits arose; and

(iv) if recovery is unavailable under (1), (2) or (3), the occupant has recourse against the Motor Vehicle Accident Claims Fund.

[10] Section 2(1) of the Statutory Accident Benefits Schedule-Accidents On or After November 1, 1996, Ontario Regulation 403/96, as amended, defines an “insured person” as follows:

(a) “The named insured, any person specified in the policy as a driver of the insured automobile, the spouse of the named insured, and any dependent of the named insured or spouse, if the named insured, specified driver, spouse or dependent

(i) is involved in an accident in or outside of Ontario that involves the insured automobile or another automobile.” [Emphasis added]

[11] Section 2(6) of the same Regulation states:

“For the purposes of this regulation, a person is dependent of another person if the person is principally dependent for financial support or care on the other person or the other person’s spouse.”

The Arbitration

[12] The arbitration was held on August 15 and 20, 2014. The evidence at the arbitration consisted of document briefs, examinations under oath transcripts and viva voce evidence. The arbitration proceeded under an Arbitration Agreement dated August 13, 2013. That agreement asked the arbitrator to determine which insurer was in priority to pay statutory accident benefits to Paula, Destiny and Athena as a result of the motor vehicle accident. The parties agreed to be bound by the decision of the arbitrator, subject to an appeal of his decision to a judge of the Ontario Superior Court of Justice.

[13] The parties submitted an Agreed Statement of Facts consisting of 29 paragraphs. In addition, there was an Agreed Statement of Facts with respect to Post – Accident Events which facts were ruled admissible by the arbitrator subject to the weight, if any, to be given to them.

The Accident

[14] On August 21, 2010, Paula, Destiny and Athena were returning from Canada’s Wonderland when they were injured in a motor vehicle accident on Highway 402. Paula is the biological mother of Destiny and Athena. She suffered relatively minor injuries. Destiny, born April 30, 2000, was then ten years old. Athena, born July 13, 2003, was then seven years old. Both girls suffered catastrophic injuries. Paula, Destiny and Athena were occupants in a motor vehicle that was owned and operated by Rhonda Lucuk at the time of the accident.

Residence

[15] At the date of the accident, Paula, Destiny and Athena were living with Kyle at his home at 314 Collingwood Street in Sarnia, Ontario. Paula had been residing with Kyle since shortly after they met in January or February, 2010. Destiny and Athena only began living at Kyle’s home in early July, 2010 after they finished the school year and moved from Sudbury where they were living with their father, Yvan Restoule (hereafter “Yvan”).

Paula and Yvan/Paula and Kyle

[16] Paula and Yvan met in 2000 when Paula was pregnant with Destiny. Yvan treated Destiny as his own child from the day she was born. Paula and Yvan began living together in 2000 and had one child of their own, Athena. Paula and Yvan married on July 14, 2008. They lived together in Sudbury with their daughters. Their last residence, which they occupied starting in July, 2009, was a three bedroom apartment at 180 King Street, Sudbury.

[17] In July, 2009, Paula began working at a nightclub in Sudbury as an exotic dancer. She had worked as an exotic dancer before they married. Yvan did not like this and their relationship deteriorated as a result. Yvan began sleeping on the couch. He testified that Paula was not satisfied living the “quiet housewife life”. While working at the nightclub in Sudbury, she was arrested for prostitution in the Spring of 2010. She was told that she could make more money as a dancer in Sarnia so she left Sudbury. The children remained with Yvan.

[18] Paula obtained employment at a strip club in Sarnia in January or February, 2010. That is where she met and began to date Kyle. He was employed full-time at One Stop Automotive in Sarnia. He previously worked as a bouncer and manager of strip clubs for several years. The arbitrator found that shortly after their first meeting, Paula started staying at Kyle’s house in Sarnia. Her husband, Yvan, was unaware of that situation. He knew that she was working in Sarnia at a strip club but not that she was dating and living with Kyle.

[19] Yvan testified that Paula spent three weeks of each month between February and June, 2010 in Sarnia. The other week was spent in Sudbury. When she was in Sudbury, Paula stayed with Yvan and her daughters at the apartment. She told Kyle that she was staying with her mother when she was in Sudbury.

[20] The evidence at the arbitration was that Paula was telling Kyle that she wanted to leave her ex-husband and move the girls to Sarnia. Kyle testified that the plan was that the three of them would move in with him, the girls would be enrolled in school in Sarnia in September at which time Paula would look for a legitimate job.

The Move

[21] Destiny and Athena attended school in Sudbury until the end of June, 2010. They lived with their father, Yvan, while their mother was working in Sarnia. In early July, Paula asked her mother to drive her and the girls from Sudbury to Parry Sound where they met Kyle at a gas station. There, they transferred their belongings to his vehicle including their clothes, toys, blankets and sheets. He transported them to Sarnia where they moved into his home. That is where they resided until the accident. Kyle purchased bunk-beds where Athena and his daughter from a previous relationship slept.

[22] Soon after the girls left for Sarnia with their mother at the beginning of July, 2010, Yvan began “couch surfing” at friends’ homes. He testified that he believed the move to Sarnia was permanent. He continued to express on social media his love for Paula during this period. He was unaware that Paula was cohabiting with Kyle and that that was where the girls were now residing.

Paula’s Addictions

[23] The arbitrator found that each of Paula, Yvan and Kyle suffered from addictions either to alcohol, drugs or both. It appears that Paula’s addictions were the most severe. Virtually all of her income from any source went to feed those addictions. She earned money as an exotic dancer. She also received Family Allowance benefits. She received $800 from Yvan for support for the girls. It also appears that she was receiving some money from prostitution, a fact which was unknown to Kyle.

[24] During the seven weeks that Paula and the girls resided with Kyle, he was financially responsible for virtually all of their needs and expenses. Paula contributed a very small amount to groceries and to entertainment expenses for the girls. Her financial contributions beyond this were negligible. This new arrangement was a significant financial burden which Kyle could not afford to continue indefinitely. The plan was for Paula to find new employment starting in September so that she could contribute financially to the household expenses.

[25] On August 18, 2010, Ms. Lucuk drove Paula, Destiny and Athena to Canada’s Wonderland. After she dropped them off, she continued to Sudbury where she picked up the rest of their belongings. The accident happened on the return trip.

[26] Kyle and Paula spoke of marriage during the summer of 2010, but it was not a serious discussion. Kyle was asked during his examination in chief whether the relationship with Paula was going to be permanent or temporary. He responded:

“You hope it is permanent. You have no idea. You hope for the best and expect the worst.”

[27] Kyle also testified that he would not have continued in his relationship with Paula if he had known that she was engaged in prostitution, nor if he had determined that she was an addict. He would not have tolerated Paula staying with Yvan when she was in Sudbury if he had been aware of it. Thus, Paula’s relationship with Kyle was to some extent built on lies.

Arbitrator’s Findings and Analysis

[28] It is not disputed that the arbitrator stated the correct legal principles that apply to the determination of the issue of principal financial dependency. At page twelve of his decision, he wrote:

“The Ontario Court of Appeal affirmed the “correct legal principles” to be applied to questions of dependency in Oxford Mutual Insurance Company v. Co-operator’s General Insurance Company (2006) 2006 37956 (ON CA), O.J. No. 4518. This decision incorporated some of the principles from earlier decisions involving dependency namely Miller v. Safeco 1985 2022 (ON CA), 1986, 13 C.C.L.I. 31, 50 O.R. (2d) 797 (C.A.) and Liberty Mutual Insurance Co. v. Federation Insurance Co. of Canada [1997] O.J. No. 1234 (C.A.).

The “correct legal principles” set out in Oxford Mutual v. Co-operator’s (supra) can be summarized as follows:

(a) The 51% principle from Liberty Mutual Insurance v. Federation Insurance should be applied. It is not sufficient that the claimant simply be dependent, but rather must be principally dependent. If the claimant had sufficient resources to fund 51% of their financial needs than the person could not be dependent upon others.

(b) The time frame to be looked at may encompass days, weeks or even years. One does not simply look at a “snap shot” of the actual day of the Accident to determine the issue of dependency.

(c) The factors from Miller v. Safeco should be considered:

(i) the duration of the dependency

(ii) the amount of dependency

(iii) the financial or other needs of the alleged dependent

(iv) the ability of the alleged dependent to be self-supporting.

(d) Each case must be factually driven.

(e) The ability to be self-supporting must be taken into account when measuring dependency.”

[29] The arbitrator indicated at page 13 of his decision that he was satisfied on the evidence overall that for the seven week period pre-accident, Paula and her children were principally financially dependent on Kyle. He also indicated that he was satisfied on the evidence that if one were to analyse the one year period pre-accident, Paula and her children were not principally financially dependent on Kyle. He noted that: “In the circumstances, the result in this case is totally dependent on the appropriate time frame to use for the calculation of financial dependency.”

[30] The arbitrator then went on to consider a number of cases dealing with “persons in transition”. Typically, this arises in the context of a young adult who is transitioning from living at home as a dependent with his or her parents to independent status, but the principles are not confined to that context.

[31] Following his review of the decisions, including his own past decisions, the arbitrator wrote:

“The common theme through these cases where a short time frame was considered appears to be that each arbitrator wrestled with the question as to whether the relationship existing during that period was of permanence and likely to continue into the future or was it transitional. The same analysis must be done here.”

[32] At page 17, he applied that reasoning to the case before him. He wrote: “If I were satisfied that the situation with Kyle was likely permanent and likely to have continued I would have no trouble finding that the three claimants were principally dependent for financial support on Kyle Houghton at the time of the accident. I am not so satisfied.”

[33] He found at page 18 that he was not satisfied on the evidence that the situation with Kyle was permanent and likely to continue; rather, this was a convenient fling that was unlikely to last given Paula’s addictions. Specifically, he found that Paula was a troubled woman and addict. Kyle would have eventually found out. Her addictions would have led her to prostitution to maintain her habits. She was unlikely to find a legitimate job, nor had she completely severed her ties to her ex-husband.

[34] Finally, he concluded at page 18 that:

“On the evidence before me Intact has failed to satisfy the onus upon it to establish the relationship between Kyle Houghton and Paula Chartrand was on the balance of probability likely to be permanent. As a result I find that a seven week time frame for the analysis of financial dependency is inappropriate. Accordingly, one must look at the “big picture”….”

[35] He then applied a twelve month pre-accident timeframe for the determination of whether Paula and her daughters were principally financially dependent upon Kyle. In doing so, his decision was predicated entirely on the premise that the relationship between Paula and Kyle had to be one which was “permanent or likely to be permanent”. That approach is at the heart of this appeal.

Analysis

[36] The first issue to be addressed is whether the arbitrator erred in applying a test of “permanence” or “likely permanence” to the determination of the appropriate time frame to be considered as part of the analysis of principal financial dependency. That is clearly the standard or test he applied in determining the timeframe applicable in this case.

[37] The decisions of the courts and arbitrators acknowledge the challenges faced by an arbitrator when dealing with situations where lives are in transition. Court decisions have largely provided only general guidance as to the factors that should be considered in the overall context of the relationship in question. Certainly, the decisions have not established a requirement of permanence or likely permanence; rather, the arbitrator is asked to choose a time frame that most fairly reflects the true status of the claimant on the date of the accident: Oxford Mutual Insurance Co. v. Co-operator’s General Insurance Co., supra, at paras. 26 and 27; Dominion of Canada General Insurance Co. v. Ontario, 2013 ONSC 4717 at para. 31.

[38] The arbitrator in this case mistakenly concluded that the arbitral decisions that he reviewed, including his own decisions, supported a requirement of permanency or likely permanency where a shorter time frame is to be used for the determination of principal financial dependency. In my view, the decisions do not go that far.

[39] The objective is to determine the claimant’s status as of the date of the accident. Dependency must be determined in context. This is why the Ontario Court of Appeal indicated that status cannot be determined by simply looking at the day of the accident. More than a mere snapshot is necessary to arrive at a true picture. However, it is noteworthy that the Court of Appeal did not specify that in selecting the appropriate time frame to be considered, one must ask whether the claimant’s condition was permanent or likely permanent at that time. Instead, the Court of Appeal indicated that such decisions must be made with regard to the whole of the evidence of the circumstances of the claimant within a reasonable time period preceding the accident: Security National Insurance Co. v. Wawanesa Mutual Insurance Co., 2013 ONSC 7589 at para. 18; see also The Guarantee Company of North America v. Wawanesa Insurance Company and Zurich Insurance Company (May 7, 2010 private arbitration per Arbitrator Samis) at page 18, and Intact Insurance v. Economical Mutual Insurance Company (June 1, 2011 private arbitration per Arbitrator Novick) at page 11.

[40] Generally, that inquiry involves looking at the particular circumstances of the claimant. Where there has been recent change, does that change materially affect the nature of the relationship? What plans were existing at the time vis-à-vis the relationship? Was there a settled intention in place to continue that relationship or not? In my view, the arbitrator in this case also erred in speculating on the future prospects for the relationship between Paula and Kyle and using that speculation to inform the determination of the appropriate time frame to be considered. Speculation of this sort is a mug’s game, to use the vernacular. There are too many variables and doing so runs contrary to the matter to be determined, i.e. the status of the relationship at the date of the accident.

[41] In this case, Paula had been living with Kyle since January or February, 2010, almost seven months. They were cohabiting, not merely dating. Her children had moved in with them with the expectation and plan that they would be enrolled in school in Sarnia for the upcoming school year. There was a plan that Paula would look after the children over the summer and would find new employment in September to assist with the financial burden of the enlarged household.

[42] The evidence supports a settled intention on the part of Paula and Kyle to engage in a relationship that was more than merely transitory. It is an error for the arbitrator to prognosticate the fate of that relationship. No doubt there were issues to be confronted, not least of which were their respective addictions. Would she have faced her addiction for the sake of their relationship? We will never know the answer to that question because the accident intervened and the dynamic changed.

[43] The arbitrator’s decision to select the longer twelve month timeframe is predicated entirely upon his conclusion first, that the relationship between Paula and Kyle must on a balance of probabilities be permanent or likely to be permanent, and secondly, his finding that their future relationship was unlikely to succeed. In my view, he misapprehended the approach to be taken to the determination of the appropriate time frame. In doing so, he then embarked on an analysis of future events which he ought not to have done.

[44] I am also concerned that for the purpose of determining the appropriate time frame to be used to assess dependency, the decision of the arbitrator in this case focuses almost entirely on the relationship between Paula and Kyle. There is no separate consideration or analysis of the relationship between the two girls and Kyle as at the date of the accident. The implicit assumption is that their dependency status is inextricably tied to the relationship between Paula and Kyle.

[45] As children, Destiny and Athena had no means of self-support. They were at all times dependent upon the adults with whom they lived for their needs and care. Certainly, from their perspective, they were financially dependent upon Kyle once they moved from Sudbury to Sarnia. At that point, what worldly possessions they had came with them. They had no choice in the move. They could not go back to Sudbury to live with their father who was by then himself itinerant. They expected to live and attend school in Sarnia while living with Kyle and Paula.

[46] The ultimate issue to be determined is whether at the date of the accident the girls were principally financially dependent on Kyle. They were and were expected to continue to be dependent as at that date. This is not a case where the girls were going to return to live with their father at the end of the summer, nor was it up in the air as to where they would be living. Their move from Sudbury to Sarnia to be with their mother was then expected to be a permanent one.

[47] The application of a requirement of permanency or likely permanency is an error of law which is not entitled to deference. Likewise, the arbitrator’s speculation as to future events or outcomes is an error in principle.

Conclusion

[48] The arbitrator indicated in his reasons that if the seven week period was used as the appropriate timeframe, he was satisfied on all of the evidence that Paula, Destiny and Athena were principally financially dependent on Kyle at the date of the accident. However, he went on to improperly speculate on the likely permanence of the relationship between Kyle and Paula, which was an error of law. As it relates to Destiny and Athena, I find that the seven week period is adequate and appropriate for the determination of their dependency. Had the arbitrator used the seven week period to determine Destiny and Athena’s dependence, he would have correctly concluded that they were principally financially dependent upon Kyle at the date of the accident on August 21, 2010.

[49] With respect to Paula, the evidence supports the consideration of a longer timeframe given her relationship with Kyle. It started in January or February, 2010. They had been cohabiting for nearly seven months as at August 21, 2010. She had separated from Yvan. She planned to live with Kyle with her daughters and was already doing so. On the whole of the evidence, I find that she was principally financially dependent on Kyle when the accident occurred.

[50] In light of my decision above, I order as follows:

1. The applicant’s appeal is allowed;

2. Allstate is responsible for payment of statutory accident benefits for each of Paula, Destiny and Athena;

3. If the parties cannot agree on the issue of costs, written submissions may be made within 15 days not to exceed ten pages.

“Justice R. M. Raikes”

Justice R. M. Raikes

Date: July 2, 2015