ACCIDENT BENEFITS - THIS YEAR S TOP CASES IN REVIEW

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1 ACCIDENT BENEFITS - THIS YEAR S TOP CASES IN REVIEW THE 7 TH ANNUAL ADVOCACY CONFERENCE Presented by: THE HAMILTON LAW ASSOCIATION Prepared by: A. Jarvis Scott Hughes, Amys LLP One King Street West Suite 1401 Hamilton, Ontario L8P 1A4 INTRODUCTION Phone: (905) [email protected]

2 THE STATUTORY ACCIDENT BENEFITS SCHEDULE - Accidents on or after November 1, 1996, O. Reg. 403/96, has now been in place for over 10 years. In the Fall of 2003, the writer was involved in preparing a paper reviewing the Top Ten Statutory Accident Benefits Cases for At that time, an election was underway in Ontario. New regulations were being written and passed on what seemed to be a weekly basis. There were significant changes to both the tort system and the Statutory Accident Benefits Schedule. In 2006, there was another significant revamping of the Statutory Accident Benefits Schedule, with the elimination of the DAC system. Despite the revisions in 2003 and in 2006, Ontario lawyers have been blessed by a relatively stable set of rules and regulations governing Statutory Accident Benefits. The current Schedule has been in place, by and large since In the early 90's, Governments of the day implemented and revoked what are known as the OMPP and Bill 164 SABS, between 1990 and These earlier Statutory Accident Benefit schemes were complex and introduced concepts that were novel and ripe for litigation. With the passage of time, lawyers doing work in the Statutory Accident Benefits field are feeling somewhat less stressed having to deal primarily with only one, rather than three, different Statutory Accident Benefits Schedules. Interestingly, the majority of the material and significant new cases that we have identified in this review are not a function of any of the recent changes made to the current Statutory Accident Benefits Schedule, but rather reflects significant developments with respect to provisions that have been in place since November Several long held beliefs or assumptions as to what the law was have turned out to be wrong, according to our Court of Appeal. It is remarkable that it took ten years to have the Court of Appeal rule on these issues (or that we all could have been so wrong!). As always, new facts and circumstances, the creativity of the plaintiff s bar and, to some extent, changes in judicial attitude, guarantee that new law will continue to be created and that annual reviews will continue into the future. In this paper, we have attempted to identify what we believe to be the most significant cases, in the Statutory Accident Benefits context in the past year.

3 1. CATASTROPHIC IMPAIRMENT - MAYBE IT S NOT SO HARD TO GET THERE AFTER ALL The catastrophic impairment provisions of the Ontario Statutory Accident Benefits scheme are complex and intricate. There is a developing body of case law interpreting the catastrophic impairment provisions of the Statutory Accident Benefits Schedule. Several of these cases were decided in the past year or so. They are difficult to summarize and synthesize. Readers are encouraged to take the time to review the decisions discussed below in their entirety. The definition of catastrophic impairment is found in Section 2(1.1) (prior to October 1, 2003) and Section 2(1.2) (after October 1, 2003) of the Statutory Accident Benefits Schedule. It provides as follows: (1.1) For the purposes of this Regulation, a catastrophic impairment caused by an accident that occurs before October 1, 2003 is: (a) paraplegia or quadriplegia; (b) the amputation or other impairment causing the total and permanent loss of use of both arms; (c) the amputation or other impairment causing the total and permanent loss of use of both an arm and a leg; (d) the total loss of vision in both eyes; (e) brain impairment that, in respect of an accident, results in: (i) a score of 9 or less on the Glasgow Coma Scale, as published in Jennett, B. and Teasdale, G., Management of Head Injuries, Contemporary Neurology Series, Volume 20, F.A. Davis Company, Philadelphia, 1981, according to a test administered within a reasonable period of time after the accident by a person trained for that purpose, or (ii) a score of 2 (vegetative) or 3 (severe disability) on the Glasgow Outcome Scale, as published in Jennett, B. and Bond, M., Assessment of Outcome After Severe Brain Damage, Lancet i:480, 1975, according to a test administered more than six months after the accident by a person trained for that purpose;

4 (f) subject to subsections (2) and (3), an impairment or combination of impairments that, in accordance with the American Medical Association s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in 55 per cent or more impairment of the whole person; or (g) subject to subsections (2) and (3), an impairment that, in accordance with the American Medical Association s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in a class 4 impairment (marked impairment) or class 5 impairment (extreme impairment) due to mental or behavioural disorder. O. Reg. 281/03, s. 1 (5); O. Reg. 314/05, s. 1 (1, 2). (1.2) For the purposes of this Regulation, a catastrophic impairment caused by an accident that occurs after September 30, 2003 is: (a) paraplegia or quadriplegia; (b) the amputation or other impairment causing the total and permanent loss of use of both arms or both legs; (c) the amputation or other impairment causing the total and permanent loss of use of one or both arms and one or both legs; (d) the total loss of vision in both eyes; (e) subject to subsection (1.4), brain impairment that, in respect of an accident, results in: (i) a score of 9 or less on the Glasgow Coma Scale, as published in Jennett, B. and Teasdale, G., Management of Head Injuries, Contemporary Neurology Series, Volume 20, F.A. Davis Company, Philadelphia, 1981, according to a test administered within a reasonable period of time after the accident by a person trained for that purpose, or (ii) a score of 2 (vegetative) or 3 (severe disability) on the Glasgow Outcome Scale, as published in Jennett, B. and Bond, M., Assessment of Outcome After Severe Brain Damage, Lancet i:480, 1975, according to a test administered more than six months after the accident by a person trained for that purpose; (f) subject to subsections (1.4), (2.1) and (3), an impairment or combination of impairments that, in accordance with the American Medical Association s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in 55 per cent or more impairment of the whole person; or (g) subject to subsections (1.4), (2.1) and (3), an impairment that, in accordance with the American Medical Association s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in a class 4 impairment (marked impairment)

5 or class 5 impairment (extreme impairment) due to mental or behavioural disorder. O. Reg. 281/03, s.1 (5). (1.3) Subsection (1.4) applies if an insured person is under the age of 16 years at the time of the accident and none of the Glasgow Coma Scale, the Glasgow Outcome Scale or the American Medical Association s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, referred to in clause (1.2) (e), (f) or (g) can be applied by reason of the age of the insured person. O. Reg. 281/03, s. 1 (5). (1.4) For the purposes of clauses (1.2) (e), (f) and (g), an impairment sustained in an accident by an insured person described in subsection (1.3) that can reasonably be believed to be a catastrophic impairment shall be deemed to be the impairment that is most analogous to the impairment referred to in clause (1.2) (e), (f) or (g), after taking into consideration the developmental implications of the impairment. O. Reg. 281/03, s. 1 (5). (2) Clauses (1.1) (f) and (g) do not apply in respect of an insured person who sustains an impairment as a result of an accident that occurs before October 1, 2003 unless, (a) the insured person s health practitioner states in writing that the insured person s condition has stabilized and is not likely to improve with treatment; or (b) three years have elapsed since the accident. O. Reg. 403/96, s. 2 (2); O. Reg. 281/03, s. 1 (6). (2.1) Clauses (1.2) (f) and (g) do not apply in respect of an insured person who sustains an impairment as a result of an accident that occurs after September 30, 2003 unless, (a) the insured person s health practitioner states in writing that the insured person s condition is unlikely to cease to be a catastrophic impairment; or (b) two years have elapsed since the accident. O. Reg. 281/03, s. 1 (7). (3) For the purpose of clauses (1.1) (f) and (g) and (1.2) (f) and (g), an impairment that is sustained by an insured person but is not listed in the American Medical Association s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993 shall be deemed to be the impairment that is listed in that document and that is most analogous to the impairment sustained by the insured person. O. Reg. 403/96, s. 2 (3); O. Reg. 281/03, s. 1 (8). The differences between the definitions pre-and-post September 30, 2003, are not material to the discussion in this paper.

6 The provisions of both definitions that have given rise to the most litigation, in the past year, are those found in Sections 1.1 and 1.2 (f) and (g). The criteria set out in subparagraphs (f) and (g) have been in the Statutory Accident Benefits Schedule since November In our experience, there seemed to be very little attention paid to subparagraph (g), marked or extreme mental or behavioural disorder, until recently. Given the recent case law, subparagraph (g) may be the area of greatest concern for insurers going forward. The leading decision in the interpretation of catastrophic impairment is Desbiens et al v. Mordini et al, [2004] O.J. No.4735 (Ont.S.C.J.), a decision of Mr. Justice Spiegel, released on November 17, Mr. Desbiens was rendered a paraplegic due to an injury to his spinal column in In November 1999, while operating his wheelchair on a sidewalk, he was struck by the defendant, Mordini. He claimed that as a result of the injuries sustained in the accident, he had sustained a catastrophic impairment, as defined for tort purposes, under Section of The Insurance Act. The definition of catastrophic impairment in Section mirrors the definition in the Statutory Accident Benefits Schedule. He claimed that he met the definition under Section (f) and (g). The injuries sustained in the accident included a spiral fracture of the right femur and severe constant daily headaches. There were complaints of memory and other neurological difficulties. He had developed pain in his neck, shoulders and elbow. There were reports of hip pain. The evidence at trial showed a significant interference with hobbies and activities which he was able to undertake, despite being a paraplegic.

7 Mr. Justice Spiegel undertook an in depth review of the principles, workings and philosophy of the American Evaluation of Permanent Impairment, 4 th edition, For anyone doing tort and Statutory Accident Benefits work, a review of the Judgment is mandatory reading. The two doctors who attempted to quantify the whole person impairment, for the purposes of subparagraph (f) rating, faced an interesting challenge in light of the pre-existing paraplegia. The Judgment stated that both the plaintiff s assessor and the defence s assessor recognized the need to take an approach that would permit an assessor to adequately capture the impact of Mr. Desbiens impairments superimposed upon his pre-existing paraplegia. Essentially, the plaintiff s doctor assessed the physical impairments such that the impairments exceeded the 55% whole person impairment. The defence doctor arrived at a 40% whole person physical impairment. The Judge found that there was impairment in accordance with subparagraph (f). The initial finding of the Court was that Mr. Desbiens had sustained a catastrophic impairment. This finding was made without regard to any psychological impairment. The Court went on, in the event that the finding on physically based impairment was in error, to consider the following question: On a proper interpretation of the Regulation, is it in accordance with the Guides to assign percentage ratings to Mr. Desbiens psychological impairments and combine them with his physical impairments, for the purpose of determining whether his impairments meet the definition of catastrophic as defined by clause (f)?. The answer was that you could. This was contrary to the way assessments were being conducted by DACs and to the belief of most doctors and lawyers working in the system. The Court concluded that if the plaintiff s doctor s evidence that the physically based whole person impairment in excess of 55% was inaccurate, then combining the defence doctor s whole person

8 impairment of 40%, with the psychological impairment, resulted in a whole person impairment of 55%. The Desbiens decision also involved a discussion of subparagraph (g) which has been followed in recent cases (discussed below). It appears that the Desbiens decision educated quite a few members of the plaintiff s bar. It is my perception that applications for catastrophic impairment have increased since its release. In 2006, a number of decisions were released by the Financial Services Commission of Ontario with respect to the issue of catastrophic impairment. One of the more anticipated decisions was the Appeal decision of the Director s Delegate, Nancy Makepeace, in Belair Insurance Company Inc. and David McMichael, (F.S.C.O. Appeal P ), March 14, David McMichael was injured in a motor vehicle accident on June 14, Mr. McMichael was claiming attendant care beyond 104 weeks and by implication, was obliged to establish that he had suffered a catastrophic impairment as defined in Section 2(1.1) of the SABS. The critical issue in the case was whether or not there was a causal relationship between the car accident and current psychological addiction difficulties, and in particular, an addiction to crack cocaine. Essentially, Mr. McMichael alleged that as a result of the accident, he had become a crack cocaine addict. As a result of his crack cocaine addiction, combined with some chronic pain complaints and other emotional and behavioural cognitive issues, he alleged that he was catastrophically impaired under (f) and (g) of the definition. The arbitrator accepted, despite evidence of pre-existing use, that Mr. McMichael s drug addiction was as a direct consequence of the accident. A CAT DAC assessment had concluded that Mr. McMichael s impairments did not meet the criteria for either paragraph (f) or (g).

9 The American Medical Association s Guides to the Evaluation of Permanent Impairment (the Guides ) established a classification table for the assessment of psychological disorders. In essence, there are four areas of function that are to be assessed. The classification table is reproduced below: Area or Aspect of Functioning Class 1: No impairment Class 2: Mild impairment Class 3: Moderate impairment Class 4: Marked impairment Class 5: Extreme impairment Activities of daily living No impairment is noted Impairment levels are compatible with most useful functioning Impairment levels are compatible with some, but not all, useful functioning Impairment levels significantly impede useful functioning Impairment levels preclude useful functioning Social Functioning Concentration Adaption Several issues arise: 1. Is marked impairment in one of the four areas sufficient to meet the test for catastrophic impairment? 2. How subjective is a designation that tries to distinguish between moderate impairment and marked impairment? In the initial arbitration decision in McMichael, the arbitrator concluded that the DAC assessors had not gathered useful information about Mr. McMichael s level of functioning. Had they done so, it might have resulted in a more favourably score when the evidence, taken as a whole, was considered. The DAC failed to incorporate much of the collateral evidence of family members and others. The arbitrator referred to the Guides criteria for the Assessment of Severity by areas of function for subparagraph (g) issues, as follows: Assessment of Severity Describe in detail the severity of limitations imposed by the disorder...

10 1. Activities of daily living, including adaptive activities, such as cleaning, shopping, cooking, taking public transportation, paying bills, maintaining a residence, caring for self, grooming, using the telephone and directory, using the post office and working. 2. Social functioning and ability to get along with others, including family members, friends, neighbours, grocery clerks, landlords, and others of the public. Social functioning in work situations may involve responding appropriately to persons in authority and co-operative behaviour towards co-workers. 3. Concentration, persistence, and pace (task completion); this refers to the patient s ability to sustain focused attention long enough to permit the completion of everyday tasks in the workplace or home. Describe deficiencies in concentration, persistence, and pace that have been observed at work or in the work-like settings. Include relevant information from the mental status examination and from psychological testing. 4. Deterioration or decompensation in work-like settings; describe failures to adapt to stressful circumstances that cause the individual either to withdraw from the situation or to experience signs and symptoms and difficulties with activities of daily living, social relationships, concentration, persistence, and pace. Describe any decompensation at work, which might involve decisions, attendance, schedules, completing tasks, interactions with supervisors, and interactions with peers. The Guides describe this fourth area of assessment as follows: Deterioration or decompensation in work or work-like settings refers to repeated failure to adapt to stressful circumstances. In the face of such circumstances, the individual may withdraw from the situation or experience exacerbation of signs and symptoms of a mental disorder, that is, decompensate and have difficulty maintaining activities of daily living, continuing social relationships, and completing tasks. Stresses common to the work environment include attendance, making decisions, scheduling, completing tasks, and interacting with supervisors and peers... In McMichael, the arbitrator found that Mr. McMichael had scored a Class 4, marked psychological impairment, in 3 of the 4 areas of the assessment. He also found that even if only assessed in one area as marked, he would have met the definition of catastrophic impairment in accordance with subparagraph (g) of Section 2(1.1).

11 With respect to subparagraph (f), the arbitrator found that Mr. Michael did NOT have 55% whole body impairment, based solely on physical impairment. The CAT DAC had found 31% whole body impairment, based on the physical impairments as assessed. Mr. McMichael submitted that if his psychological impairments were added to the physical impairments, in accordance with Desbiens, he would meet the test under subparagraph (f). It was a matter of converting the psychological results into a percentage score for the purpose of the whole person impairment calculation. Belair argued that in Desbiens, the Court had opinion evidence of a doctor as to the proper percentage to apply. This had not been done by Mr. McMichael at the arbitration. Ultimately, while agreeing that the psychological impairment could be added to the physical impairments, the arbitrator declined to do so based on the evidence in the case. The Appeal decision of the Director s Delegate, Ms. Makepeace, confirmed the original arbitration decision. Accordingly, there was no finding under subparagraph (f). The Director s Delegate upheld the arbitrator s finding that a Class 4 or 5 impairment was required in only one functional area to meet the test under subparagraph (g). Belair had appealed, on the basis that the finding of impairment under subparagraph (g) and a finding of no catastrophic impairment under subparagraph (f) were irreconcilable. The Director s Delegate simply rejected this argument out of hand, stating that the catastrophic impairment ratings are clearly alternatives. The Director s Delegate agreed with Justice Spiegel s comment in Desbiens that the statutory direction that an impairment be evaluated in accordance with the AMA Guides should be given a fair, large and liberal interpretation so as to ensure the attainment of the object of the act according to its true intent, meaning and spirit. The Director s Delegate specifically approved Justice Spiegel s conclusion in Desbiens that impairments due to mental or behavioural disorders described in subparagraph (g) could be assigned

12 a percentage and combined with other impairments in the assessment of whole body impairment under subparagraph (f). The Desbiens decision was reached after the closing of evidence in McMichael and the Director s Delegate noted that the arbitrator limited himself to a discussion of the issue without making a finding on the combined rating. The remainder of the Director s Delegate decision deals with the issue of causation vis-a-vis drug abuse, addiction and a motor vehicle accident. In Ms. G and Pilot Insurance Company, (F.S.C.O. A ), March 16, 2006, Arbitrator Lawrence Blackman dealt with the issue as to whether or not Ms. G sustained a catastrophic impairment as defined by paragraphs 2(1)(f) or 2(1)(g) of the then applicable Schedule. He found that she had sustained a catastrophic impairment as defined by subparagraph (f) and had not suffered a catastrophic impairment as defined by subparagraph (g). This decision is of interest given the comments of Arbitrator Blackman under the heading General Principles found at pages 3, 4 and 5 of the decision. He points out that the Guides do not cover all conditions arising out of injuries. He refers to the fact, as have several Judges, that the Guides themselves caution as to their reliability for interpreting disability and strongly discourage the use of any Guides but the most recent edition. The Guides referred to in the Statutory Accident Benefits Schedule are over a decade old and have been replaced by further editions. The Schedule mandates adherence to an outdated 4 th edition. Paragraph 2(1)(3) provides that an impairment that is sustained by an insured person but not listed in the Guides, shall be deemed to be the impairment that is listed in that document that is most analogous to the impairments sustained by the insured person. Arbitrator Blackman stated that the approach of the Schedule is that ultimately, the determination of a catastrophic impairment is an adjudicative determination, rather than a medical determination. The trier of fact is not simply reduced to choosing between expert medical opinions. He stated:

13 In addition, it is important to be cognizant that the Guides are not intended to reduce human beings to a collection of bones, nerves, flesh and sinew. Body parts do not have impairments. People have impairments. Arbitrator Blackman s decision is also informative for a comment on the expert evidence that he received. At page 13 of the decision, he stated: Before proceeding, I wish to acknowledge and thank both Dr. Ameis and Dr. Becker for their most helpful evidence and their tremendous expertise in this complicated area of CAT DAC assessment. Their somewhat different philosophical approaches helped to better illuminate some of the shortfalls of the Guides as a less than perfect scientific tool. However, one s enthusiasm for a topic may, on occasion, cloud the sometimes difficult line between neutrality and advocacy. Arbitrator Blackman rejected arguments that the psychological impairment should not be included in the whole person impairment ratings, and followed Desbiens and McMichael. Ultimately, after an extensive and complex review of the impairment ratings in accordance with the Guides, Arbitrator Blackman found the 55% whole body impairment but did not find impairment under subparagraph (g). In Rozana Lee, By Her Guardian of Property, Wai Ching Lee and State Farm Automobile Insurance Company, (F.S.C.O. A ), February 3, 2006, Arbitrator Denise Ashby found that the plaintiff had sustained a catastrophic impairment under Section 2(1)(g) of the Schedule. Ms. Lee had been involved in an accident on August 21, She was a passenger in a vehicle travelling at approximately 20 kms. to 30 kms. per hour when it struck a car ahead. The issue in this case is one of causation. Ms. Lee had a pre-existing, long standing passive dependent personality style. There was evidence of pre-existing dependence or abuse of narcotic medications.

14 The arbitrator concluded that despite these pre-existing problems, the issue was whether or not the accident significantly or materially contributed to her post-accident impairment. There were an array of diagnoses vis-a-vis Ms. Lee. There was universal agreement that she had regressed to a childlike state. The arbitrator found on the totality of the evidence, that the regression was caused by the accident. Numerous medical examiners found Class 4 and 5 impairments and the arbitrator concluded that Ms. Lee had developed a mental or behavioural disorder in accordance with Section 2(1.1)(g) of the Schedule and that she was catastrophically impaired. In B.P. and Primmum Insurance Co., (F.S.C.O. A ), December 21, 2006, Arbitrator Blackman found that the insured had sustained a catastrophic impairment within the meaning of paragraph 2(1)(f) of the Schedule. The accident in issue occurred on May 10, The insurer argued that changes made to the Schedule after 2003 applied to this case. The insured had not applied for a catastrophic impairment designation until after the legislative changes. Arbitrator Blackman concluded that the definition of catastrophic impairment in place at the time of the accident was applicable. He referred to earlier decisions which have held that the common law rule of construction is that legislation is presumed only to apply prospectively. It is not to be construed as having retrospective or retroactive operation unless such a construction is expressly, or by necessary implication, required by its language. Legislation should not be applied in circumstances where its application would interfere with vested rights. B.P. was 22 years of age when his leg was severed in a motorcycle accident. His position was that his whole person impairment was 71% to 73%. Primmum submitted that it was a 44% whole person impairment. Arbitrator Blackman again referred to the Guides and the fact that they themselves indicate that they cannot provide answers about every type and degree of impairment in part because the field of

15 medicine and medical practice is characterized by constant change in understanding disease and its manifestations, diagnosis, and treatment. He continued: That the Guides is not exhaustive is confirmed by subsection 2(3) of the Schedule, which provides that if an impairment is not listed in the Guides, then the impairment shall be deemed to be the impairment most analogous to the impairment sustained by the insured person. In this case, the arbitrator found a 20% whole person impairment relating to skin issues arising as a result of the amputation. There was expert evidence that a moderate impairment of mental and behavioural assessment resulted in limited social and recreational activities. An expert psychiatrist gave evidence of a whole person impairment of 20% to 25%. This evidence was rejected. The arbitrator accepted the CAT DAC psychiatric assessment under subparagraph (g) which found mild impairments in activities of daily living, social functioning, concentration, persistent and pace. With respect to adaptation to work or workplace settings, there was no impairment. The arbitrator found, based on other evidence, that the CAT DAC assessors rating for adaptation ought to be indicated at mild. The CAT DAC 44% whole person impairment did not include any rating for mental and behavioural disorders under chapter 14 of the Guides. Dr. Becker gave evidence that there were psychiatric and emotional issues and that a rating for mental and behavioural impairment should be added to the WPI. Arbitrator Blackman agreed. Arbitrator Blackman ultimately determined that 15% was an appropriate impairment rating for the mental condition, and therefore, on a combined basis, he sustained catastrophic injury. 2. AGGRAVATED DAMAGES: YOU DON T NEED A SEPARATE ACTIONABLE WRONG AFTER ALL On June 29, 2006, the Supreme Court of Canada released its decision in Fidler v. Sun Life Assurance Co. of Canada, [2006] S.C.J. No.30.

16 In Fidler, the plaintiff received Long Term Disability Benefits from Sun Life Assurance, through her employer. At the age of 36, she began to receive Long Term Disability Benefits. She suffered from chronic fatigue syndrome and fibromyalgia. The test for ongoing entitlement changed at the two year mark. She was only entitled to benefits if she was unable to do any job for which she was reasonably suited by reason of training, education or experience. One week prior to trial, the insurer reinstated benefits and paid arrears. The only issue at trial related to aggravated and punitive damages for bad faith. The trial Judge awarded aggravated damages in the sum of $20, given that the contract was one of peace of mind. The trial Judge found that the insurer s conduct did not constitute bad faith so as to warrant punitive damages. The British Columbia Court of Appeal upheld the award of aggravated damages, and reversed the finding on bad faith. The Court of Appeal found that the conduct of the insurer did constitute bad faith, which required denunciation and deterrence. The Court of Appeal awarded $100, in punitive damages finding a palpable and overriding error on the question of bad faith. The head note of the Supreme Court decision reads as follows: Damages for mental distress for breach of contract may be recovered where they are established on the evidence and shown to have been within a reasonable contemplation of the parties at the time the contract was made. There is no requirement for an independent actionable wrong. In order to be successful, a plaintiff must prove his or her loss and the Court must be satisfied that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. These questions require sensitivity to the particular facts of each case. Here, given the nature of a disability insurance contract, it would have been within the reasonable contemplation of the parties at the time the contract was made, that mental distress would likely flow from a failure to pay the required benefits. An unwarranted delay in receiving the bargained for protection can be extremely stressful. The mental distress at issue here was of a degree sufficient to warrant compensation... The Court of Appeal s award of punitive damages must be set aside. Punitive damages are not compensatory. They are designed to address the purposes of retribution, deterrence and denunciation. However, an insurer will not necessarily be liable for such damages by incorrectly denying a claim that is eventually conceded, or judicially determined, to be legitimate. The question in each case is whether the denial was the result of the overwhelmingly inadequate handling of the claim, or the introduction of improper considerations into the claims process. Ultimately, each case revolves around its own facts. Here, after a thorough review of the relevant

17 evidence, the trial Judge found that the insurer had not acted in bad faith. He considered every salient aspect of how the insurer handled the claim and concluded that its denial of benefits was the product of real, albeit incorrect, doubt as to whether F was incapable of performing any work. The termination of benefits relating to an unobservable disability in the absence of any medical evidence indicating an ability to return to work, represents conduct that is troubling, but not sufficiently so as to justify interfering with the trial Judge s conclusion that there was no bad faith. In the reasons, the Court once again stated that to attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency the exceptional case that can be described as malicious, oppressive or high handed in that it offends the Court s sense of decency. Certainly, it can be argued that Statutory Accident Benefits are based on a peace of mind contract of insurance and that in the proper case, aggravated damages should be awarded. Entitlement to aggravated damages should be easier to establish than punitive damages, given the rather significant level of poor conduct required to attract a punitive damage award. In P.K.R. v. Unum Life Insurance Company of America, 2006 CanLII (ON. S.C.), a decision of Mr. Justice Polowin dated December 11, 2006, the Court provided an addendum to an initial set of reasons delivered on May 12, The decision was rendered in light of the Supreme Court s reasons in Fidler. The plaintiff had amended his claim at trial to claim $500, for punitive damages and $100, for aggravated damages. At the time of the initial reasons, the Judge had concluded that to obtain aggravated damages, the plaintiff needed to establish a separate actionable wrong. When Fidler was released, no formal Order or Judgment had been entered in the P.K.R. file. The plaintiff sought a variation on the decision given the change in the law for mental distress and aggravated damages as the result of the Supreme Court s decision. The plaintiff again sought to amend the Statement of Claim to allege more significant damages for aggravated and punitive damages. The defendant submitted that the Fidler case held that a plaintiff need not establish a separate independent actionable wrong to be entitled to an award for mental distress damages in a breach of contract case if they could meet a two part test:

18 (a) (b) That the object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and That the degree of mental suffering caused by the breach was a degree sufficient to warrant compensation. The defendant submitted that the plaintiff bears the burden of providing these two branches of the test, and that the evidence did not do so in this case. The plaintiff s amendment in the sum of $600, was for more than simply aggravated damages. The aggravated damages claim was for the sum of $100, The plaintiff sought $600, for consequential damages including damages for mental distress, damages relating to the sale of a home, and damages related to the reduction of an investment portfolio. The Court accepted the defence position that had it been aware of the potential exposure, it would have conducted the defence differently. There might have been a need for expert evidence on a number of issues. The Court noted that damages for consequential loss are separate and distinct from damages for mental distress. The amendment was not allowed. The damages for mental distress were assessed at $30, THE COURT OF APPEAL STUMPS THE EXPERTS - INSURERS CAN T SUE INSUREDS FOR DECLARATORY RELIEF AFTER ALL In Liberty Mutual v. Fernandes, [2006], O.J. No (C.A.), the Court of Appeal held that an insurer does not have the right to bring an action for a declaration that an insured has not suffered a catastrophic impairment following a CAT DAC which deems the insured catastrophic. In coming to this conclusion, the Court put to rest two commonly held perceptions regarding CAT DACs: 1. That the insurer did indeed have this right to seek a declaration; and

19 2. That the CAT DAC is binding upon the insurer in that they are required to pay the benefits based upon the finding of the CAT DAC, and subject to other issues of entitlement and quantum, until the final determination of the dispute. Now, neither statement can be taken as correct. Historically, Arbitrators at the Financial Services Commission have accepted that the insurer only has a common law right to commence an action, but not the right to commence an arbitration. This was widely perceived to be the law, although recently, cases such as Travellers Casualty and Surety Co. of Canada v. Scanlan and the trial decision in Fernandes had brought this into question. The Court of Appeal held that ss of The Insurance Act constitute a complete code for the determination of entitlement and quantum, and that the insurer has no right of action under the Act. Pursuant to Section 40(4) of the SABS, the finding of the CAT DAC is binding on the insurer subject to the determination of a dispute in accordance with s.279 to 283. The insurer may commence a mediation, but may not bring action and must allow the insured to select the forum in which the dispute will be resolved. The onus is on the insured to follow through with the dispute resolution process after a failed mediation in order to obtain the benefits he or she would be entitled to as a result of the contested CAT DAC. The insurer is only required to pay in accordance with its last offer at mediation. The Court stated: The practical effect of s. 281(3) of the Act, read in conjunction with s. 40(4) of the SABS, is that although the CAT DAC finding is binding on both parties, if the insurer seeks mediation pursuant s. 280 of the Act and the mediation fails, the insurer need only pay benefits in accordance with the last offer of settlement it made before the failed mediation, until the parties agree or until a Court, an arbitrator, or Director on appeal from the arbitrator under the Act, orders otherwise. Consequently, the onus is always on the insured to initiate dispute resolution after a failed mediation in order to seek any additional benefits that may be warranted by the CAT DAC. If the insured does not act, the insurer will only pay benefits in the amount at which is was prepared to settle. The insurer is thereby protected and need not pay the additional benefits to which it objects unless so ordered through the

20 dispute resolution scheme. The insured is similarly protected as it has the right, pursuant to s. 281(1), to commence litigation or arbitration to try to obtain the benefit of a favourable CAT DAC finding. By leaving the choice of forum always with the insured, the legislature has guaranteed that the insured maintains control of the process including its timing and cost. See Baron v. Kingsway General Insurance Co. (2006), 35 C.C.L.I. (4 th ) 180 (Sup. Ct.) at para. 29. Arbitration under the Act is an expeditious and much less costly process than a Court action, but the Court option is open to an insured. At the same time, s. 281(5) (now s ), protects the insurer from any undue delay by the insured in initiating dispute resolution, by providing a two year limitation (subject to the SABS) following an insurer s refusal to pay a claimed benefit, for a step to be taken under s. 281(1). The result is that when s. 281 is read in its entirety, it is evident that the insurer is not left without a remedy when it wishes to dispute the finding of the CAT DAC. It is given a remedy by the operation of the provisions: if an insurer wishes to dispute a CAT DAC finding, it can commence mediation. If mediation has been tried and failed the insurer can revert to paying only what it was willing to settle for until there is an agreement or an order directing a different amount. As a result, an insured cannot, in effect, allow the mediation to fail, then claim that the CAT DAC finding is binding on the insurer and take no further action. Rather, the insured would be obliged to use its right in to seek to obtain the higher benefits that are available to a person with a catastrophic impairment. The Court of Appeal also noted that insurers should not view s.281(3) and (4) as an invitation to make an unreasonably low offer to settle at mediation, in order to pay only that amount until the dispute is resolved. In Samoila v. Prudential of America General Insurance Co., [1999] O.J. No. 2317, the insurer made an offer of zero, and the Court on a motion exercised its power to grant a higher amount. The Court of Appeal decision in Fernandes follows two recent cases on similar issues. In Baron v. Kingsway General Insurance (2006), 80 O.R. (3d) 290, Justice Pardu, while dealing with a motion for independent medical examinations, held that an insurer does have the ability to contest a CAT DAC finding, but that this must be in the forum selected by the insured. Justice Pardu comments that the insurer is generally required to continue payments until the issue is finally resolved. It does not appear that this is the case, and the Court of Appeal states quite clearly that the insurer is only required to pay in accordance with its last offer made at mediation. This ought

21 to be similar for any pay pending dispute benefit as all contain similar wording to the effect that the insurer may dispute the obligation to pay the benefit in accordance with ss of The Insurance Act, and pending the resolution of the dispute, the insurer shall pay the benefit. In Royal and Sun Alliance v. Di Pietro, [2005] O.J. No. 6054, the insurer sought an injunction restraining itself from paying income replacement benefits in accordance with a DAC. Justice N.J. Spies held that an injunction was not available under the circumstances. Justice Spies made the following comment, perhaps in obiter: Unlike the insured, however, the plaintiff does not have recourse to binding arbitration and its only remedy is to commence action. In the meantime, the insurer is statutorily obligated to continue to make the payments to the defendant notwithstanding that it takes issue with the DAC ruling. This case is noted in a footnote in the Fernandes decision and on these two points ought to be considered overruled. 4. WAD I or WAD II - SECTION 5 (2) OF THE SCHEDULE - Kieffer and Economical Mutual Insurance Company, (F.S.C.O. A ) With the enactment of Bill 198, the Statutory Accident Benefits Schedule incorporated a classification system first enunciated by a Quebec task force dealing with whiplash associated disorders. This classification scheme refers to WAD I and WAD II. Where there is a diagnosis of WAD I or WAD II, protocols are prescribed for scope and duration of rehabilitation, and for accidents which occur after April 14, 2004, income replacement benefits are paid on a limited basis. Section 5(2) of the Schedule provides that income replacement benefits shall not be paid for longer than 12 weeks after the accident in the case of a WAD I injury, or 16 weeks in the case of a WAD II injury. The criteria with respect to what constitutes a Grade I whiplash or a Grade II whiplash are set out in the pre-approved framework guidelines published by the Financial Services Commission of Ontario.

22 In Kieffer, the insured was paid 16 weeks of benefits. The benefits were terminated on the basis that she had suffered a WAD II injury. Under the guidelines, a person with a WAD II injury will present with neck complaints and musculoskeletal signs. The Grade II whiplash guideline (also known as the pre-approved framework ) sets out the goods and services that may be provided without insurer approval. It is a guide for diagnosing WAD II injuries and describes a short course of treatment. Section 2 of the Grade II whiplash guideline defines the impairments that come within the guideline. Complaints of non-radicular back symptoms associated with WAD II do not exclude the impairment from the guideline. Other common symptoms, including shoulder pain, referred arm pain, dizziness, tinnitus, headaches, difficulties with hearing, memory acuity, dysphagia and temporo-mandibular joint pain, also do not exclude the impairment from the guideline unless they require separate treatment from that provided under this guideline. The insured submitted that she sustained impairments that did not come within the Grade II whiplash guideline. She referred to other significant impairments, including sacroiliac joint dysfunction, chronic pain, and psychological impairment, that are distinct from WAD II. The symptoms persisted beyond the period covered by the guideline and required separate treatment. Economical took the position that all of her problems related to the WAD II injury. The arbitrator found that Section 5(2)(e) incorporated the entire Grade II whiplash guideline by reference. Given that this scheme is full of exceptions and exemptions, so is Section 5(2). The arbitrator cited a number of examples of problems that would exclude an insured from the Grade II whiplash guideline. He noted in particular that an insured person may be excluded from the guideline if: 1. The insured person s complaints include radicular back symptoms; 2. The insured person has other significant impairments (distinct from the WAD II) arising from the same accident; or 3. The insured person has additional symptoms associated with WAD II that require separate treatment from that provided under the guideline.

23 The arbitrator held that the diagnosis of WAD II did not determine the applicability of Section 5(2). Rather, the issue becomes whether or not the impairment comes within the WAD II whiplash guideline. He stated that each case must be carefully determined upon its own facts. Psychological impairment, either as a distinct injury from WAD II or an additional symptom of the WAD II that required separate treatment from that provided under the guideline, took her out of the whiplash guideline. 5. RELIEF FROM FORFEITURE - LATE NOTICE OF THE SABS CLAIM - Cervo v. State Farm, [2006] CanLII (ON.C.A.) The Appellant, Gerardo Cervo, was injured in a motor vehicle accident on December 1, Section 59(1) of the then applicable Statutory Accident Benefits Schedule, Ontario Reg. 776/93, obliged him to have notified State Farm of the accident within 30 days or as soon as practicable thereafter. Section 59(4) provided that a failure to comply with the time line set out in subsection (1) does not disentitle a person to benefits if the person has a reasonable excuse. Section 129 of The Insurance Act provides: 129. Whether there has been imperfect compliance with the Statutory Condition as to the proof of loss to be given by the insured or other matter or thing required to be done or admitted by the insured with respect to the loss and the consequent forfeiture or avoidance of the insurance in whole or in part, and the Court considers it inequitable that the insurance should be forfeited or avoided on that ground, the Court may relieve against the forfeiture or avoidance on such times that it considers just. The Respondent argued that Section 59(4) occupied the field if relief from forfeiture under Section129 of the Act was not available. The Court of Appeal rejected this submission. There was nothing in the language of Section 59 that rendered nugatory the more general and well known relief from forfeiture provided in Section 129 of The Insurance Act.

24 Section 59's reasonable excuse and the criteria under Section 129 were significantly different. The Court of Appeal referred to the Supreme Court of Canada decision in Falk Bros. Industries Limited v. Alliance Steel Fabricating Co., [1989] 2 S.C.R. 778, with the proposition that the failure of an insured to comply with the time limit for giving notice of a potential claim to an insurer is imperfect compliance covered by Section 129. The Ontario Court of Appeal confirmed the Supreme Court s analysis that Section 129 is a remedial section that should be given broad interpretation to prevent hardship to beneficiaries where there has been a failure to comply with the condition, and where leniency in respect of strict compliance will not result in prejudice to the insurer. The motions Court Judge had identified the only hardship to the Appellant as being the risk of an action against his lawyer. The motions Court Judge described the prejudice to State Farm as the loss of an opportunity to conduct early examinations and to provide therapeutic interventions. Ultimately, the motions Court Judge refused to grant relief from forfeiture. The first notice to the insurer was November 29, 1996, approximately 2 years post-accident. In dissent, Mr. Justice MacPherson found that there was significant prejudice by denial of the SABS and he did not think that the record put forward by State Farm supported a finding of strong prejudice. Mr. Justice LaBrosse, for the majority, stated that reliance on a solicitor was not a reasonable excuse. The actions of the solicitor were the actions of the principal. Complexity of the legal issues was also not a reasonable excuse. There was no disadvantage to simply applying immediately after the accident took place.

25 The majority of the Court of Appeal deferred to the trial Judge s exercise of discretion. The majority noted that the dissenting Judge would have exercised his discretion differently and put more weight on the hardship to Cervo than on the prejudice to State Farm. Mr. Justice LaBrosse stated: In my respectful opinion, it is an error for this Court to substitute its preference of the evidence when the motions Judge made no mistake in the exercise of her discretion. The Cervo decision may be contrasted with the Director s Delegate s decision in Coseco Insurance Company and Novakovic, (F.S.C.O. Appeal P ), June 22, 2006). This Appeal dealt with the applicability of Section 32(1) of the SABS , which requires a claimant to notify the insurer within 30 days after the circumstances arose that give rise to entitlement to the benefits, or as soon as practicable thereafter. Mr. Novakovic gave notice in October 2002, over 4 years post-accident. The arbitrator ruled that Mr. Novakovic had a reasonable explanation for the delay pursuant to Section 31(1). Mr. Novakovic was 14 years of age when struck by a car. While the insured was a minor at the time of the accident, the arbitrator concluded that he did not notify Coseco as soon as practicable following his 18 th birthday. The defence was really based on the finding of reasonable explanation. Mr. Novakovic was ignorant of the law. There were a number of family and cultural issues which delayed his bringing notice. The arbitrator found limited prejudice particularly given that the limitation period set out in subsection 32(1) was postponed from March 24, 1998 to June 14, 2001, when Mr. Novakovic turned 18. There was little evidence of further prejudice between July 14, 2001 and October 17, 2002, when the notice was given. The Director s Delegate reiterated the principles which govern the interpretation of the words reasonable explanation in Section 31(1) of the Schedule as follows: An explanation must be determined to be credible or worthy of belief before its reasonableness can be assessed.

26 The onus is on the insured person to establish a reasonable explanation. Ignorance of the law alone is not a reasonable explanation. The test of reasonable explanation is both a subjective and objective test that should take account of both personal characteristics and a reasonable person standard. The lack of prejudice to the insurer does not make an explanation automatically reasonable. An assessment of reasonableness includes a balancing of prejudice to the insurer, hardship to the claimant and whether it is equitable to relieve against the consequences of the failure to comply with the time limit. There are a series of cases that have held that Section 129 of The Insurance Act and the provisions of relief from forfeiture therein are not available to an arbitrator at F.S.C.O. The Director s Delegate stated, however: Unlike the Courts, F.S.C.O. adjudicators do not have power to grant equitable relief. However, they have implicit power to apply equitable principles in the ordinary exercise of [their] statutory jurisdiction. I do not accept that an arbitrator requires equitable jurisdiction to consider the balance of the parties interests in deciding whether the claimant s explanation is reasonable pursuant to Section 31 (1) of the SABS. Though I agree that the SABS focuses the inquiry more on the insured person s circumstances and less on the impact on the insurer, than would normally be expected in a traditional relief from forfeiture explanation, I agree with Arbitrator Renahan that the claimant s explanation must be examined with regard to all the circumstances connected to the delay, including prejudice to the insurer, hardship to the claimant and whether it is equitable to relieve against the consequences of the failure to comply with the time limit. For the reasons given earlier, I find that Section 31(1) expressly invites a broad contextsensitive exercise by using the word reasonable. In my view, the context includes the interests of the parties. The 30-day time limit in Section 32(1) is intended to allow the insurer to investigate and adjust the claim promptly based on contemporaneous information, but the legislature also provided Section 31(1), which allows some delays to be forgiven in the interest of promoting the consumer protection objectives of the SABS. In my view, the balancing of factors reflected in the Commission s reasonable excuse/explanation decisions is entirely consistent with the intent of the SABS. 6. REDUCING IRBs - HOOPP DISABILITY PENSION NOT DEDUCTIBLE FROM INCOME REPLACEMENT BENEFITS - State Farm Automobile Insurance Co. v. Scott, [2006] O.J. No.2928 (Divisional Court)

27 In this application for judicial review, State Farm sought review of an Order that HOOPP benefits received by the insured were not deductible from income replacement benefits. The HOOPP payments were a disability retirement pension. The calculation of the benefit is based upon income and years of service and is identical to the calculation of a normal retirement pension. The Court noted that the benefits do not depend on a demonstrated loss of income. Ms. Scott did not need to be working at the time of the onset of disability. Relying on Cugliari v. White (1998), 38 O.R. (3d) 641 and Wilcox v. Economical Mutual Insurence Co., (F.S.C.O. Appeal P ), the Court held that the benefits were a nonindemnifying disability pension similar to CPP and not an income continuation plan. The Court concluded that the decision of the Director s Delegate that the benefit was not deductible was not patently unreasonable. 7. YOU CAN HAVE FUN WITH THE FUND - Kingsway General Insurance Company v. Her Majesty the Queen in Right of Ontario as represented by the Minister of Finance, [2007] (ON. C.A.) 62 and Allstate Insurance Company of Canada v. Motor Vehicle Accident Claims Fund, [2007] (ON. C.A.) 61 On January 31, 2007, the Ontario Court of Appeal released its reasons in these cases. There was a common issue. The issue was whether or not the Motor Vehicle Accident Claims Fund was an insurer under Ontario Regulation 283/95, for the purpose of mandatory arbitration relating to disputes between insurers over the payments of Accident Benefits. There were conflicting decisions as to whether or not the Fund was an insurer. In Allstate, an Appeal from the arbitrator s ruling, Mr. Justice Ferguson concluded that he was bound to apply the Ontario Court of Appeal s decision in Kalinkine v. Ontario (Superintendent of Financial Services), [2007] O.J. No. 5138, in which the Court had held that the Fund was not an insurer under the Regulation. Allstate Insurance was not required to submit to an arbitration initiated by the Fund. Justice Ferguson then set out reasons why he disagreed with the Court of Appeal s decision and stated that the applicable Regulation, while not well drafted, when properly interpreted included the Fund as an insurer. His four reasons were as follows:

28 The overall scheme for paying Accident Benefits contemplates the Fund being treated as an insurer for the purpose of determining who should pay the benefits, which would include the issue of determining whether the Fund or an insurer should pay. The clear intent of the Lieutenant Governor-in-Council is that the term insurer in Regulation 283 includes the Fund. The provisions of Regulation 283 would be frustrated or made very cumbersome if the term insurer is not construed to include the Fund. The Court is obliged to interpret the Regulation in a manner most likely to facilitate the scheme intended by the legislature and the Lieutenant Governor-in-Council. Mr. Justice Laskin, for the Court of Appeal, agreed with Mr. Justice Ferguson and effectively, overruled its earlier decision. The Kingsway General decision also dealt with a second issue involving whether or not the arbitrator had jurisdiction to make an Order obliging Kingsway General to pay Statutory Accident Benefits regardless of whether or not it was actually the insurer at the time of the accident. The arbitrator had found that there was a significant nexus between the Applicant and Kingsway General. Kingsway General s position was that their policy had been cancelled before the accident. The Applicant had applied to Kingsway General first. The arbitrator concluded that Kingsway General should have paid the benefits because of the nexus between it and the Applicant. The arbitrator held that Kingsway General s failure to pay benefits was in breach of Section 2 of Regulation 283, which provides: The first insurer that receives a completed Application for Benefits is responsible for paying benefits to an insured person pending resolution of any dispute as to which insurer is required to pay benefits under Section 268 of the Act. The motions Court Judge agreed that Kingsway General had breached Section 2. He held that the arbitrator had no jurisdiction to impose the Order obliging Kingsway to pay even if it was not the insurer. The motions Judge found that the arbitrator was to decide if the issue was whether or not Kingsway General was the insurer at the time of the accident. The Motor Vehicle Accident Claims

29 Fund appealed to the Ontario Court of Appeal on the basis that it was not subject to the Dispute Resolution mechanism. The Court of Appeal stated that insurers could not avoid their obligation under Section 2 by claiming that another insurer should pay or that an insurance policy was cancelled shortly before the accident. The Court of Appeal indicated that it was inclined to agree with the proposition that only in the most extreme of cases, where the connection with the insurer is totally arbitrary, should the insurer refuse to pay. The Court of Appeal agreed that the arbitrator did not have jurisdiction to impose the remedy that he did. 8. HOURLY RATES FOR ATTENDANT CARE UNDER THE SABS - Daly v. ING Halifax Accident Insurance Company, [2006] CanLII (ON. C.A.) In Daly, the Ontario Court of Appeal dealt with issues raised in the interpretation of the provisions of the Bill 164 SABS relating to hourly rates to be used in the calculation of Attendant Care benefits. Under Bill 164, Attendant Care benefits were calculated based on time attributed to various levels of care as set out on what is known as a Form 1. The form is broken down into three parts. The Regulation provides for payment at a particular hourly rate under each part of the form. Difficulties arise when the hourly rates set out in the form do not meet the reality of the claim and the actual amounts that the insured is obliged to pay. In Daly, the Appellant insurer successfully argued that the hourly rates for Attendant Care were mandated by law and are not subject to any discretion. The insurer had paid Attendant Care, based on the hourly rates as set out in Form 1, and what was then Section 50(10) of the Bill 164 SABS. The insured argued that she was entitled to be paid for necessary Attendant Care services at rates higher than those prescribed in the Regulation up to the monthly maximum set out in Section 47 of

30 the Bill 164 SABS. The insured argued that the hourly rates mandated in the Regulation merely preserved the status quo pending a determination of a dispute with respect to the rates. The Court of Appeal accepted the insurer s argument that Form 1 was a worksheet mandated by The Insurance Act and that there was no ambiguity in the rates described in the Regulation. The Court ultimately rejected the insured s argument that if confined to the hourly rate set out in the Regulation, she could never reach the maximum Attendant Care benefit also set out in the Regulation. The Court stated that to argue that an insured person may dispute the hourly rates set out in what was then Section 50(10) ignored the mandatory language of the section. In that subsection, the legislation used the mandatory term shall twice. The hourly rates set out in Section 50(10) are fixed rates and there is no discretion for an assessor to increase or reduce the rates. Section 16 of the current Statutory Accident Benefits Schedule provides for payment of Attendant Care benefits determined in accordance with Form 1, subject to a maximum benefit of $3, per month if non-catastrophic impairment is sustained, and $6, per month if catastrophic impairment occurs as a result of the accident. (See Section 16(4) and 16(5)). There are currently three assessments of Attendant Care needs (Form 1) applicable to the current Statutory Accident Benefits Schedule. One form is used for accidents which occurred before October 1, The second form is to be used for accidents occurring between October 1, 2003 and February 1, The most recent form, on the F.S.C.O. website, relates to accidents which occurred on or after February 1, 2007, and allows for Part 1, care at $11.23 per hour; Part 2,care at $8.00 per hour; and Part 3, care at $17.98 per hour. It would appear that the substance of the forms are the same but that the hourly rates are higher than earlier forms.

31 9. PRIORITY DISPUTE - PRINCIPALLY DEPENDANT FOR CARE - Oxford Mutual Insurance Company v. Co-Operators General Insurance Company, [2006] CanLII (ON. C.A. This case arose as the result of some interesting facts giving rise to a dispute about principal dependency. Co-Operators insured the vehicle in which Mr. Williams was a passenger. He would be an insured person for the purpose of the SABS. The issue was whether or not he was principally dependant on his mother. If so, Oxford Mutual would be obliged to pay the claim, based on the priority provisions of Section 268(2) of The Insurance Act. Mr. Williams was 22 years of age at the time of the accident. Shortly before the accident, he and his girlfriend had separated, with his girlfriend moving back home to her parents. Subsequently, he was charged with assaulting and threatening his former girlfriend. He was subsequently released on bail, with his mother acting as his surety, with terms which included Mr. Williams leaving his own apartment, living with his mother and obeying her house rules. The issue was whether or not the various conditions made it such that Mr. Williams was principally dependant for care on his mother. At the initial arbitration, the arbitrator concluded that Mr. Williams was not dependant on his mother for care. A snapshot approach on the day of the accident was inappropriate. Rather, the time frame chosen must be one that provided a fair picture of the relationship at the time of the accident. On Appeal to a motions Judge, the motions Judge relied on the same principles of law and definitions as the arbitrator and found that the mother acted as a constructive jailer and had a measure of physical control. It was not open for Mr. Williams to terminate the surety Order and that his dependance on his mother would continue for a considerable and indefinite length of time. Given the nature of the relationship, and the significant obligations of care inherent of the surety relationship, the motions Judge found that Mr. Williams was principally dependant. The Court of Appeal criticized the motions Judge for interfering with what was, in essence, a mixed question of fact in law and in its view, closer to a factual determination. It approved the concept of the relationship being examined with a reasonable time perspective and not based on a snapshot at the time of the accident. The Court stated:

32 The true characterization of a dependant relationship at the time of the accident will usually require consideration of that relationship over a period of time, particularly in the case of young adults whose lives are in transition. The Court of Appeal rejected the notion that responsibility under a surety Order determined a dependancy. 10. WHO IS ON FIRST - RBC Travel Insurance Company v. Aviva Canada Limited, [2006] CanLII (ON. C.A.) In this case, the Ontario Court of Appeal dealt with a priority dispute between RBC Travel Insurance and an Ontario automobile insurer (Aviva) with respect to expenses incurred following a motor vehicle accident in the United States. Following the accident, the insured contacted RBC and made an emergency claim for medical expenses. RBC paid a total of $23, on behalf of Ms. Currie shortly after the accident. RBC then commenced an action against Aviva claiming reimbursement. At the initial hearing of the motion, Mr. Justice Moore found the policies were of equal priority and that in accordance with the provisions of Section 268(6) of The Insurance Act, the auto policy was excess to any other insurance not being automobile insurance of the same type. RBC appealed the decision to the Court of Appeal. It argued that Section 268(6) of The Insurance Act did not apply. The Court of Appeal found that the motions Judge misinterpreted the RBC policy when he found that it was a primary policy. The Ontario Court of Appeal concluded that while not as clear as in some other cases referred to in the decision, the RBC policy when properly interpreted, provided excess coverage. Two examples from the policy, upon which the Court relied, are as follows: 1. This insurance only covers expenses in excess of those covered under your Government health insurance plan and by any other insurance or benefit plan under which you are covered; 2. Further, General Condition #6 of the policy explicitly provides for excess coverage:

33 6. All benefits payable to you under any of our policies are in excess of the benefits payable to you by any other insurer. The Ontario Court of Appeal rejected Aviva s argument that Section 268(6) of The Insurance Act converted the auto policy into an excess policy in circumstances where other insurance, not being automobile insurance, of the same type exists to cover the loss. The Court of Appeal approved the comments of Mr. Justice Lane in the case of Travel Insurance Co-Ordinators Limited v. ING Halifax Insurance Co. (2001), 57 O.R. (3d) 406 (Sup. C.T.), Aff d (2002), O.J. No (C.A.), wherein he stated, with respect to Section 268(6): This subsection must in my opinion be read as making the SABS excess to any other insurance which is, by its own terms, bound to provide first dollar coverage. The Court of Appeal concluded that where a policy, by its own terms, does not provide first payor coverage, Section 268(6) has no application. 11. A DAY HERE AND A DAY THERE - ONGOING IRBs AFTER A RETURN TO WORK - Rodrigues and Jevco Insurance Company, (F.S.C.O. A , September 27, 2006) Mr. Rodrigues was involved in an accident on May 25, 1996 (Bill 164 SABS). At the time of the accident, he worked as a paralegal. He returned to work three weeks post-accident. He underwent several surgeries. In September 1996, he opened his own business as a paralegal and worked in both a part time and a full time capacity until September He then worked as a fraud investigator until October 1999 and in November 1999, he began work as a customs officer. Since September 1996, he had undertaken further surgeries. During time off from work from the further surgeries, he was paid by Jevco. Mr. Rodrigues kept a list of days or parts of days when he was unable to continue working because of his injuries. A total of 70.5 days had been refused by Jevco.

34 The insurer relied on Section 14(2) of the Schedule to argue that Mr. Rodrigues was not entitled to resume receiving IRBs because he had worked for periods longer than 90 days. It also argued that the IRBs were claimed after the expiry of the 104 week period referred to in Section 14(1) of the Schedule. Section 14 reads as follows: 14. (1) A person receiving weekly income replacement benefits under this Part may return to or start an employment at any time during the 104 weeks following the onset of the disability in respect of which the benefits are paid without affecting his or her entitlement to resume receiving benefits under this Part if, as a result of the accident, he or she is unable to continue in the employment. O. Reg. 776/93, s. 14 (1). (2) After the 104-week period referred to in subsection (1), a person receiving weekly income replacement benefits under this Part may return to or start an employment for periods of up to ninety days without affecting his or her entitlement to resume receiving benefits under this Part if, as a result of the accident, he or she is unable to continue in the employment. O. Reg. 776/93, s. 14 (2). Section 11 of the current SABS is identical to Section 14(1) Bill 164 SABS. There is no equivalent to S.14(2) in the current SABS. The arbitrator in Rodrigues referred to the Director s Delegate decision in Wright and Allstate Insurance Company of Canada, (F.S.C.O. P ), and held that Section 14 created two rules based on when the insured returned to employment. When someone returns within 104 weeks, Section 14(1) applies. Nothing in subsection 14(1) limits the duration of the employment or creates a different rule if continued beyond 104 weeks. In Rodrigues, the insured had returned to work within the 104 week mark. The arbitrator found that the fact that he had returned for periods exceeding 90 days was irrelevant to his claim.

35 Jevco did not seriously dispute that the impairments from the accident precluded him from working as a customs officer. The insurer argued that his problems as a customs officer could not be applied to his claim for entitlement to IRBs, and that he had to prove that he could not perform the essential tasks of his pre-accident employment as a paralegal. Alternatively, they argued that the short absences did not result in him being substantially disabled because the inability was only temporary. Ultimately, the arbitrator determined that the injuries precluded him from working, on the days off, as either a customs officer or a paralegal. The arbitrator rejected the insurer s argument that temporary or periodic inability based on bad days is insufficient to suggest a finding of substantial inability. The arbitrator concluded: In Bland and Allstate Insurance Company of Canada, an arbitrator held that an insured could collect IRBs for five miscellaneous days when he was unable to work, as a result of injuries received in his accident. The issue is whether he is able to prove, on a balance of probabilities, that for days he did not work after March 14, 1997, it was as a result of the accident, he...[was] unable to continue in the employment. In my view, Mr. Bland is entitled to resume receiving benefits for any time lost after he returned to work, if he meets the usual eligibility test, even though Section 14 may be principally intended to address situations of more prolonged absence after a trial return to work. This issue of claiming assorted days was also addressed in Lewis-Lamoureux and Zurich Insurance Company, where the arbitrator made the following comment: While a claim for income benefits usually involves weeks, months or even years of disability, subsection 12(1) is worded broadly, providing for benefits to be paid during the period in which the insured person suffers substantial inability to perform the essential tasks of his or her occupation or employment. The use of the phrase the period as opposed to the week or some other term suggesting a set time frame leads me to conclude that benefits can be claimed for miscellaneous days or hours of work missed as long as an applicant meets the threshold set out. Similarly, I find that Mr. Rodrigues is entitled to receive IRBs for the days listed in his Summary of Claim for Loss of Sick Days when he was unable to work because of

36 impairments caused by his motor vehicle accident, and during which he was on leave without pay. This amounts to 49 ½ days at the agreed rates of IRBs, which adds up to $7, Those days for which he received payment through his sick bank are discussed in the next section of this decision. 12. ATHEY REVISITED - CAUSATION IS CONFUSING - Resurfice Corp. v. Hanke, [2007] S.C.C. 7. In Resurfice Corp., the Supreme Court of Canada again has addressed the issue of causation and the interplay between the traditional but for test and the material contribution test. It would appear that Justice McLachlin recognized the considerable debate in the issue of causation and the difficulties in interpreting earlier Supreme Court of Canada decisions, and in particular, Athey v. Leonati, [1996] CanLII 183 (S.C.C.). In paragraph twenty of the decision, the Chief Justice wrote: Much judicial and academic ink has been spilled over the proper test for causation in cases of negligence. It is neither necessary or helpful to catalogue the various debates. It suffices at this juncture to simply assert the general principles that emerge from the cases. She then stated: First, the basic test for determining causation remains the but for test. This applies to multi-caused injuries. The plaintiff bears the burden of showing that but for the negligent act or omission of each defendant, the injury would not have occurred. Having done this, contributory negligence may be apportioned to, as permitted by statute. The Court went on to state: In special circumstances, the law has recognized exceptions to the basic but for test, and applied a material contribution test. Broadly speaking, the cases in which the material contribution test is properly applied involved two requirements.

37 The Court stated that it must be impossible for the plaintiff to prove the defendant s negligence caused the plaintiff s injury using the but for test. It must also be clear that the defendant breached the duty of care owed to the plaintiff. It is only in exceptional cases where the two requirements are satisfied that liability may be imposed. This occurs because it would offend the basic notions of fairness and justice to deny liability by applying a but for approach. The implications of this decision remain to be determined. Arbitrators and Judges have applied the material contribution test in determining whether or not a motor vehicle accident caused an impairment for the purpose of SABS as a matter of routine. Counsel for insurers will want to argue that causation is not as easily established as was believed by many following the release of Athey. 13. WHEN DO YOU START PAYING INTEREST - MED REHAB DISPUTES - Hejnowicz v. Coachman Insurance Company, (F.S.C.O. Appeal P , August 3, 2006) In this case, the Director s Delegate overruled four earlier Director s Delegate decisions from 2003 with respect to when interest begins to accrue on a disputed medical rehabilitation expense. In those earlier decisions, the Director s Delegate had held that interest under Section 46(2) of the Schedule on a denied Treatment Plan began to accrue following the date of an arbitration Order. The Director s Delegate had stated that because an insurer is not required to have benefitted following a negative DAC, the payment is, therefore, not overdue unless an arbitrator or Judge finds it was reasonable and necessary. Section 46(2) of the Schedule required an insurer to pay interest on overdue Accident Benefits as follows:

38 Section 46(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 part. (2) If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day that the amount is overdue from the date the amount became overdue at the rate of 2% per month, compounded monthly. In Hejnowicz, there were two Treatment Plans in issue. Both had been denied by DACs. The arbitrator concluded that both were payable as medical benefits and awarded interest from the date each plan was submitted. In effect, the arbitrator did not agree with the earlier Director s Delegate decisions. He distinguished the earlier decisions on the basis of the fact that in those cases, the negative DAC may not have been materially flawed in a way that would have been obvious to an insurer. In Hejnowicz, the Director s Delegate stated that the arbitrator was bound by stare decisis and was bound to follow the earlier Appeal decisions. The Director s Delegate then took the opportunity to overrule those earlier Appeal cases stating: I do not depart lightly from the earlier Appeal decisions...[however], once an arbitrator decides the insurer is required to pay, it follows that the insurer was required to pay on receipt of the properly documented application or invoice. Director s Delegate Makepeace then stated: Nothing in Section 38 justifies a departure from the well established principal governing SABS interest: It is mandatory, compensatory, and flows from a finding that benefits were payable and were not paid on receipt of the required application documents. 14. BONUS - ALMOST MADE IT TO THE LIST - McRitchie and Allstate Insurance Company of Canada, (F.S.C.O. A , March 5, 2007); Waite and Aviva Canada Inc., (F.S.C.O. A , November 16, 2006); Thevaranjan and Personal Insurance Company of Canada, (F.S.C.O. A , August 24, 2006) McRitchie is the most recent case where the arbitrator rejected a limitation period defence based on a deficient OCF-9 and failure to comply with the disclosure and consumer protection obligations in

39 accordance with the Supreme Court of Canada s decision in Smith v. Co-Operators General Insurance Company, [2002] 2 S.C.R It also provides an excellent review of the principles with respect to Non-Earner Benefit entitlement. On the facts and the evidence presented, the insured was not entitled to a Non-Earner Benefit. In Waite, November 16, 2006), the arbitrator awarded ongoing income replacement benefits, post- 104 weeks. This is a classic case involving significant pre-existing injuries and conditions followed by a motor vehicle accident which is found to have materially contributed to post-accident depression and chronic pain. The case featured the expert evidence of Dr. Mersky, leading expert on chronic pain, and Dr. Clifford, a physiatrist retained frequently by insurers. There is an interesting discussion of the medical model as opposed to the functional model of assessment and treatment. It is worthwhile reading for those who are involved in chronic pain cases. Again, the evidence of lay witnesses with respect to the effect of the injuries was very persuasive. The Thevaranjan case is of interest given reference to the cross-examination of an IE doctor in which the IE doctor confirmed that he dictated his report and subsequently destroyed any notes made during the course of the assessment. The IE doctor added that he developed this policy to avoid being cross-examined about his notes by a lawyer of your ilk (referring to the Applicant s counsel) and to avoid being asked to interpret every squiggle and jotting. Rather than being faced with that kind of cross-examination, his practice was to destroy the notes. CONCLUSION The past year has yielded yet another series of cases that expand and clarify the law in the world of Statutory Accident Benefits. It remains a challenge to keep up. We hope that this paper will be of some small benefit in meeting the challenge.