EXPENSES, INTEREST AND SPECIAL AWARD

EXPENSES, INTEREST AND SPECIAL AWARD Presented by Denise Ashby and Robert Kominar, Arbitrators Matt Duffy and Doug Bryce, London Council PART I: EXPENSES The cost of litigation is an important question for the parties to any dispute. This is no less true for parties at FSCO. Indeed, given the sometimes modest amounts at issue in statutory accident benefit claims, the expenses of arbitration may be a paramount consideration for the parties. Authority to Award Expenses The authority to award expenses is found in section 282 (11) of the Insurance Act: The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations. The current criteria are set out in Regulation 664, R.R.O 1990: 12. (1) The expenses set out in the Schedule [contained at the end of Regulation 664] are prescribed for the purpose of subsection 282 (11) of the Act. (2) An arbitrator shall, under subsection 282 (11) of the Act, consider only the following criteria for the purposes of awarding all or part of the expenses incurred in respect of an arbitration proceeding: 1. Each party s degree of success in the outcome of the proceeding. 2. Any written offers to settle made in accordance with subsection (3). 3. Whether novel issues are raised in the proceeding. 4. The conduct of a party or a party s representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders. 5. Whether any aspect of the proceeding was improper, vexatious or unnecessary. 1

6. Whether the insured person refused or failed to submit to an examination as required under section 42 of Ontario Regulation 403/96 (Statutory Accident Benefits Schedule Accidents on or after November 1, 1996) made under the Act or refused or failed to provide any material required to be provided by subsection 42 (10) of that regulation. As indicated in section 12(1), the types of expenses that may be claimed are set out in the Schedule to Regulation 664. The procedure for seeking expenses of an arbitration proceeding is set out in Rules 75 to 79 of the Dispute Resolution Practice Code (4 th ed.). The Insurance Act also gives arbitrators the authority to make an award of interim expenses: Sec. 282(11.1) The arbitrator may at any time during an arbitration proceeding make an interim award of expenses, subject to such terms and conditions as may be established by the arbitrator. A pre-hearing arbitrator may be called upon to award interim expenses for things such as medical/legal reports if the application raises bona fide issues, the expenses claimed are reasonable and necessary for conduct of the arbitration and the Applicant is unable to carry the expenses claimed until the hearing is concluded. However, in general, the appropriate time to assess expenses is at the conclusion of the proceeding. See for example Annabell Antony and RBC General Insurance Company, FSCO A05-000898, January 23, 2006, and the cases cited therein including Bernicky and Guardian General Insurance Company, OIC A-006268, July 6, 1994. Against Whom can an expense award be made? Prior to November 1996, arbitration expenses could be awarded to the Applicant only and not the Insurer. Expenses were normally awarded to the Applicant despite the outcome of the case 2

unless the claim was fraudulent or frivolous or the Applicant engaged in some other conduct which merited intervention. See for example Ralph McCormick and Economical Mutual Insurance Company, OIC A-00013, October 2, 1991. The amendments to section 282 of the act in November 1996 allowed arbitrators to award expenses to insurers as well as to applicants. Criteria for determining entitlement to an expense order were included in Regulation 664, amongst which was each party s degree of success (see the current version above). The changes were recognized as signalling a legislative intent to move toward a more results oriented approach in determining entitlement to expenses. The criteria for determining entitlement used to include, in clause 6, a provision allowing an arbitrator to consider any other matter that was considered relevant. The elimination of this socalled basket clause appears to limit the arbitrator s authority to award expenses to an unsuccessful Applicant and may increase the likelihood that such an applicant will be required to pay the insurer s expenses. (See the section below entitled: Does Result Determine Entitlement?) Generally only parties to an arbitration proceeding can seek their expenses or have an award of expenses made against them. There are two exceptions to this general rule. As a result of amendments to the Act in 2002, section 282 (11.2) 1 now authorises an arbitrator to order that a fee-for-service representative pay all or part of the order of expenses awarded against his/her client in certain circumstances. Such an order might be made where an agent commenced or conducted a proceeding without authority; did not advise the insured person of the potential 1 The section previously allowed an arbitrator to make an order requiring an insured person to pay up to the $3,000 assessment fee in certain circumstances. This power has been re-introduced in a further amendment to Regulation 664. 3

obligation to pay expenses; or where counsel or agent representing the insured person caused expenses to be incurred by advancing a frivolous claim. An order might also be made where counsel or agent for either party caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay. Arbitrators have not been shy about making orders against representatives who by their conduct have unreasonably delayed the proceeding or otherwise imposed unnecessary expenses on the other party. To date these orders have been made against applicants agents but, as noted, counsel are subject to such orders as well. A representative potentially subject to such an order is entitled to Notice and of course the opportunity to respond. The other exception to the general rule flows from the obligation of an arbitrator to control the arbitration process. In Royal & Sunalliance Insurance Company of Canada v. Volfson, (FSCO A01-000440, September 13, 2002; P02-000028, August 7, 2003; 2005 CanLII 38902 (ON S.C.D.C.)) the arbitrator found that the representative was the de facto party to the proceeding and ordered him to pay the insurer s expenses. The arbitrator s decision was overturned on appeal, but ultimately upheld on judicial review of the appeal decision. The reasoning of the Divisional Court is set out here: If s. 23(1) [of the SPPA] is to have any meaningful effect, it must be interpreted as enabling a tribunal to bring before it the person who had wrongly engaged its process. It is not necessary in this case to determine whether the Arbitrator acted appropriately in adding Volfson as a party to the proceeding already before the tribunal. Even without making Volfson a party, the tribunal had jurisdiction under s. 23(1) of the Statutory Powers Procedure Act to prevent an abuse of its process. It was Volfson who invoked the jurisdiction of the tribunal by commencing the application he did. In order to get to the truth, the Arbitrator was required to conduct a hearing, which resulted in expense and inconvenience to both the innocent insurer and the innocent insureds. Given the nature of this issue raised by the Shusters and the implications of a determination in their favour, Volfson had a direct interest in the outcome of the hearing. It was therefore necessary and appropriate to give Volfson the opportunity to participate fully in the proceeding in his 4

own right, whether that be by formal party status or otherwise, and the Arbitrator correctly gave him that opportunity. Does Result Determine Entitlement? As indicated above, recent changes to Regulation 664 have likely altered the landscape of expense assessment at the Commission. By Regulation 275/03, effective October 1, 20003, two key amendments were made to section 12(1) of the regulation. Firstly, the preamble to section 12(1) was changed to restrict the arbitrator to consider only the enumerated factors. Secondly, the so-called basket clause which allowed arbitrators to consider any other matter that was seen as relevant to the question, was, at first removed and then in a further amendment 2 replaced by another provision entirely. A number of decisions have considered the impact of these most recent changes. Amongst the first was the decision in Pembridge Insurance Company and Howden, P02-0003, May 17, 2004.. The appeal on the merits was argued prior to the change in the regulation but the decision was released some two months after the changes were effective. The parties were then unable to agree on appeal expenses and that issue was brought back to the Director for determination. A central issue in the case was whether or not the changes to the regulation ought to apply retrospectively. The Director determined that expenses were akin to costs in a civil action. Therefore they were procedural rather than substantive and the amended regulation ought to apply. After describing the legislative history of the expenses rules as discussed earlier, the Director 2 Effective March 1, 2006. 5

made the following concluding remarks on the effect of the changes: The new criteria, introduced on October 1, 2003, continue the move toward a more results based approach to expenses. The list of criteria have been changed to some extent, but more significantly, the criteria are now the only factors that can be considered and there is no longer a broad, any other matter criterion. (p.15) In determining that the parties ought to bear their own appeal expenses the Director considered that the outcome of the appeal was mixed. The Applicant had substantial success on the income replacement issue as well as arbitration expenses, although the Insurer had raised legitimate challenges to the hearing arbitrator s approach on both issues. In the Director s view, the fact that the insurer had raised legitimate issues in the appeal worked to relieve Pembridge from the obligation to pay Ms Howden s expenses, but it did not mean that Ms Howden was required to pay the Insurer s expenses. The Director also seems to have considered the relative quantum of expenses claimed without indicating which of the enumerated criteria this factor might fall under: In the circumstances, including Pembridge s significantly higher claim for expenses, I conclude that the most appropriate result, consistent with the criteria, is for the parties to bear their own appeal expenses. A later appeal decision by the Director s Delegate in, Truong and Lumberman s Mutual Casualty Company, P02-00031, May 17, 2004. offered the following views on the possible effects of these most recent changes: In addition, I am uncertain whether the court decisions are directly applicable in the arbitration context because rules about costs or expenses are specific to the particular forum. The dispute resolution scheme at FSCO was intended, amongst other remedial purposes, to provide a more accessible alternative to the courts. This remains its mandate, despite the amendments to the 1990 version of the expenses regulation that have progressively tilted expenses towards the successful party. 6

In a recent arbitral decision on expenses in the circumstances where the Applicant was unrepresented and completely unsuccessful on the merits of her case, the Arbitrator made the following general comments about these new provisions: In my view, the issue of access to justice (as discussed in Truong) is still very much alive in the new provisions: it must simply be interpreted in the context of, and to the extent contemplated by, the criteria laid down for arbitrators in the awarding of expenses. See as well Joseph Ofori and Allstate Insurance Company of Canada, FSCO A03-000027, September 29, 2004, Villers and Pilot, FSCO A03-000993. Other decisions have charted an arguably narrower approach. In Abela and Wawanesa Insurance Company, A03-00905, August 30, 2004, the arbitrator, in interpreting the Director s comments in Howden, supra, considered that the enumerated factors no longer allowed any scope for the consideration of access to justice issues. In Linda D. Clement and ING Insurance Company of Canada, A03-001764, March 10, 2005 the question of expenses arose after a preliminary issue decided against the Applicant. The arbitrator denied the Applicant her expenses of the hearing. The Insurer was not seeking its expenses in the circumstances: Counsel for Mrs. Clement relied on the decision in Cruz and Royal & SunAlliance Insurance Company of Canada. There, the arbitrator awarded expenses to the unsuccessful party by giving weight to concerns about access to justice. The Regulation has since been amended to make the relevant criteria more restrictive and to make the list of relevant factors exhaustive. With the amendment it is no longer reasonable to exercise discretion in such a way that a successful party is penalized, absent some misconduct in the proceeding. 7

The Assessment Fee Returns? As noted earlier clause 6 of section 12(1) of Regulation 664 was first removed and then replaced with an entirely new provision which now requires that an arbitrator consider in determining entitlement to expenses, whether the Applicant failed to attend an assessment pursuant to section 42. The failure to attend an insurer s examination no longer operates as a bar to proceeding to mediation or arbitration but there may be consequences in expenses. As well in the Schedule to Regulation 664 which enumerates the expenses which can be claimed in the arbitration process, the following has been added: 7. There may be awarded to an insurer the total of all amounts in respect of a claim by an insured person that are included under section 4 of Ontario Regulation 11/01 (Assessment of Expenses and Expenditures) made under the Financial Services Commission of Ontario Act, 1997 in determining the amount of the insurer s total assessment for arbitrations under section 282 of the Act, total assessment for appeals under section 283 of the Act or total assessment for applications under section 284 of the Act, if the insured person, on or after March 1, 2006, (a) refused or failed to submit to an examination relating to the claim under section 42 of Ontario Regulation 403/96 (Statutory Accident Benefits Schedule Accidents on or after November 1, 1996) made under the Act; or (b) refused or failed to provide any material relating to the claim that was required to be provided by subsection 42 (10) of that regulation. There are no decisions interpreting this somewhat opaque language, however the intent appears to be to empower an arbitrator to require the Applicant to pay an amount up the amount that an insurer is assessed for an arbitration or appeal, in the event that he or she failed to submit to an examination under section 42 or failed to provide information required to be provided by section 42(10). The provision contains few guideposts governing the exercise of what is clearly a 8

discretionary authority. PART II: INTEREST Section 46 of the Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, O.Reg. 403/96 (the Schedule ) 3 states: (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 (ie., Part X). (2) If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day the amount is overdue from the date the amount became overdue at the rate of 2 per cent per month compounded monthly. The interest rate set out in s. 46(2) is compensatory, not punitive. It is intended to compensate the insured person for lost use of the money withheld and promote prompt payment of benefits. 4 Income Replacement, Non-Earner and Caregiver Benefits: Pursuant to s.35(3) of the Schedule, the insurer shall pay an income replacement, non-earner or caregiver benefit ( specified benefit ) within 10 business days after the insurer receives the application and completed disability certificate. Specified benefits are payable at least once every two weeks. If the insurer requests information pursuant to s.33(1) or (1.1) of the Schedule, 3 Section 68 of the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996 contains a similar provision and overdue is defined in s. 62 thereof. 4 Attavar v. Allstate Insurance Company of Canada (2003), 63 O.R. (3d) 199, QL at 10 para. 49 (Ont. C.A.); Bajic and Pafco Insurance Co., QL at para. 56 (FSCO P00-00050, June 5, 2001); Reith and Halifax Insurance Co., QL at para. 11 (FSCO P98-00037, July 16, 1999); Sebastian and Canadian Surety (FSCO P96-9

the insurer shall pay the specified benefit within 10 business days after the insured complies with the request. 5 If an insurer determines after receipt of a report under s.42 that the insured person is entitled to a specified benefit, the insurer shall pay the specified benefit within 10 business days. 6 Medical Benefit and Rehabilitation Benefits: Subsection 38(11) of the Schedule states that the insurer shall pay for a medical benefit within 30 days of receiving the invoice. Attendant Care Benefits: Subsection 39(4) of the Schedule states that an insurer shall pay attendant care benefits within 10 business days after receiving the assessment of attendant care needs. Death Benefits, Funeral Benefits, Lost Educational Expenses, Expenses of Visitors, Housekeeping and Home Maintenance, Damage to Clothing, Glasses, Hearing Aids and Cost of Examinations: Pursuant to s. 41(1) of the Schedule, the insurer shall pay a death benefit, funeral benefit, lost educational expense, expense of visitors, housekeeping and home maintenance, damage to clothing, glasses, hearing aids and cost of examinations benefit within 30 days after it receives the application for the benefit if the insured is entitled to the benefit. Interest is payable on s. 24 claims. 7 00032, July 28, 1998); Urquhart and Zurich Insurance Co., QL at para. 14 (FSCO A96-000368, February 26, 1998). 5 s. 35(4) of the Schedule. 6 s. 35(12) of the Schedule. 7 Glinka 4 and Dufferin Mutual Insurance Co., (FSCO P01-00002, July 17, 2003). 10

Interaction Between DACs and Interest: 1. Medical and Rehabilitation Benefits, Cost of Examinations When is the payment for a medical or rehabilitation benefit overdue when a DAC determines that the goods and services are not reasonable and necessary, but an arbitrator or judge determines that they are reasonable and necessary? Paragraph 38(14)2 of the Schedule states that, subject to adjudication, if the DAC report finds that the proposed treatment is not reasonable and necessary, the insurer is not required to pay for the expense. In the recent appeal decision, Coachman Insurance Company and Hejnowicz, 8 a Director s Delegate determined that s. 38 imposes a requirement to pay (medical and rehabilitation benefits) within 30 days of receiving the invoice or application for benefits to which the claimant is entitled. This obligation is not displaced by a DAC referral or the commencement of dispute resolution proceedings. 9 Hejnowicz is a departure from previous appeal decisions such as Khaledi and Allstate Insurance Co. of Canada, 10 in which a Director s Delegate determined that the insurer is under no obligation to pay the expense until there is a decision from an arbitrator or judge that the treatment was reasonable and necessary, in which case the insurer is responsible for payment of 8 (FSCO P05-00024, August 3, 2006), hereinafter Hejnowicz. 9 Hejnowicz at 22. 10 (FSCO P01-00046, July 17, 2003). See also Amoa-Williams and Allstate Insurance Company of Canada, (FSCO P01-00052, July 17, 2003); Glinka 4 and Dufferin Mutual Insurance Co., (FSCO P01-00002, July 17, 2003); Langdon and Pafco Insurance Co. Ltd., QL at para. 7 (FSCO P02-00017, July 17, 2003). 11

the treatment, but will not be responsible for the payment of interest pursuant to s. 46(2) prior to adjudication because the amount awarded was not overdue before that time. 11 In departing from previous FSCO decisions such as Khaledi, the Director s Delegate in Hejnowicz considered Justice Laskin s comments in the Ontario Court of Appeal s decision David Polowin Real Estate Ltd. v. the Dominion of Canada General Insurance Co. 12, wherein he stated in reference to stare decisis: there is, of course, a price to be paid for rigid adherence to precedent: injustices in individual cases, continued application of legal principles long since outdated as society has changed, and uncertainty 13. Based on the same reasoning as in Hejnowicz, interest would likely accrue on a s. 24 expense within 30 days of receiving the application for the benefit if the insured is entitled to the benefit, 14 despite a negative DAC, if it is found by an arbitrator or judge that the s. 24 expense was reasonably required in connection with a benefit that is claimed or in connection with the preparation of a treatment plan, disability certificate, assessment of attendant care needs or application for the determination of a catastrophic impairment 15 and the additional requirements outlined in paragraph 24(1)11 of the Schedule are met. 2. Weekly Benefits (ie., Income Replacement, Non-Earner and Caregiver Benefits) 11 QL at 3, para. 12 and p.4, para. 13 (FSCO P01-00046, July 17, 2003). 12 (2005), 76 O.R. (3d) 161, hereinafter Polowin. 13 Polowin, QL at 22, para. 121, as cited in Hejnowicz at 8. 14 s. 41(1) of the Schedule. 15 s. 24(1)11 of the Schedule. 12

Weekly benefits are payable at least once every second week 16 while the insured remains entitled to the benefits. Weekly benefits found owing by an arbitrator or judge are overdue and attract interest from the date they are overdue, not from the date an arbitrator or judge determines otherwise, despite a DAC report 17 stating that the benefits are not payable. 18 According to Mr. Justice Laskin, 19 if the drafters of the Schedule intended that insurers avoid the interest provisions in the Schedule by paying the amount recommended by a DAC, they could have said so. For example, s. 35(13) of the Schedule 20 states that no payment for a specified benefit is payable for the period after the insurer receives an application for the benefit and before the insurer receives a completed disability certificate. Section 35 of the Schedule does not contain a similar provision stating that a payment is not overdue if the insurer pays the amount recommended in the DAC. Non-Attendance at Insurer s Examination/DAC: If an insured fails to attend an insurer s examination or DAC assessment, interest is not payable until the insured attends a rescheduled examination, and no interest is payable for the period that the insured did not attend the assessment. 21 16 Schedule, s. 35(5). See s. 62(2) of the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996 which contains a similar provision. 17 Housekeeping and home maintenance benefits are not subject to DACs, but are paid weekly. 18 Attavar v. Allstate Insurance Company of Canada (2003), 63 O.R. (3d) 199, QL at 10 para. 46 (Ont. C.A.); Mercier v. Royal & SunAlliance Insurance Co. of Canada (2004), 72 O.R. (3d) 94, QL at 7, para. 39 (Ont. C.A.); Sivananthan and State Farm Mutual Automobile Insurance Company, QL at 6, para. s 20 and 21 (FSCO P05-00001, October 14, 2005); Trottier and Royal & SunAlliance Insurance Company of Canada (FSCO P03-00019, December 15, 2003); Rumak and Personal Insurance (FSCO A01-000065, November 5, 2003). C.A.). 19 Attavar v. Allstate Insurance Company of Canada (2003), 63 O.R. (3d) 199, QL at 10 para. 47 (Ont. 20 See s. 62(5) of the Statutory Accident Benefits Schedule - Accidents after December 31, 1993 and before November 1, 1996 which contains a similar provision. 21 Garcia v. Liberty Mutual Insurance Co., QL at para. 25 (FSCO A97-001050, October 13, 1998). 13

Insured fails to Document/Pursue Claim: An insurer is not liable to pay interest for periods when it cannot determine, due to the insured s actions, the correct amount of benefits. 22 An insured person's conduct, including failure to pursue a claim, can affect his or her right to interest. 23 If the insurer is unable to calculate the benefit, no minimum is obvious, and it takes reasonable steps to obtain the information, the benefit is not overdue until the requisite waiting period after it received the information, or could have obtained it with reasonable diligence. This situation is distinguishable from situations where the insurer has doubts about the information provided. In such circumstances, the insurer may continue its investigation, but if it does not pay benefits that are later found owing, those benefits will be characterized as overdue following the requisite waiting period after the application was delivered. 24 Invalid Settlement: In the event of an invalid settlement, when an insurer does not comply with s. 9.1(2) of O.Reg. 664, the date from which interest runs is the date that the insured's benefit payments were first 22 In Trendle and Economical Mutual Insurance Co., QL at para. 52 (FSCO P96-000009, July 11, 1996), it was determined that it was impossible for the insurer to determine the correct amount of income replacement benefit without the evidence of both the Applicant and various witnesses. Consequently, interest was not overdue until finally determined through the dispute resolution process, including the appeal. See also Ward and Dominion of Canada General Insurance Co., QL at para. 21 (FSCO A95-000337, December 24, 1999); Bajic and Pafco Insurance Co., QL at para. 57 (FSCO P00-00050, June 5, 2001). 23 Cole and Allstate Insurance Company of Canada, QL at para. 56 (FSCO P03-00016, May 23, 2003); Caputo and Allstate Insurance Co. of Canada, QL at para. 97 (FSCO A-950212, June 18, 1997, confirmed on another point, P97-00039, October 23, 1998); J.C. and Progressive Casualty Insurance Co. QL at para. s 11 and 12 (FSCO P04-00036, February 15, 2005); Stewart and Liberty Mutual Insurance Co., QL at para. 106 (FSCO A03-000833, November 16, 2004 - remitted for new hearing on other grounds (P04-00038, December 7, 2005). 24 Mendez and AXA Insurance (Canada), QL at para. s 205 and 206 (FSCO A96-001355, January 25, 2000); Trottier and Royal & SunAlliance Insurance Company of Canada, QL at para. 54 (FSCO P03-00019, December 15, 2003); Lacroix and Jevco Insurance Company, QL at para. 24 (FSCO A00-000163, February 22, 2006). 14

missed - that is, the date of settlement. 25 Arbitration Expenses: An arbitrator does not have jurisdiction to award interest on arbitration expenses. 26 Conclusion: Absent express language that a payment is not overdue, interest applies. 27 It is mandatory, compensatory and flows from late payment of overdue benefits. There is no need for a finding of insurer misconduct. 28 However, an insured s actions may relieve an insurer from the payment of interest on benefits that are later found owing. 29 PART III: SPECIAL AWARD Section 282(10) of the Insurance Act authorizes an arbitrator to make an award against an insurer where the arbitrator finds that the insurer has unreasonably withheld or delayed payments. The subsection reads as follows: S.C.). 25 Mascitti v. Gore Mutual Insurance Company (2005), 77 O.R. (3d) 285, QL at para. s 34 and 35 (Ont. 26 Henri and Allstate Insurance Co. of Canada, QL at para. 37 (FSCO A-007954, August 8, 1997); Machin and Allstate Insurance Co. of Canada, QL at para. 20 (FSCO A95-000069, March 17, 1998); Folkes and Security Insurance Co. of Hartford, QL at para. 33 (FSCO A96-001142, November 30, 1998); Blake and Jevco Insurance Co., QL at para. 9 (FSCO A98-000102, April 21, 2001). 27 Mercier v. Royal & SunAlliance Co. of Canada (2003), 63 O.R. (3d) 199 (Ont. C.A.). 28 Cole and Allstate Insurance Company of Canada, QL at para. 46 (FSCO P03-00016, May 23, 2003). 29 J.C. and Progressive Casualty Insurance Co. QL at para. 10 (FSCO P04-00036, February 15, 2005). 15

282. (10) If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time benefits first became payable under the Schedule. Director Draper discussed this subsection in Liberty Mutual Insurance Company and Perofsky and others (FSCO P00-00041, January 31, 2003). He described the formula for calculating the maximum amount of a special award and he described the factors to consider in determining entitlement to and the amount of a special award. Director Draper described the formula as follows: 1. Determine the benefits owing to the insured person, including interest calculated under the applicable version of the SABS; 30 2. Decide whether the insurer unreasonably withheld or delayed the payment of these benefits. If so, the insurer will be ordered to pay a lump sum amount in addition to the benefits and interest calculated in #1; 3. If the insurer did not act unreasonably in respect of all the benefits owing under #1, determine the amount of the benefits that were unreasonably withheld or delayed, and the interest payable on these benefits under the applicable version of the SABS. 31 30 In the SABS-1990, this involves simple interest, while the SABS-1994 and the SABS-1996 provide for compound interest. 31 I agree with the appeal decision in A.B. and Royal Insurance Company of Canada, (FSCO P99-00049, 16

4. Determine the maximum special award that can be awarded under s. 282(10), or at least a reasonable approximation. This is done by taking the amount in #1 or #3, whichever is applicable, and adding the additional interest component in s. 282(10) two per cent per month, compounded monthly. To be clear, this calculation includes interest on the unpaid SABS interest. The maximum special award is 50 per cent of this total. Expressed as a formula, the calculation is as follows: Maximum special award = 50% x (benefits that were unreasonably withheld or delayed + interest on these benefits calculated under the SABS + compound interest calculated according to s. 282(10)) 32 5. Consider all relevant factors (discussed below) to determine an appropriate lump sum special award, not a percentage, that responds to the facts of the case and bears a reasonable relationship to other special awards, and does not exceed the maximum. 33 6. Provide reasons for concluding that the special award is payable, and for the amount of the award. 34 September 18, 2000), which held that the special award should only be based on the benefits that were unreasonably withheld or delayed, even if other benefits are owing. 32 This formula is consistent with the approach in Beiler and Murray, cited above. I do not pretend it is an easy or straightforward calculation, but, in my view, it is what the legislation demands. 33 If the benefits and interest cannot be calculated accurately, or at least a reasonable approximation, it may be premature to quantify the special award. The hearing may need to be reopened to determine the amount owing before the special award can be finalized. 34 As Director s Delegate Naylor stated in Rocca and AXA Insurance Company, (FSCO P99-00020, August 17

7. In the order, express the special award as a specific, lump sum amount. No interest is payable on this amount, except as part of the enforcement process. The calculation is difficult for a number of reasons. First, the calculation yields a notional amount, one-half of which an arbitrator can award. A special award is similar to an award of punitive damages a Court might award, and as such, it has a limit. In the case of Court awards, the limits are defined by reasons expressed in case law. No arbitrator has expressed an explanation for the limit legislated by section 282(10). The first calculation is simply the principle and legislated-mandated interest which is outstanding. If this amount, or a factor of this amount expressed the limit, one could see the relationship between the special award and the benefits outstanding. However, the formula goes on further to add additional interest and then goes further to reduce the total by one-half. It s as if the draftsperson established a limit for the special award and then thought that it was too high and decided to reduce the total by one-half. The calculation is further complicated by the use of monthly compounded interest. Section 4 of the Interest Act, R.S., c I-18 limits interest recoverable under a contract to five per cent per year if it is expressed as a rate other than a yearly rate. Interest calculations widely available on the internet, use a formula based on an annual rate compounded annually. Therefore, for someone other than an accountant to calculate interest on principle in arrears, one has to convert the two per cent per month compounded monthly to an annual rate to take advantage of the internet calculations. Another complicating factor, is the periodic nature of weekly benefits which an insurer is 1, 2000), it is important that the parties are given an explanation both of the basis of a finding that benefits were unreasonably withheld and the factors taken into account in fixing the amount of the award. 18

required to pay at least every two weeks. If an arbitrator finds that an insurer unreasonably withheld weekly benefits, the outstanding interest and the maximum limit of the special award must be calculated every two weeks, which results in 26 separate calculations per year. An example illustrates these difficulties. An arbitrator finds that an insurer unreasonably withheld a $1,000 medical benefit for 15 months. In order to use the internet calculations, two per cent per month compounded annually must be converted to an annual rate and 14 months must be converted to years. You can use a pocket calculator to convert two per cent per month. Simply, take 100 and add two per cent 12 times. The result, rounded off to the second decimal point, is 26.82 per cent per year compounded annually. Fifteen months is 12.5 years. At a site such as webmath.com, you insert these figures into the compound interest calculator. The result of $1,345.81 is the principle and interest outstanding for the first calculation. In order to add an additional two per cent per month compounded monthly on $1,345.81 for the second calculation, you insert $1,345.81 as the principle in the interest calculator. The interest rate and years remain the same. The result is $1,811.21. An arbitrator can order an insurer to pay upt to one-half of this amount as a special award for unreasonably withholding a benefit of $1,000 for 15 months. For weekly benefits, the same calculation is done for every two week period that benefits were unreasonably withheld or delayed. In Smith and Wawanesa Mutual Insurance Company, (FSCO A02-001475, August 20, 2004) the parties provided me with multipliers to apply against monthly amounts in arrears to calculate interest at 2 per cent per month compounded monthly. The multipliers yielded the same results as the internet calculator. Insurers have programmes for calculating interest on outstanding benefits. The Commission should consider providing a calculator on its website so that the public can easily make the same calculations. 19

20