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Insurance - Auto - Collateral Benefits. Security National Insurance Co. v. Stepien
In Security National Insurance Co. v. Stepien (Div Court, 2023) the Divisional Court considered a JR by an insurance company of "a decision of the Director’s Delegate (the “Delegate”) of the Financial Services Commission of Ontario (“FSCO”)" that it was not entitled to set-off LTD benefits from an amount owing for past SABS income replacement benefits (“IRBs”):[1] The Applicant, Security National Insurance Co./Monnex Insurance Mgmt. Inc. (“Security National”), brings this application for judicial review of a decision of the Director’s Delegate (the “Delegate”) of the Financial Services Commission of Ontario (“FSCO”) dated October 30, 2018 (the “Decision”). In the Decision, the Delegate held that Security National was not entitled to deduct a lump sum amount received by the Respondent, Agnieszka Stepien, for long-term disability (“LTD”) benefits from an amount owing for past income replacement benefits (“IRBs”).
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[19] Subsection 7(1) of the SABS states as follows:Collateral Payments for Loss of Income and Maximum Amount of Benefit
7. (1) Despite subsections 6 (1) and (5), but subject to subsection 6 (2), the weekly amount of an income replacement benefit payable to a person shall be the lesser of the following amounts:1. The amount determined under subsections 6 (1) and (5), reduced by,
i. net weekly payments for loss of income that are being received by the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, and
ii. net weekly payments for loss of income that are not being received by the person but are available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, unless the person has applied to receive the payments for loss of income. [20] In Vanderkop v. The Personal Insurance Company of Canada, at para. 81, Lofchik J. found that the settlement monies received by the insured for LTD benefits were a lump sum payment arrived after a lawsuit was commenced and negotiated as a compromise and, as a result, could not be characterized as “net weekly payments for loss of income that are not being received by the person as a result of the accident” within the meaning of the SABS. In affirming the decision, the Court of Appeal stated, at para. 26, as follows:IRBs are to be reduced by LTD being received as a result of the accident. The legislation does not entitle Personal to set off hypothetical benefits applied for but refused. Ms. Vanderkop was not in receipt of LTD. As Manulife had denied her claim, she cannot be described as entitled to the payment of LTD. That is, LTD was not “available” to her. To treat LTD as being available would effectively oblige an insured to litigate with their collateral benefits insurer, at their own risk and expense, for the benefit and at the discretion of, their accident benefits insurer. In our view, SABS places no such obligation on an insured. [21] In Cromwell v. Liberty Mutual Insurance, the accident benefits insurer was not entitled to deduct a $160,000 lump sum payment made by the LTD insurer because no part of the lump sum was paid in respect of future LTD benefits. Similarly, in Co-Operators General Insurance Company v. Branden, 2022 ONSC 2473 (Div. Ct.), this Court relied on Cromwell to uphold a decision of the adjudicator who found that an LTD settlement could not be deducted from IRBs. In doing so, the Court noted that, once refused, LTD benefits were not “available” to the insured.
[22] In my view, the Delegate’s finding that the contemporaneous approach applied by the courts in Cromwell and Vanderkop applied to the circumstances of this case was reasonable. The rationale articulated by the Court of Appeal in Vanderkop applies to this case. Had Security National been paying IRBs during the relevant time period, and had Manulife been paying LTD benefits, it is clear that s. 7(1) would apply to allow Security National to deduct LTD benefits from IRBs. This is not, however, what happened. The Respondent received neither LTD benefits nor IRBs for a period of almost five years. As a result, she had no income-related benefits at a time when she was physically unable to work. Instead, she had to engage in litigation with both Manulife and Security National. It is only after Manulife agreed to pay the Respondent LTD benefits that Security National also agreed that she was entitled to IRBs.
[23] In the Agreed Statement of Facts that was before the Arbitrator, the parties characterized the lump sum payment made by Manulife as LTD benefits. Security National relies on this as determinative of the issue. That is, because the parties agreed that the lump sum was for LTD benefits, it follows that Security National was entitled to deduct the entire lump sum from the amount it owed for outstanding past IRBs. I do not accept that this is the necessary implication of the statement in the Agreed Statement of Facts. Had that been the case, it would not have been necessary to proceed to arbitration on the issue of deductibility. As was the case in Vanderkop, the LTD benefits were not available to the Respondent at that time.
[24] Moreover, while s. 7(1) may be intended to prevent double recovery, I am not convinced that payments received many years later and after protracted litigation result in “double recovery” in the same manner as when applied to concurrent, timely payment of LTD benefits and IRBs. Based on the language used in s. 7(1), it is not clear that the legislator intended to preclude the former. In my view, the consequences of which the Applicant complains are not the result of the Delegate’s misinterpretation of s. 7(1) of the SABS, but are the result of the Applicant’s failure to pay the amounts when they were owing.
[25] Security National further submits that the Delegate erred in relying on the limitation of recovery of an overpayment to a period of 12 months under s. 47 of the SABS to reject the Applicant’s position that s. 7(1) precludes double recovery in all cases. Section 47 states as follows:Repayments to Insurer
47. (1) A person shall repay to the insurer,
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(c) any income replacement, non-earner or caregiver benefit or any benefit under Part VI, to the extent of any payments received by the person that are deductible from those benefits under this Regulation;
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(2) If a person is required to repay an amount to an insurer under this section,
(a) the insurer shall give the person notice of the amount that is required to be repaid; and
(b) if the person is receiving an income replacement or caregiver benefit, the insurer may give the person notice that the insurer intends to collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit.
(3) The obligation to repay a benefit does not apply unless the notice under subsection (2) is given within 12 months after the payment was made.
(4) Subsection (3) does not apply if the benefit was paid as a result of wilful misrepresentation or fraud. [26] In my view, the Delegate’s interpretation of s. 7(1) in light of s. 47 was reasonable. The Delegate looked to s. 47 to address the Applicant’s position that the purpose of s. 7(1) was to prevent double recovery and found that double recovery is not prohibited in all cases. In addition, the Delegate identified other policy considerations, beyond the prevention of double recovery, from the case law that should inform the interpretation of s. 7(1) including “the goal of reducing economic dislocation and hardship to accident victims, allowing insureds to rely on benefits to meet current needs, recognizing the special vulnerabilities of accident victims, and not requiring insureds to finance or pursue litigation against third parties before they can become eligible for certain benefits.” It was entirely reasonable for the Delegate to take into consideration broader objectives of the SABS to put into context the Applicant’s singular focus on the prevention of double recovery.
[27] In my view, it is the Applicant’s proposed interpretation that is unreasonable because of the emphasis placed on the prevention of double recovery above all other policy considerations. Under the Applicant’s interpretation, an accident benefits insurer would in all circumstances be entitled to deduct a lump sum payment of LTD benefits from outstanding past IRBs, irrespective of the length of the period of time that had passed. If this were the case, an accident benefits insurer would invariably be better off not paying IRBs and waiting for the outcome of litigation between an insured and their LTD carrier. Section 47 would act as a disincentive for the accident benefits insurer to pay IRBs first and then seek to recover an overpayment resulting from the insured’s subsequent receipt of LTD benefits because the recovery of an overpayment is limited to 12 months. As a result, where an insured could be entitled to LTD benefits, there would be no incentive for the accident benefits insurer to pay IRBs until after the litigation between the insured and LTD insurer has been concluded.
[28] Moreover, while the Applicant claims that the result of the Decision would be a “windfall” to the Respondent because she would recover 100 percent of her income, it is difficult to accept that the payment in 2023 of IRBs owing for 2011 to 2015, after lengthy litigation and a substantial outlay in legal costs, constitutes a windfall or overpayment. While Security National submits that the outstanding amount bears interest, interest in 2023 cannot make up for the lack of benefits for a five-year period.
[29] For the foregoing reasons, I find that the Delegate’s interpretation of s. 7(1) was reasonable and that there is no basis on which to interfere with the Decision that the lump sum payment received from Manulife is not to be deducted from IRBs owing to Ms. Stepien. The Decision meets the criteria articulated in Vavilov and Turkiewicz. The reasoning is rational, intelligible, and transparent, in light of the relevant factual and legal constraints that bear on it. . Co-Operators General Insurance Company v. Branden
In Co-Operators General Insurance Company v. Branden (Div Ct, 2022) the Divisional Court considers issues of double recovery of SABS MVA benefits, with the insurer arguing the application of broader principles drawn from general insurance-tort double recovery. The court couched it's discussion as being one of whether 'strict matching' of the competing compensation would apply or not. This is a useful case for anyone involved with SABS collateral benefits.
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