Page 1 Case Name: LeDonne v. Coseco Insurance Co. Between: Alfreda LeDonne, applicant, and Coseco Insurance Co./HB Group/Direct Protect, insurer [2002] O.F.S.C.I.D. No. 59 File No. FSCO A01-000739 Ontario Financial Services Commission F. Sampliner, Arbitrator Heard: January 28, 2002 Decision: May 14, 2002 (22 paras.) Appearances: Jack S. Shinehoft, for Mrs. LeDonne. Theodore P. Charney, for Coseco Insurance Co./HB Group/Direct Protect. Issues: REASONS FOR DECISION 1 The Applicant, Alfreda LeDonne, was injured in a motor vehicle accident on August 2, 1998. The parties dispute whether Coseco Insurance Co./HB Group/Direct Protect (Coseco) is entitled to deduct the collateral disability payments Mrs. LeDonne received from London Life Insurance Company (London Life) from her income replacement benefits that Coseco paid her under the Schedule. 1 The parties did not resolve this dispute in mediation, and Mrs. LeDonne applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8, as amended.
Page 2 2 The issue in this hearing is: Result: 3 EVIDENCE AND ANALYSIS: Introduction: 1. Is Coseco entitled to deduct Mrs. LeDonne's London Life disability benefits from her income replacement benefits under the Schedule? 2. Is either party entitled to their costs of the arbitration process 1. Coseco is entitled to deduct Mrs. LeDonne's London Life benefits from her income replacement benefits under the Schedule. 2. Each party shall bear their own costs of the arbitration process. 4 Mrs. Alfreda LeDonne was a teacher with the Hamilton Wentworth District School Board at the time of the accident. Her employee benefits package contained group long-term disability insurance with London Life, for which she paid 100 percent of the premiums. Mrs. LeDonne received disability benefits from London Life between August 9, 1998 and December 14, 2000 as a result of the August 2, 1998 accident. 5 Coseco also paid Mrs. LeDonne a weekly income replacement benefit during the same period (August 9, 1998 through December 14, 2000), but deducted her London Life disability benefits from her income replacement benefits under her automobile policy. This dispute concerns the $42,203.46 that Coseco deducted. Settlement: 6 At the commencement of the hearing, Coseco argued that Mrs. LeDonne was not entitled to contest the deduction of her collateral disability benefits from London Life because the matter was settled at mediation. The March 2000 mediator's report concludes that Coseco agreed to pay Mrs. LeDonne the reduced amount of her income replacement benefit on a without prejudice basis. 7 The words "without prejudice" mean that the parties did not give up any claims or defences on this issue. Coseco did not produce any document that the parties reached a final binding settlement of the issue nor did the company tender evidence that it complied with the settlement regulation. 2 8 The evidence does not support Coseco's position that Mrs. LeDonne settled this matter. The mediation report is more consistent with Mrs. LeDonne's position that there was no meeting of the minds concerning a full final settlement of her benefits.
Page 3 9 I find that Coseco made an interim offer to pay the reduced benefit without prejudice, and that Mrs. LeDonne did not enter into a final binding settlement of her income replacement benefits. At the hearing, I ruled that Mrs. LeDonne could proceed with the hearing of the merits of the claim. Collateral Benefits Deduction: 10 Coseco relies on section 7 of the Schedule in support of its position that Mrs. LeDonne's London Life benefits are deductible from her income replacement benefits. Collateral Payments For Loss of Income And Maximum Amount of Benefit 7.(1) Despite subsection 6(1) but subject to subsections 6(2) to (6), 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 subsection 6(1), 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... [emphasis added] 11 It is Coseco's burden to establish that Mrs. LeDonne's London Life benefits are payments for loss of income qualifying as an income continuation benefit plan under subsection 7(1). 3 12 The rationale for deducting collateral source payments from disability benefits is preventing more than one recovery for the same loss. Adjudicators have not deducted a collateral benefit where its fundamental nature is distinguishable. For example, family benefits and welfare payments under provincial laws, 4 private credit disability insurance payments, 5 sick leave credits, 6 employee severance and termination pay, 7 were held not deductible as "payments for loss of income." Following the Ontario Court of Appeal decision in Cugliari, 8 adjudicators have denied deductibility of Canada Pension Plan (CPP) disability benefits on the basis that eligibility does not require proof of loss and therefore is not an indemnity plan. 9 13 The approach is more carefully circumscribed in Wilcox. 10 The collateral benefit is deductible if the purpose of the plan is found to provide similar coverage to the aim of income replacement benefits, protecting income from employment. 14 The facts in Wilcox supported the Director Delegate's finding of non-deductibility. Ms. Wilcox' disability contract provided for a benefit that did not vary with her wage rate. She arranged for payment of a predetermined periodic benefit, outside of any union or employer, to provide her
Page 4 with a partial financial cushion for income loss due to disability. Thus, her private disability plan did not directly protect the loss of income from her job. 15 However, Mrs. LeDonne's disability policy expressly states that it provides her with income security protection and it pays her benefits that follows her income stream. Her benefit is based on a percentage of her per diem earnings at the time she is disabled, and cease during the summer recess when she was normally not paid. Mrs. LeDonne did not refer me to any provisions of her policy indicating that the basic intent of the plan is not protection of her job income or that the amount was not directly tied to her wages. 16 I find that Mrs. LeDonne's contract contains the two main hallmarks of an income continuation plan: a stated intent to pay her income security for loss of wages and provisions designed to continue paying her an amount of income that closely follows her pay at the time of her disability. 17 Mrs. LeDonne testified that she expected to receive full benefits from both contracts. She argues that the operation of this subsection is basically unfair to her, and that like the Wilcox case, her foresight to arrange a financial cushion for her disability is a public good that should be encouraged, rather than given disincentive by the deduction. 18 The problem with Mrs. LeDonne's argument is that her disability coverage closely resembles the coverage in the standard automobile policy. The fact that she receives less than she would if the Legislature had not written this section does not constitute unfairness. 11 19 There is no ambiguity in the subsection's wording that the drafters intended for insurers to be able to take advantage of deductions for collateral benefits where the facts fit the scheme. I reject Mrs. LeDonne's argument because the subsection must be effective under facts that squarely fit or it would have no meaning. 20 I find that Mrs. LeDonne's London Life policy is an income continuation plan, and that Coseco is entitled to deduct those benefits from the income replacement benefits that she received under the Schedule. EXPENSES: 21 Although Mrs. LeDonne was unsuccessful in her claim it was not manifestly unfounded, and the proceeding was handled expeditiously. I exercise my discretion under Rule 75 of the Dispute Resolution Practice Code 12 that each party shall bear its own costs ARBITRATION ORDER 22 Under section 282 of the Insurance Act, R.S.O. 1990, c. I.8, as amended, it is ordered that: 1. Coseco is entitled to deduct $42,203.46 from the income replacement
Page 5 benefits that Mrs. LeDonne received between August 9, 1998 and December 14, 2000. 2. Each party shall pay its own expenses of the arbitration process. qp/i/nc/qlamc 1 The Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98 and 114/00. 2 Ontario Regulation 403/96. 3 Economical Mutual Insurance Company and Wilcox (FSCO Appeal P99-00015, March 2, 2000). 4 Morin and The Personal Insurance Company of Canada (OIC A-000468, June 16, 1992), Pagliaro and Hartford Insurance Company of Canada (OIC A-004059, October 29, 1993). 5 Guevara and Simco and Erie General Insurance Company (OIC A-002304, August 13, 1993). 6 Vo and Maplex General Insurance Company (OIC A-002777, October 4, 1993). 7 Vial and Ontario Insurance Commission (MVACF) (OIC A-10539, November 15, 1995). 8 Cugliari v White et. al. (1996) 31 O.R. 42, (1998) 38 O.R. (3d) 641 (CA). 9 Goos and Non Marine Underwriters, Member of Lloyd's (OIC A96-000393, June 12, 1997), Field and State Farm Automobile Insurance Company (FSCO A97-001147, September 1, 1998), Economical Mutual Insurance Company and Wilcox (FSCO appeal P99-00015, March 2, 2000). 10 Wilcox, supra, see note 3. 11 Deschenes and Guarantee Company of North America, (FSCO A98-000874 October 12, 1999). 12 4th Edition (May 31, 2001).
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