) ) STATE FARM AUTOMOBILE INSURANCE COMPANY Applicant – v. –, 2017 ONSC 6278

CITATION : State Farm Automobile Insurance Co. v. Kulaveerasingam, 2017 ONSC 6278 DIVISIONAL COURT FILE NO.: 448/16 DATE: 20171106 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT Lederman, Swinton and Rady JJ. BETWEEN: ) ) STATE FARM AUTOMOBILE INSURANCE COMPANY Applicant – and – KUMUTHAKUMARY KULAVEERASINGAM and FINANCIAL SERVICES COMMISSION OF ONTARIO Respondents ) ) ) ) ) ) ) ) ))))))) Cary N. Schneider , for the Applicant David J.

Wilson , for the Respondent Kumuthakumary Kulaveerasingam Deborah McPhail and Jessica Spence , for the Respondent Financial Services Commission of Ontario ) HEARD at Toronto: October 10, 2017 Swinton J.: Overview [ 1 ] Kumuthakumary Kulaveerasingam (the “Respondent”) was injured in a motor vehicle accident that occurred on October 29, 2010.

At the time, she was insured by the Applicant, State Farm Automobile Insurance Company. [ 2 ] Because of a dispute about the Statutory Accident Benefits (“SABS”) to which the Respondent was entitled, she proceeded to arbitration before the Financial Services Commission of Ontario. The arbitrator held that she was entitled to an interest rate of 1% per month, compounded monthly, on overdue accident benefits. The Respondent appealed to the Director’s Delegate (the “Delegate”).

In a decision dated June 21, 2016, he allowed the appeal on the issue of interest and ordered that the Respondent was entitled to interest at 2% per month, compounded monthly, on overdue accident benefits. [ 3 ] The Applicant now seeks to quash that decision in this application for judicial review, arguing that the Delegate’s decision was unreasonable. For the reasons that follow, I agree with the Applicant’s submission that the Delegate’s decision was unreasonable, and I would grant the application for judicial review and set aside the decision.

The Legislative Context [ 4 ] To understand the present dispute, it is necessary to consider two regulations under the Insurance Act : O. Reg. 34/10 - Statutory Accident Benefits

Schedule - Effective September 1, 2010 (the “New Regulation”) and O. Reg. 403/96 , Statutory Accident Benefits

Schedule - Accidents on or After November 1, 1996 (the “Old Regulation”). The New Regulation [ 5 ] O. Reg. 34/10 , the New Regulation, changed the SABS scheme in effect since November 1, 1996. The regulation has since been amended by O. Reg. 251/15, but the version adopted in 2010 applies for purposes of the present application for judicial review. [ 6 ]

Section 2 of the New Regulation is found under the heading “Application and transition rules.” Subsection 2(1) is key in this application for judicial review, stating:

2(1) Except as otherwise provided in

section 68, the benefits set out in this Regulation shall be provided under every contract evidencedby a motor vehicle liability policy in respect of accidents occurring on or after September 1, 2010. [7]

Section 68 is found under

Part XIII, “Transitional Provisions.” It deals with insurance policies in effect at the time the NewRegulation came into force. It deems certain optional benefits, including carekeeper, housekeeping and home maintenance benefits andattendant care benefits, to be included in motor vehicle liability policies in effect on September 1, 2010 until the first expiry date of thepolicy or the termination of the policy. Paragraph 68(2)4 of the New Regulation makes express reference to certain optional benefits inthe “Old Regulation.” The Old Regulation [8] The Old Regulation is O.

Reg. 403/96, which applies to accidents that occurred after November 1, 1996 and beforeSeptember 1, 2010.

The key parts of s. 3 of the Old Regulation for purposes of this application for judicial review are set out below. [9] Subsection 3(1.1) provides: 3(1.1) Subject to subsection (1.3), the benefits set out in this Regulation shall be provided under every contract evidenced by a motorvehicle liability policy in respect of accidents that occur on or after November 1, 1996 and before September 1, 2010. [10] Subsection 3(1.2) then provides that certain provisions of the Old Regulation do not apply after August 31, 2010. Theseprovisions include

Part X, Procedures for Claiming Benefits.

Section 46, which provides for interest payable on overdue benefits at arate of 2% per month, is found in

Part X. [11] Subsections 3(1.3) and (1.4) then deal with the payment of benefits:

(1.3) No amount referred to in this Regulation shall be paid after August 31, 2010.

(1.4) An amount that would, but for subsection (1.3), be paid under this Regulation after August 31, 2010 shall be paidunder the New Regulation, but in the amount determined (

a) under this Regulation, other than

section 24; or (

b) under subsections 25(1), (3), (4) and (5) of the New Regulation.

Section 24 of the Old Regulation deals with the cost of examinations, as does s. 25 of the New Regulation. [12] If one then turns back to the New Regulation, one finds s. 2(2), which deals with rules for the payment of benefits providedunder the Old Regulation. It provides that certain provisions of the New Regulation, including subsections 25(1), (3), (4) and (5) andPart IX apply, with such modifications as are necessary, in respect of benefits provided under the Old Regulation - that is, with respect toaccidents that occurred on or after November 1, 1996 and before September 1, 2010.

Subsection 2(2) then sets out three rules that applyto the payment of benefits. [13] Relevant to the present application for judicial review is the fact that

Part IX of the New Regulation, Payment of Benefits, isreferred to in s. 2(2).

Section 51, which deals with the payment of interest on overdue payment of benefits at the rate of 1% per month, isfound in

Part IX of the New Regulation. The Decision of the Director’s Delegate [14] The issue before the Delegate was whether the arbitrator erred when she held that s. 51 of the New Regulation governed thepayment of interest on overdue benefits to the Respondent. Subsections 51(1) and (2) provided, at the appropriate time: 51

(1) An amount payable in respect of a benefit is overdue if the insurer fails to pay the benefit within the time required under thisRegulation.

(2) If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day theamount is overdue from the date the amount became overdue until it is paid, at the rate of 1 per cent per month, compounded monthly. [15] The Delegate concluded that the Respondent had a vested right to an interest rate of 2% per month on overdue payments assoon as she entered into her contract of insurance. She had entered into that contract before September 1, 2010.

In his reasons, hefocused on s. 3(1.4) of the Old Regulation and s. 2(2)2 of the New Regulation, finding that the language of the legislation was not clearand unambiguous. Ultimately, he applied the presumption against retroactivity of legislation and the presumption against interferencewith vested rights, and concluded that the Legislature did not intend to interfere with vested rights. He stated at p. 12 of his reasons: ...

I am not persuaded that the Legislature clearly intended, contrary to subsection 3(1.4) of the Old Regulation and paragraph 2(2)2 ofthe New Regulation, to retroactively interfere with a vested right to interest in overdue payments at the rate of 2 per cent per monthcompounded monthly under subsection 46(2) of the Old Regulation [the interest provision]. I am not persuaded, as set out in themajority decision in Gustavson [Gustavson Drilling

(1964) Ltd. v. Canada (Minister of National Revenue - M.N.R.), (SCC), [1977] 1 S.C.R. 271], that the language of the Regulations expressly or by necessary implication requires, contrary to subsection3(1.4) of the Old Regulation and paragraph 2(2)2 of the New Regulation, the retrospective operation of subsection 51(2) of the NewRegulation of interest payable at the rate of 1 per cent per month, compounded monthly. Respectfully, I find that the Arbitrator erred in law in applying the amount of interest under the New Regulation, contrary tosubsection 3(1.4) of the Old Regulation and paragraph 2(2)2 of the New Regulation. The Standard of Review

[16] The standard of review to be applied in relation to a Delegate’s decision interpreting and applying the SABS scheme isreasonableness (Allstate Insurance Co. of Canada v. Klimitz, 2015 ONCA 698 at para. 4; Simser v. Aviva Canada Inc., 2015 ONSC 2363(Div. Ct.) at para. 35). Analysis [17] The only issue in this application for judicial review is the reasonableness of the Delegate’s

interpretation of the SABSregulations - in particular, the New Regulation. [18] The proper approach to statutory

interpretation requires that the words of

an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme ofthe Act, the object of the Act, and the intention of Parliament (Elmer Driedger, Construction of Statutes (2nd ed. 1983) at p. 87, quoted with approval in Bell ExpressVu Limited Partnership v. Rex,2002 SCC 42 , [2002] 2 S.C.R. 559 at para. 26). [19] On a plain reading of s. 2(1) of the New Regulation, one would think that the New Regulation applies to the situation of theRespondent, who experienced an accident after September 1, 2010.

Subsection 2(1) of the New Regulation states that, with theexception of s. 68, the benefits in the New Regulation are to be provided under every contract of insurance in respect of accidents thatoccur on or after September 1,

Section 68 is a transitional provision dealing with optional benefits in policies still in effect as ofSeptember 1, 2010. The Respondent’s insurance policy is a transitional one within the meaning of s. 68. [20] However, the words of the New Regulation must also be read in context. The Delegate was of the view that the Respondenthad a vested right to interest at 2% per month, because she had entered into her contract of insurance before the New Regulation cameinto effect.

He concluded that she was entitled to interest in accordance with s. 3(1.4) of the Old Regulation and s. 2(2)2 of the NewRegulation, because the New Regulation did not evidence a clear legislative intent to interfere with her vested rights. [21] The Supreme Court of Canada discussed vested rights and statutory

interpretation in Dikrainian v. Québec (Procureurgénéral)¸ 2005 SCC 73 , [2005] 3 S.C.R. 530. The presumption against interference with vested rights is one of the principlesof statutory

interpretation used to determine the intent of the legislature (at para. 36). According to this principle, it is presumed that thelegislature does not intend to interfere with vested rights, absent a clear indication to the contrary in the legislation (at para. 33).

See,also, Gustavson Drilling, above, at p. 8 (lexis.nexus version). [22] In order for an individual to claim that rights have vested, the individual’s legal or juridical situation must be “tangible,concrete and distinctive,” and the “legal situation must have been sufficiently constituted at the time of the new statute’scommencement” (Dikrainian, at paras. 37-39). The Supreme Court held that the rights and obligations of Mr. Dikrainian were fixed andcrystallized when he entered into a contract with a lending institution for a student loan.

The terms of repayment of the loan were set outin the contract, and they were held not to be affected by subsequent legislation. Because of ambiguity in that legislation, the presumptionagainst interference with vested rights applied (at paras. 49-50). [23] The Delegate relied on a passage in Dikrainian stating that “rights and obligations resulting from a contract are usuallycreated at the same time as the contract itself” (at para. 40).

Assuming, without deciding, that the Respondent had a vested right tointerest at 2% because she had entered into her insurance policy before September 1, 2010, the language of the New Regulation rebutsthe presumption against interference with vested rights. It is clear from the wording of s. 2(1) of the New Regulation that the Legislatureintended it to apply to all accidents on and after September 1, 2010, even if the insured was covered by a policy entered into before thatdate. [24] This is evidenced most clearly by the transitional provision in s. 68, the

section where the New Regulation deals explicitlywith transitional policies and optional benefits. The fact that the Legislature dealt explicitly with optional benefits under these policiessuggests that otherwise, in accordance with the clear wording of s. 2(1), payments for other benefits and interest on overdue paymentsare to be determined in accordance with the New Regulation if an accident occurred on or after September 1, 2010. [25] In my view, there is a serious flaw in the Delegate’s analysis of the New Regulation.

He relied heavily on s. 3(1.4) of the OldRegulation and para. 2(2)2 of the New Regulation in order to find ambiguity. In doing so, he failed to consider the clear wording ofthose provisions in their total context.

[ 26 ] Section 3(1.4) is part of s. 3 of the Old Regulation. Subsection 3(1.1) clearly states that the benefits in the Old Regulation, subject to s. 3(1.3), shall be provided with respect to accidents that occurred on or after November 1, 1996 and before September 1, 2010. On its face, the Old Regulation does not apply with respect to the Respondent’s accident.

Accordingly, the provisions in ss. 3(1.3) and (1.4) can have no bearing on the determination of the Respondent’s benefits, as those provisions deal with the benefits payable in respect of accidents that occurred before September 1, 2010. [ 27 ] Nor does paragraph 2(2)2 of the New Regulation have application to the Respondent’s situation. It comes within s. 2(2) of the New Regulation. By its opening words, s. 2(2) deals with payment of benefits provided under the Old Regulation in respect of accidents that occurred on or after November 1, 1996 and before September 1, 2010.

Again, by its wording, s. 2(2) has no relevance to the determination of benefits for a person who was injured in an accident on or after September 1, 2010.

The Delegate erred, starting on the first page of his reasons, when he jumped from s. 2(1) of the New Regulation to s. 2(2)2 without stopping to consider the opening words of s. 2(2) - the limitation of that subsection to accidents on or after November 1, 1996 and before September 1, 2010. [ 28 ] The Delegate found there was ambiguity in the legislation and applied the presumption against interference with vested rights because he relied on two provisions that clearly were not meant to apply with respect to an accident that occurred on or after September 1, 2010.

Instead, he should have focused on the wording of the New Regulation, which is the Regulation he had to interpret in light of the presumption against interference with vested rights. Read properly, there is no ambiguity in that Regulation with respect to the applicability of the interest provision in s. 51 to all accidents occurring on or after September 1, 2010. [ 29 ] Moreover, when one reads the Old Regulation with the New Regulation, it is clear that the interest provision in s. 51 of the New Regulation is meant to apply to accidents occurring on or after September 1, 2010.

Subsection 3(1.2) of the Old Regulation provides that

Part X of the Old Regulation does not apply after August 31, 2010. The interest provision in s. 48 is found in

Part X. Instead, a combination of s. 3(1.4) of the Old Regulation and s. 2(2) of the New Regulation deals with payment of interest on overdue payment of benefits in relation to accidents that arose on or after November 1, 1996 and before September 1, 2010. [ 30 ] The Delegate took the view that the present case was similar to an earlier decision where he dealt with vested rights, State Farm Mutual Automobile Insurance Company v. Federico , Appeal P12-00022 (March 25, 2013), a decision upheld on judicial review by the Divisional Court ( 2014 ONSC 109 ).

In that case, the Delegate held that the interest rate in the Old Regulation applied to Mr. Federico’s claim. Notably, the accident in issue occurred on December 20, 2006 - that is, well before the date on which the New Regulation came into effect. The Delegate held that Mr. Federico’s entitlement to benefits should be determined in accordance with s. 3 of the Old Regulation, finding that Mr. Federico had a “crystallized private contractual right” prior to the change to the regulations (at p. 15). Accordingly, Mr.

Federico was awarded interest on overdue payments at the rate of 2% per month. [ 31 ] A similar result occurred in Sidhu v. State Farm Mutual Insurance Company, 2014 ONCA 920 , where an individual was held to be entitled to interest at 2% on overdue payments because her accident occurred before the New Regulation came into effect (at para. 9). [ 32 ] In contrast, the Respondent in this case was not entitled to benefits under the Old Regulation, given that her accident occurred after September 1, 2010. Her claim fell to be determined under the New Regulation.

As I have said above, that required the arbitrator and the Delegate to interpret the New Regulation and determine whether the Legislature intended its interest provision to apply to overdue benefit payments arising out of accidents on or after September 1, 2010, even if there was an existing insurance policy at the time the New Regulation came into effect. In my view, the legislative intent is clear: the interest provision in the New Regulation was to apply.

This is not a situation like the one in Federico , where the accident occurred before the New Regulation came into effect, and the individual was entitled to benefits from December 2006. [ 33 ] The conclusion I have reached is consistent with the

interpretation of the New Regulation provided in the Superintendent’s Bulletin, Transition to the New Statutory Accidents Benefits

Schedule - Effective September 1, 2010 (Bulletin A-04/10). The Bulletin provides that the New SABS Regulation will apply to all new accidents “for all purposes”, with new accidents defined as those that occur on or after September 1, 2010. Pursuant to s. 268.3 of the Insurance Act , R.S.O. 1990, c. I.8, guidelines issued by the Superintendent concerning the

interpretation and operation of the SABS Schedules shall be considered in any

interpretation of the SABS Schedules. [ 34 ] The Respondent also argued that interest was not a “benefit” under the New Regulation and accordingly, s. 2(1) does not apply, as it refers to the provision of benefits. In my view, it is clear from the wording of the New Regulation that the interest rate in s. 51(2) of 1% per month is intended to apply when benefits that are payable under the New Regulation are overdue. The Respondent’s SABS payments are payable under the New Regulation, and accordingly, s. 51(2) governs the payment of interest.

Conclusion [35] This is not a case like McLean v. British Columbia (Securities Commission), 2013 SCC 67 , [2013] 3 S.C.R. 895where there were two reasonable

interpretations of the legislation (see paras. 38-39). The words of the New Regulation, read in context,are clear: interest is payable on overdue benefits, in respect of accidents that occur on or after September 1, 2010, in accordance with s.51 of the New Regulation. The Delegate’s reliance on the Old Regulation was unreasonable, given its wording, and his

interpretation ofthe New Regulation was not reasonable. [36] Accordingly, the application for judicial review is granted, and the decision of the Delegate is quashed. [37] The Respondent shall pay costs of the application for judicial review to the Applicant in the amount of $4,000.00. She shallalso pay costs of the stay motion to the Applicant in the amount of $2,500, as fixed by Nordheimer J. _______________________________ Swinton J. I agree _______________________________ Lederman J. I agree _______________________________ Rady J.

Date of Release: November 6, 2017 CITATION: State Farm Automobile Insurance Co. v. Kulaveerasingam, 2017 ONSC 6278 DIVISIONAL COURT FILE NO.: 448/16DATE: 20171106 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT Lederman, Swinton and Rady JJ. BETWEEN:

STATE FARM AUTOMOBILE INSURANCE COMPANY Applicant – and – KUMUTHAKUMARY KULAVEERASINGAM and FINANCIAL SERVICES COMMISSION OF ONTARIO Respondents REASONS FOR JUDGMENT Swinton J. Date of Release: November 6, 2017