The challenging legal issue of dependency was explored in the recent private arbitration decision by Arbitrator Kenneth J. Bialkowski in Echelon General Insurance Company and Unifund Assurance. The decision arose following a motor vehicle accident in which the claimant sustained a catastrophic impairment. The claimant was not a named insured or listed driver on any policy of insurance at the time of the accident, and therefore was deemed an ‘occupant’ under s. 268(2) of the Insurance Act.
The priority dispute arose between the owner and operator of the vehicle’s insurance company, Echelon, and the claimant’s father’s insurance company, Unifund. Echelon claimed that the claimant was principally financially dependent on her father at the time of the accident and therefore an “insured” under the Unifund policy, making Unifund the priority insurer as per the priority hierarchy scheme set out in s. 268(2) of the Insurance Act.
According to s.3(7)(b) of the Statutory Accident Benefits Schedule “a person is dependant of an individual if the person is principally dependent for financial support or care on the individual or the individual’s spouse.”
Arbitrator Bialkowski extensively reviewed recent case law on the topic of dependency, specifically regarding which approach courts and arbitrators have favoured in determining whether one is considered a dependant; the 51% rule or the “LICO” approach. The 51% rule, as established in Federation Insurance Company of Canada v Liberty Mutual Insurance Company, says that a person can only be principally dependent for financial support if the cost of meeting their needs is more than twice their resources. The more recent “LICO” approach, which was applied in Allstate Insurance v ING, focuses not on a claimant’s individual needs but rather on statistical average needs of an individual in the geographical area where the claimant lives. The Arbitrator was “of the view that LICO statistics provide a much more reliable basis for determining such needs.”
This would appear to be the first case where a dispute arose over whether before tax LICO data or after tax LICO data should be used to determine whether the claimant was providing for greater than 50% of her needs. The Applicant, Echelon, urged that before tax LICO data be used, proving that the claimant was not providing 50% of her needs and was in fact financially dependent on her father. The Respondent, Unifund, submitted that it is more appropriate to use after tax LICO data and comparing it to the after tax revenue of the claimant. In that case, the claimant would be found financially independent.
Respondent counsel could not provide a single reported decision where after tax LICO data had been used. Arbitrator Bialkowski was of the view that there is good reason why other arbitrators have chosen to use and approve use of before tax data, and denied using after tax data which would favour Unifund.
The Arbitrator was also tasked with determining whether the claimant’s living situation and financial situation at the time of the accident was merely transitional or if she had fully achieved financial independence. The case law reviewed by the Arbitrator looked at varying time frames which suggest independence, from as little as 4 weeks up to several years, noting that each case is very fact specific. Despite the fact that the claimant was living on her own at the time of the accident, the Arbitrator found that she had not yet become financially independent given that she was a full-time student, subletting an apartment for 4 months, and relied at least partially on her father for financial support .
Arbitrator Bialkowski found that the claimant remained principally financially dependent on her father at the time of the motor vehicle accident and was therefore an “insured” under the Unifund policy.
This decision provides further guidance on the use of the LICO approach vs the 51% rule, and its application in cases that are close enough to the line that pre- and post- tax implications be looked at. It further establishes that more arbitrators are becoming comfortable applying the LICO approach even where the 51% rule may have been the go to approach for close to 20 years.