Aviva Insurance Company v. Zurich Insurance Company
Aviva sought indemnification by way of loss transfer dispute related to statutory accident benefits that it paid to its insured arising out of a motor vehicle accident that occurred on July 4, 2013. Zurich had accepted priority but disputed the way in which Aviva calculated post-65 income replacement benefits (IRB). The disputed amount was approximately $31,605.49.
The key issue related to the fact that the insured received collateral benefits (long term disability) that would terminate the same month she reached sixty-five-years-old. As such, when Aviva settled the file it did not deduct collateral benefits from its calculation of post-65 IRBs. Zurich argued Aviva should have continued to factor collaterals in its calculation and thus, the question posed to the Arbitrator was what is the correct method of calculation for post-65 IRB entitlement when there are collateral benefits?
Section 8 of the Statutory Accident Benefits Schedule (SABS) provides the following formula for post-65 IRB calculation: C x 0.02 x D. C being the weekly amount of IRB that a person was entitled to receive immediately before the adjustment. Aviva argued C in this case should be $400 (maximum entitlement and accounting for the fact that no collaterals would exist post-65) and Zurich argued C should be $186.64 (where the collateral benefits received up until the claimant turned 65 should be deducted even if they end on her 65th birthday).
Arbitrator Vance Cooper concluded that Aviva was entitled to indemnification related to post-65 IRB. In his decision he wrote “it does not seem appropriate to me to penalize an automobile accident claimant who, through their own foresight and care, purchases LTD coverage or has the ability to secure employment which carries with such employment the benefit of collateral coverage including long term disability coverage.”
It is noteworthy, that the Arbitrator rejected Zurich’s secondary argument that it was entitled to withhold payment for indemnification as Aviva’s post-65 calculation was not available under the SABS and the “incorrect formula” used by Aviva amounted to gross negligence or gross mishandling of the claim. Significantly, Arbitrator Cooper found that the proper way to calculate the post 65 entitlement is to indeed add back the collateral benefits no longer received as at the 65th birthday of the claimant, before applying the post 65 formula called for under the SABS.
The key take away from this case is that it is not appropriate to deduct phantom collateral benefits from post-65 IRBs which in essence would punish an insured for having collaterals that ends on their 65th birthday (or in this case end the same month the insured turned 65).