An arbitrator with the Financial Services Commission of Ontario made a rare ruling, granting a special punitive award against an insurance company for how it handled a client’s application for catastrophic impairment.
“It’s a signal to insurance companies that when they’re going to deny benefits to a person or they’re going to deny that somebody has a catastrophic impairment, they better make sure that they have followed the legislation and their assessments have been done properly,” says Leonard Kunka of Thomson Rogers, counsel for Thomas Waldock who was seriously injured in March of 2008. “To rely on a defective assessment to the detriment of their insured is really a breach of their obligation of good faith to their client.”
Kunka says two decisions, including one released Nov. 16 by the financial services commission in relation to Waldock, will have major implications for the legal and insurance communities because it is the first reported case where inevitable deterioration in an injured person’s condition was taken into account in determining whether injuries are considered catastrophic under the Ontario Statutory Accident Benefits legislation, which became effective in September 2010.
Kunka says it also points to flaws in the assessment and training process of evaluators such as those at Independent Rehabilitation Services Inc., the company used by State Farm to build its defence that Waldock was not catastrophically impaired.
“Because they relied on a report that was so obviously defective, and they blindly relied on that and wouldn’t change their position on that, that’s what the arbitrator took exception to — an insured should not have to go through all of this,” he says.
In the matter of Waldock v. State Farm Automobile Insurance Company, Waldock was helping a car stuck in a snow bank when he was struck by a vehicle that had lost control coming down a hill in Bracebridge, Ont.
According to the ruling, Waldock subsequently applied for and received statutory accident benefits from State Farm, but disputes arose between the two parties about whether or not his injuries were deemed ‘catastrophic.’
In 2014, a preliminary issues hearing was held to determine if he was catastrophically injured and if he or State Farm would be entitled to their respective expenses for the hearing. Arbitrator Knox Henry ruled in favour of Waldock, but he deferred the decision on hearing costs until a later date. When the 2014 decision was released, Henry found that the insurer’s medical assessor failed to follow the accepted guidelines to determine whether a person is catastrophically impaired, and ruled the insurer based its denial of catastrophic impairment on a flawed report. Henry found State Farm should have known that the assessment and report were flawed and ought not to have followed the conclusions to deny that Waldock had suffered a catastrophic injury. Kunka says that because the arbitrator found Waldock’s injuries to be catastrophic, Thomson Rogers submitted retroactive expenses on behalf of Waldock, and claimed interest, its costs of the arbitration, and a special award from the insurer based on the catastrophic finding.
The issue of a special award was raised by Waldock’s camp, which argued that State Farm unreasonably withheld and delayed payments to Waldock for attendant care, several medical and rehabilitation claims, as well as housekeeping and home maintenance claims. Of the $532,779 Waldock was claiming in benefits and expenses, some $361,520 was outstanding. State Farm disputed his injuries constituted catastrophic impairment and thus the expenses and interest he was owed.
On Nov. 17, Henry ruled that State Farm had refused to accept his original ruling of catastrophic impairment. Because the insurer had ample evidence to support Waldock was in fact seriously injured and partially incapacitated by the collision, he found the company was responsible for withholding or delaying payments, and he ordered a special award of 30 per cent of the $361,520 still owing, plus accumulated interest, calculated at two per cent per month and compounded monthly starting from early July 2010. Waldock was also awarded $125,435 for his bill of costs and disbursements of $45,824.
Emily Casey of Tkatch & Associates says the lesson to be learned is that it is not enough for the insurer to have reports stating the claimant is not impaired catastrophically. She notes State Farm did not have its medical expert attend the hearing and that forced the arbitrator to give less weight to State Farm’s medical arguments.
“Standing by a flawed report in denying catastrophic benefits resulted in a significant punitive award,” she says.
Darryl Singer of Singer Litigation Counsel says it’s not a ruling that will open floodgates to a rash of special award claims, but he adds that it’s a “sound decision” that reinforces the court’s discretion in making such rare awards.
“The conduct has to be essentially so egregious; in this particular case, it should have been patently obvious to the insurer the client was catastrophically injured and the judge ruled because they decided to force the matter,” he says.
Kunka says “arbitrators do not invoke special awards very often, and rarely in the range of this award. This decision should serve as a wakeup call to Ontario automobile insurers that they have a duty to treat their insureds fairly and failure to do so will come with a hefty penalty.”
