


COURT OF APPEAL FOR ONTARIO

CITATION:  Zacharias v. Zurich Insurance
Company, 2013 ONCA 482

DATE: 20130716

DOCKET: C55908

Sharpe, Epstein and Pepall JJ.A.

BETWEEN

Nancy Zacharias

Plaintiff (Respondent)

and

Zurich Insurance Company

Defendant (Appellant)

Chris T. Blom, for the appellant

Allan Rouben and Russell J. Howe, for the respondent

Heard: March 15, 2013

On appeal from the judgment of Justice Suzanne M.
Stevenson of the Superior Court of Justice, dated July 16, 2012, with reasons
reported at 2012 ONSC 4209, 111 O.R. (3d) 611.

Epstein J.A.:

INTRODUCTION

[1]

For claimants injured in motor vehicle accidents between 1990 and 1994,
the governing Ontario accident benefits regulation provides for interest on
overdue benefit payments. The issue in this appeal is whether that interest is
compound or simple.

[2]

The respondent, Nancy Zacharias, was in a car accident on December 18,
1990. Based on injuries she claims to have suffered in that accident, Zacharias
sought weekly benefits from her insurer, the appellant, Zurich Insurance
Company, pursuant to Part IV of the
Statutory Accident Benefits Schedule 
Accidents before January 1, 1994
, R.R.O. 1990, Reg. 672 (SABS 1990). Zurich
honoured the claim and from December 25, 1992, to January 26, 1996, paid
benefits to Zacharias in the amount of $216.37 per week.

[3]

Zurich terminated Zacharias benefits on January 26, 1996 on the basis
that Zacharias was, in fact, not injured, or if she were, her injuries did not
arise from the accident. As a result of the termination of benefits, Zacharias
commenced this action against Zurich, claiming past and on-going benefits from
December 18, 1990, at the rate of $600 per week.

[4]

Zacharias also claims interest on the overdue amounts that she maintains
Zurich owes to her.  She claims interest pursuant to s. 24(4) of SABS 1990,
that provides as follows:

The insurer will pay interest on overdue payments from the date
they become overdue at the rate of 2 per cent per month.

[5]

A dispute over Zacharias entitlement to interest gives rise to this
appeal.  Zacharias position is that s. 24(4) requires Zurich to pay interest
of two per cent per month compounded monthly. Zurich disagrees, saying that s.
24(4) provides for only simple interest.

[6]

Whether Zurich has any outstanding liability to Zacharias has yet to be
determined.  However, to resolve the important issue of whether Zurich is
obliged to pay compound or simple interest on any amounts it is found to owe to
Zacharias, Zurich moved under rule 21.01 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194,
for
determination of whether s. 24(4) provides for simple or compound interest.

[7]

I refer to the issue as important.  Depending on the amount of Zurichs
liability to Zacharias, if any, the difference between simple and compound interest
could be in excess of $10 million.

[8]

The motion judge concluded that s. 24(4) of SABS 1990 provides for
compound interest.

[9]

Zurich appeals.

THE STATUTORY FRAMEWORK

The Ontario Motorist Protection Plan and SABS

[10]

In
1990, the Ontario legislature enacted the provinces first extensive no-fault
insurance plan: see
Meyer v. Bright
(1993), 15 O.R. (3d) 129 (C.A.). 
Known as the Ontario Motorist Protection Plan (the OMPP), the new regime
introduced a threshold system whereby individuals could pursue remedies in tort
for injuries sustained in motor vehicle accidents only where the injuries were
physical, permanent and serious.  In exchange for significantly restricting the
scope of traditional tort rights, the OMPP provided for enhanced no-fault
benefits and a structure to ensure prompt payment of those benefits. The
details of the no-fault benefits regime are provided by regulation, commonly
referred to as SABS.

[11]

As
set out above, the focus of this appeal is the interpretation of s. 24(4) of SABS
1990.  However, subsequent SABS, summarized in the next three paragraphs,
provide context.

[12]

In
1994, the legislature amended aspects of the no-fault regime and a new benefits
schedule came into force: see
Statutory Accident Benefits Schedule 
Accidents after December 31, 1993 and Before November 1, 1996
, O. Reg.
776/93 (SABS 1994). Section 68 of SABS 1994, the provision relating to
interest on overdue amounts owed to a claimant, is differently worded than s. 24(4)
of SABS 1990. Section 68 provides as follows:

If payment of a benefit under this Regulation is overdue, the
insurer shall pay interest on the overdue amount for each day the amount is
overdue from the date the amount became overdue at the rate of 2 per cent per
month
compounded monthly
. [Emphasis added]

[13]

The
interest provision in the next iteration of SABS contained the same language as
that found in s. 68 of SABS 1994: see
Statutory Accident Benefits Schedule
 Accidents on or After November 1, 1996
, O. Reg. 403/96, s. 46(2).

[14]

Section
51(2) of
Statutory Accident Benefits Schedule  Effective September 1, 2010
,
O. Reg. 34/10, the most recent benefits schedule, contains the same language as
the previous two SABS, with the exception of a reduction in the rate of
interest from two per cent compounded monthly to one per cent per month,
compounded monthly.

The Insurance Act

[15]

The
enabling statute, the
Insurance Act
, R.S.O. 1990, c. I-8, is also relevant
for the purposes of the interpretive analysis. Section 282(10) of the
Insurance
Act
, a section that came into force at
the same time as SABS 1990 and has not been amended over the applicable time
period,
requires an arbitrator to make an additional award to a
claimant in circumstances where the arbitrator finds that an insurer has unreasonably
withheld payments.

Special Award

(10)  If the arbitrator finds that an insurer has unreasonably
withheld or delayed payments, the arbitrator, in addition to awarding the
benefits and interest to which an insured person is entitled under the
Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per
cent of the amount to which the person was entitled at the time of the award
together with interest on all amounts then owing to the insured (including
unpaid interest) at the rate of 2 per cent per month, compounded monthly, from
the time the benefits first became payable under the Schedule.

THE
MOTION JUDGES ANALYSIS

[16]

The
motion judge identified the interpretive question as whether or not, in the
absence of the words compounded monthly that were later added to similar
provisions, those words can be inferred [in s. 24(4) of SABS 1990] from the
overall context, scheme and object of the Regulation (at para. 36).

[17]

Since
s. 24(4) of SABS 1990 does not, in referring to interest, specify simple or
compound, the motion judge decided that a reading of the words [of s. 24(4)]
in their grammatical and ordinary sense is impossible (at para. 36).  Even
after reading the words in their entire context, the motion judge found genuine
ambiguity with respect to s. 24(4) of [SABS 1990] and that resort needs to be
made to external interpretive aids and extrinsic materials in order to
determine the issue (at para. 38).

[18]

The
primary external interpretive aid upon which the motion judge relied is the
Report
of the Automobile Insurance Board
(Ontario: Ministry of Financial
Institutions, 1989), commissioned by Order in Council in March 1989.  Further
to its commissioned mandate, the Automobile Insurance Board conducted lengthy
hearings and in July 1989, delivered a comprehensive report, (the Kruger
Report), to the Lieutenant Governor in Council. The Report, tabled during the
legislative process, played a central role in the debates leading to the
passage of SABS 1990.

[19]

The
Report recommended that Ontario adopt a no-fault benefits system similar to the
one then in place in New York State.

[20]

With
respect to interest on overdue benefit payments, the Kruger Report explicitly
advocated that Ontarios new regime follow the analogous New York State scheme.
Although the Kruger Report did not explicitly refer to it, the New York law
contains a provision that requires, through regulation, insurers to pay
insureds interest on overdue amounts at two per cent per month compounded
monthly: see
Insurance Law
, N.Y.C. 5106: Fair Claims Settlement; 11
NYCRR 65, s. 65.15(h).

[21]

The
motion judges view that the Kruger Report represented the
best evidence of legislative intent and that the Report implicitly recommended that
insurers be required to pay interest on overdue amounts at the rate of two per
cent per month compounded monthly, factored prominently in her conclusion that s.
24(4) provides for compound interest.

[22]

The motion judge reasoned that the absence of the words compounded
monthly in the interest provision of [SABS 1990] may be a drafting error and
the inclusion of those words in [SABS 1994] was an instance of language
polishing and not a substantive amendment (at para. 50).

[23]

The
motion judge therefore held that Zacharias is entitled to compound interest on
any arrears of benefits ultimately found to be owing to her by Zurich.

THE PARTIES POSITIONS ON APPEAL

[24]

Zurich
submits that the motion judge erred in concluding that the language in s.
24(4), relating to interest, is ambiguous.  Zurich argues that the only interpretation
that is reasonably available, having regard to the entire context of the
statutory framework, is that, under SABS 1990, overdue payments attract simple
interest.

[25]

Relying
heavily on the canon of construction that to express or include one thing
implies the exclusion of the other, Z
urich
submits that
the specific use of the words compound interest in s.
282(10) of the
Insurance Act
precludes interpreting s. 24(4) in SABS
1990 as providing for compound interest.  Zurich points out that Arbitrator
Makepeace in
McMaster v. Dominion of Canada General Insurance Co.
,
[1994] O.I.C.D. No. 122, and in
J. W. v. Canadian General Insurance Group
,
[1999] O.F.S.C.I.D. No. 22, relied on this argument in concluding that s. 24(4)
provides for simple interest.

[26]

Zurich
also submits that the change in the wording of s. 24(4) of SABS 1990 to that
found in s. 68 of SABS 1994, which explicitly specifies compound interest, should
be regarded as purposive. Zurich relies on the presumption that amendments to
the wording of a legislative provision are made for some intelligible purpose. 
Zurich refers to the decision of Laskin J., (as he then was) who applied this
presumption in
Bathurst Paper Ltd. v. New Brunswick (Minister of Municipal
Affairs)
, [1972] S.C.R. 471. Zurich contends that in changing the wording
the drafters intended to replace the insurers interest obligation from simple to
compound.

[27]

Zacharias
primary argument is that the motion judge was correct in finding that s. 24(4)
is ambiguous.  For interpretive assistance, it was therefore open to the motion
judge to look to the external aid that provided the most reliable insight into
the legislative intent of s. 24(4)  the Kruger Report.

[28]

The
Kruger Report recommended that the legislature implement a regime, specifically
including a component requiring insurers to pay interest on overdue amounts,
fashioned after the no-fault benefits regime in New York State.  Since that
regime provided for interest on overdue payments of two per cent per month
compounded, logic dictates that s. 24(4) be interpreted as imposing the same
obligation.

[29]

According
to Zacharias, the motion judge correctly interpreted s. 24(4) in a manner consistent
with its plain wording and with its clear legislative intent.

The Additional Issue

[30]

In
this court Zacharias, for the first time, submitted that even though s. 24(4)
does not explicitly refer to compound interest, the effect of the provision is
to require insurers to pay interest at two per cent compounded monthly.  The
argument is as follows.  Since s. 24(3) provides that weekly income benefits
are payable every second week, and since s. 24(4) provides that overdue
payments bear interest at the rate of 2% per month from the time they become
overdue, interest is a component of the overdue payment and hence compounded. 
Put differently, interest owed on an overdue payment is added to the amount of
the payment thereby becoming part of the overdue amount to which any further
overdue payments are added and upon which interest is calculated.  Because
interest is calculated on amounts that include interest, the effect of s. 24(4)
is to require insurers to pay compound interest.

[31]

Since
this argument had not been made before the motion judge and was not extensively
addressed by the parties in their written or oral arguments on appeal, supplementary
written argument was requested.

[32]

In
her written submissions, Zacharias seeks to fortify her position that s. 24(4)
implicitly provides for compound interest by referring to the wording of s. 68
of SABS 1994.  Zacharias relies on two differences between the language found
in s. 68 of SABS 1994 and that found in s. 24(4) of SABS 1990. First, s. 68 stipulates
that interest accrues on the amount of an overdue benefit, whereas s. 24(4)
provides for interest on an overdue payment.  Second, s. 68, unlike s. 24(4),
expressly provides that interest be compounded monthly.

[33]

For
convenience, I set out s.68 again:

If payment of a benefit under this Regulation is overdue, the
insurer shall pay interest on the overdue amount for each day the amount is
overdue from the date the amount became overdue at the rate of 2 per cent per
month compounded monthly.

[34]

Zacharias
submits that the significance of these two changes is as follows.  Section 68,
through the way in which it is worded, restricts the amount overdue to a
benefit.  Since benefits do not include interest, in order to compensate an
insured for the loss of the time value of money, in the same fashion as s.
24(4), s. 68 had to specifically provide for compound interest. In other words,
s. 68 does explicitly (with the word compounded) precisely what s. 24(4) does
implicitly (with the word payment).

[35]

Zurich
submits that s. 24(4) cannot be read as Zacharias suggests.  For Zacharias
argument to succeed, overdue payments must include accrued interest.  That is
not possible, argues Zurich, as ss. 24(1) and (2), define an amount payable in
a manner that specifically excludes interest.

(1)  Amounts payable under Parts II, III and V are overdue if
not mailed or otherwise delivered by the insurer within thirty days after it
has received a completed application for statutory accident benefits.

(2)  Amounts payable under Part IV are overdue if not mailed or
otherwise delivered by the insurer within ten days after it has received a
completed application for statutory accident benefits or if the insurer fails
to make a payment required by subsection (3).

[36]

In
providing when an amount payable is overdue, ss. 24(1) and (2) refer to
payments under Parts II, III and IV and V of the regulation. The obligation to
pay interest under s. 24(4) is in Part VIII of the regulation.  Zurich contends
that because interest is not included in amounts payable for the purpose of determining
when an amount payable becomes overdue, Zacharias argument, one that is premised
on interest being added to and treated as an overdue amount, must fail.

ISSUES

1. Is the wording of s. 24(4) regarding interest to be paid on
overdue amounts, ambiguous?

2. If not, what is the ordinary meaning to be attributed to the
wording, taking into consideration legislative intent?

3. If the wording of s. 24(4) is ambiguous, what is the
appropriate interpretation of the interest insurance companies are required to
pay having regard to the use of other interpretive aids?

ANALYSIS

[37]

The
oft-repeated Driedger approach to statutory interpretation has been explicitly approved
by the Supreme Court in
Re Rizzo & Rizzo Shoes Ltd.
, [1998] 1
S.C.R. 27, at para. 21:

Today there is only one principle or approach; namely, the
words of an Act are to be read in their entire context and in their grammatical
and ordinary sense harmoniously with the scheme of the Act, the object of the
Act, and the intention of Parliament.

See also
R. v. A.D.H
.
, 2013 SCC 28, at
para. 19.

[38]

There
is no dispute over the legislative intent of the requirement that insurers pay
interest on overdue amounts owed to insureds. That intent is to compensate
insureds for the loss of the time value of money and to encourage insurers to
pay accident benefits promptly:
Attavar v. Allstate Insurance Co. of Canada
(2003), 63 O.R. (3d) 199 (C.A.).

[39]

The
interpretation of s. 24(4) in SABS 1990 must therefore be guided by this
intention and the approach endorsed by the Supreme Court in
Rizzo
.

(1)

Is the wording of the provision ambiguous?

[40]

In
Bell ExpressVu Ltd. Partnership v. Rex
, 2002 SCC 42, [2002] 2 S.C.R.
559, at paras. 28-29, Iacobucci set out the test for ambiguity and explained
the importance of the determination:

What, then, in law is an ambiguity? To answer, an ambiguity
must be "real" (
Marcotte, supra
, at p. 115). The words of
the provision must be "reasonably capable of more than one meaning" (
Westminster
Bank Ltd. v. Zang
(1965), [1966] A.C. 182 (U.K. H.L.), at p. 222,
per
Lord Reid). By necessity, however, one must consider the "entire
context" of a provision before one can determine if it is reasonably
capable of multiple interpretations. In this regard, Major J.'s statement in
Canadian
Oxy Chemicals Ltd. v. Canada (Attorney General)
, [1999] 1 S.C.R. 743
(S.C.C.), at para. 14, is apposite: "It is only when genuine ambiguity
arises between two or more plausible readings,
each equally in accordance
with the intentions of the statute
, that the courts need to resort to
external interpretive aids" (emphasis added), to which I would add,
"including other principles of interpretation".

[41]

Applying
the
Bell Expressvu
test, I come to the conclusion that s. 24(4) is not
ambiguous. In my view, a consideration of the provision in its grammatical and
ordinary sense and in a manner that corresponds with the scheme of the legislation
and its intent, leads to only one interpretation  that interest is
compounded.

[42]

Blacks
Law Dictionary
,
8
th
ed. (St. Paul, MN: West Pub. Co.,
2004), at p. 830 defines compound interest as interest payable on both
the principal and the previously accumulated interest.

[43]

If
a benefit an insurer owes an insured is not paid in accordance with the SABS
1990 time requirements and is therefore overdue, then at the expiry of 30
days, two per cent interest is calculated on the overdue amount.  That interest
is then added to the principal amount owing and becomes part of the amount that
is overdue. If the next benefit payment is not made on time, the amount of the
benefit is added to the amount that is overdue.  At the end of 30 days, two per
cent interest is calculated on the total overdue amount and is added to that
amount.

[44]

Simply
put, s. 24(4) provides that at the end of the month during which a payment is
overdue, two per cent interest is added to the amount that is overdue.  As long
as this overdue amount remains unpaid, interest continues to accrue at two per
cent per month on both the increasing principal and on the interest that has
been calculated monthly. As both the principal and interest are overdue
payments, interest must be calculated and paid on amounts that include interest.
Section 24(4) therefore provides for compound interest.

[45]

I
do not agree with Zurichs argument that ss. 24(1) and (2) of SABS 1990,
prevent interest from being treated as part of the overdue payment for the
purposes of s. 24(4).  These subsections define when an amount an insurer owes
an insured becomes overdue: see
Mercier v. Royal & SunAlliance
Insurance Company of Canada

(2005), 72 O.R. (3d) 94 (C.A.). They
simply cannot be read as restricting what may be included as part of an overdue
payment.

[46]

Moreover,
the practical implication of Zurichs argument leads to an improbable conclusion.
If interest is precluded from being considered part of an overdue amount then
arguably an insurers interest obligations to an insured never become overdue.

[47]

I
also do not accept Zurichs submissions that the change in the wording in s.
24(4) of SABS 1990 to that found in s. 68 of SABS 1994 and the fact that
compound interest is specified in s. 280(1) of the
Insurance Act
,
support
interpreting s. 24(4) as providing for simple interest.

[48]

In
my view, the change in wording from s. 24(4) of SABS 1990 to s. 68 of SABS 1994
should be seen as purposive. However, I view that purpose as increasing the
effectiveness of the legislative intent to compensate insureds for the loss of
the time value of their money and to encourage the prompt payment of benefits.

[49]

This
purpose becomes apparent when all of the wording changes are taken into account
including that, unlike in s. 24(4) of SABS 1990, s. 68 of SABS 1994 specifies that
the insurer shall pay interest on the overdue amount for each day the amount
is overdue from the date the amount became overdue.

[50]

Considering
all of the differences in wording between the two provisions, it is clear that s.
24(4) of SABS 1990 provides for two per cent interest compounded monthly and
calculated monthly. Section 68 of SABS 1994 provides for two per cent interest
compounded monthly and calculated daily.

[51]

The
implications of this difference in terms of legislative intent of compensating
insureds for the loss of the time value of money and encouraging the prompt
payment of benefits, are significant.

[52]

Through
the daily calculation of interest, s. 68 comes closer to providing full
compensation for the insureds loss of the time value of money as interest is
calculated on fluctuating overdue amounts.

[53]

Through
the daily calculation of interest, s. 68 also increases the incentive for
insurers to make timely payments as it eliminates the benefit of an interest-free
period of payment delay. This benefit can be substantial, particularly when
SABS 1994 came into effect, a time when the prevailing interest rates were
high.

[54]

Therefore,
in my view, taking the entire context into consideration, s. 24(4) is only
reasonably capable of only one meaning  interest must be paid on a compound
basis.

(2)

What is the ordinary meaning to be attributed to the wording, taking
into consideration legislative intent?

[55]

The
interpretive exercise should go beyond the ordinary grammatical meaning and
take into account its context consistent with the legislative scheme and
intent. See
ATCO Gas & Pipelines Ltd. v. Alberta (Energy &
Utilities Board)
[2006] 1 S.C.R. 140 at para. 38 (S.C.C.). I have already factored
context and legislative intent into the analysis that lead me to conclude that
s. 24(4) provides for compound interest and need only add a few brief comments.

[56]

Simply
put, in my view, interpreting s. 24(4) as providing for compound interest fits
within the legislative scheme and advances the legislative intent. Interpreting
s. 24(4) as providing for simple interest does not.

[57]

Compound
interest fits into the legislative scheme that imposes clear, tight, timelines
for the payment of benefits.  The scheme specifies when payments are overdue
and requires an insurer to pay interest on overdue amounts in a manner that
compensates the insured for the loss of the time value of money.

[58]

It
is important to note that compound interest does not penalize.  It
compensates.  A penalty for conduct that goes beyond benign delay is provided
for in s. 282(10) of the
Insurance Act
,
set out above that
requires an insurer to be sanctioned in circumstances where a finding is made that
the insurer has demonstrated an unreasonable lack of regard toward its obligations
to pay benefits on a timely basis.

[59]

I
return to the decision of this court in
Attavar
to explain the
significance of compound interest in advancing legislative intent. This
significance is made clear by the strong words of Laskin J.A. at para. 49 where
he says, [w]ithout a provision [requiring an insurer to compensate the
claimant for the loss of the time value of money, in other words without
compound interest], insurers would have an incentive to delay paying benefits
properly owing, thus forcing insureds to litigate their claims.

[60]

To
summarize, the practical effect of s. 24(4) of SABS 1990 is to provide for
compound interest.  Indeed, as I see it, such is the only interpretation
consistent with the legislative intent and scheme.

[61]

I
therefore reach the same conclusion as the motion judge  that s. 24(4)
provides for compound interest.  However, as can be seen, I have followed a
different analytical route than that followed by the motion judge.

DISPOSITION

[62]

I
would dismiss the appeal.  In my view, Zacharias is entitled to her costs of
the appeal which, based on the parties costs submissions, I would fix at $20,000
including interest and applicable taxes.

RELEASED:



GE                                                  Gloria
Epstein J.A.

JUL 16 2013                                    I agree
Robert Sharpe J.A.

I
agree S.E. Pepall J.A.

