Zacharias v. Zurich Insurance Company

Plaintiff’s Counsel on motion: Russell J. Howe
Defendant’s Counsel on motion: Eric Grossman
Appellant’s Counsel on appeal: Christopher T. Blom
Respondent’s Counsel on appeal: Russell J. Howe | Allan Rouben

Ms. Zacharias suffered various soft tissue and related injuries, including thoracic outlet syndrome in a car crash that took place on December 18, 1990. Due to these injuries she had to cease her satisfying career as a flight attendant and was unable to return to work after that crash.

As a result of her inability to work from the crash she applied for and received income replacement benefits from her accident benefit insurer Zurich Insurance Company (“Zurich”) under the no fault scheme in place at the time, the Ontario Motorist Protection Plan (the “OMPP”).

Zurich improperly terminated those benefits, with a potential value of $600 a week, on January 26, 1996. In addition to the dispute on the termination there was a dispute about the quantum of benefits payable with Zurich suggesting the correct sum was $216.37 per week and the plaintiff suggesting the $600.00 maximum was correct.

Ms. Zacharias retained us in December of 2010 to move her accident benefit matter forward as examinations for discovery had not even taken place. We were her fifth counsel. In addition to the issues of quantum and entitlement to income replacement benefits, the issue of interest was central to the case. The regulations under the OMPP legislative regime were silent as to whether the 2% per month interest was to be simple or compounded, as was the legislation itself. In this case the question of simple or compound interest could make a difference in the value of the plaintiff’s damages of more than ten million dollars.

The defence brought a Rule 21 motion to determine the interest question which was argued before Madame Justice Stevenson on July 16, 2012. Zurich argued that since the later schemes, Bill 164, Bill 59 and Bill 198, all specified that the interest was compounded that the change in the language had to have some meaning, and thus the specificity of the later schemes could be used to interpret the earlier less specific scheme. Zurich also argued that the Federal Interest Act (there is no Provincial interest act) specified simple interest and that should assist the court in interpreting this legislation. Finally, Zurich argued that since the special awards provision of the OMPP specified that compound interest was payable on special awards and the section on overdue payments was silent, that the legislature was aware of the distinction and if the legislature had intended to make interest on overdue payments compound they would have chosen to use that language in the same way they did in the special awards section of the legislation.

Zurich relied on two arbitral decisions that had found the interest to be simple under this scheme. The plaintiff’s counsel argued that compound interest was a more accurate way to calculate the loss of the use of money over time as simple interest makes an artificial distinction between money owed as principal and money owed as interest. The plaintiff’s counsel argued that the purpose of the interest section imposing interest at 2% a month was to encourage insurers to make prompt payment of much needed benefit and that compounding the interest would be more in line with this clear goal of the legislature. The plaintiff’s counsel presented the Court with significant evidence from Hansard and the Legislative hearings on the issue of the proposed accident benefit scheme, the Kruger Report and provisions of the similar New York no fault scheme.

The Court found that the Kruger Report made it clear the legislative intent was to adopt the New York no fault scheme in which interest payable on overdue benefits was to be compounded. The plaintiff’s counsel relied on a single Superior Court Decision that indicated that interest under this scheme was compound interest; however, that case provided no reasoning for that conclusion. Madame Justice Stevenson concluded, based on historical research, that the timely delivery of benefits had been a paramount purpose of the statutory scheme.

She concluded that the arbitrators had erred when they found that the interest provision was not meant to penalize late payment and ruled that interest on overdue payments under the OMPP legislation should indeed be compounded. The defendant Zurich appealed this decision. The case was heard by Madame Justice Gloria Epstein, Mr. Justice Robert Sharpe, and Madame Justice Sarah Peppall of the Ontario Court of Appeal on March 15, 2013. Zurich’s able counsel made very similar arguments to those made on the motion at first instance. The plaintiff’s counsel urged a similar approach to legislative interpretation as they had on the motion below and in addition, argued that a narrow, conservative construction of the legislation would lead to the conclusion that interest was compounded even if that word was not explicitly used in the legislation.

The plaintiff’s counsel argued that the interest itself, if not paid, became part of the “overdue payment” and thus would also attract the 2% per month interest, in effect providing for compounding even if that word was not specifically used. The plaintiff’s counsel pointed out that under the later scheme interest was said to be due to an overdue benefit, while under the OMPP scheme interest was to be paid on overdue “payments” and that the term “payments” should include interest, while the term benefit clearly did not. The panel unanimously found that on a strict construction basis and on a legislative intent basis that the interest was to be compounded monthly and calculated monthly.

After the appeal decision, Zurich paid $15.3 million dollars (in addition to an earlier advance payment of $750,000). This is likely the largest ever accident benefit payout in Ontario.