Case Comment: Zacharias v. Zurich Insurance Company

The decision of the Court of Appeal for Ontario in Zacharias v. Zurich Insurance Company, 2013 ONCA 482, is of interest in a number of respects. From the perspective of appellate practice, the case is noteworthy in that the grounds for the Court’s decision were based on an argument that had not been made before the motions judge, was not extensively dealt with in the facta of the parties and was discussed in detail only at the hearing of the appeal. Consequently, the Court requested further written submissions after the conclusion of oral argument. This reflects the Court’s overriding concern to reach the correct result, and to provide the parties with the best possible opportunity to put their positions forward in the interests of fairness.

From the perspective of the merits, the decision is noteworthy in that the Court  concluded it was not necessary for the 1990 version of the Statutory Accident Benefits Schedule to specifically mention compound interest in order for compound interest to be payable on unpaid accident benefits. The structure of then section 24 in and of itself, the Court held, required the payment of compound interest. This was based on a close reading of the Regulation.

Section 24(2) provided that “amounts payable” under Part IV (weekly income benefits) were overdue if not mailed within ten days after receipt of a completed application for benefits.  Section 24(3) provided that weekly income benefits were payable every second week while the insurer remained liable to the insured person. Section 24(4) provided that “The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2 per cent per month.” Since interest was payable on “overdue payments” and payments had to be made every second week, the Court concluded that interest was a component of the “overdue payment.” As long as the overdue payment remained unpaid, interest continued to accrue on the unpaid principal and interest. The result was that interest was payable on unpaid interest.

A significant feature of the case was that subsequent versions of the Statutory Accident Benefits Schedule made it explicit that an insurer was required to pay compound interest on unpaid benefits. Zurich argued that inclusion of the word “compound” in subsequent versions of section 24(4) was meant to reflect a change in the law. The Court of Appeal agreed the change was purposeful, but held it was designed to further the legislative intent to compensate insureds for the time value of money and to encourage the prompt payment of accident benefits.

Zurich’s main position on the appeal was that reference to compound interest in section 282(10) of the Insurance Act, which deals with special awards, showed that the legislature included specific mention of compound interest when it was intended that compound interest be paid. The Court answered this point by making this significant statement of general application: “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 towards its obligations to pay benefits on a timely basis.”

In my view, the decision of the Court of Appeal accords with the language of the Regulation, and furthers the legislative intent that insurers comply with their obligation to make timely payment of accident benefits properly found to be due and owing.

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