November 19, 2012
Accident Benefits Update – Interest on Overdue Payments under OMPP to be Compounded!
Accident Benefits Update
For the week of November 19 – 23, 2012
Interest on Overdue Payments under OMPP to be Compounded!
Zacharias v. Zurich Insurance Company, 2012 ONSC 4209, July 16, 2012, Justice Stevenson.
MVC December 18, 1990. The Insured claimed weekly income replacement benefits from the Insurer. After the Insurer terminated the Insured’s income replacement benefits on January 26, 1996, the Insured commenced an action against the Insurer. The issue in this motion is whether any interest owing on overdue payments, if any, would be simple interest or compound interest.
The Statutory Accident Benefits Schedule – Accidents before January 1, 1994 (“OMPP”) applies to collision occurring between June 22, 1990 and December 31, 1993, and it provides as follows:
24(4) The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2 per cent per month.
This provision does not specify simple or compounded interest, unlike subsequent SABS legislation.
Justice Stevenson noted that compound interest is no longer considered punitive. The theory is that had payment been made at the date it was due, the Insured would have had a capital sum to invest. By the same token, the Insurer will have had the benefit of compound interest on the money withheld. Applying the modern approach of statutory interpretation, Justice Stevenson held that interest charged under section 24(4) of the OMPP is compound interest and therefore, the Insured was entitled to compound interest on any arrears of income replacement benefits found to be owing to her.
Although it is now 2012, interest on unpaid benefits under the OMPP is still a live issue. This decision has definitively concluded that where an Insured is entitled to an overdue payment under the OMPP, the Insurer must pay compound interest. Compound interest on overdue payment is not contested under subsequent SABS legislation because the wording specifies monthly compound interest. Care must be taken to ensure the Insured is paid the full interest to which he or she is entitled.
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