Does an insurance company owe simple or compound interest on overdue payments to clients injured in car accidents between 1990 and 1994?
This 10-million-dollar question was recently put before the Ontario Court of Appeal.
Nancy Zacharias was in a car accident on Dec, 18, 1990. Zurich honoured her claim and paid weekly benefits of $216.37 to Zacharias from December 1992 to January 1996.
Zurich terminated her benefits in January 1996 on the basis that she was not injured or, if she was, her injuries were not related to her accident.
Zacharias sued, saying Zurich owed her past and ongoing benefits at the rate of $600 per week. She also claimed interest on the overdue amount she claimed that Zurich owed to her.
The court has not yet determined the outcome of Zacharias’s claim against Zurich. Instead, a dispute arose about her claim to interest.
Section 24(4) of the 1990 version of the Ontario Statutory Accident Benefits Schedule (SABS) says: “The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2% per month.”
Does this mean simple interest as Zurich claimed, or compound interest, as Zacharias maintained?
“I refer to the issue as important,” wrote Ontario Appeal Court Justice Gloria Epstein. “Depending on the amount of Zurich’s liability to Zacharias, if any, the difference between simple and compound interest could be in excess of $10 million.”
The arguments turned on the fact that the words “compound interest” were absent from the wording of the 1990 legislation, but were later included in the 1994 version of the SABS.
Zacharias submitted that the inclusion of the words in the 1994 version of SABS simply corrected a drafting error made in the 1990 SABS. They did not represent a shift in how the 1990 SABS should be interpreted.
Zurich, on the other hand, argued that the inclusion of the words in the 1994 was not a mistake. The fact that they were later added to the 1994 SABS meant that they were supposed to be excluded from the 1990 version of the legislation.
“Compound interest fits into the legislative scheme that imposes clear, tight, timelines for the payment of benefits,” the court ultimately ruled. “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.”
