Date: 19980916
Docket: 96-77-GST-G
BETWEEN:
MITCHELL VERIFICATION SERVICES GROUP INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowie, J.T.C.C.
[1] This is an appeal from an assessment made under the
provisions of the Excise Tax Act (the Act) relating
to the Goods and Services Tax (GST). The assessment is dated
January 26, 1995, and it is in respect of services provided by
the Appellant company to various clients in the insurance
industry between 1990 and 1994. The exact amount of the
assessment was not established before me, nor is it essential to
the decision of the appeal, but I was advised that approximately
$150,000.00 in tax, interest and penalty is at stake. At issue is
whether the services provided by the Appellant fall, in whole or
in part, within the definition of “financial
services” found in subsection 123(1) of the Act, and
therefore are exempt from the charging provisions by reason of
the inclusion of “financial services” in Schedule V,
Part VII. If the services do not come within that definition then
they are subject to tax, and the appeal fails.
[2] At the outset, I was advised by counsel during a telephone
conference that the Appellant company has been inactive for about
two years, and that the records of the company were not available
except through compulsion by the Court, either by way of an Order
for production under Rule 86, or by way of subpoena. The result
of this, I was told, is that it would be very time consuming and
expensive to obtain all of the investigation files of the
Appellant for the relevant time period, and to go through each of
them at the trial to examine the exact nature of the service
rendered in each case, to see whether or not it falls within the
definition of a financial service. I therefore agreed that the
trial should be conducted in two stages. The first stage will
determine whether the services provided by the Appellant to an
insurer fall within the exemption claimed if the Appellant, in
the particular case, made a recommendation to the insurer as part
of the services rendered. If the answer to that question is
negative, then the appeal will be dismissed. If the answer is
affirmative, then the trial will be resumed, and a further
determination made on a case-by-case examination as to the extent
to which the services provided by the Appellant during the period
of the assessment were within the exempt category. In that event
I will make an Order under Rule 86, to be followed by further
examination for discovery, prior to the resumption of the
trial.
[3] The definition in question, so far as it is relevant
here,[1] and at the
relevant time, read as follows:
|
123(1) In section 121, this Part and Schedules V, VI and
VII,
...
|
123(1) Les définitions qui suivent
s’appliquent à l’article 121, à
la présente partie et aux annexes V, VI et VII.
...
|
|
financial service means
...
|
service financier
...
|
|
(j) the service of investigating and recommending
the compensation in satisfaction of a claim under an
insurance policy where the service is supplied by an
insurer or by another person who, except in the case of a
claim under a marine insurance policy, is licenced under
the laws of a province to provide such service,
|
j) le service consistant à faire des
enquêtes et des recommandations concernant
l’indemnité accordée en
règlement d’une réclamation faite aux
termes d’une police d’assurance, qui est fourni
par un assureur ou par une autre personne qui, sauf
s’il s’agit d’une réclamation
faite aux termes d’une police d’assurance
maritime, est autorisée par permis obtenu en
application de la législation provinciale à
rendre un tel service.
|
[4] In the first phase of the trial, I heard evidence from Mr.
Robert Gutwein, the retired claims manager of a large
insurance company which had been a client of the Appellant during
the relevant period, and from Mr. Kenneth Mitchell, who was the
founder and president of the company, as to the nature of the
services which the Appellant provided to insurers. I also heard
the evidence of Mr. Reginald Riddles, a retired claims manager of
considerable experience, as to the nature of the services which,
in his experience, insurers purchase from firms of private
investigators, and from independent insurance adjusters working
under contracts for services.
[5] The advent of what is called no-fault automobile accident
insurance in the province of Ontario brought considerable change
to the insurance industry, as to both the types of claims brought
against insurers, and the way in which insurers dealt with those
claims. Mr. Mitchell spent some time in the state of Michigan,
where there had been a no-fault regime for some years. He studied
the practices of the industry there, and of the investigators and
adjusters who provided services to it. He then returned to
Ontario, where he sought to put his new knowledge to use by
marketing to general insurance companies in Ontario an
investigation service tailored to fit their needs, particularly
the new needs arising out of the no-fault system.
[6] At the core of Mr. Mitchell’s service was a document
which he created, entitled Investigation of First Party
Claim. This document was described in the evidence as being a
protocol to be used in the investigation and settlement of claims
under Ontario’s new no-fault insurance system. It is a book
about one inch thick, and divided into 24 sections, which might
be described as a blueprint for the investigation of insurance
claims. It includes templates to guide the interviews of
claimants, witnesses, and others from whom information is to be
obtained. It gives directions for making diagrams of accident
scenes, for taking photographs, and for the inspection of damaged
property. It has sections dealing with the detection of
malingering and other forms of fraud. This protocol was offered
by Mr. Mitchell’s company to the industry, both as a tool
for the use of insurance companies in directing the work of their
adjusters and claims personnel, and as a demonstration of the way
in which the Appellant’s investigative staff would go about
their work on behalf of those insurers who retained the
company’s services. It is a very thorough document, and I
have no doubt that investigations done by the company, in
accordance with that protocol, would be very complete and
reliable.
[7] At the peak of its operations, the Appellant company had a
staff of about 30, including investigators, at least one
kinesiologist and one accountant. The Appellant’s
contention is that this staff, in the course of its work for
insurers, investigated the factual aspects of claims, and in
addition made recommendations to the insurers as to the
compensation to be paid to settle them. I have no doubt that the
Appellant furnished a wide variety of investigative services to
the industry, and that those services were very valuable to
insurers. As it was put by Mr. Gutwein, a retired claims manager
of a major general insurance company, the Appellant’s
services were very valuable to his company, and became a critical
part of determining the value of claims made against it. The
accountant provided assessments of loss of income claims of
self-employed insureds. The kinesiologist was able to analyse
video surveillance tapes, and thereby determine the range of
motion which personal injury claimants could be expected to
achieve. This, in turn, permitted her to detect malingerers, to
recommend a course of rehabilitative treatment, or to determine,
on the basis of that range of motion, which occupations an
injured person could perform.
[8] There was, however, very little direct evidence to
establish that recommendations as to compensation formed a part
of the service provided by the Appellant to its clients in the
insurance industry. The evidence of Mr. Gutwein was that, in his
experience, his company did from time to time get recommendations
from investigators in the course of their investigations. He did
not, however, cite any example of an instance in which an
investigator made a recommendation to his company of an amount to
be paid to settle a compensation claim. The kinds of
recommendations that he referred to as having been received from
investigators were that further investigative work be done, that
a claim was excessive, or that an individual was malingering. In
one specific case, video surveillance of a claimant who was
collecting income replacement payments from the insurance company
revealed that in fact he was working, and not disclosing his
income to the insurer. As a result of this investigation his
benefits were terminated, at the recommendation of the
Appellant.
[9] Mr. Mitchell did not refer in his evidence to any instance
in which his company had given an insurance company specific
advice in the form of a recommendation that a particular claim be
settled for a specific amount of compensation. He did testify
that on a number of occasions his company, having uncovered
evidence that a claim being advanced was fraudulent, recommended
that nothing be paid to the claimant. He also testified that on
specific occasions the kinesiologist made recommendations to
insurers as to the kind of work that a claimant could undertake
following an accident, and also as to the kind of treatment that
the insurer should provide to the insured pursuant to its
statutory obligation to provide rehabilitative treatment. Counsel
for the Appellant argued that in these two classes of cases, at
least, there was a specific recommendation made as to
compensation; in the first category of cases it was that there
should be no compensation, and in the second it was that the
compensation should include specific treatment or therapy.
[10] I conclude from the evidence of these witnesses that the
services provided by the Appellant company to its clients in the
insurance industry did, at least on some occasions, include the
provision of both information and recommendations as to a future
course of action. Those recommendations did not include specific
advice as to the appropriate amount to be paid in final
settlement of a claim, but did, in some cases, touch on the
question of compensation, but in a limited way only. This is
consistent with what is found in Exhibit R-1, which is a copy of
a brochure prepared by the Appellant for distribution to
potential clients. It sets out in some detail the services which
are offered to various potential client groups. Nowhere in the
description of services offered to the insurance industry is
there mention of recommendations as to the appropriate amount at
which claims might be settled.
[11] Reginald Riddles gave evidence as to the respective roles
played by insurance adjusters and private investigators in the
settlement of claims by accident insurers. He has more than 40
years of experience dealing with insurance claims, 38 of them as
an employee of a large general insurance company, where he held
the position of claims manager from 1980 until he retired in
1992. Since that time, he has acted as a consultant for two other
general insurance companies. He is well qualified to testify as
to the practice of general insurance companies in handling
claims. His evidence as to the respective roles of adjusters and
private investigators is contained in three paragraphs of the
written statement of his evidence, which read as follows:
In my experience companies employ their own insurance claims
adjusters operating under the company licence in different
capacities, often distinguishing between them as telephone
adjusters who generally handle smaller claims dealing directly
with the insured person and road adjusters, who go out to visit
the insured, inspect damaged property, and take statements. In
either case, when these company adjusters receive a report of a
claim they gather information, they ensure that the loss being
reported is covered by the policy, they establish a value of the
claim and negotiate a settlement. Telephone adjusters usually
have a low dollar authority, and within that authority may
dispose of claims. Road adjusters often deal with larger claims
than telephone adjusters and may be dealing with lawyers on the
claim. Normally the road adjusters who have their own settlement
authority would be reporting to a company claims examiner who
generally has a higher settlement authority and more experience.
That examiner would give direction and settlement authority to
the road adjuster when required.
Some insurance companies have a large staff of company
adjusters, others do not. Independent insurance adjusters, who
must be licenced, are hired by companies to perform a role
similar to that of the staff adjuster. Independent adjusters must
take courses relating to insurance and be examined before they
are licenced. They investigate, report, recommend further
investigation by specialists such as appraisers or engineers,
recommend surveillance by private investigators, recommend that
the file be turned over the a lawyer, or they may recommend
settlement and the compensation to be paid, making such
recommendation to the company examiner to whom they report who
would then give authority to negotiate settlement. Usually an
independent adjuster has no settlement authority until he obtains
it on a specific file from the company claims examiner.
In my experience private investigators are used by insurance
companies to carry out surveillance on individuals, usually in
claims relating to bodily injury. They are also used to
investigate accident scenes, take statements and do financial or
background checks particularly in suspicious circumstances. The
investigators then report, either to the staff or independent
adjuster, examiner or lawyer who has hired them. In my experience
investigators are not asked for recommendations as to the
compensation to be paid in satisfaction of a claim under an
insurance policy. It is the job of the adjuster or the claims
examiner to decide on the course of action to take, including the
compensation to be paid, based on the information provided in the
investigators’ report.
[12] This opinion was not in any way shaken in
cross-examination, and I accept it as accurately depicting the
usual functions of insurance adjusters and private investigators
in the relevant context.
[13] It is not in dispute that the Appellant company was, at
all relevant times, licenced pursuant to the Private
Investigators and Security Guards Act[2] of Ontario (PISG Act). Nor is
it disputed that it was not licenced to provide the services of
an insurance adjuster under the Insurance Act[3] of Ontario.
[14] Counsel for the Appellant argued that in considering
whether the Appellant’s services, or some of them, are
included within that defined by the words of paragraph (j)
of the definition, I should consider both the nature of the
services which the Appellant performs, and the services which it
is licenced to perform. The actual licence issued to the
Appellant is not before me, but the extent of the services which
it is licenced to perform may be ascertained from the words of
the statute. Its licence is issued under the PISG Act,
which in section 1 defines a “private investigator”
in the following terms:
“private investigator” means a person who
investigates and furnishes information for hire or reward,
including a person who,
(a) searches for and furnishes information as to the personal
character or actions of a person, or the character or kind of
business or occupation of a person,
(b) searches for offenders against the law, or
(c) searches for missing persons or property;
[15] In her submission, the functions of investigating and
furnishing information include the provision of advice, and in
the context of this appeal the provision of advice as to the
compensation to be paid in respect of a claim. She supports the
argument by reference to a number of authorities dealing with the
principles of statutory interpretation.
[16] In my view, it is not necessary to resort to
interpretative principles. The verbs used in this definition are
“to investigate”, “to furnish” and
“to search”. These are clear words, of reasonably
certain meaning, and I am bound not to ignore or depart from
their meaning and embark upon a search for some supposed
intention of Parliament.[4]
[17] In considering paragraph (j) of the definition, a
number of things should be kept in mind. First, it exempts only
one service, “the service of investigating and recommending
the compensation in satisfaction of a claim ...”. It
follows that the reference to “a person ... who is licenced
under the laws of a province to provide such service” must
require that the provincial licence specifically apply to both
“investigating” and “recommending”. What
section 8 of the PISG Act authorizes is the issuing
of a licence to act as a private investigator, a function which,
as the definition of private investigator shows, does not involve
the making of recommendations. Consequently, any recommendation
made by a licenced private investigator in Ontario does not form
any part of the function which the licence authorizes.
[18] It is not by chance that Parliament used the form of
words that it did to define the function that is described in
paragraph (j) of the definition. The roles of the private
investigator and the insurance adjuster are distinct ones,
notwithstanding that there may be some degree of overlap in what
they do in practice. What separates one from the other is the
element of negotiating and recommending the settlement of claims,
which is part of the function of the adjuster, but not of the
private investigator. This is made clear by the evidence of Mr.
Riddles to which I referred earlier. See also The Atlas
Assurance Company v.Brownell.[5]
[19] The provincial legislation does not use the verb
“recommend”. It does, however, recognize the
different functions of the private investigator and the insurance
adjuster, and provide for two separate licencing systems for
them. This is so not only in Ontario, where the present case
arises, but in all ten provinces.[6] Parliament chose its words carefully, to ensure
that the services of provincially licenced insurance adjusters,
and not those of provincially licenced private investigators,
would be exempt from the charging provisions of the
Act.
[20] As I have noted above, there was some evidence that the
Appellant firm from time to time made recommendations to its
insurer clients. On at least one occasion, the recommendation was
as to at least an element of the compensation to be provided to a
claimant under a no-fault automobile insurance policy, in the
form of rehabilitative therapy. To the extent that it did so, it
was providing a service beyond the scope of its licence. However,
it is not simply the scope of the service provided, but the scope
of both the service provided and the licence permitting it to be
provided, which determine whether or not the service falls within
paragraph (j) of the definition.
[21] Accordingly, even in those cases where the Appellant made
a recommendation as to the compensation, its services do not fall
within the words of paragraph (j), and they are therefore
not exempt.
[22] The appeal is dismissed, with costs.
Signed at Ottawa, this 16th day of September, 1998.
"E.A. Bowie"
J.T.C.C.
APPENDIX ‘A’
Insurance Adjusters Act, R.S.N. 1990, c.I-8.
Private Investigation and Security Services Act, R.S.N.
1990, c.P-24.
Insurance Act, R.S.P.E.I, 1988, c.I-4, s.s. 1,
369-375.
Private Investigators and Security Guards Act,
R.S.P.E.I 1988, c.P-20.
Insurance Act, R.S.N.S. 1989, c.231, s.s. 3, 53-63.
Private Investigators and Private Guards Act, R.S.N.S.
1989, c.356.
Insurance Act, R.S.N.B. 1973, c.I-12, s.s. 1, 358.
Private Investigators and Security Guards Act, R.S.N.B.
1973, c.P-16.
Loi sur les Intermédiaires de Marché,
R.S.Q., c.I-15.1, s.1, 7-28.
Loi sur les Agences d’investigation ou de
sécurité R.S.Q., c.A-8.
The Insurance Act, R.S.M. 1987, c.140, s. 1,
385-392.
The Private Investigators and Security Guards Act,
R.S.M. 1987, c.P-132.
The Saskatchewan Insurance Act, R.S.S. 1978, c.S-26,
s.s. 2, 447-462.
The Private Investigators and Security Guards Act,
R.S.S. 1978, c.P-26.
The Insurance Act, R.S.A. 1980, c.I-5, s.s. 1, 512,
530-535.
The Private Investigators and Security Guards Act,
R.S.A. 1980, c.P-16.
Financial Institutions Act, R.S.B.C. 1996, c.141, s.s.
161, 179-185.
The Private Investigators and Security Agencies Act,
R.S.B.C. 1996, c.374.
Email this Content