Neutral Citation: 1994 ONICDRG 139
File No. A-003632
ONTARIO INSURANCE COMMISSION
BETWEEN:
DAVID P. CROKE
Applicant
and
WAWANESA MUTUAL INSURANCE COMPANY
Insurer
DECISION
Issues:
The Applicant, David P. Croke, was injured in a motor vehicle accident on December 15, 1991. He applied for and received statutory accident benefits from the Insurer, payable under Ontario Regulation 6721.
The parties disagreed about the amount of weekly income benefits to be paid, and the method of calculating the amount. The parties were unable to resolve their dispute through mediation and the Applicant applied for arbitration under the Insurance Act, R.S.O. 1990, c. I.8.
The issue in this hearing is:
- What is the correct amount of weekly benefits payable to Mr. Croke?
The Applicant also claims interest on any outstanding amounts owing, and his expenses incurred in the hearing.
Result:
The Applicant is entitled to weekly income benefits of $185.60.
The Applicant is entitled to his expenses incurred in respect of the arbitration, in accordance with Schedule 1 of Ontario Regulation 664, R.S.O. 1990.
Hearing:
The hearing was held in London Ontario, on August 25, 1993, before me, Frederika M. Rotter, Senior Arbitrator.
Present at the Hearing:
Applicant:
David P. Croke
Applicant's Representative:
Douglas Ferguson
Barrister and Solicitor
Insurer's Representative:
Brian Atherton
Barrister and Solicitor
The proceedings were transcribed by Doreen Johnson of Priscilla Rogers Reporting.
Witnesses:
David Croke, the Applicant
William Gordon Clothier, Chartered Accountant
Jeffrey C. Smith, Chartered Accountant
Documents before the Arbitrator:
The documents are listed in the following appendices to this decision:
Appendix A:
Documents before the Arbitrator and other documents not marked as exhibits
Appendix B:
Cases and authorities referred to
Evidence and Findings:
This case concerns the amount of weekly income benefits payable to Mr. Croke. Mr. Croke was involved in a motor vehicle accident on December 15, 1991 and suffered injuries which subsequently disabled him from work.
Mr. Croke is a carpenter. Prior to the accident, he had a carpentry and renovations business called D & D Renovations, with his partner, Mr. Douglas Pinnell. Both partners shared the profits and workload equally. The business was established in April 1990, and had a November 30 fiscal year end.
The amount of the weekly benefit is based on the income that Mr. Croke was earning prior to the accident. The following sections of the Schedule set out how Mr. Croke's weekly benefits should be determined:
WEEKLY BENEFITS
INCOME BENEFIT
12.(4) Subject to subsection (5), the weekly benefit sunder subsection (1) will be the lesser of,
(a) $600 plus, if Optional Benefit 2 has been purchased, the amount of the benefit chosen; and
(b) 80 per cent of the insured person's gross weekly income from his or her occupation or employment, less any payments for loss of income, except Unemployment Insurance benefits,
(i) received by or available to the insured person under the laws of any jurisdiction or under any income continuation benefit plan, or
(ii) received under any sick leave plan.
(7) The following rules apply to the calculation of gross weekly income:
- A person's gross weekly income shall be deemed to be the greatest of,
i. his or her average gross weekly income from his or her occupation or employment for the four weeks preceding the accident,
ii. his or her average gross weekly income from his or her occupation or employment for the fifty-two weeks preceding the accident,
iii. $232.
- Business expenses which cease as a result of the accident shall be deducted from a person's income from self-employment before calculating his or her gross weekly income. O. Reg. 273/90,s. 12.
The legislation stipulates, in short, that Mr. Croke's benefit is 80% of his average earnings for either the 4 week period or the 52 week period preceding the accident, or a minimum deemed amount of $232.00, whichever is greater.
According to Mr. Croke's income tax return for 1991 (Exhibit 6), D & D Renovations had a gross revenue of $111,737 before expenses in the year ending November 30, 1991 (just shortly before the accident). The net profit of the partnership was $16,010, and Mr. Croke's share (shown as his net income on his tax return) was $8,005. This would amount to a weekly income of approximately $154.00 ($8,005 divided by 52 weeks).
The Insurer claims, based on this tax information and other documentation which Mr. Croke submitted, that he is entitled to the minimum weekly income benefit of $185.60 (80% of $232.00). The Insurer's calculations utilize Mr. Croke's average weekly earnings for the 52 week period prior to the accident. This is derived from Mr. Croke's 1991 tax return since his taxation year-end coincides quite closely with the 52 week period preceding the accident.
Mr. Croke submits that his benefit should be calculated based on his average gross weekly income for the 4 weeks preceding the accident. Mr. Croke claims that in the 4 weeks before the accident, he was working on a specific job, and that his income should be calculated based on his earnings from that job. He claims to be entitled to the maximum weekly income benefit of $600.
Mr. Croke testified that in the period before the accident, he was working on the Laurie renovation job. The job lasted about 12 weeks - from early September until about December 23, a few days after the December 15 accident date. The original job was to build an extension to a one-bedroom bungalow, at a contract price of approximately $45,700.00. The client then contracted for some extra work, worth approximately $17,760 (plus applicable GST) as follows:
ITEM
ESTIMATED COST ($)
Installation of a patio door and deck
1300.00
Work on the basement
7667.98
Insulation and drywalling
3879.64
Installation of bedroom window
400.00
Installing new siding
1349.16
Miscellaneous
645.19 (incl. GST) 2518.03
Totals
17,760.00
Mr. Croke claims to be able to calculate his profits on the "extra" work precisely. That is, he provided evidence about the sale price of the contract to the customer (summarized above) and the cost of the sales (the cost of the materials to the partnership). He calculated his profit by subtracting the partnership's cost from the sale price.
The evidence about the sale price of the contracts was provided by way of photocopies of the various contracts (Exhibit 1, Table 2). The total sales price of the "extras" contracts came to approximately $17,760, as indicated.
Mr. Croke gave viva voce testimony about the cost of the contracts to the partnership. This evidence was summarized in a chart prepared for the hearing (Exhibit 1, Table 3). The source documents for the costs (e.g. invoices from and cheques to suppliers) were not available. Mr. Croke testified that some of his evidence about his costs came "from memory" and some were derived from source documents which, he said, were with his former partner.
Using these figures Mr. Croke calculated the "profit" to the partnership (the difference between the cost and the price) as about $11,050, for the extra work to be done.
His half share of this amount was approximately $5,525. He then prorated this over 12 weeks (the length of time it took to complete the work) to arrive at a "weekly" income figure of approximately $460, in respect of the "extras contracts".
Mr. Croke was not able to calculate his costs and profit on the original contract for $45,700 in the same manner. He was not able to provide specific evidence of the costs involved in that contract.
Instead, he calculated his income based on the partnership's rate of "gross defined income" as calculated by the Insurer's accountant. This calculation indicated that for the tax year 1991, D & D's proportion (or ratio) of income to sales was approx 21%. That is, the "profit" on a contract worth $100 would be approx $21 to the partnership, or $10.50 to Mr. Croke (his one half share).
Using this ratio method, Mr. Croke submitted that his share of the profit from the original $45,700 Laurie contract amounted about $9,600, or $400 per week for 12 weeks. He therefore submitted that during the 4 weeks prior to the accident his total income was $860 weekly, ($400 per week plus $460 for "extras") and accordingly he was entitled to the maximum weekly benefit of $600.
Mr. Croke's evidence and submissions present many problems. I will deal only with the most obvious deficiencies.
First, Mr. Croke, in his evidence in chief, testified that the partnership was not, in fact, paid in full for the work on the Laurie job. He stated that approximately $20,000 was still outstanding at the time of the hearing (almost 2 years after the work was done).
In my view, all Mr. Croke's evidence about his purported profits from the Laurie contracts is nugatory and irrelevant in light of the fact that the partnership was not paid in full for the work. The Laurie contracts in total amounted to $63,455.14 (plus applicable G.S.T.). The outstanding $20,000 represents about 30% of the contract price. I conclude - using the evidence of D & D's "gross defined income" of 21% relied on by Mr. Croke - that the partnership in fact made no profit on this particular contract, and indeed, it would appear, took a loss.
I heard evidence from the accounting experts, indicating that income from a business can be calculated using a variety of different accounting methods. Calculations utilizing the increasing value of "work-in-progress" is one such method. Mr. Clothier, the Applicant's accountant, indicated that in certain circumstances, work in progress is required to be included when calculating income.
Both Mr. Croke's accountant and legal counsel submitted that in this case, the "work-in- progress" method should be utilized for the purpose of calculating his benefits. Counsel referred to s. 10 of the Interpretation Act, which provides for the liberal construction and interpretation of remedial legislation such as the Insurance Act. He submitted that the term "income" should be interpreted to include earnings from work-in-progress. This submission, of course, is based on the assumption or expectation that the work is to be paid for in full. In the present case, unfortunately, that expectation was not realized.
Senior Arbitrator Susan Naylor considered a similar claim in David Bress and Erica Bress and State Farm Insurance Companies, March 23, 1992, OIC File No. A-000191 and A-000192. In that case, the Applicants requested that their income be based on the value of the services they rendered, although they eventually suffered a loss. Senior Arbitrator Naylor held in that case:
....the ordinary and grammatical meaning of the term "income"is money received in respect to a particular period of time. In the case of the No-Fault Benefits Schedule, this time period is the four and fifty-two weeks before the accident.
The scheme and purpose of the legislation support a broad definition of the term "income" so as to capture the real return from employment or self-employment generated to an applicant in these periods. Money accrued but not received could be included. Moreover, it might reasonably extend beyond money to money's worth - to remuneration or return capable of being estimated in monetary terms.
However, even giving that statutory language the broadest possible scope, I cannot conceive that it reasonably encompasses a notional or imputed value for services that have been rendered by the Applicants in the course of their business, for which there is no remunerative - or other - return to them, within the legislative time-frames. In other words, the word income implies that something - money, money's worth, a thing of some value, greater command over goods and services - comes into an applicant's hands or accrues to him or her in return for their employment or occupational endeavours. In this case, the Applicants have received no such return for their work.....
(emphasis added).
I agree with these comments. In the present case, I find that Mr. Croke's income must be calculated in a manner which captures and reflects his real return from the work he was doing. Mr. Croke's proposed "work-in-progress" method for calculating his income at best reflects what he hoped and expected to earn. However, the evidence is that these expectations were not realized and the work was completed at a loss. In the circumstances, I cannot accept Mr. Croke's proposed method for computing his income and benefits.
Furthermore, even if the work had been paid for in full, I would have difficulty accepting and relying on Mr. Croke's evidence of his earnings. Numerous arbitration decisions have held that in cases where income is in dispute, the onus in on the Applicant to prove his alleged earnings, on the balance of probabilities. Such proof must consist of adequate and reliable documentation, which can be objectively verified. Oral evidence and documentation which is entirely self-generated is not sufficient (see Jagdishar Singh and Kingsway General Insurance Company, January 29, 1993, OIC File No. A-000890, and Albert Stoll and Kingsway General Insurance, October 15, 1991, OIC File No. A-000386).
In the present case, in calculating his profits on the "extras" contracts, Mr. Croke utilized figures for his expenses that were entirely unsupported by any objective documentation. He indicated that some of his figures came "from memory". No original source documents to support his figures for expenses were available.
Moreover, Mr. Croke calculated his profits on the "extras" contracts taking into account only the partnership's costs for materials. The evidence before me, particularly Exhibit 10, Schedule 3 (the calculation setting out the partnership's "defined gross income") indicates that the business did have other ongoing expenses, for items such as such as transportation, advertising and promotion, sub-contracted labour and office expenses. None of these costs are included in Mr. Croke's calculations of his profits on the "extras". For these reasons, I cannot accept Mr. Croke's evidence about his income from the "extras".
In general, I note that D & D Renovations' financial records are very incomplete. The partnership did not maintain standard books and records such as a general ledger, a sales or billing ledger, nor cash receipts and cash disbursements journals. There was no file of pre-numbered customer invoices.
Mr. Croke presented me with evidence of some cheques (Exhibit 1 - Tab 3, Exhibit 3) that had been issued to him from the partnership, in the period just prior to and subsequent to the accident. He submitted these cheques presumably as "proof" that he was earning income from the partnership during this time. I note that no deposits were made to D & D Renovations' bank account in the 4 week period immediately preceding Mr. Croke's accident.
In the absence of reliable and objective documentation showing the business' receipts and expenses, the fact that Mr. Croke drew any amount of money from the partnership's accounts does not prove he was earning "income" (see e.g Stanley B. Moxon and State Farm Insurance, July 18, 1991, OIC File No. A-000090, Peter Bonitatibus and Wellington Insurance Company, March 16, 1992, OIC File No. A-000082, Thomas George Piper and Zurich Insurance Company, December 6, 1993, OIC File No. A-003632). Moreover, Mr Croke's own testimony was that some of the cheques he tendered as evidence were in fact drawn to pay for certain business expenses.
Had the Laurie account been paid in full, I might have calculated Mr. Croke's income from all the Laurie contracts using the rate of "defined gross income" arrived at by the Insurer's accountant and accepted by Mr. Croke. This would be justifiable in a situation where money was received, it was clear that some income was earned, and it was otherwise impossible to determine how much.
In the present case, Mr. Croke's own evidence is that his partnership was not paid in full for the work performed on the Laurie job. I reiterate my conclusion that accordingly, no income was earned from this work.
In the circumstances, therefore, I can only find that Mr. Croke has failed to establish, on a balance of probabilities, that his average income for either the 4 week period or the 52 week period preceding the accident exceeded the deemed statutory minimum of $232.00 per week. Accordingly, he is entitled to benefits of $185.60 per week based on the deemed statutory minimum.
Mr. Croke has asked for his expenses for this hearing. An award for expenses may be made under sec 282(11) of the Insurance Act, R.S.O. 1990, c.I.8, which provides as follows:
282(11) The arbitrator may award to the insured person such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations to the maximum set out in the regulations.
Although Mr. Croke was unsuccessful in proving that he is entitled to more than the minimum weekly income benefit, I find that it is appropriate to award him his expenses in this case. If the parties cannot agree about the amount of the expenses, I remain seized of this matter and either party may apply to me for an assessment of the expenses.
Order:
The Applicant is entitled to weekly income benefits of $185.60.
The Applicant is entitled to his expenses incurred in respect of the arbitration, in accordance with Schedule 1 of Ontario Regulation 664, R.S.O. 1990.
Frederika Rotter
Senior Arbitrator
Date
APPENDIX A
Documents before the Arbitrator
Report of the Mediator, dated March 30, 1993
Application for Appointment of an Arbitrator, dated May 5, 1993
Response by Insurer, dated May 18, 1993
Pre-hearing letter dated July 8, 1993
Exhibits
Exhibit 1 Applicant's Document Brief
Exhibit 2 Cheque for $500.00 (missing)
Exhibit 3 Photocopies of 5 cheques dated December 12, 1991 to January 28, 1992
Exhibit 4 Photocopies of 3 cheques dated December 7, 1992 to January 1, 1993 and a record of Transfer of Funds dated November 24, 1992
Exhibit 5 1990 T1 General Federal and Ontario Individual Income Tax Return for David Croke
Exhibit 6 1991 T1 General Federal and Ontario Individual Income Tax Return for David Croke
Exhibit 7 Ontario Automobile Insurance Application for Accident Benefits dated December 31, 1991
Exhibit 8 Ontario Automobile Insurance Employers Confirmation of Income dated December 26, 1991
Exhibit 9 Report of W.G. Clothier of Nisbett Clothier, Chartered Accountants regarding David Croke dated August 16, 1993
Exhibit 10 Report of David L. Smith of Hayes, Smith and Associates regarding David Croke motor vehicle accident, dated December 14, 1992
APPENDIX B
Cases and authorities referred to:
Peter Bonitatibus and Wellington Insurance Company, March 16, 1992, OIC File No. A-000082
David Bress and Erica Bress and State Farm Insurance Companies, March 23, 1992, OIC File No. A-000191 and A-000192
Claude Morin v. Lumbermens Mutual Casualty Company, June 16, 1993, OIC File No. A-001311
Stanley B. Moxon and State Farm Insurance, July 18, 1991, OIC File No. A-000090
Thomas George Piper and Zurich Insurance Company, December 6, 1993, OIC File No. A-003632
M.P. v. The Dominion of Canada General Insurance Company, May 21, 1993, OIC File No. A-001478
Jagdishar Singh and Kingsway General Insurance Company, January 29, 1993, OIC File No. A-000890
Albert Stoll and Kingsway General Insurance, October 15, 1991, OIC File No. A-000386)
Douglas R.G. Williams v. Jevco Insurance Company, May 6, 1992, OIC File No. A-000112
Interpretation Act, R.S.O. 1990, C