Neutral Citation: 1994 ONICDRG 97
File No. A-007019
ONTARIO INSURANCE COMMISSION
BETWEEN:
JAMES D. DRYSDALE
Applicant
and
DOMINION OF CANADA GENERAL INSURANCE COMPANY
Insurer
DECISION
Issues:
The Applicant, James D. Drysdale, was injured in a motor vehicle accident on May 15, 1992. He received weekly income benefits from the Insurer, Dominion of Canada General Insurance Company, payable under Ontario Regulation 6721. Weekly income benefits of $600 were paid between May 23 and July 10, 1992, when benefits were reduced to $300 per week because the Applicant had returned to work part-time. The Insurer suspended benefits on September 17, 1993. The Applicant claimed benefits after September 17, 1993. The Insurer claimed that the Applicant had overstated his pre-accident income and understated his post-accident income, and that benefits were overpaid.
The parties were unable to resolve their disputes through mediation and the Applicant applied for arbitration under the Insurance Act.
At the outset of the hearing, the parties agreed that the Applicant was entitled to weekly income benefits until June 6, 1994, and is not entitled to benefits after that date.
The issues in this hearing are:
What is the appropriate amount of weekly income benefits payable to the Applicant?
Is the Insurer entitled to repayment of weekly income benefits overpaid?
The Applicant also claims interest on any outstanding amounts owing, and his expenses incurred in the hearing.
Result:
The Applicant is entitled to additional weekly income benefits of $4,321.51, with interest as provided under section 24 of the Schedule.
There was no overpayment of benefits.
The Applicant is entitled to his expenses incurred in respect of the arbitration proceeding.
Hearing:
The hearing was held in North York, Ontario, on September 13 and 14, 1994, before me, Nancy Makepeace, arbitrator.
Present at the hearing:
Applicant: James D. Drysdale
Applicant's Representative: W. Ross Milliken Barrister and Solicitor
Insurer's Representative: Lawrence Foy Barrister and Solicitor
Witnesses:
The Applicant
Jeffrey Smith, Chartered Accountant
Exhibits:
Exhibit 1 lnsurer's Income Loss Brief
Tab A Accountant's report, April 4, 1994
Tab B Income tax returns and Notices of Assessment, 1991 through 1993
Tab C Agreement between Stewart Chevrolet and Caledon Clean Car, January 2, 1992
Tab D Assessment of Claim by Insurer, September 30, 1993
Tab E Applicant's Statement, September 1, 1992
Exhibit 2 Curriculum vitae, Jeffrey C. Smith
Exhibit 3 Accountant's report, October 28, 1993
The Applicant also referred to a Loss Summary prepared by the Applicant and his counsel.
Other documents before the Arbitrator:
Report of Mediator, December 14, 1993
Application for Appointment of an Arbitrator, December 23, 1993
Response by Insurer, January 25, 1994
Reply by Insured Person, January 27, 1994
Pre-hearing letter, August 15, 1994
Background:
Before the accident, the Applicant was self-employed as a car detailer (or cleaner). He operated his business, Caledon Clean Car, from a service bay at Stewart Chevrolet Oldsmobile, a car dealership in Bolton, Ontario. His job was to clean and prepare the dealership's new and used cars for display and delivery. He also cleaned cars for his own customers.
He worked from 6:00 or 7:00 in the morning until sometime in the afternoon - between 2:30 and 4:30, depending on his wife's schedule and their childcare arrangements. Cleaning a new car would take about 40 minutes. A used car would need about four hours. The cost for used car cleaning was $75 (for Stewart's) and $125 for the Applicant's own customers. Once a month, all the cars on the lot would be washed down. This would take about six hours, and Mr. Drysdale would be paid about $400 ($5 per car for about 80 cars).
Mr. Drysdale testified that he did all of Caledon's work himself. He also did some janitorial work for Stewart's, which he subcontracted to his brother, Keith, who operated his own business, K.D. Cleaning.
Mr. Drysdale testified that after the accident, he only cleaned new cars for Stewart's. He was unable to do the heavier cleaning needed for used cars. Stewart's went out of business around the end of October 1993, and Caledon with it.
Calculation of weekly income benefits:
The rules for calculating the amount of weekly income benefit payable are set out in sections 12(4), 12(7) and 15 of the Schedule, as follows:
12.--(4) Subject to subsection (5), the weekly benefits under 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.
- When a person becomes qualified to receive an income benefit under subparagraph iii of paragraph 1 of subsection (2), the person's gross weekly income shall be deemed to be the greatest of,
i. if the person was qualified under either subparagraph i or ii of paragraph 1 of subsection (2), his or her gross weekly income as determined under paragraph 1,
ii. the gross weekly income payable under the contract of employment,
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.
The insurer may deduct from any benefit payable under this part 80 per cent of any income received or available from any occupation or employment subsequent to the accident.
Revenue:
Mr. Drysdale claims benefits based on his income in the four weeks prior to the accident, as evidenced by two bank deposits totalling $3,559.89. According to the Applicant, his average weekly revenue in the four weeks before the accident was $889.97.
The Insurer accepts that Caledon received this amount of income in the four weeks before the accident. However, the Insurer contends that the Applicant's revenue should be based on his GST returns in the three months prior to the accident. The Insurer calculates Caledon's pre-accident revenue as $739.75 in the four weeks before the accident, and $781.96 in the 52 weeks before the accident.
I am not convinced that the GST returns are more reliable than the bank deposits. Considering the entire period for which figures are available, I find the figures to be roughly consistent, with two exceptions, which were satisfactorily explained by Mr. Drysdale. In August 1991, there were bank deposits totalling $163,630.12. This contrasts sharply with deposits averaging about $3,500 in other months. Mr. Drysdale testified that the high deposits in that month were personal deposits made as the Drysdale's prepared to buy a house. He stated that the business deposit that month was $3,752.98. That figure is consistent with the revenue ($12,652) reported on Caledon's GST return for the three-month period of July 1-September 30, 1991.
Again, in November 1993, a large deposit of $6,300 was made in the business account. Mr. Drysdale testified that this deposit came from a personal loan he arranged with his brother. He denied paying business expenses out of his personal account or depositing Caledon's revenue into his personal account.
I accept his explanation of these discrepancies. Accordingly, I see no reason for basing calculation of revenue on GST returns rather than bank deposits.
The Insurer's second reason for preferring to rely on the GST returns was that they indicate revenue over a three-month period. Mr. Smith testified that a pro rata, or accrual approach to revenue is fairer than a cash approach, which simply looks at receipts in the four weeks before the accident.
In my arbitration decision, Gene Meandro and Pilot Insurance Company, June 7, 1994, OIC File No. A-004433 (under appeal), I said:
In my view, the Schedule does not necessarily mandate a single accounting approach for all cases. In each case, the arbitrator has discretion to determine which approach most fairly, reasonably and accurately reflects the applicant's financial situation before the accident, considering all the circumstances.
I heard nothing in this case which would cause me to depart from that view. Mr. Smith conceded that Caledon's revenues were relatively steady before the accident. Mr. Drysdale testified that he would invoice Stewart's at the end of each month, and Stewart's would pay him shortly thereafter. Each month's payment would cover all the work done that month, and Stewart's was never more than a month late in paying. I accept this evidence, which is consistent with the nature of the business. The deposits of $3,559.89 in the four weeks prior to the accident are somewhat higher than the deposits for March ($3,082.47) and April ($2,925.38), but not implausibly so, especially considering the approach of warmer weather. The Applicant's figures for the four weeks before the accident are roughly in line with both GST-reported revenues and bank deposits in the year before the accident.
At the hearing, Mr. Smith conceded that the effect of his calculation is to base the Applicant's benefits on his revenue in the three months before the accident. Under the Schedule, the Applicant is entitled to benefits based on his revenue in the four weeks or 52 weeks before the accident (or $232), whichever is greatest. In this case, I am not satisfied that the Applicant should be deprived of that choice. I am satisfied that Caledon's receipts in the four weeks before the accident fairly, reasonably and accurately reflect the Applicant's pre-accident income.
Applicant's counsel conceded that if the Applicant's revenue is based on his bank deposits, it should be reduced by 5% in recognition of GST liability (the 2% discount on GST liability recognizes administrative costs associated with collecting and remitting GST).
I find that the Applicant's average weekly revenue was $845.48 (95% of $889.97) in the four weeks before the accident, and $816.71 (95% of $859.69) in the 52 weeks before the accident.
Business expenses:
There is no dispute about Caledon's telephone bills, which averaged $18.37 per week before the accident. The parties also agreed that Caledon's labour costs for Keith Drysdale's work averaged $117.50 in the four weeks before the accident, and $112.88 in the 52 weeks before the accident.
The parties had two disputes about business expenses.
Mr. Drysdale testified that he spent an average of $9.72 per week for cleaning supplies. He testified that the dealership supplied almost all his cleaning supplies, except for a few items. Mr. Smith found it implausible that this expense could be so low relative to revenues. He estimated cleaning supplies as 6% of sales, averaging $44.39 weekly in the four weeks prior to the accident, $46.92 weekly in the 52 weeks prior to the accident, and $31.54 weekly after the accident.
The $9.72 per week figure is consistent with Mr. Smith's examination of the cancelled cheques for Mr. Drysdale's business accounts. I accept this figure as an accurate reflection of Caledon's average expense for cleaning supplies. Mr. Drysdale's evidence about his revenue and expenses presents a coherent and plausible picture of the relationship between Caledon and Stewart Chevrolet. The dealership benefitted from having what was in many ways an employee-employer relationship without the associated costs and legal obligations. In addition, Caledon charged Stewart's a lower wholesale price for cleaning its cars. Mr. Drysdale benefitted too, since he could take advantage of the tax benefits available to self-employed businesses, and was able to solicit his own cleaning work on the side. The Agreement between Stewart's and Caledon, dated January 2, 1992, supports the Applicant's testimony that he did not pay rent, utilities, or taxes through Stewart's. In this context, I find it quite believable that the dealership would provide supplies at no cost to Caledon.
Caledon made regular payments to Connie Drysdale, the Applicant's wife. These averaged $125 in the four weeks prior to the accident, $81.73 in the 52 weeks prior to the accident, and $36.05 after the accident. It is not disputed that Caledon paid unemployment insurance premiums in her name, and provided her with a Record of Employment. In his testimony, Mr. Drysdale denied that his wife had ever done any work for Caledon. Mrs. Drysdale is a registered nurse and works on a part-time casual basis. The Drysdale's have three children, who were aged nine, four and two at the time of the hearing. The youngest child was born April 29, 1992, just two weeks before the accident. Mr. Drysdale testified that he put his wife on the payroll as an income-splitting measure, and to provide her with unemployment insurance maternity leave benefits. She applied for and received those benefits after the birth of her child.
I find it likely that Mrs. Drysdale was not performing any work for Caledon. In a number of previous decisions, arbitrators have said that in determining weekly income benefit entitlement, arbitrators should have regard to the way the insured person has structured his or her financial affairs before the accident (see, for example, Thomas George Piper and Zurich Insurance Company, December 6, 1993, OIC File No. A-002585 (under appeal); Peter Bonitatibus and Wellington Insurance Company, April 8, 1993, OIC File No. A-000082 (Decision on Quantum); and Raja Alrawdah and Zurich Insurance Company, September 24, 1993, OIC File No. A-003551). In this case, Mr. Drysdale reduced his taxable income by treating his wife as an employee of Caledon. The Applicant conceded that these payments were actually made to Connie Drysdale and deposited into the couple's joint personal account. I find that the Applicant's payments to his wife were business expenses.
Mr. Smith's list of the cancelled cheques written on the business account also includes a number of payments to the dealership. Mr. Drysdale advised Mr. Smith that these payments were not business expenses but were for maintenance of his personal vehicle. The Insurer did not recognize these as business expenses.
I am troubled that receipts were not provided for these payments, and Mr. Drysdale said nothing in his testimony about the nature of the maintenance services provided. In the 52 weeks before the accident, these expenses totalled $1,565.01 - a substantial maintenance bill. I find that these payments were likely business expenses rather than car maintenance expenses. Before the accident, a payment was made at the beginning of the month in most months, although no payment was made in some months, and more than one payment was made in others. The amounts of the payments varied. After the accident, payments to Stewart's totalled $125.09. In the absence of a satisfactory explanation for these payments, I find that they were business expenses.
There were no payments to Stewart's in the four weeks before the accident. The average weekly payment to Stewart's in the year before the accident was $30.10. Given the irregular frequency and amount of the payment, I find it appropriate to recognize a pro rata payment in the four weeks before the accident.
To summarize, the Applicant's average weekly business expenses came to $300.69 in the four weeks before the accident, and $222.70 in the 52 weeks before the accident.
Gross weekly income:
The Applicant's net pre-accident income (pre-accident revenue less "ceasing expenses") is $544.79 in the four weeks before the accident ($845.48 less $300.69) and $594.01 in the 52 weeks before the accident ($816.71 less $222.70). Pursuant to subsections 12(4) and 12(7) of the Schedule, Mr. Drysdale is entitled to weekly income benefits of 80% of the higher amount, or $475.21 (80% of $594.01).
Post-accident income:
Mr. Smith calculated the Applicant's average post-accident weekly revenue between May 16, 1992 and October 31, 1993 as $525.63, on the basis of GST-reported revenues. According to the Applicant, the appropriate figure is $510.34. However, I heard no evidence or submissions in support of this position. I accept the Insurer's figure of $525.63.
The Applicant's weekly expenses for cleaning supplies ($9.72) did not change after the accident. The parties agreed that telephone expenses declined to $10.71 per week, and labour costs for Keith Drysdale declined to $80 per week. Payments to Connie Drysdale averaged $36.05 per week after the accident. In addition, I find that payments to Stewart's, in the nature of business expenses, averaged $1.64 per week. The Applicant's post-accident expenses averaged $138.12 per week. His net post-accident income was $387.51 per week. Under section 15 of the Schedule, 80% of this amount ($310.01) is to be deducted from the benefit.
Accordingly, between May 23, 1992 and October 31, 1993, Mr. Drysdale was entitled to benefits of $165.20 per week. Between November 1, 1993 and June 3, 1994, he was entitled to $475.21 per week.
Credibility:
Insurer's counsel, in his submissions, referred to "two frauds" on Mr. Drysdale's part, with regard to income tax and unemployment insurance. In addition, Mr. Smith testified that Caledon's business records did not comply with generally accepted accounting principles. There were no books of original entry, and some personal expenses and deposits were put through the Applicant's business account rather than his personal account.
The Insurer submitted that I should assess Mr. Drysdale's credibility adversely, particularly in light of his misrepresentations to Revenue Canada and Unemployment Insurance.
In my view, these factors seriously undermine Mr. Drysdale's credibility. However, in this case, the disputes between the parties revolved around a few narrow points:
whether Caledon's revenue for the four weeks prior to the accident should be based on bank deposit records for that period, or GST returns covering a three-month period;
how much Caledon paid for cleaning supplies; and
whether Caledon made wage payments to Connie Drysdale.
Aside from the income tax and GST returns, the Insurer's accountant also had access to the Applicant's bank statements and cancelled cheques for his two business accounts (except for October 1993, which was unavailable). Mr. Smith's reports analyzed the records in some detail. Despite my concerns about Mr. Drysdale's general credibility, I am satisfied that he is entitled to weekly income benefits as set out in this decision, based on my examination of the documents before me.
Summary:
The total amount payable to the Applicant between May 23, 1992 and October 31, 1993 was $165.20 per week, for 75 weeks, totalling $12,390. Between November 1, 1993 and June 3, 1994, the amount payable was $475.21 per week, for 31 weeks, totalling $14,731.51. The total amount of weekly income benefits payable was $27,121.51.
The Insurer paid $600 per week between May 23, 1992 and July 10, 1992, for a total of $4,200 over 7 weeks. Between July 11, 1992 and September 17, 1993, the Insurer paid $300 per week, for a total of $18,600 over 62 weeks. The total amount of weekly income benefits paid was $22,800.
The Insurer owes the Applicant benefits of $4,321.51, with interest, under section 24 of the Schedule.
Expenses:
The Insurer is ordered to pay the Applicant's expenses incurred in respect of the arbitration proceeding. I remain seized of the issue of expenses. If the parties are unable to agree on the amount owing, either of them may bring the matter before me for determination.
Order:
The Applicant is entitled to additional weekly income benefits of $4,321.51, with interest, under section 24 of the Schedule.
The Applicant is entitled to his expenses incurred in respect of the arbitration.
October 14, 1994
Nancy Makepeace Arbitrator
Date