Neutral Citation: 1995 ONICDRG 157

File No. P-007144

OFFICE OF THE DIRECTOR OF ARBITRATIONS

BETWEEN:

THERESA GAUDREAULT

Applicant (Respondent)

and

PILOT INSURANCE COMPANY

Insurer (Appellant)

Before:

David R. Draper (Director’s Delegate)

Counsel:

Paul Rivard (for the Applicant, Respondent)

Rudolph Lobl, Q.C. (For the Insurer, Appellant)

APPEAL ORDER

I. NATURE OF PROCEEDINGS

By Notice of Appeal filed February 21, 1995, Pilot Insurance Company ("Pilot") appeals the decision of Arbitrator Asfaw Seife, dated January 24, 1995, which determined that the correct amount of Mrs. Gaudreault's weekly income benefits is $600 per week. The appeal raises the following question: when do real estate commissions become income for the purpose of calculating weekly income benefits?

Pilot is seeking orders that:

1. The correct amount of Mrs. Gaudreault's weekly income benefits is $322.08.

2. Mrs. Gaudreault is required to repay to Pilot an overpayment of $29,500.00.

In its Notice of Appeal, Pilot asked for a stay of the arbitration order. The Director of Arbitrations ordered a partial stay, in the following terms:

... the appellant's position is that the appropriate amount of weekly income benefits payable to the respondent is $322.08. For the purposes of this Order, I assume this amount is in fact being paid to the respondent. If not, an Order will go providing it be paid.

The parties were unable to agree about the effect of this order. Mrs. Gaudreault claims that she continues to be eligible for weekly income benefits and, therefore, the stay order requires Pilot to pay her $322.08 per week to the present. Pilot's position is that the arbitration dealt only with the amount of Mrs. Gaudreault's benefits, and not the period of her entitlement. Pilot claims that Mrs. Gaudreault does not meet the stricter, post 156-week test¹ and, therefore, she is ineligible for any weekly income benefits after June 17, 1994. Mrs. Gaudreault has not received any weekly income benefits since June Z4, 1993, on the basis that she has already been paid more than her entitlement for the 156-week period at $322.08.

In supplementary letters to the parties, the Director indicated that Pilot was required to pay benefits "for the period of entitlement to which the parties have agreed."

The Director appointed Ms. Susan Naylor to deal with two interim issues. First, the parties were still unable to agree about Pilot’s obligations pending the appeal decision. Mrs. Gaudreault asked for enforcement of the arbitration order, subject to the partial stay ordered by the Director. Second, Pilot sought an order permitting it to introduce fresh evidence on the appeal, specifically, two agreements of purchase and sale.

With respect to the first issue, Ms. Naylor concluded that because the arbitration did not deal with the issue of entitlement, Pilot could take the position that Mrs. Gaudreault was ineligible for weekly income benefits after June 17, 1994. She took steps, however, to expedite the matter, as follows:

The respondent's request for enforcement of the Director's interim order is to be treated as a request for variation of the original order of Arbitrator Seife, to deal with the issue of entitlement to benefits, including any issue with respect to estoppel and the effect of s.287 of the Insurance Act It is open to the respondent to pursue a special award under s.287(10) of the Insurance Act, in that proceeding, if she believes that the insurer has unreasonably withheld benefits.

Second, Pilot's motion for an order to admit fresh evidence was allowed in part, as follows:

The appellant's motion for an order to admit fresh evidence on appeal in the form of two agreements of purchase and sale is allowed in part. The agreement of purchase and sale of the Cartier property, a copy of which is annexed to the motion record, may be introduced and relied upon. The respondent is permitted to file further affidavit evidence in response. Any such affidavit must be provided to counsel for the appellant by Tuesday, October 10 at noon. The motion to introduce the agreement of purchase and sale in respect of the Vine Street property is denied, since it does not add to the evidence already adduced before Arbitrator Seife.

The appeal proceeded by way of a telephone conference on October 11, 1995. In addition to the material contained in the record, the following exhibits were filed:

Appeal Exhibit 1 -

Revised schedules (1 - 4) to the Coopers & Lybrand report, dated August 31, 1993.

Appeal Exhibit 2 -

Agreement of Purchase and Sale with respect to the Cartier Street property, including the Waiver, dated June 25, 1991.

Appeal Exhibit 3 -

Affidavit of Theresa Gaudreault, dated October 6, 1995.

On behalf of Pilot, Mr. Lobl sought to introduce a letter providing information in response to Mrs. Gaudreault's Affidavit (Appeal Exhibit 3). I ruled that this was contrary to the order of Ms. Naylor and did not accept the letter as an exhibit in the appeal.

REASONS FOR DECISION

II. REASONS FOR DECISION

a) Quantum

According to section 12(4) of the Schedule², weekly income benefits are based on 80 per cent of the insured person's pre-accident income, up to a maximum of $600. The calculation of pre-accident income is set out in section 12(7), as follows:

12.- (7) The following rules apply to the calculation of gross weekly income:

1. 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.

3. 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.

Therefore, Mrs. Gaudreault's weekly income benefits are calculated based on 80 per cent of her average gross weekly income, taking ceasing expenses into account, for either the four or fifty-two weeks preceding the accident, whichever is greater. Post-accident income is also considered. Section 15 provides that the insurer may reduce weekly income benefits by 80 per cent of "any income received or available from any occupation or employment subsequent to the accident."

In the 52 weeks preceding her accident, Mrs. Gaudreault had income from two sources. She worked for a nonprofit housing agency, earning $18,485. Approximately three months before the accident, she became a real estate agent, earning commissions on the sale of five properties.

Mrs. Gaudreault wants to base her weekly income benefits on the four weeks preceding the accident. She is relying on commissions, totalling $4,065.25, from the sale of two properties - View Street and Cartier Street. The closing date for both of these properties was after the accident, and Mrs. Gaudreault did not receive her commissions until after the closings. She claims, however, that she completed all of her work shortly before the accident and, therefore, the commissions should be treated as income from her occupation for the four weeks preceding the accident. This approach leads to weekly income benefits at the maximum rate of $600 per week.

Pilot submits that Mrs. Gaudreault would be unjustly enriched by benefits at $600 per week because it represents an annual income nearly double that reflected in her 1990 and 1991 income tax returns. Weekly income benefits, however, are not based on a precise determination of either the insured person's typical pre-accident income, or his or her economic loss. Instead, section 12(7) establishes a formula that is intended to be relatively easy to apply. The formula clearly allows the insured person to rely on either the four or 52 weeks preceding the accident, whether or not the income for the chosen period reasonably reflects his or her typical earnings.

The more difficult issue is how commission income should be treated. The Schedule does not provide any special rules for commission income, or other types of irregular income. The timing, however, is obviously important. The point at which a commission becomes income can make a large difference in the amount of weekly income benefits, particularly given the option of averaging over a period as short as four weeks.

Pilot submits that there are two possible approaches to determining when real estate commissions become income for the purpose of calculating weekly income benefits:

1. the date on which there is an unconditional agreement of purchase and sale (the "agreement date approach"); or,

2. the date on which the transaction closes (the "closing date approach").

Pilot initially took the "agreement date approach." Its position changed, however, based on the arbitration decision of Senior Arbitrator Naylor in M.P. and The Dominion of Canada General Insurance Company, May 21, 1993, OIC File No. A-001478. Relying on this decision, Pilot urges the "closing date approach." Because the sales of View Street and Cartier Street both closed after the accident, Mrs. Gaudreault’s commissions would not be included in her pre-accident income, but would become post-accident income. Pilot submits that, using the "closing date approach," it is to Mrs. Gaudreault's advantage to base her weekly income benefits on the fifty-two weeks preceding the accident, resulting in benefits of $322.08 per week.

The treatment of commission income is an issue on which there is no clear insurers position, or insured person's position. The impact of any of the possible approaches will depend on the particular facts of each case. It is not difficult to envision situations in which an insured person would prefer to have commissions treated as income when the work is done, when the agreement of purchase and sale is signed (or when it becomes unconditional), when the transaction closes, or when the commission is actually received.

In M.P. and the Dominion of Canada General Insurance Company, Mr. P. argued for the "closing date approach." He closed two real estate transactions during the four weeks preceding the accident, although the agreements of purchase and sale were signed some time earlier. Not surprisingly, he wanted to include his commissions as income from his occupation for the four weeks preceding the accident. The insurer argued for the "agreement date approach." Senior Arbitrator Naylor concluded that Mr. P.'s real estate commissions were earned on the date of closing, "because he had no entitlement to payment of the basis of merely procuring the valid offer to purchase."

The M.P. decision is of interest, although I accept that this part of the decision is obiter dicta. Arbitrator Naylor concluded that Mr. P. was not entitled to accident benefits because his disability was not caused by his automobile accident. Having reached this conclusion, it was unnecessary for her to decide the proper amount of his weekly income benefits. Nevertheless, she went on to deal with the quantum issue because the case raised "a significant legal issue about how income from real estate commissions is to be calculated."

The treatment of commission income was considered by Arbitrator Makepeace in Antonio Ferrari and Royal Insurance Company of Canada, September 8, 1994, OIC File No. A-007313. In that case, an irrevocable offer to lease was accepted by the owners on May 6, 1993, with a closing date of June 1, 1993. Mr. Ferrari was injured in an accident on May 10, 1993. The transaction was completed and possession of the premises passed to the tenants on June 1, 1993. Mr. Ferrari received his commission the following day.

Arbitrator Makepeace considered the M.P. decision, but rejected the "closing date approach." Although not expressly stated, the Ferrari decision appears to be an application of the "agreement date approach." The arbitrator concluded:

Weekly income benefits are intended to compensate an insured person who is substantially unable to do his or her pre-accident job because of injuries sustained in an accident. In situations where the work is performed before the accident but the money is paid afterwards, it is consistent with the legislative purpose underlying section 12 to recognize income when it is earned.

In this case, I accept the Applicant's evidence that he had completed all or substantially all of his work on the lease by May 6, 1993, when the Offer was accepted. Accordingly, the commission will be recognized in the Applicant's pre-accident income.

[emphasis added]

In this case, Arbitrator Seife found that prior to the accident, Mrs. Gaudreault had secured agreements of purchase and sale for both View Street and Cartier Street, and had done all of the work required to sell them. One of the factual issues in the arbitration was that the Trade Record Sheet for the Cartier Street property states that it was sold on June 24, 1991, seven days after the accident. However, the arbitrator accepted Mrs. Gaudreault's explanation that it sometimes takes a few days for the Trade Record Sheets to be processed.

The arbitrator considered the M.P. decision and referred to the Ferrari decision. He rejected the automatic application of the "closing date approach," concluding as follows:

In the circumstances of this case, it is agreed that Mrs. Gaudreault did not return to her employment as a real estate agent after the accident. She did not perform any work relative to the sale of the properties in question subsequent to the accident; and, with the benefit of hindsight, we know that the closing on both properties did take place and she was paid her commissions. This leads to the inescapable conclusion that the commissions paid to Mrs. Gaudreault after the accident can only be from her employment preceding the accident. In my view, to recognize this income as her earnings before the accident is consistent with common sense and the legislative intent underlying section 12 of the Schedule. [p.10]

It is not clear from the decision how much importance the arbitrator placed on the date of the agreements of purchase and sale. Based on his factual findings, he could have reached his conclusion using the "agreement date approach." The reasons suggest, however, that he may have adopted a "work completed approach."

This distinction is important in light of the appeal exhibits. Appeal Exhibit 2 shows that the Agreement of Purchase and Sale for the Cartier Street property was not completed until after the accident. A conditional Agreement of Purchase and Sale was signed by the purchasers and witnessed by Mrs. Gaudreault on June 19, 1991, two days after the accident. There was a sign-back by the vendors, and the purchasers signed a waiver of their conditions on June 25, 1991. Therefore, in order to include Mrs. Gaudreault’s commission from the Cartier Street sale as income for the four weeks preceding the accident, the "work completed approach" must be accepted.

I agree with the analysis in the Ferrari decision. The critical time is when the income is earned, rather than the date of payment. A common situation is the wage owner who is paid at some point after the work period. For example, the worker may be paid one week in arrears. In my opinion, the income is for the period worked, even though it is received at a later date.

The question is, when are real estate commissions earned? I agree with previous arbitration decisions that have held that the Schedule does not mandate a single accounting approach for all cases.³ I am not persuaded that either the "closing date approach" or the "agreement date approach" can be adopted for all cases. The point at which real estate commissions are earned may depend on the particulars of the agreements involved. The agent’s general accounting practice for recording income, or the practice of colleagues, might affect the approach. I would expect that a commission is earned by the closing date, but it may be possible to establish that it was earned earlier. In my view, the point at which there is an unconditional agreement of purchase and sale is the most likely time.

Pilot accepted its accountants' original position that the commissions were earned when there was an unconditional agreement of purchase and sale (the "agreement date approach"). I find no reason to doubt this conclusion.

I also see no reason to interfere with the arbitrator’s finding that an unconditional agreement of purchase and sale was obtained for the View Street property in the four weeks preceding the accident. Therefore, the commission ($1,725.25) is income for that period.

The situation is different for the Cartier Street property. The agreement of purchase and sale was not finalized until after the accident. The question is whether, based on the arbitrator’s finding that Mrs. Gaudreault completed all her work prior to the accident, the commission ($2,340.00) was earned in the four weeks preceding the accident (the "work completed approach"). Her position is understandable. She says she did not work after the accident other than signing some documents and, therefore, any commissions that she received must be income for the period preceding the accident.

I am not convinced, however, that a work-based approach can be used for real estate commissions. The difficulty is that real estate agents are not paid according to the work they do. An agent may invest a great deal of time attempting to sell a property, but if no deal is reached, no commission is earned. On the other hand, an agent may earn a commission despite investing very little time or effort. The analysis is also be complicated by the fact that a number of agents are often working to sell a property. In my view, it becomes difficult to identify when the work is completed. Is the listing agent's work done when he or she obtains the listing, if other agents complete the sale? As for the selling agent, why would the work not include getting final signatures on the agreement of purchase and sale, and on any waiver necessary to complete the deal?

I conclude that Mrs. Gaudreault did not earn her commission from the Cartier Street property until after the accident. Therefore, it cannot be included as income for the four weeks preceding the accident.

Based on my conclusions, the only amount that can be considered income for the four weeks preceding the accident is her commission from the sale of View Street ($1,725.25). I find the approach taken in Appeal Exhibit 1 reasonable. Therefore, I calculate Mrs. Gaudreault’s weekly income benefits based on the four weeks preceding the accident to be $330.05:

Income

$1,725.25

Ceasing expenses

-_75.00

$1,650.25

÷ 4 weeks

$ 412.56

x 80%

Weekly income

benefit

$ 330.05

The calculation done by Coopers & Lybrand for the fifty-two weeks preceding the accident is based on the "closing date approach." Therefore, it must be adjusted to include Mrs. Gaudreault's commission from the View Street property:

Salary from nonprofit housing agency

$18,485.0

Salary from real estate commissions

Main Street

$1,345.50

Lot 18, Con. 2

442.00

48 Acres

962.00

View Street

1,725.25

$4,474.75

Less ceasing expenses

• 300.00

$4,174.75

$ 4,174.75

Gross income

$22,659.75

Average gross weekly income (÷ 52)

$ 435.76

Weekly income benefits (x 80%)

$ 348.61

I conclude, therefore, that Mrs. Gaudreault is entitled to weekly income benefits of $348.61 per week. Pilot is entitled to deduct 80% of her post-accident income. The agreement of purchase and sale for the Cartier Street property became unconditional on June 25, 1991, eight days after the accident. In my opinion, Pilot is entitled to deduct 80% of this commission, or $1,872.00.

b) Overpayment

Mrs. Gaudreault received weekly income benefits totalling $62,400 for the period from the date of the accident until June 24, 1993. Pilot submits that she is only entitled to weekly income benefits of $322.08 per week for 156 weeks, or $50,244.48. Therefore, Pilot claims that Mrs. Gaudreault has been overpaid by $12,155.52, which she should have to repay. Pilot's position must be adjusted as a consequence of my conclusion that the proper amount of Mrs. Gaudreault’s benefits is $348.61 per week, minus her post-accident income. This results in an overpayment of $9,888.84.

In my opinion, Pilot's position is inconsistent. It submits that it is not required to pay weekly income benefits to Mrs. Gaudreault beyond 156 weeks because the arbitration dealt only with quantum, not duration. However, the repayment order that it is seeking depends on a finding that Mrs. Gaudreault is ineligible for weekly income benefits beyond 156 weeks. This was not determined in the arbitration and certainly has not been conceded. Therefore, I am unable to make the order requested.

Pilot has, in effect, assessed an overpayment, and recovered most it, by not paying any benefits from June 24, 1993 until the 156-week mark, although eligibility is not disputed for that period. At the arbitration hearing, Mrs. Gaudreault presented evidence and argued that Pilot is estopped from recovering any overpayment. The arbitrator did not deal with this issue in his decision because he concluded that there was no overpayment. There is no transcript of the arbitration and, in my view, I do not have a sufficient factual basis to decide whether or not Mrs. Gaudreault should be required to repay Pilot as a result of receiving $600 per week until June 24, 1993 ($62,400.00), instead of $348.61 per week, less $1,872.00 for post-accident income ($34,383.44). The issue of Mrs. Gaudreault's ongoing entitlement to weekly income benefits has been referred back to arbitration as a variation request, and I conclude that any claim for repayment is better addressed as part of the same hearing.

I accept Mrs. Gaudreault’s statement that her financial situation is difficult. She has not been paid weekly income benefits since June of 1993. As stated above, Pilot’s position is that she was not paid up to the 156-week mark because it was recovering the overpayment. She was not paid after 156 weeks because Pilot claims that she does not meet the eligibility test. The 156-week period ended on June 17, 1994, but Mrs. Gaudreault was not told that she was no longer considered eligible for weekly income benefits until July 21, 1995, more than one year later.

This delay is hard to understand. Even if Pilot is was entitled to recover an overpayment based on the difference between $600 and $317.84 per week (Pilot's position at the arbitration hearing), it would have been fully recovered prior to July 21, 1995. Therefore, the question of Mrs. Gaudreault’s ongoing entitlement should have arisen. More important, the delay prevented Mrs. Gaudreault from having her ongoing entitlement determined through the dispute resolution process.

Section 279(4.1) of the Insurance Act provides for "interim orders pending the final order in any matter before the Director or arbitrator." In my view, this is an appropriate situation in which to order interim weekly income benefits until the variation decision is issued by the arbitrator. Pilot may ask me to reconsider this order if the variation hearing is unduly delayed. Pilot may also make submissions to the arbitrator for the repayment of the interim benefits if Mrs. Gaudreault is found to be ineligible for any period for which interim benefits are paid.

III. EXPENSES

Although Pilot was substantially successful in its appeal, I have no hesitation in concluding that Mrs. Gaudreault should recover her expenses related to the appeal, including the interim motion before Ms. Naylor, calculated according to Ontario Regulation 664, R.R.O. 1990. If the parties are unable to agree on the amount, either party may ask for an assessment based on written submissions filed with the Registrar.

IV. ORDER

Paragraphs #1 and #2 of Arbitrator Seife's Order, dated January 24, 1995, are revoked and it is ordered that:

1. The proper amount of Mrs. Gaudreault's weekly income benefits is $348.61 per week. Pilot is entitled to deduct $1,872.00 for post-accident income from her entitlement.

2. Mrs. Gaudreault is entitled to her expenses related to the appeal, including the interim motion.

3. The following issues are referred to an arbitrator as a request for a variation of the order of Arbitrator Seife, dated January 24, 1995:

a) Is Mrs. Gaudreault entitled to weekly income benefits for any period after June 17, 1994?

b) Should Mrs. Gaudreault be required to repay any amount to Pilot as a result of receiving $600 per week until June 24, 1993 ($62,400.00), instead of $348.61 per week, minus $1,872.00 for post-accident income ($34,383.44)?

c) Should Pilot be required to pay a special award according to section 282(10) of the Insurance Act because it unreasonably withheld or delayed the payment of benefits to Mrs. Gaudreault?

4. Pilot will pay interim weekly income benefits of $348.61 to Mrs. Gaudreault from the date of this decision until the release of the decision on the variation request.

November 2, 1995

David R. Draper Director's Delegate

Date

Footnotes

1. 1Section 12(5)(b) of the Statutory Accident Benefits Schedule - Accidents before January 1, 1994 (Ontario Regulation 672).
2. 2The term "Schedule" will be used to refer to Ontario Regulation 672. Before January 1, 1994, Regulation 672 was called the No-Fault Benefits Schedule. As of that date, it became the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994.
3. 3See for example, Gene Meandro and Pilot Insurance Company, June 7, 1994, OIC File No. A-004433 (under appeal on other issues); James D. Drysdale and Dominion of Canada General Insurance Company, October 14, 1994, OIC File No. A-007019).