Neutral Citation: 1995 ONICDRG 17
File No. A-008372
ONTARIO INSURANCE COMMISSION
BETWEEN:
MICHAEL S. MACDONALD
Applicant
and
PILOT INSURANCE COMPANY
Insurer
DECISION
Issues:
The Applicant, Michael S. MacDonald, was injured in a motor vehicle accident on September 8, 1993. He applied for and received statutory accident benefits from Pilot Insurance Company ("Pilot"), payable under Ontario Regulation 6721. Pilot has paid $185.60 per week to Mr. MacDonald commencing one week after the accident. Mr. MacDonald claims that the amount should be $600 per week. The parties were unable to resolve this dispute through mediation and Mr. MacDonald applied for arbitration under the Insurance Act, R.S.O. 1990, c.I.8, as amended.
There are two issues:
What is the correct amount of Mr. MacDonald's weekly income benefit?
Is Mr. MacDonald entitled to a special award?
Mr. MacDonald also claims interest on any outstanding amounts owing, and his expenses incurred in the hearing.
Result:
Mr. MacDonald is entitled to $600 per week.
Mr. MacDonald is entitled to a special award.
Hearing:
The hearing was held in Toronto, Ontario, on November 24, 1994, January 4, 1995 and January 13, 1995, before me, Fred Sampliner, arbitrator.
Present at the Hearing:
Applicant:
Michael S. MacDonald
Applicant's
E.H. Toomath
Representative:
Barrister and Solicitor
Insurer's
Rudolph Lobl
Representative:
Barrister and Solicitor
Steven Carter, branch manager for Pilot, was present on the first day of the hearing. Daniel Edwards, Pilot's accounting expert, attended the first three days of the hearing.
Witnesses:
Michael MacDonald - Applicant
Claude John Best - Toronto Star independent wholesale manager
Salvatore Joseph Polito - Toronto Star senior district representative
Daniel Edwards - chartered accountant
Exhibits :
The parties filed 12 exhibits, listed in Appendix A, and Pilot filed a calculation of benefits after the close of the hearing.
Evidence and Findings:
Section 12 of the Schedule provides weekly income benefits to insured people, who are employed or self-employed at the time of the accident, and suffer a substantial inability to perform the essential tasks of their job. The benefit is equal to 80% of the applicant's gross income during either the four or 52 week period before the accident. Mr. MacDonald used his earnings for the four week period before the accident to calculate his weekly income benefit.
At the time of the accident, Mr. MacDonald delivered newspapers for the Toronto Star on a designated rural route between Peterborough and Bancroft, seven days a week. He drove from his residence in Bancroft to Peterborough to pick up the papers. Over the length of the return trip to Bancroft, Mr. MacDonald delivered newspapers to stores, cabins, lodges, roadside newspaper boxes and a few homes. He also transported bulk quantities of papers to other carriers who had delivery routes north of Peterborough. The following day he returned the unsold papers to the Star in Peterborough.
The route was different during the summer because of the tourist and cottage traffic. The number of deliveries increased substantially. He also made additional stops, requiring detour from the normal route. Consequently Mr. MacDonald travelled a greater distance and delivered a larger volume of papers during the summer.
Mr. MacDonald was an independent contractor with the Star. He was supervised by the district wholesale manager, Claude John Best, whose territory included all of the routes north of Peterborough to Algonquin Park. Mr. Best was also an independent contractor, working under the name "Bestar".
Mr. MacDonald began working for the Toronto Star in 1990, and he had little direct contact with the company. All of his communications and transactions with the Star went through Mr. Best.
The documentation of Mr. MacDonald's route, sales and compensation was placed in evidence. The written contract between Mr. MacDonald and the Toronto Star in effect at the time of the accident was identified at the hearing by the regional manger for the Toronto Star, Mr. Salvatore Polito, and also by Mr. Best and Mr. MacDonald. Under this contract, the Star agreed to pay Mr. MacDonald for delivering papers to "route operators, retailers, vending box contractors and wholesale contractors". A so-called "summer extension" agreement provided for increased compensation from June 28, 1993 until September 6, 1993, to account for the heavier summer volume.
At the hearing, Mr. MacDonald, Mr. Best and Mr. Polito explained how the Star arrived at the contract rate it paid Mr. MacDonald. Periodically the Star conducted a route audit. Mr. Best and a representative of the Star separately drove the route, noting the length, number of stops and newspapers delivered at each site. The Star compared the prior contract rate and the workload on this route along with others factors to adjust Mr. MacDonald's compensation.
Mr. Polito and Mr. Best testified about the details of Mr. MacDonald's compensation using both the audit and the contract. I am satisfied from their evidence that the contract properly reflects Mr. MacDonald's earnings rate at the time of the accident.
Based upon the documents in evidence, the testimony of Mr. Best and Mr. Polito, I find that Mr. MacDonald was entitled to the following amounts from the Toronto Star during the four weeks prior to the accident:
Basic weekly rate
$441.00x2 weeks
=$882.00
Weekday summer increase
42.50x10 days
=425.00
Saturday summer increase
30.00x2 days
=60.00
Sunday summer increase
42.50x2 days
=85.00
GST per week
50.82x2 weeks
=101.64
Total bi-weekly earnings rate
=$1,553.64
Rate x pay periods - 2 non-summer days (Sept. 6,7) = total
$1,553.64 x 2 - 85.00 = $3,022.28 (four weeks contract earnings)
In addition to Mr. MacDonald's earnings set out in the contract, he collected and kept the cash from the roadside newspaper boxes. This is, by far, the most contentious element of Mr. MacDonald's income claim because he does not have independent documentation of the cash proceeds from the newsboxes. The evidence of the cash received from the newsboxes was generated solely by Mr. MacDonald.
Pilot had serious concerns about Mr. MacDonald's ability to honestly report the newsbox cash. Mr. MacDonald did not report any of his income from the Toronto Star to Revenue Canada, or remit GST. He also attempted to mislead Pilot by sending the Insurer a Revenue Canada return that he admittedly did not file. Moreover, Mr. MacDonald admits receiving social assistance during a short period of time that he was not eligible for it. These factors and a number of other discrepancies in Mr. MacDonald's testimony lead me to conclude that Mr. MacDonald's evidence is not credible unless independently verified.
However, Pilot had independent evidence of Mr. MacDonald's income from the roadside newspaper boxes. The Toronto Star generated bi-weekly statements on which Mr. MacDonald was billed for the newspapers he used to fill the roadside newsboxes. The statements provide a daily sales record. The sales volume in the statements from the Toronto Star corresponds approximately to the newsbox sales shown in the Toronto Star route audit for the same period. In addition, Mr. Polito and Mr. Best corroborated the documentary evidence of the sales, the cost of the newspapers, and the manner in which the deliveries and collections were handled by Mr. MacDonald. I find that the Toronto Star invoices reflect Mr. MacDonald's roadside box sales.
The Toronto Star invoices can also be used to test the accuracy of Mr. MacDonald's reported newsbox collections. In December 1993, Pilot's accounting experts used the Toronto Star invoice data to calculate Mr. MacDonald's profit from the roadside boxes. When the sales volume on the Star invoices is multiplied by the appropriate weekday and weekend Toronto Star selling prices, it appears that Mr. MacDonald's reported collections are within the same range. Thus, there is independent evidence to corroborate Mr. MacDonald's reported newsbox collections. I find, on the balance of probabilities, that Mr. MacDonald earned the $2,176 income from the newsboxes that he claimed on his financial statements.
Mr. MacDonald also delivered the Globe and Mail along the same route. The parties did not dispute Mr. MacDonald's modest $28 earnings for the month before the accident.
Altogether, Mr. MacDonald's contract pay from the Toronto Star, the newsbox collections, and the Globe and Mail income boosts his earnings substantially above the amount required for the $600 maximum weekly benefit. I have used Mr. MacDonald's newsbox collections for the period from August 10, 1993 to September 6, 1993. That period does not exactly correspond to the four weeks before the accident; however, I do not feel that the two days difference in the time period significantly changes the final outcome.
In addition to Mr. MacDonald's newspaper earnings, he claims income for home maintenance and repairs during the four weeks before the accident. The only documentation of Mr. MacDonald's home repair and maintenance earnings are self-generated computer invoices to his customers. Given Mr. MacDonald's credibility problem, I feel this level of proof is not sufficient. Mr. MacDonald should have provided receipts for the purchases of supplies used on the projects, photographs, and credible testimony from at least some of his regular customers in order to prove this income.
At the outset of the hearing, counsel for Pilot characterized all of the documentation of Mr. MacDonald's income as unreliable. However, Pilot's accounting expert, Mr. Daniel Edwards, sat through most of the hearing, and he testified that Mr. MacDonald's income from the Star set out in the contract was probably correct. On the other hand, Mr. Edwards did not accept Mr. MacDonald's self-reported, newsbox income.
Mr. Edwards suggested that even if Mr. MacDonald's contract income from the Star was adequately proven, some of it is attributable to the work of other carriers. Mr. MacDonald testified that sometimes his fellow newscarriers helped him with deliveries. He did not specify either the frequency or amount of help that he received. But there was absolutely no evidence that Mr. MacDonald paid other carriers. Instead, Mr. MacDonald stated that the district carriers helped each other out on a mutual basis, without remuneration. Based upon the lack of supporting evidence, I reject Pilot's theory that Mr. MacDonald's income should be attributed to other carriers.
Mr. MacDonald's income is derived from the Toronto Star contract rates, the newsbox collections and the small earnings from the Globe and Mail. I find that the four week total (rounded off) of the contract earnings ($3,022) plus the roadside box collections ($2,176) and the Globe and Mail delivery ($28) adds up to $5,226.
Further evidence of Mr. MacDonald's income from the Toronto Star and his expenses is provided through the accounting of Claude John Best. Mr. Best is the district wholesale manager who supervised and paid Mr. MacDonald the funds owed to him by the Star. Testimony from Mr. Polito, Mr. Best and Mr. MacDonald confirmed the parties' financial arrangements. Mr. Best testified, and the Bestar invoices confirm, that he deducted the cost of the newspapers used by Mr. MacDonald to service the roadside boxes, credited Mr. MacDonald for returned papers and the few home delivery customers who paid the Star directly, and then remitted the balance owed to Mr. MacDonald at the contract rate, outlined in the previous paragraphs. The collections from the roadside boxes are the only income not documented by the Toronto Star and Bestar. The invoices represent a one year period before the accident. I find that the Bestar and Toronto Star statements, together with the corroborating testimony from Mr. Best and Mr. Polito, are unassailable. The evidence further confirms Mr. MacDonald's income from the Star, aside from the roadside box collections, and accurately reflects the cost of Mr. MacDonald's newspapers. Using the last two statements, I find that the cost of the newspapers in the four week period before the accident was $987.
Apart from the cost of the newspapers, Mr. MacDonald claims that his only business expense is for operating his automobile. Mr. MacDonald drove an old van that he bought very reasonably. He did his own repairs and basically scrounged for parts.
Mr. MacDonald claims that his only deduction should be gasoline. Mr. MacDonald estimated his gasoline expense as $210 every two weeks on his bookkeeping records. He produced gasoline purchases, cash and credit card slips, totalling $215.32, which he states are his actual usage for the two weeks prior to the accident. Considering that the regular route is about 257 kilometres, according to the Toronto Star, $15 to $18 a day for gasoline seems reasonable. I accept the estimated figure, and find that Mr. MacDonald incurred fuel costs of $420.00 in the four weeks prior to the accident.
Mr. MacDonald may have other expenses which ceased after the accident, which should be deducted. The 1985 van he purchased for $1,725 five months before the accident should have a small amount of depreciation allocated to the four week period before the accident. He performed the maintenance of the 1985 van himself, and the cost is therefore negligible. Mr. MacDonald did not provide a cost for insuring the van either. After hearing all of the evidence, it appears that none of these items is sizeable enough to affect the result. However, I can understand Pilot's earlier concern about the lack of documentation for these expenses.
Instead of using actual automobile expenses, shown through the gas receipts, Pilot suggested that kilometre charges would be a fairer estimate of the total automobile expenses. Apparently the kilometre charges presented to me use depreciation and maintenance on newer vehicles to arrive at operating costs. They do not recognize the nominal cost of Mr. MacDonald's van nor the absence of costly maintenance in this case. I find that the kilometre charges do not reflect the facts here.
Even if Mr. MacDonald's ceasing expenses were significantly higher, his weekly benefit would remain at the maximum. After deducting the gasoline and newspaper expense from Mr. MacDonald's gross income, I arrive at a $954 weekly income. Eighty per cent of this figure equals $763 per week, well above the $600 maximum. I find that Mr. MacDonald is entitled to a $600 weekly benefit.
Special Award:
Section 282(10) of the Insurance Act authorizes an arbitrator to make a special award if the insurer has unreasonably withheld or delayed payment of benefits.
On the facts in this case, it was reasonable at the outset for Pilot to closely question Mr. MacDonald's claim. Mr. MacDonald's initial reluctance to provide tax returns, his subsequent false return, the lack of documentation of expenses, and the fact that significant business transactions were by cash marked him and his records as untrustworthy. It has often been said in these proceedings that the failure to pay taxes jeopardizes an insured person's credibility. Mr. MacDonald will likely have some liability to Revenue Canada as a result of this decision.
However, the quality of the income documentation that Pilot received after the initial assessment changed during the late months of 1993. After Mr. MacDonald's initial claim information was submitted, Pilot requested backup data. On October 28, 1993, Pilot asked for copies of Mr. MacDonald's bank statements, cheques and invoices from Bestar and evidence of his expenses. The letter indicates that Mr. MacDonald was unwilling to provide his tax returns, a fact which would normally arouse suspicion.
By December 15, 1993, Pilot had reviewed the Employer's Confirmation of Income, the Application For Accident Benefits, copies of Mr. MacDonald's bank records, and Bestar's bi-weekly invoices with the attached Toronto Star sales record for the newsboxes. At that point, Pilot's accounting expert proposed two alternatives: accept the documentation, despite questions, and pay the maximum $600 per week benefit under the policy, or take the position that the proof was not valid and sufficient, and pay the minimum $185.60 weekly benefit. Pilot chose the latter position.
This was not a reasonable course of action because in December 1993 Pilot possessed independent documentation and verification of Mr. MacDonald's income from Bestar and the Toronto Star. Pilot also spoke with Mr. Best on at least two occasions. Pilot had the ability to obtain further clarification from Bestar, and also directly from the Toronto Star. The documentation from Bestar and the Star, together with the availability of clarification through independent sources was, in my view, sufficient to justify paying more than the $185.60 minimum in December 1993. An insurer should not reject independent evidence which verifies an otherwise unreliable claim based upon the claimant's credibility alone.
Weekly income benefits were intended to provide insured people with a measure of income assurance when faced with disability due to an auto accident. In Larry Erickson and The Guarantee Company of North America, July 16, 1992, OIC File No. A-000560, the first case to allow a special award, Senior Arbitrator Rotter found that the insurer had not acted deliberately or in bad faith. The insurer promptly reinstated benefits after hearing all of the evidence. This reaction at the hearing mitigated the original conduct.
The arbitration decision in Jodi E. Wiseman and Coachman Insurance Company, June 10, 1994, OIC File No. A-005706 (supplementary decision dated July 25, 1994), is factually similar to the circumstances here. In Wiseman the insurer did not accept a food server's undocumented tip income. Arbitrator Draper accepted the evidence of the insured's co-workers who testified about the average tip income. The arbitrator pointed out that the insurer could have fairly estimated tips from this information at an earlier stage in the dispute. The special award was modest because the insurer had at least attempted to use tip estimates to calculate the benefit.
A vastly different picture is presented here. At the outset of the case Pilot's counsel characterized all of Mr. MacDonald's documentation as "out and out lies". Although Pilot moderated its original position after the close of the evidence, nevertheless the fact remains that it failed to pay an adequate level of weekly benefits for almost a year after reliable information was provided.
Parties under insurance contracts have rights and obligations that flow both ways. The insured must pay premiums, and provide accurate and timely information. The insurer should carefully assess the information and adjust the claims. While I do not find Pilot acted deliberately in withholding benefits, its conduct could warrant a finding of bad faith.
It would have been a more prudent and reasonable course of action for Pilot to pay Mr. MacDonald a weekly income benefit based upon the Toronto Star information less some estimate of expenses until the dispute was resolved amicably or by decision. This may have provided Mr. MacDonald with benefits of less than $600 per week, but certainly more than the $185.60 per week that he received. I find that Pilot's extreme scepticism and adversarial approach to Mr. MacDonald did not lead to a reasonable adjustment of this claim.
Mr. MacDonald's conduct contributed to Pilot's distrust. One might surmise that if Mr. MacDonald had declared the income and had not submitted the false return in the first place, a serious dispute might not have arisen. On the other hand, Pilot's rejection of the independent data is not justified by Mr. MacDonald's conduct. In my opinion, Pilot was obliged to fairly assess all of the data to determine the validity of the claim, regardless of its view of Mr. MacDonald.
For nearly a year and a half, Mr. MacDonald has been receiving the minimum benefit. Mr. MacDonald walks with a cane, and he does not look well. He has undergone hardship during this period, living on substantially less than his pre-accident income or even his entitlement.
In determining the amount of the special award, I have considered the unreasonableness of Pilot's conduct, the length of time it continued, the amount in dispute and the effect of the special award as a deterrent to unreasonable conduct.
The statute authorizes me to grant an amount of up to 50 per cent of the benefits found owing. Arbitrator Rotter granted Mr. Erickson a 15 per cent special award (approximately $5,400), based upon approximately $36,000 of benefits.
The facts in Erickson are less egregious than Pilot's conduct in this case. However, I also consider Mr. MacDonald's contribution to Pilot's reaction. In my opinion, his conduct does not bar a special award or justify Pilot's unreasonable rejection of the Toronto Star data, but it certainly affects the amount of the award.
I grant Mr. MacDonald a special award of $4,000.
Expenses:
I exercise my discretion and award Mr. MacDonald the expenses of the arbitration. The parties can apply for an assessment if there is some dispute about particular costs.
Order:
Pilot shall pay Mr. MacDonald weekly income benefits at the rate of $600 per week from the accident date forward.
Pilot shall pay Mr. MacDonald a $4,000 lump sum special award.
Pilot shall pay Mr. MacDonald interest on all overdue amounts at two per cent per month.
Pilot shall pay Mr. MacDonald his expenses of the arbitration.
March 3, 1995
Fred Sampliner
Arbitrator
Date
APPENDIX A
Exhibits:
Arbitration Brief of Michael MacDonald
Arbitration Brief of Pilot Insurance Company
Copy of the Application For Accident Benefits (dated October 1, 1993) and Employer's Confirmation of Income
Application For Automobile Insurance (dated August 28, 1990)
Ontario Official Road Map for 1990/91
Mr. MacDonald's "Calculation Last 4 Weeks Gross Income".
Enlarged map of the Peterborough to Bancroft route.
Summary of the Toronto Star route audit.
Toronto Star galley records of the route.
Report of Coopers and Lybrand (dated November 10, 1994)
Mr. Edward's handwritten calculation of 4 weeks income.
Affidavit of Richard Turnbull, law clerk.
- In this decision, the term "Schedule" will be used to refer to Regulation 672.