David P. Croke v. Wawanesa Mutual Insurance Company, 1996 ONICDRG 172

Office of the Director of Arbitrations

Neutral Citation: 1996 ONICDRG 172 Appeal: P-003632

Appellant: David P. Croke Respondent: Wawanesa Mutual Insurance Company

Before: David R. Draper, Director's Delegate

Counsel: Douglas D. Ferguson (for Mr. David P. Croke) Brian C. Atherton (for Wawanesa)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The appeal is dismissed and the arbitrator's order, dated August 11, 1994, is confirmed.

2. Mr. Croke is not entitled to his appeal expenses.

October 11, 1996

David R. Draper Director's Delegate

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by David P. Croke from an arbitration decision, dated August 11, 1994, that the proper amount of his weekly income benefits is $185.60. Mr. Croke maintains that he is entitled to weekly income benefits of $600, the maximum amount, based on his income in the four weeks preceding the accident.

II. BACKGROUND

Mr. Croke is a carpenter. Before his accident on December 15, 1991, he and his partner, Douglas Pinnell, had a carpentry and renovations business called D & D Renovations. Mr. Croke and Mr. Pinnell shared the work and profits equally.

According to O. Reg. 672, the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994 ("the Schedule"), Mr. Croke's weekly income benefits are based on his pre-accident income. Section 12 provides that the amount of his benefit is the greatest of:

1. 80% of his average gross weekly income in the four weeks preceding the accident;

2. 80% of his average gross weekly income in the fifty-two weeks preceding the accident; and

3. $185.60.

The arbitrator used Mr. Croke's 1991 income tax return to determine his income in the 52 weeks preceding the accident. It showed that for the year ending November 30, 1991, D & D Renovations had a net profit of $16,010. Mr. Croke's share, $8,005, was listed in his income tax return as his net business income in 1991. This leads to weekly income benefits of less than the $185.60 minimum ($8,005 + 52 x 80% = $123.15).

Mr. Croke argued at the arbitration hearing that his weekly income benefits should be calculated based on his income in the four weeks preceding the accident. According to the arbitrator, he testified that in the period before the accident, he was working on one job - the Laurie renovation. This job lasted approximately 12 weeks, from early September until about December 23, 1991. The original contract involved an addition to Mr. Laurie's house, at a contract price of approximately $45,700. Mr. Laurie then contracted for some "extras," for which he was charged $17,760.

Mr. Croke calculated the profit from the "extras" contract by taking the contract price and subtracting expenses, although the source documents for the expenses (e.g., invoices and cheques to suppliers) were not available. He acknowledged that he could not determine the expenses on the original Laurie contract. Therefore, Mr. Croke used a 21% profit ratio drawn from the business's 1991 income tax return. As the arbitrator explained it, a contract worth $100 was assumed to generate a profit of $21 for the partnership, or $10.50 for Mr. Croke.

Using this approach, Mr. Croke calculated that his average weekly income over the 12 weeks of the job, including the four weeks preceding the accident, was $860. He submitted that as a result, he was entitled to weekly income benefits at the maximum rate of $600.

The arbitrator found that at the time of the hearing, almost two years after the work was done, approximately $20,000 from the Laurie contracts still had not been paid. Based on the income actually received, the arbitrator concluded that D & D Renovations must have lost money on the Laurie job. Therefore, Mr. Croke was only entitled to weekly income benefits at the minimum rate of $185.60. The arbitrator went on to state that even if the full amount of the Laurie contracts had been paid, she would have had difficulty accepting Mr. Croke's evidence about the business's profit due to the lack of expense records.

III. THE APPEAL

In his Notice of Appeal, Mr. Croke raised four grounds of appeal. However, he only pursued the following two:

• The arbitrator erred in failing to find that the "draws" Mr. Croke received from D & D Renovations in the four weeks prior to the accident were income.

• The arbitrator erred in rejecting Mr. Croke's calculation of his profits on the "extras" contract.

Essentially, Mr. Croke's position on appeal is that the arbitrator should have determined his benefits based on the situation as it existed at the time of the accident. She should not have relied on the later realization that there would be a problem collecting from Mr. Laurie. Mr. Croke submits that the arbitrator had sufficient information to calculate his income in the four weeks prior to the accident, either by treating his "draws" as income, or by calculating the income his work was expected to generate.

A. Mr. Croke's "draws"

Mr. Croke asserts that in the four weeks preceding the accident, he received "draws" from D & D Renovations totalling $4,349.74. He submits that this was his gross weekly income, resulting in weekly income benefits at the maximum rate of $600 ($4,349.74 + 4 x 80% = $869.95).

In her decision, the arbitrator did not describe the cheques issued to Mr. Croke as "draws." Rather, she stated as follows:

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. [pp. 10-11]

The arbitrator clearly was not persuaded that the cheques represented income to Mr. Croke. After reviewing the record, I find no basis for concluding that she erred. There is no evidence before me that Mr. Croke received regular wages or "draws" from the business, or that he never received cheques for other purposes, such as paying business-related expenses.

As stated in numerous previous cases, my role on appeal is not to second-guess the arbitrator's evaluation of the evidence. She had the advantage of hearing and observing the witnesses in person. Although the arbitration hearing was recorded, Mr. Croke did not file a transcript in support of his appeal. This may have been a financial decision, but the lack of a transcript makes it particularly difficult to review this kind of factual finding.

B. Mr. Croke's anticipated income

There are two aspects to this part of Mr. Croke's appeal. First, he submits that the arbitrator should not have considered Mr. Laurie's failure to pay. Second, he contends that she had no basis for rejecting his evidence about his income from the "extras" contract.

Income is not a simple concept, especially when applied to self-employed people. I agree with the arbitrator that the approach chosen should capture and reflect the person's real return from the work done. On the particular facts of this case, I am not persuaded that the arbitrator should have treated the full price of the Laurie renovation contracts as pre-accident income. At the time of the accident, the full amount had not been paid, and payment was not assured. As submitted by Mr. Atherton on behalf of Wawanesa, a different result might have been justified if Mr. Laurie had been paying money into trust pending completion of the work.

Mr. Croke also submits that the arbitrator had no basis for rejecting his evidence about the "extras" contract. According to his lawyer, Mr. Croke testified that because the "extras" contract was more labour intensive, the profit margin was higher than on the original contract with Mr. Laurie. I accept Wawanesa's concerns about relying on counsel's recollection of what was said at the arbitration. However, the arbitrator did not focus on the rate of return for the " extras" contract. According to her decision, Mr. Croke attempted to prove his income by comparing the contract price and the related expenses. The relevant portion of the decision is found at page 10:

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".

The arbitrator did not find Mr. Croke dishonest. She concluded, however, that his testimony was insufficient to overcome the lack of supporting documents. The claim was denied because Mr. Croke failed to meet his onus of establishing that his average gross weekly income exceeded the minimum. I find no error in the arbitrator's approach. A self-employed applicant must provide a reliable basis for determining both revenues and expenses during the four or fifty-two weeks preceding the accident.

The arbitrator's conclusion in this case was based on her assessment of the evidence, including the testimony of Mr. Croke and two accountants. I find no basis for concluding that she made findings on inadequate or no evidence, considered irrelevant factors, or misdirected herself in some other manner. Therefore, I am not prepared to interfere.

For these reasons, the appeal is dismissed and the arbitration order is confirmed.

IV. APPEAL EXPENSES

Mr. Croke asked for his appeal expenses, even if his appeal was unsuccessful. He submitted that the appeal was meritorious and raised a novel issue - should arbitrators consider post-accident events, like the nonpayment of a contract, when determining the proper amount of weekly income benefits? Wawanesa argued that the appeal was unnecessary because previous cases have made it clear that self-employed applicants must provide adequate and reliable documentation in support of their claim.

I accept that this appeal was sincerely brought. However, that is not a sufficient basis for awarding appeal expenses. The underlying problem was the lack of financial records supporting Mr. Croke's claim. In my opinion, this appeal is not significantly different from previous cases dealing with the adequacy of financial records in particular fact situations. I am not persuaded that the issues raised were sufficiently meritorious or novel that Wawanesa should be required to pay Mr. Croke's expenses, despite his lack of success.

October 11, 1996

David R. Draper Director's Delegate