Neutral Citation: 1996 ONICDRG 175

OIC A96-000011

ONTARIO INSURANCE COMMISSION

BETWEEN:

PATRICK DEMARCO

Applicant

and

GENERAL ACCIDENT ASSURANCE COMPANY OF CANADA

Insurer

DECISION

Issues:

The Applicant, Patrick DeMarco, was injured in a motor vehicle accident on April 9, 1991. He applied for and received statutory accident benefits from General Accident Assurance Company of Canada ("General Accident"), payable under Ontario Regulation 672.¹ The parties disagreed as to the amount of weekly income benefits. They were unable to resolve their disputes through mediation and Mr. DeMarco applied for arbitration under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

1. What is the correct amount of weekly income benefits to which Mr. DeMarco is entitled?

2. Is the Insurer entitled to a repayment?

Mr. DeMarco also claims interest on any amounts owing, a special award and his expenses incurred in the hearing.

Result:

1. The amount of weekly income benefit for the period April 16, 1991 to April 15, 1992 is $232.72 per week.

2. The amount of weekly income benefit for the period April 16, 1992 to April 15, 1993 is $194.99 per week.

3. The amount of weekly income benefit after April 15, 1993 is $185.60.

4. The Insurer is entitled to a repayment in the amount of $450.

5. The Applicant is entitled to his expenses of the arbitration against which the Insurer may set off the order for repayment of $450.

Hearing:

The hearing was held at the offices of the Ontario Insurance Commission in North York, Ontario, on July 29, 30 and August 20, 1996. Written submissions were received up to September 23, 1996.

Present at the hearing:

Applicant:

Patrick DeMarco

Applicant's Representative:

Myron L. Sidenberg, Q.C.

Barrister and Solicitor

Insurer's Representative:

Patrick Mazurek

Barrister and Solicitor

Before:

William J. Renahan

Arbitrator

The proceedings were recorded by Professional Court Reporters Inc.

Background:

Mr. DeMarco is 56 years old. In 1974 he started his own business as an excavating contractor. In the early 1980's he hired contract labourers and did industrial and commercial excavations. By 1990, he was working by himself doing mostly residential excavations for drains, swimming pools, weeping tiles and grading. He owned mid-weight construction machines known as Bobcats. These machines can be fitted with backhoes and buckets and because of their smaller size are used to work on smaller jobs, in hard-to-reach areas.

Mr. DeMarco and his wife were equal shareholders in P & M DeMarco Investments Ltd. which carried on business as A & A Bobcat. From the outset, the Insurer calculated the amount of Mr. DeMarco's weekly income benefit on the basis that he was self-employed. At the pre-hearing, the Insurer indicated that it might wish to treat Mr. DeMarco as an employee of P & M DeMarco Investments Ltd. The pre-hearing arbitrator reported to the parties on May 2, 1996 that the Insurer had ten days to advise the participants to the pre-hearing whether it was taking the position that Mr. DeMarco was an employee. I heard no further submissions on the matter until after the conclusion of evidence when I received the Insurer's final written submissions in which it advanced the alternative argument that Mr. DeMarco was an employee. The hearing proceeded on the basis that Mr. DeMarco was self-employed and was not an employee. I heard no evidence on the issue of his employment status. Accordingly, I have not considered the alternative argument that Mr. DeMarco was an employee.

History of payment and relationship between the parties:

Mr. DeMarco indicated in his Application for Accident Benefits that his gross income for the 52 weeks preceding the accident was $60,000 per year. On the basis of this statement General Accident paid Mr. DeMarco weekly income benefits pursuant to section 12 of the Schedule in the maximum amount of $600.

Mr. DeMarco freely admitted that he had no knowledge of, or interest in accounting. He tried to avoid dealing with paper. Once a year he took whatever papers he had to his accountants, Birnbaum, Prenick, Stekel & Co., Chartered Accountants, and signed whatever he was asked to sign. In answer to requests by General Accident to provide financial documentation to support his claim, Mr. DeMarco forwarded his unaudited 1990 Statement of Income which had been prepared by his accountants. The Statement of Income for the fiscal year ending November 30, 1990 is reproduced below.

Sales

$57,518

Operating expenses:

Depreciation, motor vehicles

1,251

Depreciation, construction equipment

1,065

Haulage

18,169

Motor Vehicle

6,911

Repairs and Maintenance

2,602

29,998

General and administrative expenses:

Advertising and promotion

1,259

Bad debts

4,600

Depreciation, office furniture

42

Insurance

2,649

Interest and bank charges

981

Management²

9,600

Office

120

Professional Fees

850

Rent

1,640

Telephone

6,528

28,269

Income (loss) before income taxes

(749)

General Accident retained McCully, Baghel, Chartered Accountants, to calculate the weekly income benefit. Mr. McCully calculated an entitlement of $383.20 per week. Mr. McCully arrived at this figure by relying on the Statement of Income and assuming that 56.7 per cent of business expenses ceased after the accident and that the remaining expenses for depreciation, insurance, rent and telephone would continue until Mr. DeMarco returned to work. General Accident reduced the weekly benefit to $383.20 effective July 30, 1991. It appears from Exhibit I-16, the Insurer's record of payments made, that General Accident recovered what it perceived to be an overpayment by making deductions until May 1992.

In September 1993 the Insurer asked Mr. McCully to visit Mr. DeMarco and look again at the calculation of the amount of the weekly income benefit. Mr. McCully visited Mr. DeMarco at his house on September 8, 1993 and went over his records. Mr. McCully arranged for Mr. DeMarco to come to his office on September 22, 1993. He asked him to bring bank statements, returned cheques and confirmation of sales. In his reporting letter of November 26, 1993, Mr. McCully wrote, "I have been asking Mr. DeMarco to provide me with details of his actual expenses subsequent to the accident."

After reviewing the records, Mr. McCully was not satisfied that Mr. DeMarco had continuing expenses and that his weekly income benefit should be more than the minimum benefit of $185.60 per week. He reported on November 26, 1993:

Mr. DeMarco has indicated that most of his expenses for running the motor vehicle, repairing and maintaining his equipment, insuring his business, and paying for telephone and "Yellow Pages" advertising have continued subsequent to the accident. It would normally be a simple matter of producing bank statements and returned cheques in order to confirm this.

If Mr. DeMarco is able to present additional information which proves that expenses have been paid after the accident then his entitlement should be adjusted upwards from the minimum level of $185.60. In the absence of this information the insurer is required to only to pay at the minimum level of $185.60. Payments have been made by General Accident at the level of $383.00 per week. I suggest that you request from Mr. DeMarco the additional information shown on the attached list.

The attached list set out seven types of documents including "Copies of purchases [sic] invoices and expense receipts."

Mr. McCully also reported that he suspected that Mr. DeMarco continued to work and earn income.

It appears from the Insurer's Weekly Income Benefits Transaction Summary that the Insurer continued to pay $383.20 per week until May 9, 1994. Mr. Gill, the adjuster, testified that benefits were terminated July 5, 1995. It is not clear to me what benefits were paid after May 9, 1994.

Mr. DeMarco presented opinions from two accounting firms on the amount of his weekly income benefit. The firm of Birnbaum, Prenick, Stekel & Co. had prepared financial statements and income tax returns for Mr. DeMarco for at least ten years. They estimated Mr. DeMarco's continuing expenses and concluded that the amount of the weekly income benefit was $440.

Mr. DeMarco retained the firm of Rich Rotstein Limited for the purposes of the hearing. Mr. Wollach, a forensic accountant with that firm, calculated a benefit based on the last four weeks Mr. DeMarco worked. He calculated a weekly income benefit of $600 for 1991, decreasing annually to $244 for 1996.

Law:

The rules for calculating the amount of a weekly income benefit are set out in section 12 of the Schedule. A question arises on the interpretation of section 12(7)3 and how expenses of a self-employed person which continue after an accident are to be treated in the calculation of the amount of weekly income benefit. I reproduce section 12 of the Schedule in the Appendix.

I will deal with issues concerning calculation of the weekly income benefit of a self-employed person in the following order:

1. Whether weekly income benefits are calculated on the basis of the last four weeks worked.

2. Whether gross income is dividing by 52 or the number of weeks actually worked.

3. General considerations for calculation of weekly income benefit.

4. Calculation of business expenses which continue after an accident.

5. Overpayment.

1. Whether weekly income benefits are calculated on the basis of the last four weeks worked

The accident occurred on April 9, 1991 at the start of the construction season. Mr. DeMarco had not done any excavating since November 1990. He presented his accounting evidence on the basis that under section 12(7)1.i. his "average gross weekly income from his employment for the four weeks preceding the accident" was the last four weeks he worked in November 1990. I agree with Forget J. who said, with reference to these words, "Consequently, the only logical conclusion, is that the legislature meant what it said and the calculation in question has to be made by using only the four weeks in time immediately preceding the accident."³ Since Mr. DeMarco had no income in the four weeks in time immediately preceding the accident, I have calculated the weekly income benefit on the basis of his average gross weekly income from his employment for the 52 weeks preceding the accident.

2. Whether gross income is dividing by 52 or the number of weeks actually worked

Mr. DeMarco said that he normally worked 35 weeks when the earth is not frozen, from the first or second week in April to the end of November. He said that in the 52 weeks before the accident he worked less than 35 weeks because he took off parts of three weeks to entertain his brother, who was visiting from Italy, and another three weeks to help his son renovate a house. He argued that I should follow the decision of the Director's Delegate in Scavuzzo and Canadian Home Assurance Company, and determine his average gross weekly income from his self-employment in the 52 weeks prior to the accident by dividing his total income by the number of weeks he actually worked.

I do not have to decide this issue because I am satisfied that Mr. DeMarco was self-employed for the entire 52 weeks prior to the accident. In those cases where it was held that gross weekly income should be averaged over the weeks actually worked, the employee was only employed part of the year.⁴ Mr. DeMarco's employment is not comparable to those cases. In my view, the elements of Mr. DeMarco's self-employment included more than the actual physical labour he did during the construction season. He incurred and paid expenses over the entire 52 week period and he is claiming that those continuing expenses should be included in calculating his weekly income benefit, notwithstanding that they were incurred outside of the construction season.

In these circumstances, where a self-employed person incurs expenses over the entire 52 week period preceding the accident, I am satisfied that the person is self-employed for the entire 52 weeks. In my view, his weekly income benefit should be calculated by dividing his gross income for the 52 week period by 52, notwithstanding that the insured may have done most of his work and earned most of his income during a period of less than 52 weeks.

3. General considerations for calculation of weekly income benefit

Subject to specified deductions and maximum limits, the amount of weekly income benefit is 80 per cent of gross weekly income. The rules for calculating gross weekly income are set out in section 12(7) of the Schedule.

Mr. McCully initially calculated the weekly income benefit by making what he thought were reasonable assumptions as to what business expenses would continue after the accident. Four years later, Mr. Wollach calculated the weekly income benefit by relying on what he thought were reasonable assumptions as to Mr. DeMarco's continuing business expenses. He estimated which expenses continued by making assumptions as to expenses "which would normally be expected to continue." This lead him to include as continuing business expenses such expenses as professional fees and insurance even though Mr. DeMarco testified that he did not have insurance after the accident and could not afford to pay his accountant. In view of the different approaches the parties took to the calculation of the weekly income benefits, I now consider the role reasonable assumptions play in the calculation of weekly income benefits under section 12 of the Schedule.

The inquiry to calculate the amount of a weekly income benefit payable under section 12 of the Schedule is confined to specific amounts. Those amounts are the insured's gross weekly income in the four or 52 weeks preceding the accident, the gross weekly income under a contract of employment evidenced in writing and made before the accident, payments for loss of income received by or available to the insured person and business expenses which cease as a result of the accident. In my view, this evidence is usually empirical data subject to verification.

The inquiry is not concerned with making reasonable assumptions on loss of future income as takes place in a tort action. For example, unlike an assessment of loss of future income in a tort action, it is irrelevant to the calculation of weekly income benefits when the insured would retire or whether the insured's future income would have been more or less than that reflected by his earning history. The only exception to this is the case of an insured person who is entitled to start work within one year under a legitimate offer of employment. However, even in that case, the length of the term of employment is irrelevant.

Section 12(7)3 addresses the calculation of the weekly income benefit in the case of a self-employed person with business expenses. Business expenses which cease as a result of the accident are to be deducted from gross income. Since the Schedule requires the insurer to pay weekly income benefits in a timely manner, the initial calculation under section 12(7)3 requires the parties to estimate which business expenses will cease and which will continue after the accident. However, after the passage of time, those business expenses which continue will be evident and verifiable by the production of documentary evidence that the expenses were in fact incurred after the accident.

I therefore interpret section 12 keeping in mind the underlying principle that the calculation of weekly income benefits is concerned with considering and quantifying empirical data. In this context, the primary purpose for making reasonable assumptions is to estimate which business expenses will continue after an accident, until time passes and empirical data becomes available to prove which business expenses actually have continued.

4. Calculation of business expenses which continue after an accident

Section 12(7)3 addresses the calculation of weekly income in the case of a self-employed person with business expenses. Business expenses which cease as a result of the accident are to be deducted from gross income. If all business expenses cease as a result of the accident, all expenses would be deducted from gross income. The remainder is usually referred to as net income or net profit.

The corollary of section 12(7)3 is that if business expenses continue and do not cease, they are not to be deducted from gross income. The rationale is that the insured, who is disabled and cannot work to pay expenses which he continues to incur after an accident, should receive some compensation for those continuing expenses.

Since the collorary of section 12(7)3 is that business expenses which continue after the accident are not to be deducted from gross income, the calculation of gross income under section 12(7) can be made by determining net profit in the four or 52 weeks before the accident and adding to it those business expenses which continue after the accident. In other words, pre-accident gross income less expenses which cease after an accident is the same thing as pre-accident net income plus expenses which continue after an accident. The calculation can be done on a 52 or four-week periodic basis and then divided by the correct number of weeks in the period to arrive at the average gross weekly income.

Section 24(1) of the Schedule provides that weekly income benefits are overdue if not mailed by the insurer within 30 days after it has received the application for statutory accident benefits. Therefore, the calculation under section 12(7)3 initially requires the parties to estimate what expenses will cease after the accident and what expenses will continue. However, the record of actual business expenses which continue after the accident may show that the initial estimate of continuing expenses was incorrect and that the weekly income benefit should be adjusted. Since continuing business expenses increase the weekly income benefit, I believe that the onus is on the insured to show that he or she continues to incur business expenses after the accident. This onus is not different than the onus on the insured to demonstrate that he or she incurred transportation expenses to travel to medical appointments. The best evidence is usually source documentation. However, the claim can also be established by the service provider recreating the document or by testimony or other evidence.

Lastly, as was pointed out in Philippe and Royal Insurance Company of Canada (January 24, 1994), OIC A-001736, the inquiry may also be concerned with whether the business expenses which continue after an accident were reasonably and legitimately incurred for business purposes.

With these principles in mind, I turn to the calculation of the weekly income benefit.

Reliability of1990 Financial Statement

The 52 week period preceding the accident covers the period between April 9, 1990 and April 8, 1991. Mr. DeMarco's fiscal year was December 1 to November 30. Since the parties treated the sales shown on the financial statement as income for the 52 weeks before the accident, I assume sales made during the construction season are reflected in the financial statement even though payment may not have been received until after November 30, 1990. Since the construction season was from April to November and the financial statement ends November 30, I am satisfied that the financial statement should show Mr. DeMarco's gross income in the 52 weeks preceding the accident.

The 1990 Financial Statement shows gross sales of $57,518. Mr. DeMarco said that the company paid his wife compensation for "office services" in the years prior to 1990, even though she provided no service, in order to reduce the family income taxes. Assuming that these amounts are included in Mr. DeMarco's income, the financial statements for 1980 to 1990 reveal that 1990 was Mr. DeMarco's worst year. Mr. DeMarco said that he did not do as much work in the 1990 construction season because of the visit of his brother and because of the help he gave his son renovating a house. The Insurer argued that source documentation only supported gross sales of $33,000. Mr. DeMarco argued that he had cash sales which were not reflected on the financial statement. Considering Mr. DeMarco's explanation that he worked only 29 weeks in the 1990 construction season, instead of 35, that he said his gross income was $60,000 in his application for accident benefits and that he paid income tax on the basis of the financial statement, I find that the 1990 financial statement is consistent with the financial statements for the previous nine years and that the stated amount of $57,518 fairly represents Mr. DeMarco's gross sales for the year.

I am also satisfied that the 1990 financial statement fairly represents Mr. DeMarco's business expenses for that period. Mr. DeMarco argued that the haulage expense of $18,169 was overstated and that his net profit should have been higher. He said that he prepaid $2,500 to $3,000 as a favour to his haulage contractor for work to be done the next season and that the contractor left the country without repaying the money. I do not accept this evidence. The haulage expense for the 1991 financial statement is generally consistent with the other financial statements. As well, at the time he claims to have made this advance, Mr. DeMarco was in financial difficulties and could not afford it. He could not pay his accountant, his bank account was in an overdraft position for most of 1990 and never contained more than $2,400 and he had arranged a second mortgage just prior to the motor vehicle accident because he was in financial difficulty and losing money on a condominium which he could not sell. Lastly, the prepayment represented a large amount of money to Mr. DeMarco. I expect that if he had made a prepayment, he would know whether it was $2,500 or $3,000.

Net profit

Assuming all expenses ceased, Mr. DeMarco's net profit in the 52 weeks preceding the accident is gross sales of $57,518 less all business expenses of $48,667. The remainder of $8,851 is Mr. DeMarco's net profit. However, all expenses did not cease. Therefore, in order to calculate gross weekly income, section 12(7)3 requires that those business expenses which continued after the accident be added back to net profit.

Continuing expenses

It is not clear when Mr. DeMarco knew that he would have to provide evidence of continuing expenses. In his report of December 22, 1994, Mr. McCully sets out a schedule of expenses for gasoline and diesel fuel purchased in the 28 weeks after the accident. I heard no explanation why Mr. DeMarco stopped collecting and submitting gasoline and diesel fuel receipts 28 weeks after the accident. In his report to the Insurer of November 26, 1993, Mr. McCully wrote that he needed "Copies of purchases [sic] invoices and expense receipts." In that letter he also wrote "I have been asking Mr. DeMarco to provide me with details of his actual expenses subsequent to the accident." It appears that Mr. DeMarco's first lawyer had some documentation to support his claim for continuing expenses. On January 18, 1994 he wrote to the Insurer as follows:

Presently, we do not have receipts/invoices to prove each and every dollar listed on that paper. However, we do have Mr. DeMarco's deposit books which confirm the sales in 1990, many (all though not all) gas receipts, Bell Telephone bills, an invoice from Mr. DeMarco's accountant and papers signed by Mr. DeMarco's landlord, confirming that he has continued to pay rent, and by one of Mr. DeMarco's associates to whom money was lent in 1990 (this deals with the "haulage" item).

These documents were not presented at the hearing and it does not appear that all of this documentation was provided to the Insurer for its consideration.

The evidence needed to prove a continuing expense will vary according to the circumstances. An insured may prove that an expense continued after the accident by testifying that it continued. In this case, Mr. DeMarco had three problems in proving continuing expenses. First, he had no interest in accounting. Second, his accountant, Mr. Wollach, presented his evidence on the basis that it was not necessary to have evidence of continuing expenses. It was sufficient to make reasonable assumptions as to what those continuing expenses would be. Third, Mr. DeMarco was not credible when he described what work he did and what income he earned after the accident.

Credibility of Mr. DeMarco

The following evidence tended to show that Mr. DeMarco was not credible.

The Insurer notified Mr. DeMarco at the hearing that it would call a neighbour and a representative from Metric Excavating as witnesses. Mr. DeMarco then testified that the only work he did after the accident was one unpaid job in his neighbourhood where all his neighbours could see him. He also testified that he used Metric Excavating to transport a Bobcat to a work site so that a prospective purchaser could see the machine at work. He said that the prospective purchaser decided not to purchase the machine because of a crack in the engine block. Mr. DeMarco said that this was the only work he did after the accident. He did not explain why the August 1993 invoice from Metric Excavating was for moving top soil and not for transporting a machine.

Mr. DeMarco testified that he did not lease Bobcats from Matthews Equipment Ltd., he purchased all his equipment. The Insurer called a witness from Matthews who produced leasing documents which showed that Mr. DeMarco leased a Bobcat and bucket from Matthews in August 1991, five months after the accident. Mr. DeMarco responded that he leased the Bobcat with an option to purchase because he thought he could resell the machine at a profit.

After Mr. DeMarco testified that he did no other work after the accident, the Insurer called Wilfred Grossman who testified that he paid Mr. DeMarco $450 to excavate a drain pipe in November 1995. Mr. DeMarco responded by saying that he did not reveal the income from that job because no one had asked him.

Lastly, I do not accept Mr. DeMarco's testimony that he continued to advertise after the accident because he hoped to return to work and he wanted to maintain goodwill. Mr. DeMarco advertised in the Yellow Pages for more than four years after the accident. He said that he received telephone calls almost every day because of the advertisement and that he avoided the work either by telling the potential customer he was too busy or by overpricing quotations for the work. I do not accept that this method of turning away business maintains goodwill. Nor do I accept that Mr. DeMarco continued to incur expenses for Yellow Pages advertising over a four-year period at a time of great financial need, unless he expected to profit from the advertisement.

As a result of the Insurer's investigations, Mr. DeMarco admitted that he worked on two occasions after the accident. He explained that he worked on these and about two other occasions to demonstrate his machines to potential buyers. I do not accept as coincidence that over a period of four years, the Insurer was able to obtain evidence of two of the four times Mr. DeMarco worked. I suspect that Mr. DeMarco worked more than he admits.

The Insurer submitted that Mr. DeMarco was not credible and that if he had made full production of his banking and expense records, these records might have established that Mr. DeMarco worked and earned income after the accident. Because the Insurer has uncovered some evidence of post-accident income which reflects adversely on Mr. DeMarco's credibility, I am not prepared to give Mr. DeMarco credit for alleged continuing business expenses in circumstances where documents to support those continuing expenses would normally be available and have not been produced and where they are relevant to the Insurer's claim that Mr. DeMarco had income after the accident. Accordingly, I only accept those expenses for fuel and motor vehicle expenses where a receipt has been produced.

I will now assess the business expenses which continued after the accident.

Depreciation

Depreciation for motor vehicles, construction equipment and office furniture are continuing expenses because these assets continue to decrease in value regardless of whether the business continues to operate. It is not clear when Mr. DeMarco sold his Bobcats. He testified that he had four Bobcats at the time of the accident and that he sold two after the accident because of financial need. He said that he sold the attachments for the machines some time later. He told Mr. Wollach that he sold three of four Bobcats at the end of 1992. He also said that in the summer of 1993 Matthews Equipment Ltd. seized one of his two remaining Bobcats. In an effort to average out the conflicting evidence on when the machines were disposed of, I reduce the expense for depreciation by one half for the year after the accident from a total of $2358 to $1200 and I reduce depreciation for the 1993-1994 52-week period by one half again to $600.

Telephone and Yellow Pages advertising

Mr. DeMarco continued to advertise in the Yellow Pages and continued to use a telephone in his business. Mr. McCully had some original invoices for these expenses which continued after the accident. It appears from his summary of Bell invoices that he estimated monthly expenses based on the invoices provided. Mr. DeMarco testified that after the accident he reduced the size of his Yellow Pages add to save money. Mr. McCully's schedule of continuing business expense for telephone in 1991, 1992 and 1993 appears consistent with Mr. DeMarco's history of telephone expense and his explanation of reducing the size of the add. I accept Mr. McCully's estimate of the continuing telephone and Yellow Pages advertising expense for the period of April 1991 to March 1992, at $4,010.36 and for the period of April 1992 to March 1993, at $2,623.25. Mr. McCully's schedule of telephone expenses ends on December 10, 1993. The evidence is clear that Mr. DeMarco continued to advertise in the Yellow Pages until November 1995. I estimate Yellow Pages and telephone expenses to continue at $175 per month. The total for the 12 month period from April 1993 to March 1994 is therefore $2,420.46.

Motor Vehicle

In his report of December 22, 1994, Mr. McCully sets out a schedule of expenses for gasoline and diesel fuel purchased in the 28 weeks after the accident. The total expense is $1,066.72 for an average weekly expense of $38.10. Mr. DeMarco testified that he used his vehicle to visit customers and construction sites and that he delivered cans of diesel fuel to creditors as a gesture that he would pay his bills when he could afford to. I heard no evidence that he used the vehicle for personal purposes. I therefore find that the full expense for fuel is a continuing business expense. However, as stated above, because production of the fuel expenses was relevant to the Insurer's legitimate allegation that Mr. DeMarco worked after the accident, I am not prepared to assume that Mr. DeMarco continued to incur expenses other than those which are supported by receipts.

Other expenses

I received no evidence that expenses continued after the accident for repairs and maintenance, advertising and promotion, bad debts, insurance, interest and bank charges, office, professional fees, rent or haulage.

I do not accept Mr. Wollach's estimate of those expenses. Mr. Wollach based his opinions on incorrect assumptions. For example, he included insurance, professional fees and storage as continuing business expenses even though he knew that such expenses had not been incurred. In my view, continuing expenses should be assessed on the basis of those expenses which were incurred after the accident.

In the chart that follows, I assessed weekly income benefits for the 52 week pay periods after the accident from April 16 to April 15 of the next year. As the corollary of gross income less expenses which cease is net income together with expenses which continue, I added to Mr. DeMarco's pre-accident net income from self-employment those expenses which continued after the accident for the 52 week pay periods following the accident, to arrive at gross annual income. I divided the result by 52 to arrive at gross weekly income. That result is multiplied by 80 per cent to arrive at the weekly income benefit. After April 15, 1993 the gross weekly income is less than $232, so Mr. DeMarco is deemed to be entitled to the minimum benefit of $185.60 per week.

1991-1992

1992-1993

1993-1994

1994-1995

Pre-accident Net Income

8,851

8,851

8,851

8,851

Depreciation

$1,200

$1,200

$ 600

$ 600

Telephone and Yellow Pages

4,010

2,623

2,420

2,420

Motor Vehicle

1,066

Total Continuing Expenses

$6,276

$3,823

$3,020

$3,020

Total net income plus continuing expenses

$15,127

$12,674

$11,871

$11,871

Weekly gross income

$290.90

$243.73

$228.29

$228.29

80%

$232.72

$194.98

$182.63

$182.63

Mr. DeMarco said that he learned that he would never work again in 1995. Mr. Wollach testified that Mr. DeMarco cancelled his telephone advertising in November 1995. I assume all other

expenses would have ceased in November 1995. Accordingly, Mr. DeMarco is entitled to the minimum weekly income benefit of $185.60 after April 15, 1993.

To summarize, the correct amount of weekly income benefit is as follows:

April 16, 1991 to April 15, 1992 at $232.72 per week = $12,101.44

April 16, 1992 to April 15, 1993 at $194.99 per week = $10,139.48

April 16, 1993 to April 15, 1994 at $185.60 per week = $ 9,651.20

April 16, 1994 to April 15, 1995 at $185.60 per week = $ 9,651.20

April 16, 1995 to April 15, 1996 at $185.60 per week = $ 9,651.20

April 16, 1996 to August 20, 1996 at $185.60 per week =$3,340.80

Total

$54,535.32

5. Overpayment

The total amount of weekly income benefits paid to Mr. DeMarco is not clear. The Insurer's Weekly Income Benefits Transaction Summary indicates that the last weekly payment was for $383.20 and covered the period ending May 9, 1994. Total payments to that date were $61,312. On the bottom of the page is attached the note "G.A. paid for another year."

Mr. DeMarco testified that his weekly income benefit was reduced to $185 in January 1995 and then he was cut off. He also testified that he received $776.40 every two weeks until the end of June or the beginning of July 1985. The Insurer's representative testified that weekly income benefits were terminated in July 1995 when he realized that Mr. DeMarco would not produce any more documents.

The arbitrator who conducted the pre-hearing of this matter on April 24, 1996 drew attention to the issue when he wrote in his reporting letter "Mr. DeMarco was paid weekly income benefits at various amounts until July 5, 1995 at which time the Insurer suspended payments claiming that Mr. DeMarco had been overpaid, and that it was entitled to set off the overpayment against future benefits."

Where an Insurer claims a repayment, it should present clear evidence of the total amount of benefits it has paid. Although it appears that the Insurer paid weekly income benefits beyond May 9, 1994, it is not clear how much was paid. The most reliable evidence of the total amount of weekly income benefits paid to Mr. DeMarco is $61,312 set out in the Weekly Income Benefits Transaction Summary.

Mr. DeMarco was entitled to $54,535.32 up to August 20, 1996, the last day of hearing. Accordingly, as of August 20, 1996 the Insurer had overpaid weekly income benefits of at least $6,776.68.

Since Levenson and General Accident Assurance Company of Canada (February 18, 1992), OIC A-000260, appeal decision (September 29, 1992), OIC P-000260, arbitrators have held that in order to recover a repayment under section 27(1), the overpayment must be attributable to some error or fraud on the part of the applicant. Mr. DeMarco has no interest in accounting matters.

Although he did not disclose records which might have helped the Insurer, he also did not produce records which might have helped himself, such as a letter from his landlord regarding rent, and records for equipment maintenance and repair. The Insurer has not satisfied me that Mr. DeMarco intentionally withheld records to falsify his claim.

Mr. DeMarco did not disclose the $450 he earned from one job after the accident. Although the Insurer's suspicion that Mr. DeMarco worked more that he admitted may be justified, the evidence I heard does not satisfy the higher degree of proof required to prove fraud.

In my view, except for $450, the overpayment of at least $6,776.68 in weekly income benefits was not attributable to some error or fraud on the part of Mr. DeMarco. I heard no evidence with respect to expenses incurred to earn the $450. Pursuant to sections 15 and 27(1) of the Schedule, the Insurer is entitled to be repaid $450.

In Boodhai and Allstate Insurance Company (September 18, 1996), OIC P-004002, Director's Delegate Naylor held that an arbitrator had authority to order that an insurer may set off an expenses award made in favour of a claimant against a repayment to which it is entitled, when both arise out of the same proceeding. She found that the authority derived from a purposive interpretation of the Insurance Act and regulations.

Under section 24 of the Schedule, weekly income benefits are overdue if the insurer does not mail them within 30 days after receiving the application for statutory accident benefits. I have indicated that in the case of a self-employed person who has expenses which continue after an accident, the Insurer must initially estimate what expenses will continue in order to calculate the weekly income benefit and pay it within the prescribed time. As time passes, business expenses may change and the insurer may have to readjust the amount of weekly income benefit. In my view, it is implicit in the Schedule that the insurer can set off other weekly income benefits owing to the insured against an overpayment where the insurer has overpaid weekly income benefits to a self-employed person because it has overestimated business expenses that continue after the accident.

In my view, it is not implicit in the Schedule that the insurer can set off other amounts owing to the self-employed insured against the overpayment of weekly income benefits. To find that the insurer could set off other liabilities against an overpayment of weekly income benefits would allow an insurer to recover the overpayment without a finding of error or fraud on the part of the insured as required by section 27 of the Schedule.

Special award:

Under section 282(10) of the Insurance Act an arbitrator may make a special award where he finds that the insurer has unreasonably withheld or delayed payments. Since the Insurer has overpaid Mr. DeMarco, there are no grounds for making a special award. However, I will review the evidence I heard on the issue.

The relationship was marked by distrust. Mr. McCully suspected that Mr. DeMarco continued to work after the accident. He was suspicious because Mr. DeMarco submitted invoices for diesel fuel, he had the use of a Bobcat and he continued to advertise in the Yellow Pages. Mr. DeMarco said that he purchased diesel fuel to appease his creditors. He said that he could not sell the last Bobcat because he did not get legal title to it until shortly before the hearing due to a mixup which occurred when the lessor of the Bobcat mistakenly repossessed the wrong Bobcat. He explained that he advertised in the Yellow Pages because he was hoping to return to work and he had to advertise to maintain goodwill.

The relationship was also marked by a lack of communication. Mr. DeMarco had no knowledge or interest in accounting matters. He saved some of his invoices and gave them to Mr. McCully, his accountants and his lawyers. Mr. McCully and the Insurer continued to ask Mr. DeMarco for all his accounting records. In his reporting letter of November 26, 1993 Mr. McCully wrote, "I have been asking Mr. DeMarco to provide me with details of his actual expenses subsequent to the accident." Mr. DeMarco took the position that he gave the Insurer everything he could. I do not accept this explanation. Mr. DeMarco provided receipts for fuel expenses only for the first 28 weeks after the accident. In my view, Mr. DeMarco realized that documentary evidence of expenses had some significance. However, I heard no evidence to explain why Mr. DeMarco did not produce his banking statements and more complete evidence of continuing business expenses.

In my view, Mr. McCully applied the proper test in calculating the amount of weekly income benefit. Initially, without benefit of evidence of actual continuing expenses, he made reasonable assumptions of what Mr. DeMarco's continuing expenses were and he correctly applied the formula set out in section 12 of the Schedule. In his report of November 26, 1993 he recommended that the Insurer pay the minimum benefit because he had no evidence of continuing expenses. In his report of December 22, 1994, Mr. McCully noted that he had received some evidence of continuing expenses for telephone and fuel. However, he reduced his estimate of pre-accident sales from that set out in Mr. DeMarco's financial statement so that the weekly income benefit still amounted to $185.60.

Notwithstanding, Mr. McCully's position, the Insurer erred on the side of caution. It continued to pay weekly benefits at the rate of $383.20 until May 9, 1994, a period of about three years, without evidence of continuing expenses to justify that amount. I do not find that the Insurer acted improperly.

Post-accident income:

The only clear evidence that Mr. DeMarco earned income after the accident is the evidence of Mr. Grossman who paid Mr. DeMarco $450 to excavate a drain pipe. Although I heard evidence that suggested that Mr. DeMarco worked after the accident, the Insurer has not discharged the onus on it of proving that Mr. DeMarco earned other income.

Expenses:

Although Mr. DeMarco was unsuccessful, there was some merit in the issues raised in his application for arbitration and he is entitled to his expenses incurred with respect to this arbitration.

Order:

1. The amount of weekly income benefit for the period April 16, 1991 to April 15, 1992 is $232.72 per week.

2. The amount of weekly income benefit for the period April 16, 1992 to April 15, 1993 is $194.99 per week.

3. The amount of weekly income benefit after April 15, 1993 is $185.60.

4. The Insurer is entitled to a repayment of $450.

5. The Applicant is entitled to his expenses of the arbitration against which the Insurer may set off the order for repayment of $450.

October 21, 1996

William J. Renahan

Arbitrator

Date

Appendix

Ontario Regulation 672

2.22

12.-(1) The insurer will pay with respect to each insured person who sustains physical, psychological or mental injury as a result of an accident a weekly income benefit during the period in which the insured person suffers substantial inability to perform the essential tasks of his or her occupation or employment if the insured person meets the qualifications set out in subsection (2) or (3).

2.23

(2) The following qualifications apply to an insured person who claims a weekly benefit under subsection (1):

2.23.1

1. He or she must have been at the time of the accident,

i. employed or self-employed,

ii. on a temporary lay-off, or

iii. entitled to start work within one year under a legitimate offer of employment made before the accident and evidenced in writing.

2.23.2

2. He or she as a result of and within two years of the accident must have suffered a substantial inability to perform the essential tasks of his or her occupation or employment.

2.24

(3) A person who was unemployed and who was not self-employed at the time of the accident is qualified to receive a weekly benefit under subsection (1) if he or she was employed or self-employed for any 180 days in the twelve-months period before the accident, and if he or she as a result of and within two years of the accident has suffered a substantial inability to perform the essential tasks of the occupation or employment in which he or she spent the most time during the twelve-month period before the accident.

2.25

(4) Subject to subsection (5), the weekly benefit 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.

2.26

(5) The insurer is not required to pay a weekly benefit under subsection (1),

(a) for the first week of the disability;

(b) for any period in excess of 156 weeks unless it has been established that the injury continuously prevents the insured from engaging in any occupation or employment for which he or she is reasonably suited by education, training or experience.

2.27

(6) The insurer is not required to pay a weekly benefit under subsection (1) to a person described in subparagraph iii of paragraph 1 of subsection (2) until the day the person would have been entitled under the contract to begin employment unless before that day the person is qualified for a benefit under another paragraph of that subsection.

2.28

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

2.28.1

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.

2.28.2

2. 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.

2.28.3

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.

Footnotes

1. 1Prior to January 1, 1994, Ontario Regulation 672 was called the No-Fault Benefits Schedule. After that date it became the Statutory Accident Benefits Schedule — Accidents Before January 1, 1994. In this decision, the term "Schedule" will be used to refer to Regulation 672.
2. 2In the case of a corporation, compensation paid to individuals are expenses of the corporation. In the case of self-employment, compensation paid to the owner is not an expense of the firm. Rather, it is an advance against profits. Therefore, in this decision I have not treated compensation paid to Mr. DeMarco for management as an expense.
3. 3Descarie v. Personal Insurance Company of Canada, (1995) 1995 CanLII 7051 (ON CTGD), 23 O.R. (3d) 457.
4. 4McCormick and Economical Mutual Insurance Company ( October 2, 1991), OIC A-000139; Scavuzzo and Canadian Home Assurance Company ( March 18, 1992), OIC A-000626 affirmed on appeal (June 19, 1992), OIC P-000626; Kotsiakos and State Farm Mutual Automobile Insurance Company ( June 21, 1995), OIC A-002354.