Neutral Citation: 1996 ONICDRG 187

OIC A96-000016

ONTARIO INSURANCE COMMISSION

BETWEEN:

JAMES KEVIN KRUSTO

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

and

GENERAL ACCIDENT INSURANCE COMPANY OF CANADA

Insurer

DECISION ON A PRELIMINARY ISSUE

Issues:

The Applicant, James Kevin Krusto, was injured in a motor vehicle accident on October 11, 1993. At the time of the accident Mr. Krusto was a passenger in a car insured by Allstate Insurance Company of Canada ("Allstate"). Mr. Krusto did not have any automobile insurance. His mother, Shirley Krusto, was the named insured in a motor vehicle policy issued by Canadian Accident Insurance Company of Canada ("Canadian Accident"). Mr. Krusto applied for statutory accident benefits from Allstate payable under Ontario Regulation 672.¹ Allstate refused to pay Mr. Krusto accident benefits on the basis that he was a "dependant" and should apply for benefits to Canadian Accident. Canadian Accident's position is that Mr. Krusto is not a dependant of his mother and, accordingly, it is not liable for his accident benefits.

The parties were unable to resolve their disputes through mediation, and Mr. Krusto applied for arbitration under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

1. Which insurer, Allstate or General Accident, is responsible for paying statutory accident benefits to Mr. Krusto? In order to decide this matter, I must determine whether Mr. Krusto was a "dependant" of Shirley Krusto within the meaning of subsection 3(2) of the Schedule, on October 11, 1993.

Mr. Krusto also claims interest on any amounts owing, and his expenses incurred in the hearing.

Result:

1. Mr. Krusto was not a dependant of Shirley Krusto on October 1993, and accordingly, Allstate is responsible for paying his benefits.

2. Mr. Krusto is not entitled to his expenses for this arbitration.

Hearing:

The hearing was held at the offices of the Ontario Insurance Commission in North York, Ontario, on October 22, and 23, 1996, before me, Joyce Miller, Arbitrator.

Present at the Hearing:

Applicant:

James Kevin Krusto

Mr. Krusto's

Tim Tucci

Representative:

Barrister and Solicitor

Allstate's

Ian D. Kirby

Representative:

Barrister and Solicitor

General Accident's

Lee Samis

Representative.

Barrister and Solicitor

Witnesses:

James Kevin Krusto

Catherine MacDonald

Shirley Krusto

Bruce Schorr

Exhibits:

10 exhibits were filed

The Law

Section 268(2) of the Insurance Act sets out the rules for determining the order for which insurers become liable to pay statutory accident benefits. This section provides that:

1. In respect of an occupant of an automobile,

i. the occupant has recourse against the insurer of an automobile in respect of which the occupant is an insured,

ii. if recovery is unavailable under subparagraph i, the occupant has recourse against the insurer of the automobile in which he or she was an occupant,

Section 2(c) of the Schedule states that an "insured person" in respect of a particular motor vehicle liability policy means:

(a) in respect of accidents in Ontario, an occupant of the insured automobile,

(c) the named insured, his or her spouse and any dependent of either of them while the occupant of any other automobile, ... [emphasis added]

In order to determine which insurer is liable to pay Mr. Krusto accident benefits, I must first determine whether at the time of the accident Mr. Krusto was a dependant of his mother, Shirley Krusto. "Dependant" is defined in section 3(2) of the Schedule as follows:

For the purpose of this Regulation, a person is a dependant of another person if the person is principally dependent for financial support on the other person or the other person's spouse.

Since Allstate is claiming that Mr. Krusto is a dependant of Shirley Krusto, the burden of proof rests with Allstate to show that Mr. Krusto was "principally dependent for financial support" on Shirley Krusto.

The words "principally dependent for financial support" have been considered in a number of arbitration decisions. Arbitrator Manji in Towsley² undertook a thoughtful and in-depth analysis of these cases and outlined a number of principles with which I agree. They are as follows:

• the term "principally dependent for financial support" requires more than some financial dependence. It requires principal dependence. In order for an applicant to be found principally dependent for financial support on another person, the applicant must "chiefly" or "for the most part" derive his or her financial support from that person as opposed to other sources;

• the dependence must be financial. Section 3(2) does not refer to other forms of dependence such as social dependence except to the extent that social factors pertain to financial dependence;

• the term "financial support" in section 3(2) is broad enough to extend beyond money to include the concept of "money's worth" or the reasonable value of goods and services provided to the applicant;

• section 3(2) requires an assessment of all of an applicant's circumstances to determine whether the applicant was in fact deriving his or her support from the other person. The actual circumstances must be looked at and not an imputed earning capacity;

• each case must be approached on its own facts but matters such as the amount and duration of the financial dependency, the financial or other means of the applicant, and the ability of the applicant to be self-supporting are appropriate considerations for determining the question of financial dependency in the context of section 3(2); and

• an applicant can be "principally dependent for financial support" on public funds such as social assistance;

Evidence and Findings:

Mr. Krusto is 34 years old. He testified that at the time of the accident on October 11, 1993, he was living with his girl friend in an apartment that he had built over a garage on a property owned jointly by himself and his mother in Mississauga. He paid rent ranging from $200.00 to $400.00 a month. As well, he stated that he and his mother also jointly owned a property in Huntsville.

Mr. Krusto testified that at the time of the accident he owned and operated a business of buying, fixing up and selling used cars. As well, he did some car repairs. He stated he earned about $25,000 to $50,000 a year from his business. He also received $649.00 a month from welfare. He admitted that he had lied to welfare about his ability to work in order to collect benefits. He stated that he had been collecting welfare, on and off, since 1984.

Shirley Krusto testified that she divorced Mr. Krusto's father 25 years ago. At the time of the accident she was employed as an underwriter at General Accident, earning about $44,000.00 a year. Since 1993 she has been on disability leave.

Shirley Krusto testified that her son has not been dependent on her since he was 16 years old. In fact, she stated, her son has helped her and her two daughters financially when they needed it.

Moreover, he had, at his own expense, built an apartment over the garage on the property that they owned in Mississauga. He also renovated the main floor of the house, built an apartment in the basement, fixed the roof and bought a new furnace. As well, he had built an addition on to their property in Huntsville.

Shirley Krusto noted that her son had a lot of "toys" that he had bought on his own, which included a $25,000.00 boat, snowmobiles, scooters, motorcycles and scuba diving equipment.

Shirley Krusto stated that while it did not matter to her which insurer paid the benefits, she never thought that General Accident was liable.

If the above were true, one must wonder why Allstate would decline to pay accident benefits on the basis that Mr. Krusto was a dependant of his mother at the time of the accident. In fact, Allstate had good reason to consider that Mr. Krusto may have been financially dependent on his mother.

The application for accident benefits, which was signed by Mr. Krusto's mother, Shirley Krusto, stated that Mr. Krusto was unemployed at the time of the accident and did not have any income.³A medical report of the Huntsville District Memorial Hospital, written when Mr. Krusto was admitted to the hospital, noted that "He is presently unemployed."⁴

Mr. Krusto gave a statement to an Allstate representative, which he did not sign, saying that at the time of the accident he had been living with his mother for four years, was "currently unemployed," and had "not been actively employed for six or seven years do [sic] to a work related lower back injury."⁵

The evidence also showed that Mr. Krusto had not filed any income tax returns for 1991, 1992 or 1993.⁶ Moreover, apart from his own testimony, Mr. Krusto could not present any evidence to document the fact that he had earned any money from his business or that he had paid any bills with respect to the major renovations he claimed he did on the two properties he owned.

Finally, Mr. Krusto's claim for accident benefits was made pursuant to section 13 of the Schedule which deals with weekly benefits for persons who have no income.

Mr. Krusto testified that he could not present any objective evidence regarding his earnings from employment because he was part of the "underground economy." He stated that all of his business transactions, including paying bills, were done in cash. He candidly admitted that for financial purposes he would lie.

Although Mr. Krusto could not present any objective evidence to support his submission that he was self employed at the time of the accident, General Accident was able to.

Catherine MacDonald, an estranged neighbour of Mr. Krusto's, who lived next door to him, testified on behalf of General Accident. In my view, Ms. MacDonald gave objective, disinterested, credible evidence that Mr. Krusto was carrying on a business in 1993, at the time of the accident.

Mrs. MacDonald testified that in 1993 Mr. Krusto was carrying on a "car fixing" business on his property. She stated that she saw tow trucks bringing in cars and taking them out. People worked on cars morning, noon and night, "especially Friday night."

Mrs. MacDonald said she saw Mr. Krusto driving a big white truck and a tow truck; taking cars in and out on runs; and changing license plates on cars, depending on which car he wanted to take out for a drive. She personally saw Mr. Krusto working underneath a car and under the hood. She said he worked all day, every day, with the usual breaks. On odd days, he would take his boat out which she said was quite beautiful.

Mrs. MacDonald stated that Mr. Krusto's business disturbed her and other neighbours and that the summer of 1993 "was the worst." The neighbours complained to the City of Mississauga and Mr. Krusto was given notice by the City to stop carrying on his business. She stated that despite the notice he continued working. Mr. Krusto confirmed that he ignored the notice.

The notice, which was dated June 30, 1993, stated:

A recent inspection of the above referenced property [608 Montbeck Crescent] revealed a contravention of City of Mississauga Zoning By-law 5500 (as amended), in this regard you are required to:

5500

Cease bringing the oversized commercial vehicle onto the residentially zoned property.

Cease conducting automobile repairs on the residentially zoned property.

Cease using the garage for a dwelling unit.

457-82

Remove all unlicensed or inoperative motor vehicles from the property.

Failure on your part to comply with this request [by] July 15, 1993 may result in the instigation of legal action without further notification on our part.⁷

From the above evidence, which I accept as objective and impartial, I find that it was more likely than not that Mr. Krusto was carrying on a business on his property at the time of the accident. I also find that Mr. Krusto's deceptions about his financial situation led Allstate to infer that he was a dependant of his mother.

In my view, Mr. Krusto presented himself as an unemployed, disabled person for the purpose of financial gain, i.e., to collect welfare and avoid paying taxes. His mother, I believe, was a partner to this deception.

In Mr. Krusto's application to Allstate for accident benefits, Shirley Krusto stated that he was unemployed and had no income. She also admitted that to avoid paying taxes, she did not fully disclose to Revenue Canada the rental income that she and her son received for their property in Mississauga. In fact, Shirley Krusto reported a significant loss which, she admitted, was not true.⁸

As noted above, Allstate has the burden to prove that on a balance of probabilities Mr. Krusto was a dependant of his mother at the time of his accident. While I certainly understand why Allstate may have thought that Mr. Krusto could have been a dependant of his mother at the time of the accident, I find that Allstate has not discharged its burden of proof.

In applying the principles enunciated above in Towsley,⁹ I find that Mr. Krusto was not "principally dependent for financial support" from his mother. Although Allstate suggested that by paying a below-market rent for his apartment Mr. Krusto was deriving a benefit from his mother, no objective evidence was presented to show that Mr. Krusto was "chiefly" or "for the most part" deriving his financial support from his mother.

I find that in 1993 Mr. Krusto jointly owned two properties with his mother;¹⁰ was receiving $649.00 a month from welfare, and was operating his own business. No persuasive evidence was presented to show that Mr. Krusto was unable to provide for his own basic needs of shelter, food and clothing or that he was financially dependent on his mother.

Accordingly, I find that Mr. Krusto was not a dependant of his mother, and that Allstate is responsible for paying Mr. Krusto's accident benefits.

Expenses:

I exercise my discretion¹¹ not to award Mr. Krusto his expenses. I agree with the submissions of Allstate and General Accident that if it were not for Mr. Krusto's "misrepresentations, deceptions and lies" there would have been no need for a hearing to decide which insurer was liable to pay accident benefits.

Order:

1. Allstate is responsible for paying Mr. Krusto his accident benefits.

2. Mr. Krusto is not entitled to his expenses incurred in respect of the arbitration.

November 1, 1996

Joyce Miller Arbitrator

Date

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. 2Towsley and Royal Insurance Company of Canada (February 16, 1996), OIC File No. A-010196 and A-010717
3. 3Exhibit 1, Document Brief, Tab 1, Application for Accident Benefits, dated July 15, 1994, signed by Shirley Krusto.
4. 4Exhibit 8, Report of Dr. J. Eastmure dated October 12, 1993
5. 5Exhibit 1, Document Brief, Tab 2, Statement taken on November 16, 1993
6. 6Exhibit 1, Document Brief, Tab 9, Letter dated September 20, 1995 from Mr. Krusto's Lawyers, Baker, Ranieri, to a Mediator at the Ontario Insurance Commission, with a copies to Allstate and General Accident.
7. 7Exhibit 10, Letter dated June 30, 1997 to Shirley and James Krusto from Brian McConkey, By-law Enforcement Officer, Office of the City Solicitor, City of Mississauga
8. 8Exhibit 1, Tabs 6, 7 and 8. Copies of Shirley Krusto's income tax returns for 1992, 1993 and 1994.
9. 9See pages 5 to 6
10. 10Exhibit 2, Document Brief, Tabs 1 and 2 copies of deeds of land for the properties in Mississauga and Huntsville.
11. 11Section 282(11) of the Insurance Act. See also McCormick and Economical Mutual Insurance Company (October 2, 1991), OIC A-000139