Neutral Citation: 1996 ONICDRG 192

Appeal P-011448

OFFICE OF THE DIRECTOR OF ARBITRATIONS

MICHAEL J. BARRICK

Appellant

and

GENERAL ACCIDENT ASSURANCE COMPANY OF CANADA

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

William Morris (for Michael J. Barrick)

James E. Dunn (for General Accident Assurance Company)

APPEAL ORDER

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

The appeal is allowed in part:

(a) Paragraph 1(amount of benefits), paragraph 2 (overpayment), paragraph 3 (interest), and paragraph 5 (arbitration expenses) of the arbitration order, dated June 28, 1995, are rescinded.

(b) Paragraph 4 (special award) of the arbitration order, dated June 28, 1995, is confirmed.

Unless the parties agree otherwise, a new arbitration hearing will be held before another arbitrator appointed by the Director to decide the following issues:

(a) What is the proper amount of Mr. Barrick's weekly income benefits?

(b) If benefits are owing to Mr. Barrick, is he entitled to interest?

(d) Is Mr. Barrick entitled to his arbitration expenses, including his expenses related to the first hearing?

Mr. Barrick is entitled to his reasonable appeal expenses.

November 7, 1996

David R. Draper Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

In a decision dated June 28, 1995, the arbitrator rejected Michael J. Barrick's claim for weekly income benefits at the maximum rate of $600 per week. He found that Mr. Barrick submitted false information about his pre-accident income, resulting in a substantial overpayment that he was obliged to repay. In this appeal, Mr. Barrick asks for an order that:

he is entitled to weekly income benefits of $600 per week, plus interest, instead of $221.96 per week, as ordered by the arbitrator;
he was not overpaid and is not required to repay any amount to General Accident Assurance Company of Canada ("General Accident");
General Accident is required to pay a special award; and
he is entitled to all his reasonable arbitration expenses.

As a preliminary issue, Mr. Barrick submits that General Accident accepted his entitlement to weekly income benefits at $375 per week and, therefore, should not have been allowed to argue for a lesser amount.

II. BACKGROUND

Mr. Barrick suffered serious injuries in an automobile accident on January 3, 1991. At the time of his accident, he was a part-time grade 12 student at Glendale Secondary School. He was also working. The dispute is about the particulars of his work and the amount of his pre-accident income.

In his application for accident benefits, Mr. Barrick reported pre-accident income from two sources - A & J Enterprises, a repair business owned by his uncle, Jack Legault, and Hamilton's First Choice Limousine Service ("First Choice Limousine"), a business operated by his father, Ted Barrick. According to the documents filed, Michael Barrick earned a total of $13,440 from A & J Enterprises over the 24 weeks he worked there, including $560 for each of the four weeks preceding the accident. From First Choice Limousine, his reported earnings were $1,250 over five weeks, including $1,000 for the four weeks preceding the accident.

Based on this information, the insurer¹ paid Mr. Barrick weekly income benefits at the maximum rate of $600 per week based on his income in the four weeks preceding the accident ($560 x 4 = $2,240 + $1,000 = $3,240 + 4 = $810 x 80% = $648). He continued to receive $600 per week for almost three years. General Accident did not dispute Mr. Barrick's continuing eligibility, but retained an accountant to reassess the proper amount of his weekly income benefits.

In December 1993, Mr. Barrick's weekly income benefits were reduced to the minimum, $185.60 per week, because he had not provided financial information requested by the accountant. A mediation was held, but the parties were unable to agree on the proper amount of Mr. Barrick's weekly income benefits. The mediator reported that the following issue remained unresolved:

The insurer claims that Mr. Barrick should be receiving $374.00 per week from January 10, 1991 to date and ongoing. The insurer reduced the rate of the insured's weekly income benefit to $185.60 on December 16, 1993 in order to recover the alleged overpayment.

The insured disputes the reduction in weekly income benefits and claims $600.00 per week from January 10, 1993 . . .

My understanding is that General Accident continued to pay Mr. Barrick $185.60 per week, but $188.40 ($374 - $185.60) went to reduce the overpayment it claimed as a result of paying benefits at $600 rather than $374. It is difficult to determine the basis of the $374 figure. Mr. Barrick then applied for arbitration, claiming $600 per week. In its Response, General Accident stated that the "insured's entitlement to weekly income benefits is limited to $374.00. The insurer seeks repayment for overpayment."

III. ISSUES IN DISPUTE

At the start of the arbitration hearing, Mr. Barrick's lawyer argued that the arbitration should only deal with whether Mr. Barrick was entitled to benefits at some rate above $374 per week, not a lower rate. After hearing submissions from both lawyers, the arbitrator ruled that General Accident could present evidence and make submissions that Mr. Barrick's entitlement was less than $374. In his decision, he stated as follows:

After hearing submissions from both parties, I ruled that the entire amount of weekly income benefits was properly in issue. I arrived at this conclusion for a number of reasons. To begin with, a review of the pre-hearing letter of January 23, 1995, which was entered as Exhibit 3, reveals that the entire quantum of weekly income benefits was discussed and was in issue at the time of the pre-hearing. In addition, the pre-hearing letter clearly indicates that production of all business records from A & J Enterprises Limited was to be made. The amount of weekly income benefits was based on Mr. Barrick's employment with A & J Enterprises. Accordingly, it is clear that at the time of the pre-hearing, this was in issue. [p.4]

On appeal, Mr. Barrick submits that the arbitrator erred in making this ruling. First, he contends that the arbitrator was clearly wrong in saying that "production of all business records from A & J Enterprises Limited was to be made." The pre-hearing letter states that Mr. Barrick was to produce "any documents demonstrating his employment." Even if the arbitrator overstated the scope of the production order, I am not persuaded it is of any consequence. In my opinion, the order required Mr. Barrick to produce documents relating to his employment and his income during the relevant periods. General Accident's position did not come as a surprise to Mr. Barrick or his lawyer. It was dealt with at the pre-hearing and the arbitrator ordered the production of relevant documents, but left it up to the hearing arbitrator to rule on the scope of the issues to be decided.

Mr. Barrick also submits that the arbitrator's ruling shows a bias early in the proceeding that affected the entire process. He suggests that if the arbitrator wanted to be careful, he could have reserved his decision on this issue until he heard all the evidence. This would have forced General Accident to lead evidence explaining why it accepted Mr. Barrick's entitlement at $374 per week.

I find this argument difficult to understand. Mr. Barrick's lawyer asked the arbitrator for a ruling. There was no suggestion that it should be deferred. He wanted it clear at the beginning of the hearing that General Accident was bound by its acceptance of Mr. Barrick's reported income from A & J Enterprises, and that he was entitled to at least $374 per week. Presumably, this would have restricted the scope of the evidence presented at the hearing. The arbitrator did not accept Mr. Barrick's argument. That alone is not an indication of bias. After reviewing the record, including a full transcript of the arbitration hearing, I find no indication that the arbitrator was biased.

Finally, Mr. Barrick argues that by making his ruling at the start of the hearing, the arbitrator relieved General Accident of any obligation to call evidence about its decision to pay weekly income benefits at $374 per week. As I view it, however, General Accident's decision not to call evidence was a tactical decision that involved some risks. For example, without evidence from the company, the arbitrator might have refused to order repayment on the basis that General Accident failed to establish that the overpayment resulted from "error or fraud," as required by section 27(1) of the Schedule.

I also note that the arbitrator was sympathetic to Mr. Barrick's submission that the accountant retained by General Accident should be available for cross-examination. At the end of the hearing, General Accident asked to introduce his report. Mr. Barrick's lawyer objected, arguing that General Accident made an undertaking at the pre-hearing to call him as a witness. After hearing submissions, the arbitrator ruled that the report could be filed, but the accountant had to be available for cross-examination. Following a recess, General Accident advised the arbitrator that it would not be filing the accountant's report and Mr. Barrick made no further request for his attendance. I am satisfied, therefore, that if Mr. Barrick believed the accountant's testimony was critical, he could have insisted on his appearance at the hearing.

IV. QUANTUM

Mr. Barrick's claim was based on his pre-accident income from A & J Enterprises and First Choice Limousine. His application for accident benefits was completed by his father, Ted Barrick, two weeks after the accident. It lists income from A & J Enterprises of $560 per week for each of the four weeks preceding the accident. It also lists a total of $1,000 from First Choice Limousine over the four weeks preceding the accident.

Ted Barrick also prepared an Employer's Confirmation of Income form for his son's income from A & J Enterprises. Michael's uncle, Mr. Legault, the owner of the company, signed the form. It states that Michael earned a total of $13,440 over 24 weeks, including $560 per week in each of the four weeks preceding the accident.

Finally, Ted Barrick prepared an Employer's Confirmation of Income form for First Choice Limousine. Although it was his business, the form was signed by Mr. Davidson, "Manager." It states that Michael was paid $10 per hour and worked approximately 25 hours per week. According to the form, he earned a total of $1,250 in the five weeks he worked, $1,000 of which was earned in the four weeks preceding the accident.

At the arbitration hearing, additional documents were filed in support of Mr. Barrick's claim, including:

an employment contract with A & J Enterprises (Exhibit 8)
pay receipts from A & J Enterprises, totalling $13,440 (Exhibit 9)
a summary statement of his income from A & J Enterprises, totalling $13,440 (Exhibit 10)
a copy of a T4A-1990 form issued to him by A & J Enterprises, showing "other income" of $13,440 (Exhibit 11)
A copy of a Statement of Income and Expenses of A & J Enterprises, showing expenses for subcontractors as $13,590 (Exhibit 12)
Copies of two cheques issued to Michael Barrick by First Choice Limousine, dated December 22, 1990 and January 3, 1990 [sic], each for $500 (Exhibits 18 and 19)
His 1990 income tax return, dated April 30, 1991, showing income from A & J Enterprises of $13,440, but no income from First Choice Limousine (Exhibit 21)

Documents were also provided from Burns International Security Services Limited ("Burns Security") about a small amount of part-time work Mr. Barrick did as a security guard between October 2, 1990 and the date of his accident - January 3, 1991 (Exhibits 20, 23 and 24).

Michael Barrick, Ted Barrick and Jack Legault all testified at the arbitration hearing. General Accident did not present any evidence, but challenged the veracity of Mr. Barrick's documents and witnesses. Essentially, its position was that the financial evidence was created to support Mr. Barrick's claim and did not reflect his actual pre-accident income.

Credibility was the central issue in the arbitration hearing. It is clear from the decision that the arbitrator was not impressed with the evidence. Essentially, he found that the three witnesses were all involved in a scheme to defraud the insurer by lying about Mr. Barrick's income from A & J Enterprises. Although the arbitrator accepted that Mr. Barrick worked for his uncle in 1990, he found that it was a summer job ending in early September 1990, about four months before the accident. This meant that Canadian General calculated the weekly income benefits based on false information (the $560 per week from A & J Enterprises in each of the four weeks preceding the accident), resulting in a substantial overpayment.

Despite his concerns about the evidence, the arbitrator did not completely reject Mr. Barrick's claim. He found that Mr. Barrick worked part-time for Burns Security, earning $109.80 in the four weeks preceding the accident. He also accepted that Mr. Barrick worked for First Choice Limousine. Relying on two cheques issued by the company (Exhibits 18 and 19), he found that Mr. Barrick earned $1,000 in the four weeks preceding the accident. These findings led to the arbitrator's conclusion that Mr. Barrick was entitled to $221.96 per week ($109.80 + $1,000 = $1,109.80 4 weeks = $277.45 x 80% = $221.96).

In his appeal, Mr. Barrick submits that his income from A & J Enterprises was legitimate, and the arbitrator erred in rejecting it. It is not my role on appeal to second-guess the arbitrator's evaluation of the evidence. Instead, the question is whether he considered all the evidence and made findings reasonably supported by that evidence.

The problem in this case is not a lack of detailed reasons. The arbitrator provided a lengthy explanation for rejecting Mr. Barrick's evidence that he continued to work at A & J Enterprises up to the time of his accident. Some factors he considered were:

Mr. Legault and Mr. Barrick disagreed about Mr. Barrick's hours and whether there were any other employees during the time Mr. Barrick was working for A & J Enterprises.
Mr. Barrick's employment contract with A & J Enterprises, dated July 1, 1990, and the summary statement of Mr. Barrick's income through December 1990 are written on consecutively numbered invoices.
Mr. Legault testified that he used his expenses book for payments to employees and other expenses, but the pay receipts issued to Mr. Barrick are consecutively numbered.
Mr. Legault insisted that he paid Mr. Barrick in cash, sometimes at home and sometimes at work, but always issued him a receipt when he was paid, never later.
In September 1990, Mr. Barrick applied for a job at Burns Security, advising them that he had left his job at A & J Enterprises because it had been summer employment.
Mr. Barrick's purported income from A & J Enterprises, if annualized, is greater than the profits shown on the business's Statement of Income and Expenses.

These are legitimate considerations, raising serious questions about the legitimacy of Mr. Barrick's claim. For the following reasons, however, I am persuaded that the decision leaves some important questions unanswered.

I do not want to suggest that arbitrators must discuss every piece of evidence and all the factors included in his or her assessment. That would be impractical. However, a party whose evidence is being rejected is entitled to an explanation. This is particularly true where the arbitrator finds the evidence fraudulent. In making such a devastating finding, the decision should make it clear that the arbitrator has considered any evidence supporting the party's position.

One reason that the arbitrator rejected Mr. Barrick's testimony about his continuing employment at A & J Enterprises was that he was unable to understand how Mr. Barrick could have gone to school, participated in hockey, and worked at A & J Enterprises, First Choice Limousine and Burns Security, all at the same time. After reviewing the transcript, I have no difficulty accepting that Mr. Barrick's testimony was confusing. He did not explain his schedule very well. The record strongly suggests, however, that some of his activities were not very time consuming. He was not going to school very often, his work with Burns Security was minimal and he did not claim to have started working for his father at the limousine company until December 1990. In addition, counsel for General Accident conceded that the transcript does not clearly support the arbitrator's finding that at the time of the accident, Mr. Barrick "was spending at least an hour or so a day in his driveway shooting pucks."

However, the arbitrator did not simply find that Mr. Barrick's testimony was unreliable. As I read the decision, he found that Mr. Barrick lied about his continuing employment with A & J Enterprises. In making this finding, the arbitrator considered inconsistencies in his testimony, and between his testimony and Mr. Legault's. My concern is that it is not clear from the decision that the arbitrator considered the fact that the hearing took place more than four years after the accident. After four years, inconsistencies do not immediately point to fraud. In my view, this is a sufficiently important consideration that it should have been reflected in the decision.

I am also concerned that the arbitrator's findings raise some questions that are not addressed in the decision. If he is right, Ted Barrick, Michael Barrick and Mr. Legault were involved in a rather sophisticated scheme to defraud the insurer. Within two weeks of the accident, they created false documents to support Michael's claim for weekly income benefits at the maximum rate of $600. Interestingly, his reported income in the 52 weeks preceding the accident would not have led to benefits at the maximum rate. He was paid $600 per week based on a combination of his income from A & J Enterprises and First Choice Limousine in the four weeks preceding the accident.

Even assuming this level of familiarity with the Schedule, I have difficulty making sense of the scheme. If Ted and Michael Barrick were willing to lie about Michael's pre-accident income, surely the simpler strategy would have been for them to overstate his income from Ted Barrick's business, First Choice Limousine. It is not clear why they had to involve Mr. Legault at all, particularly if the plan was to base the claim on Michael's income in the four weeks preceding the accident.

The timing of the tax documents must also be considered. At some point in early 1991, Mr. Legault issued a 1990 T4A form to Mr. Barrick showing income of $13,440 from A & J Enterprises, the amount reported in the application for accident benefits. Mr. Barrick reported this income to Revenue Canada within the normal filing period, paying taxes of over $2,000. It appears that Mr. Legault later included the $13,440 in A & J Enterprise's Statement of Income and Expenses, which Mrs. Legault filed with her income tax return (Exhibit 10).

If Mr. Barrick was not paid this amount, these documents dramatically escalated Mr. Legault's participation in the scheme. Not only had he signed a false document for the insurance company, he created false documents for Revenue Canada.

What is even more surprising is that this was all done at a time when the insurer was paying Mr. Barrick weekly income benefits at the maximum rate of $600 per week, without any obvious concerns about his claim. The arbitrator found that the tax return "was prepared after the fact in order to bolster Mr. Barrick's weekly income benefits claim." (p.10). While this is possible, one must ask if it is likely that Michael Barrick, Ted Barrick and Mr. Legault would have gone to the trouble, expense and risk of creating and filing false tax documents at a time when there was no dispute about Michael's accident benefits.

Finally, if the participants in the scheme were careful enough to create and file false tax documents to support Michael's accident benefits claim at a time when it was not being challenged, I would have expected consistency. However, Mr. Barrick's income tax return does not include any income from First Choice Limousine, an important part of his accident benefits claim. The tax return also includes small amounts of income from Burns Security, Steinberg Inc. and the Hamilton Region Conservation Authority, income not listed in the application for accident benefits.

I conclude that although the arbitration decision provides compelling reasons to question various aspects of Mr. Barrick's claim, it does not adequately explain the arbitrator's finding that he did not earn any income from A & J Enterprises after early September 1990. Therefore, I cannot allow the decision to stand.

Unfortunately, I am not in a position to substitute my own decision. The evidence is confusing and there are issues of credibility best determined by an arbitrator following a hearing. Therefore, I conclude that the parts of the arbitration order dealing with the proper amount of Mr. Barrick's weekly income benefits should be rescinded and determined following a new hearing before another arbitrator.

V. REPAYMENT

The arbitrator's order that Mr. Barrick repay benefits follows from his finding that Mr. Barrick lied about his income from A & J Enterprises. Given my order above, the repayment order should be rescinded and considered in the new arbitration hearing.

VI. SPECIAL AWARD

Given the many problems with Mr. Barrick's claim, I am convinced that General Accident did not unreasonably withhold or delay the payment of benefits to him. Therefore, Mr. Barrick's appeal of the arbitrator's refusal to order General Accident to pay a special award under section 282(10) of the Insurance Act is dismissed.

VII. ARBITRATION EXPENSES

The arbitrator ordered that Mr. Barrick was only entitled to half his arbitration expenses. Again, this order follows from his evaluation of the evidence about Mr. Barrick's employment at A & J Enterprises. This part of the arbitration order is rescinded. The arbitrator appointed for the new hearing should decide whether Mr. Barrick should receive his expenses for both arbitration hearings.

VIII. APPEAL EXPENSES

Mr. Barrick's appeal has been substantially allowed, and he should receive his reasonable appeal expenses. If the parties are unable to agree on the amount, an assessment can be arranged through the Registrar.