Ontario Insurance Commission
Commission des assurances de l’Ontario
Neutral Citation: 1996 ONICDRG 69
Appeal P-002585
OFFICE OF THE DIRECTOR OF ARBITRATIONS
ZURICH INSURANCE COMPANY
Appellant
and
THOMAS GEORGE PIPER
Respondent
Before:
Elisabeth Sachs
Representatives:
Lee Samis (counsel for the Appellant)
Thomas George Piper (in person), assisted by P. Atherton, C.A.
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 dismissed and the arbitration order dated December 6, 1993 is confirmed.
The respondent, Thomas George Piper, is entitled to his expenses of the appeal.
May 1, 1996
Elisabeth Sachs
Director of Arbitrations
Date
REASONS FOR DECISION
I. BACKGROUND
Thomas George Piper was injured in a motor vehicle accident on February 28, 1992. The appellant, Zurich Insurance Company (“Zurich”), acknowledged that Mr. Piper was entitled to weekly income benefits under O. Reg. 672, the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994 (the Schedule). However, the parties could not agree on how to calculate the amount of the benefit.
At the heart of the dispute was whether Mr. Piper should be treated as employed or self-employed for the purpose of calculating his income benefit. Mr. Piper claimed to be an employee of Piper Electric Company Limited (“Piper Electric”). Zurich argued Mr. Piper was the majority shareholder of the company and should be treated as self-employed.
After a four-day arbitration hearing at which Mr. Piper, his corporate accountant and an accountant retained by Zurich testified, the arbitrator determined Mr. Piper’s income benefit was $600.00 weekly, based on his pre accident salary as an employee of Piper Electric. As she held Mr. Piper was an employee, the arbitrator found it unnecessary to calculate or deduct “business expenses which cease” under section 12(7)3 of the Schedule. The arbitrator also concluded no post accident income was deductible under section 15.
Zurich appealed these orders, submitting that the arbitrator erred in her characterization of Mr. Piper’s employment status and consequent calculation of the weekly income benefit.
II. ISSUES AND ANALYSIS
Mr. Piper incorporated an electrical contracting business, Piper Electric, in 1953 and carried on his trade as an electrician for nearly forty years afterwards. His son joined him in the business around 1982. During the five years before the 1992 accident, Mr. Piper received approximately $600.00 weekly from the company as a salary with bonuses at Christmas, along with some other payments and taxable benefits. In prosperous years, money was left in the shareholders’ account of retained earnings in the corporation. During leaner times, the company drew against the shareholder account to meet its payroll, which included Mr. Piper, his son and the occasional helper. From time to time, Mr. Piper withdrew funds from the shareholder account to meet his own expenses. If not repaid, those funds were attributed to Mr. Piper as income from employment that he declared.
After the accident, Piper Electric paid Mr. Piper his salary for two or three weeks. At that point, the company began to suffer cash flow difficulties. Thereafter, the company paid no further salary or other remuneration to Mr. Piper.
The arbitrator accepted Zurich’s submission that superimposing a corporate gloss over what amounts to in a self-employed situation with self-directed remuneration does not end the inquiry into a person’s true income picture. In doing so however, the arbitrator refused to accept Zurich’s proposed result, stating she was “not convinced that the (self-employed) formula proposed by the Insurer more accurately captures the specific realities of the Applicant’s circumstances...”. Specifically, the arbitrator noted the suggested result “fails to recognize the specific intention of the Applicant and his son to average their incomes over the long term by leaving, within the company, income earned by them in earlier more profitable periods, to be paid out to them as salary during less profitable times.” (Decision, p.13-14)
The arbitrator concluded with the finding that “the corporate structure and longstanding salary arrangements of the Applicant more fairly reflect his financial circumstances” and that his “weekly salary of $600 was a real salary, regular, constant and reasonable, within the context of the company’s overall history.” (Decision, p.14)
No basis exists for me to overturn any facts found by the arbitrator here. Indeed, Zurich does not argue I do so. The objection taken is that the arbitrator’s application of the law and the provisions of the Schedule to the facts is flawed.
Zurich submits Mr. Piper’s income, as the majority shareholder in Piper Electric, should be treated in the same fashion as that of the business, using its income, expenses and ceasing expenses calculations. Mr. Piper acknowledged that he drew both salary and capital from the business to maintain his overall income level. Zurich’s argument is he was using the company’s retained earnings as a kind of personal bank account. To that extent, as the draw down on capital occurred, he cannot be seen to be an employee, using only his “salary” to set the level of income benefits to which he might be entitled under the Schedule. It was submitted that Mr. Piper operated at “pseudo arm’s length” from the company, and the fact of incorporation should not entitle him to greater benefits as an employed person when he really is self-employed. Several tort-based damages cases were cited to me by counsel to reinforce the “piercing of the corporate veil” approach and buttress it as appropriate to the proper income level interpretation of section 12 of the Schedule.1
Moreover, Zurich argues, if one looks behind the corporation and beyond form, a draw down on retained earnings which may derive from income in good business years does not necessarily reflect income earned within the fifty-two weeks pre accident. The arbitrator’s error, it is alleged, is looking to the reason for creating the retained earnings in the first place (for the low business cycles). That, Zurich argues, is not the test - the income must have come from the four or fifty-two weeks preceding the accident, not economic activity at any other period.
Zurich prefers the views taken in Peter Bonitatibus and Wellington Insurance Company (No.2)2. This case also dealt with a small, closely-held family corporation which continued in business following the majority shareholder’s motor vehicle accident. There the similarities end. Mr. Bonitatibus received no regular salary. He reported annual pre accident employment income of about $7,000. At the same time, retained earnings of around $89,000 were held in the corporation. He claimed statutory accident benefits on the basis that he earned $6,375 in the four weeks before the accident, and $82,875 in the preceding fifty-two weeks. The arbitrator found Mr. Bonitatibus had essentially manipulated his financial affairs to reduce his declared income from the corporation. While she accepted his right to structure his finances in whatever legally permissible way he chose, she could not “accept inconsistent evidence which restates the Applicant’s income from employment or self-employment so as to maximize his benefit under the No-Fault Benefits Schedule.” (Bonitatibus decision, p.5)
A close look at Mr. Piper’s corporate and personal arrangements is crucial in this case. There is a consistent pattern of salary-based payments, and treatment of Mr. Piper as an employee, rather than a self-employed majority shareholder. I emphasize that the facts here are compelling, and possibly unique. Unlike the actions of the shareholders in many of the decisions cited to me, Mr. Piper’s affairs were not arranged in such a way to make his salary a minor component of his remuneration, or to divert significant funds to himself through lower tax vehicles. I do not accept Zurich’s submission that an error of law was made in this case. I also do not accept that the basis upon which damage awards are made is necessarily helpful in arriving at the appropriate application of the Schedule. After making her findings noted above, it is my view the arbitrator did not then err in her interpretation and application of sections 12 and 15 of the Schedule.
The appeal is dismissed. Mr. Piper is entitled to his appeal expenses, about which I received no information other than the amount of the filing fee paid. If the parties cannot agree on expenses, they may be assessed on written application to the Registrar.
May 1, 1996
Elisabeth Sachs
Director of Arbitrations
Date
APPENDIX A
Cases and Authorities:
Ashcroft v. Curtain, [1971] 3 All E.R. 1208 (C.A.).
Peter Bonitatibus and Wellington Insurance Company (No.2), April 8, 1993, OIC File No. A-000082.
Duce v. Rourke, Pearce v. Rourke, 1951 CanLII 500 (AB SCTD), [1951] 1 W.W.R. 305 (Alta. S.C.).
Dyler v. Benoche (1963), 1963 CanLII 817 (AB SCTD), 41 W.W.R. 431 (Alta. S.C.).
Engel v. Salyn, 1990 CanLII 7813 (SK CA), [1990] 3 W.W.R. 277 (Sask. C.A.).
Everett et al. v King et. al., 1981 CanLII 716 (BC SC), [1982] 1 W.W.R. 561 (B.C.S.C.).
Fobel v. Dean, 1991 CanLII 3965 (SK CA), [1991] 6 W.W.R. 408 (Sask. C.A.).
Johnstone v. Melina and Johnston National Leasing Limited, 1974 CanLII 1819 (BC SC), [1975] 3 W.W.R. 655 (B.C.S.C.).
Kummen v. Alfonso and Wagner, 1952 CanLII 334 (MB CA), [1953] 1 D.L.R. 637 (Man C.A.).
Lee v. Sheard, [1956] 1 Q.B. 192.
Ranko Raickovic and Gore Mutual Insurance Company, May 26, 1993, OIC File No. A-002533.
Schwartz et al. v Hotel Corporation of America (Manitoba) Ltd. 1971 CanLII 962 (MB CA), [1971], 3 W.W.R. 320 (Man. Q.B.).
Bruce, Christopher J. Assessment of Personal Injury Damages, Text extract p.103 - 108.
Webster Third International Dictionary.