Neutral Citation: 1997 ONICDRG 189

OIC A96-000978

ONTARIO INSURANCE COMMISSION

BETWEEN:

VITO SALVAGGIO

Applicant

and

SIMCOE & ERIE GENERAL INSURANCE COMPANY and WELLINGTON INSURANCE COMPANY

Insurer

DECISION

Issues:

The Applicant, Vito Salvaggio, was injured in motor vehicle accidents on February 13, 1994 and July 11, 1994. Simcoe & Erie General Insurance Company was the insurer liable to pay statutory accident benefits under the Schedule¹ as a result of the first motor vehicle accident. GAN Canada Insurance Company purchased Simcoe & Erie after this accident. Wellington Insurance Company was the insurer liable to pay statutory accident benefits as a result of the second motor vehicle accident. After that accident, Halifax Insurance Company purchased Wellington.

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

Shortly after the hearing opened, the parties advised me that the claim against Halifax was settled. Counsel for the Applicant and GAN later advised me that I should make my determinations as if GAN was the insurer responsible for statutory accident benefits arising out of both accidents, and that the two Insurers would deal with any division of responsibility between them.

The issues in this hearing are:

1. At the time of the accident of February 13, 1994, was Mr. Salvaggio entitled to start work within one year under a legitimate contract of employment that was made before the accident and that was evidenced in writing?

2. Is Mr. Salvaggio entitled to income replacement benefits pursuant to Part II of the Schedule from September 16, 1995 to October 11, 1996?

3. What is the amount of weekly income replacement benefit to which Mr. Salvaggio is entitled?

4. Is Mr. Salvaggio entitled pursuant to section 57 of the Schedule to the sum of $1,670 for a psychovocational report prepared by Dr. J.M. Lacroix?

Mr. Salvaggio also claims interest on any amounts owing and both parties claim their expenses incurred in this arbitration proceeding.

Result:

1. At the time of the accident of February 13, 1994, Mr. Salvaggio was not entitled to start work under a legitimate contract of employment that was made before the accident and that was evidenced in writing within the meaning of paragraph 7(1)3 of the Schedule.

2. Mr. Salvaggio is not entitled to weekly income replacement benefits from September 15, 1995 to October 11, 1996 pursuant to paragraph 7(1)3 of the Schedule. I make no finding with respect to Mr. Salvaggio's entitlement under other provisions of Part II.

3. I make no finding with respect to the amount of any income replacement benefit Mr. Salvaggio is entitled to under Part II of the Schedule.

4. Mr. Salvaggio is entitled pursuant to section 57 of the Schedule to $400 for the psycho-vocational report prepared by Dr. Lacroix.

5. Mr. Salvaggio is entitled to his expenses of the arbitration proceeding in accordance with sub-section 282(11) of the Insurance Act.

Hearing:

The hearing was held at the offices of the Ontario Insurance Commission in North York, Ontario, on September 22 and 23, 1997.

Present at the Hearing:

Applicant:

Vito Salvaggio

Mr. Salvaggio's

Russell J. Howe

Representative:

Barrister and Solicitor

GAN's

Larry J. Kielbowich

Representative:

Barrister and Solicitor

GAN's

Dwight Robinson

Officer:

Halifax's

Chris Blom

Representative:

Barrister and Solicitor

Before:

William J. Renahan

Arbitrator

Background:

This case turns on an alleged contract of employment between Mr. Salvaggio and Far East Food Products Limited.

Just before the first motor vehicle accident, Mr. Salvaggio was self-employed with his two brothers in the operation of a pizzeria business. The brothers had operated the business for about five years. In November 1993, they agreed to sell the business and the sales transaction closed on January 5, 1994. By letter dated January 7, 1994, Far East Food Products Ltd. allegedly offered Mr. Salvaggio employment as a sales representative to start work on February 14, 1994. On February 13, 1994, Mr. Salvaggio suffered soft tissue injuries in a motor vehicle accident when his vehicle was struck at an intersection. Mr. Salvaggio did not start his new job with Far East

Food Products Ltd. Mr. Salvaggio remained off work and on July 11, 1994, his soft tissue injuries were aggravated in a second accident when his stationary vehicle was struck from behind. Mr. Salvaggio claims income replacement benefits from September 15, 1995, the date GAN terminated benefits, until October 11, 1996.

Counsel for Mr. Salvaggio argued that GAN paid benefits on the basis that the contract was valid and that it could not now deny the validity of the contract. In this case, I find little merit in this argument. If accepted, this argument would discourage insurers from making payment on the basis of a contract of future employment where the insurer had any doubt about the validity of the contract. The validity of the contract was raised as an issue at the pre-hearing in this matter held on October 7, 1996. The burden is on Mr. Salvaggio to prove that the contract of employment was a legitimate contract within the meaning of paragraph 7(1)3 of the Schedule.

Employment contract:

Subsection 7(1) of the Schedule sets out a number of ways an insured person may qualify for income replacement benefits. The only qualification which Mr. Salvaggio relied on is set out in paragraph 3, which provides entitlement where the insured person:

i. was entitled at the time of the accident to start work within one year under a legitimate contract of employment that was made before the accident and that is evidenced in writing, and

ii. as a result of and within two years of the accident, suffers a substantial inability to perform the essential tasks of the employment he or she was entitled to start under the contract.

Mr. Salvaggio and Mr. Raymond Lee testified about the events and circumstances surrounding the formation of the contract. Mr. Lee is a principal of Far East Food Products and signed the one page letter offering employment to Mr. Salvaggio.

Far East Food Products is a distributor of food products. Its main commodity is flour, which it sells to bakeries and other distributors. It also distributes shortening, sugar, creamers, and other manufactured foods. Some products, like sugar, it buys in bulk and packages. It has 22 employees and four sales representatives. Mr. Lee said that in early 1994 he wanted to expand into selling to pizzerias and he wanted to "source new suppliers of pizzeria related products." He explained that to distribute pizzeria related products, such as cheese and tomato sauce, he needed to buy the products from Italian wholesalers and that he needed an Italian buyer, like Mr. Salvaggio, to get a competitive price from those wholesalers. He said that he cannot get some products at a competitive price on his own, and he uses friends if there is a customer or product they can get him.

I found a number of contradictions, inconsistencies and lack of detail surrounding the alleged contract of employment, including who contacted whom about employment, whether the agreement was verbal or written, the amount of the base salary, whether the base salary was attractive to Mr. Salvaggio, whether Mr. Salvaggio worked for Mr. Lee before the accident and whether Mr. Lee had an opening for Mr. Salvaggio if he wished to return to work.

I now consider that evidence.

Mr. Salvaggio testified that he had a telephone conversation with Mr. Lee after he sold the pizzeria and that Mr. Lee offered him a job. Mr. Lee testified that Mr. Salvaggio called him and said that he had sold his business and asked if any position was available. Mr. Lee said that he thought about it and talked with his partners and other sales representatives. He said "What have we got to lose" and gave Mr. Salvaggio the offer in person. During cross-examination on the details of this offer, Mr. Salvaggio said to counsel "Why are you being smart with me?" Mr. Salvaggio did not provide credible details of how the contract was negotiated and the little he did say was contrary to what Mr. Lee said.

Mr. Salvaggio and Mr. Lee both testified that Mr. Lee prepared a written offer of employment. Mr. Salvaggio produced a one page letter dated January 7, 1994 on the letterhead of Far East Food Products and signed by Mr. Lee. The letter is reproduced in Appendix A. On June 7, 1994, Dr. R. Saplys, an orthopaedic surgeon, reported to GAN that "At the time of the accident, Mr. Salvaggio had sold his self-employed pizzeria business and states that he had a verbal commitment to begin as a sales representative for Far East Food Products." When asked during cross-examination whether he told Dr. Saplys the agreement was verbal or written, Mr. Salvaggio lost his temper and failed to give any explanation. I am satisfied that about six months after Mr. Lee allegedly gave Mr. Salvaggio a written offer of employment, Dr. Saplys accurately reported that Mr. Salvaggio told him that he had a verbal commitment to start work.

The alleged agreement sets out a base salary of $30,000 per year and a graduated commission on sales over $500,000. In his application for benefits arising out of the first motor vehicle accident Mr. Salvaggio declared that his gross annual income from Far East Food Products would have been $45,000. In his written statement signed one week after the accident, he declared that his annual salary from Far East Food Products would have been $45,000. In his application for benefits arising out of the second motor vehicle accident and signed about six months later he declared that his annual income from Far East Food Products would have been $30,000 salary plus commission. Mr. Salvaggio explained that although he signed the first application for benefits and written statement, a representative of the Insurer filled out the form and completed the narrative. He also testified that he would have earned a minimum of $45,000 per year and that he would not have worked for only $30,000 per year. However, he also said that he had financial difficulty paying mortgages on commercial property he owned and that his weekly drawings from working at the pizzeria were about $500 per week. Mr. Salvaggio also said he wanted to work in the food industry and in sales. I do not accept his evidence that he would not have worked for $30,000 per year.

The alleged agreement sets out the compensation for products, such as cheese and tomato sauce, which Mr. Salvaggio bought at competitive prices from Italian wholesalers as 1% and provided "This applies to all products which you are currently negotiating on our behalf." In cross-examination, Mr. Salvaggio said that he was not negotiating the purchase of products on behalf of Far East Food Products before the motor vehicle accident. When asked for more details about whether he worked for Far East Food Products before the alleged employment agreement was signed, Mr. Salvaggio said that he could not remember every conversation that he had, and that he hoped counsel realized all the problems he has had since the motor vehicle accident. Mr. Lee at first avoided answering what products Mr. Salvaggio was negotiating before the accident. He then said that he told Mr. Salvaggio that if he was "coming on" he would have to get new products for him and that Mr. Salvaggio was "laying the ground work." I am satisfied that before the alleged employment agreement was signed on January 7, 1994, Mr. Salvaggio and Mr. Lee had a verbal agreement to compensate Mr. Salvaggio for new products he obtained for Far East Food Products at competitive prices and that Mr. Salvaggio had done some work pursuant to that verbal agreement.

Mr. Salvaggio and Mr. Lee both said that Mr. Lee found a replacement for Mr. Salvaggio within a month of the accident. Mr. Salvaggio said that Mr. Lee would take him on at any time and hire him today if he was fit. One year after the accident Louise Paniccia, a behavioural therapist, reported "He believes that his job is still available once he is able to return to work." Mr. Lee did not directly answer the question whether Mr. Salvaggio could work for him now. He said that he replaced Mr. Salvaggio less than a month after the accident and that his business has grown since 1994 and that he cannot now take on much more new business. Mr. Lee's evidence that the job was no longer available and Mr. Salvaggio's understanding that he could return at any time tends to show that the true compensation was strictly commission and the alleged contract to pay a base salary of $30,000 was not legitimate.

Mr. Lee currently employs four sales representatives, all of whom are paid strictly by commission. They work in Metropolitan Toronto and no salesman has his own exclusive territory. He said that after the first year, salesmen elect to take straight commission to make more money. He said that since 1989, only one salesman has not worked out and that he left on his own after three months.

On three occasions when counsel asked Mr. Salvaggio to explain the inconsistences, Mr. Salvaggio became angry. I take into account the psychological reports that indicate that Mr. Salvaggio feels victimized by the insurance company and is angry. However, every element of the alleged contract revealed inconsistent evidence and lack of credible detail. When I consider all the evidence, I conclude that the alleged contract of employment dated January 7, 1994 did not represent the true relationship between Mr. Salvaggio and Mr. Lee.

James Forbes is a certified fraud examiner employed by a firm of chartered accountants. He was retained by the Insurer to review Mr. Salvaggio's records. He did not provide an opinion on the amount of the income replacement benefit because he had serious concerns about the legitimacy of the contract of employment and because Mr. Salvaggio did not provide any pre-accident income records. Mr. Forbes reported that he thought the terms of the alleged offer implied that Mr. Salvaggio was a self-employed subcontractor of the business rather than an employee. He reported: "It is our experience that the nature of the terms regarding customer and supplier contracts would lead more to a self-employed status than that of an employee." This opinion is consistent with my assessment of the evidence. I find that Mr. Salvaggio was likely a subcontractor of Far East Food Products paid on a strictly commission basis. Around the time Mr. Salvaggio and his brothers agreed to sell the pizzeria, and before the accident, Mr. Salvaggio and Mr. Lee talked about expanding Mr. Lee's business into the pizzeria market. Mr. Salvaggio was looking for work and Mr. Lee had "nothing to lose" by allowing Mr. Salvaggio to work on purchasing new products on a commission basis. This agreement is reflected in the letter which refers to one per cent commission on "products which you are currently negotiating on our behalf." As with his other salesman, Mr. Lee agreed to pay a commission. Mr. Salvaggio's only sales experience was selling chocolate bars door to door and working in a shoe store. I am not satisfied that Mr. Lee would guarantee a yearly salary of $30,000 to an untested sales representative and I do not accept Mr. Lee's testimony and Mr. Salvaggio's testimony that $30,000 per year was insignificant to Mr. Lee and Mr. Salvaggio. Mr. Salvaggio's evidence that he thought he was welcome to work for Mr. Lee at any time is likely true, so long as he worked on straight commission and without any right to an exclusive territory.

I find it likely that Mr. Salvaggio and Mr. Lee made up the contract after the accident for the sole purpose of advancing Mr. Salvaggio's claim for accident benefits and that the contract is not legitimate in that the compensation does not reflect the actual agreement. I cannot determine what the parties agreed for commission, or what Mr. Salvaggio likely would have earned in commission if he had started work.

Since I find that the agreement is not legitimate, Mr. Salvaggio is not entitled to income replacement benefits pursuant to paragraph 7(1)3 of the Schedule.

Mr. Salvaggio did not present any evidence or argument on entitlement to income replacement benefits or the amount of those benefits under any other ground contained in section 7 of the Schedule.

Cost of psychovocational rehabilitation report:

In his report of September 18, 1996, Dr. Lacroix, a psychologist, wrote that he saw Mr. Salvaggio "for a psychovocational assessment to determine appropriate vocational options since it is unlikely that he will be able to work as a sale representative." After eight hours of testing and interviews, Dr. Lacroix concluded that Mr. Salvaggio could work in occupations such as leasing clerk, counter services agent, ticket seller, front desk cashier or gate attendant. Dr. Lacroix assessed Mr. Salvaggio's interests and aptitudes and thought that Mr. Salvaggio could consider training in other occupations if his emotional status improved. Those occupations included restaurant manager, property manager, franchise distributor, hotel manager, apartment building manager, sales representative, assistant buyer or customs cashier. Dr. Lacroix charged $1,670 for this assessment. I heard no evidence of whether these recommendations were conveyed to Mr. Salvaggio.

The costs of vocational assessments are allowable under section 40 of the Schedule if they are reasonable measures:

(a) to reduce or eliminate the effects of any disability resulting from an impairment sustained as a result of an accident; or (b) to facilitate the insured person's reintegration into his or her family, the labour market and the rest of society.

I heard no evidence as to how Dr. Lacroix's assessment helped or might help Mr. Salvaggio. Mr. Salvaggio had a grade 10 education and experience operating a pizzeria. He testified that he was interested in management, sales and the hospitality business. He has attended food trade shows and subscribes to food trade magazines. I am not satisfied that $1,670 is a reasonable expense for an assessment that tells him mostly what he already knows or that tells him that he should take training if he wants to pursue a career in these areas. After hearing Mr. Salvaggio testify as to his background and interests and abilities, I expect that a psychologist could have arrived at recommendations similar to those of Dr. Lacroix after a two hour interview. I assess the value of the assessment at $400.

Evidence on inability to perform the tasks of a sales representative:

In view of my decision that the contract of future employment was not legitimate and that Mr. Salvaggio is not entitled to income replacement benefits on the basis of that contract, it is not necessary for me to consider whether Mr. Salvaggio was disabled from performing the tasks of a sales representative. However, since I heard evidence on the issue, I will deal with that evidence for the sake of completeness.

Mr. Salvaggio was 30 years old at the time of the first motor vehicle accident and lived with his parents and his brothers. The first accident occurred on February 13, 1994, and the second accident on July 11, 1994. After each accident, Mr. Salvaggio saw his family doctor the next day. By the time the Insurer terminated weekly income replacement benefits Mr. Salvaggio's physical problems were no longer disabling. The only thing that prevented Mr. Salvaggio from returning to work as a sale representative was his psychological symptoms.

He was treated by Dr. J. McLachlan, a psychologist, for about nine months starting in March 1995. Four other psychologists, besides Dr. McLachlan, conducted assessments. The clinical test results of all these psychologists revealed depression and low self-esteem. Dr. R. Silverman,

Dr. L. Mermigis and Dr. Lacroix all thought that Mr. Salvaggio could not work as a sales representative because of his psychological symptoms. Dr. D. Cohen found that the test results were inconsistent with the clinical interview data and that the test results did not accurately reflect Mr. Salvaggio's true psychological status. Dr. Cohen did not find that Mr. Salvaggio had a psychological impairment resulting from the first motor vehicle accident.

The psychologists consistently reported that until Mr. Salvaggio returned to work in October 1996, time weighed heavily on his hands. He read the newspaper, walked and exercised. He had difficulty sleeping at night and often napped during the day. He put on 30 pounds. Although it is not necessary for this decision, I accept the psychological evidence that Mr. Salvaggio was depressed to the extent that he was disabled from performing the tasks of a salesman.

I heard very little evidence on the issue of whether Mr. Salvaggio's depression was caused by the motor vehicle accidents. Some of the doctors were aware of other stressors Mr. Salvaggio had in his life but they expressed no opinion on whether these stressors were the cause of Mr. Salvaggio's depression. As well, Mr. Salvaggio had psychiatric counselling in the past and had a workers' compensation injury. Although not all of the doctors were aware of this history, I heard no evidence of the significance and extent of Mr. Salvaggio's previous medical problems and no evidence to suggest that it might have changed the opinions the psychologists expressed on causation.

The psychologists assumed that Mr. Salvaggio's depression was caused by injuries he sustained in the motor vehicle accidents and I have no reason to reject that assumption.

Accordingly, although it is not necessary for the purposes of this decision, I find that Mr. Salvaggio's inability to perform the tasks of a sales representative for the period September 15, 1995 to October 11, 1996 was caused by the motor vehicle accidents.

Expenses:

Section 282(11) of the Insurance Act was amended on November 1, 1996. Among other things, the amendment allows an arbitrator to consider written offers to settle in exercising his discretion to award expenses. At the conclusion of the hearing, counsel for the Insurer advised me that he wanted me to consider an offer to settle, after I decided all the other issues in dispute.

The application for arbitration was filed before November 1, 1996. For reasons I expressed in Pinto and General Accident Assurance Co. of Canada, April 10, 1997, OIC A96-001246, my jurisdiction to award expenses should be exercised in accordance with the law as it stood prior to November 1, 1996, when Mr. Salvaggio commenced his application for arbitration. Accordingly, I will not consider any offer to settle in the award of expenses.

Mr. Salvaggio did not establish the legitimacy of the contract of future employment on the balance of probabilities. Although I was not satisfied that the contract of future employment represented the terms of Mr. Salvaggio's employment, I was not satisfied that the higher degree of proof required to establish fraud was met. The claim had some merit and Mr. Salvaggio is entitled to his reasonable expenses of the arbitration proceeding.

The parties identified the legitimacy of the contract of employment as an issue at the pre-hearing. However, they did not consider alternative claims for entitlement to income replacement benefits if that claim failed, as it did. Except for his claim based on a contract for future employment, Mr. Salvaggio's entitlement to income replacement benefits remains unresolved.

October 15, 1997

William J. Renahan

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents after December 31, 1993, and before November 1, 1996, called "the Schedule" in this decision. The Schedule is Ontario Regulation 776/93, as amended by Ontario Regulation 635/94.