Financial Services Commission

Commission des services financiers de lander

Neutral Citation: 1998 ONFSCDRS 13

Appeal P96-00032

OFFICE OF THE DIRECTOR OF ARBITRATIONS

CANADIAN SURETY COMPANY

Appellant

and

JOSEF DOUGLAS SEBASTIAN

Respondent

Before:

Susan Naylor, Director’s Delegate

Counsel:

Edmund Kent (for Canadian Surety)

Darrell N. Hawreliak (for Mr. Sebastian)

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. Subject to paragraph 2 of this order, the arbitrator’s order dated February 9, 1996 is confirmed.
Paragraph 2 of the arbitrator’s order is rescinded. The following is substituted:
Canadian Surety shall pay interest on the weekly income benefits owing to Mr. Sebastian from August 17, 1993 and thereafter.
Mr. Sebastian is entitled to his reasonable appeal expenses.

July 28, 1998

Susan Naylor Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF APPEAL

Canadian Surety Company (“Canadian Surety”) appeals an arbitrator’s order dated February 9, 1996. The arbitration concerned the appropriate rate of weekly income benefits payable to Josef Sebastian. His entitlement to benefits is not in dispute.

The arbitrator held that Mr. Sebastian was entitled to benefits of $550.52 a week. This was less than Mr. Sebastian claimed ($600) but substantially more than the minimum benefit ($185.60) Canadian Surety argued he was entitled to.

Canadian Surety appealed the arbitrator’s ruling. It also took issue with her order regarding when interest started to run on the balance found owing.

After hearing oral submissions, I dismissed the appeal on the amount of weekly income benefits. Oral reasons were delivered to the parties at that time and confirmed in an order dated March 7, 1997. The order states:

With respect to arbitrator’s order on the amount of benefits, I am satisfied that Arbitrator Kirsch appropriately approached the question before her, and properly applied the burden of proof, placing it on the Applicant. The arbitrator’s order rests on findings of fact that are supportable on the evidence. She was entitled to reach the conclusion she did, and, as the arbitrator who heard the evidence, was in the best position to do so. Therefore, there is no basis to interfere with her findings or conclusion. Written reasons to follow.

My reasons for dismissing the appeal are set out below. The appeal with respect to the arbitrator’s order of interest was reserved. Mr. Sebastian was granted his appeal expenses.

II. THE AMOUNT OF WEEKLY INCOME BENEFITS

Under O. Reg. 672, Statutory Accident Benefits Schedule - Accidents before January 1, 1994, (“the Schedule”), benefits are based on a claimant’s gross weekly income for the four or the 52 weeks before the accident or a deemed minimum income figure of $232, whichever is most favourable. In the case of self-employed persons, “ceasing” expenses are deducted before arriving at the person’s gross weekly income.

Mr. Sebastian was a self-employed tile installer. He chose the 52 week period. The problem was that his business records were not in good shape and he had no proper accounting records. According to his testimony, his business was on a “cash” basis. He only provided customers with an invoice or receipt if specifically asked. He maintained some details of his expenses but had virtually no record of his sales. He had no bank account for his business and had not filed an income tax return since 1989.

Canadian Surety took the position that Mr. Sebastian failed to prove his income on any reliable basis and so was not entitled to benefits other than at the minimum rate.

Mr. Sebastian tried several approaches to convince Canadian Surety of his income. His then accountant prepared a tax return for 1992 and a list of monthly sales for the year before the accident. However, his sales figures were not accurate or even estimated numbers. They were a derivative figure, arrived at by simply by taking his business and selected living expenses and assuming that his revenues would have been sufficient to meet them. Canadian Surety rejected this approach.

Mr. Sebastian then attempted to reconstruct his sales from scratch to verify his income. This recourse was apparently suggested to him at his arbitration pre-hearing. According to his testimony, he contacted customers for whom he had worked before the accident and enlisted their co-operation. A few of them had invoices confirming payment, which they provided. He also found several original invoices among his own papers. However, the majority of invoices were reconstructions. Mr. Sebastian went to the customer’s premises and often re-measured the job. He then prepared an invoice based on his standard price per square foot, and obtained the customer’s signature that it represented the work done and the amount paid. Mr. Sebastian was candid that the figures in the invoices did not necessarily reflect the exact charge. He explained that his re-measurements built in a cushion for wastage of about $50, which might not have corresponded to the actual job.

The arbitrator found the testimony of Mr. Sebastian and his wife to be credible and she generally accepted the invoices as reliable evidence of Mr. Sebastian’s revenues for the period. She was particularly impressed by Mr. Sebastian’s memory of the details of work he performed. She found no reason to disbelieve the explanation provided by Mr. Sebastian and his wife, and noted that the information provided was capable of verification directly through the customers, if Canadian Surety had needed further confirmation.

Discounting work that might have been performed earlier than the relevant period or gone unpaid, and deducting the $50 wastage allowance in each case, the arbitrator arrived at a total earnings figure of $52,189.71. From this she deducted $16,405.80 in expenses for a total gross income figure of $35,783.91 for the 52 weeks before the accident, amounting to a weekly benefit of $550.52.

Canadian Surety raised several objections to the arbitrator’s findings. The main complaint was that the arbitrator wrongly placed the onus of proof on the insurer, expecting the insurer rather than Mr. Sebastian to corroborate his income, if necessary, by calling his customers to testify. It suggested that Mr. Sebastian could not discharge the onus of proving his claim unless he introduced independent evidence corroborating his self-prepared invoices.

The fact that Canadian Surety had reservations about Mr. Sebastian’s income is understandable. He had almost no documentation to support his income on the revenue side. His numbers and the basis for calculating them kept changing. Despite this, it was within the arbitrator’s judgement to accept his evidence as reliable.

It is well-established that the onus is on the claimant to provide reliable evidence of his or her pre-accident income, including both gross income and deductible expenses. However, while it is up to Mr. Sebastian to prove his income, he need only do so on the balance of probabilities. Adjudicators have recognised that not all applicants have well-organised business records or file income tax returns when they should. The applicable principles are set out in Canadian General Insurance Company and Mills (Oct 8. 1996, OIC P-005599):

The goal should be finding a reasonable basis for making the calculation, not punishing poor record keepers. Consequently, I accept that in cases where the financial records are incomplete, the arbitrator has considerable scope to decide whether the evidence is sufficient to establish, on a balance of probabilities, that the person’s pre-accident income was at least a certain amount above the minimum.

However, there is a limit to the arbitrator’s ability to “fill in the gaps.” In Kakesh and Lloyd’s Non Marine Underwriters, (August 19, 1992, OIC P-000378), an early appeal decision, the Director held that a self-employed applicant has the onus of providing reliable evidence of his pre-accident income, including both his revenue and expenses. This approach has been followed in many subsequent cases. There is flexibility in the manner that an insured person can prove his or her claim, but the arbitrator must have some reliable basis for calculating the benefits.¹

There is no hard-and-fast rule on what constitutes reliable information. Much depends on the arbitrator’s view of the evidence and particularly of the claimant’s credibility. Claimants must be able to offer a satisfactory explanation where there is no independent documentation verifying their earnings. Their testimony must be tested against the evidence as a whole. However, in some instances, where a sufficient explanation has been given, claimants have been given credit for earnings that are entirely undocumented.²

Here, Mr. Sebastian produced invoices that he testified were prepared with the co-operation of his clients and signed by them. He was candid about how the invoices came to be prepared: they were reconstructed after the fact and while not guaranteed to be correct to the penny, were a close approximation. The arbitrator accepted his evidence as credible. She believed Mr. and Mrs. Sebastian’s explanation, when tested against the evidence as a whole.

In so doing she did not, as Canadian Surety complains, reverse the onus of proof but came to a determination of Mr. Sebastian’s income based on the preponderance of the evidence. What Canadian Surety is really objecting to are the arbitrator’s findings on credibility and the weight she attributed to the evidence. It is well established that it is not my role to second-guess an arbitrator’s factual findings, especially relating to credibility. Although I have a transcript of the testimony, the arbitrator had the benefit of observing Mr. and Mrs. Sebastian and of hearing their testimony first-hand. It is exactly the kind of finding that an appeals adjudicator should be reluctant to disturb.

The question is not whether I, or another arbitrator, would have reached the same result but whether the arbitrator erred in some significant way, such that the decision cannot stand. I do not find she did. The appeal is therefore dismissed.

III. INTEREST

The arbitrator increased Mr. Sebastian’s benefits substantially. She also ordered Canadian Surety to pay interest on the difference between the amount awarded and the amount he had been paid, to run from September 2, 1993, 30 days after the date on Mr. Sebastian’s application for accident benefits. She made this order under section 24 of the Schedule, which provides:

24.- (1) Amounts payable under Parts II, III and V are overdue if not mailed or otherwise delivered by the insurer within thirty days after it has received a completed application for statutory accident benefits.

(2) Amounts payable under Part IV are overdue if not mailed or otherwise delivered by the insurer within ten days after it has received a completed application for statutory accident benefits or if the insurer fails to make a payment required by subsection (3).

(3) Payments under Part IV and V shall be mailed or otherwise delivered at least once every second week while the insurer remains liable to the insured person.

(4) The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2 per cent per month.

(5) Subsection (3) does not apply if the insurer prepays benefits owing.

(6) Despite subsections (1), (2) and (3), a payment is not overdue if, at the time it would have become payable, the certificate required by subsection 23(1) has not been received by the insurer, six weeks have passed since the insurer received the completed application for statutory accident benefits and the insurer has not waived the requirements that the certificate be supplied.

(7) If subsection (6) applies, the payment becomes overdue if the amount payable is not mailed or otherwise delivered by the insurer within ten days after the insurer has received the certificate.

(8) If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.

Subsection 29(1) provides that Aan initial application for benefits under Part II, IV and V shall be in Form 1 and an application for additional benefits shall be in Form 2”. Form 3 covers funeral expenses and death benefits. The standard form applications are appended to the Schedule. The application for benefits referred to in section 24 must mean the applicable standard forms prescribed in subsections 29(1) and (2).

Mr. Sebastian filled out applicable Form 1 application for accident benefits. It asks for such details as the claimant’s name and address, information about the accident, particulars about automobile insurance and the vehicle involved, information about the claimant’s medical condition and details of the claimant’s employment. Mr. Sebastian filled out the form reporting that he was self-employed as a ceramic tile installer and listing his gross weekly income for the 52 weeks preceding the accident as $51,205. He signed the form and dated it August 2, 1993.

The rate of interest prescribed in subsection 24(4) is well above the bank rate. Canadian Surety argues that interest at that rate should not start to run until after it was provided with at least the first set of reconstructed invoices on October 18,1995. This is more than two years after the date of Mr. Sebastian’s application. It submits that his application cannot be considered as “completed” until he provided sufficient information to allow it to determine the amount of his benefits. It argues that the consequences of the delay in providing the necessary documentation should rest on Mr. Sebastian.

The arbitrator rejected these arguments but applied the wrong section. She applied subsection 24(1), dealing with supplementary medical and rehabilitation benefits and care benefits rather than subsection 24(2), dealing with weekly income benefits. The language is similar in material respects, but the time-frames are different.

The scope of the authority to award interest in set out in section 24. There is no residual authority or discretion. The language of section 24 is mandatory. Subsection 24(4) provides that the insurer “will pay interest on overdue payments” at the 2 per cent per month rate. The language leaves no room for discretion. If payments are overdue, interest is payable under subsection 24(4) from the date they became overdue.

When are payments overdue? Subsections 24(2) and (3), combined, state that weekly income benefits “are overdue” if they are not mailed or delivered within 10 days after the insurer received a “completed application for statutory accident benefits” or if the insurer fails to mail or deliver payment at least once every second week.

There is no definition of a “completed” application. However, the plain and ordinary meaning of the words means an application in the proper, prescribed form, that has been filled in.³ Mr. Sebastian complied fully with this.

In my view, giving the provision its straightforward meaning makes sense viewed in the context of the Schedule as a whole, and is consistent with the goals and objectives of the scheme. If the insurer’s submission that the concept of a “completed” application incorporates the provision of documentation sufficient to determine the claim, then what does one make of subsection 24(6) which contemplates that a subsection 23(1) medical certificate is distinct from a “completed application?” I also note the term “a completed application for statutory accident benefits” appears elsewhere in the Schedule, notably in subsection 22(1) which requires that an insured person must provide one within 90 days of giving notice of the claim. Canadian Surety did not suggest that its proposed interpretation would apply here.

The move to a standard-form application for benefits was new to the 1990 statutory changes. It injected a measure of standardisation and certainty into the system that is at odds with Canadian Surety’s proposed interpretation. The interest provisions should be seen in the context of a streamlined application process.

Canadian Surety characterised the interest rate as punitive, designed to punish insurers for reprehensible behaviour. In my view, the interest component in the benefits scheme should be seen as remedial. It is designed not only to compensate applicants for the value of money withheld but to further the system’s fundamental goal of ensuring prompt payment of benefits for an injured person’s medical and vocational rehabilitation, their care or their day-to-day financial support.

The standard-form application for weekly income benefits does not ask claimants to attach documentation verifying their income. The emphasis at the outset is on speedy payment with a minimum of formality. Insurers may of course ask for further documentation to verify earnings. However, it is the insurer, not the insured, who must bear the consequences of a decision not to pay benefits that are found later to be owing.

According to Mr. Sebastian’s application form, he filled it in on August 2, 1993. It is unclear how, or when, it was provided to Canadian Surety. Under the usual postal rule, five days is allowed for mail delivery. In the absence of specific evidence on point, I have assumed that the application was sent by mail and posted on the day it was dated. Allowing five days for delivery, the balance of the first payment was overdue ten days later. The arbitrator’s order is varied to provide for interest on the balance owing from that date forward.

IV. EXPENSES

As confirmed in my order of March 7, 1997, Mr. Sebastian is entitled to his appeal expenses.