Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 1999 ONFSCDRS 154

Appeal P99-00004

OFFICE OF THE DIRECTOR OF ARBITRATIONS

CANADIAN GENERAL INSURANCE GROUP

Appellant

and

JAMES TUSTIN

Respondent

Before:

David R. Draper, Director’s Delegate

Counsel:

Lee Samis (for Canadian General Insurance Group)

Donald I. Harvey (for James Tustin)

APPEAL ORDER

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

1. The appeal is allowed in part and the arbitration order, dated December 30, 1998, is varied as follows:

Paragraphs 1 and 2 are rescinded, with the following paragraphs substituted:

1. Canadian General Insurance Group shall pay Mr. Tustin income replacement benefits of $366.08 from August 30, 1994 to August 23, 1996.

2. Canadian General Insurance Group shall pay Mr. Tustin loss of earning capacity benefits from August 23, 1996, at the rate of $366.08 per week based on a pre-accident earning capacity of $406.76, less any amounts already paid. This order is subject to the reviews established in section 33-35 of the SABS-1994.

3. Canadian General Insurance Group shall pay Mr. Tustin’s reasonable appeal expenses.

August 13, 1999

David R. Draper

Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by Canadian General Insurance Group (“Canadian General”) from an arbitration decision dated December 30, 1998. The dispute involves the calculation of James Tustin’s Income Replacement Benefits (“IRBs”) and Loss of Earning Capacity Benefits (“LECBs”) under O.Reg. 776/93, as amended, the Statutory Accident Benefits Schedule – Accidents after December 31, 1993 and before November 1, 1996 (“the SABS-1994”). Canadian General challenges four aspects of the decision, claiming the arbitrator erred:

(a) in holding that the extrapolation provisions in s.9(7) of the SABS-1994 apply to Mr. Tustin’s situation;

(b) in extrapolating Mr. Tustin’s income without also extrapolating all of his business expenses;

(c) in calculating Mr. Tustin’s pre-accident earning capacity based the income of a truck driver instructor when he had worked as a truck driver for more than 20 years; and

(d) in making an open-ended order without acknowledging that Canadian General’s obligation to pay LECBs could be affected by later developments, including the mandatory reviews under s.33 of the SABS-1994.

II. ANALYSIS

Mr. Tustin worked for many years as a truck driver. For at least three years before his accident, he hauled exclusively for two related companies, Jen Re Utilities and Jen Re Excavating (“Jen Re”). During the winter months when the ground was frozen, these companies stopped excavating. As a result, Mr. Tustin did not get any work or have any revenue.

The period of inactivity varied from year to year. In the winter preceding the accident, Mr. Tustin did not do any hauling from mid-November to mid-April, working about 32 of 52 weeks before the accident. For the winter following the accident, the arbitrator found evidence that he could have continued working until at least the end of December if he had not been injured.

The accident occurred on August 23, 1994, when Mr. Tustin was working. It was a single-vehicle crash, resulting in very serious injuries. Because Mr. Tustin was unable to return to work, Canadian General paid IRBs for more than two years. The IRBs were then replaced by LECBs, which were still being paid at the time of the arbitration hearing. The dispute is about the proper amount of both the IRBs and the LECBs.

A. IRBs - Extrapolation

IRBs are generally calculated based on the insured person’s pre-accident income. For those who are self-employed, they are calculated over the 52 or 156 weeks preceding the accident. The issue in dispute is whether Mr. Tustin is entitled to take advantage of the extrapolation provisions in s.9(7) of the SABS-1994:

9.–(7) If a person is entitled to weekly income replacement benefits under paragraph 1 of subsection 7(1) and is not entitled to a benefit under paragraph 4 or 6 of subsection 7(1), a determination under subsection (1) of the person’s gross income from employment for a period of time shall be made by taking the person’s gross income from employment for the part of that period for which the person earned income from employment and extrapolating it over any part of the period for which the person,

(a) did not receive temporary disability benefits or benefits under the Unemployment Insurance Act (Canada); and

(b) did not earn any income from employment for one of the following reasons:

1. The person was not employed.

2. The person was on a leave of absence without pay.

3. The person was on a layoff from employment.

4. The person was on strike from employment or was locked out from employment.

[emphasis added]

Looking at the requirements of this provision, the parties agree that Mr. Tustin is entitled to IRBs under s.7(1)1 of the SABS-1994 because he was employed at the time of his accident. More specifically, he was self-employed, bringing him within the definition in s.5 of the SABS-1994:

5. For the purpose of this Regulation, a person is employed if, for salary, wages, other remuneration or profit, the person is engaged in employment, including self-employment, or is the holder of an office, and “employment” has a corresponding meaning.

The parties also agree that Mr. Tustin is not entitled to IRBs under s.7(1)4 or 6 because at the time of his accident, he was not on strike, locked out, on a layoff with a right of recall, or on a leave. Finally, the parties agree that Mr. Tustin did not receive temporary disability benefits or Unemployment Insurance benefits when he was not working. This leaves the specific question in issue: did Mr. Tustin have any period in the 52 weeks preceding the accident when he did not earn any income from employment because he was “on a layoff from employment” or “not employed?”

The arbitrator held that during the winter months, Mr. Tustin was on a layoff and, therefore, s.9(7)(b)3 applies. Her conclusion is based on the following considerations:

• Mr. Tustin did not generate any trucking revenue during the winter months, and did little in relation to the business beyond some maintenance on his truck.

• Mr. Tustin’s situation is tantamount to that of a payroll employee of Jen Re engaged in the same excavation work and laid off when the ground is frozen.

• Nothing in the SABS-1994 suggests that someone who is self-employed cannot be on a layoff from employment. On the contrary, the definition of employment in s.5 includes self-employment.

In the alternative, the arbitrator considered whether Mr. Tustin qualified for extrapolation because he was “not employed.” She rejected Canadian General’s argument that someone who is self-employed must “wind up” the business before he or she stops being employed. In her view, the tests in s.9(7) focus on the insured person’s activities, not his or her status. Looking at the facts, she concluded that Mr. Tustin’s business-related activities during the winter months were insufficient to amount to being “engaged in employment” – the wording used in s.5.

Canadian General contends that the arbitrator erred in both conclusions. In its submission, Mr. Tustin was continuously self-employed. At the time of his accident, he had been operating his trucking business for 25 years and had no plans to change the nature of his work. He knew from experience that there would be times, particularly in the winter, when he would not have work. These periods, Canadian General argues, were part of the business and should not be characterized as layoffs or unemployment.

For the following reasons, I agree with the arbitrator that the extrapolation provisions apply to Mr. Tustin. In my opinion, however, this is because he was on a layoff from employment during the winter, not because he was unemployed.

1. Layoff

(a). Seasonal layoffs

Underlying Canadian General’s position is an objection to applying the extrapolation provisions to someone whose work is seasonal. It claims that extrapolation would significantly overstate Mr. Tustin’s income – a difference between gross income of $17,150 in the 52 weeks before the accident (or an annual average of $17,666 over the 156 weeks before the accident) and $26,423.28, the net annual income calculated by the arbitrator.

The arbitrator rejected this overcompensation argument, stating that extrapolation, by its very nature, always overstates the insured person’s pre-accident income. In her opinion, the Legislature decided that the pecuniary loss of accident victims would be determined by the formulae set out in the Schedule, with extrapolation being available to accident victims who were working at the time of the accident, but whose income had previously been interrupted due to unemployment, unpaid leave, layoff, strike, or lockout. On page 5 of the decision, the arbitrator states as follows:

Plainly, the calculation of IRBs are not wholly connected to the actual annual income an employed or self-employed person had earned at the time of the accident. The statutory scheme was intended to accommodate insured persons in widely varying employment and self-employment situations, with an historical perspective as to their income, yet tempered with considerations of what their future income stream might have been, but for the accident.

In general, I agree with these comments. The SABS-1994 establishes rules that must be applied to the particular circumstances of each person who claims accident benefits. The complexity of people’s lives makes this a challenging task, as reflected in the arbitration decisions. The price of this kind of rule-based approach is some level of arbitrariness.¹ Depending on the situation, this can work for or against the insured person.

This does not suggest, however, that practical realities are irrelevant. The legislation should be interpreted sensibly, assuming that its intention is to provide fair and reasonable compensation to accident victims.² As stated by the Court of Appeal in Bapoo v. Co-Operators General Insurance Co. (1997), 1997 CanLII 6320 (ON CA), 36 O.R. (3d) 616:

The interpretation of a statutory provision should not only comply with the legislative text and promote the legislative purpose, it should produce a reasonable and just outcome. . . . Avoiding unjust or unacceptable results is an essential part of the court’s task in interpreting statutory language. (p.624)

The question in this appeal is how seasonal workers – specifically, self-employed seasonal workers – fit within the legislative scheme. The most obvious purpose of the extrapolation provisions is to address disruptions that distort the insured person’s pre-accident income. As the arbitrator states, extrapolation brings in some consideration of what the insured person might have earned if he or she had not been injured. It is less clear, however, that extrapolation is meant to cover regular, predictable disruptions, particularly lengthy ones.

The most important consideration is that the legislation does not distinguish between unusual layoffs and seasonal layoffs. I agree with the arbitrator’s view, implicit in her decision, that an insurer could not deny extrapolation to an employee who met the criteria in s.9(7)(b)3 on the basis that the layoff was a regular, seasonal layoff. Further, I am not persuaded this is an oversight that should be addressed by interpreting “layoff” strictly, at least for self-employed persons.

It is difficult to identify precisely what is being measured by the provisions in the SABS-1994 dealing with the calculation of gross annual income. However, it is not simply the insured person’s pre-accident income, his or her “usual” or “typical” income, or even the income that he or she expected to earn over the period following the accident. Under the SABS-1994, insured persons are given choices about how the calculation is done. These choices, in my view, allow the insured person to rely on his or her demonstrated ability to generate income, within the limits set out in the legislation. For example, someone with periodic but highly paid employment can qualify for benefits at a higher rate than someone who has typically earned more through a steady but lower paying job.

This view of income, as including an element of the insured person’s ability to generate income, is reinforced when the provisions are considered in context. Gross annual income is used not only to calculate IRBs, but also LECBs. LECBs are the lifetime benefit established in the SABS-1994 to compensate accident victims with long-term disabilities. They are calculated based on a comparison between the insured person’s pre-accident earning capacity and his or her residual earning capacity. For most people who qualify for IRBs,³ pre-accident earning capacity is based on his or her net weekly income from employment, an amount derived directly from gross annual income. Consequently, it is not surprising that the calculation of gross annual income includes some aspect of the insured person’s earning capacity.

(b) Self-employment and layoffs

Canadian General also argues that the layoff provision in s.9(7)(b)3 of the SABS-1994 does not apply to Mr. Tustin because he could not lay himself off. In support of this argument, it refers to the following dictionary definitions:

The Oxford Paperback Dictionary, 3d Edition 1988

lay off to discharge (workers) temporarily owing to shortage of work. . . . lay-off n. a temporary discharge.

Webster’s New World Dictionary, 3d College Edition, 1988

lay off 2. to put (an employee) out of work, esp. temporarily.

Like the arbitrator, I do not find this argument persuasive. There are many types of employment relationships. Although Mr. Tustin was properly considered self-employed for the purposes of the SABS-1994, he was highly dependent on Jen Re as the source of his income. As the arbitrator found:

. . . he performed a contract of service and had worked exclusively for one contractor for several years prior to the accident in a long-term relationship. He was instructed by the principals of Jen Re when and where work was available. Jen Re, not Mr. Tustin, decided when weather conditions were such that excavation could no longer take place, and, correspondingly, when excavation could resume. (p.7)

The arbitrator also found that when Jen Re shut down for the winter, Mr. Tustin did little in relation to his business beyond occasional maintenance on his truck. While he acknowledged that he was willing to take on other work, he kept himself available to Jen Re. This is not an unusual arrangement, falling somewhere between independent contractor and employee. The best description is probably “dependent contractor,” a term used in the Labour Relations Act, R.S.O. 1990, c.L.2.

However, I agree with the arbitrator that the extrapolation provisions do not depend on categorizing the insured person’s employment situation. Subsection 9(7) refers only to employment, without excluding self-employment. This suggests that the definition of employment in s.5 applies. As the arbitrator notes, this definition specifically includes self-employment. This distinguishes the SABS-1994 from other legislation. The most obvious example is the Employment Standards Act, R.S.O. 1990, c.E.14, which includes rules about layoffs, but only applies to “employees.”

In contrast to s.9(7), subsections 9(2) and (3) distinguishes between insured persons who are employed and those who are self-employed. Subsection 9(3) can only be used by those who are self-employed, while employees can benefit from the parallel provision in s.9(2). As discussed above, however, separate sections are needed because self-employed persons cannot have their gross annual income based on the four weeks before the accident, while others can. The important observation, in my view, is that extrapolation is extended to both types of workers if their employment or self-employment started shortly before the accident. This reinforces the view that extrapolation is meant to apply similarly to employed and self-employed persons.

In this case, there was ample evidence to support the arbitrator’s conclusion that Mr. Tustin’s situation was similar to an employee of Jen Re who was laid off during the winter when there was no work. As a result, I conclude that the arbitrator correctly concluded that the extrapolation provision in s.9(7)(b)3 apply. If this overstates Mr. Tustin’s income, it is simply a function of how the rules apply to his particular situation.

2. Not employed

Although not essential to her decision, the arbitrator also concluded that Mr. Tustin was not employed during the winter. Canadian General argues that this is wrong in law.

Previous decisions have consistently held that an insured person’s employment can continue during periods when he or she is not actually working.⁴ In Gibson and York Fire & Casualty Insurance Company, (OIC A-006150, January 4, 1995), the arbitrator concluded that this analysis also applies to someone who is self employed. She held that an objective, reasoned interpretation of the individual circumstances is required to determine whether the insured person continued to be self-employed during a period when he was not working, or had left the business.

The arbitrator here did not follow Gibson on the basis that it was decided under earlier legislation that did not include a definition of employment. In her view, the definition in s.5 of the SABS-1994 changes the analysis by requiring that the person be “engaged in employment, including self-employment,” requiring some level of activity.

I am unable to agree. In my opinion, the analysis in Gibson still applies. Support can be found in sections 7 and 9 of the SABS-1994. Compared with earlier legislation, the SABS-1994 expanded the scope of the employment connections that lead to IRBs. If the insured person was employed at the time of the accident, he or she is covered by s.7(1)1. If he or she was not employed at the time of the accident, but was employed at some point during the preceding 156 weeks, s.7(1)2 applies. 1997).

Paragraphs 3-6 of s.7(1) deal with situations where entitlement to IRBs, or increased IRBs, comes into effect later. For example, s.7(1)4 covers those who were “on strike from or was locked out from an employment at the time of the accident or was, at the time of the accident, on a layoff from employment to which he or she was entitled to be recalled pursuant to a collective agreement.” An insured person in one of these situations qualifies for IRBs based on the gross income payable when he or she would have been entitled to return to work, extrapolated to reflect an annual income.⁵ In other words, the insured person is not penalized by the work stoppage and can take advantage of any financial gains achieved following the strike, lockout or layoff. However, IRBs are not payable under s.7(1)4 until the insured person would have been entitled to return to work.⁶ Before that, the other provisions apply.

If Mr. Tustin’s interpretation of “employment” is correct, these insured persons could not claim IRBs under s.7(1)1 in the interim because they would not have been engaged in their employment during the strike, lockout, layoff, pregnancy leave, parental leave or unpaid leave.⁷ However, this is undermined by s.9(7), which specifically contemplates someone being entitled to IRBs under s.7(1)1 [employed at the time of the accident] and also under s.7(1)4 [on strike, locked out, or on a layoff with a right of recall] or s.7(1)6 [on pregnancy leave, parental leave or unpaid leave]. In my opinion, the better interpretation is that if the person maintains his or her employment during the strike, lockout, layoff, or leave, then IRBs are payable under s.7(1)1, with the amount calculated according to sections 9 and 10 of the SABS-1994.

The arbitrator also relied on the arbitration decision in Oliveira and Wellington Insurance Company, (OIC A96-000010, April 7, 1997), excerpting the following paragraph:⁸

Section 9(3) says that a self-employed person may take his “income from the self-employment in which he was engaged at the time of the accident for the part of the 52-week period for which the person earned income from that employment.” This clause distinguishes between self-employment and earning income from self-employment and implies that a person may be self-employed but not earning income from that self-employment. In my view, the plain words of section 9(3) form a complete response to [the insurer’s chartered accountant’s] opinion that a self-employed person cannot be unemployed because slack periods are part of self-employment. That may be so from an accounting or tax perspective. For the purposes of the Statutory Accident Benefits Schedule, the governing principle is set out in section 9(3), which clearly contemplates that a self-employed person may exclude periods in which he did not “earn income from . . . employment” from calculation of his gross annual income.

On appeal, Canadian General argues that Oliveira is distinguishable. I agree. Nothing in that decision suggests that someone must be earning income to be self-employed. On the contrary, the arbitrator accepted the consistent line of arbitration and appeal decisions holding that self-employment can exist whether or not the business is generating revenue. However, in the excerpted paragraph, she was dealing with a different issue. She was not deciding whether Mr. Oliveira was self-employed, but the period that he earned income from that self-employment.

Subsection 9(3) deals with new businesses, using language different from s.9(7). If the insured person was self-employed at the time of the accident and started that self-employment within 52 weeks of the accident, s.9(3) provides that his or her gross annual income can be calculated based on the income “for the part of the fifty-two-week period for which the person earned income from that employment and extrapolating it over the rest of the fifty-two week period.”⁹ The arbitrator held, correctly in my view, that s.9(3) distinguishes between periods of self-employment and periods of self-employment in which the person earned income. Presumably, this is meant to respond to the practical reality that many new businesses take time to start generating revenue.

In Oliveira, the arbitrator found that Mr. Oliveira was self-employed for approximately 34 weeks before the accident, but only earned income for only 22 of those weeks. Therefore, according to s.9(3), his income for those 22 weeks was extrapolated over the rest of the 52-week period. The decision makes it clear that the outcome was based on the wording of s.9(3), focusing on periods in which income was earned, not simply on periods of self-employment.

Therefore, while I agree with the arbitrator that Mr. Tustin is entitled to rely on the extrapolation provisions, the authority is under paragraph 3 of s.9(7)(b) [layoff from employment], not paragraph 2 [not employed].

B. IRBs - Extrapolation of Expenses

The arbitrator found that Mr. Tustin worked about 32 of the 52 weeks before the accident.¹⁰ His gross revenues during this period were $45,305, with expenses of $28,155. However, he divided his expenses into fixed expenses of $8,242 and variable expenses of $19,913. The fixed expenses were those, such as licence fees, that did not depend on how much he worked. He argued that the extrapolation should not involve any extrapolation of his fixed expenses because by their very nature, they are fixed. Put differently, including the fixed expenses in the extrapolation would understate his income over the extrapolated periods because it would include expenses that had already been paid.

The arbitrator accepted Mr. Tustin’s position, calculating his IRBs as follows:

Gross annual income ($45,305) less variable expenses ($19,913):

$25,392.00

Weekly gross income less variable expenses ($25,392 ÷ 31.71 weeks worked):¹¹

$800.76

Annual extrapolated gross income less variable expenses ($800.76 x 52 weeks):

$41,639.52

Annual extrapolated income net of variable and fixed expenses ($41,639.52 - $8,242):

$33,397.52

Extrapolated weekly gross income net of all expenses:

$642.26

Less deductions ($104.12 income tax, $30.00 CPP = $134.12):

• $134.12

Net weekly income:

$508.14

Weekly income replacement benefit (90% x $508.14):

$457.33

While the arbitrator’s approach is attractive, I accept the analysis in Oliveira, cited above. In that case, Mr. Oliveira relied on the extrapolation provisions in s.9(3) because he started self-employment within 52 weeks of his accident. According to that section, his gross income from employment for the 52 weeks before the accident is determined by taking his “income from the self-employment in which he . . . was engaged at the time of the accident for the part of the fifty-two-week period for which . . . [he] earned income from that employment and extrapolating it over the fifty-two-week period.”

The arbitrator found that Mr. Oliveira was self-employed and had business-related expenses for about 34 weeks, but only earned income for 22 weeks. At issue was how to do the extrapolation. The arbitrator held that the first step was to calculate Mr. Oliveira’s income which, according to s.83 of the SABS-1994, is done in the same manner as profit under the income tax legislation.

Therefore, she subtracted all of his expenses from his revenue. She then extrapolated this amount, earned over 22 weeks, over the full 52 weeks.

On appeal, Mr. Oliveira argued that the arbitrator should have first extrapolated both his revenues and expenses to get annualized amounts. That is, she should have divided the revenues by 22 and then multiplied by 52, and divided the expenses by 34 and multiplied by 52. Only at the point should expenses have been deducted from revenues.

The Director’s Delegate rejected Mr. Oliveira’s approach. She agreed with the arbitrator that s.83 governs the calculation of income from self-employment, requiring that all expenses be deducted from revenues as required in the income tax legislation. She also concluded that based on a straightforward reading of s.9(3), the extrapolation is to be done after the insured person’s income is determined, not before.

In my view, there is no significant difference between the extrapolation provisions in s.9(3) and s.9(7), although the wording is slightly different. Further, I agree with the adjudicators in Oliveira that extrapolation is not meant to involve a precise analysis of the timing and relationship between expenses and revenues. The extrapolation in s.9(7) is done from the insured person’s gross income from employment for the part of the period [56 or 156 weeks] for which he earned income. The question, therefore, is what was Mr. Tustin’s gross income from employment for the 31.71 weeks¹² that he earned income. Turning to s.83 of the SABS-1994, I conclude that all of his expenses, including fixed expenses, must be deducted from his revenues.

Therefore, I calculate Mr. Tustin’s IRBs as follows:

Gross revenues:

$45,305.00

Less expenses:

$28,155.00

$17,150.00

Extrapolation ($17,150 x 1.64¹³)

$28,126.00

This amount ($28,126.00) is Mr. Tustin’s gross income from employment for the 52-week period, calculated based on the extrapolation provisions is s.9(7). As outlined above, this amount is converted to net weekly income by subtracting Unemployment Insurance and Canada Pension Plan premiums and income tax, and then dividing by 52. The parties seem to agree on the deductions, although they are expressed as weekly amounts.¹⁴ To be consistent with the SABS-1994, I have used annualized amounts in the calculations:

Gross income from employment for the 52-week period:

$28,126.00

Less income tax:

• $5,414.24

Less CPP

• $1,560.00

Less UI

0.00

$21,151.76

Net weekly income from employment ($21,151.76 ÷ 52)

$406.76

Weekly income replacement benefit (90% x $406.76)

$366.08

As a result, the first paragraph of the arbitrator’s order will be varied to reflect this amount.

C. LECBs - Pre-accident Earning Capacity

LECBs replace other types of weekly benefits, including IRBs, for insured persons with long-term disabilities. Because Mr. Tustin continued to qualify for IRBs at the 104-week mark, Canadian General started paying LECBs instead of IRBs. The amount of the LECBs is based on a comparison between the insured person’s pre-accident earning capacity and his or her residual earning capacity.¹⁵ The dispute is about Mr. Tustin’s pre-accident earning capacity.

Pre-accident earning capacity is determined under s.29 of the SABS-1994, which includes two different approaches. Subsection 29(1) deals with those who qualified for IRBs under s.7(1)1 [employed at the time of the accident], s.7(1)3 [job offer], s.7(1)4 [on strike, locked out, or on a layoff with a right of recall], or s.7(1)6 [on pregnancy leave, parental leave or unpaid leave]. In those cases, pre-accident earning capacity is simply the net weekly income from employment used to calculate the IRBs being paid at the time of the change to LECBs.¹⁶

The approach to pre-accident earning capacity is different for those who were self-employed or qualified for IRBs under s.7(1)2 [not employed at the time of the accident, but employed at some point during the previous 156 weeks] or s.7(1)5 [initially received Caregiver Benefits]. In those situations, pre-accident earning capacity is based on the gross annual income that the insured person “could reasonably have earned at the time of the accident, having regard to the person’s personal and vocational characteristics at that time.”

Whichever approach applies, there is a minimum established in s.29(4). The calculation of the minimum is more like the calculation under s.29(1), based on pre-accident income rather than what the insured person could have earned.

The provisions dealing with self-employed persons are as follows:

29.- (2) Despite subsection (1), the pre-accident earning capacity of a person who is entitled to receive weekly income replacement benefits under paragraph 1 of subsection 7(1) and who was self-employed at the time of the accident shall be the net weekly income determined in accordance with section 81 or 82 using the gross annual income from employment that the person could reasonably have earned at the time of the accident, having regard to the person’s personal and vocational characteristics at that time.

(4) The amount of a person’s pre-accident earning capacity determined under subsections (1), (2) and (3) shall not be less than,

(a) the net weekly income determined in accordance with section 81 or 82 using a gross annual income from employment equal to the person’s gross income from employment, including any temporary disability benefits and any benefits received under the Unemployment Insurance Act (Canada), for a period specified by the person of fifty-two consecutive weeks in the 156-week period before the accident, in the case of a person entitled to receive weekly income replacement benefits under paragraphs 1, 2, 3, 4, or 6 of subsection 7(1), or a person who was self-employed at the time of the accident;

[emphasis added]

The phrase “personal and vocational characteristics” is defined in section 1 of the SABS-1994, setting out the factors to be considered in determining both pre-accident and residual earning capacities:

“personal and vocational characteristics” include,

(a) employment history

(b) education and training

(c) vocational interests and aptitudes

(d) vocational skills

(e) physical abilities

(F) cognitive abilities, and

(g) language abilities

The arbitrator found that Canadian General only calculated the minimum amount under s.29(4)(a), without considering what Mr. Tustin could have earned at the time of the accident, as required by s.29(2).

At issue is a vocational evaluation report prepared in January 1996, less than 104 weeks after the accident. Canadian General retained Career Probe to “explore Mr. Tustin’s employment options, his competitive employment aptitudes, transferable employment skills, vocational interests and his academic achievement potentials.”¹⁷ The evaluator identified a number of suitable employment alternatives for Mr. Tustin, including “truck driver instructor.” The training requirement for this position is listed as “Transferable skills/ Driver Instructor Training.”

The arbitrator concluded that Mr. Tustin’s pre-accident earning capacity should be based on employment as a truck driver instructor. Her reasons are set out on page 9 of the decision:

At the time of the accident Mr. Tustin had spent over 20 years in the trucking industry. Had his vocational circumstances prior to the accident taken a slightly different path, it is reasonable to conclude that he might have pursued truck driver instruction as a realistic alternative occupation, given his personal and vocational characteristics.

I agree with Canadian General that the arbitrator interpreted s.29(2) too broadly. The Career Probe report does not say that Mr. Tustin could start working as a truck driver instructor. It provides possible employment options for his consideration. Some of the jobs, including working as a driving instructor, would have required training.

My understanding is that despite the need for training, Canadian General made an LECB offer of zero based on Mr. Tustin having a residual earning capacity as a truck driver instructor. Mr. Tustin rejected the LECB offer, requesting an assessment by a Designated Assessment Centre (“DAC”) with respect to his residual earning capacity. The DAC assessment was done in the summer of 1997. As stated on the first page of the report, the purpose of the DAC assessment was to determine the type of employment that best reflected his capacity at the time, and the gross annual income that he could expect to earn.

The DAC assessors were unable to identify any appropriate employment for Mr. Tustin. It considered the employment suggestions made by Career Probe, concluding they were not suitable. Some of the jobs were rejected on the basis that Mr. Tustin was not physically capable of performing them, and others because he did not have the necessary qualifications or experience. Although the DAC does not explain why it rejected the position of truck driver instructor, there is no suggestion that Mr. Tustin had the necessary training or qualifications.

While Canadian General can be criticized for its initial LECB offer, its actions do not make truck driver instructor an appropriate consideration in determining Mr. Tustin’s pre-accident earning capacity. Not only did he have no plans to do that kind of work, he was not qualified.

In Lehman and GAN Canada Insurance Company, (FSCO P97-00064, August 10, 1998), I considered the scope of 29(3), involving the same wording as s.29(2), concluding that it does not mean capacity in its broadest sense:

According to section 29(1), insured persons who were employed at the time of the accident, had a job offer, were on strike, locked out or laid off, or were on pregnancy or parental leave, have their pre-accident earning capacity calculated based on the same income that was used to calculate their IRBs. In other words, their pre-accident earning capacity is based on their past performance - it is a measure of demonstrated capacity, not theoretical capacity. This prevents someone who was underemployed in the three years before the accident from arguing that his or his pre-accident earning capacity is actually higher than his employment history suggests.

The calculation of pre-accident earning capacity is different for those who were unemployed at the time of the accident, but were employed at some point during the previous 156 weeks. According to subsection 29(3), it is based on “the gross annual income from employment that the person could reasonably have earned at the time of the accident, having regard to the person’s personal and vocational characteristics at that time.” Unlike the other categories, the determination is not limited to the person’s actual pre-accident earnings (or pre-accident job offer). The question is what the person could reasonably have earned at the time of the accident.

. . . While the issue is the person’s earning capacity, I also agree with GAN that it cannot be capacity in the broadest sense. That would be inconsistent with the treatment of those who were employed at the time of their accident.

I agree with Canadian General that given Mr. Tustin’s stable work history and limited interest in changing careers, his pre-accident earning capacity should be based on the gross annual income he could reasonably have earned as a truck driver. In the circumstances, I conclude that he should be treated like an employed person, with his pre-accident earning capacity deemed to be his net weekly income from employment. For Mr. Tustin, this is $508.14.¹⁸ Because his residual earning capacity was found to be zero, this means his LECBs are $457.33 per week.

D. The Arbitration Order

The arbitrator’s LECB order states as follows:

Canadian General Insurance Group shall pay Mr. Tustin LEC benefits of $463.91 per week, based on a PEC of $515.45, from August 23, 1996, ongoing.

Canadian General contends that the arbitrator erred in making the order ongoing, particularly at a specified rate. In its submission, the order should recognize that some changes may be authorized. For example, the SABS-1994 includes mandatory periodic reviews (s.33), reviews initiated by insured persons based on a deterioration in their condition (s.34) and adjustments when the insured person turns 65 (s.35). Canadian General also suggested that there might be a workers’ compensation issue that could affect Mr. Tustin’s benefits, but provided no details.

In my opinion, the arbitrator’s order reflects the ongoing nature of arbitration orders established in s.287 of the Insurance Act:

287. An insurer shall not, after an order of the Director or of an arbitrator, reduce benefits to an insured person on the basis of an alleged change of circumstances, alleged new evidence or an alleged error, unless the insured person agrees or unless the Director or an arbitrator so orders in a variation or appeal proceeding under section 283 or 284.

This section prevents insurers from reducing benefits ordered by an arbitrator unless the insured person agrees or a new order is made in an appeal or variation proceeding. I am confident that the arbitrator’s order was not meant to preclude amendments that are clearly authorized by the legislation. Mr. Tustin does not suggest otherwise. While I would not characterize the form of the order as an error, I am prepared to vary it to address Canadian General’s concern about reviews authorized by the SABS-1994, but not the workers’ compensation issue. It is now almost five years after the accident and this issue has yet to be clarified.

III. APPEAL EXPENSES

Canadian General agreed that Mr. Tustin should receive his appeal expenses in any event.

August 13, 1999

David R. Draper

Director’s Delegate

Date

Footnotes

1. 1Vo and Maplex General Insurance Company, (OIC P-002777, December 12, 1997), p.12.
2. 2Aramakis and Royal Insurance Company of Canada, (OIC P96-00081, January 7, 1998).
3. 3SABS-1994, s.29 - Other than those who were self -employed at the time of the accident or qualified under s.7(1)2 [employed at some point within 156 weeks before the accident] or s.7(1)5 [initially received caregiver benefits].
4. 4For example, see Joyce and Co-Operators General Insurance Company, (OIC P96-00014, March 4,
5. 5SABS-1994, s.9(5)2.
6. 6SABS-1994, s.8(2)(b).
7. 7They might, however, qualify under s.7(1)2 as having been employed at some point during the 156 weeks before the accident.
8. 8Confirmed on appeal on different issues: Oliveira and Wellington Insurance Company, (OIC P97-00021, April 17, 1998).
9. 9This is the companion provision to s.9(2), which allows an insured person who started employment within the four weeks preceding the accident to have his or her gross income based on the amount earned, extrapolated over four weeks.
10. 10It appears that all of the extrapolation arguments were based on the 52-week period, not the 156-week period.
11. 11The calculations advanced by the parties on this point used 3l.7l weeks worked instead of 32 weeks. For simplicity, I have used their figures. [Arbitrator=s footnote]
12. 12This is the figure used by the parties and accepted by the arbitrator.
13. 13The extrapolation factor is used to convert 32 weeks to 52 weeks (52  31.71 ‘ 1.64). The same result (subject to rounding off) is achieved by dividing $20,366 by 31.71 weeks to get a weekly amount and then multiplying by 52 to convert it back to an annual amount..
14. 14Arbitration exhibit 25, as reflected in the arbitrator’s calculation.
15. 15SABS-1994, s.28.
16. 16The section also provides that part-time income is converted to full-time income if s.86 of the SABS-1994 applies.
17. 17Report of Career Probe, dated January 18, 1996 (Arbitration Exhibit 3, Tab 1).
18. 18Based on the arbitrator’s calculations.