Neutral Citation: 1999 ONFSCDRS 67

FSCO A98-001294

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JEFFREY EMBURY

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

David Leitch

Heard:

April 15, 1999, at the Offices of the Financial Services Commission of Ontario in Toronto.

Written submissions were received on March 25, 1999.

Appearances:

Tammy Ring for Mr. Embury

Todd J. McCarthy for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Jeffrey Embury, was injured in a motor vehicle accident on October 14, 1994. He was a 15 year-old student at the time of the accident. He applied for and received weekly education disability benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule.¹ There is no dispute that Mr. Embury remained eligible for weekly education disability benefits for more than 104 weeks and became eligible for loss of earning capacity benefits (LECBs). However, despite mediation, the parties have been unable to agree on the calculation of Mr. Embury's entitlement to LECBs. Mr. Embury applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue is:

1. Does the calculation of Mr. Embury's pre-accident earning capacity take into consideration the amount he receives as a disability tax credit?

Result:

1. The calculation of Mr. Embury's pre-accident earning capacity shall take into consideration the amount he receives as a disability tax credit.

Background:

The Applicant, Jeffrey Embury, sustained serious injuries in a motor vehicle accident on October 14, 1994 when he was 15 years old. As a student, State Farm paid Mr. Embury weekly education disability benefits under Part III until he became eligible for loss of earning capacity benefits (LECBs) under Part VI, 104 weeks after the onset of his disability.

As a disabled person, Mr. Embury receives a "disability tax credit" under the Income Tax Act. It was not disputed that Mr. Embury has only received this tax credit since the accident and in recognition of the disability caused by the accident.

The determination of the Applicant's entitlement to LECBs necessitates two prior determinations: his pre-accident earning capacity and his residual earning capacity. As a recipient of weekly education disability benefits, Mr. Embury's entitlement to LECBs is calculated by deducting 90 percent of his residual earning capacity from his pre-accident earning capacity.²

The parties agree that Mr. Embury's residual earning capacity is zero. They also agree that his pre-accident earning capacity is determined using a formula and table which simply assumes that his gross annual income from employment would have been 52 times a percentage of the average weekly wage for Ontario for the month of June in the year immediately preceding the determination.³

The dispute arises in connection with the translation of this gross annual income figure into a net weekly income figure, a translation necessarily involving income tax calculations. The Schedule only permits certain deductions and tax credits to be taken into consideration for this purpose.⁴The disability tax credit received by Mr. Embury is one such tax credit. Taking it into consideration increases Mr. Embury's net weekly income and his pre-accident earning capacity and, hence, his entitlement to LECBs.

Arguments:

The Applicant argues that "on the plain wording" of the Schedule, he is entitled to include his disability tax credit in calculating his pre-accident earning capacity. The Schedule does not limit or restrict the time periods in which the relevant income tax deductions and credits are to be used. The fact that they are to be used to calculate pre-accident earning capacity does not mean that they must, themselves, be "pre-accident figures." For claimants in Mr. Embury's category of entitlement, there are no real "pre-accident figures" at all: "the calculation is not intended to represent an accurate statement of the person's income or tax liability but is a way of quantifying the theoretical concept of pre-accident earning capacity." If the legislative intention had been to disallow the disability tax credit whenever the disability was caused by the motor vehicle accident in respect of which statutory accident benefits are being claimed, the Schedule would have been worded to reflect this intention.

The Insurer argues that since entitlement to LECBs turns on a comparison of pre-accident and post-accident earning capacities, "it would be an aberration to include, in determining pre-accident earning capacity, a benefit which is received only after and as a result of the accident in question." (emphasis in the original). The case-law states that the determination of pre-accident earning capacity "requires a realistic assessment of the insured person's earning capacity at the time of the accident"⁵ (emphasis added by counsel). Likewise, the Schedule stipulates that the pre-accident earning capacities of other categories of LECB claimants are to be determined by reference to their pre-accident incomes or their personal and vocational characteristics at the time of the accident.⁶ Mr. Embury's disability tax credit does not "in any way reflect" his pre-accident earning capacity and to consider it "would result in an anomaly that flies in the face of the legislative intent."

Analysis and Conclusion:

I agree that Mr. Embury's disability tax credit cannot be fairly considered when making "a realistic assessment of [his] earning capacity at the time of the accident" but I find that the Schedule does not require consideration of his disability tax credit for this purpose.

The "realistic," though only notional, assessment of Mr. Embury's pre-accident earning capacity is made applying the formula and table set out in Part VI of the Schedule dealing with LECBs. The disability tax credit is not referred to in this part of the Schedule but rather in Part XIX of the Schedule which addresses, in a generic way, the income tax calculations that must be made to determine entitlement to many different kinds of benefits, not just LECBs.⁷ The disability tax credit is only considered after Mr. Embury's pre-accident earning capacity has already been determined in accordance with the LECB part of the Schedule and only for the purpose of translating the gross figure into a net figure. I perceive no aberrant or anomalous result in its being taken into consideration for this limited purpose.

Part XIX of the Schedule sets out very specific instructions about how income tax calculations are to be made in translating gross figures into net figures. I assume, as has the Director's Delegate, that where certain amounts are to be taken into consideration in the calculation of benefits, the legislation so specifies.⁸ Not all tax deductions and credits are included in the calculation of net incomes. Had the legislative intention been to include other deductions and credits, this intention would have been reflected in the language of the Schedule. Likewise, had the legislative intention been to limit in some way the use that could be made of the disability tax credit in calculating Mr. Embury's net weekly income, that intention would have been reflected in the language of the Schedule. I am not prepared to write such language into the Schedule.

EXPENSES:

I exercise my discretion to award Mr. Embury his expenses incurred in this preliminary issue hearing.

April 26, 1999

David Leitch

Arbitrator

Date

Neutral Citation: 1999 ONFSCDRS 67

FSCO A98-001294

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JEFFREY EMBURY

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The calculation of Mr. Embury's pre-accident earning capacity shall take into consideration the amount he receives as a disability tax credit.

April 26, 1999

David Leitch

Arbitrator

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93, as amended by Ontario Regulations 635/94, 781/94 and 463/96. O.R. 776/93 was extensively modified by O.R. 781/94; accordingly, where necessary, "1994 Schedule "refers to the original O.R. 776/93, and A1995 Schedule@ refers to O.R. 776/93 as amended.
2. 2Section 28(2)- Amount of Benefit
3. 3Section 29(5)- Determining Pre-Accident Earning Capacity
4. 4Section 85(1)- Income Tax Calculations
5. 5Lehman and GAN Canada Insurance Company, appeal decision (FSCO P97-00064, August 10, 1998)
6. 6Sections 29(1), (2) and (3) - Determining Pre-Accident Earning Capacity
7. 7Other kinds of benefits include income replacement benefits, section 10, deemed income from employment, section 13(4), education benefits, section 15(5) and death benefits, section 51.
8. 8Stone and Zurich Insurance Company, appeal decision (OIC P97-00014, January 12, 1998)