Neutral Citation: 2000 ONFSCDRS 114

FSCO A98-001214

BETWEEN:

ELCKA LAVE

Applicant

and

ZURICH INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before:

Susan Sapin

Heard:

January 18 and 19, 2000, at the Offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Joesep Lave for Mrs. Lave

Claudia Storto for Zurich Insurance Company

The Applicant, Elcka Lave, was injured in a motor vehicle accident on September 10, 1996. As she was unable to satisfy Zurich Insurance Company ("Zurich") that she was employed prior to the accident, Zurich paid her statutory non-income accident benefits of $185 per week under the Schedule¹ until March 9, 1997, when it terminated benefits pursuant to a Designated Assessment Centre ("DAC") Disability Report. The parties were unable to resolve their disputes through mediation, and Mrs. Lave applied for arbitration at the Financial Services Commission of Ontario (the "Commission"), under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

Is Mrs. Lave entitled to receive a weekly income replacement benefit (IRB) of $1,050 pursuant to section 7 of the Schedule, from September 17, 1996 and ongoing on the basis that she suffers a substantial inability to perform the essential tasks of her employment?
If so, what is the correct amount of the IRB to which Mrs. Lave is entitled pursuant to section 10 of the Schedule?
If the answer to question 1. is no, is Mrs. Lave entitled to receive non-earner disability benefits of $185 per week pursuant to section 19 of the Schedule from March 10, 1997 and ongoing on the basis that she suffers a partial or complete inability to carry on a normal life?
Is Mrs. Lave entitled to payments of $60 per week for housekeeping and home maintenance services, pursuant to section 55 of the Schedule, from November 7, 1996 until April 30, 1997?
Is Mrs. Lave's claim frivolous, vexatious or an abuse of process pursuant to section 282(11) of the Insurance Act.
Is Mrs. Lave liable to repay Zurich the cost of its assessment or its expenses on the basis that her claim is frivolous, vexatious or an abuse of process pursuant to section 282(11) of the Insurance Act?
Is Zurich liable to pay Mrs. Lave's arbitration expenses?

Mrs. Lave is not entitled to receive a weekly income replacement benefit.
Mrs. Lave is not entitled to receive a non-earner benefit after March 9, 1997.
Mrs. Lave is entitled to housekeeping expenses of $720.
Mrs. Lave's claim was an abuse of process pursuant to section 282(11) of the Insurance Act.

A. Introduction

On September 10, 1996, Mrs. Lave suffered soft tissue injuries to the right side of her neck and to her upper and lower back when the car she was driving was rear-ended while stopped at a red light. She drove the car to a body shop, from where it was stolen. The extent of the damage to the vehicle could not therefore be ascertained.

Mrs. Lave visited her family doctor, Dr. Michael Kirzner, the same day. On October 8, 1996, he completed a Health Practitioner's Certificate (HPC) confirming his diagnosis of cervical, thoracic and lumbar strain and spasms, severe cervicogenic headache, and sleep disorder, with "anxiety/chronic stress" listed under "other factors affecting recovery." Under the heading "Can the applicant return to work," Dr. Kirzner wrote "unclear if working now...cannot do any sort of clerical or manual labour at present."² He recommended an intensive active therapy program.

Mrs. Lave received massage and chiropractic therapy, and three hours of daily active rehabilitation for two months, followed by a personalized home-based fitness program designed and supervised by a kinesiologist. Therapists and assessors consistently recommended that she gradually resume her pre-accident occupation as early as December 1996.³

B. Entitlement to Income Replacement Benefits

To be entitled to income replacement benefits pursuant to subsection 7(1) 1. of the Schedule, Mrs. Lave must first establish, on a balance of probabilities, that she was employed at the time of the accident. If she succeeds in this, she must then establish that she suffered a substantial inability to perform the essential tasks of that employment as a result of the accident. The first question to be addressed therefore, is whether she was employed.

1. Was Mrs. Lave employed at the time of the accident in September 1996?

a) Testimony of Mr. and Mrs. Lave

Mrs. Lave testified that she was a self-employed international real estate developer and Vice-President of Royal Centrum Developments (RCD), a company she owned in partnership with her husband, who was the President. RCD is held by another company incorporated in the Caribbean nation of St. Kitts and Nevis.

Mr. Lave, a civil engineer, testified that he and his wife, Canadian citizens since 1971, live in Canada for tax purposes a few months per year, in order to take advantage of Canadian "tax loopholes." He started RCD in November 1994 and borrowed 20 million dollars US from the Chase Manhattan Bank, which he deposited in Europe, to finance a project to build a residential and commercial complex in Zagreb, Croatia. He stated that RCD's head office was in Zagreb, and that no business was done from his home in Toronto, except for this wife's telephone calls.

Mrs. Lave stated that she flew to Europe as often as three times a month to attend meetings, visit prospective development locations, perform calculations to determine profitability and negotiate deals. Mrs. Lave declined to be more specific, claiming that she had her own way to determine if a venture would be profitable, and that she would not reveal her business secrets. She testified that she has no formal training or expertise in real estate development but has spent over 20 years in that business and that she relied extensively on her connections.

Shortly after the accident, Mrs. Lave told Zurich that she operated her business from home, where she sat at a desk to make phone calls or work on a computer, and that she travelled locally by car or internationally by plane. She stated that her job was not physically demanding and that the most important part was having a clear mind.⁴

At the DAC disability assessment on March 16, 1997, Mrs. Lave told the assessors that, prior to the accident, her business duties included travel, many meetings and extensive paperwork, and required prolonged sitting in order to do calculations or drawings. The assessors reported that she "generally worked through an exceedingly busy day."

I found Mrs. Lave to be a very poor historian and not forthcoming about the details of any aspect of her claim for benefits. She did not provide any independent evidence to corroborate her claim that she was employed by RCD. She did not provide evidence of long-distance telephone calls, correspondence, airline trips, hotels, meals, or any expenses she incurred in the course of carrying on any business, information the Insurer repeatedly asked for. Neither she nor her husband provided any details about the duration or frequency of her tasks on a daily, weekly or monthly basis or to what extent, if any, she performed any of the tasks she claimed prior to the accident. Mrs. Lave's testimony that she worked from home was flatly contradicted by her husband.

I find that there was nothing in the testimony of either Mr. or Mrs. Lave to establish that Mrs. Lave was employed or that she engaged in any essential tasks of employment prior to the accident.

Mr. and Mrs. Lave's attempts to explain her claimed pre-accident income of $19,000 US per month were equally unconvincing. Mrs. Lave stated that the money was sent to her by an accountant or lawyer, that she did not know where the money came from, that she would sometimes get cheques at home, that she would deposit some of it, or give some to her husband, and that she did whatever she wanted with it. On cross-examination, Mrs. Lave declined to answer further questions about her income or her personal or corporate income tax returns, stating either that she could not remember, or that it was her husband, and not she, who dealt with the company finances, and that he or her accountant would have to provide the information. She stated that she "did not have a clue" about the financial aspects of the business.

Mr. Lave testified that he was personally in charge of RCD and its operations, and was the only person who knew what money went in and out of the company. He stated that, due to a delay in the project, he and his wife began withdrawing money from the European bank accounts in 1994, as they needed the money to live on. He explained that he considered these withdrawals to be their "salaries," and that Mrs. Lave was not paid a "salary" from the time of the accident until April 1997, when she was again able to work.⁵

Mr. Lave was very evasive on cross-examination when asked for details about his wife's income. A frequent response was "none of your business." He was forthright only about his unwillingness to answer any questions that, in his words, would "expose" his company, and about his belief that he was not required to provide any more information than he personally considered necessary either to the Insurer or to the Commission. Some of his evidence was inconsistent with his own and his wife's testimony, and the documents filed in support of her claim. Consequently, I find that Mr. and Mrs. Lave's testimony does not support Mrs. Lave's claim that she was employed or that she earned any employment income prior to the accident.

b) Documentary evidence

Mrs. Lave provided several documents to support her claim that she was employed at the time of the accident.⁶ These included:

i) a photocopy of a two-page English translation of an "expert opinion" by Ernst & Yonge [sic] in Zagreb, Croatia, dated February 16, 1998, stating that the plans prepared by RCD "...about the intended investment development of a housing and business complex ... in Zagreb...have been drawn up in compliance with the valid construction regulations in the Republic of Croatia;"⁷

ii) a photocopy of an English translation of a letter dated December 20, 1994 from the "Economic Planning and Human Environment Protection Institute of the City of Zagreb" to RCD consenting to "the construction of business buildings... and quality residential housing structures;"⁸

iii) photocopies of cheques, bank drafts, and letters referring to bank drafts, in the amounts of several million dollars US, made out to Mrs. Lave in 1994, 1997 and 1998;

iv) photocopies of cash flow statements for the "Zagreb-Milerov Breg Project Stage 1" 1995, 1996 and 1997, prepared by Bozidar Stanic, an accountant for RCD in Croatia;⁹

v) photocopy of a letter dated May 7, 1997, from Mr. Stanic stating that Mrs. Lave earned $19,291.30 US per month in 1995 and in1996 until her September accident, after which she earned no salary until April 1997, when she resumed the same salary;¹⁰

vi) a Balance Sheet for RCD as at June 10, 1998, prepared by Stern and Lovrics, a Toronto chartered accountants' firm, which states on the first page that: "We have compiled the balance sheet...from information provided by management. We have not audited, reviewed or otherwise attempted to verify the accuracy of completeness of such information. Readers are cautioned that these statements may not be appropriated for their purposes;"¹¹

vii) photocopy of an unwitnessed affidavit dated February 24, 1999, purportedly executed by Eduard Geber, a lawyer for RCD in Croatia, stating as follows:

...Mrs. Lave has earnings of 19.291,30 US dollars per month for calendar years 1994; 1995 and 1996 until her car accident in September, 1996. On account of her accident she did not perform any work until her recovery in 1997. At that time she commenced her duties and her monthly earnings commenced again. Since the company is at preliminary stage of development no income taxes were withheld, and the earnings are being treated as draws. It is anticipated that in 1999 the project will progress and the draws will be converted to taxable income and the taxes will be paid accordingly.¹²

viii) a two-line letter from Harvey Handelsman, a Toronto Chartered Accountant, dated October 29, 1996, stating:

"Based on information provided to me by Joseph Lave, the estimated income for 1996 of Joseph and Elcka Lave is $12,500. This does not include any receipts for [IRBs]."¹³

Certified income tax returns obtained by the Insurer for 1993, 1994 and 1995 indicate that Mrs. Lave reported a taxable income of zero in each of these years. A Goods and Services Tax Credit Notice of Determination from Revenue Canada indicates a net family income for Mrs. Lave of $13,844 in 1995.¹⁴

I find the contradictions and inconsistencies in these documents to be self-evident. No document has been independently audited or verified. There is absolutely nothing in any document to support Mrs. Lave’s testimony that she was either an owner, shareholder or employee of RCD, or that she personally engaged in any employment relating to a development project in Croatia at the time of her motor vehicle accident in September 1996, or that substantiates her claim that any monies she may have received, from any source, constituted earnings or income from employment or self-employment for the purpose of any entitlements under the Schedule.

c) The Insurer's evidence

Many documents relied on by Mrs. Lave were produced the day of the hearing or in the course of testimony. I admitted some of the documents over the objections of the Insurer, due to the paucity of supporting evidence in this case. At my request, Oleh Hrycko, the accountant Zurich had retained in September 1997 to determine Mrs. Lave's employment income, was called to testify and assist in explaining the documents. Mr. Hrycko, a chartered accountant and certified fraud examiner, has been personally involved in over 4,000 claims for income replacement benefits, under three no-fault automobile insurance regimes, mainly in the self-employed category. He reviewed the documents (listed above as i) to viii)) provided by Mrs. Lave and was present during Mr. Lave’s testimony.

Mr. Hrycko testified that he was unable to obtain objective evidence of any earned income on the part of Mrs. Lave from the limited documentation provided, because it was impossible to reconcile her certified income tax returns with any other document, particularly items v) to viii) above.

It was Mr. Hrycko's expert opinion that, if Mr. Stanic's letter stating that Mrs. Lave earned a monthly salary of $19,291.30 US in 1995 and 1996¹⁵ was accurate, Mrs. Lave would have been a Canadian resident required to report her worldwide income and would have been entitled to some form of foreign tax credit, which would be indicated on her income tax returns for those years. None of this was reflected on Mrs. Lave's income tax returns. Mr. Lave explained that he and his wife were residents of Canada in 1993, 1994 and 1995, but that his wife's 1993, 1994 and 1995 tax returns show no income at all because the income they earned was "foreign income," on which they were not required to pay tax in Canada. I accept Mr. Hrycko's expert opinion and find that Mr. Stanic's letter does not establish that Mrs. Lave earned any employment income for the purposes of the Schedule in 1995 and 1996.

Furthermore, Mr. Hrycko was unable to independently determine who owned RCD, or whether any of the money paid to Mrs. Lave was income, capital, or partnership draws. None of the numbers in items iii), iv) and vi) above could be reconciled. Mr. Hrycko testified that the accounting records and source documents he had repeatedly requested since September but did not receive could have clarified the situation.

Mr. Hrycko could find no information that would identify the payments made to Mrs. Lave as income from employment and no document that connected Mrs. Lave to the project in Croatia. Both Mr. and Mrs. Lave agreed that this was so when presented with these facts on cross-examination.

In conclusion, based on all of the above reasons, I find that Mrs. Lave has not established that she earned any income from employment prior to the accident.

2. Substantial Ability

Mrs. Lave testified that pain prevented her from returning to work in April 1997. Having found that Mrs. Lave was not employed prior to the accident, it is not necessary for me to determine whether she was substantially disabled from any pre-accident employment tasks. However, in the event I am wrong, I considered the medical evidence. I am satisfied that the medical reports provided by Mrs. Lave do not support a substantial inability to perform the tasks of any employment, or any activities of normal life, due to pain or any other reason, after March 9, 1997.

Dr. Kirzner's February 12, 1999 report states only that Mrs. Lave required housekeeping assistance for the six months from September 1996 to March 1997 due to severe neck and back pain, and that, "Based on her pain and anxiety, I would have most certainly told her not to go to Europe to work based on her signs and symptoms. She was not fit for her usual work over this whole period."¹⁶

Dr. Vlasta E. Hajek, a physiatrist, reported in April 1997 that Mrs. Lave was in pain and that "She has not been able to return to her work."¹⁷ Mrs. Lave testified that she did not tell Dr. Hajek that she could not return to work, but only that she was in pain.

I find that these reports support Mrs. Lave's testimony that she continued to suffer pain as a result of the accident after April 1997. However, they do not provide an objective medical opinion that her pain substantially disabled her from performing the essential tasks of her employment, or any activities, after March 1997.

The documentary evidence relied on by Mrs. Lave to establish her employment income indicates that she resumed her duties, and her "salary," in April 1997.¹⁸ Mrs. Lave testified that she could not remember when she returned to work, but she thought it may have been in November 1998. I do not find her testimony about her medical condition or her return to work to be reliable. Furthermore, her belief, that she could not return to work because she could not follow her home-based fitness program if she were to resume extensive travel, is not evidence of a substantial inability to perform essential employment tasks or other activities of normal life.

Zurich's medical evidence also supports my conclusions. Dr. R. Soric, a physiatrist, conducted an insurer's examination (IE) on November 7, 1996, two months after the accident.¹⁹ He attributed Mrs. Lave's reported symptoms to mild soft tissue trauma. Despite her report that she could not engage in her regular business ventures as an international real estate developer due to pain and her feeling that she did not have "a clear mind," Dr. Soric concluded that his clinical findings and Mrs. Lave's reported symptoms did not justify limiting her level of function in any manner. He found that she was not substantially disabled from her former, or any, occupation. He rejected housekeeping assistance as not required, and in fact counterproductive, as it reinforced Mrs. Lave's sense of disability and dependency. Mrs. Lave did not agree with this report.

A March 1997 (DAC) multidisciplinary disability assessment concluded that Mrs. Lave's subjective discomfort did not disable her from participating in "...whatever normal daily routines she wishes..." and that there was "...no significant risk by gradually increasing her activity level to as normal a level as she wishes."²⁰ No structural impairments were found and objective findings were inconsistent with Mrs. Lave's subjective reporting.

C. Is Mrs. Lave entitled to housekeeping expenses of $60 per week from November 7, 1996 until April 30, 1997?

Although Dr. Soric concluded in November 1996 that housekeeping assistance was in fact contraindicated, Mrs. Lave's family physician did support it, and, furthermore, Mrs. Lave testified that she was never provided with assistive devices promised by the kinesiologist. I am prepared to accept that had she had these devices, she would have been able to resume her housekeeping duties more quickly. Accordingly, I find that Mrs. Lave is entitled to housekeeping expenses of $60 every two weeks from November 6, 1996 to April 30, 1997, for a total of $720.

D. Was the claim frivolous, vexatious or an abuse of process?

Subsection 282(11.2) of the Insurance Act provides as follows:

(11.2) If an insured person commences an arbitration that, in the opinion of the arbitrator, is frivolous, vexatious or an abuse of process, the arbitrator may award an amount to be paid by the insured person to the insurer that does not exceed the amount assessed against the insurer in respect of the arbitration under section 14. 1993, c. 10, s. 33.

The "amount assessed against the Insurer" refers to the $3,000 arbitration fee the insurer is required to pay to the Commission when an insured person commences an arbitration. Zurich has asked for an order that Mrs. Lave be required to repay some or all of the cost of this assessment, on the grounds that her ongoing refusal to provide information it requested prejudiced its ability to prepare and present its case and unnecessarily prolonged the proceedings. Zurich argued that had it been able to obtain the requested information, it would have dealt with the file very differently, and that the matter might have been resolved without the need for a hearing.

I agree with Zurich's arguments.

Early disclosure of relevant supporting documents is a key requirement of the dispute resolution process at the Commission. Rule 32 of the Dispute Resolution Practice Code, Third Edition, April 15, 1997 (the "Code"), sets out the ongoing responsibility of the parties to ensure the prompt and complete exchange of documents and the arbitrator’s power to order compliance.

The types of documents required to be produced to support a claim for income replacement benefits are set out in Practice Note 4 of the Code. They include clinical notes and records of treating physicians, an OHIP statement listing the physicians who treated the insured person prior to the accident, certain employment records, certified income tax returns from Revenue Canada for the year before the accident and the year of the accident, and financial statements for self-employed claimants for the same time periods. In some cases additional source documents may be required to objectively verify that a person was employed and that they received income from employment.

Beginning September 11, 1997, Hrycko and Associates made several requests in writing to Mrs. Lave, on behalf of Zurich, for financial statements, source documents and corporate and personal income tax returns, as well as the working files of the accountants who prepared these documents, to assist them to quantify the weekly income replacement benefit payable to her.²⁰In addition, the Insurer, through its solicitor, wrote three more times requesting that this, and other medical information, be produced prior to the pre-hearing scheduled for February 26, 1999 at the Commission.²¹ The requested documents were not produced.

At the pre-hearing, Arbitrator Allen reviewed the list of documents requested by Zurich and its accountants and found them to be relevant to the disputed disability and quantum issues. Accordingly, she made the following order in her letter to the parties dated March 8, 1999:

ORDER:

I therefore order Mrs. Lave to produce the documents (items 1 though 11 inclusive) requested by Zurich on pages 1 and 2 of its January 18, 1999 letter; and items i) through v) in Hrycko & Associates' letter of September 11, 1997. I attach copies of these letters to this letter for Mrs. Lave's convenience.²²

Zurich's solicitor subsequently wrote to Mrs. Lave several times, sending authorizations and requesting the documents that Arbitrator Allen had ordered her to produce. On January 11, 2000, Mrs. Lave finally authorized the Insurer to obtain the clinical notes and records of her family doctor. She never permitted Zurich to obtain an OHIP summary or the insurance file relating to a previous motor vehicle accident. No financial source documents were ever produced.

Mr. Lave testified that his company was international, with businesses all over the world, and that he did not have the time to produce the requested documents on behalf of his wife. He felt that a Canadian accountant's statement for his international company was sufficient. He was very clear that he decided what he would produce based on his desire not to divulge any more of his company's business dealings than he felt was absolutely necessary. His frequent response of "That is none of your business" to the Insurer's legitimate questions on cross-examination speaks for itself.

I find that Mr. and Mrs. Lave made a conscious decision not to produce the information requested. I find that, as a result, the Insurer was prevented from properly adjusting its file and was prejudiced in preparing it for arbitration.

Furthermore, I find that Mr. and Mrs. Lave wilfully ignored Arbitrator Allen's order. By doing so, and by refusing to comply at any time with the disclosure requirements of the Commission, or to answer questions relevant to the dispute at the hearing, they demonstrated a contempt for the proceedings of the Commission that amounts to an abuse of that process.

Where an arbitrator finds that there has been an abuse of process, subsection 282(11.2) of the Insurance Act requires the arbitrator to exercise her discretion to determine whether Mrs. Lave should be required to repay to the Insurer all or part of the assessment it was required to pay to arbitrate her claim. Prior to considering an award against Mrs. Lave under the Act, I invite the parties to make submissions on this issue, if they wish, on the terms set out below.

EXPENSES:

Subsection 282(11) of the Insurance Act permits an arbitrator to award to either party its expenses incurred in respect of the arbitration proceeding. The expenses that may be claimed, and the criteria for awarding expenses are contained in the Schedule to Regulation 664²³ and are set out in section F of the Code under "Expense Regulation." This document is available from the Commission or from the Commission's website.

The criteria for awarding expenses include each party's degree of success in the proceeding; conduct of either party that tended to shorten or facilitate the proceeding or that tended to prolong, obstruct or hinder the proceeding, including failure to comply with undertakings or orders; whether any position taken by either party during the proceeding was an abuse of process; and, at the request of either party, any written offers to settle.

Prior to exercising my discretion in accordance with the criteria set out in the Expense Regulation, I invite the parties, if they wish, to make submissions on this issue either by telephone conference or in writing no later than July 14, 2000.

June 26, 2000

Susan Sapin Arbitrator

Date