Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2000 ONFSCDRS 166

Appeal P99-00066

OFFICE OF THE DIRECTOR OF ARBITRATIONS

JOSE PIRES

Appellant

and

ZURICH INSURANCE COMPANY

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

Joseph J. Faust (for Jose Pires)

Darrell P. March (for Zurich Insurance Company)

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 and the arbitration order dated November 19, 1999 is confirmed.
Jose Pires shall pay Zurich Insurance Company’s appeal expenses fixed at $1,500, all inclusive.

September 8, 2000

David R. Draper Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an appeal by Jose Pires from an arbitration order dated November 19, 1999. He contends that the arbitrator erred in denying his claim for income replacement benefits (“IRBs”) beyond April 22, 1996 and ordering him to repay the benefits he received from Zurich Insurance Company (“Zurich”), totalling $51,761.86, plus interest from December 9, 1997.

II. BACKGROUND

Mr. Pires was injured in an automobile accident on April 23, 1994. He applied to Zurich for accident benefits under the SABS-1994,¹ claiming he was employed as foreman for a numbered corporation, earning approximately $1,000 in gross weekly wages. In support of his application, he submitted an Employer’s Confirmation of Income form apparently completed by the manager of the numbered company, Avelino Campos. This form confirmed that Mr. Pires earned $4,000 (gross) in the four weeks before the accident and that his essential job tasks consisted of lifting drywall sheets, hammering, plastering and taping.

Based on this information, Zurich paid IRBs of $603.99 for 100 weeks, less deductions for the collateral benefits that Mr. Pires received from other disability carriers. The matter proceeded to arbitration on the question of Mr. Pires’ entitlement to IRBs beyond April 22, 1996. He claimed that he continued to meet the test for IRBs and, therefore, was entitled to further IRBs and an offer of loss of earning capacity benefits (“LECBs”). Zurich argued that not only was Mr. Pires no longer entitled to any further IRBs, he should be ordered to repay all the IRBs he received because he misrepresented various aspects of his claim. It claimed he was not an employee, but ran his own drywall company that he continued to operate after the accident, generating more income than before the accident.

Although the background is somewhat complicated, it is clear that the arbitration was to address both issues: Mr. Pires’ entitlement to weekly benefits (IRBs and LECBs) after April 22, 1996, and Zurich’s claim for repayment. In addition, Mr. Pires argued that Zurich should be ordered to pay a special award on the basis that it unreasonably refused to pay benefits.²

The arbitration hearing was lengthy, taking place over seven days in November 1998 and July 1999. This is considerably longer than the average. The parties filed extensive exhibits and nine witnesses testified.

The arbitrator rejected Mr. Pires’ claims. In doing so, she made strong findings against his credibility. At page 10 of the decision, she states that “he has lied to this tribunal about the operation of his business for the purpose of preserving the benefits he has received and for the purpose of obtaining further benefits.” More specifically, she found that Mr. Pires’ essential duties involved running the business and supervising the drywall installation, not personally installing drywall as he maintained, and that he continued to perform these duties after the accident. Accordingly, she concluded that he was capable of performing his essential duties “shortly after the accident.”

The arbitrator did not stop there. In case she was mistaken about Mr. Pires’ job duties, she considered his ability to do drywall installation. She acknowledged that this was heavy work, but did not feel she could rely on his evidence about his limitations. Given the lack of objective findings to support his claim of debilitating low back pain, his failure to disclose his involvement in two previous accidents, the inconsistency of his complaints to various doctors, and findings of “submaximal effort,” the arbitrator was not satisfied that Mr. Pires had proven his claim even if his pre-accident duties included drywall installation. On the contrary, she found that he was capable of resuming the heavy work of drywall installation well before April 1996.

As a result, the arbitrator concluded that Mr. Pires was not entitled to IRBs beyond April 22, 1996, or an LECB offer, and that Zurich was not liable to pay a special award. She then addressed the repayment issue. According to s.70(1) of the SABS-1994, an insured person must repay any benefits paid “through error, wilful misrepresentation or fraud.” Although there is a time limit for the recovery of benefits paid through error, it did not apply because Zurich claimed that Mr. Pires received IRBs as a result of wilful misrepresentation or fraud. In addition, the arbitrator found that Zurich provided notice that it was seeking repayment as required by s.70(5), a finding that is not challenged on appeal.

The arbitrator found that Mr. Pires made several misrepresentations to Zurich:

he applied for benefits as an employed person, failing to disclose that it was his company and taking great pains to maintain the fiction that he was a mere employee;
he deliberately misstated his pre-accident income in the mistaken belief that a weekly income of $1,000 would entitle him to IRBs at the maximum rate; and
he concealed the fact that he continued to operate his business after the accident.

The arbitrator recognized that Mr. Pires was not required to repay benefits simply because he misrepresented his situation. According to s.70(1) benefits are only repayable if they are “paid through error, wilful misrepresentation or fraud.” Therefore, she asked if he received benefits as a result of his misrepresentations, concluding that he did.

The final question was the amount of the repayment. In other words, how much of the benefits that Mr. Pires received were paid as a result of his misrepresentations. Zurich argued that he was never entitled to any IRBs and, therefore, should be required to repay the entire amount. In support of its position, Zurich submitted an accountant’s report comparing Mr. Pires’ pre- and post-accident income by treating him as self-employed and attributing all of the company’s earnings to him. The arbitrator accepted this approach, as it was consistent with her findings and was not challenged by Mr. Pires. Based on the accountant’s conclusion that Mr. Pires’ post-accident income exceeded his pre-accident income, the arbitrator found that IRBs were never payable. As a result, she ordered him to repay the entire amount, totalling $51,761.86, plus interest from 15 days after Zurich gave notice of its intention to seek repayment — December 9, 1997.

III THE APPEAL

Mr. Pires appeals from the arbitrator’s order, seeking a completely new hearing, or, in the alternative, a new hearing on the amount of the repayment. The grounds for the appeal are somewhat difficult to follow, as there are substantial differences in the arguments presented in the Notice of Appeal, written submissions and oral submissions. In my opinion, however, the decision is unassailable. The arbitrator carefully defined the issues and made clear findings that are overwhelmingly supported by the evidence. Unfortunately, Mr. Pires did not present his claims honestly. While the consequences are harsh, they flow directly from his actions.

In his written submissions, Mr. Pires argues that the Commissioner’s Guideline allows an insured person’s in his situation (a shareholder of a limited company who draws a salary) to deal with the insurer as an employee. The problem with this argument is that Mr. Pires did not draw a regular salary. Further, the arbitrator makes it clear that this was not the most important issue. As she states, Mr. Pires could still qualify for IRBs as self-employed. The more serious problem was that he fabricated his income, attempting to maximize his entitlement to IRBs.

Mr. Pires also challenges the arbitrator’s findings about his essential job duties. I find no merit in this argument. The decision reflects a careful analysis of the evidence that should not be disturbed on appeal. Strangely, Mr. Pires argues there was no evidence that he did any administrative work for his business. This leaves the obvious question — who did?

With respect to disability, Mr. Pires claims that the arbitrator ignored the fact that Zurich insurer paid IRBs for almost two years based on the same medical evidence that was before her. The important variable is that Zurich assessed him as a labourer, which is how he presented himself. When it became apparent that his job duties were not as physically demanding as he claimed, the analysis changed. The arbitrator properly considered the medical evidence in light of Mr. Pires’ actual job duties, as she found them. She concluded that he did not meet the test for IRBs after April 1996, bolstering her decision by finding that he would not have met the test even if his pre-accident job duties had been as he described them.

The objection seems to be that the arbitrator should not have looked backwards and considered Mr. Pires’ disability before April 1996. It is important to note, however, that the repayment order was not based on her findings about disability. It was based on the fact that Mr. Pires earned more after the accident than he did before.

Mr. Pires’ oral arguments focus more on the repayment issue. He submits that the arbitrator erred in failing to recognize that the onus was on Zurich to prove that he received all of the benefits as a result of misrepresentation or fraud. In my opinion, the decision reflects otherwise. The arbitrator did not penalize Mr. Pires simply because he received benefits to which he was not entitled or because he misled Zurich. She carefully considered whether the evidence established that his misrepresentations resulted in the overpayment.

In addition, at page 15 of the decision, the arbitrator addresses Mr. Pires’ argument that Zurich failed to meet its evidentiary onus by not calling the adjuster who was responsible for paying his benefits. Although she rejected this argument, there is no suggestion that she did so on the basis that Mr. Pires, not Zurich, had the onus.

Mr. Pires also contends that having found that he was self-employed, it was incumbent on the arbitrator to consider his pre-accident income over both the 52 and 156 weeks before the accident to determine if he had any entitlement to IRBs. I cannot agree. Mr. Pires misled Zurich and the arbitrator about his employment situation. He based his claim on the four weeks before the accident, an option not available for self-employed persons. The financial information that he provided was sufficient to allow the accountant retained by Zurich to calculate his income over the 52 weeks before the accident, but not the 156 weeks. The arbitrator accepted his conclusions as, in my view, she was entitled to do. I am not persuaded that either Zurich or the arbitrator had any higher obligation to reconsider Mr. Pires’ situation.

For these reasons, the appeal is dismissed.

IV. APPEAL EXPENSES

Mr. Pires conceded that if he was unsuccessful, he should not be entitled to expenses. Zurich argued, however, that he should be ordered to pay its costs, suggesting that they be fixed at $2,500.

In my opinion, this appeal had little merit. It seems to have been prompted by the size of the repayment order, not any real problem with the decision. I conclude that Mr. Pires must bear some of Zurich’s expenses. This was a short hearing involving relatively straightforward arguments. In the circumstances, Zurich’s appeal expenses will be fixed at $1,500, all inclusive.