Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2000 ONFSCDRS 56

Appeal P99-00043

Appellant

and

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

George O. Frank (for Liberty Mutual)

Leonard H. Kunka (for Joe Angolano)

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 August 6, 1999 is confirmed.
Liberty Mutual Insurance Company will pay Joe Angolano's reasonable appeal expenses.

March 20, 2000

David R. Draper Director’s Delegate

Date

This is an appeal by Liberty Mutual Insurance Company ("Liberty Mutual") from an arbitration order dated August 6, 1999. It claims the arbitrator erred in calculating Joe Angolano's loss of earning capacity benefits ("LECBs"), objecting to his approach to both parts of the equation — pre-accident earning capacity ("PEC") and residual earning capacity ("REC").

Mr. Angolano separated his shoulder in an automobile accident on December 9, 1994. As a result, he was unable to return to his pre-accident work as a self-employed installer of aluminum windows and other aluminum products. Liberty Mutual accepted that he was entitled to income replacement benefits ("IRBs") under the SABS-1994,¹ but paid him at the minimum amount of $185 per week because his income tax returns showed losses for the three years before the accident.²

Liberty Mutual continued to pay IRBs until the 104-week mark, when it was required by s.21(1)1 of the SABS-1994 to make a written offer to Mr. Angolano with respect to the payment of LECBs. According to s.28, LECBs are calculated based on 90 per cent of the difference between the insured person's PEC and his or her REC.

In December 1996, Liberty Mutual made a zero offer to Mr. Angolano based on its determination that his REC exceeded his PEC. Mr. Angolano rejected both aspects of Liberty Mutual's determination and requested an assessment by a Residual Earning Capacity - Designated Assessment Centre ("REC-DAC"). The REC-DAC did not support his position, concluding that there was suitable work he could do. More specifically, the REC-DAC's suggested he could work as an estimator for window and aluminum siding installations, a parking lot attendant or a gas bar attendant, with the estimator job seen as the most appropriate option.

At the arbitration hearing in June 1999, Liberty Mutual maintained its position that Mr. Angolano's LECB entitlement was zero, based on minimal, if any, pre-accident earnings and the REC-DAC's finding that his REC was $26,000. Mr. Angolano argued that his pre-accident earnings were higher than reported on his income tax returns, claiming a PEC based on annual income of approximately $20,000 and a REC of zero.³

The arbitrator did not accept either party's figures. He concluded that Mr. Angolano should be paid LECBs of $251.45 per week, based on a PEC of $279.39 [$18,391 per year or $354 per week (gross)] and a REC of zero. Liberty Mutual appeals from this order, claiming that the arbitrator erred in law in determining both PEC and REC.

For reasons that follow, I am not convinced that the decision is compromised by any error of law.

A. Pre-accident Earning Capacity (PEC)

It is important to locate LECBs within their broader legislative context. They are the long-term weekly benefit designed to compensate accident victims with disabilities that continue for more than the prescribed period — generally two years. Because the related version of the Insurance Act eliminated the right to sue for economic loss, the weekly benefits provided in the SABS-1994, including LECBs, represent the injured person's source of compensation for lost income.

As stated above, LECBs are calculated based on 90 per cent of the difference between the insured person's PEC (determined according to s.29) and his or her REC (determined according to s.30). For those who qualified for IRBs because they were employed at the time of the accident, their PEC is based on the same amount used to calculate their IRBs.⁴ However, the calculation is different for those who were self-employed⁵:

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. [emphasis added]

"Personal and vocational characteristics" are defined in s.1 of the SABS-1994, as follows:

"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;

Therefore, Mr. Angolano's PEC is based on the gross annual income from employment that he could reasonably have earned at the time of the accident, having regard to his personal and vocational characteristics, including those listed above.⁶

The transcript of the arbitration hearing shows considerable discussion about whether Mr. Angolano was relying on what he actually earned before the accident, or what he was capable of earning. This reflects the central problem in the case. Mr. Angolano under-reported his income to Revenue Canada and had no records to establish his income from "cash jobs."

As I read the record, Mr. Angolano did not argue that his pre-accident income misrepresented his earnings potential. He acknowledged that he was working as hard as he could in an occupation where he had 19 years experience and no plans to leave. In other words, he did not claim that based on his personal and vocational characteristics, he could reasonably have earned a higher income. Rather, he argued that in determining his LECBs, his PEC should be accepted at a level beyond that shown in his income tax returns, business records and other documentary evidence.

At page 4 of the decision, the arbitrator sets out his finding that "what Mr. Angolano could reasonably have earned at the time of the accident having regard to his personal and vocational characteristics at that time is what he actually earned prior to the accident." Liberty Mutual argues that having made this finding, the arbitrator was obliged to follow a long line of arbitration and appeal decisions holding that although an insured person is not bound by his or her income tax returns, the claim must be corroborated through independent, credible and reliable evidence. It is not enough, Liberty Mutual argues, for Mr. Angolano and his spouse to make bald assertions about his income, particularly where their evidence is inconsistent.

Previous decisions express legitimate concerns about claims for weekly benefits that are unsupported by documentation. The insured person must be able to establish his or her pre-accident earnings on some verifiable basis. In my view, however, the approach to PEC should be somewhat more flexible. It is part of an equation comparing the insured person's pre-accident earning capacity with his or her post-accident or residual earning capacity. Therefore, I agree with Mr. Angolano that the approach should attempt to balance the equation in some reasonable manner.⁷

In this case, Liberty Mutual relied on the REC-DAC's conclusion that Mr. Angolano could work as an "estimator, aluminum siding and windows," with an estimated annual salary of $26,500. This position was seen as particularly appropriate because it was part of what Mr. Angolano did prior to the accident. The problem is evident. If he is only able to do part of his pre-accident work, how can his REC be greater than his PEC?

The evidence in this case did not come only from Mr. Angolano and his spouse. Mr. Denys Remedios, a rehabilitation expert hired by Liberty Mutual, also testified. According to the arbitrator, Mr. Remedios estimated that Mr. Angolano would have earned $24,000 to $35,000 in 1994, the year of the accident. He reported that a residential and commercial installer earned $23,740 to $41,112 per year, with a construction worker earning about the same.

The arbitrator appropriately used Mr. Remedios' evidence to evaluate the strength of Mr. and Mrs. Angolano's testimony. He found that their evidence supported an annual pre-accident income of $18,391 — about $5,000 less than Mr. Remedios' estimate. Despite the lack of documentary support, the arbitrator clearly found their evidence credible and was willing to accept their relatively conservative estimates.

In my view, the decision reflects an appropriately flexible approach to LECBs. In measuring Mr. Angolano's diminished capacity, the arbitrator determined his pre-accident income in a manner that allowed a fair comparison with his residual capacity. Consequently, I am not prepared to interfere.

B. Residual Earning Capacity (REC)

Residual earning capacity is determined under s.30 of the SABS-1994, which provides:

30.— (1) For the purpose of this Part, the residual earning capacity of a person shall be deemed to be the net weekly income determined in accordance with section 81 or 82 using the gross annual income that the person could earn from the type of employment that best satisfies the criteria set out in subsection (2).

(2) The criteria referred to in subsection (1) are:

The person,

i. is able and qualified to perform the essential tasks of the employment, or

ii. would be able and qualified to perform the essential tasks of the employment if the person had not refused to obtain treatment or participate in rehabilitation that was reasonable, available and necessary to permit the person to engage in the employment.

The employment exists in the area in which the person lives and is accessible to the person.

It would be reasonable to expect the person to engage in the employment having regard to the possibility of deterioration in the person's impairment and to the person's personal and vocational characteristics.

(3) For the purpose of subsection (2), a person is able and qualified to perform the essential tasks of an employment if,

(a) the person does not have any impairment that permanently prevents the person from performing those tasks; and

(b) the person has the job skills and any licence or other credentials required to perform those tasks, or could obtain those skills and the licence or credentials without significant effort. [emphasis added]

Liberty Mutual claims that the arbitrator erred in law in rejecting any employment that did not meet all of the criteria, including all of Mr. Angolano's personal and vocational characteristics. In its submission, s.30(1) specifically provides that the insured person's REC is based on "the type of employment that best satisfies the criteria."

Although there is some linguistic basis for Liberty Mutual's position, it is overly technical. Viewing the section as a whole, it anticipates a real job that exists in the area and is one that the insured person could reasonably be expected to take. The first question is whether any employment meets the criteria. If none does, it would be inappropriate to ask which one "best satisfies the criteria." If that were the approach, no one would have a zero REC. Determining which employment best satisfies the criteria is only necessary if there is more than one option.

In support of its position, Liberty Mutual relies on the following paragraph from the arbitration decision in Lehman and GAN Canada Insurance Company, (OIC A96-001417, October 27, 1997):

Section 30 sets out a number of criteria to be met by the insured person and the designated occupation. It does not require, however, that the insured person and the position meet all the criteria. Residual earning capacity is based on the net weekly income for the type of employment "that best satisfies the criteria." [my italics]. The parties do not dispute that Mr. Lehman is able and qualified to perform the essential tasks of both the electronics assembler/fabricator and the restaurant sales positions. The parties agree that Mr. Lehman is able and qualified for both positions. The dispute centres on which designated occupation best fits the criteria set out in section 30.

In Lehman, however, the parties agreed that the insured person was able and qualified to perform the essential tasks of two types of employment. The question was which one best satisfied the criteria. On appeal, I held that the arbitrator properly considered Mr. Lehman's "bona fide, pre-established" preference for one type of employment over the other.⁸ In my view, this analysis is of little assistance here.

While I do not accept Liberty Mutual's argument, I also do not agree with the other extreme. Employment is not inappropriate simply because it is not the insured person's first choice. Some flexibility is required, as reflected in the rehabilitation and back to work provisions. The degree of flexibility will depend on the particular circumstances. In this case, the arbitrator was dealing with a 60-year-old man who had run his own small business for 19 years. He provides detailed reasons for rejecting the various job proposals which, although perhaps on the restrictive side, do not reflect any error of law.

IV. APPEAL EXPENSES

Given the outcome, Mr. Angolano should receive his reasonable appeal expenses, determined under Reg. 664 of R.R.O. 1990, as amended. Liberty Mutual did not suggest otherwise. The parties should attempt to resolve the amount as set out in Rule 77 of the Dispute Resolution Practice Code. If the matter is not resolved, an assessment of expenses can be arranged.