Financial Services Commission

Commission des services financiers de l’Ontario

Neutral Citation: 2001 ONFSCDRS 24

Appeal P00-00018

OFFICE OF THE DIRECTOR OF ARBITRATIONS

PETER PRICE

Appellant

and

LIBERTY MUTUAL INSURANCE COMPANY

Respondent

Before:

David R. Draper, Director's Delegate

Counsel:

Daniel J. Balena (for Peter Price)

Peter Kazdan (for Liberty Mutual)

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 February 4, 2000, as corrected on February 29, 2000, is confirmed.
No appeal expenses are payable.

February 19, 2001

David R. Draper Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Peter Price appeals from an arbitration order dated February 4, 2000. He submits that the arbitrator erred in law in rejecting his claim that he had self-employment income that would increase the amount of his weekly income replacement benefits (“IRBs”) under the SABS-1996.¹

II. BACKGROUND

Mr. Price was injured in an automobile accident on May 27, 1997. He received some accident benefits from Liberty Mutual Insurance Company (“Liberty Mutual”), but a number of issues arose with respect to his entitlement:

Liberty Mutual claimed that Mr. Price was excluded from receiving IRBs because he knew or ought to have known that the driver of the automobile in which he was an occupant was operating it without the owner’s consent (“the exclusion issue”).
Even if Mr. Price was not excluded from receiving IRBs:
- Liberty Mutual did not accept that he met the disability test for IRBs beyond October 7, 1998 (“the disability issue”).
- Liberty Mutual accepted that he had employment income in the 52 weeks preceding the accident that would result in IRBs of $81.30 per week. However, it did not accept his claim that he also earned self-employment income through a number of home renovation and wood cutting jobs that would increase his IRBs to over $300 per week (“the quantum issue”).

The arbitration hearing proceeded in an unusual manner. In October 1998, the arbitrator heard evidence on the exclusion and quantum issues. However, because some of the medical evidence was not provided until shortly before the hearing, she adjourned the disability issue.

During the first part of the hearing, Mr. Price’s memory became an issue. He claimed that he suffered a head injury in the accident and, as a result, could not remember much about the jobs that formed the basis of his claim for increased IRBs. Liberty Mutual argued that his limited recollection was a matter of credibility. To address this issue more fully, the arbitrator deferred her decision on quantum until after she heard the evidence on disability at the resumption of the hearing.

The arbitrator issued a preliminary decision on the exclusion issue in November 1998, one month after the first part of the hearing ended. She concluded that Liberty Mutual had failed to establish that Mr. Price knew or ought reasonably to have known that the driver was operating the automobile without the owner’s consent. Therefore, he was entitled to pursue his claim for IRBs.

The remaining issues were scheduled to be heard in August 1999, but were adjourned until October 1999. By that time, the parties had settled the question of Mr. Price’s entitlement to IRBs (the disability issue), leaving only the quantum issue.

As noted above, Mr. Price claimed that in addition to employment income, he was also self-employed, earning income doing handyman-type work for a number of homeowners. However, not only was his memory of these jobs quite limited, he had no records at all. Further, his 1996 income tax return, filed before the accident, did not include any self-employment income.

To document the claim, Mr. Price’s father, Stanley Price, obtained undated, handwritten letters from eleven customers, including himself, and submitted them to Liberty Mutual as part of his son’s application for accident benefits. In two cases (Price and Bragg), the letters stated that the amount paid was for labour only. The other letters indicated that the payment was for labour and materials, without any breakdown, or simply set out the amount paid with no indication of whether materials were included or not.²

Shortly before the start of the October 1998 arbitration hearing, Mr. Price withdrew his claim for two of the eleven jobs (Jukes and Brown). To support the remaining claims, his father took photographs of most of the other jobs, including the one for Mr. and Mrs. Bragg. At the start of the hearing, Mr. Price also withdrew his claim for the Bragg job. Liberty Mutual responded by calling Mr. Bragg, who testified that Mr. Price never did any work for him.

Mr. Price called five of the remaining eight homeowners (Laffin, Lukawesky, Davison, Fenton, and Stanley Price) and the daughter of a sixth (Baker). The key documents filed on the quantum issue were the following:

Two reports, dated August 12, 1997 and October 16, 1998, from J.P. Flanagan & Associates Limited, an accounting firm retained by Liberty Mutual.
Two reports, dated October 16 and 21, 1998 from Kenneth R. Craven, an accountant retained by Mr. Price.
An unsigned T1 Adjustment Request form, completed in 1998, reporting net business income of $25,491 for 1996, supported by a Statement of Business Activities prepared by Ian M. Taylor, C.A., detailing the calculation of Mr. Price’s business income.
A handwritten sheet, setting out calculations that the arbitrator pointed to as the source of the Craven reports and the income tax adjustment.

Liberty Mutual challenged the credibility and sufficiency of Mr. Price’s evidence. It argued that the gaps and inconsistencies in the evidence, particularly given the close relationship between Mr. Price, his father and most of the homeowners, undermined the claim to the extent that it should be rejected.

The arbitrator rejected Mr. Price’s claim that his poor memory was due to a head injury suffered in the accident. However, she also rejected Liberty Mutual’s submission that it was a matter of credibility. Instead, she found that his limited memory was likely due to other factors, including the passage of time, his limited ability with numbers and the traumatic experience of the accident.

Although the arbitrator described the evidence as weak, she accepted that Mr. Price “did the wood cutting job for Mr. Baker and the renovations at the homes of his father, Ms. Laffin, Mr. Lukawesky, Mr. Fenton, Mr. Davison, Mr. Johnson and Mr. Tully” — the eight jobs he pursued at the hearing. The problem was in determining what income, if any, he earned from these jobs.

The arbitrator acknowledged that income need not be proven with precision, and that small businesses should not be expected to maintain the same kind of sophisticated business records as large corporations. She held, however, that insured persons must prove their income “on a reasonable basis with reliable documentation,” relying on my decision in Mills and Canadian General Insurance Company, (OIC P-005599, October 8, 1996). On the evidence before her, the arbitrator concluded that Mr. Price had not met this onus. Consequently, she ordered that he was only entitled to IRBs of $81.30 per week based on his employment income, with no additional amount for self-employment income.

III. THE APPEAL

Mr. Price claims that the arbitrator erred in law in her approach to the evidence. He contends that he presented the best evidence available and, while it may not have established his self-employment income precisely, he submits that it was sufficient to allow the arbitrator to arrive at a reasonable amount. More specifically, he argues that the arbitrator erred as follows:

Having found that Mr. Price did the eight jobs, she failed to explain why he was not entitled to credit for some income, at least for the “labour-only jobs” where his income is easy to determine.
She found the evidence unreliable based on the following irrelevant considerations — what counsel referred to as “the three hits”:
- she inappropriately drew a negative inference based on the fact that Mr. Price did not pursue his claim for the Brown and Jukes jobs (p.18);
- she inappropriately drew a negative inference based on Mr. Price’s decision not to call Mr. Bragg as a witness and to withdraw his claim that he did work for Mr. Bragg (p.8); and
- she inappropriately drew a negative inference from the decision of Mr. Price’s accountant to include business expenses on his adjusted income tax return, while his father testified that he had no business expenses other than materials (p.19).

Liberty Mutual submits that it was up to the arbitrator to determine the sufficiency of the evidence. Given the lack of records, it claims she was well within her authority to conclude that the incomplete information gathered from largely non-arms-length customers, and the father’s inconsistent speculations about the cost of materials, did not provide a reasonable basis for establishing Mr. Price’s pre-accident income from self-employment. For reasons that follow, I agree.

Lack of documentation is a serious problem. Anyone who operates a business without keeping records runs a variety of risks, including the possibility that he or she will be unable to prove pre-accident income in the event of an automobile accident. I do not accept Mr. Price’s suggestion that the “best evidence” available will necessarily be sufficient. Although arbitrators have a broad discretion to evaluate the evidence, they are not obliged to “fill in the gaps.” The insured person must present a reliable basis for determining his or her pre-accident income.

In this case, the arbitrator clearly had reservations about the evidence. Even on the initial question of whether Mr. Price was self-employed at all, she found the evidence weak. Although she accepted that he did the eight jobs, in my opinion, that is the extent of her finding. The arbitrator gives no indication that she was persuaded by the details of the homeowners’ evidence, including the amounts they paid to Mr. Price. If anything, she expresses doubts. For example, at page 7, she comments generally on their evidence as follows:

The homeowners stated that they paid Mr. Peter Price in installments but they could not recall the details of the installment arrangements. Further, the homeowners stated either that they did not obtain, or could not recall whether they obtained, receipts from Peter for their cash payments to him and hence did not produce receipts for the hearing. (p.7)

The arbitrator also considered the evidence pertaining to the Bragg job, which Liberty Mutual argued showed the dishonesty of Mr. Price’s claim. Again, the arbitrator was not convinced that the whole claim was a sham. However, she found that Mr. Price’s willingness to advance a claim for a job he did not do, withdrawing it only at the hearing, weakened the reliability of his evidence “as a whole.”

After accepting that Mr. Price did the work, the arbitrator moved on to the second part of her decision — determining the amount of his self-employment income. Importantly, the issue was not whether Mr. Price earned income from any particular job, but whether he had established his total income in the 52 weeks before the accident with any reasonable certainty. The problem was that no one could present a complete picture. Not only were there no pre-accident records, Mr. Price, who would be in the best position to testify about his overall income, was unable to provide much information. That is why the father’s evidence about how the information was gathered and organized was so crucial. In this context, I find nothing wrong with the arbitrator’s concerns about the shifting nature of the claim, particularly where one of the withdrawn claims (Bragg) was shown to have been for work that was never done.

I also find no reason to question the arbitrator’s unwillingness to rely on the expense figures. Starting at page 14, she carefully outlines the inconsistencies and other weaknesses in this evidence. Most tellingly, she even questions whether Mr. Stanley Price, the father, was the one who prepared the labour/material splits for the jobs. In short, his testimony was crucial and the arbitrator did not find it credible.

Previous decisions have emphasized the need for clear and compelling testimony to overcome gaps in the documentary evidence.³ For example, in Sebastian, probably the most helpful case for Mr. Price, the arbitrator accepted reconstructed invoices as sufficient evidence of the insured person’s pre-accident income. In that case, however, the arbitrator found Mr. Sebastian’s testimony “believable” and noted that he had “an excellent memory of the work he performed for his customers.” In addition, Mr. Sebastian had some original, pre-accident invoices that were provided to his customers, invoices for his job-related expenses, and confirmation from his customers as to the amount they paid.

The insurer in Sebastian appealed. In her appeal decision, Director’s Delegate Naylor held, and I agree, that there is no hard-and-fast rule on what constitutes sufficient, reliable information. Much depends on the arbitrator’s assessment of the evidence, including questions of credibility. As Director’s Delegate Naylor states, this is precisely the kind of determination that an appeals adjudicator should be reluctant to disturb. The question is not whether the appeals adjudicator or another arbitrator might have come to a different conclusion, but whether the arbitrator erred in law in a manner that compromises the decision.⁴

The arbitration decision in this case would have been strengthened by some clearer credibility findings. I am satisfied, however, that it provides a sufficient rationale for the outcome. Reading the decision as a whole, the arbitrator was not convinced that the various pieces of information about Mr. Price’s income and expenses provided a sufficiently reliable or complete picture of his pre-accident income from self-employment in the 52 weeks before the accident. Unlike earlier versions of the SABS, she did not have the option of ordering IRBs at the minimum rate.⁵ Therefore, she ordered that Mr. Price’s IRBs be paid at $81.30 per week — the amount based on his employment income. In my view, this conclusion was within her authority and, therefore, I am not prepared to interfere.

IV. APPEAL EXPENSES

Although Mr. Price was unsuccessful, his appeal had sufficient merit that he should not be required to pay Liberty Mutual’s appeal expenses. As a result, the parties will bear their own appeal expenses.