Neutral Citation: 2003 ONFSCDRS 46

FSCO A01-001012

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JOSEPH ROVELLA

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before:

Joyce Miller

Heard:

September 9, 10, 11, 12 and 13, 2002, at the offices of the Financial Services Commission of Ontario in Toronto.

Written submissions were received on October 25, 2002.

Appearances:

Ian A. Little for Mr. Rovella

Robert S. Franklin for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Joseph Rovella, was injured in two motor vehicle accidents on January 18, 1997. He applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company ("State Farm"), payable under the Schedule.¹ State Farm terminated weekly income replacement benefits on April 10, 2000. The parties were unable to resolve their disputes through mediation, and Mr. Rovella applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues in this hearing are:

1. Is Mr. Rovella entitled to receive a weekly income replacement benefit pursuant to section 4 of the Schedule from April 11, 2000 and ongoing?

2. What is the amount of weekly income replacement benefit that Mr. Rovella is entitled to receive pursuant to section 6 of the Schedule?

3. Is Mr. Rovella liable to repay State Farm the benefits he received from State Farm, pursuant to section 47 of the Schedule?

4. Is Mr. Rovella entitled to a special award pursuant to subsection 282(10) of the Insurance Act?

5. Is State Farm liable to pay Mr. Rovella's expenses in respect of the arbitration under subsection 282(11) of the Insurance Act?

6. Is Mr. Rovella liable to pay State Farm's expenses in respect of the arbitration under subsection 282(11) of the Insurance Act?

7. Is Mr. Rovella entitled to interest for the overdue payment of benefits pursuant to subsection 46(2) of the Schedule?

Result:

1. Mr. Rovella is not entitled to receive a weekly income replacement benefit.

2. The amount of Mr. Rovella's weekly income replacement benefit cannot be determined.

3. Mr. Rovella shall repay State Farm $33,997.72, pursuant to section 47 of the Schedule.

4. Mr. Rovella is not entitled to a special award.

5. Mr. Rovella is not entitled to his expenses.

6. Mr. Rovella shall pay State Farm's reasonable expenses in respect of the arbitration under section 282(11) of the Insurance Act.

PRELIMINARY MATTERS

There were several preliminary matters that I dealt with at the hearing. One dealt with an adjournment request by Mr. Rovella which I declined. The other dealt with a production request by Mr. Rovella to enter his business ledger and records, which I also declined. I advised the parties that I would give full reasons in my written decision which now follows.

After the hearing was over, I received further written submissions from Mr. Little wherein he requested that I reconsider my orders and asked for a reopening of the hearing so that he could tender further evidence. I declined to do so. Mr. Little did not provide me with any materially different arguments that were not presented at the hearing for me to reconsider my rulings. Accordingly, I did not reopen the hearing, nor did I consider his additional submissions in my reasons below.

1. Adjournment Request

(a) Submissions by Mr. Rovella

At the commencement of the hearing, Mr. Little, on behalf of Mr. Rovella, requested an adjournment in order to obtain an accountant's report. Mr. Little submitted that up until the hearing Mr. Rovella had been relying on the report of State Farm's accountants, Price Waterhouse Coopers, and the data it used to arrive at the figures in its report. The only thing Mr. Rovella disputed in the report was the methodology used by the accountants to arrive at its final figures. Mr. Little stated that it was only on the morning of the hearing that he learned that State Farm was questioning the accuracy of Mr. Rovella's business data and that Mr. Rovella would be required to prove expenses and revenues in respect of the issue of quantum.

Mr. Little submitted that Mr. Rovella also relied on what the Arbitrator had stated in the pre-hearing letter, which is as follows:

Mr. Rovella received income replacement benefits in varying amounts from January 25, 1997 to April 10, 2000. He claims he should have received income replacement benefits in the amount of $596.82 per week for the calendar year 1997 and $242.15 per week for the calendar year 1998, and undetermined amounts for 1999, 2000 and ongoing.

Mr. Rovella disputes the report of Price Waterhouse on the basis that Price Waterhouse included Mr. Rovella's weekly benefit in its calculation of 1998 income, that it averaged Mr. Rovella's revenues to expenses ratio and applied it in a way not sanctioned by the Schedule and that it should have added Mr. Rovella's losses for the year 1997 to Mr. Rovella's benefit as per section 6(5) of the Schedule.

Mr. Little argued that in his view these paragraphs limited the issue of quantum to a dispute as to the methodology used to arrive at the final number. Mr. Little maintained that it was only on the morning of the hearing that he was faced with something totally new and unexpected. He submitted he now had to retain an accountant to go over the data from Mr. Rovella's perspective. Accordingly, he requested that the arbitration be adjourned so that he could get an accountant's report.

(b) Submissions by State Farm

State Farm opposed the adjournment. Mr. Franklin submitted that the evidence does not support Mr. Little's impression that methodology was the only issue in dispute in calculating the amount of Mr. Rovella's income replacement benefit.

Mr. Franklin contended it was clear from Price Waterhouse Coopers' first report dated August 27, 1999 that the accountants had "serious concerns regarding the accuracy and completeness of the information provided in connection with this claim." On pages 6 and 7 of the report, the accountants noted a number of these serious concerns with respect to the accuracy of the tax returns and the expenses and sales provided.

Mr. Franklin submitted the pre-hearing letter clearly identifies quantum as an issue without limitations when it states: "What is the amount of weekly income replacement benefit that Mr. Rovella is entitled to receive pursuant to section 6 of the Schedule?"

Mr. Franklin argued that while there are two paragraphs in the pre-hearing letter which give Mr. Rovella's position on the quantum issue, the pre-hearing letter is silent as to State Farm's position. Mr. Franklin submitted it is unfair to State Farm that, because its position was not recorded by the pre-hearing arbitrator, the issue of quantum should be limited to the Applicant's position, namely, the methodology used to arrive at the quantum.

Mr. Franklin noted that in a letter dated September 10, 1999 from State Farm to Mr. Rovella requesting a repayment, State Farm appears to be offering a calculation for the quantum. However, Mr. Franklin submitted the reason for this calculation is that pursuant to subsection 47(2) of the Schedule an insurer is required to give notice of the amount to be repaid. Accordingly, Mr. Franklin submitted, State Farm was required to rely on some calculation to ask for its repayment.

Mr. Franklin stated that there is nothing in the letter asking for the repayment which would indicate that State Farm accepted this calculation as being the correct amount of Mr. Rovella's income replacement benefit. But rather, it was clear from the accountants' report attached to the letter that the underlying data on which the calculation was made was not being accepted. Mr. Franklin referred to the report of Price Waterhouse Coopers on January 23, 2001 where at page 3 it states:

We caution that, should this claim proceed to arbitration, it would not be appropriate to rely upon the results of the updated optional calculation. However, pending explanations for some of the observations set out in this report, and because of our concerns over the accuracy of the financial statements provided, we cannot recommend placing reliance upon Mr. Rovella's individual financial statements for the purpose of determining his income replacement benefit entitlement. [emphasis in original]

Mr. Franklin argued that, in any case, if Mr. Rovella was challenging the methodology used by Price Waterhouse Coopers, he was therefore challenging the concerns which gave rise to the use of the methodology, namely, the purported inaccuracy of Mr. Rovella's data regarding his business revenues and expenses. Since the burden of proof rests with Mr. Rovella to prove his quantum of the income replacement benefit, he should have been aware that he must prove the accuracy of the revenue and expenses upon which the quantum was based.

Mr. Franklin submitted that Mr. Rovella had ample notice and time to provide relevant business documents and his own accountant's report prior to the arbitration hearing. Mr. Franklin stated that to allow the adjournment would not only extend the length of the hearing but it would create additional unnecessary expenses - such as further production requests, a response to Mr. Rovella's accountant's report by its own accountants, and the calling of additional witnesses. Accordingly, Mr. Franklin submitted that State Farm opposed the late request for an adjournment.

Findings

For the following reasons I did not allow the adjournment request.

I found that the pre-hearing letter was clear in stating that the issue to be determined at the arbitration hearing was the correct amount of Mr. Rovella's income replacement benefit. I agreed with Mr. Franklin's submission that the two paragraphs under the issue merely stated Mr. Rovella's position. There is no indication in the pre-hearing letter that the parties had agreed to limit the quantum issue to the methodology used by State Farm's accountants. In fact, the letter states that the amount of Mr. Rovella's income replacement benefits for the years 1999 and 2000 were "undetermined," thus showing that Mr. Rovella was still obliged to prove the amount of his 1999 and 2000 income replacement benefit.

I did not accept Mr. Little's submission that he only became aware on the morning of the hearing that there was a problem with the underlying data with respect to calculating the quantum of Mr. Rovella's income replacement benefit. The three reports by Price Waterhouse Coopers provided to Mr. Rovella clearly state the Insurer's concern with the financial information provided by Mr. Rovella.

As early as August 27, 1999, Price Waterhouse Coopers in its report stated that "...we believe that the financial information provided by the claimant cannot be relied upon to accurately determine Renovating's² income either prior to or subsequent to the accident." [emphasis added]

In this report, the accountants summarize their findings as follows:

Based on our review of the documents provided (as set out later in this report), we have serious concerns regarding the accuracy and completeness of the information provided in connection with this claim. As a result, we have not prepared a formal calculation of the claimant's income replacement benefit using the documents provided. [emphasis added]

Notwithstanding our concerns, we have made a number of assumptions in order to prepare an optional calculation of the claimant's income replacement benefit. These optional calculations are briefly discussed in paragraphs 22 to 25 below.

We caution you that we offer no opinion on these optional calculations, [emphasis added]

These same concerns regarding the accuracy and completeness of the information provided by Mr. Rovella was also noted in Price Waterhouse Coopers' reports dated September 9, 1999 and January 23, 2001.

More significantly, a letter dated September 25, 1999 from Mr. Rovella to State Farm clearly shows that Mr. Rovella was aware that the quantum of his income replacement benefits was an issue in dispute. In this letter Mr. Rovella acknowledges he could hire an accounting firm to recalculate his income replacement benefit, thus showing that Mr. Rovella understood that he would need an accountant's report to defend his position.

In summary, I found Mr. Rovella's explanation for failing to obtain an accountant's report prior to the arbitration hearing not to be credible. I found that Mr. Rovella had ample notice that the financial information provided to State Farm's accountants was not being accepted to prove his income replacement benefit. Mr. Rovella, in his letter of September 25, 1999, clearly indicated that he was aware he would need his own accountant to defend his position. Given that the burden rested with Mr. Rovella to prove, on a balance of probabilities, the amount of his income replacement benefit, it is only reasonable to expect that Mr. Rovella would have sought to obtain his own accountant's report to answer the concerns of State Farm's accountants. Accordingly, I found that it was not reasonable in the circumstances of this case for Mr. Rovella to wait until the morning of the hearing to ask for an adjournment to retain an accountant. Accordingly, I denied the adjournment request.

2. Production Issue

During the course of the hearing Mr. Rovella attempted to enter into evidence his self-generated business ledger and business documents. State Farm objected to this late production.

The submissions with respect to the tendering of these documents into evidence were basically the same as those relating to the adjournment request and State Farm's opposition to the adjournment.

(a) Submissions by Mr. Rovella

Mr. Rovella submitted that until the morning of the hearing he did not believe that his business revenues and expenses data were a concern for the arbitration hearing. Mr. Little submitted the fact that in July 1999 Mr. Rovella had provided Price Waterhouse Coopers with his business records including tax returns meant he had fulfilled his obligation of producing his business documents to State Farm. Accordingly, his business ledger and supporting documents should be allowed into evidence.

(b) Submissions by State Farm

Mr. Franklin's submissions on behalf of State Farm were essentially the same as in its adjournment issue above, namely, the accountants' reports make it clear that there was concern about the accuracy of the data relating to Mr. Rovella's revenue and expenses as well as his tax returns. Moreover, State Farm had explicitly made production requests on several occasions for Mr. Rovella's business records. Mr. Rovella chose not to comply.

Mr. Franklin submitted that the documents provided to Price Waterhouse Coopers in 1999 cannot be viewed as production to State Farm for the purposes of this hearing. The documents given to Price Waterhouse Coopers were not as a result of a production request for the purpose of an arbitration, but for the purpose of giving State Farm an opinion regarding quantum and repayment issues. In any case, Price Waterhouse Coopers had returned the documents to Mr. Rovella without making a complete copy of the file. Nor did Price Waterhouse Coopers keep a list of every document they were allowed to review.

Mr. Franklin submitted that Mr. Rovella should have been aware from State Farm's production requests that State Farm required the production of relevant business documentation to support Mr. Rovella's claim. The correspondence between Mr. Franklin's office and Mr. Little shows that:

• On March 8, 2002, Mr. Franklin's office requested Mr. Rovella's bank records from 1997 to present, Mr. Rovella's income tax returns from 1992 to the present, and Mr. Rovella's business records and financial statements.

• On July 2, 2002, Mr. Franklin's office again reiterated its request made in the letter of March 8, 2002.

• On July 31, 2002, Mr. Franklin's office further reiterated its request for business records and sent a copy to FSCO requesting a pre-hearing resumption to deal with the outstanding productions.

Despite these production requests, on August 12, 2002 Mr. Little wrote to FSCO refusing to provide the requested business documentation, stating that Mr. Rovella had at all times given "State Farm's accountants full access to all original documentation and they have not found anything undisclosed."

Mr. Franklin submitted that the business documents requested by State Farm were relevant and should have been produced prior to the arbitration. Mr. Franklin submitted that he did not follow up with a resumption of the pre-hearing regarding production requests because he concluded that the burden of proof rests with the Applicant to prove the amount of his income replacement benefit and to provide the relevant supporting documentation to prove his claim.

Mr. Franklin submitted that Mr. Rovella had not provided any evidence that the request for this late production falls within Rule 39.2 of the Dispute Resolution Practice Code (the "Code") criteria of "extraordinary circumstances." State Farm, therefore, opposed the business ledger and records from being entered into evidence.

Findings

Rule 39.1 of the Code provides that:

Subject to Rule 39.2, all documents, reports (including experts' reports) and assessments to to be introduced at a hearing by either party must be served on the other party at least 30 days before the first day of the hearing.

Rule 39.2 of the Code provides that:

In extraordinary circumstances, a party may seek an arbitrator's permission to serve a document, report or assessment on the other party for use at a hearing less than 30 days before the first day of hearings.

Rule 39.3 of the Code provides:

The hearing arbitrator will determine the relevance, materiality, and admissibility of evidence submitted at the hearing, but will not admit evidence at a hearing that:

(c) was not served on the opposing party in accordance with Rules 39.1 and 39.2, unless the hearing arbitrator is satisfied that extraordinary circumstances exist to justify an exception. [emphasis added]

For the following reasons I disallowed the business ledger and records to be entered into evidence.

The burden of proof rests with Mr. Rovella to show that "extraordinary circumstances" existed to justify an exception to the Rule that his documents should have been produced within 30 days before the hearing. For the following reasons I found Mr. Rovella has not discharged his burden.

At all times Mr. Rovella was in possession of his own, self-generated business ledgers and records he now wished to produce at the hearing. These same records were the subject of a number of production requests by State Farm. Mr. Rovella chose not to respond to these production requests.

I did not find Mr. Rovella's explanation credible, namely, that he did not provide these documents because he did not believe he was required to prove his business expenses and revenues to determine the quantum of his income replacement benefit. As far back as August 1999, Mr. Rovella was provided with ample notice that his business expense and revenue data had not been accepted by State Farm's accountants as being accurate. On September 17, 1999, he was advised that State Farm was asking for a repayment indicating that they disputed the quantum of his income replacement benefit. The burden of proof at all times rested with Mr. Rovella to prove the quantum of his income replacement benefit. It was therefore only reasonable to expect that he should have been prepared to produce his business records in a timely fashion before the arbitration hearing for purposes of proving his quantum.

I did not accept Mr. Rovella's submission that for the purposes of this arbitration State Farm had production of his business records when he gave them to Price Waterhouse Coopers in July 1999. His own testimony shows that these documents were returned to him on August 17, 1999 before his income replacement benefits were terminated and before there was a dispute between himself and State Farm over the quantum of his income replacement benefit.

I did not receive any evidence which indicated that there were any "extraordinary circumstances" which prevented Mr. Rovella from producing these business records in a timely fashion. I note again these records were self generated by Mr. Rovella and always in his possession. There was nothing that prevented him from responding to the reasonable production requests by State Farm. Although Mr. Little submitted that State Farm should have pursued a resumption of the pre-hearing to deal with the production of the business records, I accept Mr. Franklin's submission that he chose not to do so, because in the end the burden of proof rested with Mr. Rovella.

In conclusion, it was up to Mr. Rovella to provide the evidence to prove his claim. He chose not to produce his business documents prior to the hearing. Moreover, he did not provide a credible or reasonable excuse as to why he made this choice. To allow Mr. Rovella to produce his self-generated business ledgers and records after the arbitration hearing had begun would be prejudicial to State Farm and cause an undue delay in the arbitration proceeding. Accordingly, pursuant to Rule 39.2 of the Code I declined to allow these records to be tendered as evidence at the hearing.

EVIDENCE AND FINDINGS

Background

Mr. Rovella is 32 years old. He is single and lives with his mother, his brother, his sister-in-law and their child. At the time of the accident, Mr. Rovella was the principal financial support of his family.

The accident happened on January 18, 1997. Mr. Rovella testified that he was driving south in the slow lane on Highway 427 at 5:30 a.m. on his way to work. He said it was snowing and blowing snow was causing visibility problems. He thought he saw a tire on the road which, in fact, turned out to be a pylon. He tried to avoid hitting it, lost control and his vehicle ended up hitting the guardrail on the driver's side. Mr. Rovella testified he hit his head and left shoulder against the inside door of his car.

A tow truck driver stopped to help, but Mr. Rovella decided his car did not need to be towed. He chose to continue to go to work. However, he began to feel nauseous and so he decided to go home. When he arrived at the entrance of his subdivision he blacked out and his car drove into one of the walls of the subdivision.

Mr. Rovella testified he lost consciousness. Police and ambulance arrived at the scene but he chose not to go to the hospital. He went home and fell asleep. When he woke up he was in pain. He felt pain in his knees, back and shoulder and decided to go to the hospital where he was examined and discharged.

Mr. Rovella testified he did not go back to work after the accident because his knees were swollen and painful and he had pain in his shoulder and lower back. He also had concentration and memory problems. Mr. Rovella stated that he underwent physiotherapy and took medication for his pain.

Mr. Rovella testified that he went back to work the third week in April and worked until June 20, 1997. He stated he stopped working because of pain and also he had difficulty climbing and descending stairs. He stated if he kneeled or squatted he paid for it the next day with pain. His productivity was slow.

Issue 1. Is Mr. Rovella entitled to an Income Replacement Benefit post 104 Weeks?

Mr. Rovella was paid a weekly income replacement benefit until April 10, 2000³which was more than 104 weeks post accident. Section 5 of the Schedule provides:

(1) Subject to subsection (2), an income replacement benefit is payable during the period that the insured person suffers a substantial inability to perform the essential tasks of the employment in respect of which he or she qualifies for the benefit under section 4.

(2) The insurer is not required to pay an income replacement benefit,

(b) for any period longer than 104 weeks of disability, unless, as a result of the accident, the insured person is suffering a complete inability to engage in any employment for which he or she is reasonably suited by education, training or experience;

Essential Tasks of Employment

Mr. Rovella testified that at the time of the accident the majority of his work was renovating bathrooms. Mr. Rovella stated that the work required that he make estimates on the cost of the job, purchase material, do drywalling, painting, basic plumbing and tiling.

Mr. Rovella testified that a typical day consisted of first preparing the materials and tools he needed for a particular job and loading them in his vehicle. He would then go to suppliers for other materials that he may need. At the job site he prepared the area by putting up tarps and setting out his tools and materials and would begin to work. Sometimes he had to leave the job site to get more materials. At the end of the day he completed his banking and paperwork entries.

Mr. Rovella testified he kept very detailed records of his contracts and had all his business information at his fingertips. He stated that he prepared a new file folder for each contract. For each contract he would note the estimate of the job. He would make notes on the job to be performed. He would also file his receipts, bills and photocopies of cheques he received. He would also note any cash payments received. He stated he kept a separate file with respect to general operation expenses where he kept all his receipts and records of payment of bills.

I accept that these were Mr. Rovella's essential tasks of his employment at the time of the accident.

The Medical Evidence

After the accident Mr. Rovella had three arthroscopic knee surgeries. The first operation was on his left knee on September 15, 1997. The second operation was on his right knee on January 28, 1998. He had a third operation on his left knee in October 1998.

Mr. Rovella testified that he felt better after the operations, but eventually the pain returned. Mr. Rovella testified that he returned to work between the second and third operation. He stated that Dr. Joseph Kwok, an orthopaedic surgeon who had performed the three surgeries, recommended a fourth arthroscopic surgery. He decided against it.

Mr. Rovella testified that he began to grind his teeth because of the stress he was feeling as a result of the accident and was provided with oral orthotics. As well, he began to have trouble with this feet because of his knee problems and the way he walked and he required foot orthotics.

Mr. Rovella testified that after his third operation he again returned to work in February 1999.

On February 3, 1999, Mr. Rovella underwent an insurer's medical examination with Dr. Paul Marks, an orthopaedic surgeon. In his report of the same date, Dr. Mark stated the following:

This client does appear to have sustained relatively minor injuries as a result of this motor vehicle accident. He states that, once again, his cervical and lumbar complaints have completely resolved. He is left with some residual discomfort and although he has undergone bilateral arthroscopies on the knees he continues with complaint. His examination of the knees is essentially unremarkable. Specifically, there is no evidence of an effusion, muscle wasting, lack of range of motion or instability. In fact, he has only minimal patellofemoral findings on examination today.

As such, I do not believe there any reasons, from a musculoskeletal standpoint, why this client could not return to work as a self-employed contractor should that be his wish. He may have some mild intermittent discomfort with full squats or kneeling that may be required for some of his floor work or plumbing. Certainly, he could modify some of these positions by using a small stool or utilization of other occupational therapy suggestions.

On April 1, 1999, Dr. Kwok, prepared a report for State Farm. In this report he stated:

According to the patient he had returned to work and was working eight hours per day in construction. According to the patient he experienced some difficulty with stair climbing, ladder/scaffold climbing etc. I examined him on 31 March 1999. I noted that he was able to walk with a normal gait. There was no effusion in his left knee. He had patellofemoral joint tenderness in the left knee. The range of motion was normal and the knee was stable. McMurray's test for meniscal injury was negative. Similar findings were noted in the right knee. I advised him to continue with isometric quadriceps exercises. I also advised him to apply ice on his knees prn (eg after work). I advised him to continue working. I did not prescribe medications for him. I did not prescribe formal physiotherapy treatments. I advised him to return to see me on prn basis. This was his last visit.

Dr. Kwok concluded his report with the statement "[t]here is no contraindication for him to continue to work at the present time."

Dr. Kwok prepared a second report for State Farm on July 9, 1999. In this report he stated:

When I saw [Mr. Rovella] on 30 June 1999 he told me that he had fallen down (because his right knee gave way according to the patient) and as a result he injured his neck. He had suffered soft tissue injury of his cervical spine in this incident; the cervical spine radiographs did not show any fractures and dislocations. This was treated with nonoperative modalities. At this point he does not require further surgical treatments or formal physiotherapy/rehabilitation treatments. There was no evidence of ligament injury in his knees and there was no evidence of ligamentous instability. There is no contraindication for him to continue to work at the present time.

On April 9, 1999, Mr. Rovella underwent a functional abilities evaluation with WorkLab Inc. In its report dated April 14, 1999, it is noted under the heading "Perceived and Performed Abilities":

The client's perception of his abilities was less than the client's demonstrated abilities. This indicates that consistency of effort was not demonstrated between the client's perception of his abilities and the clients demonstrated abilities. (The client perceived ability was Medium and the client demonstrated ability was Medium to Very Heavy). [Emphasis in original]

The report concluded:

The client is not substantially disabled from returning to his employment as a contractor. The client reported he is currently working full time hours and has returned to work about 1-2 months ago. He reported he is completing 8 -10 hours work per day at a slower pace than per his pre-accident pace.

On July 12, 1999, Dr. Kingsley Ratnanather, the psychiatrist who had been treating Mr. Rovella since April 1997, prepared a report for State Farm. In this report, he provided a prognosis regarding Mr. Rovella's ability to work:

This will depend on his physical condition and his ability to resume work as he did in the past. His work entails climbing ladders all the time, and with his knee problems, this has not been possible except for short periods of time. I have discussed the possibility of a training programme in another field of work. He would do it if he can afford the money, which he cannot at present. He is in debt, and estimates that he has lost up to $40 K in the last 2 years. [emphasis added]

On July 28, 1999, Mr. Rovella underwent a second insurer's medical examination with Dr. Marks. In his report of the same date, Dr. Marks stated:

This client once again would be expected to be able to perform the majority of his tasks as it relates to his job as a renovator and general contractor. Once again I would state that he might have some functional limitations as it relates to squatting, kneeling which may be required for some of his specific duties. With these limitations in mind, he is not found to suffer from a complete inability to engage in any employment for which he is reasonably suited to by education, training and experience.

On August 5, 1999, Mr. Rovella underwent an assessment for State Farm with Dr. A.I. Margulies, a psychiatrist. In response to the question "Does Mr. Rovella suffer a complete inability to engage in any employment for which he is reasonably suited by education, training or experience?" Dr. Margulies stated in his report dated August 19, 1999:

While Mr. Rovella is highly focused upon his injuries, he is not disabled as a result and is capable of many forms of employment. To what extent physical pathology in his knees may interfere with his ability to work is beyond the scope of this psychiatric examination.

In January and February 2000, Mr. Rovella underwent a DAC assessment at PM Designated Assessment Centre. Mr. Rovella was assessed by an orthopaedic surgeon, a neuropsychologist, a psychologist, a physiotherapist and a kinesiologist.

The general consensus of the assessors was that Mr. Rovella did not suffer from a complete inability to engage in any employment for which he was reasonably suited by reason of education, training or experience. However, the orthopaedic surgeon who examined him, Dr. J. Newall, concluded that "... in keeping with the clients symptoms, I believe that he is probably fit to perform a number of tasks although with limitation with respect to kneeling, stair climbing and ladder climbing."

Mr. Rovella underwent a vocational evaluation as part of the DAC assessment. The assessment team concluded that Mr. Rovella was a suitable candidate for employment in seven vocational classifications. These vocations include work as a construction supervisor in various construction industries, production clerk, purchasing and inventory clerk.

In order to determine what, if any, employment Mr. Rovella is able to engage in for which he is reasonably suited by education, training or experience, it is important to have an understanding of his pre and post-accident work history.

Pre-Accident Work History

Mr. Rovella testified that he began to work in renovations when he was in high school during the summer as an unskilled labourer.

Mr. Rovella testified that he left high school in the middle of grade 11 and began to work in various jobs. For six months he worked as a private investigator where he did both surveillance and undercover work. He worked as a bricklayer and in shipping and receiving. He stated he had a job delivering flowers on weekends. He worked at a paint manufacturing company mixing paint. In 1992 he began to work for Purolator as a mail sorter. He was injured on the job and was off work for a few weeks on worker's compensation.

Mr. Rovella gave conflicting testimony about what he did in 1992. On the one hand he testified that after the Purolator job he began to work full time for two years until 1994 in interior renovations with a man called Victor. On the other hand, he also stated that he took a heavy equipment course for eight months and for which he collected unemployment insurance. Mr. Rovella testified that he never finished the course. He offered no explanation for this contradiction.

Mr. Rovella testified that when he stopped working for Victor in 1994 he began to work full time for his father in renovations. He stated that his father's business name was "Mario's Expert Renovations." He stated that the business did drywall, painting, some plumbing, tiling and bathroom renovations. He stated that he worked with his father for about 10 to 20 months and stopped when he began his own business in February 1996. He stated that his father rarely paid him and, if he did pay him, he paid in cash $300 to $400 a week.

Mr. Rovella also testified that from the end of 1994 to mid 1995 he took time off to renovate his own home. This contradicts his testimony that he worked full time for his father until he started his own business. He offered no explanation for this contradiction.

Mr. Rovella testified that he started his own business in 1996 and after the accident he registered the name of the business as "The State Of The Art Renovation."

Mr. Rovella testified that he denied giving the following contradictory information to various medical professionals:

In a report dated March 12, 1998 by Nancy East and Associates Inc., the occupational therapist who evaluated Mr. Rovella on his job site on March 4, 1998, noted in the report:

This client is self-employed and has been running this renovating business as the sole employee for the past five years with occasional help being hired during peak times or larger projects. He provides upgrades and remodelling to residential and commercial properties. [emphasis added]

In a report dated February 7, 2000, Dr. Newall, an orthopedic surgeon who evaluated Mr. Rovella for a DAC, noted under the heading "Employment History":

Mr. Rovella has been self-employed as a general contractor and renovator since the age of 17. He works on his own doing all of his own work including rough carpentry, general carpentry, drywall, floors, marble finishing and plumbing. Indeed, he relates he can do pretty much everything except electrical. [emphasis added]

In the February 9, 2000 Comprehensive Career Evaluation Report it states:

The claimant also reported that he had additional work experience working as a tradesman for approximately 9 years and as a mail sorter for less than one year. [emphasis added]

Post Accident Work

Mr. Rovella testified that he has continued to work in his pre-accident job. He stated his biggest problem since the accident is his productivity. He stated that it took him longer to do a job. He stated that a three day job now took him two weeks. As a result, his expenses have been higher. Customers have reduced his fee and he has lost work.

Mr. Rovella testified that after the accident the only job he ever considered was the one he had before the accident. Mr. Rovella could not name one job in another area he was prepared to consider.

Mr. Rovella testified he has not asked anyone to help him out to find another job. He stated he has given most of his effort to try and stay in his present job.

Mr. Rovella testified that he rejected the job recommendations in the DAC report because he would have to work indoors or go back to school to complete his high school education. He stated he did not like working indoors. He stated as a career option he needed to be outdoors. He stated he could not go back to school to upgrade his education because financially he could not afford to do so.

Findings

The burden of proof rests with Mr. Rovella to show on a balance of probabilities that he suffers a complete inability to engage in any employment for which he is reasonably suited by education, training or experience. For the following reasons I find that Mr. Rovella has not discharged his burden.

As noted above, there are a number of contradictions in Mr. Rovella's testimony regarding his pre-accident work history for which he provided no satisfactory or plausible explanation. However, I do accept that it is more likely than not that at the time of the accident Mr. Rovella was self employed and engaged in renovating bathrooms. For the following reasons I find that the majority of the medical evidence indicates that Mr. Rovella is able to continue working in his job renovating bathrooms.

The medical evidence shows that:

• On February 3, 1999, Dr. Paul Marks, an orthopaedic surgeon who conducted an insurer's medical examination, concluded that an he did not "believe there are any reasons, from a musculoskeletal standpoint, why this client could not return to work as a self-employed contractor should that be his wish."

• Two months later on April 1, 1999, Mr. Rovella's own orthopaedic surgeon, Dr. Joseph Kwok, came to a similar conclusion as Dr. Marks. In his letter he states: "According to the patient he had returned to work and was working 8 hours per day in construction... I advised him to continue working."

• A report dated April 14, 1999 by WorkLab Inc. regarding a functional abilities evaluation that Mr. Rovella underwent on April 9, 1999 concludes that Mr. Rovella is not substantially disabled from returning to his employment.

• On July 9, 1999, in another report to State Farm, Dr. Kwok states: "There was no evidence of ligament injury in his knees and there was no evidence of ligamentous instability. There is no contraindication for him to continue to work at the present time."

• Another report by Dr. Marks on July 28, 1999 states that Mr. Rovella "would be expected to be able to perform the majority of his tasks as it relates to his job as a renovator and general contractor."

• On August 19, 1999, a report prepared for State Farm by Dr. A.I. Margulies, a psychiatrist, concludes that "while Mr. Rovella is highly focused upon his injuries, he is not disabled as a result and is capable of many forms of employment. To what extent physical pathology in his knees may interfere with his ability to work is beyond the scope of this psychiatric examination."

I give little weight to a report dated July 12, 1999 from Mr. Rovella's psychiatrist, Dr. Kingsley Ratnanather. In this report, Dr. Ratnanather states that Mr. Rovella told him, "His work entails climbing ladders all the time ... and because of his knee problems he has not been able to do his work except for short periods of time."

First, Mr. Rovella had been working steadily allegedly since February or March 1999 at the time he saw Dr. Ratnanather. Second, I find that "climbing ladders all the time" was not one of the essential tasks in renovating bathrooms. For these reasons I give no weight to Dr. Ratnanather's suggestion that Mr. Rovella might consider the "possibility of a training programme in another field." - not only because it is based on what Mr. Rovella has told him, but also because this is not within Dr. Ratnanather's field of expertise as a psychiatrist to make such a recommendation.

I similarly give little weight to the conclusion of Dr. J. Newall, an orthopaedic surgeon who examined Mr. Rovella at a DAC assessment in February 2000. In his report, Dr. Newall states that "... in keeping with the client's symptoms, I believe that he is probably fit to perform a number of tasks although with limitation with respect to kneeling, stair climbing and ladder climbing." This conclusion is based on Mr. Rovella's subjective reporting on how his knees bother him when he is working. I cannot give much weight to Mr. Rovella's subjective complaints as a factor in determining whether or not he can do his pre-accident work. Given the concerns raised regarding Mr. Rovella's credibility, reliable, objective evidence is needed, as opposed to self-serving, subjective complaints.

As noted above, the consensus of the DAC assessors, including Dr. Newall, was that Mr. Rovella did not suffer from a complete inability to engage in any employment for which he is reasonably suited by reason of education, training or experience. However, because of the restrictions recommended by Dr. Newall, the DAC recommended that he was a suitable candidate for employment in seven alternative vocational classifications, which includes work as a construction supervisor in various construction industries, production clerk, purchasing and inventory clerk.

Mr. Rovella testified that he had not attempted any of the DAC job recommendations. He rejected these jobs because he would either have to work indoors or go back to school to complete his high school education and he could not financially afford to do the latter. I give no weight to Mr. Rovella's excuses for not trying any of these recommended jobs.

First, I do not find Mr. Rovella is credible when he states he cannot work indoors and that as a career option he has to work outdoors. If, in fact, at the time of the accident Mr. Rovella was working the majority of the time renovating bathrooms, this would mean that the majority of his day would be spend indoors, in a small area. This clearly contradicts his claim that he cannot work indoors.

Second, I do not accept that he could not finish his high school education for financial reasons.

According to Mr. Rovella's post-accident tax returns, he has incurred a net loss of $42,000 from his post-accident employment. According to his testimony, post accident he has bought three vehicles, including a Mazda car which cost him $20,000. He has a $30,000 line of credit on his Visa card. He has bought a computer and other tools for his work worth thousands of dollars. One can only reasonably conclude that a person who is capable of making such expenditures and incur such a large business debt and continues working in his business, surely must have some money that would allow him to finish off his schooling if he so desired. I agree with State Farm's submission that one can reasonably speculate that the only reason he may not want to do so is that it may mean taking time off from work.

Pursuant to section 56 of the Schedule,⁴ an insured who is claiming entitlement to an income replacement benefit has an obligation to make reasonable efforts to obtain employment for which he or she is reasonably suited by education, training or experience. Mr. Rovella has not fulfilled this obligation.

According to Mr. Rovella's testimony, he has not considered or made any effort to seek out any other employment other than what he was allegedly doing pre-accident. He also testified that he has not asked anyone to help him out to find another job. This leads me to conclude that it is more likely than not that Mr. Rovella has been continuously working in his former job.

I come to this conclusion, first because the majority of the medical evidence, including his own orthopaedic surgeon, indicates that he can do his job. Second, it is not plausible that Mr. Rovella would be able to continue to contribute to support his family, carry a $42,000 business debt, a $30,000 line of credit, buy a new $20,000 car, a second used car, a used truck, tools for his work including a computer, if he was not earning a steady salary. I am reinforced in the latter conclusion by the fact, discussed in more detail below, that Mr. Rovella has consistently falsified his tax returns to indicate that he was not earning any income from employment when in fact he was. As discussed below, I see no reason why he has not stopped this practice of manipulating his tax returns.

Accordingly, for all of these reasons, I find it is more likely than not that Mr. Rovella is not substantially disabled from performing the essential tasks of his pre-accident employment. I therefore find that Mr. Rovella is not suffering from a complete inability to engage in any employment for which he is reasonably suited by education, training or experience. Accordingly, I find that Mr. Rovella is not entitled to receive a weekly income replacement benefit pursuant to section 4 of the Schedule after April 10, 2000.

Issue 2. What is the quantum of Mr. Rovella's Weekly Income Replacement Benefit?

Background

On January 31, 1997, Mr. Rovella applied for accident benefits and provided State Farm with an Employer's Confirmation of Income which he created. In these forms Mr. Rovella indicated that he was self-employed and his business was run under his name "Joseph Rovella." He also stated that his earnings in the previous year were $46,438.

In support of his application for accident benefits, Mr. Rovella provided State Farm with a copy of a bank passbook which shows entries of approximately $17,000.

On February 7, 1997, State Farm wrote Mr. Rovella and pointed out that it was not reasonable to presume on the information provided that he had earned more than the approximate $17,000 in the year before the accident. As well, State Farm stated that the information was insufficient. Specifically, State Farm required that Mr. Rovella provide the name of the bank, location and proof that the passbook was Mr. Rovella's account. Specifics of the expenses were requested as well as proof of expenses with returned cheques.

On February 21, 1997, State Farm wrote again to Mr. Rovella stating that he had not provided the information requested with respect to his self employment.

On February 27, 1997, Mr. Rovella wrote a long letter of complaint to State Farm. This letter as well as subsequent letters to State Farm reflected a very sophisticated knowledge of the Schedule. It showed high intelligence and excellent writing skills. Mr. Rovella testified that no one assisted him in writing these letters.

In this letter Mr. Rovella explained why he would not provide corroborating evidence regarding his income. He stated that to do so would be a breach of confidentiality that he had guaranteed his clients, namely, not to reveal their names since they paid for his services in cash. Without providing any corroborating evidence, he also stated his clients bought the materials used in the renovation as a means of saving money, and he only billed for labour and had no expenses in a number of cases. Mr. Rovella similarly testified to these facts at the hearing.

On March 24, 1997, State Farm wrote to Mr. Rovella once again requesting information that he had earned the income he was claiming.

On March 28, 1997, Mr. Rovella wrote a second long letter of complaint advising State Farm that he had provided it with a copy of his 1996 income tax return. In this letter, he states that the request for client information was unreasonable. He reiterated again that he objected to providing the names of his clients for whom he worked for on a cash basis because of privacy reasons.

In the end, based on the 1996 income tax return filed by Mr. Rovella and a Notice of Assessment dated March 20, 1997 from Revenue Canada which indicated a net income of $41,577, State Farm adjusted Mr. Rovella's income replacement benefit retroactively to $451.12 a week.

State Farm continued to pay Mr. Rovella this weekly benefit, less post-accident earnings for the periods Mr. Rovella was working, until September 1999. Based on an accounting report from Price Waterhouse Coopers dated August 27, 1999 and amended on September 9, 1999, State Farm claimed a repayment from Mr. Rovella.

The Price Waterhouse Coopers report of August 27, 1999 stated on page 2 that it had serious concerns regarding the accuracy and completeness of the documents provided by Mr. Rovella. Accordingly, they were unable to make a formal calculation of Mr. Rovella's weekly benefits.

On page 9 of the report, Price Waterhouse Coopers states that the financial information provided by Mr. Rovella could not be relied upon to accurately determine his income, whether prior to or subsequent to the accident.

In a letter dated September 25, 1999, Mr. Rovella acknowledges that State Farm is disputing the quantum of his income replacement benefit. As well, he acknowledges that he could hire an accounting firm to recalculate his income replacement benefit. Mr. Rovella, however, never hired his own accountant to review Price Waterhouse Coopers report.

In his submissions, Mr. Rovella claims that according to his own analysis of his business performance he was underpaid by State Farm. Accordingly, Mr. Rovella claims his weekly income replacement benefit should be as follows: 1997 - $654.10; 1998 - $595.52; 1999 -$633.31; 2000 - $551.57; and 2001 - $492.52. Mr. Rovella did not provide any amount for an income replacement benefit for 2002. The shortfall claimed by Mr. Rovella is a little over $100,000.

Findings

Pursuant to section 6 of the Schedule,⁵ the burden of proof rests with Mr. Rovella to prove the quantum of his weekly income replacement benefit.

For the following reasons I find that Mr. Rovella has not satisfied his burden of proof.

In his written submissions, Mr. Rovella maintained his "continued assertion that he is not required to prove the broader issue of entitlement," namely his business revenue and expenses. Mr. Rovella relies largely on his post accident tax returns as a basis for the quantum of his weekly income replacement benefits, especially in his 1996 tax return and assessment on which State Farm relied upon to pay him his weekly income replacement benefits.

I give no weight to Mr. Rovella's 1996 tax return. In my view, this is not a credible document and was more likely than not created for the purpose of inflating the amount of Mr. Rovella's weekly income replacement benefit.

Prior to Mr. Rovella's 1996 tax return, which was created after the accident, his tax returns from 1992 to 1995 indicated that his primary source of income for these years was employment insurance and social assistance as opposed to income from employment. The following chart indicates the contrast in his pre-accident tax returns with his 1996 tax return.

1992

Income from employment Unemployment insurance Worker's Compensation Total

5,261 10,368 405 16,034

1993

Unemployment insurance Social Assistance Payments Total

540 900 1,440

1994

Social Assistance Payments

3,150

1995

Income from employment Social Assistance Payments Total

940 1,383 2,323

1996

Income from employment Gross Business income Total

638 54,339 54,977

According to Mr. Rovella's testimony, he, in fact, earned more income from employment between 1992 and 1995 but did not declare this on his tax return. That is, Mr. Rovella candidly admitted that he falsified several years of income tax returns and lied to Revenue Canada about his true income.

I note this because in his 1996 tax return Mr. Rovella declared a very small amount for business expenses in relation to his gross income, despite the fact that this was the first year he allegedly started his own business. When the latter was pointed out to Mr. Rovella, he stated he would not increase his expenses for tax purposes because it would mean he was "exaggerating or falsifying which I would not do."

An analysis of Mr. Rovella's post-accident tax returns, however, would indicate that it is more likely than not that Mr. Rovella did in fact falsify his 1996 tax return as well as his post-accident tax returns in regards to his business expenses.

When one looks at the expenses claimed in Mr. Rovella's 1996 tax return, for a business he just started up and where he alleges he worked seven days a week for almost a year before the accident, and compare this to his post accident 1997 tax return, where Mr. Rovella worked for approximately two months, one sees a significant discrepancy.

For example:

• In 1996 Mr. Rovella reported gross sales of $54,339, and a net income of $40,939. In 1997 Mr. Rovella reported gross sales of $17,782 and a net loss of $12,793. Specifically, his cost of goods sold/supplies increased from 14.5 % of sales in 1996 to 78.3% of sales in 1997.

• Mr. Rovella alleges that in 1996 he worked seven days a week during that year, and his claim for automobile expenses in 1996 was only $4,572. However, in 1997, where Mr. Rovella alleges he worked at a much slower pace, and for only two months, he claimed almost double the amount - $8,064.61 for his automobile expenses. Specifically, his automobile expenses increased from 8.4% of sales in 1996 to 55.4 % of sales in 1997 when he was only working for two months.

• In 1996 Mr. Rovella claimed $274 for telephone and utility expenses for the whole year. In 1997 he claimed $2,223.74 for two months. Specifically, in 1996 his telephone and utility expenses increased from .5 % of sales to 12.5% of sales when there was no significant change in the manner in which he was conducting his business and when he was working for a small fraction of the time compared to 1996.

Mr. Rovella did not provide any reasonable or plausible explanation as to why he would have such significant increases in his expenses post accident when he alleges he cut back significantly in his work.

The Price Waterhouse Coopers reports all comment on these discrepancies. They state:

While certain expense fluctuations are normal from year to year, it seems unlikely that Renovating's cost of goods sold/supplies, auto expenses and telephone and utility expenses as a percentage of sales would fluctuate significantly each year. Further, given that the nature of the claimant's business did not change, we would expect to see similar expenses being incurred each year.

In addition, we would expect that if Mr. Rovella reduced his level of work after the accident, his auto expenses incurred for business purposes would decrease. However, we noted that Mr. Rovella's auto expenses as a percentage of sales increased significantly in 1997, compared to 1996.

Based on the above concerns, we believe that there is reason to question the accuracy of the sales and expense information.

I also note that Mr. Rovella did not provide any reasonable or plausible explanation why post accident he would continue to work and incur, according to his tax returns, approximately $42,000 in loses and continued to buy tools for his trade including three vehicles - a used truck, a used car and a new Mazda for $20,000. This does not make sense. It is not reasonable that he would continue to work, only to incur substantial losses, especially since he alleges he is the principal financial support of his family. In my view, it is more likely than not that if Mr. Rovella was capable of hiding his cash income before the accident, he was capable of doing the same after the accident.

For these reasons, I find that it is more likely than not that Mr. Rovella falsified his tax returns from 1996 and ongoing and his tax returns cannot be relied upon to determine his weekly income replacement benefit.

Although Price Waterhouse Coopers arrived at a figure for Mr. Rovella's weekly income benefit, it did so with a stringent caution:

We caution that, should this claim proceed to arbitration, it would not be appropriate to rely upon the results of the updated optional calculation. However, pending explanations for some of the observations set out in this report, and because of our concerns over the accuracy of the financial statements provided, we cannot recommend placing reliance upon Mr. Rovella's individual financial statements for the purpose of determining his income replacement benefit entitlement. [emphasis in original]

The calculations provided by Price Waterhouse Coopers was specifically to satisfy section 47 of the Schedule regarding a repayment claimed by State Farm, which will be discussed below. For this reason I do not accept or consider these calculations as proof of Mr. Rovella's income. In any case, I note that Mr. Rovella did not accept these figures.

I also do not accept Mr. Rovella's proposed amounts for his income replacement benefits. These are based on his own subjective, unaudited, analysis. Mr. Rovella called no witnesses or provided objective evidence such as banking records and statements of deposits and withdrawal.

Mr. Rovella testified that a large amount of his income from business was paid to him in cash and for reasons of confidentiality he did not want to provide the names of these clients. Mr. Rovella stated he did not deposit his cash receipts in the bank because he did not trust banks.

However, this is not credible as it clearly contradicts the fact that shortly after the accident Mr. Rovella provided State Farm with a bank statement, indicating that he did bank his business income.

In my view, it is neither reasonable or plausible for an honest applicant who is seeking to establish the quantum of his or her income replacement benefit to act in such a way as to defeat the purpose of establishing the correct quantum. Based on Mr. Rovella's actions, i.e., falsifying his tax returns and contradictory testimony, I find that Mr. Rovella is not an honest applicant.

Accordingly, for all of these reasons I find that Mr. Rovella has not satisfied his burden of proof. Accordingly, pursuant to section 6 of the Schedule, I find that the amount of Mr. Rovella's income replacement benefit cannot be determined.

Issue 3. Is State Farm entitled to a repayment?

Background

On September 10, 1999, State Farm wrote to Mr. Rovella advising him that based on the Price Waterhouse Coopers report there was an overpayment in his weekly replacement benefit. State Farm advised Mr. Rovella that he owed State Farm $24,676.95. They also advised him that there may be a further overpayment situation.

On September 17, 1999, State Farm again wrote to Mr. Rovella and stated that in its letter of September 10, 1999 the income replacement benefit overpayment was only calculated until December 30, 1998. State Farm advised Mr. Rovella they now had an updated report from Price Waterhouse Coopers and the entire amount of the overpayment, which now included January 1, 1999 to September 26, 1999, was calculated to be $33,997.72.

In this arbitration State Farm claims a repayment $33,997.72 pursuant to section 47 of the Schedule.

The Law

Section 47 provides the following:

(1) A person shall repay to the insurer,

(a) any benefit under this Regulation that is paid to the person as a result of an error on the part of the insurer, the insured person or any other person, or as a result of wilful misrepresentation or fraud;

(b) any income replacement or non-earner benefit that is paid to the person if he or she, or a person in respect of whom the payment was made, was disqualified from payment under Part IX; or

(c) any income replacement, non-earner or caregiver benefit or any benefit under Part VI, to the extent of any payments received by the person that are deductible from those benefits under this Regulation.

(2) If a person is required to repay an amount to an insurer under this section,

(a) the insurer shall give the person notice of the amount that is required to be repaid; and

(b) if the person is receiving an income replacement or caregiver benefit, the insurer may give the person notice that the insurer intends to collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit.

(3) The obligation to repay a benefit does not apply unless the notice under subsection (2) is given within 12 months after the payment was made.

(4) Subsection (3) does not apply if the benefit was paid as a result of wilful misrepresentation or fraud.

[emphasis added]

(5) An insurer that has given the notice referred to in clause (2) (b) may collect the repayment by deducting up to 20 per cent of the amount of the benefit from each payment of the benefit.

(6) The insurer may charge interest on an amount repayable under this section from the fifteenth day after notice is given under subsection (2) at the bank rate in effect on that day.

(7) In subsection (6), "bank rate" means the bank rate established by the Bank of Canada as the minimum rate at which the Bank of Canada makes short term advances to the banks listed in Schedule I to the Bank Act (Canada).

Submissions by State Farm

State Farm submits that the payment of a benefit should be distinguished from "acceptance of the underlying data" as argued by Mr. Rovella. State Farm submits that the error in overpaying Mr. Rovella's weekly income replacement benefit was due to the wilful misrepresentation of Mr. Rovella in submitting an invalid and inaccurate tax return for the year 1996. Accordingly, State Farm submits that the one-year limitation period which is required by subsection 47(3) of the Schedule does not apply.

State Farm submits that it bases its repayment claim against Mr. Rovella on the "optional calculation" of the Price Waterhouse Coopers report because according to section 47(2)(a) of the Schedule it is obliged to provide Mr. Rovella with the amount that is being reclaimed. State Farm submits that it may be argued that since Mr. Rovella did not prove his quantum he should repay all the benefits paid by State Farm. However, State Farm acknowledges that because of the procedural requirement that the amount of the repayment be given in a Notice of Repayment, State Farm is limited in claiming the amount for repayment in accordance with its notice.

State Farm further submits the fact that "[Price Waterhouse Coopers' report] is, perhaps, invalid is not a reason to [not] order the repayment where any lack of validity is caused by the misrepresentations and non-disclosures of Mr. Rovella."

Submissions by Mr. Rovella

Mr. Rovella denies any misrepresentation and stands by his 1996 tax return. Mr. Rovella submits that the fact that State Farm no longer accepts his record of cash revenues or expenses, or questions why some documented expenses are higher one year over another, does not mean the data is incorrect or misrepresented wilfully.

Mr. Rovella submits that the lack of validity of the Price Waterhouse Coopers report is not due to any misrepresentation. Mr. Rovella submits it is due to Price Waterhouse Coopers "rushing a report and deciding to give the insured the 'option, since generalized caveats took them nowhere, to average revenue and expenses." Mr. Rovella submits that "[t]his is not unreasonable for periods of time completely before or completely after an accident but makes absolutely no sense when the averaging brackets the accident date."

Findings

Entitlement to Repayment

The burden of proof rests with State Farm that on a balance of probabilities it is entitled to a repayment based on a the wilful misrepresentation by Mr. Rovella in his 1996 tax return. For the following reasons I find that State Farm has satisfied its burden.

In the case of Adu-Poku and Kingsway General Insurance Company.⁶ "wilful" was found to mean a "deliberate or intentional action." I agree with this definition.⁷

As noted above, the burden of proof rested with Mr. Rovella to prove the amount of his weekly income replacement benefit. For reasons stated above I found that Mr. Rovella did not fulfil his burden of proof. More specifically, I found that Mr. Rovella had falsified his 1996 tax return and that State Farm relied upon this tax return to pay him his income replacement benefit.

I agree with State Farm's submission that the fact it paid Mr. Rovella a weekly income replacement benefit based on his 1996 tax return does not mean it was automatically accepting the underlying integrity of the claim. The fact that Mr. Rovella was lulled into a false sense of security between 1997 and 1999 does not mean Mr. Rovella is not required to repay State Farm for his wilful misrepresentation once the misrepresentation was discovered.

I give little weight to Mr. Rovella's submissions that State Farm is not entitled to a repayment. First, two of the longest paragraphs in Mr. Rovella's submissions dealt with a misstatement in the law wherein Mr. Rovella insists that State Farm cannot claim a repayment for wilful misrepresentation or fraud because it did not give the proper 12 month notice required by the Schedule. This is clearly wrong in law. The Schedule, in fact, states the opposite, namely, that the 12 month notice "does not apply" if the benefit was paid as a result of wilful misrepresentation or fraud.

Second, Mr. Rovella's submission that Price Waterhouse Coopers were wrong in its conclusion because it rushed out a report since "generalized caveats took them nowhere" is not supported by the evidence. Mr. Rovella clearly ignores the fact that he had not provided credible tax returns and business data to Price Waterhouse Coopers and it is for these reasons Price Waterhouse Coopers came to the conclusion it did.

Accordingly, for all these reasons I find that Mr. Rovella's deliberate actions resulted in an overpayment by State Farm of Mr. Rovella's weekly income replacement benefits. Accordingly, I find that State Farm is entitled to a repayment because of Mr. Rovella's wilful misrepresentation.

The Amount of the Repayment

In its letter of September 17, 1999 to Mr. Rovella, State Farm claimed a repayment of $33,997.72. State Farm now acknowledges that the repayment should have been for a larger amount given that Mr. Rovella was unable to prove the amount of his income replacement benefit.

Although I agree with the fact that misrepresentations on the part of Mr. Rovella made it difficult for Price Waterhouse Coopers to arrive at a valid quantum for his income replacement benefit, I nevertheless, agree with State Farm's concession that because of the requirements of subsection 47(2)(b) of the Schedule it is now bound by the amount it had stated in its letter to Mr. Rovella. Accordingly, I find that pursuant to section 47 of the Schedule Mr. Rovella must repay State Farm the amount of $33,997.72 plus interest.

SPECIAL AWARD

Mr. Rovella claims a special award in this case.

Pursuant to subsection 282(10) of the Insurance Act,⁸ an arbitrator may grant a special award, up to 50 per cent of the benefit awarded, plus interest, once he or she finds that an insurer has acted unreasonably in withholding or delaying payment. For the following reason I find that Mr. Rovella is not entitled to a special award.

A special award is based on the amounts to which the applicant is entitled at the time of the award. Mr. Rovella was not awarded any benefits in this arbitration hearing for which a special award could be considered.

Accordingly, Mr. Rovella is not entitled to a special award.

EXPENSES

Subsection 282(11) of the Insurance Act provides:

The arbitrator may award, according to criteria prescribed by the regulations, to the insured person or the insurer, all or part of such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations, to the maximum set out in the regulations.

The degree of success in the outcome of an arbitration proceeding is only one of a number of criteria that an arbitrator takes into consideration when exercising his or her discretion to award expenses to a party.⁹ Subsection 12(2) of the Expense Regulation¹⁰ provides that other matters to be considered are:

• the manner in which the parties conducted the hearing;

• whether the proceeding or any position taken by the insurer or the insured person during the proceeding was manifestly unfounded, frivolous, vexatious, fraudulent or an abuse of process,

• the degree of complexity and, novelty or significance of the factual or legal issues raised in the proceeding,

• settlement offers,

• as well as any other matter related to the proceeding that the arbitrator considers relevant to the issue of whether an award of expenses is justified.

Findings

Applying the criteria outlined above, for the following reasons I find that Mr. Rovella is not entitled to his expenses and State Farm is entitled to its expenses.

There were no settlement offers in this case that I must consider. The hearing took five days and Mr. Rovella was the only witness. Almost a day was taken up in dealing with an adjournment request by Mr. Rovella as well as his request to produce his business records. Mr. Rovella was unsuccessful on both these preliminary matters. Mr. Rovella was also unsuccessful in his claim for all the issues in dispute. State Farm was successful on the issue of repayment.

Not only was Mr. Rovella unsuccessful in the issues for arbitration, but I also found that he was not a credible witness and that he wilfully misrepresented the amount of his income. As a result, State Farm was forced to defend a claim that clearly lacked credibility.

Accordingly, pursuant to subsection 282(11) of the Insurance Act, I find that Mr. Rovella is not entitled to his expenses and that he must pay State Farm its reasonable expenses in this arbitration hearing.

March 26, 2003

Joyce Miller Arbitrator

Date

Neutral Citation: 2003 ONFSCDRS 46

FSCO A01-001012

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JOSEPH ROVELLA

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 Arbitration is dismissed.

2. Mr. Rovella shall pay State Farm $33,997.72 plus interest pursuant to section 47 of the Schedule.

3. Mr. Rovella shall pay State Farm its reasonable expenses of the arbitration pursuant to subsection 282(11) of the Insurance Act.

March 26, 2003

Joyce Miller Arbitrator

Date

APPENDIX A - Amount of Benefit

6. (1) The amount of the income replacement benefit shall be,

(a) for each of the first 104 weeks of disability, 80 per cent of the insured person's net weekly income from employment determined in accordance with section 61; and

(b) for each week after the first 104 weeks of disability, the greater of the amount specified in clause (a) and $185.

(2) The insurer may deduct from the amount of the income replacement benefit payable to an insured person 80 per cent of the net income received by the insured person in respect of any employment subsequent to the accident.

(3) For the purpose of subsection (2), the net income received by an insured person in respect of employment subsequent to the accident shall be determined by subtracting the following amounts from the gross income received by the person in respect of the employment subsequent to the accident:

1. The premium payable by the person under the Employment Insurance Act (Canada) on the gross income.

2. The contribution payable by the person under the Canada Pension Plan on the gross income.

3. The income tax payable by the person under the Income Tax Act (Canada) and the Income Tax Act(Ontario) on the gross income.

(4) For the purpose of subsection (2), net income from self-employment for an insured person who was self-employed at the time of the accident shall be determined without making any deductions for,

(a) expenses that were not reasonable or necessary to prevent a loss of revenue;

(b) salary expenses that were paid to replace the person's active participation in the business, except to the extent that those expenses were reasonable for that purpose; and

(c) non-salary expenses that were different in nature or greater than the non-salary expenses incurred before the accident, except to the extent that those expenses were necessary to prevent or reduce any losses resulting from the accident.

(5) If the insured person was self-employed at the time of the accident and the person incurs losses from self-employment as a result of the accident, the insurer shall add to the amount of the income replacement benefit payable to the person 80 per cent of the losses from self-employment incurred as a result of the accident.

(6) For the purpose of subsection (5), losses from self-employment shall be determined in the same manner as losses from the business in which the person was self-employed would be determined under subsection 9 (2) of the Income Tax Act (Canada) and the Income Tax Act (Ontario), without making any deductions for,

(a) expenses that were not reasonable or necessary to prevent a loss of revenue;

(b) salary expenses that were paid to replace the person's active participation in the business, except to the extent that those expenses were reasonable for that purpose;

(c) non-salary expenses that were different in nature or greater than the non-salary expenses incurred before the accident, except to the extent that those expenses were necessary to prevent or reduce any losses resulting from the accident;

(d) expenses that are eligible for capital cost allowance or an allowance on eligible capital property; or

(e) losses deductible under section 111 of the Income Tax Act (Canada). O. Reg. 403/96, s. 6.

(1) An insured person who is entitled to an income replacement benefit shall make reasonable efforts to,

(a) return to the employment in which he or she engaged at the time of the accident; or

(b) obtain employment for which he or she is reasonably suited by education, training or experience.

(2) Subsection (1) does not apply if,

(a) employment would be detrimental to the insured person's treatment or recovery; or

(b) the insured person is participating in a vocational rehabilitation program.

(3) If an insured person does not comply with subsection (1), the insurer may notify the insured person that the insurer intends to reduce the amount of the benefit in accordance with subsection (4). (4) If at least 14 days have elapsed after giving the notice and the insured person is still not complying with subsection (1), the insurer may reduce the amount of the benefit by 50 per cent.

(5) Subsections (3) and (4) do not apply if the insurer is reducing the amount of benefit under subsection 55(5).

If the arbitrator finds that an insurer has unreasonably withheld or delayed payments, the arbitrator, in addition to awarding the benefits and interest to which an insured person is entitled under the Statutory Accident Benefits Schedule, shall award a lump sum of up to 50 per cent of the amount to which the person was entitled at the time of the award together with interest on all amounts then owing to the insured (including unpaid interest) at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable under the Schedule.

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended by Ontario Regulations 462/96, 505/96, 551/96, 303/98, 114/00 and 482/01.
2. 2"Renovatings" is the accountants' short form for Mr. Rovella's renovating business.
3. 3On September 9, 1999, State Farm advised Mr. Rovella that based on its Insurer's Medicals it was terminating his income replacement benefits. Mr. Rovella requested a DAC. Pursuant to the Schedule, his benefits were reinstated until the DAC report determined that he was not suffering a complete inability to engage in any employment for which he was reasonably suited by education, training or experience.
4. 4Section 56 of the Schedule provides:
5. 5See Appendix A attached to this decision.
6. 6(OIC A96-000433, August 20, 1997)
7. 7See also Michalowski and St. Paul Fire & Marine Insurance Co. (FSCO A98-001492, July 9, 1999)
8. 8Subsection 282(10) provides that:
9. 9The case law is clear, awarding expenses at arbitration is not based on the results approach of the courts, but is based on the underlying purpose of the statutory accident benefit scheme, namely, to facilitate access to inexpensive, speedy and informal adjudication of disputes. See for example: McCormick and Economical Mutual Insurance, (OIC A-000139, October 2, 1991); Calogero and The Co-operators General Insurance Company, (OIC P-000251, February 13, 1992); Allison and Markel Insurance Company of Canada, (OIC P-001231, August 21, 1996); Biliouras and Allstate Insurance Company of Canada, (FSCO P98-00002, October 13, 1998); Athanasiadis and Zurich Insurance Company, (FSCO A 97-001239, December 23, 1999); Gray and Zurich Insurance Company, (FSCO P-98-00047, June 11, 1999); and Morelli and Zurich Insurance Company, (FSCO A97-001997, June 27, 2000.
10. 10Regulation 664, R.R.O. 1990, as amended by Ontario Regulation 464/96 made under the Insurance Act.