Neutral Citation: 2017 ONFSCDRS 31

FSCO A12-006180

BETWEEN:

MIKE KOZUMPLIK

Applicant

and

AVIVA CANADA INC.

Insurer

REASONS FOR DECISION

Before: Arbitrator Jeff Musson

Heard: In-person in London, Ontario on September 13 & 14, 2016 and by written submissions due November 14, 2016

Appearances:

Mr. Douglas Bryce for Mr. Mike Kozumplik

Mr. David Contant for Aviva Canada Inc.

Issues:

The Applicant, Mr. Mike Kozumplik, was injured in an accident on August 29, 2004 and sought accident benefits from Aviva Canada Inc. (“Aviva”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Kozumplik, through his representative, 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:

What is the additional quantum that Mr. Kozumplik is entitled to for post-104 Income Replacement Benefits (“IRBs”) from August 29, 2006 to June 25, 2013, if any?
Is Mr. Kozumplik entitled to interest for the overdue payment of benefits?
Is either party liable to pay expenses in respect of the Arbitration Hearing?

Result:

Mr. Kozumplik is not entitled to any further post-104 IRBs from August 29, 2006 to June 25, 2013.
Mr. Kozumplik is not entitled to interest for the overdue payment of benefits.
Aviva is entitled to its expenses in respect of the Arbitration Hearing. If the parties are unable to agree on the quantum of the expenses of this matter, the parties may request an appointment with me for determination of same in accordance with Rules 75 to 79 of the Dispute Resolution Practice Code.

EVIDENCE AND ANALYSIS:

BACKGROUND

Both the Insurer and the Applicant are in agreement that the Applicant qualified for post-104 IRBs from August 29, 2006 until June 25, 2013. The parties agree that the Applicant suffered a complete inability to work in any employment for which he was reasonably suited by education, training or experience. The Insurer conducted an Insurer’s Examination on the Applicant which concluded that IRBs should not be considered past June 25, 2013. The Applicant agreed with the conclusions of the Insurer’s Examination.

Where there is disagreement between the Insurer and the Applicant is in regards to the amount of IRBs to which the Applicant is entitled. Therefore, this Arbitration is solely focused on the quantum of post-104 IRBs owing, not entitlement.

Initially, the Applicant’s IRBs were suspended for failing to attend a post-104 Insurer’s Examination, and two OCF-9s were sent to the Applicant, on February 9, 2007 and June 19, 2011, detailing the suspension of benefits.² Eventually, the Applicant did attend a post-104 Insurer’s Examination on May 8, 2013, and the assessors concluded that the Applicant, from a medical perspective, suffered a complete inability to work.³

At the time of the accident, the Applicant owned numerous residential properties in the London and Sarnia areas. He would purchase, renovate, rent, and, in the case of his apartment building in Sarnia, sell the property. In the London area, the Applicant owns approximately 11 properties. He owns two of the London properties personally, another two properties in a company in which he is a 100% shareholder, and he has a 50% interest (with his wife having the other 50% interest) in the seven remaining properties in London.⁴ His largest investment was the apartment building that he purchased in the Sarnia area with the intention of converting the units into condominiums. He was only able to convert one into a condominium before selling the remaining unconverted units to another buyer.

DECISION

The Applicant

The Applicant is married, and he and his wife have one son. He immigrated to Canada from the Republic of Czechoslovakia in 1968. After coming to Canada, he worked at various physically demanding jobs, but ultimately was able to gain steady employment with Ford Motor Company (“Ford”) in Talbotville, where he continued to work for 20 years until accepting a buyout from the company. In approximately 1976-77, while still working at Ford, the Applicant obtained his real estate license, and has maintained this license every year since that time. It was apparent from the Applicant’s testimony that he has worked hard for many years since coming to Canada.

I found the Applicant’s testimony to be circumspect at times, especially when he was asked details as to what work he did or did not perform on his properties during the time in dispute. I was given the impression that he was trying to mold his answers to what he thought the Commission would want to hear, as opposed to being completely honest and forthright with his answers. Ultimately, he testified, but provided very little credible documentation to back up his testimony, such as when he testified that his properties were so run down post-accident that he could not get them insured. No letters were submitted by the Applicant to show this was the case.

The Applicant testified that he would purchase distressed residential properties in the London/Sarnia area, renovate the units and then rent or sell them. This started out as a part-time endeavor, but evolved into full-time self-employment for the Applicant. He testified that his largest purchase was a 12-unit residential building in the Sarnia area. The 12-unit building was purchased with the intent of it becoming an income-generating property for him and his wife. After a while, he converted the apartments into condominium units. He testified that after the accident, he was only able to convert one of the rental units into a condominium unit.

The Applicant claims the value of all of his properties has declined because of the accident, thereby creating a loss of competitive advantage; however, he submitted no proof, such as appraisals, that this in fact was the case. He testified that he was forced to sell his Sarnia apartment building; however, no proof was submitted as to the difference between the purchase or sale price. Regardless, business profit or loss is an item that is claimed as part of a tort action, not as part of an accident benefits claim.

The Applicant testified that prior to the accident, he would complete large tasks such as replacing roofs as well as electrical and plumbing work on his units. He testified that it was a physically demanding job. As a result, he tried teaching people the skills required to complete these tasks; however, these individuals all ending up quitting at some point. The Applicant also testified that his wife handled the bookkeeping and prepared leasing/rental documents for the properties.

The issue of CPP/disability was brought forward at this Hearing. The Applicant testified that after his accident, he did not apply for CPP/disability, even though as an autoworker for 20 years, he contributed to CPP/disability through his earnings. On March 27, 2015, the Insurer asked for clarification as to why the Applicant chose not to apply for CPP/disability; however, it was only at the Hearing that the Insurer put forward the position that the Applicant should have applied. I find this argument moot, because an Insurer does not have the legislative authority to force an Insured to apply for CPP/disability. One can understand the benefit that the Insurer would obtain; however, the Applicant would derive no benefit from applying, and in fact, it would be a zero sum gain because the Insurer would be entitled to a claw back against any IRBs payable.

I found the Applicant’s testimony provided little credible insight. He testified that he did not work for the time period in dispute; however, this contradicted other evidence presented at the Hearing that shows that in fact he was self-employed during the time his post-104 IRBs were in dispute.

Definition of Self-Employment

There is prior case law such as Segal and Zurich⁵ along with Zupnik and State Farm,⁶ which provide guidance as to how the courts define an individual as being self-employed. In addition, there are indicators listed in the Commissioner’s Guideline for Identifying Self-Employed Individuals⁷ that are used for identifying when a person is considered self-employed as opposed to being a contracted individual. The following are some of the attributes used in this determination:⁸

Does the individual have an established location where business transactions take place?
Does the individual participate in the everyday operations of the business?
Does the individual determine their own method and schedule for accomplishing tasks?
Does the individual determine their own hours?
Does the individual determine the annual income as his or her profit from the business according to the Income Tax Act (Canada) and Income Tax Act (Ontario)?

With the evidence submitted at the Hearing, the Applicant’s testimony confirmed that he had an established location where business transactions took place. The Applicant, along with his wife and expert witness, confirmed that he participated in the everyday operations of the business. All three individuals also confirmed that the Applicant determined his own method and schedule for accomplishing tasks. The Applicant testified that he determined his own hours. Finally, the evidence submitted showed that the Applicant determined the annual income as his profit from the business. Therefore, I find that the Applicant was self-employed during the period when the quantum of his IRBs is in dispute.

The Applicant testified that since the accident, he now has to hire people to complete all work on the properties. He only goes to the properties to supervise those workers. The Applicant testified that he is behind on the maintenance on his properties, and wherever possible, he will give his tenants discounts on rent in order for the tenant to take care of maintenance. The Applicant testified that whatever maintenance the tenants cannot complete, he hires someone to complete the work since he cannot physically complete it himself. The Applicant produced various receipts which showed he had hired someone or relied on his tenants to complete some of the work on the properties.⁹ However, those receipts were unverifiable because none of the people who performed the work testified at the Hearing.

The Applicant confirmed in his testimony that he still makes decisions about the properties. In addition, he would complete work at the properties if the tenants forgot to complete things, such as cutting the grass. The Applicant also testified that on some occasions, his wife would do some of the work on the units, such as painting, cleaning and preparing the units for rental.

During cross-examination, the Insurer produced surveillance taken of the Applicant in August 2010. It showed the Applicant going to Home Depot, but not what he was doing at Home Depot. It also showed him going to one of the units afterwards, but again, not what he was doing. There was surveillance, however, showing him cutting grass and doing lawn maintenance at one of his units in London. Surveillance is a snapshot in time, and specifically in this case, 4.5 minutes out of approximately 70 months. I found the surveillance of little value in determining if the Applicant was working, because the surveillance wasn’t able to capture what was going on behind closed doors. However, what are the odds that on the day that the Insurer selected to complete surveillance on the Applicant, the Insurer happened to observe him actively working outside on his properties cutting grass? Although not overly damaging to the Applicant’s case, it leaves doubt as to the actual amount of work that the Applicant was completing as opposed to what he testified.

When asked what he does with his time now, the Applicant testified he watches a lot of TV and movies. He goes to the aquatic centre, but overall, he doesn’t do much, which is the complete opposite of what took place prior to the accident. I find that based on the evidence, the Applicant may have been more involved in his properties than he testified. Granted, he may not have been as physically involved with working on his properties as he was prior to the accident. However, the totality of the evidence shows that he was very much involved in the day-to-day operation, which could also explain why he reported self-employment income on his taxes every year from 2006-2013, because in fact, this was the truth, i.e., he was self-employed from August 29, 2006 to June 25, 2013.

Ms. Alice Kozumplik – the Applicant’s wife

The Applicant’s wife was called to testify at this Hearing. Among other things, she testified that the Applicant performed minor repairs on the properties such as changing washers on a sink, fixing taps that were leaking and other similar types of repairs. She stated that prior to the accident, the Applicant worked 40+ hours per week doing maintenance, renovations and repairs to the income properties that the couple owned. Ms. Kozumplik also testified that it was her responsibility to collect rent and handle the paperwork, along with showing the units to prospective renters. She would spend one full day (eight hours) a week doing administrative work for the properties pre-accident.

After the accident, she testified that, in addition to her administrative duties, she has also been doing some of the light repair work, such as painting, tiling and cleaning up the units in order to prepare them for new renters. She also testified that after the accident, the Applicant has been hiring people to handle the duties that he was responsible for prior to the accident. When asked how much time her husband spends attending to property-related issues, she said that it was approximately two to three hours per week now; however, she did not have any records to confirm this.

Ms. Christine MacGregor – Vocational Rehab Professional

The Applicant called Ms. Christine MacGregor as an expert in vocational rehabilitation and labour market opinions. After a thorough questioning by Applicant’s and Insurer’s counsels as to her area of expertise, the Insurer objected to Ms. MacGregor testifying as an expert at this Hearing. The Insurer’s objection was based on the assertion that Ms. MacGregor does not understand the Schedule and specifically, how a self-employed person’s benefits are calculated under ss. 6(4)-(6) of the Schedule. After hearing oral submissions from both parties, I allowed Ms. MacGregor to testify as an expert.

Ms. MacGregor’s services were engaged by the Applicant in 2008, and she completed reports in 2008, 2009 and 2013. She conducted a vocational assessment as it related to retraining of the Applicant. In her report of July 29, 2016, she confirmed that the Applicant would have been classified as a Property Manager, but concluded that whatever work that he currently completes on his properties does not amount to actual employment. Based on the evidence submitted at this Hearing, I disagree.

Ms. MacGregor also opined that after the accident, the Applicant could no longer perform the physically demanding jobs required of a Property Manager and was restricted to supervising others able to perform the work. As part of her report, Ms. MacGregor contacted other individuals who would be doing similar jobs as the Applicant in the London area, to confirm general details provided by the Applicant as it relates to his pre-accident job description. Under cross-examination, Ms. MacGregor confirmed that the Applicant worked, albeit for a short duration per week, and that he was able to complete every task that he had done prior to the accident, except for the heavy work. She also testified that at the Applicant’s reduced hours, no one else would hire him within the role of Property Manager. What is interesting to note is that the Applicant, but for having a vested interest in his properties, never showed any interest in being a Property Manager for any other individual’s property. With his earlier buyout from Ford, he was determined to manage properties that he had invested in as a means to watch his investment, as opposed to making a “second” career from this. It was important to note that Ms. MacGregor also testified that the roles of both the Applicant and his wife were virtually the same as they related to the properties both pre- and post-accident.

IRBs

Both parties agree that the correct calculated weekly amount of pre-accident income is $273.68.¹⁰ In addition, there was consensus by both parties that the calculations completed by the Insurer’s accountant, LBC International (“LBC”), were correct from August 29, 2004 to June 25, 2013.¹¹

The key question is: was the Applicant employed between the dates of August 29, 2006 and June 25, 2013? Even though the onus is on the Applicant to prove his case, the Applicant did not submit accounting evidence or experts to prove his case. Instead, the Applicant argued that he was not employed as per the definition of the Schedule, and that the self-employed entries filed on his income tax returns should not be relied upon because they were erroneously placed in the self-employment category instead of another area on his tax return. As was submitted at the Hearing, the Applicant claimed self-employment income from 2006 to 2013, which is the entire length of time that the IRBs are in dispute.¹² Even though the Applicant’s evidence was that his tax returns were incorrect, the Applicant failed to provide any evidence as to how his post-accident income should be calculated differently from how the Insurer’s accountant completed the calculation.

To calculate the Applicant’s income from self-employment, Mr. Rod McNulty of LBC followed the provisions in s. 6.2 of the Schedule.¹³ He assumed that the Applicant was working based on the evidence that he was provided by the Applicant. He performed his IRB calculations accordingly based on this information. Mr. McNulty used the Applicant’s and the Applicant’s wife’s personal tax returns and the Applicant’s corporate tax return in order to calculate IRBs owing to the Applicant. As stated earlier, the Applicant did not provide a Rebuttal Report. The Insurer claims that the Applicant was engaged in employment during the period in dispute as defined under s. 6.2 of the Schedule,¹⁴ and as such, the Insurer may deduct an amount against the IRB amount owed by the Insurer to the Applicant. Section 6.2 of the Schedule states the following:

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.

The process to complete this calculation is found in s. 6 of the Schedule, and it was confirmed at the Hearing that this was how the dollar amount was calculated by LBC in their report.

In his submission at the Hearing, the Applicant stated that Mr. McNulty did not have the benefit of the following evidence when he undertook his analysis of the post-accident period:

(a) The business had not continued post-accident as it had prior to the accident;

(b) Limited use was made of replacement workers by Mr. Kozumplik, in that they were only hired to address urgent matters;

(d) There was significant deterioration of the London properties—to the point that they could no longer be insured;

(e) Mr. Kozumplik was, at best, "participating" in the business three hours per week; and, finally,

(f) Mrs. Kozumplik had assumed additional responsibilities, including cleaning, repairs, and painting.¹⁵

At the end of the day, the Applicant made money every year based on his tax returns from 2006-2013. In addition, he claimed self-employment income during this period. The Applicant used the services of an accountant to complete his corporate and personal tax returns for many years. As such, I take the tax returns at face value because the Applicant paid a professional to complete them, and as such, they would be quite familiar with the Applicant’s work/financial situation.

The overwhelming evidence shows that the Applicant earned self-employment income as submitted on his tax returns, and I have no reason to believe that these tax returns were filed in error. The Applicant never filed an amendment to correct mistakes that he claims were filed on his income tax. The Applicant argues that he was not employed as defined by the Schedule, and that little weight should be placed on his tax returns. Based on the evidence, I disagree. His tax returns contradict his own testimony, adversely affecting his credibility.

In addition to its Accounting Report, the Insurer also provided a Designated Assessment Centre (“DAC”) Report that was completed by Dr. Smith, who is a DAC psychologist.¹⁶ In the report, Dr. Smith concludes that the Applicant continues to operate his London properties but hired individuals to complete the heavy physical labour. After receiving the findings of this report, the Insurer (in accordance with the Schedule) provided payment to the Applicant for all replacement labour required to reimburse the Applicant for the work he would have normally completed.

LBC prepared six IRB Reports on behalf of the Insurer for this claim. They were completed on May 3, 2005,¹⁷ May 25, 2006,¹⁸ January 12, 2007,¹⁹ November 2, 2007,²⁰ September 4, 2013,²¹ and the last report on August 8, 2016.²² LBC used the last fiscal years as the base periods for their calculations, and no other evidence was provided by the Applicant to the contrary.

Chart prepared by LBC

BASE	NET WEEKLY IRB	80% Post-MVA Income Deduction	IRB AMOUNT
Jan. 1 to Dec. 31, 2006	$273.68	$426.87	$0.00
Jan. 1 to Dec. 31, 2007	$273.68	$304.81	$0.00
Jan. 1 to Dec. 31, 2008	$273.68	$253.10	$20.58
Jan. 1 to Dec. 31, 2009	$273.68	$141.58	$132.10
Jan. 1 to Dec. 31, 2010	$273.68	$327.34	$0.00
Jan. 1 to Dec. 31, 2011	$273.68	$546.26	$0.00
Jan. 1 to Dec. 31, 2012	$273.68	$287.54	$0.00
Jan. 1 to May 8, 2013	$273.68	$287.54	$0.00

The Applicant stated that LBC lacked background information to complete a proper calculation. In my opinion, based on the evidence, the Applicant had the opportunity to supply his own Accounting Report, but for whatever reason chose not to submit one. It would have been advantageous for the Applicant in furthering his position if he had provided his own IRB Report, rather than only trying to discredit the Insurer’s report. The onus is on the Applicant to establish his case.

The Applicant submitted that “compelling and cogent evidence was provided from all three witnesses at arbitration as to why the form of the financial arrangements, as demonstrated in the tax returns, does not accurately reflect the substantive operations of the Business.”²³ The questions I raise are why did the Applicant, once he determined in his own opinion that the tax returns were not reflective of the business operations, a) sign the returns, indicating that they were true as filed; and b) not file an amendment to his returns?

Even though the Applicant requested that I look beyond the income tax returns to determine a higher quantum for IRBs, I have chosen otherwise for the mere fact that income tax returns are official documents filed with the government. As part of income tax filing, all individuals must sign on the last page of the return attesting to the correctness of the return filed. The Applicant in fact did this on all his returns, which were prepared by an accounting professional that the Applicant hired to complete and file all his income tax returns. Based on the evidence, I find that the Applicant is not entitled to any additional post-104 IRBs beyond what the Insurer has already paid to date.

Interest

Section 46(2) of the Schedule requires the Insurer to pay interest on overdue payments of benefits from the date the amount became overdue at the rate of 2 percent per month compounded monthly. However, since I’ve determined that no further IRBs are payable, there is no interest payable.

CONCLUSION

As stated earlier, the onus is on the Applicant to prove his case. Based on the evidence, the Applicant was self-employed during the period in dispute. Through his evidence, he testified that he was only doing emergency/small repairs on his properties. I do not believe this to be the case. He may not have completed the same amount of work as he did prior to the accident, but based on the evidence, he was working as per the definition in the Schedule. The Applicant is claiming the value of the business has declined because of the accident, and loss of competitive advantage. By law, those losses belong in a tort action, not an accident benefits claim. Therefore, based on the evidence, I am denying the Applicant any further IRB payments.

EXPENSES:

Aviva is entitled to its expenses in respect of the Arbitration Hearing. If the parties are unable to agree on the quantum of the expenses of this matter, the parties may request an appointment with me for determination of same in accordance with Rules 75 to 79 of the Dispute Resolution Practice Code.

February 6, 2017

Jeff Musson Arbitrator

Date

Financial Services Commission of Ontario