Hua Li Pan v. Allstate Insurance Company of Canada, 2018 ONFSCDRS 10

Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2018 ONFSCDRS 10

FSCO A16-003705

BETWEEN:

HUA LI PAN

Applicant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Insurer

REASONS FOR DECISION

Before:

Alan G. Smith

Heard:

In person at ADR Chambers on December 4, 2017, and by written submissions completed December 22, 2017

Appearances:

Ms. Simmy Yu and Mr. Frank Grande for Ms. Hua Li Pan

Ms. Lisa Armstrong for Allstate Insurance Company of Canada

Issues:

The Applicant, Ms. Hua Li Pan, was injured in a motor vehicle accident on August 28, 2014 (the “accident”), and sought accident benefits from Allstate Insurance Company of Canada (“Allstate”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Ms. Pan, through her representative, applied for arbitration at the Financial Services Commission of Ontario (“FSCO”) under the Insurance Act, R.S.O. 1990, c. I.8, as amended.

The issues in this Hearing are:

Is Ms. Pan entitled to receive a weekly income replacement benefit from one-week post-accident to date and ongoing in an amount to be determined?
Is Ms. Pan entitled to interest for the overdue payment of benefits?
Is Allstate liable to pay a special award because it unreasonably withheld or delayed payments to Ms. Pan?
Is Allstate liable to pay Ms. Pan’s expenses in respect of the arbitration?
Is Ms. Pan liable to pay Allstate’s expenses in respect of the arbitration?

Result:

Ms. Pan is entitled to receive a weekly income replacement benefit from one-week post-accident to February 28, 2016, in an amount to be determined.
Subject to an offset for Canada Pension Plan Disability Benefits, Ms. Pan is entitled to receive a weekly income replacement benefit from February 29, 2016 and ongoing, in an amount to be determined.
Ms. Pan is entitled to interest for the overdue payment of benefits. If the parties cannot come to an agreement on the quantum of the amount owing pursuant to the directions in my decision, they may deliver written submissions to ADR Chambers of no more than 5 pages each, the Applicant’s submissions to be delivered within 30 days of the date of this decision and the Insurer’s submissions to be delivered within 14 days thereafter.
Allstate is not liable to pay a special award because it unreasonably withheld or delayed payments to Ms. Pan.
Expenses shall be payable. If the parties cannot come to an agreement on the matter of expenses, either party may request in writing an appointment before an ADR Chambers arbitrator to determine expenses, provided the request is made within 30 days from the date of this decision.

EVIDENCE AND ANALYSIS

BACKGROUND AND AGREED FACTS

During the arbitration Hearing, and in their respective written submissions post-Hearing, both counsel for the Applicant and counsel for the Insurer advised that a number of facts were mutually agreed on and not in dispute in the arbitration proceeding.

The fact of the accident having occurred on August 28, 2014 is not in dispute. The parties agreed that at the time of the accident the Applicant was 54 years old. The Applicant worked as a residential and office cleaner pre-accident. In 2013, she performed cleaning for Bonny Home Services Inc., (“Bonny”) a company akin to “Molly Maid”, and performed cleaning for 1029259 Ontario Ltd., a company owned by her husband.

The Insurer agreed on November 26, 2015 to pay the Applicant $200.00/week retroactively from one week post-accident. These payments are ongoing pending a determination of the correct quantum.

It is agreed upon by all parties that the Applicant did not work or earn any income post-accident. Her sole source of income post-accident was from her income replacement benefits (“IRB”) from the Insurer.

By letter dated September 20, 2017, the Insurer deemed the Applicant catastrophically impaired. Forty percent of the impairment is of a psychological nature.

The Applicant has not applied for Canada Pension Plan (“CPP”) disability benefits.

The sole remaining substantive issues to be decided are what was the Applicant’s pre-accident income for the purposes of calculating the quantum of IRB payable and whether CPP benefits should be off-set against the IRB.

DOCUMENTARY EVIDENCE

The Insurer did not file any documentary evidence or expert reports, except for a six-page document of its own creation entitled “Production Request Timeline”² which, the Insurer alleged, was an accurate summary of when the Insurer had requested various documents from the Applicant regarding her IRB claim.

The Applicant relied on her income tax returns and Canada Revenue Agency (“CRA”) Notices of Assessment³ for 2013 and 2014. The 2013 return noted that the Applicant earned $3,438.00 in income plus $492.00 in self-employed commissions from Bonny, along with $20,000.00 from 1029259 Ontario Ltd.

At the Hearing the Applicant also entered an expert accounting report which attempts to analyze her 2013 income. In her written submissions the Applicant accurately summarizes that report, stating, “…the [accountants] took a conservative approach with respect to the Applicant’s 2013 income, by associating just $3,930.00 out of $23,930.00 (16.4% of her total annualized income) to the period of August 28, 2013 – December 31, 2013”.

Regarding 2014, the Applicant earned and declared $29,695.00 in income after expenses but before taxes. She also proffered a hand-written list of customers, complete with specific names, addresses, phone numbers, total amounts paid and method of payment.

WITNESS TESTIMONY

The Applicant testified with the aid of a Mandarin Chinese interpreter. The Applicant stated that she did not remember exactly when she started working for Bonny. She also was unable to verify if the T4 amount reported on her income tax return in 2013 from Bonny was accurate. She testified that at some point in later 2013, she could not recall exactly when, she started her own cleaning business. The Applicant gave conflicting testimony as to whether, and how often, she worked at her husband’s company in 2013. The Applicant tried, but was unable to recollect, exactly when in 2013 she performed cleaning services. The Applicant testified that she performed some work throughout 2013, including after August of that year, but was uncertain how much.

The Applicant further testified that the tax returns were done by her husband. All information contained within the income tax returns was based on what she could recall. She gave her husband all the receipts for her business expenses. The Applicant stated that she made income from her business in 2013 but could not remember how much. She only worked for herself in 2014. The $32,800.00 gross business income reported in her 2014 tax return was an estimate.

The Applicant stated that the receipts for services document provided at the Hearing was created after the accident. It was only a summary. She had made some kind of a written record at the time the services were provided but no longer had those documents. She explained that, “I forget…lost many things”. She indicated that she would be paid most of the time in cash, and occasionally by cheque. The Applicant indicated that the summary contained most of her customers, but that she did not include some customers because she had forgotten their contact information. That was the reason why her customer list contains less revenues than indicated in her tax return.

INCOME REPLACEMENT BENEFITS

The Law

Section 3(7) of the Schedule provides in part:

d) payments for loss of income under an income continuation benefit plan are deemed to include,

(i) payments of disability pension benefits under the Canada Pension Plan…

Section 4 of the Schedule provides as follows:

Interpretation

(1) In this Part,

“gross employment income” means salary, wages and other remuneration from employment, including fees and other remuneration for holding office…

“other income replacement assistance” means, in respect of an insured person who sustains an impairment as a result of an accident…

(b) the amount of any gross weekly payment for loss of income, other than a benefit or payment described in subclauses (a) (i) to (iii) that may be available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan but is not being received by the person and for which the person has not made an application.

(2) The gross annual employment income of an insured person is determined as follows:

In the case of a person referred to in subparagraph 1 i of subsection 5 (1) who was not a self-employed person at any time during the four weeks before the accident, the person’s gross annual employment income is whichever of the following amounts the person designates:

i. The person’s gross employment income for the four weeks before the accident, multiplied by 13.

ii. The person’s gross employment income for the 52 weeks before the accident.

Subject to paragraph 3, the person’s gross annual employment income is his or her gross employment income for the 52 weeks before the accident if,

i. the person qualifies for a benefit under subparagraph 1 i of subsection 5 (1) and was a self-employed person at any time during the four weeks before the accident, or

ii. the person qualifies for a benefit under subparagraph 1 ii of subsection 5 (1).

Analysis

Does the Applicant’s pre-accident income entitle her to IRB?

In her written submissions the Applicant argues:

The Applicant submits that she has proven her case on a balance of probabilities. She has provided not only her complete income tax returns and notices of assessment, but also her customer chart with names, addresses and phone numbers. If the Insurer sought to challenge her income and her IRB quantum to which she is entitled, it had ample time and information upon which to attempt to do so. Instead, it has never produced any competing evidence, and even at the Hearing, it failed to provide any evidence to support its speculative theories of the Applicant's revenues and expenses. There is simply no competing calculation as to quantum.

In support of her position the Applicant relies on the FSCO Director’s Delegate decision in Liberty Mutual Insurance Company and Morabito:⁴

In the IRB context, Commission adjudicators have long accepted that a precise determination of pre-accident income may not be possible, especially where the claimant was self-employed or marginally employed. For one thing, “people do not keep records designed to calculate average gross weekly income in the four and 52 weeks preceding an unexpected event.” In addition, many self-employed people lack the time or skills to produce income documentation that would satisfy a professional accountant. Given these realities, “the goal should be finding a reasonable basis for making the calculation, not punishing poor record keepers”. [citations omitted by Applicant]

The Applicant argues that there is a presumption that tax returns are accurate, in the absence of reliable evidence to the contrary. The Applicant also cites Norbert J. Boyer and Allstate Insurance Company,⁵ in which the Arbitrator states, “In my view, given the importance of filing complete and accurate income tax returns, Mr. Boyer’s 2003 return should be presumed to be accurate in the absence of reliable evidence to the contrary.”

Regarding the Applicant’s income for the last third of 2013, the Applicant submits that if the figure supplied by the accounting report is not accepted, then the alternative figure ought to be her total income of $23,930.00, divided equally between the number of weeks of the year. The period of August 28, 2013 to December 31, 2013 is 18 weeks, which would mean that her income during this period would be $8,283.46.

The Applicant further argues in her written submissions that:

…it would be manifestly unjust, even more so within the context of consumer protection legislation, to allocate $0 in income for the relevant period in 2013, for which there is ample evidence of employment activity proven on a balance of probabilities, and of which she fully declared and paid taxes to CRA pre-accident. As such, the Applicant submits that a quantum must be attributed to this period. The test is not one of perfection, but one of reasonableness.

The Insurer argues in its written submissions that:

This is not a case of bad bookkeeping. The claimant either retained no receipts or records of services rendered or expenses incurred until after the subject accident when it became advantageous for her to properly declare her income, or she has refused to provide them to Allstate.

The Applicant has the burden to prove her claims with other reliable evidence on a balance of probabilities. The Applicant bears the onus of proving her gross weekly income. There is no obligation on the Insurer to provide an alternate calculation for income replacement benefits.

The oral testimony of the Applicant alone, without any corroborative documentary evidence, is not sufficient to discharge the onus in establishing income from self-employment. That onus can only be discharged through reliable and credible documentation of the Applicant’s earnings and expenses.

The documents relied upon at the hearing are based solely on her recollection and estimates. Accordingly, the documents created by the Applicant are no more reliable than her oral testimony, which was spotty at best… No reliable, verifiable, contemporaneous documents corroborating her revenue or expenses were entered into evidence. No witnesses who could corroborate the hours worked, amounts paid, or services rendered, were called….

In support of its position the Insurer sites Clipperton and Zurich Insurance⁶ for the principle that the onus is on the Applicant to provide reliable evidence of pre-accident income, i.e. an Arbitrator must have some reliable basis for calculating the benefits.

The Insurer also relies on Price and Liberty Mutual Insurance Company,⁷ where the Director’s Delegate stated:

Lack of documentation is a serious problem. Anyone who operates a business without keeping records runs a variety of risks, including the possibility that he or she will be unable to prove pre-accident income in the event of an automobile accident. (Emphasis added)

A significant part of my decision regarding pre-accident income must be an evaluation of the credibility of the Applicant’s testimony. One of the most often citied cases in relation to the factors and approach to assessing credibility is Faryna v. Chorny.⁸ In that decision, the British Columbia Court of Appeal stated:

...Opportunities for knowledge, powers of observation, judgment and memory, ability to describe clearly what he has seen and heard, as well as other factors, combine to produce what is called credibility.

The credibility of interested witnesses, particularly in cases of conflict of evidence cannot be gauged solely by the test of whether the personal demeanor of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of the witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions... Again, a witness may testify to what he sincerely believes to be true, but he may be quite honestly mistaken.

I am also mindful of the Ontario Court of Appeal’s comments on credibility and reliability in R. v.

Morrissey:⁹

Testimonial evidence can raise veracity and accuracy concerns. The former relates to the witness’s sincerity, that is, his or her willingness to speak the truth as the witness believes it to be. The latter concerns relate to the actual accuracy of the witness’s testimony. The accuracy of a witness’s testimony involves considerations of the witness’s ability to accurately observe, recall and recount the events in issue. When one is concerned with a witness’s veracity, one speaks of the witness’s credibility. When one is concerned with the accuracy of a witness’s testimony, one speaks of the reliability of that testimony. Obviously, a witness whose evidence on a point is not credible cannot give reliable evidence on that point. The evidence of a credible, that is honest witness, may, however, still be unreliable.

As noted supra, the Applicant suffers from a forty percent psychological disability. I was not provided with any evidence specifically regarding the impact of this disability regarding the Applicant’s ability to act as a witness. However, I am prepared to assume that some of her powers of observation, judgment and memory, and ability to describe clearly what she has seen and heard, pursuant to Faryna v. Chorny,¹⁰ may be adversely affected.

Nonetheless, I agree with the Applicant in her written submissions that:

The willingness to produce a customer list with full contact details and amounts paid to the Insurer is crucial to an Applicant’s credibility. Such evidence could easily be contradicted by the Insurer if it was false, and yet the Insurer has not adduced any contrary evidence.

I reject the Insurer’s submission that the lack of documentation substantiating the Applicant pre-accident income is determinative of the issue. In my view, proof of pre-accident income is no different than any other issue in an arbitration i.e., I must determine the credibility of witnesses and how much weight is to be given to be given to each piece of evidence.

I also agree with the Applicant that an insured person’s income tax returns are prima facie proof of employment income and concur with her analysis contained in written submissions:

…there is a major distinguishing factor between the present case and the many cases cited by the Insurer. The Applicant is not trying to prove income that was not declared on her tax returns. The Applicant accepts that “under the table” income does not form part of an Income Replacement Benefits (“IRBs”) calculation, in accordance with the Statutory Accident Benefits Schedule… In fact, both the Applicant and Insurer’s case law supports one notion - that past decisions emphasize income tax returns are prima facie proof of income, in addition to being an accurate and reliable basis for calculating income.

In conclusion I accept the Applicant’s testimony, the customer list and the CRA documents proffered as sufficiently credible, reliable, and unrefuted evidence and therefore find that the Applicant has met her burden of proof, on a balance of probabilities, regarding pre-accident income.

However, I disagree with the Applicant that I must determine the amount of income to be attributed to the last third of 2013. In my view, given the apparent lack of records, the income quantum I am urged to accept by the Applicant for the September to December 2013 period is based on unsubstantiated assumptions. As the Insurer put it in its written submissions, “it cannot be the law that a simple guess is sufficient to justify the payment of income replacement benefits”. Nonetheless, I am satisfied that the amount reported by the Applicant as self-employed income to CRA in 2014 is a valid and reliable number and can be properly determined for purposes of calculating the IRB.

In the result, I leave to the parties the task of calculating the quantum of IRB, if any, owed to the Applicant pursuant to Schedule, s. 4(2)1. i. The calculation will be based on the Applicant’s 2014 income as reported to CRA divided equally between the number of pre-accident weeks in 2014. The parties will recall that at the conclusion of the arbitration Hearing they agreed to undertake this calculation, if I found it applicable.

Are Canada Pension Plan Benefits Deductible from IRB?

The Applicant submits that the Insurer has no legislative authority to force an Insured to apply for CPP benefits. She goes on to argue in her written submissions:

…with a radically different and much more stringent test than the test for IRBs, there is no way of knowing if the Applicant would be approved and even if so, when she would be approved. When eligibility is uncertain, and the amounts and periods are unknown, there is no reliable way with which to make a deduction. It is also a detriment to the Applicant in that CPP is fully taxable.

…the Insurer has never even communicated to the Applicant that she ought to apply for CPP disability at any point during the course of handling her claim. Certainly, if they were to take such a position at the Hearing and argue that it ought to be deducted from an Applicant’s IRBs, at minimum they should request that the Applicant apply for CPP disability.

The Insurer puts forth the position that the Applicant has a duty to mitigate and that the Insurer is entitled to a deduction for CPP benefits that may be available. The Insurer goes on to state in its written submissions:

The claimant meets the threshold contribution requirement to be eligible for CPP disability benefits. The claimant’s tax returns demonstrate that she meets the eligibility requirements of having contributed to CPP in the last 4 of 6 years…

There is an obligation on the Applicant to apply for and exhaust her collateral benefits before resorting to the Accident Benefit’s carrier. The Accident Benefits Insurer is the payor of last resort. This is reflected in the language of [Schedule] section 4(1) (b) and other sections. The weekly amount of income replacement benefits is calculated by deducting the claimant’s base weekly amount “less all other income replacement assistance”. Other income replacement assistance is defined by Section 4(1)(b) to include:

[Schedule] Section 3(7) (d) deems CPP Disability benefits to be an income continuation benefit plan.

The meaning of this section is plain and obvious. Where an Applicant may be entitled to collateral benefits, she has an obligation to apply for it. Where an Applicant fails to apply for a benefit, the Insurer is to deduct as if she was receiving the benefit.

The Applicant attempts to rely on the decision of Arbitrator Musson in Kozumplik¹¹ for the proposition that the Insurer cannot force an Applicant to apply for CPP. This is correct. However, the Schedule is explicit that where benefits may be available but not applied for, the Insurer is entitled to deduct those benefits from any income replacement benefits. To do otherwise would render this section meaningless.

I agree with the Insurer that the intent of the applicable sections of the Schedule appears to be plain and obvious i.e., that the Insurer cannot force an applicant to apply for CPP disability benefits, but is nonetheless entitled to offset those benefits from any IRB payable. As the Ontario Court of Appeal explained in its very recent decision in Wilken v. Sun Life Assurance Company¹² in the context of a long-term disability insurance claim, “…The [plaintiff’s] voluntary decision to [forgo] WSIB benefits…effectively would deny the insurer its contemplated and permitted offset, thereby elevating the insurer’s relevant coverage obligation to a ‘first payor’ status that obviously was not intended”.

The fact that the Applicant may not qualify for CPP disability benefits pursuant to the applicable “severe and prolonged” test for those benefits is, in my view, irrelevant. The applicable Schedule provisions mandate that an applicant must pursue “other income replacement provisions”. By the same token, the fact that CPP benefits would be taxable is also irrelevant. I also reject the Applicant’s argument that the Insurer cannot now apply the provisions of the Schedule because it did not previously request that the Applicant apply for CPP disability benefits. I cannot accept that the fact that the Applicant may have been unaware of, or chose to ignore, the provisions of the Schedule somehow prevents the Insurer from having those provisions applied.

Given the CPP disability criteria of a “severe and prolonged” disability, I believe eighteen months post-accident is reasonable and sufficient time for the Applicant to have applied for CPP disability benefits. In the result, the Insurer is to offset the applicable quantum of CPP disability benefits, pursuant to the Schedule, starting February 29, 2016.

I leave to the parties the task of calculating the quantum of IRB, if any, owed to the Applicant after February 28, 2016. This last calculation should take into account that, pursuant to Schedule, s. 7(2)1(a), the IRB payable effective August 28, 2016, is capped at $185 per week, less offset for CPP Disability Benefits.

SPECIAL AWARD

The Law

Section 282(10) of the applicable Ontario Insurance Act¹³ provides the statutory basis for me to make a special award:

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.

Entitlement to a Special Award is therefore contingent on the Insurer’s behaviour having been “unreasonable”. In Erickson and The Guarantee,¹⁴ the Oxford English Dictionary definition of “unreasonable” was relied on. The arbitrator found that “unreasonable” required, “1. Going beyond the limits of what is reasonable or equitable; 2. Not guided by or listening to reason”.¹⁵ FSCO jurisprudence also establishes that an insurer’s actions could be determined to have been unreasonable without having been egregious or performed in bad faith.¹⁶ In Plowright and Wellington¹⁷ Arbitrator Palmer described unreasonable behaviour in the withholding of payments as, “behaviour which was excessive, imprudent, stubborn, inflexible, unyielding or immoderate”.

It is not appropriate to award a special award in all cases. As noted in Aviva Canada Inc. v. Peters,¹⁸ “an insurer is not to be held to a standard of perfection in responding to a claim, that an insurer’s claims decision is to be judged on the basis of the information available at the time, and not from hindsight, and that an insurer is not to be found unreasonable just because an Arbitrator concludes its claims decision was wrong.”¹⁹ Similarly, Arbitrator Feldman noted in Melchiorre and Allstate Mutual Insurance Company²⁰ that a special award will not be awarded in every case. Arbitrator Feldman stated:

A special award is not granted merely because the insurer incorrectly interpreted or failed to comply with a provision of the Schedule; if that were the case, a special award would be granted to every successful applicant. An insurer can come to the wrong conclusion without having acted unreasonably. To merit the granting of a special award, there must be something more - unreasonable conduct on the part of the insurer.²¹

Analysis

In this case the Applicant has only been successful with respect to a portion of her claims i.e., 18 months of IRB benefits without offset. It is not even certain whether the Applicant is owed anything by the Insurer given that the Applicant has been receiving $200.00/week in IRB retroactively from one-week post-accident and ongoing. The Applicant has the onus of demonstrating that a special award is justified. The Applicant has failed to provide sufficient evidence, on a balance of probabilities, of unreasonable behaviour on the part of the Insurer.

The claim for a special award is therefore denied.

EXPENSES

Expenses shall be payable. If the parties cannot come to an agreement on the matter of expenses, either party may request in writing an appointment before an ADR Chambers arbitrator to determine expenses, provided the request is made within 30 days from the date of this decision. Pursuant to the Arbitration Order accompanying this decision, ADR Chambers remains seized regarding the quantum of the expenses payable.

INTEREST

Pursuant to the Schedule, the Applicant is entitled to interest for the overdue payment of benefits, if any. I leave it to the parties to calculate interest on the overdue IRB, if any, in the prescribed manner.

If the parties cannot come to an agreement on the quantum of the amount owing, they may deliver written submissions to ADR Chambers of no more than 5 pages each, the Applicant’s submissions to be delivered within 30 days of the date of this decision and the Insurer’s submissions to be delivered within 14 days thereafter. Therefore, ADR Chambers will remain seized regarding the quantum of the interest payable.

January 10, 2018

Alan G. Smith Arbitrator

Date