Mike Kozumplik v. Aviva Canada Inc., 2018 ONFSCDRS 29

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2018 ONFSCDRS 29

Appeal P17-00017

OFFICE OF THE DIRECTOR OF ARBITRATIONS

MIKE KOZUMPLIK

Appellant

and

AVIVA CANADA INC.

Respondent

BEFORE:

Delegate Jeffrey Rogers

REPRESENTATIVES:

Mr. Douglas Bryce, solicitor for Mr. Kozumplik

Mr. David Contant, solicitor for Aviva

HEARING DATE:

January 15, 2018

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 as it read immediately before being amended by Schedule 3 to the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, and Regulation 664, R.R.O. 1990, as amended, it is ordered that:

1. This appeal is dismissed.

2. If the parties are unable to agree about expenses, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

February 2, 2018

Jeffrey Rogers Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Kozumplik appeals the Arbitrator’s order of February 6, 2017. The Arbitrator ruled that he is not entitled to further income replacement benefits (IRBs) for the period from August 29, 2006 until June 25, 2013, because the income he earned during that period was income from self-employment, which reduced his IRB entitlement to the amounts Aviva already paid. Mr. Kozumplik submits that the Arbitrator erred in finding that he was self-employed during the relevant period, and in calculating the amount of income to be attributed to his self-employment.

For the reasons that follow, I conclude that there was ample evidence to support the findings of fact that Mr. Kozumplik challenges on appeal. The Arbitrator did not err in making his findings of fact. It is not the function of appeals to revisit them. The appeal is therefore dismissed.

II. BACKGROUND

Mr. Kozumplik was injured in an accident on August 29, 2004 and sought accident benefits from Aviva payable under the Schedule.¹ He applied for arbitration after mediation did not resolve disputes about his entitlement to further claimed benefits. The issue that came before the Arbitrator was Mr. Kozumplik’s entitlement to further post-104 IRBs from August 29, 2006 to June 25, 2013. Aviva agreed that he met the disability test for entitlement, but argued that he earned income from self-employment during the relevant period, thereby reducing his entitlement to the amounts already paid. The Arbitrator agreed.

As noted above, Mr. Kozumplik submits that the Arbitrator erred in concluding that he was self-employed at this time. In the alternative, Mr. Kozumplik submits that the Arbitrator erred in attributing to him the income declared in the tax returns of his spouse and his corporation. I will address the submissions in that order.

II. ANALYSIS

No error in finding of self-employment

The Arbitrator’s decision turned on his findings of fact. In finding the facts, the Arbitrator had to assess Mr. Kozumplik’s credibility. The Arbitrator was not satisfied that Mr. Kozumplik was forthright in his testimony. He found it to be “circumspect at times”².

Under s. 283(1) of the Insurance Act, appeals are limited to “a question of law”. The leading case on the interpretation of s. 283(1) is Lombardi and State Farm Mutual Insurance Company.³ As discussed in that case, an error of law is a finding of fact made in the complete absence of supporting evidence, based on conjecture, or arising from a misapprehension of the evidence that is caused by a misdirection on a legal principle.

Similarly, in Truong and Lumbermens Mutual Casualty Company/Kemper Group,⁴ Delegate Makepeace held that:

… the test for error of law ‘is whether the decision was based on a material finding of fact that was not supported by the evidence such that a reasonable tribunal acting judicially and properly directed in law could not have made the finding in question.’

An arbitrator must give adequate reasons to justify findings of fact. In Kanareitsev v. TTC Insurance Co.,⁵ the Divisional Court set out the factors to be considered in determining the adequacy of an adjudicator’s reasons. They are:

• Did the adjudicator set out the findings of fact?

• Did the adjudicator set out the principal evidence upon which the findings are based?

• Did the adjudicator address the major points in issue? and

• Did the adjudicator set out and reflect consideration of the main relevant factors?

The Court also reiterated the well-established principle that deference is accorded to an adjudicator’s findings of fact, and the Court urged caution when those findings turn on assessing credibility. The Court stated:

Particularly when results turn on the first instance decision maker’s view of the credibility of witnesses and involves a fact-driven analysis, appellate review must take “proper account of the distinct advantage” of the first-instance decision maker’s assessments. The appeal judge must not try the case de novo or simply substitute his or her views for those of the trial judge⁶.

I find that the Arbitrator did not commit any of the errors identified in Lombardi and Kanareitsev. There was ample evidence to support the Arbitrator’s conclusions. There was no conjecture or misapprehension. There was no misdirection on a legal principle. The Arbitrator clearly set out the findings he made and his reasons for making them.

The Arbitrator’s findings attract deference. What Mr. Kozumplik really asks on appeal is that I substitute my view of the evidence for the Arbitrator’s. He submits that: “by all accounts, Mr. Kozumplik’s involvement in the business was ad hoc, sporadic, and limited, at best”⁷. The Arbitrator specifically rejected this theory.

He submits that: “Compelling and cogent evidence was provided from all three witnesses at arbitration as to why the form of the financial arrangements, as reflected in the tax returns, does not accurately reflect the substantive operations of the business, which post-accident had become entirely passive in nature.⁸” The Arbitrator was not satisfied that this evidence was credible.

There is no dispute that Mr. Kozumplik was self-employed before the accident. He qualified for IRBs on the basis that he was self-employed. He and his wife were in the business of buying residential properties, renovating them, and renting them out prior to resale. He owned a slightly greater share of the capital than his wife. The Arbitrator described the business as follows:

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. 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.⁹

This factual background gave context for the Arbitrator to consider in deciding how to characterize the income Mr. Kozumplik earned after the accident.

Mr. Kozumplik, his wife, and the corporation they jointly owned filed tax returns both before and after the accident. Mr. Kozumplik declared his income to be income from self-employment both before and after the accident. Aviva hired an accountant to calculate Mr. Kozumplik’s IRB and presented the report at the hearing. The accountant made the calculations based upon the profit of the business as declared in the tax returns for the jointly owned company and for Mr. Kozumplik and his wife. The accountant assumed that there was equal entitlement to the profit between Mr. Kozumplik and his wife, both before and after the accident. Therefore, half of the profit was attributed to each of them. Mr. Kozumplik accepts that this is an accurate attribution before the accident, but argues that the Arbitrator erred in accepting the same approach for his post-accident income.

The Arbitrator was not required to look at the post-accident activity in a vacuum. The Schedule contemplates that an insured person may meet the disability test for IRBs, but still earn income. Section 6(2) allows for a deduction of income from IRBs “in respect of any employment subsequent to the accident”. Further, for self-employed persons, s. 6(4)(b) of the Schedule prohibits deducting expenses paid to replace the insured person’s active participation in the business. Aviva compensated Mr. Kozumplik for those expenses. In this legal and factual context, the Arbitrator’s analysis had to focus on how to characterize the post-accident income Mr. Kozumplik earned, and not on whether the work he did would be compensated in a competitive environment.

Relying on the Arbitrator’s decision in Zirger and Commercial Union Assurance Company,¹⁰

Mr. Kozumplik submits that the Arbitrator erred by reversing the onus of proof and requiring him to prove that he did not receive income from self-employment. In Zirger, the Arbitrator reviewed the jurisprudence and set out five principles to be applied in determining employment income earned by an insured person in the context of a closely held corporation and/or family-run business. Mr. Kozumplik relies on the fifth principle:

The Insurer bears the onus of establishing that an insured has received

income in respect of employment subsequent to the accident¹¹.

However, the third principle in Zirger, which says how tax returns are to be treated, is also relevant to the onus of proof:

While an insured person’s income tax returns are prima facie proof of

income, they are not conclusive of the issue of whether payments received

are employment income. However, the insured person bears the onus to

present reliable and cogent evidence to overcome the prima facie

presumption¹².

In this case, the Arbitrator appropriately treated Mr. Kozumplik’s tax returns as prima facie proof the he earned income from self-employment after the accident. It was then up to Mr. Kozumplik to present cogent evidence to overcome this presumption. The Arbitrator’s statement that Mr. Kozumplik failed to prove his case must be seen in this context.

The Arbitrator was also not required to restrict his reliance on the tax returns to a calculation of the amount of income, as Mr. Kozumplik submits. He was entitled to draw the inference from them that Mr. Kozumplik was in fact self-employed. I find no error.

Mr. Kozumplik’s theory at arbitration was that, after the accident, his involvement in the business was so limited that he was not “engaged in employment” as required by the definition of “employment” in s. 2(5) of the Schedule. The Arbitrator found otherwise. He stated:

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.¹³

The Arbitrator’s finding was based upon rejecting the testimony of Mr. Kozumplik and his wife regarding the extent of his post-accident activities and upon drawing an inference from Mr. Kozumplik’s income tax returns. There was evidence to support the Arbitrator’s finding. He clearly set out the basis for making them and for not accepting the oral evidence Mr. Kozumplik tendered. The Arbitrator noted that Mr. Kozumplik failed to provide documentary evidence to support his position, failed to provide corroboration for the documents he did provide, provided no alternate theory on how his income is to be characterized, failed to correct his tax returns even though he claimed they were inaccurate, and he hired an accountant to prepare his tax returns, making them likely accurate. On the issue of Mr. Kozumplik’s lack of credibility, the Arbitrator concluded as follows:

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 case¹⁴.

The Arbitrator was not required to accept the opinion of Ms. Christine MacGregor who assessed Mr. Kozumplik and concluded that his post-accident involvement in his business did not amount to self-employment. It was the Arbitrator’s role to decide whether Mr. Kozumplik earned income from self-employment, and not Ms. MacGregor’s. The Arbitrator gave clear reasons for rejecting her opinion. He noted her evidence that Mr. Kozumplik worked after the accident, although for reduced hours, that he could complete all pre-accident tasks except for heavy work, and that his role and his wife’s role remained virtually unchanged after the accident. I find no error in the Arbitrator’s conclusion that Mr. Kozumplik was “engaged in employment” after the accident.

No Error in Attributing Income

As noted above, Mr. Kozumplik’s alternate theory is that, even if the Arbitrator was correct in finding that he was self-employed after the accident, the Arbitrator erred in attributing 50% of the post-accident profit of the business to him. This is simply a repetition of the attack on the Arbitrator’s findings about the extent of Mr. Kozumplik’s involvement in the business after the accident. Further, as the Arbitrator noted, Mr. Kozumplik presented no alternate calculations. The Arbitrator applied s. 63 of the Schedule which requires income from self-employment to be calculated in the same manner as profit from the business would be determined under the Income Tax Act. The Arbitrator also applied the accounting principle of consistency.

This principle is well established in the jurisprudence. It is applied as a mechanism for avoiding over-or-under compensation. See for instance the decisions in Kotak and CAA Insurance Company (Ontario)¹⁵ and James and Allstate Insurance Company of Canada¹⁶. In James, the Arbitrator stated:

Consistency is a fundamental accounting principle. I understand this principle to mean “that accountants must measure and disclose information about an entity in the same manner from one accounting period to the next.” To define pre-accident and post-accident income differently in this case, as is implied by the Applicant’s approach, would be to unjustifiably inflate the Applicant’s benefit.¹⁷

I find no support in the Schedule or in the jurisprudence for Mr. Kozumplik’s submission that it only makes sense to apply the principle where profit is earned in circumstances where the insured person’s active participation in the business has been fully replaced by substitute workers whose wages the insurer is required to pay. I agree with the analysis in Perth Insurance Company and Surani¹⁸ where Delegate Evans reiterated the rationale for applying consistency:

In conclusion, pre-accident self-employed income and loss is determined based on profits under the ITA, and post-accident loss is also based on that of the business, subject to limitations to prevent exaggerated losses

I find it would be inconsistent to say that the companies’ profits are relevant in determining pre-accident income but irrelevant in determining post-accident income. I find that the legislature could not have intended that an insured could continue to profit from a business, yet not have that profit deducted from her IRBs as post-accident income. I find that, just as with post-accident loss, post-accident income is broader than just the person’s active participation in the business¹⁹.

I find no error by the Arbitrator in attributing 50% of the post-accident profit from the business to Mr. Kozumplik.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

February 2, 2018

Jeffrey Rogers Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2At page 4
3. 3(FSCO P01-00022, February 26, 2003)
4. 4(FSCO P03-00007, March 9, 2004), at Page 4
5. 52008 CanLII 26262 (ON SCDC), [2008] O.J. No. 2132
6. 6At paragraph 29
7. 7Paragraph 18, Appellant’s Written Submissions
8. 8Paragraph 46, Appellant’s Written Submissions
9. 9At page 3
10. 10(FSCO A97-001386, September 16, 1999)
11. 11At page 14
12. 12At page 14
13. 13At page 14
14. 14At page 4
15. 15(OIC A-011445, December 20, 1995), upheld on appeal (OIC P96-00019, March 27, 1997)
16. 16(OIC A-015580, May 17, 1996)
17. 17At page 19
18. 18(FSCO P16-00022, August 18, 2017)
19. 19At page 16