V.S. v. Economical Mutual Insurance Company, 2018 CanLII 81896

Licence Appeal Tribunal

Date: 2018-05-23 Tribunal File Number: 17-000751/AABS Case Name: 17-000751 v Economical Mutual Insurance Company

In the matter of an Application pursuant to subsection 280(2) of the Insurance Act, RSO 1990, c I.8, in relation to statutory accident benefits.

Between:

V.S.

Applicant

and

Economical Mutual Insurance Company

Respondent

DECISION

ADJUDICATOR: Anna Truong

APPEARANCES: V.S., the Applicant I.S., the Applicant’s wife Patrick Mazurek, Counsel for the Applicant Tim Gilibrand, Counsel for the Respondent

Court Reporter: Stephanie Matos

Heard in-person and by teleconference on: September 13 and 14, 2018

OVERVIEW

1V.S. (the “Applicant”) was involved in an automobile accident on November 27, 2014, and sought benefits pursuant to the Statutory Accident Benefits Schedule - Effective September 1, 2010 (the “Schedule”), which were denied by the Respondent.

2The Applicant disagreed with the Respondent’s decision and submitted an application to the Licence Appeal Tribunal – Automobile Accident Benefits Service (the “Tribunal”). The matter proceeded to a Case Conference, but the parties were unable to resolve the issues in dispute.

PROCEDURAL MOTION

3The Applicant did not adhere to the initial closing submission timetable set at the hearing. He was two weeks late with his initial submissions. In the interest of procedural fairness, I extended the timetable to allow the Respondent more time to submit its submissions. Despite my initial indulgence to the Applicant, he was once again late in his Reply submissions, which were submitted on December 20, 2017- 40 days after the new extended deadline.

4The Respondent brought a motion on December 28, 2017, requesting the Applicant’s Reply submissions not be considered as they are in violation of the filing deadlines imposed by the Tribunal. The Respondent further requested any case law referred to in the Applicant’s submissions not be considered as the cases referenced in the Applicant’s submissions have not been submitted.

5In the Applicant’s initial submissions for the hearing in September 2017, he included a Book of Authorities (“BOA”) Index listing five cases. However, in his Reply submissions sent in December 2017, the Applicant did not include a BOA Index despite quoting new decisions in his submissions.

6The Applicant wrote to the Tribunal on February 28, 2018, attaching a BOA Index for his December 2017 submissions and advising he was still in the process of finding copies of certain cases referenced in his Reply because published copies of the cases were not available. I find it rather perplexing the Applicant can refer to case law he does not have in his possession. I also find it prejudicial to the Respondent unpublished cases were referenced and not submitted.

7In deciding whether or not to admit something into the hearing record, I must weigh the principles of procedural fairness and natural justice with the potential prejudice a party may face. Having considered all the submissions from both parties, I will allow the Applicant’s Reply submissions into the hearing record. While I explicitly do not condone the Applicant’s conduct and his failure to adhere to the Tribunal’s timetable, I must balance that with the principles of natural justice and procedural fairness. The Applicant’s Reply is the final step in the submission process. The Respondent does not and cannot respond to anything in these submissions. Therefore, while unprofessional, submitting the Reply submissions late does not result in any prejudice to the Respondent.

8With respect to the case law referenced in the Applicant’s Reply submissions of December 2017, half of the cases were previously referenced in his September BOA Index. Of the new cases, I take issue with three of the cases referenced, specifically cases 6-8¹, in the Applicant’s December 2017 BOA Index. Despite my efforts, I could not locate a copy of these decisions. Furthermore, the Applicant conceded he has trouble locating published copies of these cases. For these reasons, these cases will not form part of my decision.

9With respect to the rest of the case law, again, while I do not condone the Applicant’s conduct, the cases were readily available online and adequate citations were given, so the Respondent could seek out the decisions. Therefore, I have allowed these cases into the hearing record.

ISSUES TO BE DECIDED

10The following are the issues to be decided:

1. Is the Applicant entitled to an income replacement benefit in the amount of $400 per week from May 18, 2015 to December 31, 2016?

2. Is the Respondent entitled to a repayment of $6,535.62 for an income replacement paid to the Applicant from May 19, 2015 to December 31, 2015?

3. Is the Applicant entitled to interest on any overdue payments?

RESULT

11Based on the totality of the evidence before me, I find the Applicant is entitled to an income replacement benefit: in the amount of $400 per week from the accident to May 18, 2015, in the amount of $58.90 from May 19 to December 31, 2015, and $0 per week thereafter. I find the Applicant is not entitled to interest. I find the Respondent is entitled to a repayment of $6,535.62.

ANALYSIS

12A one day in-person as well as a half day teleconference hearing was conducted. The Applicant and his wife testified as well as two expert accountants. I have considered all of the evidence led during the hearing and summarized what I found relevant to my determination below.

1. Quantum of Income Replacement Benefit (“IRB”)

13The parties agreed there is no issue with entitlement to an IRB. The issue in this hearing is the quantum of the IRB. The Applicant is self-employed and the sole owner of a truck driving numbered company. Pre-accident, he was the only regular driver of his truck, outside of the infrequent use of a relief driver when the business became busy. The Applicant was unable to drive his truck post-accident, so he hired a regular driver to replace him. Post-accident, the Applicant’s wife and children took over the administration of the business and the Applicant’s only involvement was providing authorization when needed.

14The parties both agree the question of quantum can be broken down into three parts: 1. the base weekly rate, 2. the treatment of post-accident income, and 3. whether or not the Co-Operators life insurance benefit is deductible.

(1) Base Weekly Rate

15Both parties provided expert accounting reports with detailed calculations of the Applicant’s pre and post-accident income. The Applicant relies on the Pinnacle Valuation Group Income Replacement Benefit Report dated December 31, 2016, completed by Rim Grewal, Accountant (“Mr. Grewal’s Report”). The Respondent relies on the three² Davis Martindale Income Replacement Benefit Reports completed by Jessy Hawley, Accountant (“Ms. Hawley’s Reports”).

16I could not rely on Mr. Grewal’s report and I placed no weight on it for several reasons. During the hearing, Mr. Grewal conceded the conclusions in his report were incorrect. This was largely due to his treatment of the Applicant’s Capital Cost Allowance (“CCA”) deduction. In his report, Mr. Grewal allocated the entire 2014 CCA deduction to the period after the Applicant’s accident, which resulted in the increase of the Applicant’s pre-accident income and a reduction in his post-accident income. The overall effect of this is an increase to the Applicant’s IRB quantum.

17At the hearing, Mr. Grewal conceded the purpose of CCA deductions is to deduct the cost of an asset over its useful lifetime and as such, CCA deductions should be “smoothed out” over an entire year, especially if it pertains to a work vehicle. In this case, the CCA pertains to the Applicant’s truck.

18Mr. Grewal was unable to explain why he chose to allocate the entire CCA deduction to the 2014 year-end. He seemed unsure what asset the CCA even pertained to. He stated he thought the CCA pertained to an asset purchased post-accident, but did not provide an explanation as to why he thought so. He admitted he did not investigate what type of asset the CCA pertained to. This information was accessible to Mr. Grewal.

19Outside of the CCA, Mr. Grewal’s treatment of the “rental expenses” was also particularly puzzling. Mr. Grewal allocated the entire rental expense in a lump-sum at the end of the year, instead of allocating it over the year as it was incurred. When questioned as to why he did that, Mr. Grewal explained he was following the Applicant’s previous accounting practice. However, during his testimony, Mr. Grewal also agreed rent should be smoothed out during the year like the CCA.

20Mr. Grewal’s Report is unreliable. His approach in allocating the CCA deductions and rental expenses were troublesome. He did not and could not explain the reasoning for some of his approaches and assumptions. Mr. Grewal’s review of the documents was lacking and he did not seek additional information, or cross-reference information provided. Mr. Grewal testified he used numbers from an “excel sheet” which he believed to be the company’s 2014 income statement.

21The most troubling revelation about Mr. Grewal’s Report is he testified at the hearing (unprompted) many drafts of the report were completed using different numbers, but it seems they were not produced for the hearing. It appears Mr. Grewal did not ultimately decide which numbers were used in the final report submitted to the Tribunal. It would be an egregious breach of natural justice and procedural fairness, if I were to rely on a report cherry picked for its conclusion. For this and the other reasons outlined above, I did not place any weight on Mr. Grewal’s Report.

22I preferred the evidence of Ms. Hawley and placed more weight on her reports. I preferred Ms. Hawley’s approach to the CCA allocation as it is more logical and consistent to allocate the depreciation of a fixed asset evenly over its useful life instead of a lump sum at an arbitrary point in time. Furthermore, Mr. Grewal conceded at the hearing this was the better approach. For the same reasons, I preferred her treatment of the rental expenses.

23I placed weight on Ms. Hawley testimony, because she was able to explain all of her calculations at the hearing. She was able to explain why she used certain numbers and the underlying assumptions she relied on in using those numbers. All of her explanations were reasonable and based on supporting documents. Furthermore, she testified she cross-referenced information from multiple sources and when she was unclear about something, she would investigate further or request more information. Ms. Hawley’s testimony and reports were logically sound and reasonable.

24The Applicant argued the Tribunal does not need to “choose” between the evidence of one party over the other. The Applicant further argued the Tribunal should weigh all the evidence to come to its own conclusions which does not have to conform to the opinions or calculations of either party’s expert. I agree with the Applicant’s submission. The Tribunal should weigh all the evidence before it and come to its own conclusion. This is exactly what I have done. While I have placed more weight on Ms. Hawley’s Reports and discounted Mr. Grewal’s Report, I did not do so, because I “chose” her report over his. I placed more weight on Ms. Hawley’s Reports, because I agreed with her opinions and calculations. I am the ultimate decision maker in this matter. However, I am not an accountant. Therefore, my decision requires guidance from accounting experts to ensure it is reasonable.

25Based on all the reasons above, I find the Applicant’s average gross weekly income or weekly base rate to be $667.21 as determined by Ms. Hawley.

(2) Post-Accident Income

26For the same reasons I placed no weight on Mr. Grewal’s Report for the Applicant’s pre-accident income calculation, I also placed no weight on Mr. Grewal’s Report for the Applicant’s post-accident income calculation. Again, Mr. Grewal’s treatment of the CCA and rental expenses was problematic and skewed the Applicant’s post-accident income.

27Once again, I preferred Ms. Hawley’s Reports and placed weight on them. Ms. Hawley’s approach to the post-accident period was reasonable. Ms. Hawley divided the post-accident period into two distinct periods based on the change in circumstances surrounding the Applicant’s business operations.

28The first period Ms. Hawley considered was from the date of the accident to May 18, 2015. During this time, the Applicant’s truck was not generating revenue, because the Applicant was unable to drive. However, Ms. Hawley continued to attribute expenses to this period, because certain fixed expenses would still be incurred despite the inability to generate revenue, such as rent. I agree with this approach, because Ms. Hawley’s reasoning is correct. Despite the Applicant’s inability to generate revenue, certain fixed expenses would continue to be incurred regardless and these expenses should be reflected accordingly.

29The second period Ms. Hawley considered was from May 19, 2015 onward. This date is significant, because there was a big change in the Applicant’s business. As of May 19, 2015, the Applicant hired a replacement driver and the company started generating revenue. Since the truck was now being operated, there were certain variable expenses the Applicant’s business would now begin to incur again, such as fuel. This is the reason why Ms. Hawley only attributed certain expenses to this period. I agree with this approach, because expenses should be matched to the revenue it generates. It would be illogical for certain expenses, such as fuel, to be attributed to a timeframe in which the truck was not being driven because that is not when the expenses were incurred.

30I find Ms. Hawley’s approach of dividing her calculations into two distinct periods logical and the best way to accurately account for the Applicant’s post-accident income because of the drastic change in the Applicant’s business operations. That is another reason why I placed weight on her reports and conclusions.

31The Applicant submitted the term “earned” in section 7 of the Schedule requires the Applicant to return to his self-employment in order for income to be considered “earned”. The Applicant further submitted his business has become a “passive investment” and he has not actively returned to the operation of his business. Therefore, his business profits should not be counted as post-accident income.

32I disagree that a self-employed person must be actively involved in a business in order for their post-accident income to be deducted. It would be inconsistent and illogical if the Applicant’s company profits are relevant in the determination of his pre-accident income, but irrelevant in the determination of his post-accident income.

33Furthermore, I do not accept the Applicant’s argument he is no longer actively involved in his company and his company is now a “passive investment”. While the Applicant is no longer driving his truck, he still remains the sole owner of the company and he is still the governing mind, retaining signing authority. The Applicant’s wife testified at the hearing that while she and her children assisted the Applicant in running the company administratively, all decisions still required his final approval because he is the only one with signing authority. Post-accident, the Applicant even met with the company’s biggest client to ensure the business relationship continued. This is active involvement. Therefore, the Applicant’s company profits should be counted as post-accident income and deducted from his IRB.

34For all the reasons above, I find Ms. Hawley’s calculation of the Applicant’s post-accident income to be logical and reasonable and accept her calculation of the Applicant’s post-accident income.

(3) Is the Co-Operators Life Insurance Company Benefit Deductible?

35Section 7(1) of the Schedule states the amount of weekly IRB payable is calculated by taking the weekly base rate and deducting “all other income replacement assistance”.

36Section 4(1) defines “other income replacement assistance” as “(a) the amount of any gross weekly payment for the loss of income that is received by or available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan . . .” The section goes on to list exclusions to the definition.

37Subsection 3(7)(d) indicates payments for loss of income under an income continuation benefit plan are deemed to include

(ii) periodic payments of insurance, irrespective of whether the contract for the insurance provides for a waiting period, deductible amount or similar limitation or restriction and irrespective of whether the contract is paid for in whole or in part by the employer, if the insurance is offered by the insurer,

(A) to persons who are employed while the contract for the insurance is in effect, and

(B) only on the basis that the maximum benefit payable is limited to an amount calculated with reference to the insured person’s income from employment;

38Post-accident, the Applicant began receiving disability benefits from Co-Operators in the amount of $1,500 per month. The Respondent submitted this benefit should be deductible from the Applicant’s IRB, because it is an income continuation benefit plan. The Applicant disagreed and submitted this benefit should not be deductible from his IRB.

39Both parties submitted case law in support of their position. Each party heavily relied on FSCO cases, which are not binding, but I found some of them to be persuasive.

40The Applicant submitted the decision of Economical Insurance v. Wilcox³ and argued it is identical to his case. I disagree. The biggest difference between the insured person in the Wilcox decision and this current matter is in Wilcox, the monthly benefit was fixed and not linked to the Applicant’s income. Furthermore, the policy in Wilcox did not require the insured person to be employed to qualify for the benefit.

41Furthermore, Wilcox was decided in 2000 under a previous iteration of the Schedule. While Wilcox is useful for an extensive review of the history of the deductibility of collateral benefits, there has been further development in jurisprudence surrounding this area in more recent decisions. The biggest takeaway from Wilcox is the purpose of deductibility provisions is to prevent double recovery: injured persons should not be compensated twice for the same loss. Other than that, I did not find Wilcox relevant to this matter.

42The Respondent submitted the decisions of Stojanov v. Dominion of Canada General Insurance Company⁴ and Bhola v. Personal Insurance Company of Canada⁵. These decisions note in determining whether a policy is an “income continuation benefit plan” requires a detailed consideration of the policy. Relevant factors to consider in reviewing the policy include:

1. Whether the benefits are linked to being actively and regularly working at the onset of disability;
2. Whether the disability test is inability to perform pre-disability employment duties;
3. Whether post-disability earnings are deductible;
4. Whether the disability insurer has subrogation rights directly tied to the claimant’s income;
5. Whether the employer is involved in arranging for and paying for the disability policy, and;
6. Whether the benefits cease when the claimant is no longer disabled from working or at an age reflecting retirement.

43I found these factors useful and have used them to guide my analysis. However, taking the previous case law and the wording of the Schedule into consideration, and distilling it down to its most basic level, the question that must be answered in this matter is simple: what are the Co-Operators payments for?

44The Applicant applied for the Co-Operators’ policy on July 5, 2006, electing a benefit of $1,500 per month for a period of 5 years up to age 70 with a 0 day elimination period for “Injury Coverage”. The Disability Income Overview page is entitled “Loss of Income Benefit” and stipulates the coverage is linked to employment or business earnings.

45The Policy Booklet is entitled “Loss of Income”. Under Section 3 of the policy, the “Loss of Income” Benefit is to be calculated as 75% of insurable monthly earnings up to a maximum of $1,500 per month. Section 2 of the policy defines “insurable monthly earnings” must be generated by some form of employment, business activity, or self-employment.

46The letter from Co-Operators letter to the Applicant dated February 5, 2015, outlines several factors of this benefit:

1. If he receives disability benefits from other sources, he must immediately notify Co-Operators and those payments may directly reduce his benefit amount;
2. His benefit is only payable if he unable to return to work;
3. His ongoing disability will be monitored to determine if he continues to be entitled to the benefit and how his disability affects his ability to work.

47Attached to the Co-Operators’ letter was also a Benefits Summary Page, which indicates the Applicant’s Monthly Insurable Earnings (“IME”) is based on his gross business income and his Monthly Benefit is determined by his gross business revenue. It indicates his Monthly Eligible Benefit is $1,500. However, the section notes: “If your income is not sufficient for the Amount Purchased, then your Eligible Monthly Benefit is less than your Amount Purchased”.

48It is evident from all the documents, the Applicant’s Co-Operators disability benefit is an income continuation benefit plan. The maximum monthly benefit was determined based on his pre-accident gross business revenue. While he was able to elect the eligible monthly benefit payable, he is not entitled to the full amount unless his income was sufficient to qualify for the amount purchased.

49Furthermore, the Applicant is only entitled to this benefit, if he is disabled from working. If the Applicant were to return to work, he would no longer be entitled to these payments. In short, the Applicant is receiving these payments, because of his inability to work and the payments are meant to replace his income. Therefore, this is an income continuation benefit plan.

50This is further supported by the fact that the benefit contains an “integration of benefits provisions”, which allows Co-Operators to reduce his benefit amount by the amount of any disability benefit he is entitled to from a list of specified sources. The Schedule contains similar provisions. It is clear the purpose of both provisions is the same: to prevent double recovery. The Applicant should not be compensated twice for the same loss of income.

51Based on the evidence before me, I find the Co-Operator’s disability benefit to be payments for loss of income under an income continuation benefit plan. Therefore, the Respondent is entitled to deduct the payment of benefits from the Applicant’s income replacement benefit.

Quantum of IRB Conclusion

52Based on my findings for each part of the Applicant’s IRB calculation (his base weekly rate, the treatment of post-accident income and the deductibility of the Co-Operator’s disability benefit), I find the calculation of the Applicant’s IRB in Ms. Hawley’s Reports to be accurate and accept them. For all the reasons above, I find the Applicant’s quantum of IRB to be $400 per week from the date of accident to May 18, 2015, $58.90 from May 19 to December 31, 2015, and $0 from December 31, 2015 onward as calculated in Ms. Hawley’s Reports.

2. Repayment of IRB

53Section 52 of the Schedule requires a person to repay to the insurer any benefit paid to the person as a result of an error, or as a result of wilful misrepresentation or fraud, if the insurer gives notice of the amount that is required to be repaid.

54The Applicant submitted there has not been an overpayment of his IRB according to his calculations which formed the dispute in issue #1 of this hearing. I have already found those calculations to be incorrect. As a result of my findings in issue #1, I find there has been an overpayment of the Applicant’s income replacement benefit. I accepted the Respondent’s calculation of the Applicant’s IRB in issue #1 as outlined in Ms. Hawley’s Reports, because I found them to be reasonable. Accordingly, I also find the Respondent’s calculation of the overpayment to be reasonable as outlined in Ms. Hawley’s Report.

55The Respondent first notified the Applicant of an overpayment in correspondence dated March 7, 2016, and advised the overpayment amount was $4,949.32. After receiving additional financial documents, in a letter to the Applicant dated August 16, 2017, the Respondent advised the current overpayment was $10,706.11. The Respondent submitted for the purposes of this hearing, it is only seeking repayment for the period from May 19 to December 31, 2015, in the amount of $6,535.62, as indicated in Ms. Hawley’s Report of August 3, 2017.

56For the period of May 19 to December 31, 2015, the Applicant was paid $260.43 per week for approximately 32.43 weeks. According to my findings and the calculations in Ms. Hawley’s Report, the amount of IRB payable to the Applicant during this time frame was only $58.90 per week. Therefore, the Applicant was overpaid by $201.53 per week for 32.43 weeks, which resulted in an overpayment of $6,535.62 for this period.

57For all the reasons above, I find there has been an overpayment of the Applicant’s IRB and the Respondent has provided notice of this overpayment. Therefore, pursuant to section 52 of the Schedule, the Respondent is entitled to a repayment in the amount of $6,535.62 for the period of May 19 to December 31, 2015.

3. Interest

58Since I found nothing payable, the Applicant is not entitled to any interest.

CONCLUSION

59For the reasons outlined above, I find the Applicant’s quantum of IRB to be $400 per week from the date of accident to May 18, 2015, $58.90 from May 19 to December 31, 2015, and $0 from December 31, 2015 onward. I find the Applicant is not entitled to any interest. I further find the Respondent is entitled to a repayment in the amount of $6,535.62 for May 19 to December 31, 2015.

Footnotes

1. 1DeFrias v. Lumbermens Insurance (2000) O.J. No 63, Gill v. Zurich Insurance (2002) O.J. 889, and Watson v. Dominion of Canada General Insurance (2000) O.J. 928.
2. 2Reports dated August 11, 2015, March 7, 2016 and August 3, 2017.
3. 3(2000) FSCO Appeal P99-00015 (“Wilcox”)
4. 4(2013) FSCO A12-004572 (“Stojanov”)
5. 5(2007) FSCO A06-001473 (“Bhola”)