Lovic v. Intact Insurance Company, 2023 CanLII 101103

Lovic v. Intact Insurance Company, 2023 CanLII 101103

Citation: Lovic v. Intact Insurance Company, 2023 ONLAT 21-010570/AABS

Licence Appeal Tribunal File Number: 21-010570/AABS

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:

Sadik Lovic

Applicant

and

Intact Insurance Company

Respondent

DECISION

ADJUDICATOR: Janet Hueglin Hartwick

APPEARANCES:

For the Applicant: Sadik Lovic, Applicant Liane Brown, Counsel

For the Respondent: Roxanne Hector, ADR Specialist Oliver Gorman-Asal, Counsel

Court Reporter: Jada Dunn

Heard by Videoconference and In Writing: March 29, 2023, followed by Written Submissions

OVERVIEW

1Sadik Lovic, the applicant, was involved in an automobile accident on March 10, 2020 and sought benefits pursuant to the Statutory Accident Benefits Schedule - Effective September 1, 2010 (including amendments effective June 1, 2016) (the “Schedule”). The applicant was denied benefits by the respondent, Intact Insurance Company, and applied to the Licence Appeal Tribunal - Automobile Accident Benefits Service (the “Tribunal”) for resolution of the dispute.

2This hearing was scheduled to be heard in writing. The applicant submitted a Notice of Motion to include affidavit evidence. The parties agreed to proceed to a one-day video hearing during which the applicant and his son/former business partner testified. The parties provided written submissions three months later.

ISSUES

[3] The issues in dispute are: i. Is the applicant entitled to an income replacement benefit (“IRB”) of $400.00 per week, less amounts paid by the respondent, for the period from March 17, 2020 to date and ongoing? ii. Is the applicant entitled to interest on any overdue payment of benefits?

RESULT

4I find the applicant is entitled to an IRB in the amount of $400.00 per week from March 17, 2020 to date and ongoing, in line with the RSM Canada Consulting LP (“RSM”) accounting report.

5I find the applicant is entitled to interest pursuant to section 51 of the Schedule.

ANALYSIS

Dispute relates to IRB calculation

6The parties agree that the applicant meets the disability test for an IRB. They also concur that, based on his pre-accident income, the applicant is eligible to a maximum payment of $400.00 per week. However, they have different perspectives on the IRB payment the applicant is entitled to receive.

7A long-time self-employed floor installer, the applicant joined his son Alen Lovic’s floor installation company, Hamilton Flooring Inc., in 2019. As a result of the March 10, 2020 motor vehicle accident (“MVA”), the applicant broke his left arm, shoulder blade, rotator cuff and ribs, in addition to experiencing a concussion. He has not resumed installing floors, however, he attempted to perform trim work, on a part-time basis for Hotic Inc. in August, September and November, 2022, for which he earned $1,260.00. Alen Lovic closed Hamilton Flooring Inc. in August 2022 after handling all of the business' flooring installations on his own since the MVA.

8The quantum sought by the applicant is $65,694.00 less IRBs paid to date, plus interest. The applicant and his son, the only employees of Hamilton Flooring Inc., testified they made a verbal agreement to perform equal work for equal pay and that the applicant’s name was added to the business, and its business bank account, for administrative purposes. To support his claim, he relies on his income tax returns for 2019, 2020 and 2021, financial statements of Hamilton Flooring Inc., personal banking statements and accounting reports from RSM as well as the respondent’s internal IRB calculation report.

9The respondent submits the applicant is entitled to $0 per week as a result of his eligible share of Hamilton Flooring Inc.’s earnings. While it initially paid the applicant an IRB, it later determined that the applicant received an overpayment of funds which were later returned. The respondent relies on the accounting report of BDO Canada LLP (“BDO”) which calculated the applicant’s IRB quantum should be $0 per week from March 18, 2020 until February 28, 2021 and $4 per week from March 1, 2021 to August 31, 2021. It asserts the applicant retained 50 per cent of his shares in Hamilton Flooring Inc. after his accident and there is no evidence of a verbal partnership or shareholders agreement. The respondent submits bank records do not show equal pay for equal work. In addition to the BDO report it relies on the bank records of the applicant, the financial statements, bank records and statement of earnings of Hamilton Flooring Inc. as well as the company’s 2017 to 2021 corporate income tax returns.

The applicant is entitled to IRBs in line with the RSM accounting report

10I find the applicant is entitled to an IRB in line with the RSM accounting report.

11Section 4 of the Schedule sets out the provisions related to IRB payments. IRB payments are based on the applicant’s income as reported to the Canada Revenue Agency (“CRA”), pursuant to section 4(5). The payments are based on the insured’s gross annual income from self-employment or employment. Generally speaking, weekly IRB payments are 70 per cent of the insured’s gross weekly employment income. The calculation for self-employed persons is based on the weekly loss from self-employment, whereas the calculation for employed persons is based on lost employment income.

12After receiving the reports from both parties, I prefer the accounting report of RSM for the reasons that follow.

13I find the RSM report correctly identified the applicant’s income. BDO overlooks that the applicant reported income as both an employee and as a self-employed person to the CRA in the last completed tax year prior to the 2020 accident. Thus, contrary to the report by BDO, the applicant is not required to calculate his IRB pursuant to s. 4(2)3 of the Schedule, which provides that the applicant may base his gross annual employment income solely on the last fiscal year of the business that ended on or before the day of the accident. The use of the term “may” indicates that the provision is optional for the applicant. Instead, the applicant chose to calculate his IRB pursuant to s. 4(2)(2)(i). In addition, the applicant’s income in the four weeks prior to the accident, as reported to the CRA, was solely from T4 employment. Therefore, he was not a self-employed person and is permitted to calculate his IRB based on his income for the 52 weeks prior to the accident, pursuant to section 4(2)(1)(ii) of the Schedule.

14I find the RSM report to be a more accurate determination of the applicant’s IRB entitlement. As I indicated above, s. 4(5) of the Schedule states that IRB payments are based on the applicant’s income as reported to the CRA. The applicant’s personal tax return indicates that in 2019 he claimed T4 employment income of $39,540.00 from Hamilton Flooring Inc. in addition to $9,322.52 of income from self-employment with Radnik Flooring, the floor installation business he ran by himself before joining with this son. In my view, RSM correctly calculated the applicant’s IRBs by determining his gross employment income by the 52 weeks before the accident, pursuant to s. 4(2)(2)(i). Whereas BDO calculated the applicant’s IRBs based on self-employed income, pursuant to s. 4(3). Therefore, I prefer the calculation of RSM as I find it to be correct.

15I prefer the RSM report that does not deduct the business operating results of Hamilton Flooring Inc. from the applicant’s post-accident entitlement to IRB. The applicant and his son were paid employment wages rather than dividends. I am alive to the respondent’s assertion that as a 50 per cent shareholder of Hamilton Flooring Inc. the applicant was entitled to claim half of the business’ operating results. However, the tax returns of the applicant and Hamilton Flooring Inc. support that the parties were paid as employees not shareholders. Hamilton Flooring Inc. declared $101,875.00 of gross profit to CRA in its 2019 tax return and the applicant declared $39,540.00 of employment income. The following year, Hamilton Flooring Inc. declared $79,317.00 of gross profit and the applicant declared $7,430.00 of employment income, for the work he completed in the first three months of the year before his accident. I disagree with BDO’s assertion that the post-accident business results of Hamilton Flooring should be deducted from the applicant’s IRB calculation.

16I am not persuaded by the respondent’s submissions that there is no proof of the verbal agreement to split equal pay for equal work and that the bank records do not show a consistent division of earnings. In my view, Alen Ladik’s explanation of why income deposits were inconsistent, due to the unpredictable stop and start of different contracts, is reasonable. Based on the evidence before me, Hamilton Flooring Inc. was a small business in which the profits were largely, if not entirely, dependent on the work that was done by the applicant and his son. To suggest that the entitlement to remuneration of either the applicant or his son from the business is independent of their work contribution is not reasonable in this circumstance.

There is no evidence that the applicant earned post-accident income from Hamilton Flooring Inc.

17I find the applicant did not earn passive income from his shareholder status pursuant to s. 7(2) of the Schedule. The applicant relies on case law including Perth Insurance Company v Salim Suranii, 2017 CarswellOnt 13620 which states an applicant’s post-accident earnings from self-employment may be deducted where they are no longer working, but continue to receive passive income after an accident, because their “true financial situation” had not changed.

18As I stated above, the applicant’s tax returns demonstrate he did not report additional income – as wages or profit – from Hamilton Flooring Inc. to the CRA. In fact, the applicant’s bank records indicate he reported more income on his tax returns than he received in 2019 and 2020. It appears he filed taxes based on Hamilton Flooring Inc.’s forecasted earnings rather than actual income.

19Accordingly, I find the applicant is entitled to IRB payments in addition to what the insurer has paid to date.

The applicant is entitled to interest

20I find interest applies on the payment of any overdue benefits pursuant to s. 51 of the Schedule.

ORDER

21I find the applicant is entitled to an IRB in the amount of $400.00 per week from March 17, 2020 to date and ongoing, in line with the RSM accounting report.

22I find the applicant is entitled to interest pursuant to section 51 of the Schedule.