“The SABS was drafted with tremendous clarity and is without any unfair applications”, said nobody ever.
In the recent decision before the Licence Appeal Tribunal (LAT), K.D. v. Aviva Insurance Company, 2020 ONLAT 18-011646/AABS, Vice Chair Farlam clarified some long-held differences of opinion between insureds and insurers – or affirmed the interpretation of unambiguous statutory legislation, depending on whom you ask – regarding the calculation of a weekly base amount for income replacement benefits payable to self-employed motor vehicle accident victims. Whereas some lawyers, insurers, forensic accountants, and even FSCO Arbitrators and LAT Adjudicators have long believed (or adjudicated) that the insured is entitled to apply his/her income from the 52-week period preceding the subject accident, others have believed (and adjudicated) that the insured is compelled to apply the income from his/her last completed taxation year prior to the subject accident. While Vice Chair Farlam’s decision applying the latter seems to be consistent with this author’s interpretation of the SABS, which I grudgingly admit lacks ambiguity in this one specific area, the door has been left open ever so slightly to explore some creative arguments to the contrary.
Strangely (although perhaps appropriate for legislation that is backwards and circuitous at the best of times), the analysis to accurately calculate one’s income replacement benefit begins with section 5(1) of the SABS (Statutory Accident Benefits Schedule – Effective September 1, 2010), which must be established in order to accurately harness sections 4(2) and 4(3). Section 5(1) establishes conditions which, when one or both are met, compels an insurer to pay an income replacement benefit (supposing the insured also satisfies the “substantial inability” or “complete inability” disability tests, which are not the focus of this article). The two conditions are particularized into two portions – Paragraph 1 is reserved for employed persons and paragraph 2 is reserved for self-employed persons. The next stage of analysis lies in sections 4(2) and 4(3) to determine the method of calculating an insured’s “gross weekly employment income” or “weekly income or loss from self-employment”. The end result is that claimants are essentially divided into three categories:
- Paragraph 1 of section 4(2) captures insured persons actively employed at the time of the motor vehicle accident and who were not self-employed at any time in the four weeks prior to the accident. These insured persons calculate “gross annual employment income” based on their gross employment income for the 52 weeks preceding the accident or based on their gross employment income for the four weeks preceding the accident multiplied by 13, whichever is the higher quantum.
- Paragraph 2 of section 4(2) captures insured persons not actively employed at the time of the motor vehicle accident (although employed for 26 of the 52 preceding weeks), as well as employees actively employed at the time of the motor vehicle accident while also self-employed at some time in the four weeks preceding same. These insured persons calculate “gross annual employment income” based on their gross employment income for the 52 weeks preceding the accident. Paragraph 3 of section 4(2) adds that those employees actively employed at the time of the motor vehicle accident while also self-employed at some time in the four weeks and for at least one year prior to same are entitled to calculate “gross annual employment income” based on their gross employment income for the 52 weeks preceding the accident or their gross employment income from the last fiscal year ending prior to the accident. They are entitled to make this election, which is one of the sources of the confusion referenced at the onset of this article.
- Section 4(3) captures insured persons self-employed at the time of the motor vehicle accident. These individuals calculate income from self-employment based on their income (or loss) from the business from the last completed taxation year prior to the subject accident.
If this is already making your head spin, you’re right on track!
It is when calculating the quantum of income replacement benefits for the third category, the self-employed insured persons, when many actors in the industry have been confused and misunderstood section 4(3). While this author believes the language in section 4 is clear and unambiguous, it could have been crafted with significantly more clarity, which has further frustrated the existing confusion. For example, section 4(2) consistently uses the terminology “gross annual employment income”, which is defined in section 4(1); whereas section 4(3) uses the terminology “income or loss from self-employment”, which is not defined anywhere in the SABS. What makes a claimant “employed” or “self-employed”, however, also lacks clarity. Whereas section 2(5) of the previous version of the SABS, the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, states that a claimant is “employed” “if, for salary, wages, other remuneration or profit, the person is engaged in employment, including self-employment, or is the holder of an office”, “employed” or “employment” is not defined in the current SABS. In a peculiar corresponding manner, “self-employed person” is defined in the current SABS, but was not in its previous version. Moreover, section 4(2) offers clear guidance on how to calculate an income replacement benefit quantum and what variables to apply. It utilizes the following definitive language in doing so: “The gross annual employment income of an insured person is determined as follows…”, “the person’s gross annual employment income is…”, and “the person may designate as his or her gross annual employment income…”. By contrast, section 4(3) states that
A self-employed person’s weekly income or loss from self-employment at the time of the accident is the amount that would be 1/52 of the amount of the person’s income or loss from the business for the last completed taxation year…
One must then look to section 7(2) to see how to apply the cryptic instruction in section 4(3), which clarifies that the insured person’s weekly base amount is calculated by multiplying 70% of the above-noted weekly income from self-employment. Successful navigation of this portion of the SABS requires an on-call enigmatologist and a tremendous amount of patience. All kidding aside, while this author maintains that section 4(3) is unambiguous and its meaning is clear, the language employed by the drafters was not. “If you’re self-employed at the time of the accident, then do this” would have been abundantly more helpful.
The above summary of the relevant legislation lays the groundwork for understanding the genesis of the confusion currently complicating income replacement benefits claims. In an effort to reconcile this confusion, some actors in the industry have often ignored section 4(3) and reverted to a liberal application of paragraphs 2 and 3 from section 4(2). They mistakenly insist that self-employed insureds calculate a weekly base amount by electing to apply either their employment income from the 52 weeks preceding the subject motor vehicle accident or their income from self-employment from the business from the last completed taxation year prior to same. This interpretation is inaccurate, as acknowledged by Vice Chair Farlam in her decision in K.D. v. Aviva Insurance Company. Despite this reality, however, other LAT Adjudicators have recently incorrectly applied the method of calculation outlined in section 4(2) where section 4(3) ought to have been applied (as well as made other errors inconsistent with the legislation). A.P. v. Economical Mutual Insurance Company, 2019 CanLII 101433 (ON LAT) is amongst the most notable of these decisions and is strikingly on point in the discrepancy discussed in this article. The contradictory decisions from within the same body have only served to further obfuscate this subject matter.
Those advancing the liberal interpretation (i.e. to allow self-employed claimants to choose between income in the 52 weeks preceding the motor vehicle accident and income in the last completed taxation year prior to same) have presented two arguments:
- The bottom-right corner of an Employer’s Confirmation Form (OCF-2) indicates that a self-employed insured (“at any time during the four weeks before the accident”) may “designate the following time period to be used to calculate… income”. The options provided are “52 weeks” and “Last complete fiscal year”, suggesting that the liberal interpretation is applicable (even though “fiscal year” seems to be mistakenly used interchangeably to mean “taxation year”). In D. v. Aviva Insurance Company, Vice Chair Farlam dismissed this argument at paragraph 18, when she stated:
The entitlement to [income replacement benefits] and the method of calculation is prescribed by the Schedule. The OCF-2 does not grant any substantive or procedural right to the applicant at odds with the legislation.
- In certain scenarios, the application of section 4(3) can bring about an absurd and unjust result should self-employed insureds be compelled to calculate income from self-employment based on their income from the business from the last completed taxation year prior to the subject accident. Entertain the following hypothetical scenario, which is not at all uncommon (save for the extreme data used in the example the illustrate the absurdity of the end result): Suppose that a claimant was “self-employed”, as per paragraph 2 of section 5(1), and that she owned and operated a very successful business for ten consecutive years from 2008 to 2017. In each of those ten years, she earned a profit of $5 million. However, in 2018, the business suffered tremendously and operated at a net loss. The business returned to profitability in 2019 and was set to profit $25 million. Then suppose that this claimant was injured in a motor vehicle accident on December 31, 2019 and so, regretfully, her “last completed taxation year” in accordance with section 4(3) is 2018. This application of section 4(3) would result in the quantum of this claimant’s income replacement benefit to be nil, which is an absurdly harsh and unjust result. However, Vice Chair Farlam held at paragraph 19:
The applicant’s submissions that to apply s. 4(3) would create an unjust result will create an “unintentional blind spot” and possibly other perceived unfairness to the applicant is also not persuasive. Section 4(3) of the Schedule is clear and unambiguous.
The same unjust conclusion arises when a self-employed insured is injured in a motor vehicle accident in the same taxation year as the launching of his/her new business. I call these subsets of self-employed insureds “the forgotten fourth category”. It cannot have been the intention of the legislators drafting the SABS to send home “the forgotten fourth category” empty-handed, but it is the reality.
Despite the patent unfairness of the application of section 4(3) in the second scenario, Vice Chair Farlam has reminded Ontario that the legislation is “clear and unambiguous”, as supported by Adjudicator Norris before her (in V.H. v. Aviva Insurance Company, 2019 ONLAT 18-009156/AABS) and Adjudicator Neilson before him [in 17-002366 v. Coachman Insurance Company, 2019 CanLII 34601 (ON LAT)].
The principle of enforcement of unambiguous but unfair legislation is well established in the law. At paragraph 34 of the Supreme Court of Canada decision in R. v. McIntosh, 1995 CanLII 124 (SCC),  1 SCR 686, the majority of the Court commented:
Where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the legislature, it must be enforced however harsh or absurd or contrary to common sense the result may be (Maxwell on the Interpretation of Statutes, supra, at p. 29). The fact that a provision gives rise to absurd results is not, in my opinion, sufficient to declare it ambiguous and then embark upon a broad-ranging interpretive analysis.
The Court of Appeal for Ontario’s decision in Beattie v. National Frontier Insurance Co. 2003 CanLII 2715 (ON CA) is of particular interest as the case addressed a Plaintiff’s claim for income replacement benefits. At paragraph 14 of the decision, Justice Borins eloquently articulated and adopted an identical philosophy as the one expounded in R. v. McIntosh:
This is not a case in which accepted principles of interpretation permit the court to reject an interpretation that results in an absurdity in favour of a plausible alternative interpretation that avoids the absurdity and supports the legislative purpose of s. 30. The reason is that s. 30(4), although not furthering the legislative intent, is clear and unambiguous. It gives rise to but one meaning. Although an interpretation that leads to absurd consequences should be rejected in favour of an interpretation that avoids absurdity, the court cannot do so if, as in this case, because of the clarity of the language used by the legislature there is no plausible alternative interpretation.
Justice Borins discussed the notion of “plausible alternative interpretation” earlier at paragraph 13 when he commented:
It is well-accepted that principles of interpretation may be used to resolve an absurd interpretation. However, this principle resolves conflicts where the words of a provision are reasonably capable of more than one meaning. Iacobucci J. in Bell ExpressVu Ltd. Partnership v. Rex,  2 S.C.R. 559, 2002 SCC 42, at para. 29:
What, then, in law is an ambiguity? To answer, an ambiguity must be “real” (Marcotte, supra, at p. 115). The words of the provision must be “reasonably capable of more than one meaning” (Westminster Bank Ltd. v. Zang,  A.C. 182 (H.L.), at p. 222, per Lord Reid). By necessity, however, one must consider the “entire context” of a provision before one can determine if it is reasonably capable of multiple interpretations. In this regard, Major J.’s statement in CanadianOxy Chemicals Ltd. v. Canada (Attorney General), 1999 CanLII 680 (SCC),  1 S.C.R. 743, at para. 14, is apposite: “It is only when genuine ambiguity arises between two or more plausible readings, each equally in accordance with the intentions of the statute, that the courts need to resort to external interpretive aids” (emphasis added), to which I would add, “including other principles of interpretation”.
In other words, judicial interpretation is a tool only available where an absurdity in legislation arises from ambiguity. For ambiguity to exist, there must be two or more alternative interpretations of the legislation in question. In those instances, the judiciary ought to favour the least absurd of all interpretations in remedying the ambiguity. However, where there is only one possible interpretation of the legislation, irrespective of how absurd that interpretation (and application of the legislation) may be (as this author believes exists in K.D. v. Aviva Insurance Company), then that absurdity may instead constitute a lacuna, which is a gap in the law. Counsel for the Applicant in K.D. v. Aviva Insurance Company referred to this single interpretation of section 4(3) as a “blindspot”, but that is all that it may be. It is an unjust oversight. It is a reflection and reminder of society’s propensity to craft imperfect legislation amidst our admirable but unreachable endeavour to craft perfect legislation. These lacunas, or “blindspots”, cannot be remedied by judicial interpretation because while unfair, they are unambiguous and offer only one plausible interpretation. In other words, if the legislative language is unfair, but also unambiguous, tough luck. If you don’t like it, call your MPP!
While this author believes that section 4(3) does constitute a lacuna and thus inappropriate for a judicial remedy, Vice Chair Farlam included one sentence in her decision which seems out of place and has given this author some pause for thought. She stated in paragraph 19 that “The applicant has not brought forward any evidence to establish he started his self-employment after 2016”. This inclusion was in reference to the specific fact pattern in K.D. v. Aviva Insurance Company – the applicant was self-employed since 2010, declared no self-employment income in the 2016 taxation year, and was then injured in a motor vehicle accident in 2017. If the Applicant had “started his self-employment after 2016” and in the year of the motor vehicle accident, then there would be no “income or loss from the business for the last completed taxation year”, 2016, and the Applicant’s income replacement benefit quantum would be $0 in accordance with section 4(3). That analysis, however, is redundant since section 4(3) cares not for how long a self-employed claimant’s business has been operational – only “the amount of the person’s income or loss from the business for the last completed taxation year”, 2016 in this case, is relevant. Thus, by specifically commenting on the timeline of the launch of the Applicant’s self-employment, Vice Chair Farlam may have left the door open just wide enough to endorse the calculation utilized in paragraph 2 of section 4(2) for a specific subset of insured persons: self-employed claimants launching businesses in the year of the motor vehicle accident (for whom there is no “last completed taxation year”). From a logical perspective, this would make a lot of sense. Moreover, the pursuit of fairness would demand it. In reality, however, the legislation does not support it as there is no second plausible interpretation of section 4(3) on account of the one above-referenced sentence in Vice Chair Farlam’s obiter dicta. It merely highlights a lacuna, the remedy for which is legislative amendment. Those advancing an argument based on the lacuna highlighted in Vice Chair Farlam’s obiter dicta should proceed with caution. You may be fighting an uphill battle and I don’t foresee a desirable ending for you… but I hope you prove me wrong!
This author has considered another potential argument that perhaps section 4(3) does offer two plausible interpretations, which would require the judiciary and LAT Adjudicators to favour the least absurd of all alternatives. The argument emanates from some peculiar language employed in section 4(3), which states:
A self-employed person’s weekly income or loss from self-employment at the time of the accident is the amount that would be 1/52 of the amount of the person’s income or loss from the business for the last completed taxation year as determined in accordance with Part I of the Income Tax Act (Canada).
The words “would be” are odd and unconventional, especially when the simplicity of the word “is” would have sufficed to achieve greater clarity. In fact, language like “The gross annual employment income of an insured person is determined” and “the person’s gross annual employment is whichever of the following amounts the person designates” were utilized in the previous subsection, section 4(2), to direct the method of calculation of an income replacement benefit. If the legislators and drafters of the SABS intended to treat self-employed claimants launching businesses in the year of the motor vehicle accident the same as other self-employed claimants, then the terminology “would be” seems bizarre and we have an obligation to investigate why simpler language was not employed. “Would be” suggests that the “last completed taxation year” may exist, and it may not. That is to say that a self-employed insured income “would be” calculated based on his/her last completed taxation year… if one existed. It is this opening which Vice Chair Farlam may have been exploring when she said that “The applicant has not brought forward any evidence to establish he started his self-employment after 2016”. For these claimants, applying employment income from the 52 weeks preceding the subject accident is the only opportunity of establishing a weekly base amount above $0. Consider the impact of instead applying a strict interpretation of section 4(3) to a claimant entitled to receive income replacement benefits for life where that claimant’s business succeeded tremendously in its first year of operation, but was launched in the same taxation year as the motor vehicle accident. Now consider this claimant rendered quadriplegic at the age of 35. The unfair and unjust outcome would be $0 for life. One would hope that the legislators considered that new business owners are sometimes injured in motor vehicle accidents. The words “would be” may afford this consumer protection legislation what it direly needs: ambiguity in section 4(3) characterized by multiple plausible interpretations such that judicial intervention is warranted to achieve fairness. However, as with the previous argument offered by this author, this one is also an uphill battle. Buyer beware!
The third possibility of escaping the strict interpretation of section 4(3) relies on the specific circumstances of a claimant’s employment. It is established that the income replacement benefit of a self-employed claimant who launched his/her business in the year of the motor vehicle accident may be calculated to be $0 pursuant to section 4(3). You will recall, however, that paragraph 1 of section 4(2) captures insured persons actively employed at the time of the motor vehicle accident and who were not self-employed at any time in the four weeks prior to the accident. An insured person may fall into either paragraph 1 of section 4(2) or section 4(3) if he/she is the self-employed controlling mind of his/her business, but also paying him/herself as an employee of the company. Although this claimant wears both hats as both an “employed” and “self-employed” insured person, which one would think necessitates the application of paragraph 2 of section 4(2), that application is incorrect. Paragraph 2 of section 4(2) was intended to capture self-employed claimants of a business also employed by a completely separate entity – consider for the sake of simplicity the claimant who flips burgers Monday to Friday but flips real estate on the side through his/her own corporation. The more appropriate example, rather, concerns employees under subparagraph 1 i of section 5(1) and self-employed persons emanating from the same entity, such as the owner of a corporation paying himself/herself a weekly salary (i.e. if the claimant flipping burgers also owns the burger joint). There are competing decisions as to whether these insured persons are captured under section 4(3), which is problematic for the “forgotten fourth category”, or paragraph 1 of section 4(2), where the calculation of income based on the four or 52 weeks preceding the motor vehicle accident will be significantly more advantageous.
It is irrefutable that the term “self-employed person” is unambiguous in the SABS; it is defined in section 3 as a person who:
- engages in a trade, occupation, profession or other type of business as a sole proprietor or as a partner, other than a limited partner, of a partnership, or
- is a controlling mind of a business carried on through one or more private corporations some or all of whose shares are owned by the person.
As previously discussed, the definition of “employed person”, however, is absent in the current version of the SABS. That term was defined in the previous version of the SABS [in section 2(5)] as one “engaged in employment, including self-employment, or… the holder of an office, and ‘employment’ has a corresponding meaning”. Now, instead of defining the term “employed person”, the SABS directs users on the method of calculating:
- “Gross employment income”, which is defined in section 4(1) and is reserved for employed persons; and
- “Income or loss from self-employment”, which is reserved for self-employed persons.
The absence of consistent concurrent terminology for “employment” and self-employment” seems to have opened the door just a little wider.
Consider the above-noted hypothetical scenario of the owner of a burger joint, who is a “self-employed person” pursuant to section 3, who also pays himself a weekly salary for tax purposes and so claims to be “employed” pursuant to subparagraph 1 i of section 5(1). While there are a variety of factors to consider in determining whether a self-employed claimant is also an employee, most FSCO decisions stood for the proposition that where a claimant is inseparable from the corporation and especially where remuneration is dependent of the business’ revenues and expenses, said claimant will generally be treated as a self-employed person. Carr and Lombard General Insurance Co. of Canada (FSCO A00–000441), Rocca and GAN Canada Insurance Company (FSCO Appeal P99-00039), and Malik and Allstate Insurance Company of Canada (FSCO Appeal P00-00007) are amongst the most notable of those decisions. In Piper and Zurich Insurance Company (FSCO Appeal P-002585), however, Director Sachs held that the claimant was an employee of his own company because there was, as she concluded on page 4 of the Appeal Order, “a consistent pattern of salary-based payments, and treatment of Mr. Piper as an employee, rather than a self-employed majority shareholder”. Mr. Piper was an electrician in a family-owned business who drew a regular salary from the corporation’s funds and left surpluses as corporate retained earnings. Every case has unique fact patterns and all factors must be carefully weighed to explore whether a claimant’s income replacement benefit calculation is governed by paragraph 1 of section 4(2) or by section 4(3). This is of particular importance for the “forgotten fourth category” and especially insured persons launching his/her business in the same year as the motor vehicle accident, who as a result may be resigned to an income replacement benefit of $0.
Unfairness and ambiguity are not synonymous with one another and while section 4(3) of the SABS can exude absurdity and unfairness in many situations, that fact does not purport that section 4(3) is necessarily ambiguous, which must be established to permit the judiciary and LAT Adjudicators to favour the least absurd of all plausible interpretations. Nonetheless, Vice Chair Farlam’s decision in K.D. v. Aviva Insurance Company may have shone a hint of light on some ambiguity in section 4(3), thereby allowing self-employed persons injured in motor vehicle accidents to escape the victimization of the strict reading of section 4(3). Moreover, a thorough analysis of the relevant case law and the particular facts giving rise to whether a claimant is more appropriately considered “employed” or “self-employed” offers a separate avenue to avoid the same absurd result as the one Vice Chair Farlam arrived at in K.D. v. Aviva Insurance Company. If both of those options fail, and you are left with legislative language that is unfair, but also unambiguous, tough luck. Call your MPP!