What the Surani decision means for deductions from IRB entitlements
This article originally appeared on The Lawyer’s Daily website published by LexisNexis Canada Inc.
Many insurers and their expert accountants routinely deduct post-accident business income from the income replacement benefit (IRB) entitlements of self-employed insureds irrespective of their inability to return to work. Others take the position that any efforts, no matter how trivial, short of complete disability, are sufficient to qualify income in the ongoing business as fully deductible.
Is this reasonable, what does the Statutory Accident Benefits Schedule (SABS) provide and what is the jurisprudence on the issue?
Under the SABS, weekly IRBs have always been intended to compensate insureds who are substantially unable to return to their pre-accident job due to their accident related injuries and have never been intended to capture investment or passive income that is not earned through active work efforts. Per subsection 6(1) of the new SABS applicable to accidents after Sept. 1, 2010, and subsection 4(1) of the prior SABS, IRBs are payable during the initial 104-week period in which an insured suffers a “substantial inability” to perform the essential tasks of their employment or self-employment.
Subsection 7(3), provides for the deduction from IRBs during the eligible period of 70 per cent of any:
- gross employment income received by the insured as a result of “being employed” after the accident; and
- gross self-employment income “earned by” the insured after the accident.
- (the italicized words were added under the new SABS.)
Subsection 6(2) of the prior SABS, applicable to both employed and self-employed insureds, provided for the deduction from IRBs of 80 per cent of “net income received by the insured person in respect of any employment subsequent to the accident.” The substitution of the words “earned by” for “received by” in subsection 7(3)(b) of the current legislation was arguably intended to clarify those situations where a person is unable to engage in any meaningful self-employment after an accident regardless of ongoing business earnings, and to codify the overwhelming thrust of jurisprudence under the old SABS establishing inter alia that:
- “engaging in post-accident employment is a condition precedent to an insurer's reliance on the provisions of subsection 6(2)” : Tran and TD Home and Auto Insurance Company FSCO A05-001715;
- “The phrase “engaging in” should be interpreted from a qualitative perspective and as meaning more than isolated post-accident attempts to perform activities that a claimant was able to perform before the accident” : Heath v. Economical 2009 O.R. (3d) 785; and
- “the term 'gainful employment' must be given a rational meaning, and that the performance of trivial tasks, such as the possible answering of a phone, hiring of and provision of instructions to replacement workers, does not constitute 'gainful employment' " : Gill v. Zurich Insurance Co.  O.J. 889.
In early 2016, the decision in Salim Surani and Nevine Surani and Perth Insurance [FSCO A12-001274 & FSCO A12-001275], came down from the Financial Services Commission of Ontario (FSCO) on this issue.
Prior to the accident, the Suranis, a married couple, worked full time in their own pharmacy businesses and were considered self-employed. After the accident, they were unable to work as pharmacists, but remained involved to varying degrees in managing their businesses. They both received post-accident income from their businesses.
The decision turned on their individual level of involvement and specifically whether or not they were considered to be “actively engaged” in the businesses post-accident.
With respect to Salim Surani, arbitrator Anne Sone found that he had hired and replaced employees to carry on the pharmacy businesses and continued to make all financial decisions for both businesses. He also made the decision to hire a third pharmacist and five more technicians; which Sone found “led to a nearly doubling in sales revenue.” As a result, it was determined that he was “actively engaged” in his business post-accident, and therefore the income he received from the pharmacy was considered earned by him from self-employment for the purposes of paragraph 7(3)(b).
In Nevine Surani’s case, however, Sone accepted the evidence that after the accident, she was available as a “trouble-shooter,” mainly answering telephone calls, but was unable to return to work. Sone found that, unlike her husband, “… Although she received income from dividends and other sources I find that … the trivial, minor tasks that she performed were insufficient for her to be considered to be actively engaged in the business. Accordingly, I find that Mrs. Surani’s post-accident business income was not 'earned income' from self-employment for the purposes of paragraph 7(3)(b) of the Schedule. Therefore, 70% of it was not deductible from her IRB entitlement.”
We note that the Surani arbitration commenced on Jan. 27, 2014, with the decision being rendered over two years later, on Feb. 23, 2016. Notwithstanding strict deadlines of 30 and 20 days for a notices of appeal and responses thereto, the Surani decision remains under appeal, and is therefore not yet definitive. In the meantime, many insureds wait while insurers continue to deduct the insured’s ownership share of post-accident income of a continuing business, whether received or not and regardless of the level of active engagement.
It is now over three years since the commencement of the Surani arbitration. Pending the outcome of the appeal given the remedial nature of the SABS legislation, should the benefit of any doubt not be given to the insured?