New Accident Benefits Rules

September 2010 ushered in what should prove to be some of the most significant changes to the Statutory Accident Benefits Rules (S.A.B.S.) in many years. Of particular note, the changes to the manner in which Income Replacement Benefits, or IRB’s, are to be calculated will affect every single driver on the road, though as we’ll show, some will be affected more than others.

Let’s consider John, an employed forklift operator earning $40,000 per annum. John’s been injured in a motor vehicle accident and hasn’t been able to return to work; his only income is in the form of short term disability benefits from his employer in the amount of $200 per week. How would we calculate John’s weekly IRB’s?

In essence, the new rules calculate IRB’s in exactly the same way as the old rules did, except we now have to replace the phrase ‘80% of net weekly income’ with the phrase ‘70% of gross weekly income’. We follow the same rules and the same steps; we just don’t have to worry about calculating income taxes. Let’s see how this subtle change affects John’s weekly IRB’s before and after the new rules came into effect:

Old Rules Versus New Rules

The new rules have been kind to John. The weekly difference of $46.53 begins to add up over time, totalling over $2,400 per year of additional, non-taxable income. Good news for drivers, right?

Not So Fast

IRB calculations under the new rules may end up being unkind to individuals earning lower income. Consider how IRB’s are calculated under the new rules: instead of using 80% of net income, we now use a lower benefit percentage of 70% but you won’t have to worry about making all those statutory deductions for income taxes, C.P.P. and E.I. payments. As we start considering lower and lower incomes though, those deductions start becoming smaller and 70% of gross income starts looking a lot less attractive than 80% of net. Lower income earners may also get hit twice, as they are also less likely to benefit from an employer sponsored disability insurance plan.

Consider our friend John, hit by the recent recession and downturn in manufacturing employment only able to secure part-time employment earning $200 per week with an employer that doesn’t provide disability insurance.

Section 7 (5) - What It Will Mean

It’s a small difference. The new rules will see John net a total of $11.25 per week less than he would have under the old methodology, but that’s $11.25 someone like John can’t afford on his meagre income. The new rules will have effectively cost John $585.00 for each year he receives IRB’s or 5.63% of his pre-accident income.

One provision of the new rules in particular has caught our attention: Section 7 (5). This provision requires an insurer to pay for the preparation of IRB entitlement reports with a cap of $2,500, effectively placing the risks and costs of challenging IRB payment amounts in the hands of the insured should additional information become available or circumstances change. We have identified a number of scenarios where the inclusion of this additional provision under the new rules may have adverse financial consequences to insured persons.

Self-employed individuals frequently require adjustments to their weekly IRB’s in light of the fact that their income is rarely earned on a consistent basis. As time passes, they may be operating at different working capacities as they learn to adjust to their injuries or start withdrawing from their business. As such, their entitlements may change from year to year or even more frequently, necessitating a recalculation of their benefits at each time. In light of the new provision set out in Section 7 (5), an insured person may be forced to weigh the cost benefits of commissioning new reports given that their financial liability for doing so has been greatly increased.

Government employees or union members may also be affected due to the number of benefits they may have available to them. These individuals may have access to short and long-term disability benefits, CPP disability benefits, and depending on their age at the time of the accident, retirement benefits. The difficulty lies in the fact that these benefits are typically awarded or elected at different times, the result being a change in their entitlement to IRB’s. It’s not uncommon for these individuals to require several updates to their IRB’s up to the date of trial.

Medical, Rehabilitation, Attendant Care and Housekeeping & Home Maintenance Benefits

The amounts payable for medical, rehabilitation and attendant care benefits have undergone perhaps the most sweeping changes under the new rules. The table below summarizes the major changes:

The new rules will end up placing a larger burden on those people who suffer serious injuries as a result of a motor vehicle accident, but who fall short of meeting the technical definition of ‘Catastrophic’. Optional benefits that top-up coverage for injuries that are deemed to be non-catastrophic can be purchased at extra cost, but the likelihood that lower and middle income drivers – in other words, the people that would be hardest hit by the reduction in benefits – will end up paying more now in order to better their coverage is probably very slim.

You’ll also notice the introduction of a new classification called ‘Minor Injuries’ under medical and rehabilitation benefits, where benefits are limited to a mere $3,500 (including the cost of any medical assessments).

The Krofchick Opinion

The overall thrust of these new rules appears to shift the financial burden for individuals with non-catastrophic injuries to the tort defendant from the AB carrier. From the perspective of the insurance companies, these provisions make a lot of sense; the majority of automobile injuries would tend to fall under the category of non-catastrophic and the new rules would appear to provide insurers with a lower limit on their liabilities.

These changes will also affect the damage recovery process. With the insurers’ liability to pay statutory benefits substantially reduced, tort defendants are now open to even greater exposure and as a result, picking that pocket could become an even greater uphill battle. Knowing that drivers may be entering negotiations in financial duress due to what will end up being lower accident benefit settlements, tort defendants may end up using this additional leverage to settle their disputes more quickly and on more favorable terms. On the other hand, the insured now have the opportunity to recover a greater portion of their damages through tort, which treats certain losses more favorably than the accident benefits scheme.

It will be interesting to watch how the public and the legal community will receive the new IRB formula. Many drivers will stand to benefit from the new formula and calculation of benefits has been made quicker and easier to understand; but as with medical, rehabilitation and housekeeping benefits (and indeed, with many proposed changes to the statutory benefits), it will be the lower income earners that will bear the brunt of the financial fallout.

Krofchick Valuations

Krofchick Valuations is a professional firm, which includes Chartered Business Valuators, Forensic Economists, Investigative Accountants, and Actuaries.

We have offices in Toronto and London to better serve the province of Ontario. If you have any questions please call us today 1-877-250-6682

Dependent Relief and Unjust Enrichment

A November 2010 case from the Quebec Court of Appeal is dealing with the question if there should be legal recognition of a common-law spouse's rights to seek alimony payments when they split from their partner. This is an ever changing and fascinating area of family law and one that could have serious implications for the rights of individuals in Quebec. Below, we discuss some of a common-law spouse's other present rights as they relate to their claims for division of property that are receiving a lot of attention in the Courts:

Dependant Relief and Unjust Enrichment.

The death of a loved one may not only be a time for grief, but a time when conflict can arise between family members. In some cases family members, and particularly spouses, may feel short-changed when the estate's assets are distributed in light of their relationship and their contributions to the deceased while they were alive.

That's just what happened to Dolores.

Dolores was married once, when she was younger, but it never worked out. Soon after her divorce, though, she met Sam, another divorcee with two children of his own. After a brief courtship, the two soon moved in together and Dolores settled into her new life as a homemaker. Oh, Dolores would work the odd job every now and then – working as temporary office assistant to help out a friend, working one day a week just to get out of the house for a while – but ever since she met Sam she resolved to make her full-time job looking after her and Sam's household, so he would never have to worry about anything when he got home from work. Over the next 23 years, they lived happily under one roof, with Dolores looking after the household chores and Sam devoting himself full-time to earning enough money to support the both of them.

Then, shortly after he retired, Sam died suddenly. Sam's years of hard work made possible by Dolores's commitment to homemaking had left him with a sizeable estate that he dutifully distributed to his two daughters and his grandchildren – but not Dolores. So, not only did she have to endure the loss of her common law husband of more than twenty years but Dolores was left financially destitute having accumulated little in the way of her own personal savings, with her only income coming from government old age pensions.

We've acted on cases like this one, where a surviving spouse is trying to lay claim to a portion of the deceased's estate. There are usually two headings of losses the Courts will consider in cases like these: Dependent Relief & Unjust Enrichment.

Dependent Relief allocates to a spouse some amount out of the estate of the deceased for the proper support of their dependent(s)¹.

Just what constitutes "proper" support largely depends on the fact specific to the case at hand, but the Courts have provided us some guidance on these issues.

With reference to a number of other cases², the Ontario courts have established that a simple needs based analysis is insufficient; rather, the Courts should adopt a “judicious father and husband” test in determining the appropriate disposition. Essentially, this test forces us to consider:

(a) what legal obligations would have been imposed on the deceased had the question of provision arisen during his lifetime; and,

(b) what moral obligations arise between the deceased and his or her dependants as a result of society’s expectations of what a judicious person would do in the circumstances.

One of the objectives of the Succession Law Reform Act (“SLRA”) is to ensure that spouses and children receive a fair share of family wealth. In Cummings v. Cummings, for example, the concept of fairness in determining amounts for dependent relief was elaborated on as follows:

Society’s values and expectations change. In earlier times, the prevailing view was that on termination of a marriage the husband was obliged to maintain the wife, and nothing more. At present, however, the provisions of the Divorce Act, family property and family support legislation, and the law relating to constructive trusts,all reflect society’s expectations that children will be properly supported and that spouses are entitled not only to proper support but also to a share in each other’s estate when a marriage is over.

The SLRA advises the courts to consider the following – among several other – factors in determining the amount, if any, of dependent relief to award to an applicant:

(i) The contributions made by the dependant to the deceased’s welfare, including indirect and non-financial contributions;

(ii) The contributions made by the dependant to the acquisition, maintenance and improvement of the deceased’s property or business;

(iii) A contribution by the dependant to the realization of the deceased’s career potential;

(iv) The effect on the spouse’s earning capacity of the responsibilities assumed during cohabitation;

(v) Any housekeeping, childcare or other domestic service performed by the spouse for the family, as if the spouse had devoted the time spent in performing that service in remunerative employment and had contributed the earnings to the family’s support.

And so, a delicate balancing act is in order. In determining the amount to be paid out in a claim for dependent relief, we must consider not just what a spouse needs, but what they are fairly entitled to as a contributor to the family estate during the marriage. This fairness approach must also balance the entitlement of other dependents to the net family property.

Our experience in cases like these is that it's best to present the Courts with a variety of scenarios rather than just committing to a single calculation. This approach allows us to consider both the legal and moral obligations contemplated in previous court cases and the SLRA, and it allows us to provide calculations based on an economical consideration of what the surviving spouse requires on a needs based analysis. The Courts can then apply their own discretion in determining any award.

Being able to approach the problem from a number of different angles can also be advantageous in helping the Courts to understand a claim for Dependant Relief.

Judges and juries don't always easily understand the deep economic and financial issues that arise in cases like these; our experience suggests that presenting them with some variety increases the likelihood that they will find an argument that is more intellectually appealing and they'll ultimately be more open to providing some award. We have provided calculations for Dependant Relief using Statistics Canada census data, Spousal Support Advisory Guidelines, cross and sole dependency considerations and household budgets, to name a few. Since each individual case is different, having a variety of techniques at your disposal is essential in creating an effective argument.

Claims for Dependant Relief are often accompanied by claims for Unjust Enrichment. The doctrine of Unjust Enrichment is an equitable concept created to remedy injustices that occur where one person makes a substantial contribution to the property of another person without compensation. In estate disputes, the claim is usually advanced when one spouse foregoes employment in order to act as the homemaker allowing the other to devote more of their time to advancing their career, or provides financial support by contributing to the family expenses and is subsequently neglected in the provisions of the deceased's will.

Although claims for unjust enrichment are often advanced when one spouse dies, they can also apply to marriages and common law relationships that have come to an end.

In order to proceed with a claim for unjust enrichment, three elements must be satisfied. There must be:

I. an enrichment;

II. a corresponding deprivation; and

III an absence of juristic reason for the enrichment.

There are two commonly adopted approaches used to calculate the amount of enrichment provided throughout the course of a relationship.

There is the Value Received approach, which attempts to quantify the amount the deceased or other party would have been required to pay for the services provided by the surviving spouse on a purely business basis. Essentially, this approach attempts to calculate an award based on the value of what one party has 'put in' over the course of the relationship.

and

There is the Value Survived approach, which calculates the amount of enrichment as the portion of the assets accumulated by each spouse on the basis of the contributions made by each. The value survived approach will usually be the best choice for long term marriage-like relationships, because contributions in these partnerships usually cannot be measured with precision and because that approach is consistent with the expectations of both parties in this type of relationship, barring evidence of a contrary understanding. It is also usually more equitable. This approach attempts to calculate an award based on the value of what has 'come out' of the relationship, as a result of one party's contributions.

As societies have changed, women have entered the workforce in increasing amounts over the past several decades and are no longer expected to act exclusively as homemakers. As such, those who do make the choice to forego a career in order to provide their family with housekeeping and homemaking services contribute to the family estate by allowing their spouses to focus on advancing their careers and accumulating assets³.

Each approach has its own strengths and is fraught with its own weaknesses.

The value received approach is easily implemented, straightforward and easy to understand. But, is the value of the services provided truly a measure of the value added to the estate as a result?

The value survived approach is a direct calculation of the added value to an estate by the dependent spouse. The difficulty lies in demonstrating a clear link between the services provided and their effect on the size of the estate.

Arguing for Unjust Enrichment is typically more difficult than it is for Dependant Relief because the underlying claim is conceptually more difficult for people to comprehend. Let's consider Dolores's predicament as an example. Based on Statistics Canada census data, the cost to replace her full-time homemaking activities would run approximately $500,000 over the 20-years or so that she and Sam lived together. A substantial amount to be sure. However, census data also seems to suggest that families with one stay-at-home spouse tend to earn 33% more than single male households. If Sam has built up an estate worth $9 million, can Dolores really lay claim to $3 million – or one third of his estate?

And therein lies the difficulty. The two approaches need not reconcile, and can in fact be wildly different. These complex assessments rely on the material judgement and experience of the assessor. There is no 'smoking gun' that definitively provides an amount for the value of a spouse's contribution towards the family estate. However, experts with experience in the art of forensic and investigative accounting like the professionals at Krofchick Valuations can be a valuable asset towards resolving your claims.

We have dealt with cases involving succession and estates disputes, and employ the most up-to-date labour market statistics in order to provide our clients with the tools they need to help resolve their cases. We employ the skills of forensic economics, business valuation, investigative accounting, and actuarial science to assist in assessing and quantifying your clients' economic position. Let the experts at Krofchick Valuations help you resolve your case in a timely, efficient, and professional fashion and see why We Make The Difference.

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¹Support of dependents is governed by the Succession Law Reform Act of Ontario.

²For example, Cummings v. Cummings 69 OR (3rd) 397 (O.C.A.) and Tataryn v. Tataryn Estate [1994] 116 DLR (4th) 193.

³The Courts have taken this intuitive argument and enshrined it as a legal principle. The decision in Peter v. Beblow, [1993] 1 S.C.R. 980 noted that:

Relief in the form of a personal judgment or property interest should adequately reflect the fact that the unpaid services of one party to the relationship enhanced the income earning capacity and the ability of the other to acquire assets.

And

The granting of relief in the form of a personal judgment or a property interest to the provider of domestic services should

adequately reflect the fact that the income earning capacity and the ability to acquire assets by one party has been enhanced by the unpaid domestic services of the other.

Krofchick Valuations is a firm of experts in damage quantification and assessment who utilize the skills of forensic economics, actuarial science, investigative accounting and business valuations.