Post-Accident Expenses Must be Reasonable, Necessary, Reduce Losses & Actually Be Paid

When quantifying income replacement benefits (“IRBs”), a common disagreement between claimants and insurers is how to treat potential post-accident expenses.

A recent Licence Appeal Tribunal decision, [FT] and The Co-operators Insurance Company (19-001291/AABS), goes into detail regarding the treatment of post-accident expenses under the Statutory Accident Benefits Schedule (“SABS”) when quantifying IRBs.

In this claim, the applicant indicates that their landscaping business (“Landscaping”) was forced to retain subcontractors and rental vehicles after an accident in order to replace his pre-accident contributions to the business.

In order to consider the applicant’s post-accident expenses, the adjudicator relies on Section 4(4) of the SABS which states:

“4(4) A self-employed person’s loss from self-employment after an accident is determined in the same manner as losses from the business in which the person was self-employed would be determined under subsection 9 (2) of the Income Tax Act (Canada) without making any deductions for,

• any expenses that were not reasonable or necessary to prevent a loss of revenue;
• any salary expenses paid to replace the self-employed person’s active participation in the business, except to the extent that the expenses are reasonable in the circumstances; and
• any non-salary expenses that are different in nature or greater than the non-salary expenses incurred before the accident, except to the extent that those expenses are reasonable in the circumstances and necessary to prevent or reduce any losses resulting from the accident.”

Considering the above, the adjudicator states, “The onus is on the applicant to show that the expenses are reasonable and necessary and incurred as a result of the accident.  The applicant has not met this onus as the applicant has not provided evidence to show that these amounts were reasonable in the circumstances and necessary to prevent a loss and/or as a result of the accident.”

Specifically, the adjudicator questioned the reasonableness of the applicant’s accountant’s IRB calculation as it considered that Landscaping generated revenues of $9,000 while incurring subcontractor expenses of $66,940 subsequent to the accident.  The adjudicator wondered how this subcontractor amount would be reducing Landscaping’s post-accident losses and whether it was actually related to the accident.

In order to support the subcontractor amount, the applicant provided invoices, however, the subcontractor amount claimed exceeded the amounts indicated on the invoices.  Given this, adjudicator questioned whether the subcontractor amount was even actually paid by the applicant.

Given the above, the adjudicator concludes, “Other than the applicant’s submissions there is no further evidence to corroborate these invoices or how these invoices are reasonable and necessary.  There are no corresponding bank records showing these amounts withdrawn and paid nor is there any information showing why the applicant had to incur this expense as result of the accident.  There is no information from SMS or the applicant that this expense was paid.  There is no requirement in the Schedule that post-accident the respondent must only accept what is reported to CRA.  This makes sense in that the applicant cannot take advantage of his post-accident position by reporting higher expenses in order to increase the business losses post-accident and thus increase the IRBs.”

Therefore, in order to consider post-accident expenses when quantifying IRBs, it is the applicant’s responsibility to evidence that the amounts are reasonable and necessary to reduce losses resulting from the accident and that the amounts were actually paid.

Read the decision in full detail here:
[FT] and The Co-operators Insurance Company (19-001291/AABS)