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AAF v GIO Insurance Ltd acting as agent for the Nominal Defendant [2018] NSWDRS MR 006

Merit Review Certificate

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Merit Review Certificate

Issued under section 7.13(4) of the Motor Accident Injuries Act 2017

The Claim:
Claimant:AAF
Insurer:GIO
Claim Number:Y052933003
The Reviewable Decision:
Reviewable decision-maker:Tim Virgona
Date of Reviewable decision:17 May 2018
Nature of Reviewable decision:The amount of pre-accident weekly earnings
The Merit Review:
Our Reference:10033956
Merit Reviewer:Margot Undercliffe
Date of Merit Review Certificate:13 July 2018

Merit Reviewer’s Determination

This determination relates to a merit review matter, which is a reviewable decision under Schedule 2(1)(a) of the Motor Accident Injuries Act 2017, about weekly payments of statutory benefits to injured persons.

My determination of the Merit Review is as follows:

  • The reviewable decision is set aside and the following decision is made in substitution for the reviewable decision:
    • AAF’s PAWE is $870.17.
  • Effective Date: The review decision referred for merit review by AAF is about the amount of his PAWE and the decision covers weekly payments of statutory benefits payable by the relevant insurer to AAF from the date of accident. It is the function of the Dispute Resolution Service on merit review to arrive at the correct and preferable outcome in respect of the weeks covered by the reviewable decision that is referred for review. Accordingly, this determination has effect from 8 December 2017.  The insurer is to pay AAF the difference between what he has been paid and was entitled to be paid in accordance with the decisions above.

A brief statement of my reasons for this determination are attached to this certificate.

Margot Undercliffe

Merit Reviewer, Dispute Resolution Service

Reasons

Background

1.   AAF is a fisherman who operates a trawler. He was injured in a motor vehicle accident on 8 December 2017. The insurer accepted his claim for weekly payments of statutory benefits under the Motor Accident Injuries Act 2017 (“the Act”).

2.   The dispute is about the calculation of AAF’s pre-accident weekly earnings (“PAWE”).

The amount of PAWE affects the amount of weekly payments of statutory benefits.

3.   The Insurer’s internal review decision of 17 May 2018 decided the amount of AAF’s PAWE was $666.32.

4.   AAF applied for a merit review by DRS received on 8 June 2018.

Documents and Information

5.   I have considered the documents provided in the application and the reply and any further information provided by the parties.

Submissions

6.   AAF submits:

a.   The primary basis for the insurer’s decision is a forensic accountant’s report which relies

on some source documents and figures made up or estimated.

b.   He is a fisherman who operates a trawler and sells his catch in its entirety to the local Co- Op. The Co-Op deducts fees, taxes and fuel and other expenses and the remainder, being profit, is deposited into his account.

c.   The insurer had a complete print out of his bank statements which indicated income he had received before it made its decision.

d.   The income in his bank statement included deposits from the ATO before refunds of GST and fuel expenses (income) and deposits from the Co-Op. The amounts over the 12 months prior to the accident totalled $61,365.52 which equals $1,180.11 gross per week.

e.   Sub-clause 4(2) of Schedule 1 has no application as he is self-employed.

f.   These figures are close to the amount determined by the claimant’s accountant who

estimated the profit and loss for the period 8 December 2016 to 8 December 2017 as

$66,580.72 which equates to $1,280.40 gross per week.

g.   The figures arrived at by his accountant should be preferred as he has the relevant documentation and greater understanding of the business.

h.   Some costs continue to be incurred by him whilst the trawler is not being operated such as licences, mooring costs, insurance and the like. If these are not added back into the calculations as his calculations as done by his accountant, a significant injustice will occur as he will be required to pay these despite not receiving income to pay them, thus reducing his

income. This cannot be the intention of the scheme. If it was this would require self- employed persons to dispose of their business as soon as they are injured.

i.   The fixed costs should be added back into the calculations in order to avoid that injustice.

j.   If that argument is not accepted then the figure should be based on the claimant’s accountant’s figures $45,372.39 or $872.55 gross per week or $206.22 greater than the insurer’s calculation.

7.   The insurer submits:

b.   It had in its possession AAF’s bank statements but whilst these were helpful to calculate AAF’s business income, it does not assist or provide information in relation to the business expenses incurred in the period.

c.   It notes the email correspondence from the claimant’s accountant with 12 months profit and loss statement for the period 1 December 2016 to 30 November 2017. It concedes that AAF’s own accountant would have better insight into his business but it submits that the profit and loss statement provided as an excel spreadsheet with no additional information or explanations should not be preferred to the Vincents  report.

d.   Further information should be required relating to the “Other Miscellaneous Income”

before taking such income into consideration in calculating PAWE.

e.   There is no provision in the Act to “add back expenses that are still going to be incurred even without the trawler in operation” when calculating AAF’s pre-accident weekly earnings under Schedule 1, Part 4(1) and (2).

f.   The forensic accountants report of Vincents should be accepted when calculating AAF’s PAWE, as it provides a complex and logical estimation of the business profits/expenses based on available information.

Legislation

8.   In conducting my review I have considered the following legislation and guidelines:

a.   Motor Accident Injuries Act 2017 (NSW) (“the Act”)

b.   Motor Accident Guidelines effective from 30 April 2018 (“the Guidelines”)
c.   Motor Accident Injuries Regulation 2017 (NSW) (“the Regulation”)

Pre-accident weekly earnings

9.   PAWE is defined by clause 4 of Schedule 1 of the Act. Sub-clauses 1 to 2 states:

4 Meaning of “pre-accident weekly earnings”— general

(1)   Pre-accident weekly earnings, in relation to an earner who is injured as a result of a motor accident, means the weekly average of the gross earnings received by the earner as an earner during the 12 months immediately before the day on which the motor accident occurred, unless subclause (2) applies.
(2)   In the following cases, pre-accident weekly earnings, in relation to an earner (other than a self-employed person) who is injured as a result of a motor accident, means:
(a)   if, on the day of the motor accident, the earner was earning continuously, but had not been earning continuously for at least 12 months—the weekly average of the gross earnings received by the earner as an earner during the period from when the earner started to earn continuously to immediately before the day of the motor accident,
(a1)   if the earner was employed or self-employed during a period or periods equal to at least 26 weeks during the first year of the pre-accident period, but was not obtaining earnings from any source at any other time during the pre-accident period—the average weekly gross earnings received by the earner as an earner during the first year of the pre-accident period,
(b)   if subclause (3) applies—the weekly average of the gross earnings received by the earner as an earner during the period from when the change of circumstance referred to in that subclause occurred to immediately before the day of the motor accident,
(c)   if the earner is an earner by reason of having entered into an arrangement with an employer or other person to undertake employment or to commence business as a self-employed person—the average weekly gross earnings that the earner could reasonably have been expected to earn, but for the injury, in employment under that arrangement.

10.   As AAF’s motor vehicle accident occurred on 8 December 2017, “the 12 months immediately before the day on which the motor accident occurred” is the period from 8 December 2016 to 7 December 2017 (8 December 2017 being excluded see section 36(1), Interpretation Act 1986).

11.   There is no dispute that AAF is “an earner who is injured as a result of a motor accident”. The issue here is the weekly average of the gross earnings received by AAF as an earner during the 12 months immediately before the day on which the accident occurred.

12.   There are three pieces of information relied on by AAF and the insurer, being:

a.   Pre-Accident Earnings Assessment report by Vincents dated 30 April 2018;

b.   The bank statements of AAF, and

c.   The profit and loss statement for the period 1 December 2016 to 30 November 2017 prepared by the claimant’s accountant.

13.   For the reasons explained below, I prefer the information provided by claimant’s accountant.

Profit and loss statements

14.   Although the period covered by the profit and loss statement is not exactly for  the period 8 December 2016 to 7 December 2017, it covers the period 1 December 2016 to 30 November 2017. AAF was self-employed and does not have payslips or an employment contract. I believe that as the profit and loss statements are only seven days different to the 12 month period and is a period not including a period after the subject motor vehicle accident, they are the best records I am able to rely on.

15.   I believe the figures provided by AAF’s accountant in the profit and loss statement should be preferred as the accountant has the relevant documentation for AAF and a greater understanding of the business.

16.   The insurer has submitted that I should seek more information regarding the “Other Miscellaneous Income”. However, I accept the profit and loss statement for income and expenses as a whole as a reflection of the “gross earnings received by the earner as an earner”.

17.   However, for the reasons explained below, I cannot include the amounts for the “add back expenses” set out at the bottom of the profit and loss statement.

18.   I therefore accept AAF’s PAWE to be:

$101,288.95 - $55,915.84 = $45,373.11

$45,373.11 / 52.14286 (12 months being 365 days) = $870.17

Bank statements

19.   AAF has provided a copy of his bank statements which include the period from 8 December 2016 to 7 December 2018. These statements include deposits from the ATO and the Co-Op. However, the figure arrived at by AAF’s accountants and what is displayed in the bank statements differ significantly. As submitted by the insurer, there is no breakdown of business expenses incurred.

20.   Without being able to breakdown expenses noting a number of debits by cheque with no other information, and having accepted that AAF’s accountants have a better understanding of the income and expenses of the business, I am unable to accept these bank statements as the most correct information regarding AAF’s earnings as an earner.

Report of Vincents

21.   The insurer has relied on the report of Vincents regarding the estimation of AAF’s earnings. I note on pages 6 and 7 of that report, Mr Lance Kahler, has set out a number of assumptions as to how he arrived at the PAWE of $666.32, being:

a.   The average weekly earnings for the 12 months ended 7 December 2017 based on the sum of (a) AAF’s net profit for the nine months ended 31 December 2017 estimated from his BAS for those nine months, and (b) the estimate of the net profit for the period from 9 December 2016 to 31 March 2017.

b.   The calculation of the estimated net profit for the period from 9 December 2016 to 31 March 2017 based on the difference between assumed income and estimated expenses for that period.

c.   Assumed income for the 16.2 week period from 9 December 2016 to 31 March 2017 estimated based on the average weekly income reported in AAF’s BAS for the quarter ended 30 June 2017 noting that the reported sales for the 12 months ended 30 June 2017 would suggest that AAF’s income for the quarter ended 31 March 2017 was likely to have been materially higher than AAF’s reported average quarterly income for the six months ending 31 December 2017.

d.   Estimated expenses for the period from 9 December 2016 to 31 March 2017 is based on the average quarterly expenses incurred by AAF during the nine months ended 31 December 2017.

22.   Although I accept the expertise of Mr Kahler, I note the number of assumptions and estimates which have been included, and that the period included in the calculation also includes the period from 8 December 2017 (the date of the subject motor vehicle accident) to 31 December 2017. AAF’s solicitor advised on 11 July 2018 that AAF only worked in the period from the date of the accident to 31 December 2017 for 3 hours on 22 December 2017 and 23 December 2017.

23.   For these reasons and the reasons set out above, I prefer the profit and loss statement of AAF’s accountant due that accountant’s better understanding of the business and knowledge of the records of AAF.

Add back expenses

24.   In relation to AAF’s submissions that some costs continued to be incurred by him whilst the trawler is not being operated, the insurer submits that there is no provision in the Act to “add back expenses that are still going to be incurred even without the trawler in operation”.

25.   Whilst I acknowledge that AAF must still incur these costs, there is no provision within the legislation which allows these expenses to be included as part of AAF’s PAWE.

Determination

My determination of the Merit Review is as follows:

●   The reviewable decision is set aside and the following decision is made in substitution for the reviewable decision:

○   AAF’s PAWE is $870.17.

●   Effective Date: The review decision referred for merit review by AAF is about the amount of his PAWE and the decision covers weekly payments of statutory benefits payable by the relevant insurer to AAF from the date of accident. It is the function of the Dispute Resolution Service on merit review to arrive at the correct and preferable outcome in respect of the weeks covered by the reviewable decision that is referred for review. Accordingly, this determination has effect from 8 December 2017. The insurer is to pay AAF the difference between what he has been paid and was entitled to be paid in accordance with the decisions above.

Margot Undercliffe

Merit Reviewer, Dispute Resolution Service