Lovett v QBE Insurance (Australia) Limited
[2022] NSWPICMR 18
•26 March 2022
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| CITATION: | Lovett v QBE Insurance (Australia) Limited [2022] NSWPICMR 18 |
| CLAIMANT: | Scott Lovett |
| INSURER: | QBE Insurance (Australia) Limited |
| MERIT REVIEWER: | Ray Plibersek |
| DATE OF DECISION: | 26 March 2022 |
| CATCHWORDS: | MOTOR ACCIDENTS- Merit review; pre accident weekly earnings (PAWE); claimant operated business as a sole trader; how is PAWE calculated; gross income or net income after deduction of business expenses; clause 4 of Schedule 1 of the Motor Accidents Injuries Act 2017 (MAI Act); interpretation of phrase “gross earnings received by the earner”; Held- Claimant’s PAWE should be calculated on the basis of the net profit of his business, after deducting business expenses but before tax; insurer erred in its calculation of the Claimant’s weekly payments under subsection 3.6 (2) of the MAI Act; remitted to the Insurer for reconsideration and recalculation of the Claimant’s entitlement to weekly payments of statutory benefits; for consistency and equity the Insurer should use the same net per hour figure excluding the Claimant’s business expenses for all weekly benefits calculations; legal costs $NIL; merit review in ABQ v NRMA Insurance followed; decision in Allianz Australia Insurance Ltd v Jenkins noted. |
| DETERMINATIONS MADE: | 1. The reviewable decision is set aside. 2. The matter is remitted to the Insurer for reconsideration and recalculation of the Claimant’s entitlement to weekly payments of statutory benefits in accordance with these reasons and Division 3.3 of the Motor Accident Injuries Act 2017 (MAI Act). 3. The amount of legal costs awarded in this case is $NIL. |
Reasons for Decision
Issued under section 7.13(4) of the Motor Accident Injuries Act2017
BACKGROUND
There is a dispute between the Claimant, Mr Scott Lovett, and the Insurer about the amount of the Claimant’s pre-accident weekly earnings (PAWE) under Division 3.3 the Motor Accidents Injuries Act 2017 (the MAI Act).
In practicle terms, the dispute is about how the Claimant's PAWE should be calculated.
In legal terms, the dispute is a merit review application about the amount of weekly payments of statutory benefits that are payable to the Claimant under Part 3 Division 3.3 of the MAI Act.
On 10 June 2021 the Claimant was driving on Waratah Street, Kirrawee NSW. He had turned right from Bath Road into Waratah Street then, when he was turning right into a driveway, he was hit from behind by a tip truck.
The Claimant suffered a whiplash injury to his neck.
The Claimant is a self-employed mechanic working on large construction machinery. He told the Insurer that he normally worked more than 40 hours a week charging $66 per hour for his work. He said that he was earning $2,640 gross per week at a minimum (calculated as $66 per hour x 40 hours). The Claimant states that he was at the time of the accident earning $118,709 gross per annum (R2).
The Claimant operated his business as a sole trader named ‘Scott William Lovett’ (ABN Number redacted) in the 12 months prior to the accident.
In his Annual Income Tax Return for the year ended 30 June 2020 he declared his income to be $68,002, (R14).
On 5 August 2021 the Insurer issued a PAWE Determination Notice which calculated the Claimant’s PAWE to be $1,180.95 gross (R3). The Insurer’s determination was based on business and tax documentation provided by the Claimant, as well as a report from Procare Forensic Investigations (R7).The Claimant applied for an internal review of that decision.
On 20 August 2021 the Insurer issued their internal review Certificate of Determination which affirmed the original decision that the Claimant’s PAWE was $1,180.95 gross (R5). The internal review reasons set out the Insurer’s calculations of the Claimant’s PAWE. These calculations referred to three medical Certificates of Capacity. One certificate stated that the Claimant had no capacity for work from 15 June to 5 July 2021. The other two certificates certified that the Claimant had the capacity to work for 16 hours per week. The internal review referred to two invoices were that rendered by the Claimant for $1,056. Thus the Insurer calculated the Claimant’s PAWE and his entitlement to weekly payments during the first entitlement period as follows;
$1,180.95 - $1,056 = $124.95.On 29 September 2021 the Insurer issued a post 26-week Liability Notice which determined that the Claimant sustained only minor injuries in the accident and his entitlement to statutory benefits would cease on 10 December 2021 (R6).
The Claimant disputes that his PAWE should be calculated on the basis of the net profit of his business. He says it should be calculated on the basis of the gross takings of his business, before any deduction for business expenses. In his application form the Claimant said that when QBE calculated his lost income it failed to take into account his business “running costs” when making the PAWE calculation. The Claimant seeks a merit review of the Insurer’s internal review determination dated 20 August 2021 on this basis.
DOCUMENTS CONSIDERED
The documents I have considered are those listed in, referred to, or attached to, the application for merit review and the Insurer’s reply together with all the attachments.
SUBMISSIONS
The Claimant submits in his Application Form dated 17 September 2021 that
“QBE have accounted for my taxable income in wage replacements but not the ‘running costs’ that also stop as a sole trader.
Example: phone bills, car repayments, overdraft and interest, vehicle and tooling maintenance/upkeep, insurances, registrations, accounting, computer program subscriptions etc.”
The Claimant wrote further submissions in a letter submitted on 17 March 2022. In that letter he set out the following arguments:
· The Claimant has operated his sole trader business for over ten years.
· He has no “product” besides his labour to sell.
· His personal income or taxable income is calculated after all the expenses (running costs) are taken out. These expenses are the costs of keeping his business open. These costs did not stop after the accident.
· A list of these business costs or expenses includes; car repayments, overdraft interest , accountant/bookkeeping fees, computer programming subscriptions, business insurance, vehicle upkeep, registration, insurance, maintenance, tools, phone and internet service, email and domain name fees, uniform costs.
· At the time of the accident he had one main contract at $66 an hour + GST and QBE should be liable to maintain this contract until the Claimant could resume it.
· For the period from 10 June to 10 December 2021 he calculates his entitlements as;
* 61 days Medical Leave $66 x 8 x 61 days = $32,208
* 22 days worked at reduced rate :
$55 x 8 hours x 22 days = $9,680
$66 x 8 hours x 22 days = $11,616
The difference therefore being $1,936.
· The Claimant’s banking records show the Insurer made the following payments:
* $601 on 1 July 2021
* $208 on 12 July 2021
* $1939.44 on 6 August 2021
TOTAL of $2,748.44.
· The payments made by the Insurer do not match with what is stated in the email from Jackson Clarence on behalf of QBE.
In its Submissions in Reply dated 5 October 2021, (R1), the Insurer’s solicitors submit that:
· The available evidence supports a finding that the PAWE determination of 5 August 2021 is correct and ought to be upheld.
· The dispute between the parties appears to be as follows:
(a) whether the weekly average over the 52-week period should be calculated on the basis of the gross takings of the company, before accounting for business expenses, or
(b) whether the weekly average over the 52-week period should be calculated on the basis of the net profit, after deducting business expenses but before tax.
· The correct approach is method (b) and that this was the approach utilised by the Insurer in its PAWE determination dated 5 August 2021.
· Procare Investigations provided a forensic accounting report dated 3 August 2021, (R7). In summary the Procare report concluded that for the period from 14 June 2020 to 7 June 2021 there was a total amount of $110,341.77 in contract receipts (R11). Procare calculated the Claimant’s business expenses between 10 June 2020 and 9 June 2021 as $62,266.83, including $735.41 in depreciation expenses, (R7). Procare then calculated the Claimant’s business net earnings, after deduction of business expenses, as $61,574.94 and then calculated his PAWE as $1,180.95, being the average weekly income in the 12 months prior to 9 June 2021.
· The Insurer disputes the Claimant’s position to be that his business expenses ought to be included in an assessment of his PAWE. The Insurer submits that such an approach is not permitted under the MAI Act and is inconsistent with the definition of ‘pre-accident weekly earnings’ as set out in Schedule 1, section 4(1) of the MAI Act.
· The Insurer relies upon the decision in ABQ v NRMA Insurance [2018] NSWDRS MR 043,which involved a review of the claimant’s PAWE where she was a self-employed hairdresser where it was found that her business expenses were to be excluded from her PAWE.
· There is no provision within the legislation to include the Claimant’s business expenses in an assessment of his PAWE for the purposes of Division 3.3 of the MAI Act. The Claimant’s gross earnings are accurately described as being derived from the net income of his business, after expenses, but before tax.
REASONS
This is a dispute between the Claimant and the Insurer about the calculation of the Claimant’s PAWE and the amount of weekly payments of statutory benefits payable to the Claimant.
The essence of the dispute between the Claimant and the Insurer is whether the Claimant’s PAWE should be calculated on the basis of the gross takings of his business, before deducting business expenses, or whether the PAWE should be calculated on the basis of the net profit, after deducting business expenses but before tax.
Nature of merit review
This matter is a merit review of the decision of the Insurer about amount of weekly payments of statutory benefits in accordance with section 7.13 of the MAI Act. This decision is a reviewable decision as it is listed in Schedule 2 sub-clause 1 (a) of the MAI Act. This review is not a review of the Insurer’s processes in making the weekly statutory benefits and/or internal review decision. The review requires that I decide what the correct and preferable decision is having regard to the material then before me including any relevant factual material and any applicable law.
Legislation
In this merit review, the relevant applicable legislation commences with Division 3.3 of the MAI Act which deals with weekly payments of statutory benefits.
Many of the words used in with Division 3.3 are defined in Schedule 1 of the MAI Act. Schedule 1 defines: “earner”; “loss of earnings”; “pre-accident weekly earnings”; “pre-accident earning capacity” and “post-accident earning capacity”. The terms “gross earnings” and “earning capacity” is not separately defined in Schedule 1.
Definition of PAWE
PAWE is defined in clause 4 of Schedule 1 of the MAI Act as:
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.
I am satisfied that in this Claimant’s case sub-clause 4 (2) does not apply.
The terms “earner” and “loss of earnings” are defined in Schedule 1, clauses 2 and 3 as follows:
2 Meaning of “earner”
A person who is injured as a result of a motor accident is an earner if the person is at least 15 years of age and who—
(a) was employed or self-employed (whether or not full-time)—
(i) at any time during the 8 weeks immediately preceding the motor accident, or
(ii) during a period or periods equal to at least 13 weeks during the year immediately preceding the motor accident, or
(iii) during a period or periods equal to at least 26 weeks during the 2 years immediately preceding the motor accident,
and, at the date of the motor accident, had not retired permanently from all employment, or
() before the motor accident, had entered into an arrangement (whether or not an enforceable contract)—
(i) with an employer or other person to undertake employment, or
(ii) to commence business as a self-employed person,
at a particular time and place, or
(c) was, immediately before the motor accident, receiving a weekly payment or other payment in respect of loss of earnings under this Act or the Workers Compensation Act 1987.
3 Meaning of “loss of earnings”
(1) Loss of earnings means a loss incurred or likely to be incurred in a person’s income from personal exertion.
(2) A person’s income from personal exertion is—
(a) the amount that is the income of the person consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee or in relation to any services rendered, and
(b) the proceeds of any business carried on by the person either alone or in partnership with any other person, and
(c) any amount received as bounty or subsidy in carrying on a business.
(3) A person’s income from personal exertion does not include—
(a) interest, unless the person’s principal business consists of the lending of money, or unless the interest is received in respect of a debt due to the person for goods supplied or services rendered by the person in the course of the person’s business, or
(b) rents or dividends, or
(c) any employer superannuation contributions, or
(d) the monetary amount of any annual, sick or other leave entitlement.
There is no dispute between the parties that the Claimant is an ‘earner’ as defined in Schedule 1, clause 2 of the MAI Act, (R1). I am satisfied that the Claimant is an ‘earner’ as defined.
Calculation of weekly benefits The issue in dispute is whether the Claimant’s PAWE should be calculated on the basis of the gross takings of his business, before deducting business expenses, or whether the PAWE should be calculated on the basis of the net profit, after deducting business expenses but before tax.
PAWE is defined in clause 4 of Schedule 1 of the MAI Act to mean the weekly average of the gross earnings received by the earner. The Claimant operates his business as a sole trader. His business does not have a separate legal identity and it is not a separate identity for taxation purposes. He does not operate his business as a corporation, trust or partnership which have a separate legal identity. The Insurer accepts the Claimant is an earner.
It is unclear how the phrase “gross earnings received by the earner” in clause 4 should be interpreted in the Claimant’s case where he operates his business as a sole trader. If an individual operated his business as a corporation, trust or partnership it would have a separate legal identity. The gross income from a corporation, trust or partnership would be separate from the individual earner. It would be an anomaly if the phrase “gross earnings received by the earner” in clause 4 would be interpreted differently depending upon what type of legal structure the business was operated. Whether a business is conducted as a sole trader or a different corporate entity the outcome should not be any different. Accordingly, my conclusion on this point is that for consistency the phrase “gross earnings received by the earner” in clause 4 should apply equally regardless of the corporate or tax structure the business operates through. In my view the phrase “gross earnings received by the earner” in clause 4 should be interpreted to mean earnings less business expenses or deductions.
This conclusion is consistent with the result in another similar case referred to by the Insurer in its submissions, ABQ v NRMA Insurance [2018] NSWDRS MR 043. That case involved a self-employed hairdresser who operated as a sole trader. She worked two days per week and rented a chair in the salon where she worked. She argued that even though she was injured and could not work she was required to continue to pay the chair rental costs. She argued that the gross takings of her business should be used by the insurer to calculate her PAWE, not her net profit after business deductions such as the cost of her chair rental had been deducted. In this case the Member concluded:
“The Claimant’s gross earnings received as an ‘earner’ are derived from the income of her business, after accounting for business expenses including chair rent. That is, the Claimant’s earnings are the income she derives from the business, after all expenses of the business are accounted for, but before tax.
An individual’s earnings from self-employment do not include the expenses of the business required in order to generate those earnings… This is because business expenses must first be deducted in any calculation of the Claimant’s personal earnings derived from her sole trader business. This approach is consistent with basic accounting principles. The insurer has correctly calculated the Claimant’s earnings by deducting chair rent expenses from the gross takings of her business… In any event, there is no provision within the legislation that allows these expenses to be included as part of the Claimant’s PAWE”
I note in the Claimant’s submissions he lists a number of business expenses which he argues are ongoing expense that must continue to be paid even if his business is not operating. These business costs did not stop after the accident. For example, in his letter of 17 March 2022, he lists: car repayments, overdraft interest , accountant/bookkeeping fees, computer programming subscriptions, business insurance, vehicle upkeep, registration, insurance, maintenance, tools, phone and internet service, email and domain name fees, uniform costs.
In his profit and loss statement dated 1 July 2021, the Claimant lists a large number of expenses including additional expenses such as: petrol, oil, parking, subcontractor fees and tool replacement.
The Claimant’s submissions that business expenses are an ongoing expense that must continue to be paid even if his business is not operating are partially correct. A more accurate submission would be that some but not all of his business expenses are ongoing expense that must continue to be paid even if his business is not operating. The Claimant argues that it is unfair that the Insurer does not pay for ongoing business expenses that continue even if the business does not. It may also be argued that it would be unfair for the Insurer to pay for business expenses that do not continue and are not ongoing if the business does not operate such as petrol, oil, parking, subcontractor fees and tool replacement. Thus if the Claimant’s argument were to be implemented fairly, the Insurer would have to make an assessment and differentiate which of his business expenses are ongoing expenses that must continue to be paid and which were not.
I note the Claimant’s declared taxable income for the year ended 30 June 2020 is $68,002, (R14). This is a different figure to his profit and loss statement and also the calculation made by Procare in their report, (R7). His taxable income excludes his business expenses.
Unfortunately for the Claimant, I cannot support his submissions that his PAWE should be calculated to include the gross takings of his business, before any deduction for business expenses.
Based on the above reasons, I find that the Claimant’s PAWE should be calculated on the basis of the net profit of his business, after deducting business expenses but before tax. These reasons include: the definition of PAWE in clause 4 of Schedule 1 of the MAI Act, the potential inconsistency in outcomes if the business operated as a sole trader or a corporation, the reasoning set out in ABQ v NRMA Insurance and the practical difficulty of having to accurately calculate which gross business expenses are ongoing and which are not.
While I have sympathy for the Claimant’s financial position and the unfairness he highlights, I am bound to apply the legislation as I find it. In this case I am satisfied that the Insurer has correctly calculated the Claimant’s PAWE under Division 3.3 and Schedule 1 of the MAI Act as $1,180.95.
Whist I have found that the Insurer has followed the correct methodology in calculating the Claimant’s PAWE, I have a concern about the accuracy of the actual calculation by the Insurer of the Claimant’s entitlement to weekly payments of statutory benefits.
In its internal review (R5), the Insurer calculated the Claimant’s PAWE and his entitlement to weekly payments during the first entitlement period (for the first 13 weeks) under section 3.6 of the MAI Act.
I note that in its internal review the Insurer calculated (after 5 July 2021) the Claimant’s PAWE as $1,180.95 - $1,056 = $124.95.
The Claimant’s evidence is that he only received three payments as follows: $601 on 1 July 2021, $208 on 12 July 2021 and $1,939.44 on 6 August 2021 which is a total of $2,748.44.
Section 3.6 of the MAI Act sets out the method by which the Claimant’s weekly payments are to be calculated. Subsection 3.6 (2) provides:
“3.6 (2) A weekly payment of statutory benefits under this section is to be at the rate of 95% of the difference between the person’s pre-accident weekly earnings and the person’s post-accident earning capacity (if any) for the first entitlement period.”
The two invoices both for $1,056 used by the Insurer to calculate the Claimant’s weekly payments is based on the gross figure of $66 per hour. The two invoices ( LOV 0056 and LOV 0057 , at R 11 pages 41 and 42) are both invoiced at the rate of $66 per hour which is the Claimant’s gross amount which includes business expenses. This approach is inconsistent with the Insurer’s argument that the Claimant’s earnings should only be assessed using the net figure. The Insurer is using a figure of $1,180.95 for PAWE which is derived from the Claimant’s net income, net of business expenses. The invoice figure of $1,056 is charged at $66 per hour which includes the Claimant’s business expenses. The Insurer has relied on a $66 per hour figure which includes the business expenses.
The Insurer did not fully disclose the detail of its payments and calculations to the Commission. It did identify the two invoices it used for the invoice figure of $1,056 which were charged out at $66 per hour. These invoice figures used by the Insurer appear inconsistent with the legislation. I am unable to verify whether or not the calculation of the Claimant’s weekly payments of statutory benefits has been made in accordance with the legislation. The Insurer appears to have made the following calculation: $1,180.95 (net earnings minus business expense) - $1,056 (two invoice amounts of $66 per hour which includes business expense) = $124.95. In order to be consistent the Insurer must calculate both the first figure of $1,180.95 and the second figure of $1,056 for the two invoices, to be minus business expense.
Accordingly, I will remit the matter back to the Insurer to recalculate the Claimant’s entitlement to weekly payments of his statutory benefits to ensure that the payments it has made are in accordance with the legislation and these reasons.
I note the decision in Allianz Australia Insurance Ltd v Jenkins [2020] NSWSC 412 where the Court considered the issue of the entitlement to net or gross weekly earnings in the third entitlement period and how tax should be paid or deducted. Although that case dealt with a different issue, the taxation of those payments, is shows the need when calculating weekly payments to follow a consistent approach in making the payment calculations.
LEGAL COSTS
Legal costs are not available to the Claimant in this case because he was not legally represented. Accordingly, I direct that amount of legal costs payable to the Claimant in this case are $NIL.
CONCLUSION
The reviewable decision is set aside and is remitted to the Insurer for reconsideration and recalculation of the Claimant’s entitlement to weekly payments of statutory benefits in accordance with Division 3.3 of the MAI Act.
The amount of the weekly payments is to be calculated based on the Claimant’s pre-accident weekly earnings of $1,180.95. If the Insurer uses the two invoices (LOV 0056 and LOV 0057) of $1,056 to calculate the Claimant’s weekly payments under sub-section 3.6 (2) it should not base its calculation on the gross figure of $66 per hour as this includes the Claimant’s business expenses. For consistency the Insurer should use a net per hour figure that does not include the Claimant’s business expenses. To ensure equity and consistency the Insurer may use the same hourly figure as it used to arrive at the figure of $1,180.95 which is says is the Claimant’s PAWE excluding business expenses.
The amount of legal costs awarded in this case is $NIL.
Ray Plibersek
General Member and Merit Reviewer
(Motor Accidents Division)
Personal Injury Commission