To be entitled to Section B weekly loss of income disability benefits in Alberta, a self-employed insured that owns a business enterprise must provide proof that they were earning profit through their business. Earning revenue is not enough.
The legislation
Section B of the Alberta Standard Automobile Policy Form #1 provides insureds with disability benefits in the event that they are wholly and continuously disabled as a result of injuries sustained directly and independently by an accident arising out of the use or operation of an automobile.[1] However, there are some limitations. To be entitled to disability benefits, insureds must have been either employed or deemed to have been employed at the date of the accident.
When an insured earns business income as opposed to employment income, the insured must satisfy the criteria specified in Section B to be considered “deemed to be employed”. This means that a proprietor must either prove that they were “actively engaged in occupation … for … profit” at the date of the accident or so engaged for any six of the 12 months preceding the date of the accident.[2]
But aren’t all self-employed business owners engaged for profit? Not according to the Alberta courts.
The case law
The Alberta courts draw a distinction between self-employed insureds who earn profits and those that do not. Only earned profits entitle a self-employed insured to Section B disability benefits. Revenues, in the absence of profits, do not. An insured business owner must have been compensated “in cash” to be considered actively engaged for profit. The enterprise must have been profitable enough that there was cash available for the insured to take as compensation, for contributing to the business, for the entitlement to disability benefits to crystalize.
The Court of Queen’s Bench of Alberta’s decision in Allianz Canada v McInneis [McInneis] holds that, where an injured insured is self-employed through the operation of a business, the labour that the injured person expends in the business enterprise must result in the person being compensated “in cash” for that person to be eligible for disability benefits.[3] This is necessary because “Section B Total Disability benefits are intended to compensate a person who has lost income as a result of injuries sustained in a motor vehicle accident and are not intended to replace a capital contribution in the form of labour in a business enterprise.”[4] If no money from the injured insured’s business was available to pay “wages”, then there is no loss of income for which to compensate. Whereas the Court in McInneis found that “any labour which the [injured insured] was performing was not compensated for in cash”, he failed to establish that he was actively engaged in occupation or employment of any type for any six months during 12 months preceding the date of accident.[5]
The more recent case of Kemp v State Farm Mutual Automobile Insurance Co. [Kemp] is factually similar to McInneis.[6] In Kemp, the injured insured was the general manager of his own carpentry company. However, he had not been drawing a salary for the year preceding his accident because the finances of his company were “tough”. In finding that the insured was not eligible for disability benefits, the Provincial Court of Alberta held that the relevant regulatory provisions “contemplate proof of the actual weekly earnings in order for the total disability benefit to be paid.”[7] Although the injured insured’s business may have been earning some revenues, it was necessary that the business was profitable enough that the insured actually took income from it in cash.
Although not explicitly identified by the Alberta courts, in the context of proprietorships, and in keeping with the principals of income calculation under the Income Tax Act, net income as assessed by the Canada Revenue Agency is quite likely the proper measure of “profit” or “actual weekly earnings” as referenced by the courts. A proprietor is not necessarily able to take cash from the business because it is earning revenues – expenses must be considered. A business may be incurring the same level of expense as the revenue it is generating. In such a case, there would be no cash available for the proprietor to take out of the business for personal use.
Some profit
McInneis and Kemp hold that an insured’s business must be profitable enough that the insured takes cash out of the business for personal use. For start-ups and struggling proprietorships, this may not be at all possible, which will thus disentitle such self-employed business owning insureds from disability benefits.
In the two foregoing cases, the insureds did not take any cash from their business enterprise. The courts did not consider circumstances where a proprietorship is only marginally profitable such that the insured is only able to take a small amount of cash out of the business but not enough to live on. In such cases, it is likely that the insured will be entitled to some disability benefits. However, the amount of the weekly disability benefit would be limited to 80% of the “average gross weekly earnings” of the business enterprise.[8] As discussed above, net income as assessed by the Canada Revenue Agency should be the proper measure by which to calculate “gross weekly earnings.”
[1] Alberta SPF #1, Section B, Subsection 2 – death, grief counselling, funeral and total disability, Part II – total disability. Section B is prescribed by the Automobile Accident Insurance Benefits Regulations, Alta Reg 352/1972, as amended.
[2] Ibid, section 2.
[3] 2003 ABQB 927.
[4] At para 39.
[5] At para 38.
[6] 2015 ABPC 204.
[7] At para 23.
[8] In keeping with Part II of Subsection 2 of Section B.
