By Janet L. Olsen, CA, CFE
It is all or nothing when the issue under the SABS is priority: was the claimant principally financially dependent on support from your insured or not?
As you know, under the SABS an "insured person" is defined to include "the named insured." Subsection 2(6) of the SABS provides that, for the purposes of the Regulation, "a person is a dependent of another person if the person is principally dependent for financial support or care on the other person or the other person's spouse or same-sex partner."
Although assessing whether a person is principally dependent on another person is beyond the expertise of a forensic accountant, determining whether or not a person is principally dependent for financial support on another person becomes a forensic accounting process - a precise exercise using somewhat imprecise numbers. Needless to say, the outcome of such a process determines which insurer will bear the entire cost of the dependent person's claim under the SABS.
Not As Simple As It Appears
Arbitrators have generally concluded that financial dependency on a person exists when more than half of the claimants 's financial resources in the year prior to the accident come from that person. This may sound like a simple equation to solve, even for a non-accountant, until one starts down the path of quantifying all of the claimant's financial resources.
Arbitrators have also espoused that a claimant's financial resources include not only money in the form of after-tax earnings, whether from earnings, investments or otherwise, but also in the form of the value of goods and services received in kind, e.g. necessities like accommodation and food that are provided by a person for the benefit of another.
Estimates and Best Guesses
This issue alone often poses the greatest difficulty. Ideally the valuation of accommodation, for example, would be made with reference to the claimant's consumption of the actual costs incurred by the household in which he or she resided, and which is usually rented or owned by the insured person. However, this method of valuation is inherently fraught with difficulty. The owner or operator of a household rarely maintains complete and accurate records of its operation and the claimant's share.
As a result, forensic accountants are left to piece the puzzle together relying on estimates and best guesses for outlays that were made sometime in the past, with the result then mathematically apportioned to the claimant depending on the total number of individuals residing in the household. Furthermore, except in the case of a claim for a death benefit, there is little motivation for the claimant to cooperate when the case is a priority, since benefits will be provided in any case to the claimant: it is just a question of by whom.
When information about the actual costs of accommodation is vague or simply unavailable, or if the household afforded the individual with a more-than-moderate standard of living, arbitrators have adopted the approach of valuing the accommodation based on the cost of equivalent shared accommodation in the vicinity. A search of the classifieds for the period in question, readily available on-line these days, usually produces the needed information.
Having valued accommodation and food, it is also imperative to value services, including anything from lawn-cutting and daycare to laundry or transportation. It's equally important to remember that the provision of services may be a two-way street. Although the value of services received by the claimant from the person is included in the estimate of the claimant's financial resources, there is a similar reduction in the estimate of the claimant's financial resources for the value of the services provided by the claimant to the person.
The balance of the exercise is usually even less precise. It includes corroborating who gave what to whom, and when, in the year prior to the accident. Forensic accountants are uniquely qualified to add the value of their expertise in determining financial dependency. They can provide insights on how to substantiate or contradict financial assertions to objective financial evidence, with reference not only to the other financial resources of the claimant but also to those apparently produced by the insured person in the aggregate.
Even the period of analysis over which a determination of financial dependency is made can be a matter of opinion. Although a one-year time frame ending with the the date of the accident is the starting point, a marked and and more or less permanent change in the claimant's circumstances within that year may shorten the period of analysis.
Regardless of the period of analysis, a detailed investigation of all of the financial transactions within that period is essential to present the most comprehensive picture of the financial resources of the claimant and the extent to which they were provided by the insured person. Without this detailed financial investigation, the entire cost of the claim may, unwittingly, be borne by the wrong insurer.
First published in Without Prejudice magazine, OIAA, Volume 70, Number 3, November, 2005.
A Partner at H&A Forensic Accounting Inc. (www.HAForensics.com), Janet L. Olsen, CA, CFE, is a forensic accounting specialist who has performed hundreds of complex financial investigations focusing on accident benefit claims and economic losses. Her expertise is also reflected in technical and second opinion client reports to guarantee the highest standards of quality and integrity. Tel: 866.233.5577 or e-mail email@example.com
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