O'Hara v. Standard Fire Insurance Co.

          ORDER ON REPORT AND RECOMMENDATION

          George A. O'Toole, Jr. United States District Judge

         The magistrate judge to whom the defendant's Motion for Judgment on the Pleadings (dkt. no. 9) was referred has filed a Report and Recommendation (“R&R”) recommending that the motion be denied as to Count II and granted as to Counts I and III through VII. Both parties have filed timely objections to the R&R.

         Having reviewed the magistrate judge's recommendation and the relevant submissions of the parties, I approve and ADOPT the R&R to the extent that it recommends dismissal of Counts I and III through VII.^[1] I conclude, however, that the defendant is also entitled to dismissal of Count II.

         The plaintiff, a self-employed individual, contends that the defendant, his automobile insurance company, failed to pay him the full amount of benefits to which he was entitled to compensate him for five days of lost income resulting from a personal injury. Of particular relevance to the parties' dispute is the following standard policy language related to Personal Injury Protection (“PIP”):

If an injured person is out of work because of the accident, we will pay lost wages up to 75% of his or her average weekly gross wage or equivalent for the year ending on the day immediately before the accident. We will not pay for the loss of any other type of income.

(Def. Mem. of Law, Ex. A at 4 (emphasis added) (dkt. no. 10-1).)

         The PIP provision is mandated by and adapted from Massachusetts' “no-fault” automobile insurance law. See Mass. Gen. Laws ch. 90 §§ 34A, 34M; Ortiz v. Examworks, Inc., 26 N.E.3d 165, 169 (Mass. 2015); DiGiacomo v. Metro. Prop. & Cas. Ins., 847 N.E.2d 1107, 1109 (Mass. App. Ct. 2006). “No-fault insurance was designed to afford claimants ‘the security of prompt and certain recovery to a fixed amount of the most salient elements of his out-of-pocket expenses'” in exchange for the “surrender of ‘the possibly minimal damages for pain and suffering recoverable in cases not marked by serious economic loss or objective indicia of grave injury.'” DiGiacomo, 847 N.E.2d at 1112 (quoting Pinnick v. Cleary, 271 N.E.2d 592, 597 (Mass. 1971)). Through its enactment, the legislature intended to “reduce the amount of motor vehicle tort litigation, control the costs of automobile insurance, and ensure prompt payment of claimants' medical and out-of-pocked expenses.” Ortiz, 26 N.E.3d at 170 (quoting Fascione v. CAN Ins. Cos, , 754 N.E.2d 662, 667 (2001). PIP is an “essential component” of the law, designed to “facilitate, through PIP payments, the claimant's prompt receipt of ‘the major portion of his lost wages not covered by a wage continuation plan.'” DiGiacomo, 847 N.E.2d at 1112 (quoting Pinnick, 271 N.E.2d at 598).

         The statute provides that PIP benefits are to include payment for “persons employed or self-employed at the time of an accident of any amounts actually lost by reason of inability to work and earn wages or salary or their equivalent, but not other income, that would otherwise have been earned in the normal course of an injured person's employment.” Mass. Gen. Laws ch. 90 § 34A. It goes on to explain that:

payments for loss of wages or salary or their equivalent . . . shall be limited . . . (2) in the case of persons not entitled to wages or salary or their equivalent under any program for continuation of said wages or salary or their equivalent to an amount that will provide seventy-five percent of any such person's average weekly wage or salary or its equivalent for the year immediately preceding the accident.

Id. It further provides that when claiming benefits under the PIP provision, “[i]f benefits for loss of wage or salary, or in the case of the self-employed their equivalent, are claimed the party presenting such a claim shall authorize the insurer to obtain details of all wage or salary payments, or their equivalent, paid to him by any employer in the year immediately preceding the date of accident, or earned by him.” Id. § 34M.

         The PIP policy, read together with the relevant statute, provides that claimants who are self-employed at the time of an accident-i.e., those who do not actually receive a set wage or salary-are entitled to the “equivalent” of a wage earned by employees. The issue before the Court is how to calculate the “equivalent” for the self-employed plaintiff. The defendant insurer contends that the calculation should be based upon his “net profit” listed on Line 31 of his Form 1040 Schedule C reporting business earnings, whereas the plaintiff argues it should be based on the “gross income” in Line 7. In this case, the plaintiff's gross business income for the relevant time period was $68, 358. After deducting business expenses other than any payment to himself, his net profit was $31, 311. Seventy-five percent of average weekly gross income would have totaled $985.93, whereas 75% of his average weekly net profit as calculated by the defendant was $451.60.

         The “net profit” for someone who is self-employed is the amount of funds available to him after his business expenses are subtracted from the business' overall “gross income” and before any taxes, retirement contributions, and insurance contributions are paid. On the Schedule C, a self-employed individual describes the “gross income” of his business on Line 7. He then enters various applicable business expenses, such as advertising, car and truck expenses, contract labor, office expenses, repairs and maintenance, travel, meals, and entertainment. He then deducts these business expenses from his business' gross income to determine the “net profit” of the business as entered on Line 31. From that amount, he deducts health insurance premiums, the deductible amount of self-employment taxes, and retirement contributions.

         It follows then that the “net profit” of a self-employed individual's business is the rough equivalent of an employee's gross wages on the form on which both parties rely to interpret compensation under the PIP policy. It is the best approximation of the earnings that are actually available to the individual-not the business-before standard deductions like taxes, retirement contributions, and health insurance are taken into account. That is generally also how an employee's salary or wage is understood. It is what is earned by the individual for his labor or services; it is not the amount that reflects an entire business entity's earnings before any of its costs or expenses are considered.

         This interpretation avoids the absurd result of possible windfalls by self-employed claimants. The plaintiff's interpretation would give him an unfair advantage over regular employees because it would allow him to collect benefits based upon the entire gross income of his business when only a portion of that figure is available to him for his personal use. For instance, consider a business that has a gross income of $500, 000 and $450, 000 of that gross income goes to paying business expenses, leaving the owner $50, 000 upon which to live. PIP is plainly intended to provide insurance coverage for the $50, 000, not the total gross income of $500, 000, just as it would compensate an employee with a salary of $50, 000 based on that $50, 000, regardless of what his employer's gross income is. To compensate the owner based on the $500, 000 figure would result in a vast discrepancy between his compensation and the amount the employee who earned $50, 000 would receive under PIP in conflict with the provision that self-employed individuals receive benefits equivalent to those who earn a wage or salary. Nothing in the PIP policy or the statute upon which it is based suggests that self-employed individuals should be entitled to this advantage.

         In sum, for the purposes of this case, the net profit that the plaintiff earned as a self-employed insured is equivalent to the gross wage of a regular employee. The defendant correctly compensated the plaintiff seventy-five percent of his net profit for the year preceding his accident.

         The defendant's objection to the R&R is therefore sustained and the plaintiff's objections to the R&R are overruled. The defendant's Motion for Judgment on the Pleadings (dkt. no. 9) is GRANTED in full.

         It is SO ORDERED.

         DATED: September 8, 2017

         REPORT AND RECOMMENDATION ON DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS (Dkt. No. 9)

          DONALD L. CABELL, U.S.M.J.

         Kieran O'Hara (“O'Hara” or “the plaintiff”) contends that his insurance company, Standard Fire Insurance Company (“Standard Fire” or “the defendant”), failed to pay him the full amount of benefits he was entitled to under a policy providing for payment of an insured's average weekly “gross wages” to compensate for lost income due to personal injury. O'Hara alleges breach of contract and violation of M.G.L. c. 93A among other claims. The principal issue concerns the meaning of the phrase “gross wages” as it pertains to individuals like O'Hara who are self-employed. O'Hara contends that the phrase means “gross income.” Standard Fire contends that the phrase means “net profit” and it moves for a judgment on the pleadings on the ground that it did not breach the policy when it calculated O'Hara's insurance benefits based on his “net profit” rather than “gross income.” (Dkt. No. 9). As discussed below, I recommend that the motion for judgment be denied with respect to O'Hara's breach of contract claim but granted with respect to all other claims.

         I. RELEVANT BACKGROUND

         A. The Amended Complaint

         As alleged in the amended complaint, O'Hara was injured in an automobile accident and missed five days of work. (Am. Compl. ¶¶ 6, 8, 10). O'Hara's vehicle was insured by Standard Fire pursuant to an automobile policy (hereinafter “policy”) which among other things provided for benefits for lost wages due to injury from an automobile accident. (Id. ...