United States District Court, D. Massachusetts
KIERAN O'HARA, on behalf of himself and all others similarly situated, Plaintiff,
v.
THE STANDARD FIRE INSURANCE COMPANY d/b/a TRAVELERS INSURANCE COMPANY, Defendant.
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. ...