Insurance Australia Limited trading as NRMA Insurance v Sarkis Iskandar (26 November 2024)

Mr Iskander (Claimant) sustained injuries to his neck and back in a motor vehicle accident on 22 January 2024. At the time of the accident, the Claimant was a self-employed sole trader working as a Pest Control Technician. 

The Claimant was off work following the accident and made a claim for statutory weekly benefits. The Insurer commissioned PKF Forensic Accountants (PKF) to assess the Claimant’s PAWE with reference to provided business records. PKF calculated his PAWE to be $531.38. PKF calculated his PAWE by calculating business income and then deducting all business expenses.

The Claimant disputed the Insurer’s PAWE calculation. The Claimant conceded that the costs of goods should be deducted from gross revenue but contended that as he was required to pay fixed expenses – regardless of whether he worked – those expenses should not be deducted for the purpose of assessing his PAWE. The Insurer’s decision was affirmed on internal review. The Claimant lodged a PIC application for a merit review of the internal reviewer’s decision.

It was observed that there is no definition of ‘gross earnings’ in the MAI Act. 

The Claimant maintained his contention that the term should be construed to mean revenue less the costs of goods. 

The Insurer referred to AHS v Allianz Australia Limited^[1] and AGZ v NRMA Insurance Pty Ltd^[2] where the Merit Reviewers interpreted ‘gross earnings’ to mean ‘the net profit/income earned by a self-employed claimant after account for all business expenses incurred to run a business but before tax’.

In the reasoning for his decision, Merit Reviewer Williams considered the Macquarie Dictionary definition of ‘earn’ and ultimately determined ‘gross earnings’ to mean ‘…the whole of the income without any deduction received by an earner in return for labour or services provided by them as an earner during the 12 months immediately before the day on which the motor accident occurred.’ 

Merit Reviewer Williams referred to the competing decisions on these issues and ultimately determined the dispute in favour of the Claimant, finding that the appropriate approach was to calculate PAWE based on total business income for the 12 month period before the accident less the costs of goods only, that is, excluding other business expenses. 

The Insurer sought review of the decision.

The Insurer submitted that gross earnings needed to be interpreted in a manner that was consistent with the Act as a whole. In particular, the calculation of PAWE needed to be consistent with the requirement that PAWE represents earnings as an earner. 

The panel determined that Merit Reviewer Williams did not engage with the balance of the objects of the MAI Act, and that the meaning of the provision should be deciphered ‘by reference to the language of the instrument viewed as a whole’. 

The panel found that Sch 1 cl 3(2)(b) of the MAI Act should be read together with Sch 1 cl 3(1) which refers to loss of earnings as ‘a loss incurred or likely to be incurred in a person’s income from personal exertion’. The panel interpreted ‘income from personal exertion’ to mean the Claimant’s share of business earnings rather than total earnings without deductions. This was found to be consistent with Sch 1 cl 4 of the MAI Act, which refers to the ‘weekly average of the gross earnings received by the earner as an earner’. The panel therefore determined that deductions must be made from the total income of the business as earnings ‘must be received by the earner as an earner’. 

The approach taken by Merit Reviewer Williams to assess gross earnings was found to introduce uncertainty given it took into account some deductions (cost of goods) but no other deductions, and suggested a different approach may apply to an earner in a partnership or employed through a company structure. The panel did not agree that a differing approach should be adopted because of the type of self-employment in which an earner was engaged and was ‘troubled’ by an interpretation of income from personal exertion as defined by Sch 1 cl 3(2)(b) to mean the proceeds of any business carried on alone or in partnership and not solely the personal income of the claimant from his personal exertion in the business:

Whilst Mr Iskandar was a sole trader, the provision also relates to the proceeds of any business carried on by a person in partnership. Partnerships can involve multiple partners who earn income for the business, albeit the business is conducted as a partnership. The proceeds of a business with one or more partners may be significant and the Panel finds it unlikely that the legislature intended that the proceeds of such a business without any deductions could constitute a person’s “income from personal exertion”. Indeed, it would be the proceeds of a business arising from the personal exertion of two or more persons.

The panel found the term ‘gross earnings’ to mean earnings received by the earner, after the deduction of all business expenses, but before tax. The decision of Merit Reviewer Williams was therefore revoked, and the Claimant’s PAWE was certified as $531.38 consistent with the PKF report. 

The Review Panel’s decision endorses position that ‘gross’ for the purposes of PAWE means ‘pre-tax’. The panel followed the reasoning of Member Ruschen in the matter of Hayes v GIO [2022] NSWPICMR 17 (25 March 2022) where at [18] she states:

...the earnings of the claimant as an individual as distinct from the business, are the profits of the business after expenses of the business are paid. In other words, the ‘proceeds’ of the business the claimant receives as an earner is the net profit of the business after accounting for all business expenses incurred to run the business, but before tax. Business expenses are not ‘proceeds’ of the business that make it into the claimant’s hands as his individual gross earnings.

Member Ruschen found that ‘earnings received by the [claimant]’ meant earnings that made it to the claimant as an individual, and not the earnings of the claimant’s business. 

This reasoning was followed by Member Medland in Khalid v Insurance Australia Limited t/as NRMA Insurance [2024] NSWPICMR 71 (21 October 2024). In Kumar v Allianz Australia [2024] NSWPICMR (26 November 2024) the parties conceded this was the correct position and Member Ruschen proceeded to make findings in relation to the Claimant’s business expenses, which excluded the ‘sunk cost’ of a mobile phone which would have been incurred regardless of his business activity.  

It should now be settled that Insurers are entitled to deduct all business expenses from business revenue to arrive at a pre-tax sum from which to calculate a claimant’s PAWE. The accurate assessment of PAWE is of critical importance to claimants and getting this right early will avoid unnecessary delay, disputes and associated costs. Insurers may be assisted in this task by clear communication with self-employed claimants in relation to the information required by the Insurer to determine PAWE, and by obtaining the early input from an independent accountant to calculate both revenue and business expenses in the 12 months before the accident. 

While this outcome may mean that self-employed claimants with significant fixed costs, eg rent on commercial premises, may experience financial hardship if incapacitated for a prolonged period following an accident, it is consistent with the Act and reflects the limitations of the statutory benefits scheme.

This article was prepared with the assistance of Runi Latham, Law Graduate. 

[1] [2019] NSWSIRADRS 206.
[2] [2019] NSWDRS MR 184.