Lawyers’ Corner: Lost Wages in Brewart v Mid-Century Ins Co

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The Michigan No-Fault Act provides for up to 3 years of lost wages. But what if your auto accident client is a business owner? How can an entrepreneur, whose income may vary over time, recover lost wages?

Not every auto accident victim is a W-2 employee. Sometimes auto accident attorneys will represent contractors, freelance employees, or business owners, whose income can vary over time. But how can people like that recover lost wages? What do you, as a car accident attorney, need to prove to get them the benefits they need?

In Brewart v Mid-Century Insurance Company, an unpublished Michigan Court of Appeals decision entered in December, the owner of a brand new business was in a serious car accident. William Brewart and his son founded Brewart & Sons, LLC on October 14, 2012, but before the business could get underway, William was in a serious auto accident on November 9, 2012.  As part of his auto insurance claim, Brewart requested lost wages benefits of $3,000 per month. Brewart said, as a manager of the new company he was paid $1,500 every two weeks.

The auto-insurance company and the trial court judge thought that was unreasonable. The judge admitted evidence on the profitability of the new company and decided that, since the company operated at a loss that first year, Brewart was not entitled to any lost wages benefits.

Determining Lost Wages for Self-Employed Plaintiffs

The Michigan No-Fault Act, MCL 500.3107, allows injured motorists to claim PIP benefits for “[w]ork loss consisting of loss of income from work an injured person would have performed during the first 3 years after the date of the accident if he or she had not been injured.” These benefits are designed to compensate the injured party for income he or she would have received, but didn’t.

The Michigan Court of Appeals quoted Davis v State Farm Mut Auto Ins Co, saying:

“[W]ork loss benefits are available to compensate injured persons for the income they would have received but for their accidents. Accordingly, a party seeking work loss benefits under [MCL 500.3107(1)(b)] must show actual loss; a mere loss of earning capacity is not sufficient.”

According to the court, damages for lost earning capacity – what a person could have made – don’t count. Injured plaintiffs must demonstrated actual lost earnings using specific proof which show how much that person would have made in order to be eligible for work loss damages. Anything more is considered contingent and speculative.

Using Company Profits to Determine Wages

For most employees, the most relevant and reliable evidence of a person’s lost wages is proof of what he or she earned before the accident. With standard employees, this can be relatively straight-forward. Pay stubs and income tax returns can easily establish how much a person was paid prior to the accident. But when an injured motorist is self-employed or has recently changed jobs, the calculation becomes more difficult.

In Brewart’s case, his auto accident attorneys did not provide any evidence to support his work loss claims. He claimed the business earned $26,000 in profits during the first four weeks, but couldn’t show any actual sales. Essentially, he just said the business was profitable, providing summaries of sales rather than actual records.

Brewart argued it was inappropriate for the court to consider how profitable his business was in determining lost wages. But he admitted during his deposition, “If it was not making a profit, how could I pay myself?” The trial court held that, since his business was functioning at a loss, no lost wages had been proven, and benefits could not be awarded. In reviewing that decision the court said:

“While perhaps such a consideration may not be appropriate in every case, it was certainly relevant here, where the evidence was lacking.”

Representing Auto Accident Clients in Light of Brewart

The Brewart decision provides guidance in how to represent self-employed auto accident victims. Where direct proof of income is available, it is the best evidence to support a claim of lost wages. But where, as in Brewart, a business is new or an entrepreneur is not receiving regular payments, auto accident attorneys may need to get creative in proving actual lost income.

Brewart says that one possible source is the tax returns for the business, showing profits and losses. However, the Brewart court did not consider how the business’s financial situation would have improved had William been able to work. Given the Brewart reasoning, this would likely be considered speculative unless the plaintiff’s attorney could present specific evidence of bids lost or jobs not completed because of the injured party’s absence. One thing is clear: documentation is key. Attorneys should not rely on their clients’ statements regarding their business. Instead any lost wages claims should come with reports to back them up.

David Christensen is an auto accident attorney with Christensen Law in Southfield, Michigan. He has over 25 years’ experience representing car crash victims against insurance companies. If your client has a difficult no-fault issue, contact Christensen Law today for a referral.