Home Owners Insurance loses claim that Sub-S corporation income should not be included in wage loss
Barry Brown paid himself a modest salary from his wholly-owned subchapter S corporation. He then paid any left-over income at year end as a dividend. After he was hurt and could no longer work, he sought PIP wage loss benefits from his auto insurer, Home Owners Insurance Company. Home Owners argued that his wage loss check should only include his biweekly salary and not his "profit," even though it resulted solely from his own efforts.
The trial court summarily rejected the insurer's claim and awarded Brown his full $60,000.00 annual income, rather than the $24,000.00 net salary. It also awarded him interest and attorney's fees. On appeal, the Court of Appeals upheld the income determination but took away the attorneys' fees. The Court pointed to the legislative public policy underlying no fault--to "make injured persons whole" without litigation by replacing three years of lost income--and rejected Home Owners' argument that prior case law would limit Brown to his salary regardless of subchapter S "corporate" income. Nevertheless, the Court ruled that since AutoOwners' argument was based on a statute with no definition of "income," AutoOwners' position was not unreasonable and fees could not be awarded.