Opinion ID: 1581476
Heading Depth: 1
Heading Rank: 6

Heading: Self-Employment Income

Text: Tighe contends that Combined should not have been allowed to reduce his disability benefits because he showed a net loss through ABM for every year except 1994, when ABM had a net profit of $117. He further contends that the district court erred in finding that self-employment income means gross receipts from self-employment. Combined contends that the gross receipts from ABM are Tighe's self-employment income regardless of any business expenses he reported for federal income tax purposes. Therefore, the issue is whether Tighe had self-employment income that reduced the amount of his disability benefits. In its order, the district court did not explicitly state that it was using gross receipts for Tighe's self-employment income. Net profits, however, would have only marginally reduced Tighe's benefits. Tighe's Schedule C for 1994 showed that ABM's net profits were $117. After 1994, ABM had net losses of $9,676 for 1995, $13,758 for 1996, and $68,715 for 1997. In contrast, ABM's gross receipts were $104,632 for 1994, $106,670 for 1995, $103,783 for 1996, and $44,583 for 1997. Therefore, the district court could have used only gross receipts to determine that the reduction of Tighe's benefits was correct. The reduction clause does not specify whether the benefits are to be reduced by gross or net self-employment income. Tighe's position is that the district court erred in failing to find that the term self-employment income as used in the reduction clause is ambiguous. He argues that because the phrase is ambiguous, he is entitled to a construction favorable to him. He relies on the Internal Revenue Code, I.R.C. § 1402(b) (1994), which defines self-employment income as net earnings from self-employment. Combined argues that the terms of the exclusionary clause are clear and should not be construed to create an ambiguity, but should be given its plain and ordinary meaning as an average or reasonable person would understand it. Combined argues an ordinary person would consult the dictionary, not the tax code. In interpreting a contract, a court must first determine, as a matter of law, whether the contract is ambiguous. Callahan v. Washington Nat. Ins. Co., 259 Neb. 145, 608 N.W.2d 592 (2000). Whether an insurance contract is ambiguous and therefore in need of construction is a question of law. Moller v. State Farm Mut. Auto. Ins. Co., 252 Neb. 722, 566 N.W.2d 382 (1997). A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. Callahan v. Washington Nat. Ins. Co., supra . But the fact that parties to a document have or suggest opposing interpretations of the document does not necessarily, or by itself, compel the conclusion that the document is ambiguous. Id.; Moller v. State Farm Mut. Auto. Ins. Co., supra . Interpretation of an unambiguous term or provision in an insurance policy presents a question of law. Callahan v. Washington Nat. Ins. Co., supra ; American Family Ins. Group v. Hemenway, 254 Neb. 134, 575 N.W.2d 143 (1998). While an ambiguous insurance policy will be construed in favor of the insured, ambiguity will not be read into policy language which is plain and unambiguous in order to construe against the preparer of the contract. Callahan v. Washington Nat. Ins. Co., supra ; American Family Ins. Group v. Hemenway, supra . Although Combined correctly argues that [t]here is no legal requirement that each word used in an insurance policy must be specifically defined in order to be unambiguous, American Family Ins. Group v. Hemenway, 254 Neb. at 143, 575 N.W.2d at 149, Combined fails to articulate the plain and obvious meaning of the phrase income from self-employment. The dictionary defines income as revenue or receipts. See Webster's Third New International Dictionary, Unabridged 1143 (1993). However, neither Webster's nor Black's Law Dictionary define self-employment income. In Hull v. Aetna Ins. Co., 249 Neb. 125, 541 N.W.2d 631 (1996), a self-employed claimant for workers' compensation argued that his benefits should be based on his gross income. This court held that business expenses should be deducted in determining the wage of a self-employed claimant and that business expenses set forth on a claimant's tax return shall be presumed correct. Id. at 131, 541 N.W.2d at 635. Net business profits of a sole proprietorship have also been held to be a self-employed claimant's income under a no-fault automobile provision for disability benefits. See Zyck v. Hartford Insurance Group, 143 N.J.Super. 580, 364 A.2d 32 (1976). The Mississippi Supreme Court has specifically held that net profits must be used for determining the amount of a self-employed insured's benefits under a disability insurance policy. See Prudence Life Ins. Co. v. Prisock, 254 Miss. 316, 180 So.2d 636 (1965). See, also, 12 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 182:18 at 182-24 (1998) ([g]enerally, the [self-employed] insured's income should be calculated for benefit purposes in the same manner that it is for tax purposes). Although we recognize that the courts in the cited cases were dealing with the amount of an insured's benefits, the same reasoning applies to self-employment income as used in Combined's reduction clause. The reduction clause was designed to allow Combined to reduce an insured's benefits by income he or she receives from an employer or self-employment. In the case of a self-employed insured, however, it is the net profits of a business that are the true representation of the value of the insured's services to himself or herself. See Zyck v. Hartford Insurance Group, supra . To interpret income from self-employment as gross receipts in a reduction of benefits clause would allow an insurer to reduce its liability by gross revenues which do not represent actual income to the insured. Therefore, it would be unreasonable to interpret self-employment income to mean gross receipts. A contract is not ambiguous unless a word, phrase, or provision has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. Callahan v. Washington Nat. Ins. Co., 259 Neb. 145, 608 N.W.2d 592 (2000). Because it would be unreasonable to interpret self-employment income under Combined's reduction clause to mean gross receipts, the contract is not ambiguous. We conclude that self-employment income, as used in Combined's reduction clause, is net of business expenses. This interpretation is supported by the fact that net business profits are reported as self-employment income under the Internal Revenue Code. Although Combined argues that self-employment income under the tax code is a complicated determination, the basic premise that business expenses should be deducted from gross receipts is not difficult. See I.R.C. § 1402(b) (term `self-employment income' means the net earnings from self-employment derived by an individual).