Collateral Benefits – What is Deductible, What Isn’t?
An update to this post was shared on the Oatley Vigmond website in January 2020 titled “Collateral Benefits: An Update and Refresher”. Please click here to access it.
It is one of the essential principles of tort law that the negligent defendant is only required to put the plaintiff in the financial position that they would have been had the injury not occurred. In other words, the plaintiff should be neither over nor under compensated for injuries sustained as a result of the negligence of others.
THE RULE AGAINST DOUBLE RECOVERY
It is not the purpose of the tort system to provide the plaintiff with a windfall or double recovery. As an example, if an injured person is unable to work but continues to receive a full salary from his or her employer that injured person cannot recover damages at trial for past income loss against a negligent tortfeasor since this would result in the plaintiff receiving double recovery. This is the rule against double recovery in its simplest terms.
THE COLLATERAL SOURCE RULE
There is an exception to the rule against double recovery: the collateral source rule. The collateral source rule has two components. The first component is that benefits received by the injured plaintiff due to a public or private support system (e.g. charitable donations or gifts) should not be deducted from a tort award. The second is the private insurance exception. The Courts have traditionally held that if a plaintiff had the forethought to buy private disability or other insurance before he or she is injured the negligent defendant should not receive a credit for that private insurance.
The Ontario Court of Appeal affirmed the first component of the collateral source rule in Boarelli v. Flannigan1. The Court stated that principle as follows “monies received on the part of an injured party as a result of private or public benevolence have never been taken into consideration in assessing damages for loss of income or earning capacity”2 .
The private insurance exception has been reviewed by the Supreme Court of Canada on two occasions in Ratych v. Bloomer3 and Cunningham v. Wheeler4. In both cases the Supreme Court of Canada, while reiterating the principle against double recovery, maintained the private insurance exception.
Therefore using common law principles a person who is injured in a motor vehicle accident in Ontario would not be required to credit the negligent tortfeasor for monies received from public or private benevolence or for monies received due to private insurance (e.g. long term disability insurance). Unfortunately for injured plaintiffs in Ontario, the common law principles regarding collateral benefits have been modified by statute for tort claims arising from a motor vehicle accident. It should be noted that the common law principles still apply to all non-motor vehicle related injuries in Ontario.
In motor vehicle accidents which occurred on or after October 1, 2003-5 the governing legislation regarding deduction of collateral benefits is s. 267.8 of Insurance Act, R.S.O. 1990, c.I.8.
This section and its subsections explicitly removes the collateral source rule from income loss claims, health care costs and other pecuniary losses in tort claims arising from motor vehicle accidents in Ontario after October 1, 2003. In essence, these sections provide that any damages awarded by a Court to a plaintiff who has been injured in a motor vehicle accident shall be reduced by any amounts received to the date of trial or which were available for various types of collateral benefits. The present state of the law on the deductibility of various heads of damages is discussed below.
INCOME LOSS
Section 267.8(1) of the Insurance Act sets out the manner in which collateral benefits are deducted for an award for income loss and loss of earning capacity in a motor vehicle action. This section reads as follows:
Collateral Benefits – Income Loss and Loss of Earning Capacity
In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by the following amounts:
1. All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for statutory accident benefits in respect of the income loss and loss of earning capacity.
2. All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan.
3. All payments in respect of the incident that the plaintiff has received before the trial of the action under a sick leave plan arising by reason of the plaintiff’s occupation or employment. 1996, c. 21, s. 29.
INCOME REPLACEMENT BENEFITS FROM AB PROVIDER
Subsection 1 of 267.8(1) sets out that if a plaintiff proceeds to trial and is awarded an amount for income loss and/or loss of earning capacity the negligent tortfeasor shall receive a credit for all income replacement benefits received or available from the statutory accident benefits insurer prior to the trial of the action.
OTHER COLLATERAL BENEFITS
Subsections 2 and 3 provides that the tortfeasor also receives a credit for payments received under a sick leave plan arising by reason of the plaintiff’s employment or any payments received or available to the plaintiff for income loss or loss of earning capacity under the laws of any jurisdiction before trial. What precisely does this mean? Let us examine each of the usual types of collateral benefits which a plaintiff may receive and determine if they are deductible.
WORKPLACE SAFETY AND INSURANCE ACT BENEFITS
These are not deductible. Section 267.8(15) of the Insurance Act provides that any payments or benefits received or that were or may become available to a person under the Workplace Safety and Insurance Act, 1997 do not reduce tort damages awarded for income loss, health care or other pecuniary losses. It is important to be aware that the plaintiff may not be able to bring a tort action or an accident benefits claim at all if they were injured while in the course of their employment for a Schedule 1 employer as a result of negligence of another Schedule 1 worker or employer.
CANADA PENSION PLAN DISABILITY BENEFITS AND LONG-TERM DISABILITY INSURANCE
These are both deductible from income loss awards in motor vehicle injury cases arising after October 1, 2003. The Ontario government passed a regulation to the Insurance Act, Ontario Regulation 312/03. Section 5.2 of that regulation sets out that for injuries that occur on or after October 1, 2003 the definition in s. 267.8 of payments in respect of an incident for income loss or loss of earning capacity under an income continuation benefit plan shall be deemed to include the following payments:
1. Payments of disability pension benefits under the Canada Pension Plan.
2. Periodic payments of insurance, if the insurance is offered by the insurer,
i. only to persons who are employed at the time the contract of insurance is entered into, and
ii. only on the basis that the maximum benefit payable is limited to an amount calculated by reference to the insured person’s income from employment.
This regulation makes it crystal clear that any benefits available to the injured person by way of Canada Pension Plan Disability Benefits or private long term disability insurance are deductible from a tort award for income loss for injuries suffered in an Ontario motor vehicle accident on or after October 1, 2003.
ONTARIO DISABILITY SUPPORT PROGRAM
These benefits are not deductible. Injured parties often receive benefits from the Ontario Disability Support Program following an accident. The Ontario Disability Support Program Act, 1997-6 allows recipients of ODSP benefits to keep up to a maximum of $100,000.00 in non-pecuniary general damages without having to repay any ODSP benefits to the Ministry of Community and Social Services. However any damages that are received for income loss or loss of earning capacity trigger a repayment provision in section 8 of the Ontario Disability Support Program Act, 1997. This provision means that the person receiving the ODSP benefits must pay an equivalent amount of money back to the Ministry. In Moss v. Hutchison7 Mr. Justice Peter Howden held that a tort defendant does not receive a credit for ODSP payments received since those payments are required to be repaid to the Ministry and it is therefore not a case of double recovery.
ONTARIO WORKS
These social assistance benefits used to be called welfare benefits. These benefits are deductible from a tort award for income loss. The Supreme Court of Canada in M.B. v. British Columbia8 determined that social assistance benefits are a form of wage replacement and that they are deductible at common law from a tort award for income loss to prevent double recovery. This case reversed the previously held view that welfare benefits were gratuitous and not deductible from a plaintiff’s damages.
EMPLOYMENT INSURANCE
Employment insurance benefits are not deductible from a tort award at common law. This was confirmed by the Supreme Court of Canada in Jorgensen v. Jack Cewe Ltd9. I have been unable to find a case that addresses whether employment insurance benefits are deductible in an Ontario automobile injury case. However, since employment insurance benefits are subject to repayment upon the settlement of a tort claim10 the logic used by Mr. Justice Howden in Moss ought to apply to employment insurance in Ontario motor vehicle cases. There is no chance of double recovery and therefore employment insurance benefits should not be deductible from an award for income loss or loss of earning capacity in an Ontario automobile injury case.
GIFTS
Gifts are not referred to in s. 267.8 of the Insurance Act. Therefore the common law governs and gifts are not deductible from an award for income loss in tort in a motor vehicle injury case11.
SEVERANCE PACKAGES
The Court stated in Skinner v. Goulet12 that it is the defendant’s responsibility to prove that it is entitled to a deduction under the Insurance Act. In Skinner the Court held that it was up to the defendant to prove which part, if any, of the severance package received by the plaintiff was considered to be payment of income as opposed to other possible heads of damage. The defendant was unable to do so and therefore the Court did not deduct any amount of the severance package from the tort award for income loss. This decision means that any portion of a severance package which actually represents payment of income ought to be deductible from an award for income loss in tort.
HEALTH CARE EXPENSES
Section 267.8(4) of the Insurance Act provides that in an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile damages to which a plaintiff is entitled for expenses which have been incurred or will be incurred for health care will be reduced by all payments received from statutory accident benefits provider with respect to expenses for health care and all payments received before trial under any medical, surgical, dental, hospitalization, rehabilitation, or long term care plan or law.
DEDUCTION FOR MEDICAL AND REHABILITATION BENEFITS AND ATTENDANT CARE FROM THE AB PROVIDER
267.8(4) means that any statutory accident benefits spent by the plaintiff before trial for medical and rehabilitation benefits and/or attendant care will be credited to the defendant if an amount is awarded at trial for past health care expenses.
If, as is usually the case, the damage award at trial is restricted to future health care costs, the defendant is only entitled to a credit for amounts that the plaintiff has already been paid by the accident benefits insurer for future medical and rehabilitation costs. This situation generally only occurs if the plaintiff has entered into a full and final settlement of their entitlement to statutory accident benefits before trial of the tort action.
If the plaintiff has not settled his or her entitlement to future accident benefits before judgment in the tort action then the tort defendant is entitled to either a trust or assignment of the plaintiff’s future medical and rehabilitation benefits up to the value of the amount awarded for future health care costs.
If the plaintiff settles his or her accident benefits file before trial of the tort action it is very important for plaintiffs’ counsel to keep a record of what health care expenses have been incurred between the date of the accident benefits settlement and the trial of the tort action. This is important because the tort defendant does not receive a deduction against a future health care damage award for any amount that the plaintiff has already spent on health care costs before trial.
OTHER COLLATERAL BENEFIT DEDUCTIONS FOR HEALTH CARE COSTS
If the plaintiff has received money for health care expenses from a private or public insurance plan (e.g. an extended health care policy) the defendant receives a credit for any amounts received prior to trial from that plan. As with accident benefits this credit only applies against an award for past health care costs. Awards for future health care costs are subject to a trust or assignment as set out in the section “Future Collateral Benefits”.
HOUSEKEEPING & HOME MAINTENANCE AND OTHER PECUNIARY LOSS
Section 267.8(6) of the Insurance Act provides that if the plaintiff is awarded damages for pecuniary loss other than income loss or loss of earning capacity and/or health care costs that award shall be reduced by:
all payments that the plaintiff has received before trial for statutory accident benefits in respect to pecuniary loss other than income loss, loss of earning capacity and expenses for health care.
This section primarily applies to provide the tort defendant with a credit for housekeeping and home maintenance expenses, visitor expenses or reimbursement for damaged clothing that would be paid to the plaintiff before trial by the statutory accident benefits provider.
NON-PECUNIARY LOSS NOT SUBJECT TO DEDUCTIONS
Section 267.8(7) of the Insurance Act provides that there shall be no reduction of non-pecuniary damages (i.e. general damages or damages for pain, suffering and loss of enjoyment of life) because of any payments that the plaintiff has received or is entitled to receive. The Court in Walker v. Ritchie13 held that a non-earner benefit payable to the plaintiff by the accident benefits provider is not deductible in tort from any head of damages including non-pecuniary general damages.
FUTURE COLLATERAL BENEFITS
Section 267.8(9) of the Insurance Act addresses the issue of what happens to collateral benefits that the injured party will receive after the tort trial is over:
Future collateral benefits
(9) A plaintiff who recovers damages for income loss, loss of earning capacity, expenses that have been or will be incurred for health care, or other pecuniary loss in an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile shall hold the following amounts in trust::
1. All payments in respect of the incident that the plaintiff receives after the trial of the action for statutory accident benefits in respect of income loss or loss of earning capacity.
2. All payments in respect of the incident that the plaintiff receives after the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan.
3. All payments in respect of the incident that the plaintiff receives after the trial of the action under a sick leave plan arising by reason of the plaintiff’s occupation or employment.
4. All payments in respect of the incident that the plaintiff receives after the trial of the action for statutory accident benefits in respect of expenses for health care.
5. All payments in respect of the incident that the plaintiff receives after the trial of the action under any medical, surgical, dental, hospitalization, rehabilitation or long-term care plan or law.
6. All payments in respect of the incident that the plaintiff receives after the trial of the action for statutory accident benefits in respect of pecuniary loss, other than income loss, loss of earning capacity and expenses for health care. 1996, c. 21, s. 29.
Although the section refers to benefits being held in trust, s. 267.8 (12) allows the Court to order that the injured plaintiff assign future accident benefits and other collateral benefits to the tortfeasor in proportion with the damages awarded under the various heads of benefits. This sub-section provides that the injured plaintiff must co-operate with the defendant or defendant’s insurer in any application or action for benefits which have been assigned under this sub-section.
The trust or assignment of collateral benefits continues until the amount of the Judgment for that particular head of damages has been repaid. As an example, if the Court in the tort action awarded future income loss of $100,000 and the tort defendant later received $100,000 in income replacement benefits from the plaintiff’s accident benefits insurer then any further entitlement to income replacement benefits would revert to the injured plaintiff.
DOES THE DEFENDANT EVER GET A CREDIT FOR FUTURE BENEFITS?
No. For all motor vehicle accidents on or after November 1, 1996 in Ontario the defendant can never get a credit for the value of future collateral benefits available to the plaintiff. The only options are for the plaintiff to hold future benefits in trust for the tort defendant as per s. 267.8(9) of the Insurance Act or for the tort defendant to take an assignment of the plaintiff’s rights to collateral benefits as described in s.267.8 (12) of the Insurance Act.
PROTECTED AND UNPROTECTED DEFENDANTS
A protected defendant is defined in the Insurance Act as a person who is an owner of a motor vehicle, an occupant of a motor vehicle or someone who is present at the scene of an incident. Protected defendants enjoy statutory immunity from certain heads of damages in Ontario auto injury cases. These include protection from paying the first $30,000.00 of an award for non-pecuniary damages if the total award is less than $100,000.00. In addition, protected defendants enjoy a $15,000.00 deductible on every Family Law Act claim for loss of guidance, care and companionship of less than $50,000. A plaintiff also must pass a statutory threshold before he or she can collect non-pecuniary general damages or health care costs against a protected defendant. In addition protected defendants are only required to compensate a plaintiff for 80% of their net income loss before trial.
In certain cases there will be defendants who are vicariously liable for the actions of the parties who were present at the scene of the accident who are not afforded protected defendant status. After October 1, 2003 the Insurance Act provides that, absent independent negligence by the unprotected defendant, an unprotected defendant can be no more liable than a protected defendant.
Despite this change, there are still debates about to what extent unprotected defendants receive a collateral benefit deduction and/or a trust or assignment of future collateral benefits as set out in Section 267.8 of the Insurance Act. In a recent decision of the Superior Court of Justice in Burhoe v. Mohammed14 Madam Justice Wein determined that an unprotected defendant is entitled to the benefit of the trust and assignment of the provisions contained in Subsection 267.8 of the Insurance Act as well as the collateral benefit deduction provisions for income loss in 267.8(1) and (3) of the Insurance Act. It follows that the unprotected defendant also receives the collateral benefit deductions for health care expenses and other pecuniary losses set out in 267.8(4) and 267.8(6).
Justice Wein’s rationale for her decision was that the opening words of the section simply state that the damages are to be reduced by certain amounts and the wording does not refer to either protected or unprotected defendants. This argument was strengthened by s. 267.8(3) of the Insurance Act which sets out how the deductions for loss of income and loss of earning capacity are to be applied between protected defendants and unprotected defendants. That section sets out the reduction required by 267.8(1) shall first be applied to the damages for which the protected defendants and the non-protected defendants are jointly and severally liable for and any excess shall be applied to the amount for which the other persons are solely liable. Since there is no mention of protected and unprotected defendants anywhere else in Section 267.8 of the Insurance Act Madam Justice Wein held that it follows logically that the rest of the section does not differentiate between protected and unprotected defendants.
CONTRIBUTORY NEGLIGENCE
This is an issue which can certainly have extremely negative consequences for a plaintiff who is eligible for a large amount of collateral benefits and is potentially partly at fault for their own injuries. Section 267.8(8) sets out that all reductions for collateral benefits shall be made after any apportionment of damages required by Section 3 of the Negligence Act15 for contributory negligence. The practical effect of this section is that if damages are assessed by the Court at $1 million and contributory negligence is assessed at 50% and the deductible collateral benefits are equal to $500,000 the plaintiff’s recovery will be $0. The cost consequences of such a collateral benefit deduction could potentially be devastating to the injured plaintiff. It is therefore important for counsel to consider whether contributory negligence is an issue in the tort claim before any decision is made to cash out a plaintiff’s statutory accident benefits.
ACCIDENT BENEFITS – DEDUCTIBILITY OF COLLATERAL BENEFITS FROM INCOME REPLACEMENT BENEFITS
S. 7(2) of the Statutory Accident Benefits Schedule16 (“SABS”) sets out that the amount calculated for income replacement benefits is not to be reduced by Employment Insurance payments, payments under a sick leave plan that are available but are not being received by the injured party and any payments under the Workplace Safety and Insurance Act, 1997 that are available but not being received because a party has elected under the workers’ compensation law or plan to bring a tort action.
For injuries occurring after January 1, 2002 payments received from CPP Disability Benefits are deductible from the income replacement benefit17.
Severance pay and termination pay are not considered payments for loss of income when calculating an injured party’s entitlement to an income replacement benefit.18
Long term disability insurance payments are deducted from income replacement benefits.19
If the insured is eligible for a temporary disability benefit for a period following the accident due to an impairment that occurred prior to the accident the accident benefits insurer can deduct the amount payable to the insured for that benefit from the income replacement benefit or non-earner benefit. Temporary disability benefit is defined as including, inter alia, an income replacement or non-earner benefit paid during the first 104 weeks after onset of disability, a caregiver benefit, long-term disability benefits or other benefits payable under an income continuation plan, income replacement or non-earner benefits payable for a set number of weeks under the no-fault schemes in place prior to November 1, 1996 and workers’ compensation benefits for lost wages20. The definition excludes employment insurance benefits and payments made under no-fault schemes beyond a set number of weeks following the accident.
ACCIDENT BENEFITS – DEDUCTIBILITY OF COLLATERAL BENEFITS FROM MEDICAL, REHABILITATION AND ATTENDANT CARE BENEFITS
s. 60 (2) of the SABS provides that payment of a medical, rehabilitation or attendant care benefit is not required for that portion of an expense for which payment is reasonably available to the insured person under any insurance plan or law or under any other plan or law. This means that the accident benefits insurer is a payor of last resort. If any medical, rehabilitation or attendant care benefit is payable by an extended health care provider or government plan (e.g. ADP) the accident benefits insurer is not required to pay.
CONCLUSION
With respect to collateral benefits almost every case is different. It is a good practice to make a list of all collateral benefits that may be available to your client. Once that has been done a quick reference to s. 267.8 of the Insurance Act and the SABS will assist you in determining which benefits may be subject to a deduction in tort or accident benefits. It is important to remember that when negotiating a settlement that s. 267.8 does not apply to a case that is settled. It only applies to cases that have gone to trial. Therefore when discussing a settlement everything is open to negotiation and it is not always necessary to give the tort defendant a full credit for all of the collateral benefits listed in s. 267.8. It is important to remain fully up to date on the law as it relates to collateral benefits so that you can maximize recovery for your injured client and ensure that he or she receives every dollar that they may be entitled to.
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[1] Boarelli v. Flannigan (1973), 3 O.R. 69 (CA) at p. 73
[2] ibid.
[3] Ratych v. Bloomer [1990] 1 S.C.R. 940 (S.C.C.)
[4] Cunningham v. Wheeler [1994] 1 S.C.R. 359 (S.C.C.)
[5] A discussion of the deduction of collateral benefits for tort claims arising from motor vehicle accidents prior to October 1, 2003 is beyond the scope of this paper. There have been four Ontario motor vehicle insurance regimes since 1990: OMPP (June 22, 1990 to December 31, 1993), Bill 164 (January 1, 1994 to October 31, 1996), Bill 59 (November 1, 1996 to September 30, 2003), and Bill 198 (October 1, 2003 to date); each successive scheme differing slightly, but importantly, from the previous. The reader should be aware that the collateral source rule has not applied to tort cases involving Ontario motor vehicle accidents occurring on or after June 22, 1990.
[6] S.O. 1997, CHAPTER 25
[7] Moss v. Hutchinson, (2007) 85 O.R. (3d) 604 (S.C.J.)
[8] [2003] 2 S.C.R (S.C.C.)
[9] (1980) 111 D.L.R. (3d) 577 at 581 (S.C.C.)
[10] Employment Insurance Act, S.C. 1996 c. 23, s. 45
[11] Cunningham v. Wheeler [1994] 1 S.C.R. 359 (S.C.C.)
[12] [1999] O.J. No. 3209
[13] [2004] O.J. No. 787 (QL).
[14] Burhoe v. Mohammed, [2008] O.J. No. 5723
[15] Negligence Act , R.S.O. 1990, c. N.1
[16] Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996.
[17] s 2(2.1)(9)(1) and s. 2(2.1)(10) and s. 7(1)(1)(i) of Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996.
[18] 2(2.1)(8) of Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996.
[19] s. 7.(1) (1) (i) and 2 (2.1)(9)(2) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996.
[20] s. 60(1) and 60(3) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996.
