Collateral Benefit Deductibility Update: Meloche v. Mckenzie

In Ontario, when a person loses income or the capacity to earn income as a result of an auto related injury caused by the negligence of another, he or she can sue the negligent person for those losses.

If the plaintiff is successful, subject to some restrictions, the negligent defendant must pay to the plaintiff an amount equal to past and/or future loss of income and/or earning capacity. However, this award for loss of income/earning capacity may be reduced in certain cases. For example, the Insurance Act1 and its regulations permit the defendant to receive credit for amounts that the plaintiff has already received or is eligible to receive from third parties for loss of income and/or earning capacity. These third party payments are generally referred to as collateral benefits and the credit is referred to as a collateral benefit deduction.

While straightforward on its face, courts have nonetheless struggled with the practical implementation of this scheme. Judges have found it difficult to determine whether certain types of payments are intended to compensate for a loss of income and/or earning capacity. To compound matters, there have been four Ontario motor vehicle insurance regimes since 1990: OMPP2, Bill 164-3, Bill 59-4, and Bill 198-5; each successive scheme differing slightly, but importantly, from the previous.

Since 1990 there has been an ongoing debate about whether a defendant ought to receive a credit when the plaintiff has received or is eligible to receive CPP Disability Benefits. This is because CPP Disability Benefits are nonindemnity in nature. In other words, eligibility for the benefits is not predicated on one being employed at the time he or she is injured, or on suffering a pecuniary loss.6

CPP Disability Benefits are therefore difficult to categorize. For several years lawyers and judges struggled to answer the question: should CPP Disability Benefits be deductible as a collateral benefit?

In 1998, the Court of Appeal appeared to have settled this question in Cugliari v. White7, a case which was decided under the OMPP regime. However, a recent trial level decision, Meloche v. McKenzie8, has reopened this issue – at least as it applies to actions commenced under Bill 59.

Meloche v. McKenzie was a Bill 59 personal injury action arising out of a car accident that occurred on August 20, 2001. The defendant admitted liability for the accident and in April 2005 a trial was required to assess the damages. The plaintiff brought an in-trial motion to determine whether certain payments that he had received were deductible from the damage award; one of those payments was a CPP Disability Benefit.

The trial judge ruled that CPP Disability Benefits were deductible as collateral benefits under Section 267.8(1) of the Insurance Act as it existed under Bill 59.

The action in Meloche settled shortly after the ruling; consequently the decision was not reviewed by the Court of Appeal. In fact, the ruling has yet to be judicially considered, followed or cited. Nonetheless, this case has had a significant impact on the plaintiffs’ bar, especially as it relates to resolving outstanding Bill 59 files.

In Bill 59 actions, the defence bar now regularly uses Meloche to support its contention that the defendant should receive credit for CPP Disability Benefits that the plaintiff has received or is eligible to receive from the Canadian government. However, upon careful review, Meloche does not form a strong foundation for such a contention.

This article will review the case law and history leading up to Meloche, will analyze the decision itself and, for completeness, will outline the law in this area under the current regime, Bill 198.

A History of Collateral Benefit Deductions

It is a basic tenet of tort law that the wronged party should recover his or her loss, but no more than that. Tort damages are generally intended to put the injured person where he or she would have been but for the accident; they are not designed to punish the tortfeasor. For example, if the plaintiff’s employer continued to pay the plaintiff’s salary while he or she was injured and unable to work, the plaintiff could not also recover that amount from the negligent defendant unless, of course, the plaintiff was under a repayment obligation. This is the rule against double recovery in its simplest formulation. However, there is an exception to this rule at common-law: the collateral source rule.

The Collateral Source Rule

There are two facets to the collateral source rule. The first provides that post-accident income that an injured person receives as a result of public or private support systems (e.g. charitable gifts, welfare or unemployment benefits) should not be considered when calculating damages for income loss or loss of earning capacity.

In 1973, the Ontario Court of Appeal in Boarelli v. Flannigan9 acknowledged the collateral source rule in the following terms:
“Moneys received by an injured party as a result of a private or public benevolence have never been taken into consideration in assessing damages for loss of income or earning capacity.”

The other facet of the collateral source rule is the private insurance exception. English and Canadian courts have held for more than a century that a defendant should not benefit from an injured party’s wisdom and forethought in securing private insurance to protect his or her income stream in a time of disability (e.g. Long Term Disability insurance).

The private insurance exception was reviewed by the Supreme Court of Canada in Ratych v. Bloomer10 and Cunningham v. Wheeler.11 In both cases the Supreme Court reiterated the general principle against double recovery, but explicitly maintained the private insurance exception.

Prior to October 23, 1989, the application of the collateral source rule meant that benefits received by an Ontario motor vehicle accident victim from a collateral source (i.e. one unconnected to any claim against the negligent party) were not deducted from damages for income loss or loss of earning capacity. This occasionally resulted in double recovery.

This double recovery received criticism from various sources, including the government-commissioned “Osborne Report” (“Report of Inquiry into Motor Vehicle Accident Compensation in Ontario (1988))”.

The Osborne Report reviewed the issue of the deductibility of collateral benefits and, in particular, the effect of the collateral source rule as set out in Boarelli. It concluded at p. 438 that the “collateral source rule as presently applied in Ontario is wasteful in practice and cannot be justified in principle. It ought to be changed.”

The OMPP Regime

Shortly after the Osborne Report, the Ontario Legislature enacted the OMPP regime, which included s. 267(1) of the Insurance Act.12

Section 267(1) entitled tortfeasors to receive credit for certain payments that the motor vehicle accident victim had received or was eligible to receive from other sources. It read as follows:
267.(1) The damages awarded to a person in a proceeding for loss or damage arising directly or indirectly from the use or operation of an automobile shall be reduced by,

  1. all payments that the person has received or that were or are available for no-fault benefits and by the present value of any no-fault benefits to which the person is entitled;
  2. all payments that the person has received under any medical, surgical, dental, hospitalization, rehabilitation or long-term care plan or law and by the present value of such payments to which the person is entitled;
  3. all payments that the person has received or that were or are available for loss of income under the laws of any jurisdiction or under an income continuation benefit plan and by the present value of any such payments to which the person is entitled; and
  4. all payments that the person has received under a sick leave plan arising by reason of the person’s occupation or employment.

Cugliari v. White

The question whether CPP Disability Benefits were deductible under the OMPP regime was addressed in Cugliari v. White, a personal injury action arising out of a June 19, 1990, auto collision.

A jury had awarded the plaintiff $30,000.00 in non-pecuniary damages and $30,450.00 in damages for past loss of income. No award was made for future loss of income.

The plaintiff had received approximately $20,000.00 in CPP Disability Benefits prior to the trial. The trial judge held that this amount should be deducted from the global award of damages.13

The Divisional Court reversed, holding that the Disability Benefits were not deductible under the Insurance Act14. The defendants appealed to the Court of Appeal.

Plaintiffs’ counsel argued at the Court of Appeal that because the payments were non-indemnity in nature, they should not be deducted as a collateral benefit.

Upholding the decision of the Divisional Court, Charron J.A., writing for the court, stated at paragraph 18:
“I agree that the categorization of payments as either indemnity or non-indemnity is not the determinative test. The deductibility of collateral benefits pursuant to s.267 of the Act must be governed by the words of the statute. Nonetheless, I find the distinction helpful since, in my view, the words “payments… for loss of income” do import a notion of indemnification. Further, it is instructive to consider the existing common law principles at the time of the enactment in order to ascertain the legislative purpose. In my view, it is clear that s.267 was enacted for the purpose of eliminating certain instances of double recovery. The legislative purpose is part of the context which must be considered in interpreting the statute.”
[19] When one considers the legislative purpose of eliminating double recovery, I fail to see how it would be advanced by deducting CPP Disability Benefits when the conditions for eligibility do not require that the recipient be employed at the time of the disability or that the recipient demonstrate a pecuniary loss. It is only by coincidence that double recovery would be eliminated in certain cases. For the same reasons, CPP Disability Benefits can arguably be seen to compensate for the loss of earning capacity but they cannot reasonably be construed as intending to indemnify a disabled person for loss of income.
[20] Finally, I agree with the respondent that, had the Legislature intended CPP Disability Benefits to be deductible, it could easily have expressly so provided. The common law rights which existed prior to the enactment of s. 267 should only be displaced by clear and unambiguous language.”
Cugliari appeared to settle matters regarding the deductibility of CPP Disability Benefits; however, it was not the end of the story.

The Bill 164 Regime

On January 1, 1994 the OMPP regime was replaced with Bill 164. Bill 164 created a class of protected defendants15 against whom there could be no recovery in tort for economic losses.16 S. 267(1) was amended to remove the defendant’s right to deduct the benefits outlined in the former s. 267(1). Therefore the collateral source rule and private insurance exception again became the default position in auto-related tort claims.

However, the collateral source rule and the private insurance exception only became relevant under Bill 164 if the plaintiff could commence a tort action for pecuniary damages against a non-protected defendant, since economic loss was no longer recoverable from a protected defendant.

The Bill 59 Regime

For accidents on or after November 1, 1996 the Ontario motor vehicle accident recovery regime was changed yet again; this was Bill 59. Much like OMPP, Bill 59 expressly allows for the deduction of many collateral benefit payments which are available to or received by the plaintiff before trial. It also provides in s. 267.8(a) that any amounts which are received on account of future collateral benefits are subject to a trust in favour of the defendant.

Under Bill 59, s. 267.8 of the Insurance Act reads as follows:
267.8 (1) 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.

This provision is very similarly worded to the OMPP provision which was considered in Cugliari. The most notable change is that the section permits the deduction of benefits for “loss of earning capacity”.

Between the enactment of Bill 59 on November 1, 1996 and the Meloche decision in April 2005, there were no reported cases in which the deductibility of CPP Disability Benefits was considered. The general consensus among the personal injury bar was that this issue had been decided by Cugliari and that CPP Disability Benefits were therefore not deductible.

Meloche v. Mckenzie

In Meloche, the court held that the wording of s. 267.8(1) was sufficiently different from that used during the OMPP regime so as to render CPP Disability Benefits deductible under Bill 59. It further held that the Bill 198 amendments, which make CPP Disability Benefits explicitly deductible, simply clarified existing law and did not change it.

The Meloche decision, with respect, was wrongly decided for the following reasons:

  1. No explicit reference to CPP Disability Benefits in Bill 59 – If the Legislature intended to remove the common law right of accident victims to recover in tort and retain their CPP Disability Benefits, it could have easily done so. As was made clear in Cugliari, an injured party’s commonlaw rights as they existed prior to October 23, 1989 should only be displaced by clear and unambiguous statutory language. Section 267.8(1) under Bill 59 was not clear and unambiguous and, therefore, CPP Disability Benefits should continue to be non-deductible under that regime.
  2. No legislative intent to make CPP Disability Benefits deductible – A review of Hansard reveals that there was no mention of the deductibility of CPP Disability Benefits in the legislature prior to the enactment of Bill 59. The absence of such debate indicates that the amendments to s. 267.8(1) were not enacted in contemplation of making CPP Disability Benefits deductible.
  3. CPP Disability Benefits are deductible under Bill 198 – Bill 198 explicitly makes CPP Disability Benefits deductible for accidents occurring on or after October 1, 2003.17 Bill 198 expressly removed the common-law rights of accident victims to retain their CPP Disability Benefits and to also recover in tort. Query why this change would have been necessary if the benefits were already deductible under Bill 59. The court’s view in Meloche that the legislature was merely clarifying existing law does not hold up to scrutiny. The more likely explanation is that legislators realized that they had failed to include CPP Disability Benefits as among the deductible items when drafting Bill 59, and wanted to ensure that those benefits did not remain non-deductible after October 1, 2003.
  4. The purpose of insurance legislation is consumer protection – In Smith v. Cooperators General Insurance Co.18, the Supreme Court of Canada held that consumer protection is one of the main objectives of insurance legislation. Although Smith related to accident benefits specifically, the comments are equally applicable to the deductibility of CPP Disability Benefits. In Smith, the majority held that the consumer protection approach “obliges the courts to impose bright-line boundaries between the permissible and the impermissible without undue solicitude for particular circumstances that might operate against claimants in certain cases”. Section 267.8 (1) of the Insurance Act, therefore, must be interpreted and applied in accordance with this approach. Interpreting the ambiguity in s. 267.8(1) against the injured party violates the consumer protection approach laid down in Smith.19
  5. Deducting CPP Disability Benefits only coincidentally reduces double recovery – Eligibility for CPP Disability Benefits does not require that the injured party be employed at the time of injury. There is also no requirement that one suffer a pecuniary loss to be eligible for the benefit. The amount of the benefit payable under the Canada Pension Plan is not based solely on pensionable earnings that are earned during the course of employment, but includes a flat rate payable to all recipients. These benefits are in the truest sense non-indemnity payments.

Deducting these payments from a loss of income or earning capacity award does not appear to coincide with the legislative purpose of eliminating double recovery. It is only by coincidence that the deduction of CPP Disability Benefits eliminates double recovery in certain cases.

Bill 198 Amendments

In 2002, Queen’s Park passed Bill 198. It applies to claims for bodily injury arising from motor vehicle accidents occurring on or after October 1, 2003. Bill 198 amended the regulations under the Insurance Act. By enacting new regulations, Bill 198 explicitly makes CPP Disability Benefits deductible from any award for damages for loss of income or loss of earning capacity for accidents that occur on or after October 1, 2003.
The common law in Ontario allows injured plaintiffs to collect CPP Disability Benefits from the Canadian government and to still recover their entire loss of income/ earning capacity from a negligent defendant. The courts have made it clear that those common law rights should only be removed through explicit action by the legislature. In fact, the legislature saw fit to make CPP Disability Benefits explicitly deductible as a collateral benefit for car accidents occurring on or after October 1, 2003. If the legislature had intended to remove the common law right of accident victims to recover in tort and retain their CPP Disability Benefits for accidents which occurred between November 1, 1996 and September 30, 2003, it could easily have done so.
Since the wording of s.267.8 (1) of the Act under Bill 59 is ambiguous at best with respect to the deductibility of CPP Disability Benefits, the principles in Cugliari and Smith dictate that CPP Disability Benefits should not be deductible.

In short, one is justified in questioning the correctness of the decision in Meloche and, absent an explicit endorsement of the ruling by the Court of Appeal, plaintiffs’ counsel should continue to maintain that CPP Disability Benefits are not deductible when they are attempting to resolve their outstanding Bill 59 actions.

  1.  Insurance Act R.S.O. 1990 c. I. 8.
  2. The Ontario Motorist Protection Plan, Insurance Statute Law Amendment Act, 1990, S.O. 1990, c. 2 (Bill 68).
  3. Act to Amend the Insurance Act, S.O. 1993, c. 10 (“Bill 164”).
  4. Automobile Insurance Rate Stability Act, 1996 (Bill 59).
  5. Keeping the Promise for a Strong Economy Act (Budget Measures), 2002, S.O. 2002, c. 22 (Bill 198).
  6. CPP Disability Benefits are available to people who have made the required formula contributions to the Canada Pension Plan, and whose disability prevents them from working at any job on a regular basis. The disability must be long lasting or likely to result in death. The amount of the benefit payable under the CPP is not based solely on pensionable earnings that have been earned during the course of employment, and includes a flat rate payable to all recipients.
  7. [1998] O.J. No. 628 (C.A.).
  8. [2005] O.J. No. 3761 (S.C.J.)
  9. (1973), 3 O.R. 69 (C.A.) at p. 73.
  10. [1990] 1 S.C.R. 940 (S.C.C.)
  11. [1994] 1 S.C.R. 359 (S.C.C.)
  12. The OMPP regime applied to accidents occurring on or after June 22, 1990. However s. 267(1) had retroactive effect and therefore applied to accidents occurring or after October 23, 1989.
  13. Cugliari v. White, (1994), 21 O.R. (3d) 225 (Gen. Div.).
  14. Cugliari v. White, (1996), 31 O.R. (3d) 42 (Div. Ct.).
  15. An owner, operator, or someone otherwise present at the accident scene.
  16. Including past and future loss of income and loss of earning capacity.
  17. O. Reg 461/96, amended to O. Reg 381/03 of the Insurance Act (Court Proceedings for Automobile Accidents Occurring on or after November 1, 1996), section 5.2.
  18. [2002] 2 S.C.R. 129 (S.C.C.)
  19. See Sullivan, Driedger on the Construction of Statutes, 3rd ed. (Toronto: Butterworths, 1990), at page 376: Where reasonable doubts or ambiguities arise, they are to be resolved in favour of the claimant. The courts’ primary concern is ensuring that the legislative benefits reach the persons for whom they were designed. (See Abrahams v. A.G. Canada (1983), 142 D.L.R. (3D) 1, AT 7-9 S.C.C.)

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