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Authors: M. Steven Rastin and Catherine Mahony
The fundamental goal of the tort law system is to ensure that a plaintiff be restored to the position s/he would have been in absent the tortfeasor’s negligence. However, the system is also designed to prevent a windfall accruing to the injured plaintiff; in the process of restoring an injured party to their pre-accident status, s/he is not supposed to enjoy any greater benefit for having been involved in the accident. This is complicated by the situation of a protected defendant who enjoys not only the deductibility of collateral benefits but other statutory protections that its non-protected counterpart does not, which begs the question – where’s the fairness in that? And beyond all of these questions – what happens when the injured person is employed and enjoys the benefits of an employer-provided insurance policy or is eligible for WSIB benefits? How do all of these benefits interact with another and do they act in concert or counter to one another? This article aims to dispel some of the mystery surrounding the interplay of employment benefits and damages received for injuries suffered in an accident. Consideration of all collateral benefits being beyond the scope of this subject, the article will focus on those benefits specifically related to employment.
The Collateral Source Rule
At common law, the collateral source rule serves as an exception to the rule against double recovery. The rule has two components: first, that charitable gifts or donations received by an injured plaintiff will not be deducted from an award for income loss or loss of earning capacity1. The second exception to the rule against double recovery is the private insurance exception established in Bradburn v Great Western Railway Co.2, rooted in the principle that a negligent defendant should not benefit from a plaintiff's forethought and wisdom in securing private insurance in the event of disability. The exception, which dictates that the receipt of benefits from a private insurer is not deductible from damages for personal injury, has twice been maintained by the Supreme Court of Canada, in Ratych v Bloomer3 and Cunningham v Wheeler4 .
Ratych posits that collateral benefits are not deductible where a plaintiff can establish he has given something up in return for benefits (such as paying a policy premium), while Cunningham narrows the scope of deductibility by finding that, in certain circumstances, a trade off may be implied (for example through collective bargaining). Moreover, where a benefit provider retains a right of subrogation, no deduction is made for those benefits.
Interplay of Long Term Disability (LTD) Benefits with Motor Vehicle Accidents
In Ontario, LTD benefits are the primary source of recovery and must be exhausted before auto insurance benefits are payable. This includes group benefits, which means that an injured employee who is covered by an insurance policy with his or her insurer must first deplete such benefits, before seeking payment under the SABS. Whether tort damages can be offset against LTD payments ties into whether the LTD insurer has a right of subrogation.
In a disability contract of indemnity, the disabled claimant must account to the insurer for damages recovered from the tortfeasor where the amount received exceeds the amount required for full indemnity5. In Budnark v Sun Life Assurance Co of Canada6, the court held Sun Life was entitled to repayment of a portion of disability benefits where the net past loss of income recovered plus the disability benefits received exceeded 100% of the claimant’s past loss. Though subrogation rights for past loss of income were calculable, they were not so easily determined with respect to the award for future loss of income; thus the plaintiff was not required to account to Sun Life for her future loss of income.
An insurer will therefore be subrogated to a right of recovery where the claimant is fully compensated for his her past losses. With regard to future losses, courts have held the determination of an amount of damages to compensate for future loss of earning capacity is subject to uncertainty this is relevant when considering whether the plaintiff has in fact been fully compensated7.
Workplace Safety and Insurance Benefits (WSIB)
As a general rule, a person elects to receive either WSIB benefits or long term disability benefits, but cannot opt to receive both. Where LTD benefits have been elected but the person has already received some WSIB benefits, the person is obligated to repay the WSIB benefits, or vice versa. Even where entitlement to LTD benefits has survived the election for WSIB payments, the WSIB quantum would likely wipe out any obligation of the LTD insurer to pay.
An important case that deals with the interaction between WSIB money and LTD payments is Abdulrahim v. Manufacturers Life Insurance Company8, where the plaintiff had sustained serious injuries while at work and opted to receive WSIB benefits in regard thereto, while simultaneously applying for LTD benefits through his group policy. ManuLife asserted that it was entitled to a set-off for any WSIB monies paid, prompting the plaintiff’s lawyer to advise all parties that they had decided to "de-elect" WSIB benefits, and had chosen instead to proceed with a tort action against the manufacturer of the machinery that had caused the injury. WSIB demanded full repayment by certified cheque, and discontinued payments in the interim.
The central issue to be decided was the proper interpretation of the phrase "receives, or is entitled to receive", as used in the policy. Justice Himel applied the principles of interpretation relating to insurance contracts as set out by Mr. Justice Sopinka in Brissette v. Westbury Life Insurance Company9 and, after a lengthy analysis, concluded that the contract was not clear and should be interpreted in favour of the insured. Since the plaintiff had elected to proceed in tort, the WSIB benefit was not available to him.
Counsel should be mindful, however, that this decision was based on the wording of the particular policy before the Court. Counsel should carefully compare and consider the wording in your own client’s policy before embarking upon the high-risk strategy employed in Abdulrahim.
This is especially so when one considers the 2007 decision of Richer v Manulife Financial10, involving an employee who suffered injury in a workplace accident. Although the employee was insured under the employer’s group policy, which deemed him eligible for long term disability benefits, the plan also dictated that such benefits would be reduced by any amount of payment to which the employee was entitled under workers’ compensation legislation. The plaintiff commenced a claim for WSIB benefits, as required by his insurance policy, and was advised by WSIB that he was entitled to pursue a civil action for damages against the party responsible for his injuries. The plaintiff did so, giving rise to a motion for determination of whether the plaintiff would be entitled to receive LTD benefits under the policy after having commenced a civil claim and, if so, whether such benefits would be subject to offset of any WSIB benefits that the plaintiff would have been entitled to, had he not decided to proceed with a tort claim. Eventually the Court of Appeal reversed the trial judge’s initial finding, and concluded that the plaintiff was entitled to receive the long term disability benefits under the employment policy of which he was a part, subject to the offsets of the WSIB claim. Despite the fact that the WSIB deemed the plaintiff as having elected to pursue a civil claim rather than receive WSIB benefits, his application for benefits had not been finally determined. Thus, "[d]epending on the amount of damages he obtains in his action, the application he has made may still result in the payment of WSIB benefits to him"11.
The Court of Appeal concluded that the plaintiff had made his WSIB claim as required by the policy and, though the claim had not yet been determined, entitlement to receive payments was not dependent upon an application for compensation being approved, since the terms of the policy in question allowed for deduction of WSIB benefits.
The issue was recently revisited in RBC Life Insurance Co v Janson12, but in the context of whether it is the net or gross amount which a plaintiff must repay to WSIB. Based on the language of the insurance policy in play, the insurer was indeed entitled to the gross amount paid by WSIB on account of lost earnings, without any deduction for counsel fees.13 This emphasizes the need for counsel to carefully review and consider the specific language used in the policy relevant to their client before making any determination as to which way a client should proceed. Counsel should also be mindful of the investment they make in a client who may end up with a legal bill s/he is unable to pay, due to deductions from the amount awarded the client.
In discerning whether severance payments will be deductible from LTD benefits, the wording of the policy will be paramount. Generally speaking, most LTD contracts stipulate that they are entitled to deduct money paid by the employer to the employee by way of severance. Employers, on the other hand, have tried to claim a set-off for LTD payments when paying out severance packages. It is very common for employers to terminate workers who have been off for an extended period of time, with or without a severance. Plaintiffs’ lawyers running LTD actions will almost certainly be asked to provide advice on the interaction between LTD payments and severance packages.
Employers have been trying to deduct LTD payments from severance packages for a considerable period of time. The Supreme Court of Canada seemed to support their position in Sylvester v. British Columbia14, when the employer was allowed to take credit for disability payments and deduct those payments from damages for wrongful dismissal. Justice Major found that since the disability policy was entirely funded by the employer, there was no expectation that the employee could receive both benefits.
Many criticized Sylvester on grounds that the Courts were making it too easy for employers to terminate ill employees at reduced cost, but the potential harm caused by Sylvester was greatly limited by the Ontario Court of Appeal in Sills v. Children’s Aid Society of Belleville15, where Simmons, J.A., relying on an earlier decision of the Supreme Court16 concluded that, "[a]bsent an express provision precluding double recovery … the principles in Cunningham assist in determining whether an intention that there would be double recovery in the event of a wrongful dismissal can be inferred"17. The key is that benefits can be paid for directly or indirectly. Since most employees can argue that they accept lower payment in order to have their group benefits paid for by the employer, it can be said to be an indirect benefit.
Thus it appears that, where the recipient of the benefit has actually paid premiums for the LTD policy, and where there is nothing in the policy that indicates that an employee cannot receive both employment benefits and LTD benefits, so the employee will be entitled to receive both. Deduction of severance payment will hence turn on the language of the policy – does it include deduction for monies "earned", or is there an "all source limitation" clause, which deducts from any benefits received the amount of any "income" (ie: monies received in any capacity whatsoever)?
With respect to the question of employer cooperation, plaintiffs should not be surprised that most employers are reluctant to cooperate with litigants attempting to collect long-term disability benefits from insurance companies. In the first place, the employer and long-term disability company likely have a long-standing relationship.
More importantly, premiums paid by the employer are directly impacted by the number of active claimants and the money being paid out to those claimants. There are significant financial costs associated with having an employee collect disability benefits for years or even decades. However, notwithstanding these concerns, in our experience many employers are in fact supportive of their employees. Plaintiffs that are able to bring employers with them to trial to give evidence about positive work habits, long work history, positive relations with co-workers, and legitimate bona fide attempts to return to work, are perhaps the best evidence supporting a claim for long-term disability benefits.
A recent development that has arisen in some cases is the requirement being raised by at least one insurance company that the employer consent to any settlement regarding long-term disability claims. We have encountered one case where the employer specifically declined to contribute any money towards a severance package and, in fact, required that the employee in question resign from her job in order to finalize a settlement with her long-term disability company. It is our view that placing a plaintiff in such a position is clearly inappropriate and tying employment relationships and long-term disability claim settlements together may constitute bad faith conduct warranting punitive and aggravated damages. Counsel should attempt to protect our clients, where possible, from such inappropriate behaviour.
PROTECTED AND UNPROTECTED DEFENDANTSWho is protected
Defendants have, since the introduction of the no fault regime, been placed into two categories: protected and unprotected. A protected defendant is defined in section 267.3 of the Insurance Act as a person who is protected from liability by subsections 267.5(1), (3) and (5): the owner of an automobile, the occupants of an automobile and any person present at the incident.
Section 267.3 defines an "owner" as, "an operator as defined in subsection 16(1) of the Highway Traffic Act18 and a person who is a lessee for the purposes of section 192 of that Act". Effective March 1, 2006, a lessee became a protected defendant. Where previously a lessee could only be sued for his own negligence, a lessee can now be held vicariously liable for the negligent operation of a leased vehicle.
Section 224 defines an occupant of an automobile as a driver, passenger (carried in or on an automobile) and a person getting into, out of, or off of an automobile
Advantages of Having Protected Defendant Status
Protected defendants enjoy statutory immunity with respect to damages arising from income loss and loss of earning capacity suffered by the plaintiff in the first seven days after a motor vehicle accident. They are also shielded from payments in excess of 80% of the plaintiff’s net income loss or loss of earning capacity after the first seven days and before trial19 and are immune from liability for health care expenses, non pecuniary general damages and damages under the Family Law Act20, unless the plaintiff surpasses the threshold requirement. Thus, unless the injured person has died or has sustained a permanent serious disfigurement or a permanent, serious impairment of an important physical, mental or psychological function, the protected defendant will not be liable for the above noted damages.
Only protected defendants are entitled to the statutory deductible (which is $30,000 for non-pecuniary general damage claims and $15,000 for FLA loss of care, guidance and companionship claims). With the accident benefits amendments of September 1, 2010 (0 Reg 34/10), amendments to the Insurance Act were made to reflect changes to the tort deductibles: if the insured purchases optional enhanced coverage, the deductibles can be reduced to $20,000 and $10,000 for general damage claims and FLA claims respectively. Note also the vanishing deductible under Bill 198, under which, if the plaintiff’s general damages exceed $100,000, or if an FLA claimant's damages exceed $50,000, then no deductible is applied.
Finally, an uninsured person may not recover against a protected plaintiff21.
Where there is a mixture of protected and unprotected defendants, protected defendants are given a partial priority in that collateral benefits are deducted first from the damages for which protected and unprotected defendants are jointly and severally liable, and any excess is applied to the damages for which the unprotected defendants are solely liable. This priority applies only to past losses and not to future losses.
Note that a protected defendant loses his status if he is defended by an insurer that is not licensed to undertake automobile insurance in Ontario and has not filed an undertaking under section 226.1 of the Insurance Act22.
Treatment of Collateral Benefits Among Protected and Unprotected Defendants
The Ontario Superior Court of Justice has held that both protected and unprotected defendants are entitled to s. 267.8 deductions for long term disability benefits, because s. 267.8 does not distinguish between protected and unprotected defendants. In Burhoe v Mohammed23, the plaintiff was rear ended by the defendant in December, 2001 (Bill 59). The plaintiff received LTD benefits through his employer. The Defendant’s vehicle was insured by Coachman Insurance Company, which had excess coverage through Gerling Canada Insurance Company. These insurers were ascertained as the first loss insurers and the hotel’s policy acted as an excess insurer only.
The only mention of protected defendants is in s. 267.8(3). Given the non-exclusionary language in the other subsections of s. 267.8, Justice Wein held there was no differentiation between protected and unprotected defendants. Accordingly, the unprotected defendant, the hotel, was entitled to the trust assignment and deduction provisions of s. 267.8.
It is not a novel concept to treat the same person differently in the same case. Counsel will undoubtedly encounter situations involving a mixture of protected and unprotected defendants, or where a defendant wears many hats, as in cases of vicarious liability. A vicariously liable employer does not benefit from the negligent employee’s protected status under the Insurance Act24.
In Harrison, the plaintiff was a nurse employed by the defendant Krug, who also owned the vehicle carrying the plaintiff. The driver was an employee of Krug. As a result of the driver’s negligence during the course of his employment, the plaintiff was injured. Despite his immunity from liability under the HTA as owner of the vehicle, Krug, as the employer, was found to be vicariously liable for the driver's negligence.
The Supreme Court of Canada considered a similar issue of vicarious liability in Kearney, where the plaintiff was a passenger injured in a vehicle operated by a co-worker and owned by their employer, the Co-operators. In its capacity as owner, the Co-operators had statutory immunity, but it could not escape liability for the negligence of its employee.
Vollick v Sheard25 involved a bicycle motor vehicle collision under the Bill 59 regime. The defendant tow truck driver was in the course of his employment at the time of the collision. The plaintiff sued both the driver and the employer. The protection provisions under Bill 59 shielded only owners or occupants of a vehicle, or people present at the scene. The plaintiff was not precluded from recovering against the employer towing company, as it was not protected. The Ontario Court of Appeal confirmed the lower court decision, holding that although the tow truck company was protected as owner it was not protected as employer of the defendant driver.
The impact of Vollick was extensive. Municipalities could no longer rely on statutory protections in claims involving motor vehicles driven by municipal employees. Vollick has since been overruled for accidents occurring after October 1, 2003 (Bill 198). Under the Bill 198 regime, the definition of protected defendant was left unchanged but s.267.5(10.1) was introduced to end the damaging impact of Vollick on employers. It provides that iff the employee is a protected defendant, then the employer too becomes pseudo protected by virtue of the amended section with respect to its vicarious liability26. Going forward, a vicariously liable defendant is no more liable for damages than a protected defendant, but only where they are found jointly liable. The provision does not extend to the employer’s independent negligence.
Apportionment of Liability Damages Between Protected and Unprotected Defendants
Before the no fault regimes, joint and several liability was imposed by the provisions of the Negligence Act. The "threshold" concept was introduced in the OMPP regime in 1990, modifying joint and several liability rules for non motorists, who became severally liable for damages. Bill 164 shielded motorists from paying pecuniary losses and gaining the benefit of a deductible for non-pecuniary damages. It also introduced a provision for apportionment of damages (now s. 267.1) which was carried forward to Bill 198. Several liability no longer exists. Where there is a mixture of protected and unprotected defendants, section 267.7(1) prescribes the approach to apportionment and s. 267.7(3) ensures that liability is to be determined as though all parties responsible for the damages were parties to the action even where a person is not actually a party. This proviso thwarts a plaintiff’s attempts to avoid the effects of s. 267.7 by failing to sue a protected defendant.
Sullivan Estate v Bond27 outlines the proper approach to apportioning damages as between protected and unprotected defendants. Sullivan involved a single motor vehicle accident under the Bill 59 regime. Sullivan, one of the passengers, was killed, while two others were injured. The injured passengers and estate of the deceased passenger claimed damages against the driver, the owner and lessee of the vehicle and two taverns in which the parties had been drinking prior to the accident. One of the taverns brought a motion seeking the proper interpretation and application of s. 267.7. On appeal it was held that the protected defendants were not liable for any portion of the statutory deductible and the unprotected defendants were not liable for the full amount of the deductible, only the amount based on their percentage of liability. The Court of appeal found s 267.7 should be properly interpreted to mean:
(a) the unprotected defendants are jointly and severally liable with the protected defendants for the damages for non pecuniary loss for which the protected defendants are liable under the Act and;
(b) using the gross figure for non pecuniary loss the unprotected defendants are solely liable to the plaintiff for the amount, if any, by which the amount that they would have been liable to make contribution and indemnify the protected defendants under the Negligence Act exceeds the figure calculated in (a) above
As a result of Sullivan, cases involving protected and unprotected defendants will vary payments owing to the plaintiff based on differing degrees of fault. The unprotected defendant will be solely liable for the portion of the statutory deductible if its liability substantially exceeds that of the protected defendant.
Contributory negligence is also a factor which can negatively impact a plaintiff's recovery in a motor vehicle accident claim. Section 267.8(8) provides that reductions for collateral benefits shall be made after any apportionment of damages are required for contributory negligence. The combination of the deduction of collateral benefits and contributory negligence can effectually result in zero recovery to the plaintiff.
The no fault auto insurance regimes have created a distinction between motorists and non-motorists that can be likened to a class system of sorts. While seemingly straightforward in placing defendants in one of two categories - protected or unprotected - in practice the distinction is significant. For example, consider an injured motorist in a single motor vehicle collision. The motorist claims damages against the tavern owner for over serving him alcohol. The tavern does not gain the benefits provided under the Insurance Act. The motorist is then able to claim his full losses. In the case of a two car collision involving a defendant motorist who is protected and the tavern that is unprotected, damages are apportioned according to the joint and several liability provisions under the Insurance Act. Ultimately, the protected motorist enjoys certain statutory protections while the unprotected tavern owner does not. This disproportionate apportioning of damages in turn affects the plaintiffs recovery.
It must be emphasized that the guidelines discussed herein are just that – guidelines. As is evident from the review of the case law herein, the underlying principle is that any deductions that are made are largely fact specific. For that reason, then, it is critical that specific policy language and employment contracts be carefully scrutinized before relying on precedent law to engage a certain course of action. It would be unwise to draw any firm conclusions from the case law, given the narrow circumstances in which each case applies.
1 Boarelli v Flannigan (1973), 3 OR 69 CA.
2 (1874), 80 All ER Rep 195 (Ex Div).
3 (1990),1 SCR 940 (SCC).
4 (1994), 1 SCR 359 (SCC).
5 Gibson v Sun Life Assurance Co of Canada (1984), 45 OR (2d) 326 (HCJ). See also Confederation Life Insurance Co v Causton,  BCJ No. 1172 (CA), where the disabled claimant recovered full wage loss at trial but received only 75% of award after deduction of legal fees; Court held the claimant did not receive full indemnification for her loss thus no money was owed to the disability insurer.
6  BCJ No. 1960 (BCSC).
7 see Stitzinger v Imperial Life Assurance Co of Canada (1998), 39 OR 3d 566 (Gen Div), at para 21.
8 (2003), 65 OR (3d) 543 (SCJ).
9  3 SCR 87 at 92-93.
10 (2007), 85 OR (3d) 598 (ONCA).
11 Ibid at para 16.
12 2013 ONSC 3154.
13 Ibid at paras 26-29.
14  2 SCR 315.
15 (2001), 53 OR (3d) 577 (CA).
16 Cunningham v. Wheeler,  1 SCR 359.
17 At para. 45.
18 RSO 1990, c H 8.
19 S .267.5(1).
20 Damages for loss of care, guidance and companionship under section 61(2)(e) of the Family Law Act, RSO 1990 c F 3.
21 S. 267.6(1).
22 267.5(6). Note this does not apply to vicariously liable defendants discussed later
23 (2008), 97 OR (3d) 391 (OSCJ).
24 see for example Harrison v Toronto Motor Car Ltd and Krug (1945), OR 1 (ONCA); Co-operators Insurance Association v Kearney (1964), 48 DLR (2d) 1 (SCC).
25 (2005), 75 OR (3d) 621 (ONCA).
26 This amendment is not retroactive and does not apply to accidents that occurred between 1996 and October 1, 2003. See Carter Litigation Guardian of v Sanders,  OJ No. 3558 (OSCJ).
27 (2001), 55 OR (3d) 97, 148 OAC 86 (ONCA).