By M. Steven Rastin
Summer, 2006 | The Litigator

I. Introduction

How many plaintiffs' lawyers have been faced with this situation? A potential client comes in to see you. She tells you how she was returning home from work after working the midnight shift at a local factory when she was broadsided by an impaired driver who had one too many to drink at a local watering hole. She has been trying to struggle through on her own, but now the Long Term Disability benefits carrier says she’s recovered enough to return to work, and her employer is threatening to fire her if she doesn’t show up to work on Monday. She insists she’s not able to work, but a boatload of doctors hired by the LTD carrier and her own accident benefits insurer all tell her she’s fine. Now at the eleventh hour, she comes to you for help.

Unfortunately, this fact scenario is all too common in our offices. These facts raise a host of considerations involving the interrelationship between tort, LTD, and employment law. It would take an entire book to fully consider these issues, and I will not attempt to do so here. However, I would like to at least touch on the types of issues that ought to be considered when developing cases of this nature.

II. Sorting out Initial Entitlement Issues

It is not uncommon for the employer to continue an accident victim’s salary for a short period of time, but usually it does not take long before the employer realizes that the injured worker is not going to be able to return to work anytime soon and should be applying for benefits.

The fortunate worker will have access to a Long Term Disability policy. It is worth noting that a significant number of these policies are written and administered outside of the Province of Ontario and may contain terms that are at odds with the Ontario Insurance Act. For instance, we have encountered several situations where LTD insurers initially refuse to pay benefits based on a provision of the policy which requires to injured person to look first to auto insurance policies in cases where they were hurt in accidents involving a motor vehicle. In other cases, the LTD insurer has written to us asking that we advance a subrogated claim on their behalf against the tort defendant to recovery the money they are obliged to pay to the injured person. The problem with requests of this nature is that they are contrary to the Insurance Act, s.267(1)(c) which stipulates that,

267(1) The damages awarded to a person in a proceedings for loss or damage arising directly or indirectly from the use or operation of an automobile shall be reduced by, ...
(c) all payments that the person has received or that were or are available … 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.

The impact of this section is that it is the auto insurance insurers that get the benefit of the LTD payments rather than the reverse. As an aside, I would strongly caution against agreeing to advance a subrogated claim for the LTD insurer even in non-motor vehicle situations. The law relating to subrogation obligations is complex and beyond the scope of this paper, but the general principle is that subrogation obligations do not arise until such time as the insured person has been fully compensated. The interests of the accident victim and the LTD insurer are, therefore, not identical. It is easy to envision the situation where the accident victim would accept a settlement proposal that sees her interests addressed but which fails to meet the needs of the LTD carrier. In such situations, conflicts are inevitable, and plaintiffs’ lawyers would serve everyone’s interests by avoiding this potential mine.

III. Employment Termination Issues

A common problem facing accident victims is dealing with the employer who terminates her employment based on either abandonment or frustration of contract. In my experience, the common response of injured individuals and their lawyers is to sue for wrongful dismissal. However, with respect, where there are active tort or LTD matters in dispute, advancing a traditional wrongful dismissal claim may be a tactical mistake.

The core of most tort or LTD lawsuits is the contention by the claimant that she is unable to work due to illness and/or injuries sustained in the motor vehicle accident. However, the basis of traditional wrongful dismissal lawsuits is the fundamental assumption that the worker is ready, willing and able to work1, but the employer has nevertheless wrongfully terminated the contract without wrongful notice.

These two positions are contradictory. Astute lawyers who are defending tort or LTD lawsuits would be well advised to obtain a copy of any wrongful dismissal file including pleadings. Injured workers who argue in one lawsuit that they are disabled from working while arguing in another lawsuit that they are capable of working, but were wrongfully dismissed are exposing themselves to credibility issues and potentially harmful cross-examinations.

The reality is that employers are allowed to terminate contracts due to frustration in the right circumstances. If an employee is not able to fulfill the core obligations of her employment (such as showing up for work), she cannot be accommodated without undue hardship, and there is no reasonable likelihood that she will be able to meet the requirements of her employment contract in the foreseeable future, termination due to frustration is appropriate. Rather than litigate for wrongful dismissal, injured workers might consider using the employer's position to bolster their tort/LTD claims. Get the employer to confirm in writing that they have considered the situation carefully and they do not believe that the worker is able to return to gainful employment. Make sure that the employer considers the medical evidence, the workplace, accommodation issues, and alternative employment possibilities. A letter from the employer confirming that it has done everything possible to return the employee to work without success is a powerful weapon in any disability litigation. Employers should be only too happy to support the workers disability rather than face costly wrongful disability litigation. Injured workers should consider this option to save litigation costs. Remember also that wrongful dismissal awards are taxable while tort damages are not. In addition, workers will likely be happy to avoid the risk and expense another lawsuit.2 The downside of being terminated is that the worker will lose access to group benefits, but claims related to same can be recovered through the tort claim and it makes sense, therefore, to have that aspect of the claim crystallize sooner rather than later.

While employers may terminate disabled workers due to frustration at common law, plaintiffs' lawyers should be aware of recent developments under the Employment Standards Act. Until recently, the ESA allowed employers to terminate for frustration without paying severance pay. However, the recent Ontario Court of Appeal decision of O.N.A. v. Mount Sinai Hospital3 held that notwithstanding the exemptions set out in the Ontario Employment Standards Act, an employer MUST pay severance to an employee when the contract of employment is frustrated. The Ontario Legislature recently amended the ESA to comply with the ONA decision. Regulation 288/1, section 9, now stipulates that a contract cannot be terminated due to impossibility or frustration, if

(a) the impossibility or frustration is the result of,
(i) a permanent discontinuance of all or part of the employer's business because of a fortuitous or unforeseen event,
(ii) the employer's death, or
(iii) the employee's death, if the employee received a notice of termination before his or her death; or
(b) the impossibility or frustration is the result of an illness or injury suffered by the employee. O. Reg. 288/01, s. 9 (2); O. Reg. 549/05, s. 2.

These amendments and the ONA case open the door for claimants to recover severance pay even when they are legitimately terminated for being disabled from returning to gainful employment in the foreseeable future. Severance pay entitlement is calculated under the Act as one weeks pay for every year of service to a maximum of twenty-six weeks pay. However, only employees with five or more years service working for employers with an active payroll of $2.5 Million dollars per year are entitled to severance.

IV. Treatment of Severance Payments by LTD Carriers

If you do proceed with a claim for wrongful dismissal damages or severance pay, you should be aware that 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 that 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 inter-action between LTD payments and severance packages.

Employers have been trying to deduct LTD payments from severance package for a considerable period of time. The Supreme Court of Canada seemed to support their position in Sylvester v. British Columbia4 when the Supremes allowed the employer 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.

There was significant criticism to Sylvester as many felt that the Courts were making it all too easy for employers to terminate ill employees at reduced cost. The potential harm caused by Sylvester was greatly limited by the Ontario Court of Appeal in Sills v. Children's Aid Society of Belleville5 Simmons, J.A. relying on an earlier decision of the Supreme Court6 concluded,

Absent an express provision precluding double recovery, in my view, 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. I consider it reasonable to assume that an employee would not willingly negotiate and pay for a benefit that would allow her employer to avoid responsibility for a wrongful act. I consider it reasonable to infer that parties would agree that an employee would retain disability benefits in addition to damages for wrongful dismissal where the employee has effectively paid for the benefits in question.7

The key here is to note that benefits can be paid for directly OR INDIRECTLY. Since most employees can argue that they take less to have their group benefits paid for by the employer, it can be said to be an indirect benefit. These principles have been followed repeatedly in Ontario. See for example the recent decision of Dowling v. TNT Logistics North America.8

What about the reverse? LTD insurers claim they are entitled to severance packages? Their contracts often state this specially. However, recent authority suggests that they may not be on solid ground. Consider, for example the closing statement of Speigel,J. in Dowling,

There is nothing in the employment contract that would indicate that Dowling cannot receive both employment benefits and LTD benefits. Further, the provisions of the Plan are contractual provisions with the insurer, not with TNT. There are the usual provisions that state that an employee on LTD has his or her benefits reduced if an employee is earning money elsewhere. I do not interpret these provisions to apply to an employee receiving damages for wrongful dismissal; an insurer under an LTD policy would be hard-pressed to deduct these damages.9

While the issue has not been definitively determined, Dowling supports that argument that LTD carriers should not be able to deduct severance payments from weekly benefits. While some might argue that this amounts to double recovery, my view is that an interpretation of this nature is perfectly consistent with the principles set out by the Supreme Court of Canada in Ratych v. Bloomer. 10 Further, from an equitable standpoint, it is difficult to understand why a long-term disability payment should be able to claim all of the benefit for a severance payment which is intended to compensate a worker for years of loyal service. Besides, the injured person is actually far from "whole". Not only has she lost access to secure employment, group benefits, and a possible pension, but she is also only receive part of the wages from her LTD carrier that she was earning when she was working.

V. Treatment of LTD Payments in Tort Cases

Another challenge that often faces accident victims is how to treat ongoing LTD payments when trying to resolve tort cases. The tort insurer is clearly entitled to a deduction for LTD payments that have been made to date. But what about future LTD benefits? In my experience, if a plaintiff is continuing to receive LTD benefits, the tort insurer simply assumes that those benefits will continue indefinitely into the future and takes a deduction equivalent to the present value of those benefits off of any future income loss calculation. While at first blush, this practice might seem reasonable, the fact is that the tort insurer is effectively off-loading the risk associated with the continuing LTD payment onto the Plaintiff.

It is no sure thing that LTD payments will continue indefinitely into the future. Why, therefore, should the Plaintiff bear all of the risk and cost associated with litigating against the LTD insurer if benefits are terminated? A quick review of the case law shows that it is the tort insurer, rather than the accident victim, that should bear the risk. Consider, for instance, the Court of Appeal decision of Coderre v. Lambert11 where Justice Austin argued that s.267(1)(c) of the Insurance Act should be interpreted so that a term of judgment was that Plaintiff assign to the paying defendants any interest he may have in the claim against the insurer for disability benefits, such assignment to include an agreement to co-operate in the prosecution of any such claim. The majority refused to go this far, primarily because no one appears to have made an issue as to whether there was any risk that the future benefits were at risk of not being paid.

The matter was squarely addressed by the Court of Appeal in Chrappa v. Ohm.12 In this case, the Court had to deal with how to deal with future LTD payments in valuing a tort case. There was considerable evidence led in this case establishing that the Plaintiff was currently receiving LTD benefits, but these benefits could possibly be terminated in the future. The Court found that the Defendant had not shown that the plaintiff was entitled to future payment of disability benefits. To avoid double recovery, the trial judge imposed a Cox v. Carter order requiring the plaintiff to hold in trust for the defendants the future long-term disability payments and pay them over to the insurer (to the extent of the judgment). The interesting thing about this approach is that the risk and cost associating with litigating a future termination of LTD benefits falls to the defendant insurer rather than the plaintiff. The Plaintiff gets the benefit of receiving the present value of her income loss claim immediately and no longer needs to worry about whether the LTD insurer will decide to terminate benefits at some point in the future for some unspecified or unknown reason.

Tort insurers will routinely attempt to pass this risk back to the plaintiff in mediations or during settlement negotiations. However, the cost associated with taking back this risk should be a negotiation item. It may be advantageous for the plaintiff to settle a tort action and give a deduction for all future LTD payments, but that deduction should not be 100%. Tort insurers want to close their files. The last thing they want to be forced to keep a case open for twenty or thirty years to administer a Cox v. Carter trust. Plaintiffs’ counsel should consider these issues in settlement negotiations. It is also worth considering whether LTD payments will be taxable as received. There may be significant financial differences between the tax-free benefit of a tort settlement paid by way of a lumpsum settlement and the taxable benefits that your client will have to pay if she receives periodic payments for twenty years or more.

Practical strategies concerning these issues will vary depending on the unique facts of each case. At a minimum, good accounting advice is probably a must. In some cases, you may even want to consider inviting the LTD carrier to global settlement mediations. Having everyone at the table gives you your best chance and arriving at a final settlement for all parties. However, there are also risks involved in putting all the insurers in a room together where they can share information about the weaknesses of your client’s case. Again, this strategy is not appropriate in all cases, but it is something that you should consider.


The interaction between tort, LTD, and employment law is a minefield. The possible variations and sub-issues are simply too numerous to count. There are however some general considerations that lawyers should keep in mind when representing injured workers. Where is the best place to seek payment of a benefit? Is the benefit taxable in one forum and non-taxable in another? Would pursuing litigation in one area (like wrongful dismissal) by contrary to the theory of the plaintiff's case in another area (like the tort action)? Is the insurer REALLY entitled to the deduction that it is claiming? Rather than give a deduction, should you instead offer to give a Cox v. Carter trust? If you client is willing to take on a risk, what reward is she getting for it? Can your client resolve all of her issues in one law suit rather than multiple actions against the tortfeaser, LTD carrier and employer?

At the end of the day, the goal should be to resist giving the insurer improper deductions and expose your client to as little litigation as possible to ensure that she is not forced to assume risks that should properly remain with the insurer.

1 Perhaps with some accommodation required.

2 After the tort and Long Term Disability litigation

3 [2005] O.J. No. 1739 (C.A.)

4 (1997), 146 D.L.R. (4th) 207 (S.C.C.)

5 (2001), 53 O.R. (3d) 577 (C.A.)

6 Cunningham v. Wheeler, 1994 CanLII 120, [1994] 1 S.C.R. 359.

7 At para. 45.

8 (May 24, 2004, Justice G. Speigel, 2005 CanLII 18293 (Ont. S.C,)

9 Para 13 (emphasis mine).

10 [1990] 1 S.C.R. 940.

11 (1993), 14 O.R. (3d) 453.

12 (1998), 38 O.R. (3d) 651; see also Roycraft v.Kyte [1999] O.J. No. 296 where Regional Senior Justice Shaughnessy ordered a Cox v. Carter trust whereby the Plaintiff paid LTD benefits to the defendant as received.