Back

The Deduction Issue in Tort Recovery

September 28, 2021

Ontario

,

Canada

Issue

When does the private insurance exception apply to prevent health care benefits from being deducted from a personal injury damages award?

Conclusion

Recovery in tort is dependent on the plaintiff establishing injury and loss resulting from an act of misfeasance or nonfeasance on the part of the defendant, the tortfeasor. There is no reason why a tortfeasor should benefit from the sacrifices made by a plaintiff in obtaining an insurance policy to provide for lost wages. Tort recovery is based on some wrongdoing. It makes little sense for a wrongdoer to benefit from the private act of forethought and sacrifice of the plaintiff. (Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee)

There is no single marker to sort which benefits fall within the private insurance exception. One widely accepted factor relates to the nature and purpose of the benefit. The more closely the benefit is, in nature and purpose, an indemnity against the type of loss caused by the defendant’s breach, the stronger the case for deduction. The converse is also true. Whether the plaintiff has contributed to the benefit remains a relevant consideration, although the basis for this is debatable. In general, a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and the plaintiff has contributed in order to obtain entitlement to it. There is room in the analysis of the deduction issue for broader policy considerations such as the desirability of equal treatment of those in similar situations, the possibility of providing incentives for socially desirable conduct, and the need for clear rules that are easy to apply. (IBM Canada Limited v. Waterman)

In Noiles v. MTD Products Inc., the Court held that the Plaintiff's private insurance benefits (including health care benefits) were not to be deducted from the damages awarded to him as a result of an accident he sustained from a defective tire rim.

In Finnemore v Hyde et al, the Court held that the Plaintiff's pension benefits (including health benefits under his union's benefits plan) were not deductible from the damages awarded to him as a result of an automobile accident which rendered him disabled and unable to work.

In Dorion v. Ecodevelopments Windsor Inc., the Court held that the Plaintiff's sick leave benefits accessed from his employer were to be deducted from the damages award he received as the result of a slip and fall accident. In this case, the Court did not find that the Plaintiff had proven that he had paid any kind of insurance premium in respect of the sickness absence benefits he received under his collective agreement.

Law

In Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee, [1994] 1 SCR 359 1994 CanLII 120 (SCC), the Supreme Court of Canada held that the principle of recovery in an action for tort is to compensate the injured party as completely as possible for the loss suffered as a result of negligent action or inaction of a defendant. However, the plaintiff is not entitled to a double recovery for any loss arising from the injury. Nevertheless, payments received for loss of wages pursuant to a private policy of insurance should not be deducted from a plaintiff's loss of wages claim. A tortfeasor should not benefit from the sacrifices made by a plaintiff in obtaining an insurance policy to provide for lost wages. Tort recovery is based on some wrongdoing and it makes little sense for a wrongdoer to benefit from the private act of forethought and sacrifice of the plaintiff:

For over 119 years, the courts of England and Canada have held that payments received for loss of wages pursuant to a private policy of insurance should not be deducted from the lost wages claim of a plaintiff. The first question to be considered is whether the rationale for this exemption persists. In my view there are convincing reasons both for the existence of the policy and for its continuation.

At the outset, it may be well to state once again the principle of recovery in an action for tort. Simply, it is to compensate the injured party as completely as possible for the loss suffered as a result of the negligent action or inaction of the defendant. However, the plaintiff is not entitled to a double recovery for any loss arising from the injury. How then has the insurance exception arisen? It was first formally recognized in Bradburn v. Great Western Rail Co., [1874-80] All E.R. Rep. 195 (Ex. Div.). In that case the plaintiff had been injured as a result of the negligence of the defendant railway company. The plaintiff had received a sum of money from a private insurer to compensate him for lost income as a result of the accident. It was held that the plaintiff was entitled to full damages from the defendant as well as the payment from the insurer. That is to say, there was to be no deduction of the insurance proceeds received from his recovery from the defendant. This result was explained by stating that there would be no justice in setting off an amount to which the plaintiff had entitled himself under a contract of insurance such as any prudent man would make. The justification for the rule is explained in these words at p. 197 in the reasons of Pigott B.:

. . . I think that there would be no justice or principle in setting off an amount which the plaintiff has entitled himself to under a contract of insurance, such as any prudent man would make on the principle of, as the expression is, "laying by for a rainy day." He pays the premiums upon a contract which, if he meets with an accident, entitles him to receive a sum of money. It is not because he meets with the accident, but because he made a contract with, and paid premiums to, the insurance company, for that express purpose, that he gets the money from them. It is true that there must be the element of accident in order to entitle him to the money; but it is under and by reason of his contract with the insurance company, that he gets the amount; and I think that it ought not, upon any principle of justice, to be deducted from the amount of the damages proved to have been sustained by him through the negligence of the defendants.

...

Later the basis for the exemption was shifted from the causal reason set out in Bradburn to one based on the fact that the plaintiff had paid for the insurance benefit and that benefit thus paid for should not enure to the benefit of the defendant. This was the approach adopted by Asquith L.J. for the Court of Appeal in Shearman v. Folland, [1950] 1 All E.R. 976, at p. 978:

What in a given case is, and what is not, "collateral"? Insurance affords the classic example of something which is treated in law as collateral. Where X is insured by Y against injury which comes to be wrongly inflicted on him by Z, Z cannot set up in mitigation or extinction of his own liability X's right to be recouped by Y or the fact that X has been recouped by Y: Bradburn v. Great Western Ry. Co. [supra] and Simpson v. Thomson [(1877), 3 App. Cas. 279; 38 L.T. 1; 29 Digest 290, 2355]. There are special reasons for this. If the wrongdoer were entitled to set-off what the plaintiff was entitled to recoup or had recouped under his policy, he would, in effect, be depriving the plaintiff of all benefit from the premiums paid by the latter and appropriating that benefit to himself.

This reasoning was adopted by the House of Lords in Parry v. Cleaver,infra.

...

I think the exemption for the private policy of insurance should be maintained. It has a long history. It is understood and accepted. There has never been any confusion as to when it should be applied. More importantly it is based on fairness. All who insure themselves for disability benefits are displaying wisdom and forethought in making provision for the continuation of some income in case of disabling injury or illness. The acquisition of the policy has social benefits for those insured, their dependants and indeed their community. It represents forbearance and self-denial on the part of the purchaser of the policy to provide for contingencies. The individual may never make a claim on the policy and the premiums paid may be a total loss. Yet the policy provides security.

Recovery in tort is dependent on the plaintiff establishing injury and loss resulting from an act of misfeasance or nonfeasance on the part of the defendant, the tortfeasor. I can see no reason why a tortfeasor should benefit from the sacrifices made by a plaintiff in obtaining an insurance policy to provide for lost wages. Tort recovery is based on some wrongdoing. It makes little sense for a wrongdoer to benefit from the private act of forethought and sacrifice of the plaintiff.

The Court went on to consider whether the insurance exception also applies where disability benefits are not obtained privately but rather pursuant to a collective bargaining agreement.

The majority held that to say that the exception only applies to private insurance where actual premiums are paid to an insurance company would create barriers that are unfair and artificial. It would mean that top management and professionals who could well afford to purchase their own insurance would have the benefit of the private insurance exception, while those who made the same provision and made relatively greater financial sacrifices to provide for disability payments through their collective bargaining agreement would be denied the benefits of the exception, which would be manifestly unfair:

To say that the exception applies only to private insurance, where actual premiums are paid to the insurance company, would create barriers that are unfair and artificial. It would mean that top management and professionals who could well afford to purchase their own insurance would have the benefit of the insurance exception, while those who made the same provision and made relatively greater financial sacrifices to provide for the disability payments through their collective bargaining agreement would be denied the benefits of the insurance exception. This would be manifestly unfair. There is no basis for such a socially regressive distinction.

The majority held that the benefits for which employees have bargained in good faith should not be sacrificed simply because the mode of payment for the disability benefit is different from that in private insurance contracts. Where evidence is adduced that an employee-plaintiff has paid in some manner for his or her benefits under a collective agreement or contract of employment, the insurance exception should apply. It would be unjust to deprive employees of the benefits which, through prudence and thrift, they have provided for themselves:

Union representation and collective bargaining are recognized as a means for working people to protect their interests. The benefits for which employees have bargained in good faith should not be sacrificed simply because the mode of payment for the disability benefit is different from that in private insurance contracts. Where evidence is adduced that an employee-plaintiff has paid in some manner for his or her benefits under a collective agreement or contract of employment, the insurance exception should apply. It would be unjust to deprive employees of the benefits which, through prudence and thrift, they have provided for themselves.

The manner of payment may be found in evidence pertaining to the provisions of a collective bargaining agreement, or in a direct payroll deduction. The presence or absence of a third-party carrier for the insurance will not affect the non-deductibility of the benefits from the wage claim:

Further, the presence or absence of a third party carrier for the insurance will not affect the non-deductibility of the benefits from the wage claim. A requirement of a third-party carrier as a necessary condition for non-deductibility was considered, and in my view properly rejected, by the House of Lords in Parry v. Cleaver. At page 558, Lord Reid asks and answers this question:

Then I ask ‑- why should it make any difference that he insured by arrangement with his employer rather than with an insurance company? In the course of the argument the distinction came down to be as narrow as this: if the employer says nothing or merely advises the man to insure and he does so, then the insurance money will not be deductible; but if the employer makes it a term of the contract of employment that he shall insure himself and he does so, then the insurance money will be deductible. There must be something wrong with an argument which drives us to so unreasonable a conclusion.

It is often more economical for large corporations to self-insure than to purchase insurance from a third party carrier. Risk can be spread among the employees, who are the policy-holders of the self-insurance. The law should not discourage the efficiencies of self‑insurance within large corporations or government agencies.

In IBM Canada Limited v. Waterman, [2013] 3 SCR 985 2013 SCC 70 (CanLII), the Supreme Court of Canada reviewed the law regarding the deductibility of benefits. In order to discern when the private insurance exception applies, the Court provided these guidelines:

[76] From this review of the authorities, I reach these conclusions:

(a) There is no single marker to sort which benefits fall within the private insurance exception.

(b) One widely accepted factor relates to the nature and purpose of the benefit. The more closely the benefit is, in nature and purpose, an indemnity against the type of loss caused by the defendant’s breach, the stronger the case for deduction. The converse is also true.

(c) Whether the plaintiff has contributed to the benefit remains a relevant consideration, although the basis for this is debatable.

(d) In general, a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and the plaintiff has contributed in order to obtain entitlement to it.

(e) There is room in the analysis of the deduction issue for broader policy considerations such as the desirability of equal treatment of those in similar situations, the possibility of providing incentives for socially desirable conduct, and the need for clear rules that are easy to apply.

In Noiles v. MTD Products Inc., 2019 ONSC 4642 (CanLII), the Court held that the Plaintiff's private insurance benefits (including health care benefits) were not to be deducted from the damages awarded to him as a result of an accident he sustained from a defective tire rim:

[741] The fact that Mr. Noiles has received disability benefits from Great West Life raises the issue whether those benefits should be deducted from the damages awarded in this action.

[742] In Waterman v. IBM Canada Ltd., 2013 SCC 70, the Supreme Court of Canada considered whether retirement pension benefits should be deducted from damages awarded for wrongful dismissal. As the court noted, at para. 3, that case raised “one of the most difficult topics in the law of damages, namely when a ‘collateral benefit’ or a ‘compensating advantage’ received by a plaintiff should reduce the damages otherwise payable by a defendant.”

[...]

[744] As Mr. Bruff testified, short term and long term disability benefits and the City’s contributions to these benefits on behalf of its employees are part of the collective agreement bargaining process.

[745] Mr. Bruff explained that the creation of a collective agreement requires negotiation and offers go back and forth between the City and the Union representatives. As Mr. Bruff indicated, he tries to get the best package that he can in the economic circumstances that exist at the time of negotiation.

[746] As of 2003, Mr. Bruff negotiated an increase in the City’s contribution to the disability benefits and the City now pays 100 percent of the cost of these benefits on behalf of its unionized employees.

[747] Increasing the City’s contribution to the cost of this insurance to a level which resulted in Mr. Noiles not making a monetary contribution was a trade off in the collective bargaining process. Evidence of such trade-off is evidence that an employee has paid for the benefit in accordance with the guidance of the Supreme Court of Canada in Cunningham v. Wheeler, 1994 CanLII 120 (SCC), [1994] S.C.J. No. 19 at para. 98.

[748] I am satisfied Mr. Noiles has contributed to the cost of his short and long term disability benefits he has received and will continue to receive while employed by the City.

[749] I note also that Great West Life has advanced a subrogated claim.

[750] Further, the payments in issue are paid directly to Mr. Noiles and do not appear to be income replacement.

[751] Based on the information before me, I decline to deduct the value of the benefits received by Mr. Noiles from the damages awarded to Mr. Noiles.

In Finnemore v Hyde et al, 2021 ONSC 19 (CanLII), the Court held that the Plaintiff's pension benefits (including health benefits under his union's benefits plan) were not deductible from the damages awarded to him as a result of an automobile accident which rendered him disabled and unable to work:

[68] I agree with plaintiff’s counsel that the defendants seek to deduct payments that are being made from the plaintiff’s own property, his vested pension plan. The fact that the plaintiff can access the plan early, on account of his disability, does not make the funds any less his. The plaintiff has already earned and banked the money from when he worked prior to the accident. In my view, these are not the same as insurance monies meant to protect a person for his or her inability to work, an income continuation plan or the same as sick benefits. Additionally, the plaintiff, following the onset of disability, is no longer able to continue to contribute to his or her pension through the accumulation of credited hours. Thus, it is a sensible conclusion that pension benefits ought not to be deductible to the advantage of a defendant. It would be comparable to deducting a plaintiff’s life savings from an income loss award.

[69] The defendants have failed to persuade me that the HOOP disability benefits in Demers are materially distinguishable from the Union benefits in this case. The plaintiff’s eligibility for the Union benefits, like both CPP and HOOP, is based on a finding that he is “totally and permanently” disabled and has made the requisite contributions to the Plan. Just like the HOOP benefits, the plaintiff was entitled to retire. Just like the HOOP benefits, the benefits ceased being payable if he returned to gainful employment.

[70] The highest court in Ontario has analyzed the deductibility of such benefits and ruled that they are not deductible under Bill 59. The changes made in Bill 198 did not expressly provide for the deductibility of retirement pension disability benefits, unlike the express inclusion of CPP in the amendment.

[71] The defendants rely on Sunderland, a case which arguably relied on a case that has been over-ruled, and itself was determined prior to when the Court of Appeal heard Demers. As thorough an analysis as McDermid J. performed, I am bound by stare decisis.

[72] In Duggan v. Durham Region Non-Profit Housing Corporation, 2020 ONCA 788, a case released the day after the hearing of this motion, Feldman J.A., stated as follows, at para. 52:

[52] The doctrine of stare decisis requires that all courts follow and apply authoritative precedents. Intermediate appellate courts, like the Divisional Court, are generally bound by their past decisions: Kovach (Divisional Court), at para. 42; Fernandes v. Araujo, 2015 ONCA 571, 127 O.R. (3d) 115, at para. 45. As Sharpe J.A. explained in Fernandes, at para. 45, this doctrine is a bedrock principle of our legal system:

As an intermediate court of appeal, we are ordinarily bound to follow our past decisions, even decisions with which we disagree. It is important that we do so. Our common law legal tradition rests upon the idea that we will adhere to what we decided in the past. As expressed by the Latin phrase stare decisis, we stand by things that have been decided. The rule of precedent provides certainty, clarity and stability in the law. It fosters the orderly and efficient resolution of disputes and allows parties to obtain reliable legal advice and to plan their affairs accordingly.”

[73] Accordingly, I order that the plaintiff’s retirement pension disability benefits, received as a result of his membership in his union’s pension plan, are not deductible from an award for income loss or loss of earning capacity under s. 267.8 (1) of the Insurance Act, nor are they subject to the trust or assignment provisions in s. 267.8 (9) or s. 267.8 (12).

[74] The defendants’ motion is accordingly dismissed.

In Dorion v. Ecodevelopments Windsor Inc., 2021 ONSC 820 (CanLII), the Court held that the Plaintiff's sick leave benefits accessed from his employer were to be deducted from the damages award he received as the result of a slip and fall accident. In this case, the Court did not find that the Plaintiff had proven that he had paid any kind of insurance premium in respect of the sickness absence benefits he received under his collective agreement:

[59] In the circumstances of the instant case, there is no evidence that Mr. Dorion paid any kind of insurance premium in respect of the sickness absence benefits he received under article 25 of the collective agreement. There is no evidence that he suffered some loss or made some form of contribution equivalent to payment of an insurance premium. There is no evidence that he, in essence, had paid for these disability plans through reduced wages, as in Cunningham v. Wheeler. And as McLachlin J. held in Ratych, it is for Mr. Dorion to prove such loss or contribution.

[60] As such, this is not a case like Caron v. Omers Realty Corporation, one of the cases relied upon by the plaintiff. There, Roger J. made an express finding that Ms. Caron had paid 15% of her long term disability premiums and that she “contributed to the cost of her LTD benefits.”[22] In my view, the decision in Caron is consistent with Ratych and Cunningham. But it does not assist the plaintiff here.

[61] For all of these reasons, the amounts Mr. Dorion received for sickness absence benefits under article 25 of the collective agreement, which covered 75 percent of his regular pay, should be deducted from the damages claimed. As such, the loss of income that Mr. Dorion suffered is the remaining 25 percent of his regular wages, which was not covered by the benefits under article 25.

[62] For the 26-period Mr. Dorion was off work recovering from the accident, from December 27, 2013, to June 26, 2014, he claims the gross amount of $33,217.60, as his regular rate of pay was $31.94 per hour, and he worked a minimum 40-hour week. He received 75 percent of that amount under article 25. His loss is the remaining 25 percent: $8,304.40.

[63] For the five-week period Mr. Dorion was off work recovering from the knee surgery, from June 26, 2017, until July 31, 2017, he claims the gross amount of $6,786, as his regular rate of pay was then $33.93 per hour, and he worked a minimum 40-hour week. Again, he received 75 percent of that amount under article 25. His loss is the remaining 25 percent: $1,696.50.

[64] Therefore, the total loss of earnings that Mr. Dorion suffered is $10,000.90. I would allow damages for lost income in that amount.

Alexsei publishing date:
44