Unprotected Defendants

Transcription

1 Collateral Benefits Protected and Unprotected Defendants Rastin Associates Highway 12 P O Box 398 Midland ON L4R 4L1 Tel

2 Introduction The fundamental goal of the tort law system is to ensure that the negligent defendant pays his dues and restores the plaintiff to the position she would have been in absent the tortfeasors negligence Put another way an action for damages is not intended to create a windfall for injured plaintiffs The Supreme Court of Canada has moved away from a punitive approach steering itself toward the maxim of fair compensation for all parties by precluding injured plaintiffs from recovering more than which they are entitled No doubt entrenched in principles of fairness and justice this rule against double recovery can be construed as bestowing an unintended benefit on tort defendants by allowing for deductibility of collateral benefits Enter now the protected defendant who enjoys not only the deductibility of collateral benefits but other statutory protections that its non protected counterpart does not Some might ask where is the fairness in that The Collateral Source Rule Common Law At common law the collateral source rule serves as an exception to the rule against double recovery bearing two components First public or private support benefits such as welfare charitable gifts etc received by an injured plaintiff will not be deducted from an award for income loss or loss of earning capacity The Ontario Court of Appeal in Boarelli v Flannigan2 expressed that 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 3 1 The author would like to acknowledge the considerable assistance provided by TVA The Legal Outsourcing Network in conducting primary research citations check and the initial drafts of this paper O R 69 C A 3 Ibid at para 12 But see MB v British Columbia S C R 477 S C C where the Supreme Court held that social assistance benefits are a form of wage replacement and do not fall under the charitable benefits exception thus making them deductible 2

3 The second exception to the rule against double recovery is the private insurance exception established in Bradburn v Great Western Railway Co 4 In that case receipt of benefits from a private insurer was held not to be deductible from damages for personal injury The private insurance exception is rooted in the principle that a negligent defendant should not benefit from a plaintiffs forethought and wisdom in securing private insurance in the event of disability The Supreme Court of Canada twice maintained this exception in Ratych v Bloomer5 and Cunningham v Wheeler Ratych involved a police officer who was injured in a motor vehicle accident He required time off work due to his collision related injuries during which time he received his full salary By an narrow 5 4 margin the Supreme Court held that the officer was not entitled to claim lost wages from the tort defendant In writing for the majority Justice McLachlin stated the fundamental principle of recovery in a tort action is that an injured plaintiff is to be compensated for the full amount of his loss but no more 7 as conferred by the Supreme Court in the trilogy ofandrews v Grand Toy Alberta Ltd 8 Thornton v Prince George School Board9 and Arnold v Tenol Upholding the principle of fair compensation McLachlin J felt it best served by focusing not on the tortfeasor but on restoring the plaintiff to his pre accident state that is to award him not a penny less nor more All E R Rep 195 Ex Div S C R S C R Ratych supra note 4 at para S C R S C R S C R Ratych supra note 4 at para 23 3

4 In writing for the minority Cory J cited with approval the private insurance exception in Bradburn stating at paras The interrelationship of the tort system and other forms of compensation from private or public collateral sources has become a complex problem with the growth of legislation providing benefits for injured workers Commentators have complained that the development of the law in this area has been characterized by instability recurrent shifts in judicial thinking and the absence of underlying principle Yet despite any confusion that may have beset this issue no court in Canada or England has questioned the principle enunciated in Bradburn supra that benefits awarded under a private insurance contract should not be deducted from damages awarded against a tortfeasor internal citations omitted The Court of Appeal in Bradburn held that the plaintif was entitled to receive both the amount payable by the insurer and the damages for loss of income recoverable from the defendant Pigott B held at p 197 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 entitled 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 As discussed in Ratych English courts have never questioned nor applied the deductibility rule to private insurance Ratych was no different In spite of McLachlin J s approval of the Bradburn rule and the non deductibility of private insurance benefits the majority of the Supreme Court did not find receipt of sick leave benefits analogous to private insurance benefits and thus held them deductible from an award for damages Ratych was drastically narrowed by Cunningham v Wheeler12 which involved three appeals pertaining to the question of deductibility of disability benefits from a plaintiffs claim for lost wages McLachlin J now writing for the minority reiterated her position on fair compensation 12 Cunningham supra note 5 4

5 to both parties focusing again on restorative not punitive damages On the private insurance exception issue in Bradburn the minority felt it should not be extended to benefits paid under employment contracts stating that where a loss is made good by employment benefits the plaintiff suffers no parallel loss recoverable in tort Now writing for the majority in Cunningham Cory J firmly upheld the private insurance exception stating at paras 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 There is good reason why the courts should be slow to change a carefully considered long standing policy that no deductions should be made for insurance moneys paid for lost wages If any action is to be taken it should be by legislatures It is significant that in general no such action has been taken Cory J found that in effect Ratych required plaintiffs to prove they had somehow paid for the disability benefits To that end the majority of the Supreme Court distinguished Cunningham from Ratych construing the disability benefits involved as falling within the scope of private insurance benefits given that trade offs had been made during the collective bargaining process Thus if the plaintiffs somehow directly or indirectly paid for the benefits the benefits are considered to fall under the scope of private insurance and will not be deducted from tort damages 5

6 In maintaining the private insurance exception to common law principles of double recovery Ratych posits that collateral benefits are not deductible where a plaintiff can establish he has given something up in return for benefits Cunningham narrows the scope of deductibility by finding that in certain circumstances a trade off may be implied e g through collective bargaining Further where a benefit provider retains a right of subrogation no deduction is made for those benefits Statutory Modifications to the Collateral Source Rule The introduction of no fault automobile insurance legislation in the Insurance Act has considerably modified the collateral source rule for motor vehicle related injuries The OMPP Regime The OMPP regime was the first no fault regime in Ontario 14 created in an effort to stabilize auto insurance rates It introduced a dual system of tort and accident benefits In short accident victims lost their right to sue in certain cases in return for no fault accident benefits I5 A verbal threshold was introduced that restricted the recovery of non pecuniary general damages where injuries fell below the threshold 16 In addition section of the Insurance Act was created to give credit to tort defendants for certain payments the plaintiff received or was entitled to receive from other sources Section provided 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 13 R S O 1990 c I 8 14 For accidents occurring on or after June See Lento v Castaldo O R 3d 129 C A 16 The issue ofthreshold is beyond the scope of this paper 6

7 a b c 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 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 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 payment to which the person is entitled and d all payments that the person has received under a sick leave plan arising by reason of the persons occupation or employment An important decision under the OMPP regime pertaining to deductibilityof collateral benefits is Cugliari v Whiten There the plaintiff was injured in a motor vehicle collision in 1990 At trial the judge held that CPP disability benefits received by the plaintiff before trial should be deducted from the global award of damages The Divisional Court reversed and the Court of Appeal upheld the Divisional Courts ruling stating that CPP disability benefits were non indemnity in nature as they did not require the recipient to be employed at the time of disability The Court of Appeal found the legislative purpose of s 267 was to eliminate double recovery had the legislature intended CPP disability benefits to be deductible it would have expressly done so Bill 164 Bill 164 replaced the OMPP regime for accidents occurring on or after January A new class of protected defendants was introduced no action for pecuniary losses could be brought against a protected person A protected person was i the owner of an automobile ii the occupants of an automobile and ii any person present at the incident Non pecuniary losses were only recoverable if the plaintiff met a verbal threshold Section amendments removed the defendants right to deduct benefits previously allowed under the OMPP regime O J No 1628 C A 7

8 The collateral source rule once again became relevant but only in the context of a claim against an unprotected defendant for pecuniary losses Bill 59 The Bill 59 regime took effect on November Once again a plaintiff could not sue a protected defendant unless her damages surpassed the threshold subject of course to a monetary deductible Bill 59 expressly allowed for the deduction of collateral benefits received before trial and also created a trust provision for future collateral benefits Section provides the following 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 or 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 plaintiffs occupation or employment Nearly identical to the provision under the OMPP regime Bill 59 amendments added the deduction of benefits for loss of earning capacity Until Meloche v McKenzie18 decided in 2005 it appeared the issue of deductibility of CPP disability benefits had been settled Meloche re raised the issue of deductibility of various benefits including CPP from a tort award against a protected defendant The court found that the amendments under Bill 59 altered the private insurance exemption under common law by establishing the deductibility of collateral benefits from a tort award for loss of income and earning capacity It also created a statutory trust in C C L I 4th 134 S C J 8

9 favour of defendants for receipt of such collateral benefits Favouring a broad approach to deductibility the court stated at para 19 Since the original intent was to prevent double recovery by having the collateral benefits deducted from the tort award the interpretation of these sections in my opinion should be broad inclusive and encompassing with respect to identifying those benefits which are the subject of deduction in tort law from an award for past loss and the subject of a trust for future receipt Having found that CPP disability benefits were tied to a recipients inability to engage in the act of gainful employment or as a result of a loss of earning capacity 19 the court held the benefits were deductible It further noted that Bill 198 which explicitly makes CPP disability benefits deductible was simply a clarification of the original legislation Recently the Ontario Superior Court of Justice in Strickland v Mistry20 another Bill 59 case followed Meloche and found that long term disability payments received by the plaintiff were deductible and subject to the trust and assignment provisions of the Insurance Act In that case the plaintiff was in receipt of CPP disability pension and long term disability benefits from her employers group insurer The court agreed that CPP disability benefits were intended to be among the class ofbenefits deductible from a tort award against a protected defendant Bill 198 Bill 198 applies to accidents occurring on or after October Section outlines three deduction provisions thereby explicitly removing the collateral source rule from income loss health care costs and other pecuniary losses in motor vehicle accident claims In essence the tortfeasor receives a credit for all income replacement benefits received or available from the statutory accident benefits insurer prior to the trial of the action and also for payments received under a sick leave plan or any payments received or availableto the plaintiff for income loss or loss of earning capacity under the laws of any jurisdiction before trial 19 Ibid at para O J No 1169 S C J 9

10 Section provides that collateral benefit payments made in respect of any loss of income in the first seven days after the accident are not deductible Section gives protected defendants priority with respect to deduction of such benefits Cugliari involved a similar provision in the OMPP which allowed for the deductibility of collateral benefits that were considered indemnity payments CPP disability benefits were found to be non indemnity payments and thus non deductible under the OMPP The regulations under Bill 198 now explicitly make CPP disability benefits deductible in tort As a result of the evolving no fault legislation it can be confusing when attempting to determine which benefits are properly deductible from a tort award for damages and which are not The following chart should be of assistance Type of Benefit Long Term Disability LTD Canada Pension Plan CPP Severance Packages Deductible Yes Yes Yes Comments Section 5 2 of0 Reg provides that long term disability benefits are deductible from a tort award for income loss after October CPP disability benefits are explicitly made deductible from income loss awards in motor vehicle accident cases arising after October Bill Also deductible under Bill 59 See Skinner v Goulet23 To be deductible the defendant must prove which part of the severance package is considered to be payment of income as opposed to other heads of damages Ontario Works Yes Social assistance benefits are a form of wage replacement and are deductible from damages for lost opportunity to earn income Refusing deduction would amount to double recovery 24 Health Yes Section of the Insurance Act provides that damages 21 Court Proceedings for Automobile Accident that Occur on or After November Reg s 5 2 LTD payments are also deductible from income replacement benefits 22 Ibid See Meloche supra note 17 Strickland supra note J No 3209 S C J 24 MB v British Columbia S C R 477 S C C 10

11 insurance for healthcare will be reduced by all payments received by the accident benefits carrier for healthcare and all payments Medical rehabilitation benefits Housekeeping home maintenance benefits Yes Yes received before trial under any medical surgical dental hospitalization rehabilitation or long term care plan The defendant receives a credit for past health care expenses and any amounts for future medical and rehabilitation costs already paid by the accident benefits carrier The defendant receives a trust or assignment offuture medical rehabilitation benefits see below Benefits received from the accident benefits carrier before trial are deductible 25 WSIB No Section of the Insurance Act provides that any Sick leave benefits Employment Insurance E I No No 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 damage awards for income loss health care or other pecuniary losses The WSIB has a right of subrogation thus benefits paid to a worker are not deductible 26 Under Cunningham employment benefits will not be deductible if paid for by the employee directly or directly See Jorgensen v Jack Cewe Ltd 22 E I benefits are subject to repaymentupon the settlement of a tort claim 28 ODSP No Section 8 of the Ontario DisabilitySupport Program Act provides for repaymentto the Ministry of any damage award allocated to income loss or loss of earning capacity By virtue of the repayment provision ODSP payments are not credited to the tort defendant as there is no double recovery30 General damages No Collateral benefits are not deductible from an award for non pecuniary damages See s Workplace Safety and Insurance Act S O 1997 c 16 Sched A s D L R 3d 577 at 581 S C C 28 Employment Insurance Act S C 1996 c 23 S S O 1997 c 25 Sched B 3 MOSS v Hutchinson O R 3d 604 S C J 31 See s

12 Non earner benefits No See Walker v Ritchie 32 Gifts No Section of the Insurance Act does not make reference to gifts At common law private or charitable gifts are not deductible 33 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 Whether tort damages can be offset against LTD payments ties into whether the LTD insurer has a right of subrogation In Gibson v Sun Life Assurance Co of Canada34 the court held that 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 indemnity 35 In Budnark v Sun Life Assurance Co of Canada36 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 claimants past loss 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 therefore the plaintiff was not required to account to Sun Life for her future loss of income 37 An insurer will thus be subrogated to a right of recoverywhere the claimant is fully compensated for his her past losses With regard to future losses courts have held the determination of an O J No 787 revd on other grounds S C R See Cunningham supra note 5 accepting the exception to double recovery with respect to charitable gifts O R 2d 326 H C J 35 See e g ConfederationLife Insurance Co v Causton 1989 B C J No 1172 C A 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 B C J No 1960 B C S C 37 Ibid at paras

13 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 compensated 38 Future Collateral Benefits Section provides for the treatment of future collateral benefits 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 plaintiffs occupation or employment 4 All payments in respect of the incident that the plaintiffreceives 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 In addition to holding future collateral benefits in trust for the defendant the court may on motion order the assignment of future collateral benefits in respect of the damages recovered by the plaintiff after tria Stitzinger v ImperialLife Assurance Co of Canada O R 3d 566 Gen Div at para 21 13

14 Protected and Unprotected Defendants Who is protected As alluded to earlier since the introduction of the no fault regime defendants have been placed into two categories protected and unprotected A protected defendant is defined in section of the Insurance Act as a person who is protected from liability by subsections and 5 These sections list the following as persons protected from liability They are i ii the owner of an automobile occupants of an automobile and iii any person present at the incident Section defines an owner as an operator as defined in subsection 16 1 of the Highway Traffic Act and a person who is a lessee for the purposes of section 192 of that Act Effective March 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 the automobile and a person getting in to out of or off 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 plaintiffs net income loss or loss of earning capacity after the first seven days and before tria1 40 In addition protected defendants are immune from liability for health care expenses non pecuniary general damages s s

15 and damages under the Family Law Act41 unless the plaintiff surpasses the threshold requirement42 Thus unless the injured person has died or has sustained a a permanent serious disfigurement or b 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 for non pecuniary general damage claims and for FLA loss of care guidance and companionship claims With the accident benefits amendments effective September Reg amendments to the Insurance Act will also be made to reflect changes to the tort deductibles if the insured purchases optional enhanced coverage the deductibles can be reduced to and for general damage claims and FLA claims respectively Note also the vanishing deductible under Bill 198 If the plaintiffs general damages exceed or if an FLA claimants damages exceed then no deductible is applied See s and 8 1 Finally an uninsured person may not recover against a protected plaintiff 43 Where there is a mixture of protected and unprotected defendants protected defendants are given a partial priority collateral benefits are deducted first from the damages that protected and unprotected defendants are jointly and severally liable for and any excess is applied to the damages the unprotected defendants are solely liable for This priority applies only to past losses and not to future losses Damages for loss of care guidance and companionship under section 61 2 e of the Family Law Act R S O 1990 c F 3 42 SS and 5 43 S See Hernandez infra s

16 Note that a protected defendant loses his status if he is defendedby an insurer that is not licensed to undertake automobile insurance in Ontario and has not filed an undertaking under section of the InsuranceAct 46 Treatment of Collateral Benefits Among Protected and Unprotected Defendants Recently the Ontario Superior Court of Justice held that both protected and unprotected defendants are entitled to s deductions for long term disability benefits This is so because s does not distinguish between protected and unprotected defendants 47 In Burhoe the plaintiff was rear ended by the Defendant a parking valet in front of the Park Hyatt Hotel on December Bill 59 The plaintiff received long term disability benefits through his employer The Defendants vehicle was insured by Coachman Insurance Company which had excess coverage through Gerling Canada Insurance Company These insurers were determined to be the first loss insurers and the hotels policy was to act as an excess insurer only The only mention of protected defendants is in s Given the non exclusionary language in the other subsections of s 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 OHIP and Subrogated Claims Section Section limits the right of subrogation for anyone who has paid collateral benefits provides an exception for OHIP but only against a person not insured under a motor vehicle liability policy issued in Ontario To complicate matters if a tavern owns a vehicle even if the automobile policy is not called upon to respond to a claim the tavern is nonetheless immune from OHIPs subrogated claim s Note this does not apply to vicariously liable defendants discussed later 47 Burhoe v Mohammed O R 3d 391 S C J 48 Georgiou v Scarborough City O R 3d 285 C A 16