Collateral Benefits: What Should and Should Not be Deducted from Motor Vehicle Accident Damages?
It is common in personal injury actions arising out of a motor vehicle accident for plaintiffs to be receiving so-called "collateral benefits" such as statutory accident benefits, long-term disability benefits, and employer-provided health care benefits while their lawsuit is ongoing. The Insurance Act contains provisions which essentially allow a tort defendant to deduct certain categories of collateral benefits from similar types of damages which they would ordinarily have to pay to the plaintiff. While the legislation sets out a general framework detailing what deductions are to be made, there remain questions among both plaintiff's and defence lawyers alike about how to apply these deductions in practice. For example, should there be any distinction between past and future benefits when deciding what should be deducted? Are settlements treated differently than benefits actually received? Is the plaintiff entitled to recoup their legal costs related to obtaining the benefits in question? Below is a summary of the current leading cases which have attempted to resolve some of the ambiguities created by the Insurance Act, as well as a look at what questions remain outstanding.
1. There is no distinction between past and future benefits
Statutory accident benefit claims and other insurance benefits cases are often resolved with settlements that apportion some amount of money towards "future" benefits that the insurer would otherwise have had to pay. Similarly, tort damages for past loss of income and future loss of income or past health care expenses and future health care expenses are often awarded separately. While it may seem logical to only deduct past benefits from awards of past damages and future benefits from awards of future damages, the Ontario Court of Appeal held definitively in Cadieux v Cloutier, 2018 ONCA 903 that this approach is incorrect. Instead, benefits and damages award should be lumped together based on the "silo" they fall under according to the Insurance Act (such as payments for loss of income, or payments in respect of health care expenses), and then the whole amount of benefits under each silo should be deducted from the whole amount of damages in the corresponding silo. This follows previous decisions in Mikolic v Tanguay, 2016 ONSC 8196 and El-Khodr v Lackie, 2017 ONCA 716 which came to the same conclusion.
2. Settlements are deducted in largely the same way as benefits received
Typically, a plaintiff receives statutory or other benefits for a period while negotiating with their insurer before agreeing to a settlement. This involves a lump sum payment being made to the plaintiff in exchange for them releasing the insurer of any further obligations to pay benefits. In the past, some courts have found that these settlements cannot be deducted as a collateral benefit as the lump sum does not represent benefits received, but rather is just a payment made to limit the insurer's future liabilities. However, in Mikolic v Tanguay the Divisional Court rejected the idea that these settlements do not constitute a receipt of benefits. Instead, they pointed to the Settlement Disclosure Notice-a form that a statutory accident benefits insurer is legally required to provide in a settlement which discloses how much the insurer will pay in respect of different categories of benefits-as evidence that the settlement was primarily a lump sum payment of past and future benefits. The Settlement Disclosure Notice also guided the Court's deductibility analysis in Cadieux v Cloutier, and it is likely that in future motor vehicle accident cases deductions will be made in exact accordance with the amounts set out in the Settlement Disclosure Notice.
3. Plaintiffs can recover some of their collateral legal costs from the tort defendant
Although the deductibility scheme articulated in the Insurance Act tries to prevent double recovery by plaintiffs, it inadvertently leads to under-recovery when legal costs are taken into account. After all, a plaintiff may have spent tens of thousands of dollars to obtain an award of collateral benefits, just to have those same benefits deducted from that plaintiff's tort recovery. In Cadieux v Cloutier, the Court of Appeal addresses this concern by encouraging plaintiffs to seek the costs of their collateral proceedings from the tort defendant by relying upon Section 131(1) of the Courts of Justice Act. This section allows trial judges to award "costs of and incidental to a proceeding" (emphasis added). When determining whether to award these costs and in what amount, the Court instructed trial judges to consider:
- a. The amount actually spent by the plaintiff to obtain the collateral benefits;
- b. The factors listed in Rule 57.01 of the Rules of Civil Procedure;
- c. The proportionality of the legal costs incurred to the amount of deduction the defendant receives;
- d. Whether the collateral benefits were received as part of a settlement or awarded by an arbitrator;
- e. Whether any portion of the costs were incurred because of unusual or unreasonably labour-intensive actions;
- f. Whether the plaintiff's lawyer was acting on a contingency fee agreement and the terms of any such agreement;
- g. The overall fairness of awarding costs as between the plaintiff and the various insurers.
While it is unlikely that this analysis will result in every plaintiff being fully reimbursed for all of the costs that they incurred in pursuit of collateral benefits, it is positive news for plaintiffs that an appellate court has endorsed these types of costs awards and forced defendants to recognize that they may have some obligation to indemnify plaintiffs for not just the costs of the lawsuit but of multiple proceedings with various insurers.
While the cases discussed above have clarified some areas of confusion with respect to the deductibility of collateral benefits, there are still issues which have not been conclusively decided. For example, long-term disability insurers are not obligated to provide a Settlement Disclosure Notice upon resolution with a plaintiff and it remains to be seen how courts will act when this important piece of evidence is not readily available. There has also been very little discussion on how the "assignment provisions" of the Insurance Act-which allows some defendants to receive benefits directly from the plaintiff's statutory accident benefits insurer if such claims have not been resolved by the time of the plaintiff's trial-should operate in practice, although the Court of Appeal has provided some information in the recent decision in Carroll v McEwen, 2018 ONCA 902. Overall, as with any complex and unresolved area of the law the advocacy of plaintiff's lawyers will become increasingly important in ensuring that defendants only deduct the amounts that they are entitled to without providing the plaintiff will full recovery of their damages.
July 21, 2020
by Allan Cocunato J.D.
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