As a lawyer who has spent the better part of the past 20 years doing defence-side personal injury law, and motor vehicle tort law sometimes a client or perhaps another lawyer will ask me whether I do any accident benefits work.   My standard (and hopefully humorous) response is “no, but I know what to deduct!”    However, with recent developments in the law, it is getting progressively harder to keep track of which collateral benefits to deduct, when to deduct them, and from what they can be deducted!   This article is intended to provide you, the reader, with an overview of the current state of the law, along with practical examples, so that you can also, when asked what you know about accident benefits law, can also proudly state that you too know what to deduct. 

            General Principles

            To understand fully the rationale for the deductibility (or non-deductibility) of collateral benefits, it is necessary to go back to first principles.  The raison d’etre of the civil law system is to allow aggrieved parties to seek compensation from the person or persons responsible for the harm they have suffered.   If a plaintiff is found entitled to compensation from a defendant, the Court will typically award a sum of monetary damages.   The basic principle governing the award of damages in tort law is that the damages awarded are intended (as far as money can do so) to put the plaintiff in the position they would have been had the harm not been suffered.   A plaintiff in a tort claim can only recover what he or she would have received had the Defendant’s negligence not taken place.   For example, if Plaintiff A is injured because of Defendant B’s negligence, and has to take a month off work to recovery from her injuries, she is entitled to recover that missed month’s salary from Defendant B.

But what if Plaintiff A has already received compensation for that missed month’s salary through an employee benefits program?   That plaintiff, if also awarded tort damages for loss of income, would be in a way better off than if the defendant’s negligence had not happened, because they have now been paid twice for that missed month of work – once by the defendant, and once by their disability benefits carrier.   In order to take this into account, and avoid this sort of “double compensation”, the general rule is that collateral benefits are deductible from tort damages.

The Private Insurance Exception

There is, however, a very common exception to this general rule, known as the Private Insurance Exception.   If a Plaintiff has paid into a disability or health care benefits plan, this exception will come into play and will render the benefits received pursuant to this plan non-deductible from damages recovered in tort.   The rationale for this, as set out by Cory J. of the Supreme Court of Canada in Cunningham v. Wheeler[1] is that if a plaintiff has displayed “wisdom and forethought in making provision for the continuation of some income in case of disabling injury or illness” then that is something that ought to be encouraged, and a tortfeasor ought not be able to benefit from the plaintiff’s forethought.   Accordingly, if a plaintiff has, for example, an employee disability plan administered by the company for which she works, and premiums for this plan are deducted from her paycheque each pay period, then in the event she is injured by a defendant’s negligence and is unable to work, any proceeds or benefits from this plan are not deducted from the salary she loses while recovering from her injuries.  Benefits that the plaintiff has had to pay for are typically known as “indemnity-based benefits”.

So, to sum up the story so far, the common law states that collateral benefits are deductible from damages in tort, unless the collateral benefits are indemnity-based (i.e. from a plan for which the Plaintiff has paid, either directly from their own pocket or, in the case of an employment-based benefits plan, through deductions from salary).

Motor Vehicle Accidents – A Statutory Exception to the Exception

However, the story does not end there…

The Private Insurance Exception does not apply in situations where the plaintiff is injured in a motor vehicle accident.    This is because in Ontario, actions arising from motor vehicle accidents are governed by a statutory regime governed by the Insurance Act, commonly referred to as Bill 198.   One of the statutory provisions in Bill 198, s.267.8(1) Insurance Act states that the Plaintiff’s damages for loss of income in tort are to be reduced by:

1. All accident benefits received or available, prior to trial, in respect of income loss or loss of earning capacity (i.e. income replacement benefits);
2. All payments received or available prior to trial, for income loss or loss of earning capacity under the laws of any jurisdiction, or under an income continuation plan (i.e. private short term and long term disability plans;
3. All payments received before trial under an employment sick leave plan (i.e. an employee short term or long term disability plan);

#2 and #3, you will notice, do not draw a distinction between indemnity based and non-indemnity based collateral benefits.  Accordingly, pursuant to s. 267.8(1) Insurance Act, in an action arising from a motor vehicle accident, the private insurance exemption does not apply.

Ss.267.8(4) and 267.8(6) Insurance Act contain similar provisions requiring health care benefits, whether they be paid as accident benefits or pursuant to a private health care plan, deductible from tort damages for future care, and other pecuniary damages, such as housekeeping, visitor expenses, damage to clothing and to expensive bicycles) deductible from tort damages awarded for out of pocket expenses.   There are also provisions in s.267.8 that apply to damages for loss of future income, and how future collateral benefits, such as income replacement benefits that continue after trial, are to be dealt with.  Specifically, if the Plaintiff is awarded at trial a lump sum in respect of her tort damages for loss of future income, pursuant to s.267.8, she is required to hold  any income replacement benefits received after trial in trust for the insurer for the tort defendant[2], or alternately, the insurer for the tort defendant simply takes an assignment of future accident benefits from the no-fault carrier[3] so that the no-fault insurer just pays these benefits to the insurer to the tort defendant as they fall due.   Suffice it to say that the statutory regime governing tort claims arising from motor vehicle accidents has been drafted to eliminate the possibility of “double recovery” for Plaintiffs.

Unprotected Defendants in MVA Claims

An “unprotected defendant” is a defendant in a motor vehicle claim who is not “a person at the scene of a motor vehicle accident” but who is named as a defendant in a claim arising from an MVA.   Examples of unprotected defendants include municipal road authorities, the Ministry of Transport, and garages whose negligent repair of automobiles caused or contributed to the accident in question.  

Generally speaking, Bill 198 does not apply to unprotected defendants, and there appears to be no debate that unprotected defendants cannot rely upon certain statutory protections contained in Bill 198 including the threshold, the deductible, and the restriction of claims for loss of past income.  However, the issue concerning unprotected defendants as far as collateral benefits is concerned is whether or not the deductibility of collateral benefits is governed by the common law or by s.267.8(1) Insurance Act.  If the common law applies, indemnity-based collateral benefits, such as private long-term disability benefits, are not deductible from damages for loss of income pursuant to the private insurance exception.   If s.267.8(1) Insurance Act applies, then indemnity-based collateral benefits are still deductible.  Obviously, it is to the Plaintiff’s advantage that s.267.8(1) not apply.

Although one might think that the law on an unprotected Defendant’s right to deduct indemnity-based collateral benefits would be long-since settled, there is in fact only one case which speaks to this issue.  This case is the Superior Court of Justice case Burhoe v. Mohammed[4].  As this case was decided at the Superior Court of Justice Level, it is not strictly binding law, although it is reasonable to expect that other judges of the Superior Court of Justice will follow this decision absent any distinguishing facts.   In this case, the Plaintiff was a parking valet at the Toronto Park Hyatt hotel and was rear-ended by a hotel guest while parking another guest’s car.   The Plaintiff took time off work and received short term then long-term disability benefits while recovering from this accident.  These benefits were considered indemnity-based insofar as the Plaintiff paid for them by way of deduction from his paycheque.   The Plaintiff sued the Park Hyatt, which was an unprotected defendant, and the issue before the court was whether the Park Hyatt could deduct the STD and LTD benefits from the Plaintiff’s damages for loss of income pursuant to s.267.8(1) Insurance Act, or whether the private insurance exception applied such that, as the Plaintiff argued, they were not deductible.

In deciding this case, the motions judge, Madam Justice Wein, noted that the wording of s.267.8(1) is simply that in an action arising from use or operation of a motor vehicle, the Plaintiff’s damages are to be reduced by certain amounts, including short term and long term disability benefits, and did not distinguish between protected and unprotected defendants.   Therefore, as a matter of basic statutory interpretation, Wein J concluded that any defendant in a motor vehicle claim, regardless of whether they are an unprotected defendant, is entitled to deduct indemnity-based collateral benefits from damages for loss of income pursuant to s.267.8(1) Insurance Act.   Curiously, as noted above, despite the passing of over a decade since this case was decided, there are no other cases decided at the Superior Court level to the contrary of this decision, and I would suggest that, at least for now, Burhoe v. Mohammed represents the current state of the law in Ontario.

Are Collateral Benefits Deducted Before or After Tax?

Collateral benefits, such as long-term disability benefits, are taxable as a matter of law.   The next issue to be examined is whether the gross benefit, including the portion which represents income tax, is deducted (which favours the defendant) or whether the “after tax” portion of the benefit is deducted (which favours the plaintiff, given that this will result in a smaller deduction).   This issue was recently dealt with in Nemchin v. Green[5].   In this case, the plaintiff’s LTD carrier, SunLife was deducting income tax from the plaintiff’s monthly benefit, and remitting the “net of taxes” benefit to the plaintiff.   The tort defendant took an assignment of the plaintiff’s future LTD benefits for after trial.   Sun-Life was still obligated to deduct taxes from each monthly payment, even after the assignment.  

In deciding whether the before or after tax benefit should be deducted, the Court, noted that “taxes are between the individual and the state, not the plaintiff and the defendant”, and that as such, it was the gross, before-tax benefit that should be deducted.   Moreover, the court concluded that if the net, after-tax figure were used in assessing damages, the plaintiff would be deprived of his right to deal with his income as he sees most fit to reduce his tax liability.  It was therefore ruled that the Plaintiff was entitled to deduct the gross before-tax amount of his LTD benefits.

Apples, Oranges and Silos:  Deductibility of Accident Benefits in No-Fault Claims

In motor vehicle cases, the Plaintiff is entitled to a whole host of first-party benefits from their own auto insurance carrier (commonly know as “no-fault benefits” or “accident benefits”) that cover rehabilitation and physiotherapy, non-OHIP funded medical care, medication, incurred loss of income, home-care workers, caregiving and hospital visitors’ expenses, to name but a few.   While accident benefits are deductible, generally speaking, from damages recovered in tort, determining which accident benefits are deductible from which heads of damages in tort can on occasion result in disputes between plaintiff and defendant.  

Until 2018, the courts would generally take an “apples to apples” approach to deducting accident benefits from tort damages, only permitting strict temporal and qualitative matching of accident benefit categories to tort damages.  For example, under this approach, income replacement benefits received prior to trial could only be deducted from loss of past income, medical-rehab benefits could not be deducted from tort damages for attendant care, and so forth. 

However, in 2018 this approach was rejected by the Ontario Court of Appeal in Cadieux v. Cloutier[6].  In this case, the court concluded that there were three broad categories, or “silos” of accident benefits, and that the tort award only be matched generally with each category.   The three silos in which deductions can be made are loss of income, health care, and other pecuniary losses.   In the loss of income silo, income replacement benefits, non-earner benefits and caregiver benefits are all deductible from tort damages for loss of income, whereas under the “apples to apples” model, only income replacement benefits would be deductible.   In the healthcare silo, medical benefits, rehab benefits, attendant care benefits, good and services of a medical nature and payment for housing in long-term care facilities are all deductible from tort damages for future care, regardless of the nature of these damages.   Similarly, under the “apples to apples” model, it was only permissible to deduct benefits previously received from past pecuniary losses, and future benefits from damages in respect of future pecuniary losses.   The “silo” approach adopted by the Court of Appeal in Cadieux does away with the distinction between past and future benefits and damages so that the aggregate of past and future benefits are deducted from the aggregate of past and future benefits.

The best way to illustrate the effect of the silo approach vs. the apples to apples approach on a plaintiff’s entitlement to tort damages is to look at the facts of the Cadieux case itself.  In this case, the plaintiff Mr. Cadieux was in a fistfight with a defendant named Mr. Saywell, who pushed Mr. Cadieux in front of Mr. Clouthier’s truck, which struck and seriously injured Mr. Cadieux.   Mr. Cadieux sued both Saywell and Clouthier.   Mr. Cadieux settled his accident benefits file, prior to trial, for $900,000.   Of this $900,000, $300,000 was for income replacement benefits, $250,000 was for medical benefits, and $350,000 for attendant care benefits.

At trial, the Plaintiff recovered $2,309,413 in damages, including $701,809 for ongoing treatment from an acquired brain injury support worker, which was considered a “medical” expense.   The issue that was to be decided regarding deductibility of collateral benefits was how much of the $900,000 no-fault settlement was deductible from the tort damages awarded in respect of the cost of the brain injury support worker.   If the traditional “apples to apples” approach was used, only the $250,000 in medical benefits from the no-fault settlement could be used, which meant that the Plaintiff would recover $451,809 of the $701,809 awarded in tort in respect of the brain injury support worker.  If the “silo” approach was used (which is what the court ultimately did in its ruling) both the $450,000 in attendant care benefits, and the $250,000 in medical benefits from the no-fault settlement could be deducted, as they both applied to the “health care silo”, which had the effect of offsetting these damages altogether in tort.  On the authority of the Ontario Court of Appeal’s authority in Cadieux, the current state of the law in Ontario is that the “silo” approach is used when deducting accident benefits in motor vehicle actions.

When to Deduct:  MVA Claims

 While many motor vehicle claims arise from rear-end collisions where liability is not an issue (at least that is the way it seems sometimes….), attention should be paid to the stage in the assessment of liability and damages in a case at which one deducts collateral benefits.   S.267.8(8) Insurance Act states that deductions of collateral benefits for health care, income loss of other pecuniary losses (which is done via the silo approach – see above) are made after an apportionment of damages under the Negligence Act.  Therefore, in a situation where the plaintiff is contributorily negligent, collateral benefits will further reduce the plaintiff’s respective entitlement to damages of loss of income, health care, and other pecuniary losses, because the Plaintiff’s damages have, pursuant to s.267.8(8) already been reduced in respect of his contributory negligence.   The Burhoe v. Mohammed case appears to stand for the proposition that this will be the case, even if the defendant is an unprotected defendant, such as a municipal road authority.

Consider, for example, a case which arises from a single vehicle motor vehicle accident, where the Plaintiff loses control of his car on an icy road, but is driving in excess of the speed limit and too fast for the position.   If the Plaintiff was making $100,000 per year prior to the accident, is now unable to work, and is being paid two-thirds of his salary through long term disability benefits, he will not recover any damages for loss of income in the event he is found more than 33% at fault.   This is because his entitlement to damages is reduced by, for example, one-third because of his contributory negligence, and then his long-term disability benefits are deducted from the remaining two-thirds of his loss of income, net of contributory negligence.   As his LTD benefits are two-thirds of his salary, any damages of loss of income are offset entirely.

Summary and Last Word

I joked at the beginning of this article that I do not practice accident benefits law, but I do know what to deduct.   I suspect that after reading this article, you might have come to the conclusion that there is a lot more to “knowing what to deduct” than first meets the eye.  It is hoped that this article has been helpful in navigating the complex law of deductibility of collateral benefits in tort claims.   However, in order to assist further, let me offer the following basic principles:

• Generally speaking, collateral benefits are deductible from tort damages;
• However, other than in an action arising from a motor vehicle accident, if the collateral benefits were purchased or paid for by the defendant (i.e. indemnity based), they are not deductible from tort damages;
• When dealing with taxable collateral benefits, one deducts the gross “before tax” benefit;
• In an action arising from a motor vehicle accident, indemnity-based collateral benefits are deductible, even for an unprotected defendant;
• In an action arising from a motor vehicle accident, accident benefits are deductible by broad category (i.e. “silo”) rather than by specific categories;
• Collateral benefits are deductible after a plaintiff’s claim has been reduced to account for contributory negligence.

[1] [1994] S.C.J. No. 19

[2] S.267.8(9) and (10) Insurance Act

[3] S.267.8(12) Insurance Act.

[4] (2009), 97 O.R. (3d) 391 (Ont. S.C.J.)

[5] [2019] O.J. No. 5489 (Ont S.C.J.)

[6] [2018] O.J. No. 6345 (Ontario Court of Appeal).