Are Collateral Benefits Deducted From a Car Accident Judgment in Ontario?

Are Collateral Benefits Deducted From a Car Accident Judgment in Ontario? This post examines two related issues that can arise in Ontario car accident claims.

The first issue is when are future benefits, including Long Term Disability benefits and Accident Benefits, deducted from a judgment, versus the defendant is assigned the plaintiff’s right to receive those benefits.

The second issue is whether future benefits, regardless of whether they are dealt with through an assignment, can be considered when assessing costs and the effect of Rule 49 offers.

There are also a number of ancillary issues. The law surrounding assignments is complex. There are still situations where plaintiffs can receive a level of double recovery because of the difficulty in obtaining assignments or valuing future benefits. Those opportunities are reduced if the damages award is broken down with precision, but the issues remain important in serious motor vehicle litigation.

This issue is particularly important in serious cases handled by Ontario car accident lawyers, especially where the claim involves income loss, future care, statutory accident benefits, long-term disability benefits, catastrophic impairment disputes, or potential over-limits exposure.

Short Answer

Accident Benefits and other collateral benefits are deducted only where the statutory or common law basis for deduction is established. In motor vehicle cases, section 267.8 of the Insurance Act now does much of the work, but the analysis still depends on the category of loss, the timing of the payment, and whether the benefit is past or future.

With future benefits, the modern approach is usually not to deduct their present value from the judgment. The statutory trust and assignment provisions deal with those benefits if and when they are received.

That is an important distinction. If future benefits are deducted from the judgment, the plaintiff carries the risk that those benefits are later denied, terminated, reduced, exhausted, or never paid. A trust or assignment avoids that problem. The defendant receives the benefit only if the plaintiff actually receives the benefit.

There are several important caveats to this general rule, many of which are analyzed below. However, in many cases there is no proper basis to simply deduct uncertain future benefits from the judgment.

With respect to costs, there are trial-level decisions rejecting the argument that a plaintiff did not truly beat a defendant’s Rule 49 offer once an assignment of benefits is taken into account. Those judges ruled that they could not take this into account because it would require significant speculation.

Both of those trial decisions were appealed, but this specific argument was not addressed in either appeal.

The concerning case with respect to whether future deductible benefits can be taken into account when considering Rule 49 offers is Carroll v. McEwen. In that case, the trial judge did not consider the impact of the value of the assignment of accident benefits on the costs award. However, the Court of Appeal seemed to note it as a worthwhile consideration.

There is a strong argument that speculative future benefits should not be valued to the dollar for Rule 49 purposes. However, Carroll creates some risk where the judgment does not significantly exceed the defendant’s offer. What is possible is that the court applies a broader or “holistic” approach and considers the impact of the assigned benefits as a reason to reduce the costs awarded.

Legislation

The relevant provisions of the Insurance Act that address the assignment or trust of SABs received by a plaintiff post-trial provide:

267.8(9) 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 plaintiff’s occupation or employment.

4. All payments in respect of the incident that the plaintiff receives 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.

Case Law

The original assignment of future benefits case was Cox v. Carter. In that case, the court fashioned an assignment as a way to prevent double recovery. This was later codified in the legislation cited above.

The first case to interpret the legislation in this area was Chrappa v. Ohm. In Chrappa v. Ohm, the defendants argued at trial that the legislation governing assignments required the trial judge to deduct the present value of future disability payments to age 65 from the award. The trial judge concluded that to succeed with a deduction of future benefits, the defendants had to demonstrate that it was “beyond dispute” that the plaintiff qualified in every respect for those payments and that they would be received.

The trial judge found this was not established and refused to make the deduction. Instead, the court imposed a Cox and Carter order, requiring the plaintiff to hold in trust the future LTD payments that were received and, to the extent of the judgment, to pay them to the defendants.

The Court of Appeal stated that the plaintiff’s present right to receive the payments means that, so far as the future can be made certain, they will be received. Short of that, there is no entitlement for the purposes of the subsection.

The subsection requires that the entitlement to future payments exist at the time of trial. It must be shown that there are future payments to which the plaintiff is entitled. The plain meaning of the language requires a present right to receive those future payments. Otherwise, the present value deduction does not apply.

The relevant case law also supports the conclusion that a strict construction is to be given to the concept of entitlement to insurance benefits where that entitlement is the basis for a reduction in the plaintiff’s recovery.

The Court of Appeal concluded that where entitlement to future long-term insurance benefits is used as a basis for reducing the plaintiff’s damage recovery, it must be strictly interpreted to require that it be beyond dispute that the plaintiff qualifies for the future payments in every respect.

The result is important. A Cox and Carter order does full justice to both parties because it provides a mechanism for ensuring with precision that the plaintiff obtains no double recovery because of future payments from the insurer to compensate for income loss. It does so without passing to the plaintiff any risk that the ultimate recovery will be less than that awarded by the jury.

El-Khodr and Cobb

In 2017, the Ontario Court of Appeal re-wrote the law with respect to the deductibility of Accident Benefits in the companion cases of El-Khodr v. Lackie and Cobb v. Long Estate.

The Court of Appeal altered the law from the “matching” principle in favour of the “silos” principle. Cobb examined the deduction of past collateral benefits. El-Khodr dealt with the assignment of future benefits.

The Court in El-Khodr reviewed the history of assignments of future benefits and their purpose before moving into the principles produced by the previous leading case of Chrappa v. Ohm. The Court endorsed the approach taken to assignments in Chrappa v. Ohm and upheld the test laid out in that case.

Cadieux v. Cloutier

In Cadieux v. Cloutier, a five-member panel of the Court of Appeal was assembled to examine the deductibility of collateral benefits. The context for the five-member panel is that the Cobb and El-Khodr rulings were viewed as controversial by some because they potentially overruled the Supreme Court of Canada’s decision in Bannon v. McNeely.

The decision upheld the law as stated in Cobb and El-Khodr. The case is relevant because of its discussion of costs and because it confirmed the silo approach.The Court considered whether past and future statutory accident benefits should be deducted for costs purposes.

The Court stated that the current legislative regime no longer requires the deduction of the present value of future benefits and that the statutory trust and assignment provisions in sections 267.8(9) to 267.8(12) replace common law Cox and Carter orders.

The Court also indicated that the silo approach applies to assignments of future benefits equally as it does to past benefits. With respect to the assignment and trust provisions, the Court saw no principled basis on which to apply different approaches to SABs received before and after trial. The statutory assignment and trust provisions make it unnecessary to require strict proof of entitlement to future benefits. They pass no risk of under-compensation to the plaintiff. The benefits are assigned or held in trust as and when they are received until the defendant or its insurer has been reimbursed for payments made under the judgment in respect of the particular silo.

If the plaintiff’s entitlement is limited or terminated, the tort insurer simply does not recover an offset of the damages already paid to the plaintiff.

The Court in Cadieux also found that past accident benefits paid can be deducted from the tort award, regardless of whether they were paid to the plaintiff or to a third-party provider.

The Court stated that SABs paid prior to settlement should be deducted from the jury award for corresponding past and future damages within the relevant silos. There is no basis for drawing a temporal distinction between past payments of SABs and future tort damages within the silo.

There is also no reason in principle why SABs paid to third parties, as a matter of convenience, should not be deducted from the award.

The deduction remains silo-based. The analysis still requires the court to identify the proper category of loss. There can also be procedural issues where there are multiple defendants or settlement credits. The broad point is that the modern approach does not require strict line-by-line matching.

The difficulty with interpreting Cadieux is that it did not make a clean ruling on the costs issue. It asked the parties to sort out the remaining issues based on the decision.

The Court did make orders that portions of the SABs settlement for past and future medical and rehabilitation benefits and for past and future attendant care benefits should be set off against the jury award for an ABI support worker. The appellant was also entitled to deduct health care SABs paid prior to settlement and SABs for other pecuniary loss paid prior to settlement from the jury award.

An important ratio of this decision is that past SABs paid can be deducted from a global cost of care award, provided they fall within the proper silo.

Ultimately, the Court did not comment on whether future benefits should be considered with respect to the costs award.

Cadieux v. Cloutier — Costs

Due to unresolved issues flowing from the first decision, the Court of Appeal reconvened in Cadieux v. Cloutier, 2019 ONCA 241 to make additional rulings.

With respect to the impact of SABs deductions on costs, the Court stated that the appeal resulted in the reduction of the net judgment, but was not about the jury award or the conduct of the trial. The appellant did not challenge the award. He challenged the method of deducting SABs from the jury’s award.

The Court noted that this was a complicated and uncertain area of the law. For the appellant’s insurer, the issue was important. It was also important to the insurance industry, to lawyers representing plaintiffs and defendants, and to their clients.

At the end of the judgment, the Court did not provide detailed reasons for altering costs. However, it said that neither party should have costs. Previously, the plaintiff had been awarded $100,000 in costs.

Carroll v. McEwen

Carroll v. McEwen was a companion case heard by the five-member panel of the Ontario Court of Appeal. The plaintiff had been awarded approximately $2.6 million prior to deductions at trial. Approximately $2.2 million of that award was for future care costs. The defendants had a $1 million policy and the plaintiffs sued their OPCF 44R insurer. The defendants declared bankruptcy after trial.

At issue was that the insurers could only gain an order for an assignment of future benefits if they paid the entire judgment.

Because there was approximately $600,000 of gross judgment over-limits, the insurer needed the assignment of benefits to be worth more than the amount over-limits to make paying the full judgment worthwhile.

The trial judge awarded a conditional assignment order. If the insurers paid the judgment in full, they would receive an assignment of the future SABs that the plaintiff was entitled to receive. In effect, the conditional assignment order gave the insurers an option that could reduce their net liability.

The Court of Appeal further explained that payment of the award in full, coupled with an assignment of future SABs, could reduce the insurers’ net liability. If the insurers determined that the outstanding health care SABs would not exceed the combined liability coverage by more than the over-limits amount, they would be better off paying only the available coverage and foregoing the assignment. But if they determined that the future health care SABs payments would exceed that amount, they could pay the entire award and rely on the assignment to reduce their total net obligation.

The second issue was costs.

The plaintiffs appealed the costs order they received of $375,000 inclusive of fees, disbursements and HST. This award was less than half of what they claimed in partial indemnity costs. The trial judge offered several reasons for reducing the costs order, including sanctioning plaintiff’s counsel for attempting to “trick” the respondents relating to a settlement offer.

The first issue the Court of Appeal dealt with was re-affirming the silo approach over the strict matching principle with respect to the deductibility of benefits.

The Court of Appeal held that the same considerations apply in assignment cases. Section 267.8 is integrated in the sense that, together, its provisions are meant to ensure fair compensation and prevent double recovery. There is no principled or technical reason why a different matching regime should apply to SABs received after trial. The silo approach applies to section 267.8 as a whole.

The plaintiffs argued that the trial judge erred in law by making a conditional assignment order before the judgment had been paid in full. The Court of Appeal rejected this argument.

Requiring a damages award to be paid before an assignment order can be made is impractical. A damages award cannot be paid before the trial has ended and the damages to be recovered have been identified. The plaintiffs’ interpretation would require post-trial motions to obtain the assignment of future SABs, which would be expensive and inefficient.

The Court of Appeal found that section 267.8(12) avoids the need for subsequent assignment motions by expressly empowering trial judges to make assignment orders subject to conditions the court considers just. This allows the trial judge to make the assignment itself conditional.

Carroll and Costs

The costs appeal was rejected for several reasons. The most important for this issue was the “lack of material benefit” from the trial.

The trial judge essentially found that since the plaintiff only narrowly beat the offer to settle, and did not receive all of the funds awarded because the award was over-limits and the defendants had declared bankruptcy, the plaintiff should not be entitled to as much in costs. The Court of Appeal agreed with this logic.

The plaintiffs argued that the trial judge made a palpable and overriding error because, on the evidence, they beat the offers to settle that had been made. They also argued that the trial judge erred by failing to consider the offers the plaintiffs made and by requiring the plaintiffs to beat the offers by a substantial margin in order to secure partial indemnity costs.

The Court of Appeal did not accept these arguments.

The trial judge considered the settlement offers that had been made and the plaintiffs’ position. He was persuaded by the respondents’ position that, while it may appear factually that the settlement offers had been beaten, when substance was considered there was little if anything to be gained by going to trial.

The most significant paragraph is the Court of Appeal’s comment that it was not clear the plaintiffs beat the offers by any measure. The offer did not include an assignment of future SABs and therefore, in substance, was an offer worth well in excess of its face amount to the plaintiffs. On the evidence before the trial judge, the value of the future SABs was between $599,000 and $830,000. After the multi-week trial, the plaintiffs secured an award of $2.6 million in damages, as well as costs of $375,000. The Court of Appeal found there was little if any utility in having a trial.

The valuation of future SABs in this context can be difficult, particularly where the bulk of the award relates to future care. It is apparent from the Court of Appeal’s decision to add this comment that it would be receptive to the argument that future deductible benefits should be noted when considering whether an offer was truly beaten.

Having said that, the Court seems to note it as more of a factor than anything else. It does not create a precise mathematical rule.

Nemchin v. Green

In Nemchin v. Green, the Ontario Court of Appeal examined an assignment order of Long Term Disability benefits to the defendants.

The trial judge ordered that the assignment was of the gross Long Term Disability benefits, not net. As a result, the plaintiff was required to pay a “top up” of the net benefits to the defendants each month.

The Ontario Court of Appeal held that this approach was wrong and only the net pay should be assigned. The Court of Appeal stated that the trial judge’s approach would leave the plaintiff undercompensated.

The important part of this case is the Court of Appeal’s clarification of the purpose of the assignment.

The Court stated that the trial judge failed to recognize that the respondent’s insurer, as assignee, steps into the shoes of the plaintiff and acquires the entitlement to the plaintiff’s benefits subject to all the equities and obligations existing between the plaintiff and Sun Life under the plan.

Instead, the trial judge effectively concluded that the respondent’s insurer was entitled to collect the plaintiff’s gross benefits as if they were not taxable or as if the plaintiff had elected to take the entire taxable sum in hand.

This is important. The assignment is meant to prevent double recovery. It is not meant to put the defendant in a better position than the plaintiff under the disability plan or leave the plaintiff undercompensated.

There was also an issue in Nemchin involving monies held in trust versus assignments. Before the assignment is ordered and rights have changed, monies received may need to be held in trust and then distributed to the defendant after the assignment is ordered.

El-Khodr Trial Decision

In the trial decision of El-Khodr v. Lackie, 2015 ONSC 5244, the defendants argued that the present value of future, assigned Statutory Accident Benefits should be taken into account when considering costs.

The defendants submitted that, when one considered the offers to settle and the effect of assignment or non-assignment of future Statutory Accident Benefits, the plaintiff’s offer was far in excess of the jury’s net verdict, as compared to the defendants’ all-inclusive offer with no assignment of future Statutory Accident Benefits.

The trial judge rejected this argument.

The trial judge held that the defendants’ failure to require the jury to break down their awards for future professional services, future medications, and assistive devices prevented the court from determining the appropriate application of the trust and assignment provisions.

The trial judge also found that the defendants failed to satisfy the court that the plaintiff would receive full compensation for his losses if the defendants’ arguments were accepted.

Finally, with respect to any accident benefits the plaintiff could subsequently recover, the trial judge echoed Justice Wilson’s statement in Hoang v. Vicentini that it would be inappropriate to speculate on what could happen in the future concerning accident benefits.

This is a rejection of the argument that future assigned statutory accident benefits should be valued and used against the plaintiff for costs purposes.

The general approach to assignments in El-Khodr was altered at the Court of Appeal level. However, the Court of Appeal made no comment on this costs decision.

Hoang v. Vicentini

In Hoang v. Vicentini, Justice Wilson considered costs in a case where plaintiff’s counsel’s offer was $5 million and the defendant’s offer was $350,000. The defendant’s offer would have allowed the plaintiff to pursue Accident Benefits. The jury awarded $834,000.

The defendant argued that the plaintiffs would have been better off accepting the defendant’s offer, avoiding trial, and keeping the entitlement to SABs. The court was encouraged to adopt a “holistic” approach to costs.

The Court rejected this argument. The Court held that the defendant could not bring himself within Rule 49.10(2) because the plaintiffs’ recovery at trial exceeded the defendant’s offer. This was not a case where the offer to settle was so close to the recovery at trial that the defendant should be entitled to the exception to the usual cost consequences.

The defendant also argued that the jury verdict was a win for the defence and that the court should take a holistic approach to costs. He submitted that the plaintiffs would have been better off accepting the offers and keeping entitlement to statutory accident benefits instead of proceeding to trial.

Justice Wilson rejected this as it was unclear what amounts would be paid in accident benefits in the future.

While this decision was appealed and upheld, the approach to costs was not considered, other than issues unrelated to this point.

Kolapully v. Myles

Kolapully v. Myles is important because it addressed the deductibility of non-earner benefits from a tort award for past income loss.

At trial, the plaintiff had received more than $95,000 in non-earner benefits under the SABS. The jury awarded $200,000 for past loss of income. The trial judge refused to deduct the non-earner benefits from the past income loss award, relying on Walker v. Ritchie for the proposition that non-earner benefits are not related to loss of income.

The Court of Appeal found this was an error.

The Court held that Walker had been displaced by Cadieux and the modern silo approach. Under the silo approach, the deduction is not based on strict matching. It is confined to the appropriate statutory silo.

The Court held that non-earner benefits fall within the income replacement or income loss silo. As a result, the non-earner benefits had to be deducted from the award for past income loss.

Kolapully is significant because it confirms that Walker no longer governs this issue in motor vehicle tort cases. Non-earner benefits fall within the income-loss silo and can be deducted from a past income loss award.

Kolapully also dealt with costs. The Court of Appeal refused leave to appeal the costs award. The Court accepted that the plaintiff’s pursuit of a catastrophic impairment designation narrowed the scope of the tort action and reduced the damages recoverable against the defendants. The deductibility of the non-earner benefits added force to that argument.

Ancillary Issues

CAT and Non-CAT Issues

The Court of Appeal case of Gilbert v. South did not provide an assignment of future medical and rehabilitation benefits because the plaintiff was not catastrophic and only had the benefits for ten years.

The future care award had no timeline. As a result, the trial judge stated that he could not discern how much of the future care award the jury intended to allocate to the first ten years of treatment. Because it was not clear, he refused to award the assignment. The Court of Appeal upheld the ruling.

In El-Khodr, the Court of Appeal distinguished Gilbert because the plaintiff had been deemed catastrophic.

Although the Court of Appeal seemed to have changed its position on deductibility between 2014 and 2017, it did not say that Gilbert was wrong. It said it was not directly applicable.

The Court also made the point that the questions posed to the jury have a significant impact on whether an assignment can be made. The level of detail in the verdict or reasons can affect whether deductions and assignments can be administered.

In a non-catastrophic case, the defendant can face difficulty both obtaining the assignment and valuing the assignment.

Assignment in an Over-Limits Scenario

Carroll v. McEwen fleshed out the over-limits issue. The default position is that if an insurer does not pay the entire judgment, it does not receive an assignment of benefits.

This has implications in cases involving potential over-limits judgments.

If the plaintiff receives a judgment above the available policy limits, the tort insurer may not be able to satisfy that judgment unless it chooses to pay over limits to gain the assignment. This could potentially create a situation where the plaintiff receives the policy limits and continues to receive LTD and Accident Benefits.

Carroll illustrated that the court can award a conditional assignment order to allow the insurer to determine whether it will elect to pay the entire judgment and receive the assignment.

The practical value of assignments differ depending on who controls the future benefits dispute and whether the plaintiff has been deemed catastrophically impaired. In a non-CAT case, the defendant may have to establish catastrophic impairment or otherwise prove the availability of meaningful future benefits to obtain a substantial practical deduction.

Bad Faith Claims Post-Bankruptcy

In McEwen (Re), the Court was dealing with the Carroll v. McEwen litigation. The defendants had declared bankruptcy but still wished to pursue a bad faith claim against their insurer.

The trustee in bankruptcy permitted them to do so, with the proceeds being exempt from the bankruptcy process. The Court of Appeal upheld this decision.

The impact is that even if defendants are forced to declare bankruptcy in an over-limits scenario, there may still be a potential claim against the insurer for bad faith. In the right case, the plaintiff may be able to obtain an assignment of the defendants’ rights to pursue the insurer for a bad faith judgment.

Conclusion

The deductibility of collateral benefits in Ontario car accident litigation remains complicated. Past Accident Benefits are often deductible if they fall within the proper silo. The modern law no longer requires the strict matching analysis that previously limited deductions. Cadieux, Carroll, and Kolapully confirm that the silo approach governs.

Future benefits are different. The better approach is usually assignment or trust, not a present value deduction from the judgment. That avoids transferring the risk of uncertain future benefits to the plaintiff.

The costs issue is still more uncertain. Plaintiffs have strong arguments that future benefits should not be valued speculatively for Rule 49 purposes. Hoang and the El-Khodr trial decision support that position. Carroll creates risk because the Court of Appeal showed willingness to consider the practical value of future benefits when assessing the substance of a settlement offer.

In serious car accident cases, these issues should be addressed before trial and before offers are exchanged. The gross amount of a judgment or settlement does not tell the whole story. Accident benefits, LTD benefits, assignments, trusts, policy limits, catastrophic impairment issues, and Rule 49 consequences can all affect the actual recovery.

These issues are part of the broader damages analysis that Ontario personal injury lawyers need to consider in serious injury claims.

This article is for general information only and is not legal advice. The treatment of accident benefits, LTD benefits, collateral benefits, assignments, trusts, and Rule 49 offers depends on the facts of the case and the wording of any applicable policy, settlement, judgment, or court order.