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Benefits Non-Deductible from Awards of Damages

The Supreme Court of Canada recognized, in Ratych v. Bloomer, [1990] 1 SCR 940, and Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee, [1994] 1 SCR 359, that benefits received by a plaintiff that have to be reimbursed are not deductible from an award of damages, even if they would otherwise constitute collateral benefits (see Related Link “Collateral Benefits Rule”). Although the Court refers to the principle of subrogation, the exception appears broader as it extends to “valid claims to have [the benefits] repaid out of the award of damages”: Ratych, supra p 983. Courts in New Brunswick have generally applied the exception: see Landry v. Doucet (1989), 95 NBR (2d) 228 paras 30-37 (CA); Canada (AG) v. Mason (1990), 104 NBR (2d) 130 paras 2-3 (QB); Stevenson v. Allard (1997), 196 NBR (2d) 46 (QB); Burgoyne v. Landry (2000), 225 NBR (2d) 197 (CA).

In New Brunswick, regarding past loss of income, the exception has been dealt with in the 1996 statutory amendment that has replaced the common law. Sections 265.4(3) and (4) of the Insurance Act, RSNB 1973, c. I-12, state:

265.4 (3) Notwithstanding any enactment or agreement or the terms of any plan or policy of disability insurance, but subject to subsection (4),

(a) a person who makes a payment referred to in subsection (1) is not subrogated to the right of recovery of the plaintiff against another person in respect of that payment, and

(b) a plaintiff who has received a payment referred to in subsection (1) and who subsequently receives an award of damages is not required to reimburse the person who made the payment.

265.4 (4) Paragraph (1)(a) does not apply to payments made under an enactment that expressly permits the person who makes the payments to recover the amount of the payments from the plaintiff or the defendant.

While s. 265.4(3) extinguishes subrogation rights of disability insurance, and thus makes sure that the exception does not apply in those situations, s. 265.4(4) preserves statutory subrogation rights in cases of ‘income continuation plans’ and the recovery of collateral benefits in those situations.

Are Workers’ Compensation Benefits Deductible from Awards of Damages?

Pursuant to s. 10(10) of the Workers’ Compensation Act, RSNB 1973, c. W-13, WorkSafe NB has a broad subrogation right when it has paid benefits to an injured worker. Its claim doesn’t have to be limited to the amount paid to the injured worker, as long as the excess is returned to him or her. The right even extends to Section D benefits paid on behalf of unknown or uninsured motorists, benefits of a contractual nature between the insured and his or her insurer: Workplace Health, Safety and Compensation Commission v. Gillespie (1996), 179 NBR (2d) 233 (CA). As an ‘income continuation plan’ under s. 265.4(1)(a) of the Insurance Act, supra, with a subrogation right protected under s. 265.4(4), the benefits paid thereunder are not deductible from an award of damages for past loss of income.

Are Social Assistance Benefits Deductible from Awards of Damages?

Although some form of loss of income is a necessary condition to the reception of social assistance benefits, it hardly falls into the category of ‘income continuation plan’. As a benefit of last resort, social assistance looks at means generally, including savings, investments, the family unit, etc, to define entitlement. The benefits paid are not based on a percentage of income previously received. As stated in Morris v. Collette, 2003 NBCA 35 at para 110, “they are not in the nature of wage replacement. There is no rational connection between wage replacement and social assistance benefits paid”. Justice Larlee, for the unanimous bench on this point, added that social assistance benefits “are a government subsidy paid at subsistence level that in no way relate to hourly wage rates or wage replacement. They are also not compensatory in nature” (para 111).

Furthermore, s. 10 of the Family Income Security Act, RSNB 2011, c. 154, entitles the Minister “to repayment” of any income or resources received by the recipient “in settlement or payment of an insurance claim, unemployment insurance, workers’ compensation, a pension benefit, any other compensatory benefit or any other income or resources prescribed by regulation … that are intended in whole or in part to provide for the basic needs of the recipient”. Although not a subrogation clause per se (Morris v. Collette, supra para 113), it still displays “a valid claim to have [the benefits] repaid out of the award of damages” (Ratych, supra 983). Section 12 of the Act defines the means at the disposal of the Minister to recover payments up to the amount of social assistance benefits received.

Even though the BC Court of Appeal authority relied upon by Justice Larlee to support her position was overturned on obiter dicta by the Supreme Court of Canada in M.B. v. British Columbia, 2003 SCC 53 paras 21-43, the statutory obligation to repay, as it exists in New Brunswick, would place social assistance benefits in the same category as workers’ compensation benefits. Section 10 places the New Brunswick regime in a setting different than the Act under study in M.B. v. British Columbia, supra para 27, where “the legislation nowhere contemplates repayment of social assistance from the proceeds of a future tort award”.

Are CPP Disability Benefits Deductible from Awards of Damages?

Canada Pension Plan disability benefits are payable pursuant to the Canada Pension Plan Act, RSC 1985, c. C-8, s. 69. They are not deductible because they are not captured by s. 265.4(1) of the Insurance Act, supra, not because of a subrogation right exception (see Related Link “Deductibility of CPP Disability Benefits”; Martineau v. New Brunswick (Minister of Transportation) (1988), 94 NBR (2e) 57 paras 7-8 (CA)).

Are Veteran Affairs Disability Pension Deductible from Awards of Damages?

Members of the Canadian military and Royal Canadian Mounted Police injured in the line of duty may also be entitled to benefits from the Department of Veteran Affairs, pursuant to Part III (ss. 42-56.8) of the Veterans Well-Being Act, SC 2005, c. 21. That statute partly replaced the Pension Act, RSC 1985, c. P-6.

Like the CPP disability benefits, such benefits are neither deductible from an award of damages for past loss of income pursuant to s. 265.4(1) of the Insurance Act, supra. Again, the result is due to the nature of the benefits paid and not the subrogation exception. As explained in Doucet v. New Brunswick, 2004 NBQB 398 para 8:

The funds payable to the plaintiff in the present case are in compensation for disabling war injuries. In the plaintiff’s case he was rendered completely deaf from the left ear, and his hearing is only partial from the right ear with the assistance of a hearing aid. The funds payable to him are disability pension funds intended to be paid to him over his lifetime and are designed to provide for his infirmity and disability. The government of Canada must further have intended that the Veteran’s Disability Pension was not to be considered income as it is exempted as such for the purpose of the Income Tax Act Canada.

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The reasoning follows closely the one formulated in the case of CPP disability benefits discussed above.

The characterization of the benefits in New Brunswick is similar to what has been held in other jurisdictions. Namely, in Burry v. Burry, 2005 NLTD 184 para 32, although dealing with a division of property issue, the court held that the “payment of a disability pension under the Veterans Act is compensation for a disability incurred by a war veteran in the service of their country”. It is non-taxable (para 36). In Frigon v. Blanchard, 2014 MBQB 212 para 44, the presiding justice held that “VAC benefits are not intended to be a form of income replacement”. In Manuge v. Canada, 2012 FC 499 para 63, Justice Barnes explained the purpose of the veterans’ disability benefits as “an important financial award intended to compensate for disabling injuries suffered in the service of Canadians”, and “to provide modest financial solace to disabled CF members for their non-financial losses”. Furthermore, it emphasized “that disabled CF members who continue with their active service are entitled to be paid and to keep their Pension Act disability benefits”. In Manuge, supra, those benefits were not considered income replacement or deductible from LTD benefits.

That being said, there is a longstanding debate in family law whether the veteran’s disability benefits are considered ‘income’ for calculation of spousal and child support payments. While some courts take the benefits into consideration (Irving v. Irving (1988), 17 RFL (3d) 318 paras 33-34 (BCSC); Burry v. Burry, supra para 34; Darlington v. Moore, 2013 NSSC 103 paras 69-73; Vaughan v. Vaughan, 2014 NBCA 6 para 26; Starling v. Starling, 2016 SKQB 112 paras 24-37), others have not (Storey v. Simmons, 2013 ABQB 168; Frigon v. Blanchard, supra para 47). However, such cases have little relevance in the context of insurance law as they speak to ‘means’ as opposed to ‘income replacement’ or ‘income continuation plan’.

Are Charitable Gifts or Gratuitous Payments Deductible from Awards of Damages?

As acknowledged in Ratych, supra p 983, and Cunningham, supra p 393, charitable gifts or gratuitous payments made to an injured plaintiff are not deductible from an award of damages (see Related Link “Collateral Benefits Rule”). For example, in Gilliss v. Breau (1971), 3 NBR (2e) 397 para 7 (CA), the manager of a plant ran the plaintiff over while he was picketing:

The evidence was that it was the company’s policy, when employees were through sickness or accident unable to work, to pay them 75% of their wages, based on a standard 40-hour week, for a period of 13 weeks and sometimes longer at the option of the management. The appellant was paid on an hourly basis of $2.50 per hour. There is no evidence that it was a term of his employment that he was to be paid 75% of his wages in case of illness or disability nor was there any provision in a collective agreement between the company and his union to this effect. There is also nothing before us to show that the company expected to be repaid by the appellant, if the latter were successful in an action for loss of wages or that the appellant gave any undertaking to do so if he were. It is my opinion that the payment of $900 by the company must be regarded as a gratuitous payment and that it was not received by the plaintiff as of right.

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It is when the gift comes from the employer that difficulties arise. Otherwise, it seems clear that a tribunal would not deduct from an award of damages a gratuitous payment received from a relative, friend or other benevolent third party.

Are Savings, RRSPs Deductible from Awards of Damages?

A plaintiff may have been able to put some of his or her own money aside before sustaining an injury-related loss of income. The savings may take various forms, including RRSPs. A loss of income may compel a plaintiff to cash-in some of the money in order to survive and pay bills. There are fiscal implications with RRSPs that have to be declared on income tax returns. However, as income earned prior to the accident, they are not deductible from any award of damages.

Are Legal Fees and Disbursements Deductible from Awards of Damages?

In many cases, a plaintiff will be denied income replacement benefits from an insurer even when entitled to them. As the saying goes, insurers are not in the business of giving away money; they will fight hard to maximize the return to their shareholders, which typically means collecting the most amount of premiums for the least possible amount of benefits paid. Although the law accepts that it is not necessary to sue an insurer before collecting from a tortfeasor (Morris v. Collette, supra paras 19-21), the legal fees incurred are not deductible from the award of damages when a plaintiff does: Coates v. Reid (1991), 121 NBR (2d) 223 para 28 (QB). The ratio in Barton v. WorkSafe NB, 2017 NBCA 13 para 30, finds no application here as the case was decided under the very specific provisions of the Workers’ Compensation Act, supra ss. 38.91(1) & 38.91(1.01).

Therefore, when a plaintiff engages a legal action to obtain money owed under an otherwise deductible ‘income continuation plan’, the amount to be deducted from the award of damages is net of legal fees. However, the implications are nil when the litigation is related to benefits that are not deductible.

This paper is offered for the purpose of discussion only. It does not constitute legal advice and its distribution does not create a solicitor-client relationship. Please consult a lawyer if you require legal advice.