Law Times

LAW TIMES • MARCH 10, 2014 PAGE 7 www.lawtimesnews.com COMMENT f you're too broke to off er the electorate tax cuts at election time, what else can you do to put money back in their wal- lets? Well, you can lower their auto insur- ance rates. Who wouldn't want to save 15 per cent when the average premium in Ontario is $1,600? at's $240 a year back in a driver's pocket. Of course, to get that, you have to give a little and so the insurance industry, which has already pressured the government to lower payouts and impose restrictions on compensation to accident victims, is getting a little more of what it wants in exchange for lowering rates by 15 per cent by next year. To move the issue along, Finance Minis- ter Charles Sousa tabled the fi ghting fraud and reducing insurance rates act last week. e legislation builds on former Superior Court associate chief justice Douglas Cun- ningham's review of Ontario's automobile insurance dispute resolution system. He delivered his fi nal report in February, but most of the recommendations were in the interim report last fall. Cunningham had two tasks: to con- sider whether mediation should remain mandatory for Ontario auto insurance dis- putes and look at how best to deliver auto insurance dispute resolution whether by government, the private sector or a combi- nation of both. His recommendations touched on the systemic causes of and solutions to the mediation backlog and potential changes to the current structure. ey include suggestions for a delivery model and process, the addition of a dispute prevention component, and other issues related to the viability of the dis- pute resolution system. What he found was common knowledge. e system is expe- riencing major backlogs with 16,000 cases and the Greater To- ronto Area driving much of the demand for mediation and ar- bitration. ough new fi les fell off in 2013, "Mediation applications more than dou- bled from 2007-08 to 2011-12 despite no increase in motor vehicle accident (MVA) injuries," wrote Cunningham. Further, he wrote: " e number of MVA claims accessing the courts has also been increasing since 2010 with treatment disputes the most common." Why has this happened? e industry blames fraud but the Canadian Bar As- sociation says shi ing to the no-fault ap- proach has been a disaster. "I am certain that when the fi rst no-fault auto insurance system was introduced in 1990, policy-makers did not contemplate that the claims process and the [dispute resolution system] would become so ad- versarial," noted Cunningham. " is was very much refl ected in the feedback received from stakeholders. e insurance industry points to the plaintiff bar as the source of the system's problems, while the legal community blames the practices of the insurance industry. Neither is an accurate portrayal of the current system." In all, Cunningham made 28 recommendations to stream- line the process, introduce fairness and transparency, and set time limits of six months to stop these fi les from dragging on forever. e changes may result in fewer billable hours, but clients will be happy to see the process streamlined and the Insurance Bu- reau of Canada has already come out and applauded them. e legislation would sensibly take the dispute resolution system out of the pur- view of the Financial Services Commis- sion of Ontario and move it to the Ministry of the Attorney General's Licence Appeal Tribunal since that department oversees several of those types of forums. Given the government's fetish for con- sultation, there's a wealth of other recom- mendations from other task forces such as the auto insurance anti-fraud task force that tabled 38 ideas in November 2012. e new legislation incorporates many of those recommendations and demands the insurance industry cut its costs, espe- cially in the area of fraud that they main- tain is the biggest reason why Ontario's auto insurance rates are the highest in Canada. For example, Sousa announced last December that the government would require health service providers to have a licence in order to bill insurance compa- nies directly. It's a move that puts control of fraud in the industry's hands. But now they're going to phase that in. Further, the government will look at setting up a special investigation and prosecution unit to in- vestigate auto insurance fraud. Other task forces have also reported on reducing some of the petty costs in- surance companies face such as towing and vehicle storage and the province has indicated it will move towards stronger provincewide oversight of the towing in- dustry and change the rules regarding the notifi cation of vehicle storage. e irony, of course, is that the Liberals give with one hand and tax it away with the other. Don't be surprised, then, if they stick to their plan to roll out so-called revenue tools through increased gas, parking, and road taxes to pay for their ambitious transit plans and claw back some of those auto in- surance rate savings. LT Ian Harvey has been a journalist for 35 years writing about a diverse range of issues including legal and political aff airs. His e- mail address is ianharvey@rogers.com. Employers can still minimize exposure to pension benefits ension is a negotiated benefi t that forms an integral part of an em- ployee's total compensation pack- age and in this regard there's a close relationship and dialectical tension between salaries, pensions, and damages. e recent case of IBM Canada Ltd v. Wa- terman starkly exemplifi es this tension. In Waterman, the Supreme Court of Canada grappled with the vexing question of whether payment of pension benefi ts during the reasonable notice period should reduce wrongful dismissal damages. In a 7:2 decision, the court resolved it should not. In arriving at its decision, it delved deeply into the most diffi cult topics in the law of damag- es and confi rmed that pension benefi ts aren't an indemnity for loss of income but rather are a type of retirement savings to which employees earn an absolute entitlement over the years of employment. In Waterman, a er 42 years of employ- ment, IBM dismissed a 65-year old em- ployee without cause on two months no- tice. At the time of his dismissal, Richard Waterman had a vested interest in IBM's defi ned-benefi t pension plan and was entitled to a full pension. IBM told Wa- terman it would treat him as a retiree and he must begin receiving monthly pension payments following his dismissal. While collecting his full pension, Waterman sued for wrongful dismissal damages. At summary trial, the Supreme Court of British Columbia found the appropri- ate period of notice was 20 months. Re- lying on the general rule of contract law, IBM argued Waterman's pension ben- efi ts should be deducted from the salary payable during the notice; otherwise, he would be in a better economic position than he would have been had there been no breach of contract. e trial judge rejected its argument. IBM appealed. Writing on behalf of a unani- mous British Columbia Court of Appeal, Justice Jo-Ann Prowse found there was no express pro- vision in Waterman's contract or IBM's defi ned-benefi t plan pro- hibiting concurrent reception of salary and pension benefi ts. Con- sequently, she concluded that, although there was no evidence regarding the parties' intention, had they considered the issue they wouldn't have intended for Waterman's pension benefi ts to be deducted from wrongful dismissal damages. On its further appeal to the Supreme Court of Canada, IBM advanced two argu- ments. First, it noted that had it given Water- man adequate working notice of dismissal, he would have received only his salary and not his pension. Second, it pointed out that in Sylvester v. British Columbia, the Supreme Court of Canada held that these sorts of ben- efi ts are part of an integrated employment relationship and, unless deducted, the em- ployee collecting them would receive greater compensation than someone lawfully dis- missed with working notice. In response, Waterman urged the court to conclude that pensions are the property of employees that they earned through years of employment and consist of a benefi t that's part of their re- muneration package. It's a benefi t, he argued, that employers couldn't take advantage of to off set the damages awarded. e top court sided with Waterman. In rejecting IBM's fi rst argument, the majority, under the pen of Justice omas Cromwell, pondered whether the court should strictly apply the general principle of compensation, which is designed to compensate a plaintiff only for actual loss, in this case. He determined it should not because the pension benefi ts fall within the controversial exception whereby benefi ts received by a plaintiff through private insurance aren't deductible from a damage award. Having acknowledged that one area of controversy relates to the sort of benefi ts that fall within the exception, the majority found the pension benefi ts aren't an indemnity for lost wages and, therefore, aren't deductible from wrongful dismissal damages. While there's no single mark- er to sort which benefi ts fall within the private insurance exception, Waterman teaches that: • A benefi t wouldn't be deductible if it's not intended to be indemnity for the sort of loss caused by the breach. • e benefi t wouldn't be deductible if the plaintiff has contributed to an in- demnity. • e benefi t would be deductible when it's not intended to be indemnity for the sort of loss caused by the breach and a plaintiff hasn't contributed in order to obtain entitlement to it. • e more closely the benefi t is, in na- ture and purpose, to an indemnity against the type of loss caused by the defendant's breach, the stronger the case for deduction. e converse is also true. • ere's room in the analysis of the de- duction issue for broader policy consid- erations such as the desirability of equal treatment for those in similar situations. In rejecting IBM's second argument, Cromwell distinguished Sylvester, which instructs that, where a cause of action and a benefi t arise under the contract of employ- ment, we must look fi rst to that contract to determine whether an employment benefi t at issue should be deducted from wr ong- ful dismissal damages. Unlike the disability benefi ts in Sylvester, pensions weren't an in- demnity for loss of salary due to Waterman's inability to work. Instead, they're akin to property rights that accrue over time for em- ployees' benefi t. In addition, other income or benefi ts generally don't reduce pension pay- ments or entitlements. In this regard, Crom- well noted Waterman could have retired, drawn his full pension, and concurrently drawn a full salary from another employer. Waterman confi rmed that dismissed employees' pension payments, including those from a defi ned-benefi t plan, are a type of benefi t that "should generally not reduce the damages otherwise payable for wrongful dismissal." e adverb "generally" signals to prudent employers that they can expressly minimize their exposure to employees for pension benefi ts during the notice period by inserting carefully dra ed provisions on the deductibility of benefi ts into their pension plans and employment contracts. Although Waterman prohibits the de- duction of pension payments from wrong- ful dismissal damages, it permits, in certain circumstances, the deduction of wage-loss indemnity payments such as disability in- surance benefi ts. Curiously, relying on its earlier judgment in Jack Cewe Ltd. v. Jorgen- son, the top court suggested that unemploy- ment insurance benefi ts received under the employment contracts of non-unionized employees wouldn't be deductible from wrongful dismissal damages if there's proof of payment by the employee in some man- ner for the benefi ts. LT Nikolay Chsherbinin is an employment lawyer at Chsherbinin Litigation and author of e Law of Inducement in Canadian Employment Law published by Carswell, a omson Reuters Business. He can be reached at 416-907-2587, nc@nclaw.ca or nclaw.ca. Liberals look to hijack NDP auto insurance strategy Labour Pains Nikolay Chsherbinin P I Queen's Park Ian Harvey

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