Law Times

Page 12 January 11, 2016 • Law Times www.lawtimesnews.com Courts seek to avoid double recovery Sands shift when it comes to LTD deductibility BY JUDY VAN RHIJN For Law Times T he first case in Ontario to consider the Supreme Court of Canada's views on the deductibility of long-term disability payments from damage awards has leaned heavily on public policy consider - ations. e case marks a shi in the long-held view that such benefits are an exception to the principle of double recovery, and may prove to be a gamechanger for the insur - ance industry. Jennifer Hunter of Lerners explains that the issue is about whether LTD benefits received by the plaintiff are deducted from the damages payable by the defendant. "In general, there is a rule against double recovery, which means that the plaintiff should not receive more than her actual losses. For example, the plaintiff should not receive loss of income damages from the defendant if she has al - ready received insurance benefits that were meant to compensate for loss of income. ere is an ex- ception to this rule, which is that, if the plaintiff had the foresight to buy insurance, the defendant does not get to benefit from that." Hunter explains that tradition - ally the burden has been on plain- tiffs to demonstrate that they paid the premiums for the insurance, which can include by way of bar- gaining through a collective agree- ment. While motor vehicle-related cases lost protection of this excep- tion through legislative change in 2003, it has remained available for other torts. However, case law is starting to reduce the availability of the private insurance exception. e SCC gave the first indica - tion that a shi was occurring in the 2013 decision of IBM Canada Limited v. Waterman. In that case, the complainant was dismissed without cause. He received re - tirement benefits, paid for by employer contributions until his claim was adjudicated. e SCC acknowledged that there was a double recovery, but said: "Water - man's retirement pension is not an indemnity for wage loss but rather a form of retirement savings." e SCC commented in its rul - ing that case law has been closely divided on the issue of the deduc- tion of an indemnity benefit to which the plaintiff has contributed. Hunter says "in Waterman, the Supreme Court stated that the way in which the private insurance exception is applied has not been clear and consistent and thus the court stated the factors that are relevant, including policy consid - erations." Following Waterman, there have been two decisions that have applied the Supreme Courts' com - ments and downplayed the impor- tance of employee contributions. In 2014, the B.C. Supreme Court, in Morris v. ACL Services Limited, considered long-term disability payments paid under an employ- ment contract following a termi- nation made without cause. e court found that the employment contract showed an intention that these income replacement ben - efits would be deductible from any wrongful dismissal damage award. In Lethbridge Industries Ltd v. Alberta (Human Rights Commis - sion) in 2015, the Alberta Queen's Bench also concluded that dis- ability benefits should be deducted from a Human Rights Tribunal award for the loss of wages experi- enced as a result of discrimination. Both cases gave strong weight to policy considerations. Until now, there has been no ap - propriate case in Ontario in which to apply the Waterman approach. "e incorporation of policy con- siderations into the analysis in the case of a personal injury action where the plaintiff has received LTD benefits is new and was a live issue for the first time in Ontario in Mazzucco v. Herer," says Hunter. at decision — which was re - leased on Nov. 16, 2015 — consid- ered the deductibility of CPP and LTD benefits from past and future income loss. e plaintiff had suc- ceeded in a medical malpractice action against Women's College Hospital and several doctors re- lating to a stroke that she suffered aer the birth of her second child. She received benefits from the Dufferin-Peel School Board, her former employer. Both parties agreed that, for now, the law is settled that CPP benefits are not deductible from any past or future income awards, but the treatment of LTD pay - ments was disputed. e judge commented that the law regarding the deductibility of LTD payments is shiing. "In Mazzucco, the trial judge applied the SCC's reasoning in Waterman to the issue of whether the LTD benefits were deductible from the loss of income claim in a case where the employer paid the LTD premiums as a result of a collective agreement," says Hunter. "Pre-Waterman, this would have fallen into the private exception. e new analysis, post-Waterman, means that there are factors to con - sider whether the private insur- ance exception applies. ose fac- tors are the nature and purpose of the benefit and whether it matches the loss; whether the plaintiff bar- gained for the insurance as part of her compensation; and policy con- siderations. In Mazzucco, the judge found that the first factor weighed in favour of deduction, the second against, and the third in favour, because both the insurance premi - ums and the damage award are, in- directly, paid by taxpayers, which means the plaintiff would receive double recovery paid for by the taxpayer." e court held: "It is reasonable for Ms. Mazzucco to be compen - sated for her wage loss. For her to receive double recovery from the public purse, which in many re- spects is already overburdened, is not." 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