Considering COVID-19 CERB benefits when determining IRB entitlements

Jul 13, 2020
Dispute advisory COVID-19 Financial consulting

There is always something new to challenge practitioners under the Statutory Accident Benefits Schedule (SABS)1, During the current pandemic, the question now arises as to how the COVID-19-related Canada Emergency Response Benefit (CERB) should be treated in determining income replacement benefit (IRB) or nonearner benefit (NEB) entitlements?

The CERB provides temporary financial support to employed and self-employed Canadians who are directly affected by COVID-19. Eligible beneficiaries can apply for and receive $2,000 every four weeks for up to 29 weeks from March 15, 2020, to Oct. 3, 2020.

The eligibility criteria have evolved since introduction, and per the CRA2, currently include:

  • Work stopped, work hours reduced or unable to work (for the illness or to care for someone with the illness) because of COVID-19
  • The beneficiary did not quit their job voluntarily
  • The beneficiary does not expect to earn over $1,000 during each four-week period (and for at least 14 days consecutively during the first four-week period applied for)
  • The beneficiary earned minimum income of $5,000 in 2019 or the past 12 months from employment or self-employment or provincial maternity or paternity leave benefits
  • Employment Insurance (EI) benefits are not received or applied for in the same period
  • Payments made to ineligible beneficiaries will be repayable

CERB benefits are unique and there is, of course, nothing specifically provided for in the SABS or, to our knowledge, yet in case law. So we are left to speculate on:

  • Whether, until provided for under the SABS, they should be considered at all
  • How to examine comparisons with other benefits
  • How insurers will treat this issue
  • What decisions might come out of the Ontario Licence Appeal Tribunal (the LAT)

The SABS is a creature of the Insurance Act3, and subsections 268(6) and (7) provide that benefits available under the SABS are excess to any other insurance indemnifying the injured person against the equivalent risk. IRBs are therefore paid pursuant to a contract of insurance after such other indemnity insurance benefits (via deduction), and nonindemnity benefits are therefore not considered under the SABS, unless specifically provided for, such as CPP disability benefits.

Do CERB payments qualify as “insurance” and “indemnity” benefits? Like accident benefits themselves, all other benefits considered in relation to IRBs under the SABS, are indemnity benefits obtained under a contract of insurance for consideration (premiums), including short- and long-term disability and employment insurance. However, the CERB is not obtained under contract, premiums are not paid and they may, therefore, not qualify as insurance.

The CERB may, therefore, be more like social assistance or even charity. Per section 60 of the SABS, social assistance benefits are specifically not deductible from either IRB or NEB entitlements, nor are similar payments, services or benefits under similar legislation in another jurisdiction.

This argument is reinforced by the following:

  • Recipients are referred to as “beneficiaries.”
  • Like social assistance, CERB payments are a fixed universal amount not based on historical earnings, notwithstanding the income-based qualifying criterion.
  • The enabling legislation, also known as the COVID-19 Emergency Response Act, uses the term “income support payment.”
  • This act precludes the CERB from assignment, charge, attachment, garnishment or retention by way of deduction, set off or compensation under any other Act of Parliament. Clearly, the intention is that the CERB financially assists individual workers.

If the CERB does, however, qualify as insurance under the Insurance Act and the SABS, are they “indemnity” type collateral benefits? Short- or long-term and CPP disability benefits are deductible under the SABS under subsections 7(1) and 4(1)(a) as other income replacement assistance specifically only if they indemnify the same cause of loss (i.e., “as a result of the accident). Their fixed amount, unrelated to historic earnings, also undermines any “indemnity” argument.

The CERB is not received as a result of an MVA and therefore is precluded from deduction under subsection 4(1)(a), and would dubiously have to be deemed to be “disability benefits received in respect of an impairment to be considered under subsection 47. We note that per subsection 267.8(1) of the Insurance Act4, deductible collateral benefits are similarly defined as “payments in respect of the incident.” Logically, CERB payments are related to COVID-19 and its economic impact, as opposed to any accident, and thus would not be deductible in tort.

The treatment of the CERB may more closely be compared to EI benefits. Both are taxable and repayable, and EI similarly indemnifies recipients against loss of earnings following job layoff or loss, rather than as a result of an accident. The quantum of EI is, however, based on historic earnings and, most importantly, EI is specifically provided for in the SABS—included in the definition of “gross employment income” and excluded from consideration as a collateral benefit under subsections 4(1)(a) and 47.  

Until specifically provided for in the SABS, it is questionable whether the CERB may simply be assumed to be treated like EI. However, although arguably more logical, this classification of the CERB would increase an insured’s pre-accident income without affecting post-accident deductions.   

We understand that some insurers have already taken the position of treating CERB as post-accident earned income. Subsection 7(3) governs the deduction from IRB entitlements of post-accident earned income as follows:

  • “7(3)(a) 70 per cent of any gross employment income received by the insured person as a result of being employed after the accident…
  • 7(3)(b) 70 per cent of any income from self-employment earned by the insured person after the accident…”

The CERB is obviously not received “as a result of being employed” nor “earned from self-employment.” It is precisely the opposite: it is received for unemployment. It is also not received from an employer and available to self-employed persons. For these reasons, it does not have the characteristics of employment income. Thus, in order to deduct the CERB under 7(3)(a), the insurer’s position would have to be that, like EI benefits, it is included in the definition of “gross employment income.”

However, the somewhat novel argument for deduction of EI benefits as post-accident “gross employment income,” under section 7(3)(a) was rejected in the most recent case on record at the LAT in 17-005910.Furthermore, this position would not allow for the deduction of the CERB in the case of self-employed persons, as subsection 7(3)(b) does not similarly employ the “gross employment income” wording (notwithstanding that self-employment income is captured elsewhere under the SABS under this definition, e.g., in subsections 4(2)2 and 4(2)(3)).

The factual circumstances as to why a CERB recipient (whose income loss must specifically be due to COVID-19) may simultaneously be eligible for IRBs or NEBs (whose inability to earn income must be as a result of the accident) in a given post-accident period is beyond the scope of this article, but must of course also be validated.

According to the Government of Canada’s COVID-19 Economic Response Plan website: “The Government of Canada is taking immediate, significant and decisive action to support Canadians and businesses facing hardship as a result of the global COVID-19 outbreak.” How does the CERB benefit assist Canadians facing hardship if it reduces IRBs, possibly on a dollar-for-dollar basis? While a lot has been written about the issue of overcompensation and double recovery, was the CERB intended to be a windfall for Ontario motor vehicle insurers?

In conclusion, CERB benefits are unique and do not clearly fit anywhere under the SABS. For this reason, in our opinion, they should be ignored until such time as appropriate legislation is enacted. By making a decision as to deductibility in the absence of legislative guidance and an ability to comply with the legislative text, the LAT could be seen as moving beyond its mandate by creating or endeavouring to create legislation.

Arguably, it is also egregious for insurers to take self-serving positions on this issue prematurely. If ever there was a case for conferring the benefit of the doubt to the insured based on the consumer protection and remedial nature of the SABS, it should be on this question.

1Ontario Regulation 34/10 Statutory Accident Benefits Schedule – Effective Sept. 1, 2010.

2Who can apply: CERB with CRA

3The Insurance Act R.S.O. 1990, Chapter I.8.

4The Insurance Act R.S.O. 1990, Chapter I.8.

517-005910 v Aviva General Insurance, 2018 CanLII 110920 (ON LAT) (July 18, 2018).

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