Are employment insurance benefits deductible from IRB entitlements?

Apr 04, 2021
Financial consulting

Recently, we were asked by a client if employment insurance (EI) benefits are deductible from income replacement benefit (IRB) entitlements. The insurer sought to deduct them as post-accident earned income as they fall within the definition of gross employment income. Is this correct and is there any precedent?

Section 7(1) of the Statutory Accident Benefits Schedule1 specifies that weekly IRB entitlements are subject to deduction of “all other income replacement assistance” and section 4(1)(a) defines “other income replacement assistance” as “the amount of any gross weekly payment for loss of income that is received by or available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, other than, (i) a benefit under the Employment Insurance Act (Canada)…”. Similarly, section 47 allows an insurer to deduct “any temporary disability” or “other periodic collateral benefits” received “following the accident in respect of an impairment that occurred before the accident” but again specifically excludes any income received under the EI Act.

So EI benefits are specifically precluded from deduction as collateral benefits (other income replacement assistance), but in this case, the insurer sought to deduct them at 70 per cent of their value, as post-accident employment income. The insurer identified that EI benefits are included in “gross employment income,” defined under section 4(1) as “…salary, wages and other remuneration from employment, including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada)…”.

Also, section 7(3)(a) governs the deduction of post-accident income for employed persons and allows insurers to deduct “70 per cent of any gross employment income received by the insured person as a result of being employed after the accident and during the period in which he or she is eligible to receive an income replacement benefit.”

Post-accident EI benefits are obviously not received “as a result of being employed after the accident,” quite the opposite in fact, and therefore should not be deducted under this provision. Or so you would think.

In 17-0053022, Nelson3 and Veeran,4 however, EI maternity benefits were found to be deductible as post-accident income under 7(3)(a).

The adjudicator in 17-005302 relied on the Nelson and Veeran decisions. In Nelson, the arbitrator agreed with the insurer that “maternity leave is not unemployment and therefore EI maternity benefits fall within the definition of ‘gross employment income.’” In Veeran, the insured received both EI maternity and EI sick leave benefits, and the arbitrator held that the insured was entitled to deduct 70 per cent of EI maternity benefits as gross employment income under 7(3)(a), relying on Nelson, but not the sick leave benefits.

The adjudicator in 17-005302 held that “EI becomes payable ‘as a result of being employed,’” and her maternity benefit “income arises out her employment.” Other EI benefits cover disability or sickness and these benefits are not deductible from an income replacement benefit because they have been specifically excluded by s.4(1) and s.47(3). This purported distinction was notwithstanding the actual reference in section 4(1)(a) “to a benefit under the Employment Insurance Act (Canada).

In 17-005910,5 a subsequent decision involving the same insurer, where regular EI benefits received following layoff prior to the accident were deducted under 7(3)(a), the adjudicator stated that “section 7 of the schedule allows the insurer to deduct certain payments from an amount of an IRB. However, section 4(1)(a)(i) excludes, not includes, deducting post-accident EI income from an IRB. Thus, EI payments are not deductible” and in the opinion of the adjudicator “there was no ambiguity regarding whether or not C.M. was receiving EI and what the schedule states about excluding EI payments and how to calculate the IRB in such circumstances.” Notwithstanding a lack of ambiguity as to what the schedule states, the arbitrator noted that “Mr. Kakish, who described himself as an experienced adjuster, as well as an Aviva unit manager, conceded that Aviva misinterpreted the regulation and made a mistake.”

To read into the plain meaning of the legislation, in order to find a way to deny benefits to an insured, is clearly contrary to the Supreme Court of Canada’s decision on statutory interpretation in Rizzo6 and its ruling in Smith.7 In Rizzo, the court held that the words of an act are to be read in their entire context and their grammatical and ordinary sense, harmoniously with the scheme of the act, the object of the act and the intention of Parliament. In Smith, the court ruled that the SABS regulation constitutes consumer protection legislation, meaning that it should be interpreted in a consumer-friendly as opposed to insurer-friendly manner.

The matter of Jamie Turnbull and Aviva General (18-003238/AABS) involved the calculation of a special award. The insurer’s calculations, which minimized the insured’s entitlements, were clearly incorrect. So the insured hired an accountant to calculate the special award amount actually owing. The insurer relied on the insured’s calculations and subsequently paid the amount owing. The insured thus claimed reimbursement on the grounds that this expenditure had been necessitated by the insurer’s conduct. The insurer opposed the need to pay as not being provided for in the regulations and so the dispute led to a motion at the License Appeal Tribunal.

In his denial of the motion, Vice-Chair Terry Hunter wrote, “There is no provision in the SAB Schedule for the payment of this disbursement. There is no provision for the payment of disbursements within the cost regime contained in Rule 19 of the Tribunal’s Common Rules of Practice and Procedure. The costs awards under Rule 19 are not meant to be compensatory but rather to deter certain conduct.”

Further, “The Tribunal is a creature of statute and its jurisdiction must be expressly granted in its enabling legislation or the Statutory Powers Procedure Act.”

The LAT may be unique in that it allows adjudicators to reconsider their own decisions. So in his subsequent denial on reconsideration (18-003238/AABS-R), Hunter wrote that the “applicant asks me to find that costs and disbursements are discussed as one and the same in analogous legislation… I am asked, in effect to read into the Insurance Act and Reg. 664, any reference to costs includes disbursements” which he was unable to do. He noted that there has not been one LAT decision that has awarded disbursements as part of a cost award.

The argument that cost awards are not intended to be compensatory but rather to deter certain conduct remains to be clarified. If inappropriate conduct or acts of bad faith by an insurer are not to be deterred then what is?

In his decision in Mary Manual and Certas, Direct Vice-Chair Derek Grant adopted a different opinion on statutory interpretation. Notwithstanding the wording of subsection 47(3) of the SABS which specifically excludes disability income received under the Employment Insurance Act from temporary disability benefits, the vice chair held that “on a plain reading of the Schedule, I do not find that was the intent of the wording in the regulation.” Thus, according to this decision, it would appear that a plain reading of the Schedule can involve research as to the intent of the regulation.

The legislation specifically refers to “benefits under the Employment Insurance Act (Canada)” and the interpretation that this only includes EI benefits that cover disability or sickness is arguably not based on a plain reading of the regulation. Nevertheless, this is the position adopted by the LAT based on a complicated interpretation, as opposed to a plain reading of the legislation and an insurer-friendly as opposed to a consumer-friendly interpretation of the regulation.

Whereas LAT adjudication and FSCO decisions are not necessarily binding, the most recent decision in 17-005910 discussed earlier makes it clear that regular EI unemployment benefits received post-accident are not deductible as either collateral benefits or post-accident earned income. At least, there is no dispute, to date, in the case of regular or sick EI benefits. This is not so in the case of EI maternity benefits or re-employment and compassionate benefits which remain to be discussed at the LAT.

We note that no distinction is made in the SABS between the various types of EI benefits. How then are adjudicators able to make this distinction? Do LAT adjudicators really have the ability to distinguish between various types of EI benefits without any legislative authority? Perhaps we have not heard the end of litigation on the EI maternity benefits question.

While we obviously cannot expect the LAT to issue decisions in advance, we should be able to expect a suite of interpretation guidelines, possibly based on the previously noted Supreme Court decisions in Rizzo6 and Smith.7 Furthermore, for several reasons, including the perception of fairness, is it really appropriate for the LAT to allow adjudicators to reconsider their own decisions? It is suggested that these overdue small steps will go a long way toward building public confidence and ensuring consistency between LAT decisions. 

1 Ontario Regulation 34/10 Statutory Accident Benefits Schedule – Effective Sept. 1, 2010.
2 17-005302 v Aviva General Insurance, 2018 CanLII 83535 (ON LAT) (May 3, 2018).
3 Antoinette Nelson and State Farm Mutual Automobile Insurance Company (FSCO A14-000848) (June 19, 2015).
4 Pamila Veeran and State Farm Mutual Automobile Insurance Company (FSCO A13-006722) (June 13, 2016).
5 17-005910 v Aviva General Insurance, 2018 CanLII 110920 (ON LAT) (July 18, 2018).
6 Rizzo & Rizzo Shoes Ltd., [1998] 1 SCR 27 (para. 21).
7 Smith v Co-operators General Insurance Co, 2002 SCC 30.

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