Are employment insurance benefits deductible from IRB entitlements?
INSIGHT ARTICLE |
Recently, we were asked by a client if employment insurance (EI) or regular 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 cannot be deducted under this provision. Or so you would think.
In 17-0053022, Nelson3 and Veeran4, 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 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.” He concluded 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 it’s ruling in Smith7. 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.
In conclusion, whereas License Appeal Tribunal adjudication and Financial Services Commission of Ontario decisions are not necessarily binding, the most recent decision in 17-005910 discussed 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.
We also 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.
1 Ontario Regulation 34/10 Statutory Accident Benefits Schedule – Effective Sept. 1, 2010.
2 17-005910 v Aviva General Insurance, 2018 CanLII 110920 (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.,  1 SCR 27 (para. 21).
7 Smith v.Co-operators General Insurance Co, 2002 SCC 30.