Treatment of lump-sum collateral benefits in determining IRB benefits
The treatment of collateral indemnity benefits received from other insurance benefits coverage has been one of the more active areas of dispute under the various versions of the current Statutory Accident Benefits Schedule (Ontario Regulation 34/10 SABS – Effective Sept. 1, 2010). This is attributable to the general principle against double-recovery (also known as double-dipping) combined with vague statutory provisions and complexities arising in practice.
Technically, as excess insurance under the Insurance Act (R.S.O. 1990, Chapter 1.8), income replacement benefits (IRBs) are payable by way of top-up only after other indemnity insurance coverage for primarily the same loss (s.47 allows for deduction of temporary benefits received for disability occurring prior to the accident in question), but given their remedial, consumer protection purpose, they are usually paid out ahead of other policy benefits, and deductions must be subsequently determined, often with retroactive effect. Because the SABS aims to reduce hardship to accident victims, it also provides limitations on these deductions and therefore modifies the absolute prohibition against double recovery. This has been affirmed in numerous decisions.
Lump-sum payments of collateral benefits may arise due to retroactively awarded or reinstated benefits owing (e.g., long-term disability or Canada Pension Plan disability benefits), or by way of settlement of past and future benefit claims, which may include damages.
So what does the SABS prescribe? In determining an IRB entitlement, s.7(1) of the SABS allows for the deduction of all “other income replacement assistance” which is defined under s.4(1) as “the amount of any gross weekly payment for loss of income 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…” certain exceptions, including employment insurance, workplace safety insurance benefits, etc. In addition, under s.3(7)(d), an income continuation benefit plan is deemed to include CPP disability benefits (which would otherwise be considered non-indemnity benefits) and periodic payments of insurance."
In Cromwell v. Liberty Mutual (2008) CanLII, 3409 (ON.S.C.), a case under an earlier version of the SABS, the plaintiff was eventually able to settle her disputed past and future LTD benefit claims and received a lump-sum payment broken down into two amounts: a $160,000, non-taxable unspecified sum and $93,485, for taxable past benefits owing. Her AB insurer claimed the entire settlement amount to be fully deductible from her IRB entitlement.
The court determined that the unspecified portion of LTD benefits received from the settlement was not a collateral benefit which could be deducted from her IRBs, stating:
…Sun Life was not obligated, under the terms of its policy to pay a lump sum with respect to future payments. There is no evidence before me that the lump sum paid was in any way calculated taking into account the future value of those payments but was rather arrived at on the basis of the amount of money available under the authority of the person authorizing the settlement. I also consider that the Release delivered also released claims against Sun Life with respect to mental stress, aggravated and punitive damages for which Sun Life denied liability in the Release. On that basis, the payment does not qualify as “net weekly payments for loss of income…under any income continuation benefit plan.”
There was no dispute, however, over the deductibility of the portion of the settlement specifically attributed to past LTD benefit arrears. Note that where taxable, a T4A must be provided for the relevant taxation years of the past portion of benefits paid.
In Vanderkop v. Personal Insurance Company of Canada,  O.J. No. 1937 (Ont. SCJ),  O.J. N0. 2616, the court similarly denied the deduction of an unspecified lump-sum settlement for all past, present and future claims, including damages. The AB insurer failed also in its attempt to deduct benefits “available to” Ms. Vanderkop, but not claimed due to her entering into the settlement and failure on her part to litigate against the LTD carrier. The court rejected these claims finding that in the first instance that she had not abandoned or withdrawn her LTD claim, but simply compromised it at mediation, and in the second instance, stating:
IRBs are to be reduced by LTD being received as a result of the accident. The legislation does not entitle Personal to set off hypothetical benefits applied for, but refused. Ms. Vanderkop was not in receipt of LTD…to treat LTD as being available would effectively oblige an insured to litigate with their collateral benefit insurer, at their own risk and expense, for the benefit and at the discretion of, their accident benefit insurer. In our view, SABS places no such obligation on an insured.
In Anand v. Belanger, (2010) ONSC 5356, a more recent tort case, the court cited Cromwell and held that the documentation relating to the lump-sum settlement of LTD benefits did not specify that it was a payment under an income continuation benefit plan and therefore fell outside the scope of the Act’s provision for deduction. In Ng v. Cole, (2013) ONSC 6588 (Oct. 24, 2013), the court confirmed the principle in Vanderkop, precluding deduction of collateral benefits that were denied.
In Hua li Pan and Allstate Insurance Company of Canada (FSCO A16-003705), however, where the insured failed to apply for CPP disability benefits, despite being eligible to do so, the arbitrator agreed that the insured is obligated to apply for, and exhaust her collateral benefits before resorting to the AB carrier. He found, therefore, that the insurer was entitled to offset CPP benefits from any IRB payable even though the insured had not claimed them, and notwithstanding that she may not qualify.
What if the no-fault insurer claims an overpayment of IRB’s as a result of the award of lump-sum retroactive collateral benefits? As in the previous SABS (Ontario Regulation 403/96 Statutory Accident Benefits Schedule – Effective Nov. 1, 1996), s.52(1)(c) of the current version requires the repayment of IRBs to the extent of any payments that are deductible under the SABS, subject, however, per s.52(2) to notice from the insurer, and per s.52(3), to a cessation of liability if such notice is not given within 12 months after the payment of the amount that is to be repaid.
The text of s. 52(3) of the current SABS was clearly amended to codify the decisions in Trottier and Royal & Sun Alliance Insurance Company of Canada (FSCO Appeal P03-00019, Dec. 15, 2003) and Economical Mutual Insurance Company and Leroy Pries (FSCO Appeal P12-00036, July 8, 2013), in interpreting the equivalent s.47(3) under the previous SABS, as to the meaning of the word “payment” in the phrase “within 12 months after the payment was made.” The insurer argued that “payment” meant the collateral benefit, in which case notice would have been given within the 12-month limitation. However, as in Trottier, Director’s Delegate David Evans held that it related to the payment of IRBs, which predated the 12-month period. S.52(3) is now clear in that it relates to the payment of the amount that is to be repaid (i.e., the IRB).
However, in order to apply, notices of overpayment from insurers must be properly provided. In Intact insurance Co v. Marianayagam,  O.F.S.C.D. No. 16, FSCO Appeal P09-00028V (O.F.S.C.), the insurer was held to have failed to provide proper notice of overpayment of IRBs arising from the award of LTD benefits by:
- Making a “grossly incorrect” and “overreaching” claim for repayment of all IRB’s paid rather than the actual overpayment amount, limited to the 12-month maximum retroactive period
- Not specifying the amount overpaid
- Being precluded from claiming an overpayment of IRBs following the subsequent award of CPP disability benefits, also on a retroactive basis, as the insurer failed to provide any notice thereof
Interestingly, although Justice Perell allowed for the deduction of 12 months of retroactive LTD benefits, these benefits would subsequently be reduced by the initial amount of CPP disability benefits covering this period. Although not commented on in his decision, given his denial of deduction of the corresponding CPP disability benefits, he had in effect thereby placed further restrictions on the insurer’s ability to limit double recovery.
But what if no overpayment applies in the case of reinstated IRBs, as often happens, where the no-fault insurer had terminated IRBs prior to the commencement date from which retroactive lump-sum collateral benefits were subsequently awarded, several years hence? Would it be fair for an insurer to benefit from its wrongful conduct in having stopped benefits? In Agniesta Stepien and Security National Insurance Co./Monnex et al, (FSCO Appeal P16-00012, Oct. 30, 2018), the original decision was overturned, and it was held that the insurer was not entitled to deduct any of the amount the claimant received as a lump-sum payment of past LTD benefits. The Director’s Delegate found that past LTD benefits were not being paid and she was not in receipt of such benefits during the past period in question, and to deduct such amount from past IRBs would amount to an error of law and be contrary to the Court of Appeal’s approach in Vanderkop.
If IRBs were not being paid such that no overpayment arises, an insurer is unable to provide notice of repayment, per s.52(2). Let’s look at some examples as to how the Stepien Appeal decision would apply based on timing differences:
Example A: The insured receives IRBs of $350 per week to the 104-week mark and then after an insurer examination, his benefits are terminated on the basis that they are not suffering a “complete inability,” per s.6(1)(b). Two years later, however, they are approved for CPP disability, receiving a lump sum payment based on retroactive benefits equivalent to $150 per week, commencing after the 104-week mark. As CPP disability benefits are payable to qualifying insureds who suffer a medically determinable impairment in which physical or mental disability is severe and a prolonged inability to regularly engage in any substantially gainful employment, the AB insurer simultaneously reinstated her IRBs (the reinstatement date).
Since as no overpayment arose in respect of the retroactive CPP disability benefits, no notice was possible and therefore, as in the Stepien Appeal case, the insurer is precluded from deducting CPP disability benefits received from the reinstated IRBs between the 104-week mark and the date of reinstatement.
Example B: All assumptions being equal as in Example A, except that CPP disability benefits are approved one year after the 104-week mark, with retroactive effect to one year prior to the 104-week mark.
In this case, an overpayment does arise in respect of the 12 months before the 104-week mark on the originally paid IRBs. However, notice of such overpayment under s.52(3) would be beyond 12 months from the period in question, and therefore the insured is not liable for repayment.
Example C: All assumptions being equal as in A, except that CPP disability benefits are approved six months after the 104-week mark, with two years’ retroactive effect (i.e., beginning 18 months prior to the 104-week mark).
Here, s.52(2) notice of overpayment of IRBs of $200 per week would be properly provided for the six-month period commencing six months prior to the 104-week mark.
In this example, s.52 limits the commencement of the repayment period to 12 months prior to the date of notice and the Stepien Appeal decision limits the recovery to the 104-week mark, as no overpayment arose after the 104-week mark up to the reinstatement date.
In all cases, of course, IRBs paid in respect of the period after the reinstatement date, are subject to deduction of ongoing CPP disability benefits.
In summary, therefore, the cases discussed above and updates to the SABS provide that:
- Only the past portion of lump-sum awards of collateral benefits are deductible from IRB benefits, and only if they are clearly specified as such in the settlement agreement or other applicable notification, and an overpayment of IRBs arises as a result
- Insurers are precluded from deducting collateral benefits claimed but not received under the “available to” provision
- Barring willful misrepresentation or fraud, insurers are entitled to repayment of overpaid IRBs resulting from retroactively awarded deductible benefits, to a maximum of 12 months prior to the date of notice of the overpayments
- Proper notice of overpayment must be provided
- Where no overpayments of IRBs arise in respect of retroactive collateral benefits because the insurer had stopped payments, the insurer may, depending on timing, be precluded from deducting such past collateral benefits received
In another decision, Aviva General Insurance Company and H.H., (LAT 17-007805/AABS), the adjudicator stated that the SABS is remedial consumer protection legislation and where ambiguous, should be interpreted in favour of the insured. In this context, the SABS and the cases discussed above provide important limitations to the principle against double recovery of income replacement benefits where collateral benefits are involved.