ONTARIO

SUPERIOR COURT OF JUSTICE

BARRIE COURT FILE NO.: 09-0337
DATE: 20121016

BETWEEN:

RANDY ELLIS Plaintiff – and – DESJARDINS FINANCIAL SECURITY LIFE ASSURANCE COMPANY Defendant

B.M. Cameron, for the Plaintiff

C.S. Baxter, for the Defendant/Moving Party

HEARD: October 9, 2012

REASONS FOR DECISION

DiTOMASO J.

THE MOTION

[ 1 ] The Defendant Desjardins Financial Security Life Assurance Company (“Desjardins”) moves for the following relief:

(a) An order pursuant to Rule 26.01 of the Rules of Civil Procedure granting leave to amend the Statement of Defence;

(b) an order pursuant to Rule 30.02 of the Rules of Civil Procedure requiring the Plaintiff Randy Ellis (“Ellis”) to produce all documents relevant to the settlement of the tort action arising out of an automobile accident which occurred on July 9, 2006, including all Offers to Settle and the Pleadings.

OVERVIEW

[ 2 ] Mr. Ellis was involved in an automobile accident on July 9, 2006.

[ 3 ] At the time of the accident, he was employed by Superior Propane Inc.

[ 4 ] During the relevant time period, Superior Propane Inc. was the policy holder of Policy No. 640847 (“the Policy”), a group insurance policy issued by Desjardins.

[ 5 ] The Policy provided, inter alia , for Long-Term Disability Benefits for employees of Superior Propane Inc.

[ 6 ] Following the accident, Mr. Ellis claimed that he was “totally disabled” in accordance with the Policy.

[ 7 ] Desjardins paid Mr. Ellis benefits under the Policy from January 8, 2007 to January 31, 2009. Desjardins asserts that the medical evidence as of January 31, 2009 did not support Mr. Ellis’ contention that he remained totally disabled in accordance with the Policy. Mr. Ellis commenced this action on March 9, 2009. This is a long-term disability action. Mr. Ellis seeks, among other things, a declaration that he has been totally disabled since July 9, 2006.

[ 8 ] Following the automobile accident on July 9, 2006, Mr. Ellis also commenced a tort action against the at-fault driver of the other vehicle. Mr. Ellis had settled that action in February 2009 on a full and final basis with the tort defendants and statutory accident benefits provider.

THE PROPOSED AMENDMENTS AND PRODUCTION

[ 9 ] The amendments are contained in essentially three paragraphs of the proposed Amended Statement of Defence, namely, paragraphs 6, 7 and 20.

[ 10 ] Paragraph 6 of the proposed Amended Statement of Defence provides:

The Policy further states :

If a Participant is entitled to recover damages for loss of income from another party and he is entitled to receive benefits under the Weekly Indemnity Benefit or Long Term Disability Benefit of this policy, the Insurer will be subrogated to all the rights of recovery of the Participant for loss of income to the extent of the total benefits paid or payable to him.

[ 11 ] Paragraph 7 of the proposed Amended Statement of Defence provides:

The Plaintiff has received damages for loss of income from another party, and DFS claims set-off against any amounts, if any, found to be owing to the Plaintiff by DFS.

(DFS means Desjardins)

[ 12 ] Paragraph 20 of the proposed Amended Statement of Defence provides:

DFS pleads that the Plaintiff has not been since January 7, 2009 and is not now disabled as defined in the Policy. Furthermore, the Plaintiff has been working full-time delivering parcels and has been doing so since at least January of 2010.

[ 13 ] There is an alternative pleading at paragraph 21 that Mr. Ellis has failed to mitigate his damages.

[ 14 ] Desjardins submits that the proposed amendments are material to the issues in the action as they relate to the issues of subrogation, set-off and whether Mr. Ellis is disabled as defined in the Policy. Counsel advise that the dispute relates primarily to the proposed amendments pleading to subrogation and set-off. Argument by counsel was confined to these two issues. There was no argument in respect of the amendment sought regarding paragraphs 20 or 21 of the proposed Amended Statement of Defence.

POSITION OF THE PARTIES

Position of Desjardins

[ 15 ] Neither party disagrees with the legal principles that apply on the amendment of pleadings. Desjardins does not dispute that the court retains a residual discretion to refuse an amendment where the proposed amendment clearly is legally untenable. Desjardins submits that the amendments sought are not untenable, let alone clearly so. Mr. Ellis has not only incorrectly interpreted provisions of the Insurance Act , R.S.O. 1990, c. I.8 (the “ Act ”) but also attempts to apply provisions relating solely to automobile insurance to this action which involves disability insurance.

[ 16 ] Desjardins submits that the provisions of the Act relied upon by Mr. Ellis simply do not apply in this action. The whole of Part VI of the Act deals with the interactions of drivers (accident victims and tort-feasors), passengers and their respective insurers. The action at bar involves a group insurance policy offering disability benefits and is, as such, governed by Part VII of the Act. The provisions relied upon by the Plaintiff simply do not apply to this action.

[ 17 ] Desjardins submits that subrogation is not illegal in Ontario for insurers where payments are made for loss of income or loss of earning capacity in actions related to motor vehicle collisions as asserted on behalf of Mr. Ellis.

[ 18 ] On the wording and intent of section 267.8(17) of the Act , Desjardins is not limited in its ability to subrogate nor is it prevented from asserting a right of set-off. The question of the applicability of this section, if any, must be left to the trial judge who will have heard all of the evidence and received fulsome legal submissions.

[ 19 ] Accordingly, Desjardins submits that it should be allowed to amend its Statement of Defence and that Mr. Ellis should be required to produce documents relevant to the settlement of the tort action.

Position of the Plaintiff Ellis

[ 20 ] On behalf of Mr. Ellis it is asserted that the proposed amendments are not tenable at law. They do not have any realistic prospect of success and should not be allowed. Subrogation is illegal in Ontario for insurers that have made payments for loss of income or loss of earning capacity in actions related to motor vehicle collisions. In this regard Mr. Ellis relies upon sections 267.8(1) (17) and (18) of the Act .

[ 21 ] It is submitted that the provisions of the Policy in paragraph 6 of Desjardins’ proposed Amended Statement of Defence is a subrogation provision. This provision is not a set-off provision entitling Desjardins to set off any funds received directly by the insured Mr. Ellis with respect to loss of income. It is submitted that there is no provision in the Policy entitling such a set-off. Further, section 267.8(17) of the Act eliminates Desjardins’ right to claim subrogation against the at-fault tort defendants. The applicability of this section ought to be determined on this motion and not at trial. The subrogation provision in the Policy is unenforceable by virtue of the Insurance Act .

[ 22 ] On behalf of Mr. Ellis, it is submitted that there is no realistic possibility that Desjardins will succeed in a subrogated action that it is illegal nor does the Policy contain any provision for set-off.

[ 23 ] Further, the scope of documentary discovery is contained in Rule 30.02 of the Rules of Civil Procedure . The tort settlement documents are not relevant to this action. Desjardins request for these documents arises out of its requested amendments regarding subrogation and set-off. Those amendments, according to Mr. Ellis, are untenable at law given that subrogation is illegal in Ontario in these circumstances. Further there is no contractual right of set-off. Accordingly, the requested documents are irrelevant to the issues in this action. Accordingly, Desjardins’ motion ought to be dismissed.

ISSUES

[ 24 ] There are two issues to be determined as follows:

Issue 1: Is the defendant Desjardins entitled to amend its defence and plead subrogation and set-off in this case?

Issue 2: Are the tort settlement documents relevant and ought to be produced by Mr. Ellis?

ANALYSIS

Is the defendant Desjardins entitled to amend its defence and plead subrogation and set-off in this case?

The Test to Amend Pleadings

[ 25 ] Rule 26.01 of the Rules of Civil Procedure provides:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[ 26 ] Desjardins submits the proposed amendments do particularize and further clarify the contractual basis for Desjardins’ assertion that it is entitled to set-off any funds received by Mr. Ellis in respect of loss of income against any amount that may be found to be owing to him by Desjardins. The proposed amendments also clarify the reasons for the denial of the benefits claimed by Mr. Ellis, more specifically, that he is not totally disabled and has, in fact, been working full-time. Further, the amendments do not prejudice Mr. Ellis. In the alternative, if there was a prejudice to him, that prejudice could easily be compensated for by costs or an adjournment.

[ 27 ] While Mr. Ellis does not allege any prejudice related to the proposed amendments, the law is clear that only those amendments that are tenable at law, or have a realistic prospect of success, will be allowed.

[ 28 ] There is no absolute right to amend a pleading merely because there is a lack of prejudice. There is a basic legal threshold imposed – that the proposed amendment must be tenable at law. The court discussed the test to amend a pleading in the case of Essa v. Panontin at paragraphs 3, 4 and 8:

[3] …Rule 26.01 provides that, on motion, at any stage of an action, the court “shall grant leave to amend a pleading…unless prejudice would result that could not be compensated for by costs or an adjournment.”

[4] The mandatory language of R.26.01 does not create an absolute right of amendment for the party seeking to amend a pleading merely because there is a lack of prejudice. The court retains a residual discretion to refuse an amendment…if the proposed amendment fails to meet a basic threshold of legal soundness – the proposed amendment must be tenable at law.

[8] To be allowed, the amendments requested by the Plaintiffs must be tenable at law. On a motion to add a party and/or to amend the statement of claim against existing parties, the court may not consider the factual and evidentiary merits of the proposed new claims. A court is not to concern itself with the credibility of the case set forth by a party seeking an amendment. The court, in its analysis, is not to consider whether the amending party is able to prove the amended claim. The court must assume the facts pleaded in the proposed amendment are true. The only question is whether they disclose a tenable cause of action. The court is not to make findings of fact or weigh evidence. Amendments are to be read generously with allowance for deficiencies in drafting.

See Essa v. Pantonin , 2010 CarswellOnt. 1164 at paras. 3 ,4 and 8.

[ 29 ] In Marks v. Ottawa (City) , 2011 ONCA 248 , 2011 CarswellOnt 2165 the Court of Appeal also considered this issue. In Marks , the plaintiffs sought to amend their claim to add claims for negligent misrepresentation, intentional causation of mental suffering, and misfeasance in public office. There was no suggestion that the amendments would cause any prejudice. However, the motions judge refused to allow most of the amendments. The Court of Appeal upheld that decision because there was no realistic prospect that the amendments would succeed. In other words, the amendments were not tenable at law. At paragraphs 18 and 19 the Court held:

Rule 26.01 provides that:

Although the general rule is that amendments are presumptively approved, there is no absolute right to amend pleadings. The court has a residual right to deny amendments where appropriate: Daniele v. Johnson (1999), 45 O.R. (3d) 498 (Div.Ct.) at paras. 11 – 15 . Further, I would agree that the proper factors to be considered are those first set out in Simrod v. Cooper , [1952] O.W.N. 720 (H.C.J. Master) at p. 721, aff’d at p. 723 (H.C.J.), and quoted with approval in Vaiman v. Yates (1987) 60 O.R. (2de) 696 (H.C.J.) at p.698, which can be summarized as follows:

• An amendment should be allowed unless it would cause an injustice not compensable in costs.

• The proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious.

• No amendment should be allowed which, if originally pleaded, would have been struck.

• The proposed amendment must contain sufficient particulars.

See Marks v. Ottawa (City) , 2011 ONCA 248 , 2011 CarswellOnt. 2165 at paras. 18 and 19 .

Are the Proposed Amendments Tenable at Law?

[ 30 ] If the proposed amendments are not tenable at law, or if they do not have any realistic prospect of success, they should not be allowed.

[ 31 ] Desjardins submits that the Plaintiff Ellis relies upon section 267.8 at Part VI of the Act . Those provisions speak to the interaction of Ontario’s No-Fault Statutory Accident Benefits regime with a common-law tort regime. The case at bar involves a group insurance policy offering disability benefits and, as such, is governed by Part VII of the Act . Desjardins submits that the provisions relied upon by Mr. Ellis simply do not apply to this action. Subrogation is not illegal in Ontario and Desjardins points to section 278(1) of the Act in this regard. However, the Act does contain provisions which limit an insurer’s ability to subrogate in certain circumstances such as section 267.8(17).

[ 32 ] It is submitted that Desjardins is not trying to subrogate against the tort feasors insurer or accident benefits insurer. This is not a case where Desjardins is trying to claim back certain payments made. Rather, Desjardins is simply attempting to ascertain what amounts are owing to the Plaintiff if the Plaintiff is found disabled. It is not seeking to recover payments made by someone else. Desjardins is seeking to apply the wording of the group Policy to determine how much is owed by way of the long-term disability benefits to the plaintiff. The proposed amendments sought do no harm or mischief to the alleged self-contained automobile insurance regime and that section 267.8(17) does not apply. Should this court harbor reservations on this point, it is submitted in the alternative that the correct interpretation of section 267.8(17) is not a matter that should be determined on the hearing of this amendment motion. This question should be left to the trial judge who will have heard all of the evidence and received full legal submissions.

[ 33 ] With respect, for the following reasons I do not agree with the position advanced by Desjardins. I find that the proposed amendments – proposed amendment at paragraph 6 and 7 are untenable at law. I do not come to the same conclusion in respect of the amendment sought at paragraphs 20 and 21 and leave is granted to Desjardins to amend the Statement of Defence in accordance with the proposed wording of paragraphs 20 and 21. Also permitted is the amendment sought at paragraph 5 which reads: “ Total disability or total disabled means …”.

[ 34 ] Despite Desjardins’ submissions to the contrary, it seeks a deduction or credit in this action for payments made by the tort or statutory benefit waiver for loss of income or loss of earning capacity against long-term disability benefits payable by Desjardins to Mr. Ellis.

[ 35 ] Contrary to Desjardins’ position, I find the actual context giving rise to Mr. Ellis’ claim in this action clearly involves his motor vehicle collision. This action does not stand in isolation without consideration of the relevant provisions of the Insurance Act . I find s.267.8(1) of the Act does apply. Specifically s.267.8(17) is applicable. On the facts, the applicability of this section need not be reserved to the trial judge for determination but ought to be determined on this motion.

[ 36 ] Desjardins cited Ontario (Superintended of Financial Services) v. Markham General Insurance Co. 2002 16519 . Markham was an insolvent insurer. The court considered the issue of subrogation – whether insolvency of an insurer means that recovery from that insurer is “unavailable” for the purpose of the cascading responsibility for SAB’s under s.268(2) of the Insurance Act . Markham is an insolvency case. The facts and issues in Markham are clearly distinguishable from the case at bar.

[ 37 ] Desjardins also cited Wawanesa Mutual Insurance Company et al v. Ontario Provincial Police (Commissioner) 2000 22335 (ONSC). The insurer Wawanesa was not precluded by s.267.8(17) from asserting its rights of subrogation against unprotected defendants in a motor vehicle collision case. Again, Wawanesa on its facts and issues is distinguishable from this case.

[ 38 ] Section 267.8(1) of the Insurance Act , R.S.O. 1990, c.I 8 as amended provides:

267.8(1) In an action for loss or damages from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled to recover for income loss and loss of earning capacity shall be reduced by the following amounts:

All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for statutory accident benefits in respect of the income loss and loss of earning capacity.
All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan.
All payments in respect of the incident that the plaintiff has received before the trial of the action under a sick leave plan arising by reason of the plaintiff’s occupation or employment.

Limited on subrogation

(17) A person who has made a payment described in subsection (1), (4) or (6) is not subrogated to a right of recovery of the insured against another person in respect of that payment.

Exception

(18) Subsection (17) does not apply if,

(a) The Ministry of Health and Long-Term Care made the payment; and

(b) the right of recovery is against a person other than a person insured under a motor vehicle liability policy issued in Ontario.

[ 39 ] The action contemplated by this section is a claim for damages by a plaintiff for income loss or loss of earning capacity arising from the use or operation of an automobile.

[ 40 ] At item 2 of s.267.8(1) , there is specific reference to the damages to which a plaintiff is entitled to recover for income loss and loss of earning capacity in respect of all payments that the plaintiff has received that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan. (emphasis mine) I find the Policy in question is an income continuation benefit plan.

[ 41 ] I find the provision of the Policy in paragraph 6 of the Desjardins’ proposed Amended Statement of Defence is a subrogation provision. Desjardins had paid benefits to Mr. Ellis under the Policy from January 8, 2007 to January 31, 2009. These disability benefits were terminated on or about January 31, 2009.

[ 42 ] I find that section 267.8(17) speaks to payments made under s.267.8(1) namely those payments made under an income continuation benefit plan. In my view, section 267.8(17) clearly places a limitation on subrogation. This section eliminates Desjardins’ right to claim subrogation against another person in respect of payments Desjardins has made. I find that the subrogation provision in the Policy which is a proposed amendment is unenforceable by virtue of section 267.8(17) of the Act . Further, section 267.8(18) does not apply in this case to render inapplicable subsection (17).

[ 43 ] I am of the view that Desjardins’ proposed amendment regarding subrogation is neither tenable at law nor would it have the realistic prospect of success if allowed. Accordingly, I would not allow paragraph 6 of the proposed Amended Statement of Defence.

Is There a Right of Set-Off?

[ 44 ] At paragraph 7 of the proposed Amended Statement of Defence, Desjardins seeks the following amendment:

The Plaintiff has received damages for loss of income from another party, and DFS claims set-off against any amounts, if any, found to be owing to the Plaintiff by DFS.

[ 45 ] There is no right of set-off provided in the Policy. There is no right of set-off common-law or in the Insurance Act . Rather, I find Desjardins’ set-off claim is unfounded. It is the tort insurer and tort defendants that get credit for long-term disability payments in cases where a person is injured in a motor vehicle collision – not the other way around. Section 267.8(1) has been cited on behalf of Mr. Ellis and in particular item 2 which speaks to payments received by the Plaintiff or that were available before trial for income loss or loss of earning capacity under an income continuation of benefit plan.

[ 46 ] This section clearly provides that any amounts paid for income loss or loss of earning capacity reduces the amount the Plaintiff is entitled to recover from a tort defendant. Long-term disability benefits are payments for loss of income. They serve to reduce the Plaintiff’s tort recovery. It is the Defendant or Defendants in the tort action who receives or receive credit for long-term disability payments.

[ 47 ] There is no contractual right to set-off. I find that any money paid in the tort settlement is irrelevant to the liability of Desjardins in this matter.

[ 48 ] Accordingly, I find that the proposed pleading of set-off is untenable at law and I would not grant this amendment.

Are the tort settlement documents relevant and ought to be produced by Mr. Ellis?

[ 49 ] The scope of documentary discovery is contained within Rule 30.02 of the Rules of Civil Procedure as follows:

Disclosure

30.02(1) Every document relevant to any matter in issue in an action that is or has been in the possession, control or power of a party to that action shall be disclosed as provided in Rules 30.03 to 30.10, whether or not privilege is claimed in respect of the document.

[ 50 ] Desjardins’ request for production of the tort settlement documents arise out of its requested amendments regarding subrogation and set-off. I have found that those amendments are untenable at law for reasons given. In the circumstances of this case, subrogation is not available to Desjardins. Further, there is no contractual right of set-off. I find that the requested documents are irrelevant to the issues in this action.

CONCLUSION

[ 51 ] For reasons given, Desjardins’ motion is dismissed with the exception of amendments allowed at paragraphs 5, 20 and 21 of the proposed Amended Statement of Defence. Other amendments set out at page 5 of the proposed Amended Statement of Defence after paragraph 24 are also allowed. Desjardins shall amend its Statement of Defence pursuant to the time provisions provided in the Rules of Civil Procedure with any reply by Mr. Ellis in accordance with the said rules.

[ 52 ] If the parties cannot agree on costs, costs shall be determined by way of written submissions. The parties are to exchange and file with the trial co-ordinator at Barrie a concise statement on costs not to exceed two pages together with Bill of Costs, Costs Outline and any supporting cases within 14 days of this order.