Court File and Parties

COURT FILE NO.: C-1092-09 DATE: 2019-03-15

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

TYLER HOUSE BY HIS LITIGATION GUARDIAN GAIL HOUSE, THE ESTATE OF TITUS HOUSE, GAIL HOUSE and TITUS HOUSE JR. - and –

DONALD BAIRD, ROBERT SCOTT MURRAY and THE CORPORATION OF THE TOWNSHIP OF WILMOT

Counsel: Allan Rouben & Richard Campbell, Counsel for Tyler House, Plaintiff Jeramie Gallichan & Daniel Veinot, Counsel for Donald Baird, Defendant (Plaintiff in Court File No. C-141-11) Greg Robson, Counsel for the Non-Party, Nordique Insurance Gary Flaxbard, Counsel for Dawn Samms & Darryl Samms (Plaintiffs in Court File No. C-570-10)

HEARD: August 17 & December 10, 2018

The Honourable Justice Catrina D. Braid

REASONS ON MOTION

I. OVERVIEW

[1] Tyler House was driving a car with the consent of the owner, Donald Baird. House lost control, and the vehicle was hit by another car. As a result of the accident, Adam Samms lost his life. House and Baird were seriously injured. At the time of the accident, Baird and House each had insurance with policy limits of $1 million.

[2] Baird and the Samms family brought actions against House, Scott Murray (the driver of the other car) and the Township of Wilmot. The Samms family settled their claim for $200,000, and Baird settled his claim for $500,000.

[3] House sued Baird, Murray, and the Township, and the action proceeded to trial. House obtained judgment against Baird in the amount of $1.4 million.

[4] House has brought a motion seeking directions regarding the distribution of insurance funds and regarding his right to garnish Baird’s settlement.

[5] In these reasons, I shall address the following issues:

A. The legal framework for distribution of insurance funds B. Whether the equitable remedy of marshalling is available C. Enforceability and ambiguities in the Baird settlement D. Whether House can garnish the Baird settlement funds

[6] For the reasons set out below, I find that the doctrine of marshalling is not applicable. State Farm must pay out the funds on a pro rata basis, and Nordique must pay the remaining amounts to Baird and the Samms family. House shall be entitled to garnish 20% of the Baird settlement.

II. FACTS

[7] A tragic accident occurred on February 25, 2009, involving four young men who were close friends. House was driving Baird’s vehicle when the vehicle went out of control and was struck by a vehicle driven by Murray. As a result of the accident, Adam Samms lost his life. Baird was seriously injured. House was catastrophically injured, with his most severe injury being a diffuse axonal closed head injury.

[8] The Baird vehicle was insured by State Farm with third-party liability limits of $1 million. In these reasons, I shall refer to this insurance policy as “the State Farm policy.”

[9] House was insured by Nordique Insurance with third-party liability limits of $1 million. In these reasons, I shall refer to this insurance policy as “the Nordique policy.”

[10] Baird and the Samms family brought actions against House, Murray, and the Township. The Samms family settled their claim for $200,000, and Baird settled his claim for $500,000. In those settlements, the plaintiffs agreed that, in the event that there is a shortfall in the available insurance limits, the amount of the settlements would be pro-rated with the plaintiffs in the other actions. The parties also agreed that the defendants would be bound by the liability findings as determined at the trial of the action brought by House.

[11] House sued Baird, Murray, and the Township, and the action proceeded to trial. The claim against Murray was settled in advance of trial. On February 26, 2015, Justice Kent released his judgment and dismissed the claim against the Township of Wilmot. It is notable that, had the House claim against the Township been even partially successful, there would not have been any issue relating to insurance policy limits.

[12] Justice Kent approved the settlement of the claim made by House against the defendant Murray and ordered Murray to pay $675,000 in damages to House.

[13] Justice Kent found that Baird’s vehicle had overinflated and bald tires, which created a risk that control of the vehicle could not be maintained. The court found that House made no adjustment to his speed to suit conditions, and he was driving while distracted. Because liability was apportioned equally between House and Baird, the court ordered that House is entitled to recover 50% of his assessed damages from Baird.

[14] House obtained a judgment against Baird in the amount of $1,405,439.10, after the 50% apportionment and a reduction for a settlement with Murray.

[15] The parties have failed to reach an agreement on the distribution of the insurance proceeds. House has brought a motion seeking the following:

i. Advice and direction from the court regarding the interpretation and application of ss. 258 and 277 of the Insurance Act, R.S.O. 1990 c. I.8 in determining priorities and entitlement to insurance monies available to the parties. ii. A declaration, in accordance with the equitable doctrine of marshalling, that the House claim rank in priority to the Baird and Samms claims. iii. A declaration that the Baird settlement monies received are not exempt from attachment or execution and confirming House’s right to garnish those funds directly from the insurance companies.

III. ANALYSIS

A. The Legal Framework for Distribution of Insurance Funds

[16] The limits on Baird’s State Farm policy are $1 million. The insurers take the position that the State Farm policy is required to respond to the three claims on a pro rata basis. A portion of the $1 million would be paid out to each of House, Baird, and the Samms family. In this scenario, the Samms family and Baird would recover the shortfall from House’s Nordique policy and would be fully indemnified; House would be left with a shortfall of almost $668,000 as he is not entitled to recover from his own policy. House argues that this distribution of the funds is incorrect.

[17] A person who has a claim against an insured may recover payment of the judgment against the insured’s motor vehicle policy: see Insurance Act, s. 258(1).

[18] Under s. 277(1) of the Insurance Act, the owner's policy responds first to claims arising from an accident. An owner’s insurance policy is first loss insurance in respect of liability arising from the use or operation of an automobile owned by the insured. Insurance under any other motor vehicle liability policy is excess insurance only. A motor vehicle liability policy insures the owner or the driver of an automobile: see Insurance Act, ss.1, and 277(1).

[19] House was an insured person under the State Farm policy because his liability arises solely out of the use or operation of the Baird vehicle. This makes the State Farm policy first loss insurance. The Nordique policy is insurance attaching under any other valid motor vehicle policy and is, therefore, excess insurance in relation to the State Farm policy.

[20] The limits on the State Farm insurance policy are $1 million. Given the fact that the aggregate amount owing to all the plaintiffs exceeds the State Farm policy third-party liability limits, State Farm must pay its policy limits on a pro rata basis (without ranking any of the claims above the other) as follows:

i. Damages owed by Baird to the Samms family; ii. Damages owed by Baird to House; iii. Damages owed by House to the Samms family; and iv. Damages owed by House to Baird.

[21] The State Farm policy has insufficient limits to satisfy all claims, and House will still owe money to the Samms family and Baird. House has recourse to the insurance policy issued to him by Nordique Insurance to satisfy the remaining claims. Pursuant to s. 277(1), the Nordique policy is excess insurance to the State Farm policy and will be called upon to pay amounts that House owes to others, in excess of what is paid to them by the State Farm policy.

[22] First loss insurance means that House must first look to Baird’s insurance policy coverage since he was driving Baird’s vehicle at the time of the accident. He may only look to his own policy for additional coverage if his policy limits exceed those of Baird’s policy. Since the limits are the same, House cannot obtain the shortfall from his own policy.

[23] House argues that the State Farm policy should not be called upon to make payment to Baird for his own independent claim for damages against House. In support of that argument, he relies on Enterprise Rent-a-Car Canada Ltd. v. Meloche Monnex Financial Service Inc., 2010 ONCA 277, 102 O.R. (3d) 87.

[24] I do not accept this argument. The Enterprise Rent-a-Car case deals with the meaning of “insurance available” in the context of a leased vehicle and it is, therefore, distinguishable. This argument also ignores the first loss insurance provisions as set out in s. 277(1) of the Insurance Act.

[25] House also relies on the decision in Benson v. Walt, 2018 ONCA 172, to support the proposition that the Baird and House policies should be required to make payment of the independent claims of the other. However, the decision does not stand for that proposition.

[26] In that case, Walt was driving with the consent of the owner of the car. Pursuant to s. 277(1), the first policy to respond is the policy insuring the owner of the vehicle involved in the accident. If the driver is not the owner of the car involved in the accident, the driver’s own automobile insurance policy will not apply until the insurance under the owner’s policy has been exhausted: see Benson v. Walt; and Avis Rent A Car Systems Inc. v. Certas Direct Insurance Co., (2005) 197 O.A.C. 214.

[27] Finally, House argues that s. 277 of the Insurance Act does not apply, and the damages should not be pro-rated because he did not consent to the Minutes of Settlement in the other actions. However, his consent is not required. The proper application of s. 277 requires that the damages be pro-rated as between House, Baird and the Samms family.

[28] The OAP 1 Standard Insurance Policy does not differentiate between the obligation of the State Farm policy to indemnify Baird and House. They are both considered insured for purposes of the liability provisions of the State Farm policy. The OAP 1 states that the insurer will make payment on behalf of all of the insured persons, up to the limits of the policy for any one incident. House is an insured under the State Farm policy and, therefore, State Farm is obliged to indemnify House for damages payable to Baird.

[29] In Scale Estate v. The Cooperators Insurance, 2018 ONSC 363, the court held that the pro rata approach should generally prevail in the case of automobile insurance, and the rule should not be departed from except in special circumstances. I am not satisfied that any special circumstances exist that would justify departing from the pro rata principle for first loss automobile insurance.

[30] The Baird and Samms settlements reflected the fact that State Farm, as first loss insurer, considered the need to pro-rate claims between multiple parties. The facts of this case are similar to the facts in Insurance Corp. of British Columbia v. Kushneriuk, 2004 BCCA 440, in which there were multiple claimants, with the most seriously injured claimant only able to receive funds from the first loss insurer. In that case, the British Columbia Court of Appeal found that no special circumstances existed to depart from the usual pro rata principle.

[31] In his factum, House submitted that, in the event there is a shortfall, he should be entitled to recover the balance of his judgment under the provisions of the OPCF 44R Endorsement of his own insurance policy. This argument was abandoned by counsel during submissions in court, which was an appropriate concession.

[32] An underinsurer’s obligation to pay does not arise until the total amount of insurance held by the tortfeasor at the time of the accident is less than the family protection coverage liability limit. This is true regardless of the number of eligible claimants injured or killed. Access to the underinsurance coverage is not available even if the injuring party's insurance might be apportioned among several plaintiffs, thereby creating a potential payment of less than $1 million for each plaintiff: see Van Bastelaar v. Bentley, 2011 ONCA 660.

[33] In this case, the Nordique policy coverage cannot be called upon to pay the unsatisfied portion of House’s judgment against Baird as the liability limit of coverage under the OPCF 44R ($1 million) does not exceed the total amount of the Baird insurance.

B. Whether the Equitable Remedy of Marshalling is Available

[34] House argues that the court should order that the proceeds of the State Farm policy be marshalled so that House receives the full amount of the State Farm policy limits. Baird and Samms would then be in a position to access the Nordique policy. House argues that the equities of the situation support the application of the remedy of marshalling so that House not be deprived of his recovery.

[35] Marshalling is a principle that permits equity to be done between two or more creditors, each of whom are owed debts by the same debtor, but one of whom can only enforce his claim against one security or fund, while the other can resort to more than one. This will prevent a creditor who can resort to two funds, from defeating another creditor who can resort to only one of them.

[36] Historically, the doctrine arose in cases involving real property mortgages, but has expanded to personal property security and bankruptcy. Counsel were unable to provide any caselaw in which the doctrine of marshalling was invoked in the context of s. 277 of the Insurance Act.

[37] The limits of the doctrine of marshalling are not well defined, as equity gives it flexibility, adaptability, and utility. Equity also gives it its uncertainty and lack of clear boundaries: see Bruce MacDougall, “Marshalling and the Personal Property Security Acts: Doing Unto Others…” (1994) 28 U. Brit. Colum. L. Rev. 91 at 91.

[38] There are three primary reasons why marshalling cannot be invoked in this case. I shall address each reason under a separate heading below:

i. There is Not a Common Debtor and Two Creditors

[39] A number of common law rules have developed in the application of marshalling, although its equitable nature enables courts to craft relief appropriate to each case. There are five preconditions for marshalling:

(a) two creditors; (b) one common debtor; (c) two funds of the debtor with the superior creditor having access to both and the inferior creditor to but one; (d) no interference with the choice of remedy of the superior creditor; and (e) no prejudice to third parties.

See Green v. Bank of Montreal (1999), 128 O.A.C. 324

[40] House has not specified who he considers the debtors to be, for purposes of the marshalling argument. In the case at bar, the debts arise from either the judgment or settlements flowing from the negligence of different defendants. If the defendants are the debtors, State Farm is obligated to indemnify the defendants to the extent of $1 million, but it cannot be said that State Farm is a debtor of the plaintiffs under the third-party liability insurance of the defendants.

[41] If the debtor is either Baird or House, it cannot be said that there are two funds at the “debtor's disposal” as the funds available under the insurance policies of House and Baird are not under their control. Rather, these are potential funds, which are only available to certain plaintiffs if they are not able to obtain full recovery of the balances owing to them through the State Farm policy. Even if the debtor is House (who arguably may be indemnified by two insurance policies), the doctrine of marshalling is invoked for the benefit of a creditor and not a debtor.

ii. Marshalling Cannot Defeat Clear Statute

[42] The equitable doctrine of marshalling cannot be applied to overcome the unambiguous wording of the Insurance Act. The Act does not preclude marshalling, but the doctrine, on its own, cannot overcome well-established legal principles.

[43] Equity is based on judicial discretion. Where applied, equitable remedies are flexible; their award is based on what is just in all the circumstances of the case. They are malleable principles intended to serve the ends of fairness and justice: see Soulas v. Korkontzilas, [1997] 2 S.C.R. 217; and Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534.

[44] The maxim ‘equity follows the law’ applies in this situation. The maxim seeks to avoid inconsistent approaches from the application of equity rules and common law principles. Where there is a conflict, common law principles prevail. The maxim most clearly applies to principles of law derived from statutes: see Canadian Imperial Bank of Commerce v. Saskatchewan Lawyer’s Insurance Association Inc. (1990), 140 Sask. R. 114 (Q.B.).

[45] Accordingly, in the face of clear statutory provisions, equitable remedies cannot apply. Equitable remedies may co-exist alongside statutory provisions where statutory language permits. However, I am not satisfied that equitable remedies should be applied in this case in light of clear legal principles, and in light of the fact that the doctrine of marshalling is in clear conflict with the provisions of the Insurance Act, related legislation, and caselaw.

iii. A Claimant’s Access to Other Insurance Funds is Irrelevant

[46] In the case of Insurance Corp. of British Columbia v. Kushneriuk, 2004 BCCA 440, the British Columbia Court of Appeal held that the existence of additional insurance available to satisfy the claims of some of the plaintiffs is an irrelevant consideration.

[47] In Kushneriuk, the moving party made an argument similar to the marshalling argument advanced by House. In that case, the motions judge decided that the most seriously injured of the three claimants should take 100% of the available first loss insurance proceeds rather than share with other claimants on a pro rata basis (which was effectively a form of marshalling). The Court of Appeal found that it was an error for the motions judge to consider other insurance coverage available to some claimants and to direct that the claimant who did not have access to the other insurance coverage should be paid out in full in priority to the other claimants. The most seriously injured plaintiff was only entitled to her pro rata share of the first loss insurance funds.

[48] While the factual circumstances may be compelling, the equitable principle House seeks is unavailable to him. I find that the doctrine of marshalling does not apply. The funds must be paid to the claimants on a pro rata basis. The Court does not have discretion to order that the funds be paid on a different basis.

C. Enforceability and Ambiguities in the Baird Settlement

[49] House submits that the Baird settlement has not been approved by the court and is, therefore, unenforceable. House was a person under disability at the time of the settlement and was represented by a litigation guardian. Court approval of the settlement is required pursuant to Rule 7.08 of the Rules of Civil Procedure, R.R.O 1990, Reg. 194. For reasons that are unclear, no one has sought court approval of the Baird settlement.

[50] For purposes of this motion, I shall treat the Baird settlement as enforceable, for the following reasons:

a) The Baird settlement tracks the language of the Samms settlement, including the pro rata distribution between the plaintiffs. The Samms settlement was approved by the court. b) All parties were represented by counsel at the settlement meetings, including defence counsel for House. c) Although House’s plaintiff counsel was not present at the settlement meetings, he was advised of the Baird settlement. He did not raise any objections and stated that the quantum of the settlement was reasonable. d) House has not moved to set aside the Baird settlement, which was reached almost five years ago. e) The paragraphs of the Baird settlement stating that the plaintiffs in all actions would be paid on a pro rata basis is consistent with the Insurance Act. These paragraphs were designed to avoid the outcome in the Scale Estate decision.

[51] The Baird settlement is silent with respect to apportionment of damages. After hearing initial submissions from the parties, the court provided the parties with an opportunity to provide evidence establishing a breakdown of the heads of damages included in the Baird settlement.

[52] Baird’s counsel, Bernard Verbanac, filed a supplementary affidavit. In addition, Nordique’s counsel, Brian Smith, filed an affidavit. House primarily objects to the affidavit of Mr. Smith and argues that it breaches the parol evidence rule. The court permitted the affidavit to be filed, with its weight to be determined at a later point.

[53] The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. The rule precludes, among other things, evidence of the subjective intentions of the parties. The rule developed from the desire to have the nullity and certainty in contractual obligations. One of the exceptions to the parol evidence rule is that, where there is ambiguity in the written contract itself, extrinsic evidence may be admitted to clarify the meaning of the ambiguous terms: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; and C.J.A. Local 579 v. Bradco. Construction Ltd., [1993] 2 S.C.R. 316.

[54] The Baird settlement contains terms that are arguably ambiguous terms. This falls into the exception to the parol evidence rule, and extrinsic evidence is admissible to clarify the meaning of the written settlement.

[55] The affidavits addressed two areas of potential ambiguity in the Baird settlement:

i. Whether Nordique Agreed to Pay any Shortfall to all of the Plaintiffs

[56] In response to a question from the court, counsel for House argued, for the first time, that paragraph 6 of the Baird settlement should be interpreted to mean that Nordique agreed to pay any shortfall in the insurance proceeds to all of the plaintiffs, including House, after State Farm had paid out its policy limits.

[57] The affidavit of Mr. Smith speaks to his understanding, as Nordique’s counsel, of the meaning of the word “plaintiffs” in paragraph 6 of the Baird settlement. Counsel states that this paragraph was never intended to include House. I give this portion of the affidavit little weight. Counsel’s own intentions do not really assist me in interpreting the ambiguous language of the agreement.

[58] However, other extrinsic evidence and additional considerations lead me to conclude that the word “plaintiffs” in paragraph 6 includes only the Baird plaintiffs, and cannot be interpreted as a promise by Nordique to pay any shortfall in damages to all of the plaintiffs. I have considered the following:

a) House made submissions on this motion that the House plaintiffs were not parties to the Baird negotiations and settlement, and he did not have counsel at the settlement meeting. He stated that he does not agree with the Baird settlement, and Nordique breached its duty of care toward him when it entered into that settlement. House has always taken the position that the Baird settlement is detrimental to his position as plaintiff in this litigation. b) Because of s. 277 of the Insurance Act, Nordique has no obligation in law to pay any shortfall in damages to House. There would be no reason for Nordique to give such an unlimited, gratuitous promise to pay damages to House once the State Farm policy limits were exhausted. In addition, Nordique received no contractual consideration from House for such an agreement. c) None of the parties interpreted paragraph 6 to include House as one of the plaintiffs. House appealed the trial ruling dismissing his claim against the Township (seeking indemnification from the Township). He argued the doctrine of marshalling before me and stated that House would have a substantial shortfall if I did not direct that State Farm pay House in priority to the other plaintiffs. It would make no sense for House to take these steps if he believed that paragraph 6 meant that he would be fully paid by Nordique.

[59] Although the word “plaintiffs” in paragraph 6 of the Baird settlement is arguably ambiguous, I have considered the wording of the entire agreement and the surrounding circumstances. All of the parties conducted themselves according to the interpretation that paragraph 6 did not include a promise by Nordique to pay any shortfall in damages to all of the plaintiffs. I interpret paragraph 6 to reference the Baird plaintiffs only.

ii. Heads of Damages Included in the Settlement

[60] The affidavit of Mr. Verbanac addresses the heads of damages in the Baird settlement. The affidavit provides some context to the settlement discussions, which assists me in exercising my discretion in apportioning the damages for the purpose of the garnishment hearing. I shall address this further below.

D. Whether House Can Garnish the Baird Settlement Funds

[61] Even though there is a shortfall in the insurance proceeds available to House, he still has the right to collect the remaining damages from Baird personally. House has issued two Notices of Garnishment, seeking to garnish insurance proceeds payable to Baird. One Notice has been issued with State Farm as the Garnishee and the other with Nordique as the Garnishee. House seeks a declaration that any insurance funds that Baird is set to receive from the settlement are not exempt from attachment or execution. On the other hand, Baird submits that the settlement funds are not subject to garnishment.

[62] Pursuant to Rule 60.08(16) of the Rules of Civil Procedure, the court has the discretion to determine rights, liabilities or any matter in relation to the garnishment. The Baird settlement set damages at $500,000. It does not define the heads of damages breakdown. Baird acknowledges that it is his onus to show that the settlement is exempt from garnishment.

[63] Since Rule 60.08(16) grants the court discretion to determine any matter, I shall exercise my discretion to determine the distribution of settlement funds in order to determine what portion, if any, can be garnished. There is no settled approach to how the categories of damages should be allocated to out of court settlements. Where settlements are not broken into constituent components, the court may allocate the settlement into the heads of damages as best it can. This entails examining any evidence of the settlement negotiations.

[64] I have reviewed the affidavit of Baird’s counsel. Baird’s Pre-Trial Memorandum suggested that Baird was entitled to approximately $2.9 million, which was divided as follows: 7% for general damages; 49% for future care costs; 41% for past and future income loss (Baird was not receiving income replacement benefits at the time); and 3% for the Family Law Act claim.

[65] Baird’s counsel acknowledges that the parties treated the $500,000 settlement as an all-inclusive figure. He has no knowledge of how the defendants arrived at the figure and/or what (if any) specific heads of damages were considered in arriving at the sum of $500,000. He states that he advised his clients to accept the $500,000 offer as he believed it to be an appropriate amount, taking into account Baird’s injuries, future care costs, potential future income loss, loss of competitive advantage, and the potential risks associated with trial.

[66] The absence of any apportionment of the heads of damages in the settlement (in particular, the quantum of future income and/or future care costs) benefited Baird. This allowed Baird to maximize his claim for income replacement benefits through his statutory accident benefit entitlements.

[67] Baird’s accident benefits matter was settled on August 2, 2017, for a total of $500,000. The accident benefits settlement was structured with 50% as income replacement benefits and 50% for medical and rehabilitation benefits.

[68] Baird’s accident benefits claim settled four months before the notices of garnishment were served on State Farm, and Baird has received a lump sum accident benefit payout. The garnishment hearing before me relates to a request to garnish funds that Baird stands to receive from his settlement of the court action.

[69] At the time of settlement, Baird’s counsel clearly considered income loss to be a substantial portion of any court settlement. This position is reflected in the apportionment of damages as set out in the Pre-Trial Memorandum. It is also reflected in the fact that counsel considered it to be beneficial to Baird that the settlement be an all-inclusive figure.

[70] In all the circumstances, I find that it is appropriate to designate 50% of the Baird settlement for general damages, future care costs, and the Family Law Act claim. I find that this portion of the settlement should be exempt from garnishment, for the following reasons:

a) Garnishment is an equitable remedy. As such, the court has jurisdiction to exempt personal injury damages for pain and suffering from garnishment under Rule 60.08(16). The parties agree that damages for pain and suffering are not subject to garnishment: see Mullin v. R-M & E Pharmacy (2005), 74 O.R. (3d) 378 (S.C.). b) Damages that are personal in nature (such as damages for pain and suffering, future care, and housekeeping) are not ordinarily subject to seizure by creditors: see Conforti (Re), 2015 ONCA 268.

[71] I designate the remaining 50% of the settlement as income loss. The question of what portion of income loss can be garnished requires further analysis.

[72] Baird agrees that, if a portion of the settlement is found to be lost income or loss of competitive advantage, it can be garnished. However, he argues two possible ways in which the court should limit the garnishment of the lost income.

[73] First, Baird attempts to draw an analogy to caselaw dealing with future income loss awards in the bankruptcy context. He submits that the court should apportion funds for lost income from the date of settlement to the date of his notional bankruptcy discharge, relative to Baird’s estimated remaining work life. He argues that the court should consider how much of a bankrupt’s income would be available to creditors when determining what portion of the settlement should be garnished.

[74] In the bankruptcy context, future income funds can be pro-rated from the discharge rate over the estimate of debtor’s working life. Lost future earning capacity has also been considered to be a replacement for earned income, and thus, falls under s. 68 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. As such, it does not accrue fully to the trustee: see Conforti (Re).

[75] I do not accept the submission that the lost wages portion of the settlement should be pro-rated in this fashion. The bankruptcy cases are distinguishable from the case before the court. There are different policy considerations that apply in the context of a bankruptcy. Courts have applied the Bankruptcy Act in a manner that is consistent with the “fresh start” principle. The Act is not intended to require payments by the bankrupt to the estate after the bankrupt's discharge. To require payment of any of the amount of future loss of wages to the estate would bring about this result. Accordingly, while the future loss amount may be property, it is not property that may be acquired by or devolved on the bankrupt before his discharge: see Re Anderson, 2004 ABQB 349, 358 A.R. 183.

[76] The Creditors’ Relief Act, 2010, S.O. 2010, c. 16, Sched. 4, does not contain the same provisions as the Bankruptcy and Insolvency Act. The purpose of the Creditors’ Relief Act is to allow creditors to collect overdue debt without resorting to legal action. It allows all creditors to gain from the benefit of a proceeding, effectively extinguishing the priority of the execution creditor who first seized property: see I.J.T. Holdings Ltd. v. Saskatchewan (Sheriff of the Judicial Centre of Moose Jaw) (1998), 171 Sask. R. 273 (Q.B.).

[77] As a secondary argument, Baird submits that the Wages Act, R.S.O. 1991, c. W.1, applies to damages for lost income and that at least 80% of the portion that is considered wages should be exempt from garnishment. The Wages Act states that payments from insurance that is intended to replace income lost because of disability shall be deemed to be wages. 80% of a person’s wages are exempt from seizure or garnishment. A judge may order that the exemption be increased or decreased if satisfied that it is just to do so, having regard to the nature of the debt owed to the creditor, the person’s financial circumstances, and any other matter the judge considers relevant: see s. 7.

[78] The parties were unable to find caselaw to assist with the issue of whether insurance settlements are considered to be “wages” under the Wages Act. However, there are principles found in the caselaw that provide some assistance:

i. Income replacement benefits under the SABS are wages within the meaning of the Wages Act: see Lease Truck Inc. v. Serbinek, [2008] O.J. No. 4700 (S.C.). ii. Periodic payments to a doctor under OHIP are not wages. The court can consider the debtor’s monthly expenses and designate a portion of OHIP payments as exempt from garnishment, pursuant to Rule 60.08(16): see Hongkong Bank of Canada v. Slesers (1992), 7 O.R. (3d) 117 (S.C.). iii. Damages for wrongful dismissal are wages within the meaning of the Wages Act: see Landry (Re) (2000), 135 O.A.C. 381 (C.A.).

[79] Although not dealing with the Wages Act, the analysis in the decision of Re Conforti provides some analogous direction. In discussing the operative legal framework under the Bankruptcy Act, the court held examples of payments that are encompassed by the s. 68(2)(a) definition of total income include lost wages and disability payments.

[80] When considering the garnishment of income, the court should strike a balance between the interests of the creditors in obtaining an expeditious payment in full of the amounts owed to them and the ability of debtors to continue to earn money that will be used to discharge their debts and support themselves and their dependents: see Dhaliwal v. Ontario (Ministry of Health and Long Term Care), [2002] O.J. No. 4717 (S.C.).

[81] It is not a requirement of the Wages Act or the caselaw that wages can only be received in the form of periodic payments or only from an employer. I find that the Wages Act applies to the lost income portion of the Baird settlement. Even if I am wrong about the application of the Wages Act, I would apply a similar analysis under Rule 60.08(16) and deem a portion of the funds to be exempt from garnishment.

[82] In this case, no one disputes that Baird was seriously injured in the accident, which may limit his ability to earn an income in the future. The lost income portion of the settlement will allow Baird to support himself and his dependents (if any). However, Baird has not provided his own affidavit setting out to what extent he is unable to work in the future or whether he has other assets or income available to him. It is notable that Baird has already been paid lump sum income replacement benefits from his insurer that cannot be garnished from the insurer.

[83] Both the Wages Act and Rule 60.08(16) give the court discretion to decrease the exemption from garnishment. I find that it is appropriate that 60% of the lost income portion of the Baird settlement should be exempt from garnishment. Since half of the settlement is entirely exempt, the net result is that 80% of the entire settlement is immune from attachment and execution. House may garnish 20% of the Baird settlement from State Farm and Nordique.

IV. ORDERS

[84] For all of these reasons, the court makes the following orders and directions:

1. The State Farm policy limits of $1 million is first loss insurance and shall be apportioned on a pro rata basis to satisfy settlements and judgments against House (as a defendant in the Baird and Samms actions) and against Baird (as a defendant in the House and Samms actions). The judgment of House in this action shall be pro-rated with the judgment in the Samms action C-570-10 and with the settlement in the Baird action C-570-10.
2. After the State Farm policy has paid out its policy limits on a pro rata basis, the Nordique policy shall then pay the remaining additional damages to Baird and to the Samms family, up to the policy limits of $1 million.
3. House shall be entitled to garnish 20% of the settlement funds payable by State Farm and Nordique to Baird.
4. The parties shall mutually agree on the quantum of payments within 30 days or such other time period as agreed to by all interested parties.
5. In the event that the parties cannot agree on the pro-rated figures within 30 days, the parties shall submit written submissions within 60 days of this ruling and I will determine the pro-rated amounts. If further direction is required from the court on any other issue, the parties may provide me with written submissions within the same time frame. The court may direct a further attendance, if required, to address the issues in dispute.

V. COSTS

[85] Nordique and Baird have been more successful than House on this motion. The Samms family took no position, but attended to ensure that their interests were protected.

[86] In the event that the parties cannot agree as to costs, they are directed to provide written submissions. The submissions shall be no longer than two typed pages, double-spaced, in addition to any relevant Bill of Costs and Offers to Settle. Nordique, Baird, and the Samms family shall provide costs submissions first and House shall respond two weeks later. In light of the fact that further submissions may be required, the parties shall agree on a timetable for costs submissions and file that timetable with the court.

Braid, J. Released: March 15, 2019