Court File and Parties

COURT FILE NO.: CV-17-36 DATE: 2022/10/03 SUPERIOR COURT OF JUSTICE-ONTARIO

RE: PAMELA DIEBOLD and CAMERON WILLIAM, Plaintiffs -and- ECONOMICAL MUTUAL INSURANCE COMPANY, Defendant

BEFORE: Gibson J.

COUNSEL: Gordon W. Harris and Rachel Andrews, Counsel for the Plaintiffs/Moving Parties Steven Carlstrom, Counsel for the Defendant/Responding Party

HEARD: June 2, 2022

ENDORSEMENT

Overview

[1] The plaintiffs in this motor vehicle accident action bring a motion seeking the determination of an issue before trial pursuant to Rule 21.01(1)(a) of the Rules of Civil Procedure. The parties wish to determine whether the defendant, Economical Mutual Insurance Company (“Economical”), is entitled to a deduction for the settlement funds received by the plaintiff, Pamela Diebold (“Diebold”), from an action against Sun Life Insurance Company (“Sun Life”) for damages including denied long-term disability (“LTD”) benefits, pursuant to s. 267.8(1) of the Insurance Act, R.S.O. 1990, c. I.8.

[2] The plaintiffs oppose the deductibility of LTD benefits from the plaintiff’s income loss claim. The defendant submits that the reality is that the plaintiff’s settlement was of a LTD claim which is largely, if not entirely, income replacement. Settlements of a LTD claim are deductible. The defendant’s position is that it is therefore entitled to deduct the settlement amount from tort damages.

Summary of Facts

[3] This action arises out of a motor vehicle accident which occurred on March 28, 2015 on Henrietta Road, in the Town of Henrietta, New York, USA. The plaintiff Pamela Diebold was travelling as a backseat passenger in the vehicle owned and operated by Cameron William (“William”) along Henrietta Road when Mr. William slowed to allow a vehicle ahead to turn into a private driveway. Another vehicle smashed into the rear of the William vehicle, causing Diebold to sustain injuries.

[4] Diebold has claimed that she was injured in the accident and that she has sustained permanent and serious injuries. She also plead that she had lost income and would continue to lose income into the foreseeable future. She has claimed for recovery of this economic loss.

[5] The defendant Economical filed a statement of defence in which it relied on the Insurance Act to plead that it is entitled to a reduction in any damages for income loss of the plaintiff for “all payments received by, or available to, the plaintiffs before trial for income loss or loss of earning capacity…under any income continuation benefit plan…[and/or] a Sick Plan leave (sic)…”

[6] Pursuant to Rule 21.01(2)(a) of the Rules of Civil Procedure, the parties consented to the filing of an Agreed Statement of Facts.

[7] This provides that Diebold brings this action for damages arising from alleged injuries suffered from a motor vehicle accident on March 28, 2015.

[8] At the time of her motor vehicle accident, Diebold was working full-time as an underwriter with Economical, the defendant in this action.

[9] At the time of her motor vehicle accident, Diebold was covered under a group policy of insurance through her employer, bearing policy number 50735, with Sun Life Assurance Company (“Sun Life”).

[10] Diebold applied for and received short-term disability benefits through Sun Life.

[11] Diebold applied for and received long-term disability benefits from Sun Life for a period up to July 31, 2017.

[12] Diebold was denied LTD benefits beyond July 31, 2017, by Sun Life. She did not receive any regular benefit payments from Sun Life for LTD benefits beyond July 31, 2017.

[13] Diebold brought a claim against Sun Life for payment of, among other things, all disability benefits owing, general damages, damages for breach of contract, interest, punitive damages, aggravated general damages, and exemplary damages. Sun Life subsequently defended the claim by serving a statement of defence, in which it denied that Sun Life was liable to Diebold and denied that she was entitled to damages.

[14] The claim against Sun Life concluded in January of 2019 when the parties reached a settlement with the terms subject to a strict confidentiality clause. As part of the settlement agreement with Sun Life, Diebold formally acknowledged that Sun Life did not admit any liability to her, and in fact, maintained their denial of liability.

[15] As part of the settlement agreement with Sun Life, Diebold agreed to dismiss all her claims for damages against Sun Life in exchange for financial compensation, on an all-inclusive basis.

[16] The plaintiff provided the defendant with a complete copy of the Sun Life disability file by providing the file on July 28, 2017, and an updated copy on November 7, 2017.

[17] The parties agree that the defendant is entitled to a proper deduction with respect to any income loss claim made by the plaintiff under s.267.8(1) of the Insurance Act. They also agree that the defendant is entitled under s.267.8(1) to a deduction for 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 an income continuation benefit plan.

[18] Diebold properly elected for accident benefits under the New York state no-fault regime entitling her to $50,000 USD in combined medical/rehabilitation benefits and disability replacement benefits.

[19] Diebold was paid $65,000 CAD from the accident benefits insurer, comprising of $18,616.12 for income replacement benefits and $46,883.88 for medical/rehabilitation benefits.

[20] The parties agree that the defendant is entitled to a credit of $18,616.12 respecting income replacement benefits received to be applied against Diebold’s income loss claims.

[21] Diebold’s New York state accident benefits claim is exhausted.

[22] The parties agree that the defendant is entitled to a credit for all funds received by Diebold for her short- and long-term disability benefits prior to Sun Life denying her further benefits.

[23] The defendant, as employer, advised Diebold in a letter of April 11, 2019, that it was terminating her employment.

[24] Diebold started a new part-time job with the Elmira Medical Clinic in November 2019, and has worked intermittently since, but not beyond part-time employment.

[25] The defendant has the Sun Life settlement documents, which were contained in the complete employment file of the defendant.

Nature of the motion

[26] The plaintiffs bring a motion for a pre-trial determination of a question of law. The test on a motion for determination of an issue before trial under Rule 21.01(1)(a) is whether the determination of the issue is plain and obvious: Hunt v. Carey Canada Inc., 1990 90 (SCC).

[27] Rule 21.01(1)(a) is designed to shorten proceedings by determining legal issues before trial where the law is clear, not hypothetical, not dependant on disputed facts, and the legal conclusion is plain and obvious: R.D. Belanger & Associates Ltd. v. Stadium Corp. of Ontario Ltd. (1991), 1991 2731 (ONCA).

[28] The defendant has plead entitlement to a reduction in any damages for income loss of the plaintiff under s.267.8(1) of the Insurance Act, which states,

267.8(1) In an action for loss or damage 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 for income loss and loss of earning capacity shall be reduced by the following amounts:

1. All payments in respect of the incident that the plaintiff has received or that were available before the trial of the accident for statutory accident benefits in respect of the income loss and loss of earning capacity.

2. All payments in respect of the incident that the plaintiff has received or that were available before the end of 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.

3. 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.

[29] The purpose of s.267.8 is to avoid duplication, or double recovery, in a tort award by allowing the defendants to deduct payments of various types and purposes from tort awards which contain the same or similar heads of damage.

Positions of the Parties

[30] The position of the plaintiffs is that they are not in dispute that the defendant is entitled to a proper s.267.8(1) deduction for all funds received by Diebold for her short- and long-term disability benefits prior to Sun Life denying further benefits. The plaintiffs submit that the question of deductibility under paragraphs 2 and/or 3 of s.267.8(1) as it pertains to deductibility of benefits “received” has been answered by the parties’ agreeance that Economical is entitled to a deduction for all benefits paid/received prior to their denial. The plaintiffs also submit however that the question of deductibility under paragraph 2 of s.267.8(1) as it pertains to deductibility of benefits “available” is answered by satisfaction of the plain and obvious test and the doctrine of stare decisis.

[31] The plaintiffs submit that Diebold’s LTD benefits were no longer “available” to her once they were denied, and therefore they are not deductible by the defendant nor relevant to this action. They contend that the resolution of Diebold’s LTD action therefore effectively renders the settlement monies proceeds of completely different litigation, for breach of contract, rather than income continuation or sick leave payment, received and/or available.

[32] Counsel for the plaintiff also submits that there is a public policy dimension to the issue, as the interpretation sought by the defendant would constitute a roadblock to settlement in similar cases as there would be no incentive for anyone to sue a disability carrier given the risks in terms of costs, leading insurers to deny more claims.

[33] The position of the respondent is that, consistent with recent jurisprudence, the defendant is entitled to deduct the settlement amount from tort damages. It says that if the plaintiff’s request is granted, she will receive a double indemnity and be overcompensated, and the wrong insurer will pay.

Issue

[34] The question of law to be determined before trial is whether Economical is entitled to a deduction for the settlement funds received by the plaintiff, Pamela Diebold, from an action against Sun Life for damages including denied long-term disability benefits, pursuant to s.267.8(1) of the Insurance Act, R.S.O. 1990, c.I.8.

Analysis

[35] In 2009, the Court of Appeal for Ontario held in Vanderkop v. Personal Insurance Co. of Canada, 2009 ONCA 511, that settling a claim is merely a decision to compromise in the pursuit of the action once LTD benefits were denied, because they were no longer “available” to the insured.

[36] I agree with the defendant’s submission that the decision in Vanderkop is no longer applicable and was not applicable at the time of the subject accident, because the section it considered had been amended. Additionally, the decision is in relation to the accident benefits insurer and not the tort insurer and predates the Court of Appeal’s decision in Cadieux v. Cloutier, 2018 ONCA 903.

[37] Section 267.8(1) of the Insurance Act differs significantly from s.7 of the Statutory Accident Benefits Schedule (“SABS”) cited in Vanderkop in that it specifically refers to “all payments in respect of the incident that the plaintiff received…”

[38] In A.B. v. Waite, 2018 ONSC 2151, MacLeod J. applied statutory deductibles to amounts awarded by a jury for a motor vehicle collision. The plaintiff in Waite also had a dispute with her LTD carrier, which settled. The Court recognized at paragraph 14 of the decision that the economic reality was that it was a settlement of an LTD claim which is largely if not entirely income replacement. As such, MacLeod J. found that the defendants were entitled to credit at least a portion of future LTD benefits.

[39] The Agreed Statement of Facts in the present case provides that the only benefits denied to the plaintiff were LTD benefits. Therefore, the only benefits that could be the subject of the plaintiff’s claim and subsequent settlement were LTD benefits.

[40] The Minutes of Settlement between the plaintiff and Sun Life provide that the settlement is a taxable LTD benefit. Therefore, this was a settlement of a claim for income replacement, specifically LTD benefits.

[41] In 2018, the Court of Appeal held in Cadieux v. Cloutier that more recently, a “silo” approach has been applied with respect to how courts match statutory accident benefits to tort damages for deduction and assignment purposes. The “silo” approach only requires that the tort award match generally with broad corresponding benefits categories, or silos. The Court of Appeal decided that the silo approach should be applied, stating at para. 8 that “the silo approach is consistent with the statutory language of s.267.8, is fair to plaintiffs, defendants and their insurers, and promotes efficiency in motor vehicle accident litigation.” It further held at para. 17 that that s.267.8 of the Insurance Act contains provisions designed to prevent double recovery, which reflects the principle that victims should be fairly compensated, but not over-compensated.

[42] The plaintiffs submit on the present motion that the silo approach endorsed in Cadieux has no application in this case, because it does not address deductions in a non-SABS context, or specifically the deductibility of any benefits under s.267.8(1) paragraphs 2 and/or 3, let alone LTD benefits or settlement monies in a tort-Insurance Act context. They submit that because s.267.8(1) paragraphs 2 and 3 specifically legislate the treatment of payments available and/or received under an income continuation or sick leave plan, and are silent on the treatment of settlement monies paid from litigation arising from such plans, it should not be found, on the principle of implied exclusion, that the LTD settlement monies paid by Sun Life are captured or deductible under either subsection. They assert that the previous decisions in Vanderkop, Anand v. Belanger, 2010 ONSC 5356, and Cromwell v. Liberty Mutual Insurance Co., (2008), 2008 3409 (ON SC), 89 O.R. (3d) 352, preclude deducting LTD action settlement monies.

[43] The defendant submits on this motion that the decisions in Cadieux and Waite endorse a common-sense approach in determining whether an amount is deductible rather than the older practice of complying with strict labels, which would have been the practice in older decisions such as Cromwell and Vanderkop, because the economic reality was that the settlement was mostly if not entirely for income replacement. I agree with this characterization. I do not agree with the plaintiff’s characterization of the decision in Waite as not good law. Rather, I consider that the Court’s decision in Waite is correct and directly applicable to the issue to be determined on the present motion.

[44] The reality is that the plaintiff’s settlement was of an LTD claim which is largely if not entirely income replacement. Settlements of an LTD claim are deductible. The defendant is therefore entitled to deduct the settlement amount from tort damages.

[45] The plaintiffs cite the decision in Finnemore v. Hyde et. al., 2021 ONSC 19 that in motor vehicle accident cases a collateral benefit is only deductible if it is expressly ensnared by s. 267.8(1), in support of their proposition that updated legislation had not changed the common law. I consider that Finnemore is readily distinguishable from the present case, as it involved consideration of non-indemnity benefits, unlike indemnities such as LTD, and the distinction continues to be made between non-indemnity and indemnity benefits: IBM Canada Limited v. Waterman, 2013 SCC 70.

[46] I am sensitive to the public policy concerns advanced by counsel for the plaintiffs described above. However, that is ultimately a question for the Legislature. This Court must construe and decide the question of law put before it on the basis of existing law and guiding appellate jurisprudence.

Conclusion

[47] I agree with the position of the defendant. In summary, I would answer the question posed in the affirmative. The defendant Economical is entitled to deduct the settlement amount from tort damages, pursuant to s.267.8(1) of the Insurance Act.

Order

[48] The defendant is entitled to deduct the settlement amount from tort damages.

Costs

[49] The parties agreed at the conclusion of the hearing that if the plaintiff was successful on the motion, costs would be $10,000 all inclusive, and that if the defendant was successful, costs would be $7,000 all inclusive.

[50] The moving party plaintiffs shall pay costs to the responding party defendant on the motion fixed at $7,000 all inclusive.

M. Gibson, J.

Date: October 3, 2022