This case involved a Rule 21.01(1)(a) motion to determine whether the defendant, Economical Mutual Insurance Company, is entitled to a deduction for the settlement funds received by the plaintiff for denied long-term disability benefits pursuant to s. 267.8(1) of the Insurance Act.
S. 267.8(1) of the Insurance Act states:
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:
- 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.
- 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.
- 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.
“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.”
On March 28, 2015, the plaintiff, Pamela Diebold, was involved in a motor vehicle accident in Henrietta, New York. Ms. Diebold was a backseat passenger in a vehicle owned and operated by Cameron William. When Mr. William slowed to allow a vehicle ahead to turn, another vehicle rear ended the William vehicle. The plaintiff alleged that she sustained permanent and serious injuries, lost income, and future lost income.
At the time of the accident, Ms. Diebold worked as an underwriter with the defendant, Economical. She had a group insurance policy through her employer with Sun Life Assurance Company through which she received short-term disability benefits and long-term disability benefits from Sun Life until July 31, 2017. Sun Life denied benefits beyond that date.
Ms. Diebold commenced an action against Sun Life for disability benefits owing, general damages, damages for breach of contract, interest, punitive damages, aggravated general damages, and exemplary damages. In January 2019, Ms. Diebold and Sun Life reached an all-inclusive settlement, which maintained Sun Life’s denial of liability. The settlement was also subject to a strict confidentiality clause.
Ms. Diebold obtained accident benefits under New York’s no-fault regime, which entitled her to $50,000 USD in combined medical/rehabilitation benefits and disability replacement benefits. She was also paid $65,000 CAD from the accident benefits insurer in combined medical/rehabilitation benefits ($46,384) and income replacement benefits ($18,616).
The parties agreed that Economical was entitled to credit the $18,616 income replacement benefits against Ms. Diebold’s income loss claims, and to credit her short- and long-term disability benefits prior to Sun Life denying her further benefits.
- Is the defendant, Economical Mutual Insurance Company, entitled to a deduction for the settlement funds received by the plaintiff, Ms. 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?
Position of the Parties
The plaintiff argued that her long-term disability benefits were no longer available to her once they were denied and, as such, are not deductible by the defendant. Ms. Diebold’s settlement proceeds resulted from her claim for damages in breach of contract, rather than income continuation or sick leave payment. The plaintiff also submitted that there was a public policy dimension to this issue, as the defendant’s interpretation would lessen the incentive to sue disability carriers, leading insurers to deny more claims.
The defendant argued that recent jurisprudence allows the defendant to deduct settlements from tort damages. Otherwise, the plaintiff would receive double recovery, and the wrong insurer would pay.
In A.B. v. Waite, 2018 ONSC 2151, the plaintiff had settled a dispute with her long-term disability carrier, and the defendant sought to deduct the settlement from the plaintiff’s damages. The Court recognized that “this is settlement of an LTD claim which is largely if not entirely income replacement.” Therefore, the defendants were entitled to full credit for arrears of long-term disability benefits and at least a portion of future long-term disability benefits.
In this case, the Agreed Statement of Facts stated that the only benefits denied by Sun Life were long-term disability benefits. Further, the Minutes of Settlements between the plaintiff and Sun Life provide that the settlement is a taxable long-term disability benefit. Therefore, the Court found that the claim underlying the settlement was for income replacement.
The Court then considered Cadieux v. Clouter, 2018 ONCA 903. In this case, the Court of Appeal endorsed a silo approach, “which requires the tort award only to match generally with the broad corresponding SABS categories or silos.” The Court of Appeal continued, “the silo approach is consistent with statutory language of s. 267.8, is fair to plaintiffs, defendants and their insurers, and promotes efficiency in motor vehicle accident litigation.”
In this case, the plaintiff argued that the silo approach had no application because it does not address deductions in a non-SABS context, nor s. 267.8(1) of the Insurance Act. The plaintiff submitted 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.”
In contrast, the defendant argued that the Cadieux and Waite decisions endorse a common-sense approach in determining whether an amount is deductible, rather than the older practice of complying with strict labels because the settlement was mostly if not entirely income replacement.
The Court agreed with the defendant’s submissions, stating “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.” The Court acknowledged that it was sensitive to the plaintiff’s public policy concerns, but that was ultimately a question for the Legislature. The Court must decide the case based on the existing legislation and jurisprudence.
The defendant, Economical Mutual Insurance Company, was entitled to deduct the settlement amount from tort damages, pursuant to s. 267.8(1) of the Insurance Act.
The biggest takeaway from this decision is that long-term disability settlements are deductible from tort damages in motor vehicle accident cases.
As previously stated by the Court of Appeal in Cadieux v. Clouter, the silo approach is consistent with s. 267.8 of the Insurance Act, which requires the tort award only to match generally with the broad corresponding SABS categories or silos.
 Insurance Act, RSO 1990, c.I.8, s. 267.8(1).
 Diebold v. Economical Mutual Insurance Company, 2022 ONSC 5592 at para 29 [Diebold].
 A.B. v. Waite, 2018 ONSC 2151 at para 14.
 Cadieux v. Cloutier, 2018 ONCA 903 at para 4.
 Ibid at para 8.
 Diebold, supra note 2 at para 42.
 Ibid at para 44.