Our post about the Montebello Civil Litigation Conference contained a brief discussion of a recent costs decision by Mr. Justice Charles Hackland in Abel v. Hamelin. We now have a copy of the reasons and a PDF is attached to this post. The decision raises some interesting questions about the interaction between tort damages and first-party statutory accident benefits, in the automobile insurance context.
The action was a personal injury claim arising out of a motor vehicle accident. Following a 15-day trial, damages were assessed by Justice Hackland at $344,238.48.
Prior to trial, the plaintiff had made three settlement offers: one for $250,000 in 2003, another for $400,000 in 2005 and a third for $349,735.58 plus interest and costs in December, 2006, two months before the commencement of the trial.
The defendant had offered $330,000 plus interest and costs and included, as a term of the offer, a requirement that it receive “a full assignment to the defendant of the plaintiff’s future IRBs”. (We are told that the insurer in question was Belair and that it was both the tort and AB insurer.) The plaintiff’s December offer dealt only with the tort claim and was silent with respect to the accident benefits claim.
In ruling on the costs issue, Justice Hackland began by adding the $15,000 Insurance Act deductible to the assessed damages of $344,735.58. In doing so, he was following the Court of Appeal’s recent decision in Rider v. Dydyk. He said that “on that basis, the plaintiff’s recovery for Rule 49 purposes was actually $359,238.48 which exceeds her offer by $9,502.90 and therefore entitles her to consideration for a substantial indemnity award from the date of her offer”.
Justice Hackland then went on to say the following:
[A]s noted above, the trial judgment requires a set off or assignment of the plaintiff’s future IRB’s, the value of which an actuary has calculated to be $166,938.00. Therefore the plaintiff’s net recovery is $344,238.48 + $15,000.00 – $166,938.00 = $192,300.48. This sum is of course much less than the plaintiff’s December 1, 2006 offer to accept $349,735.58 with no assignment of IRB’s.
At trial, Justice Hackland had found that the plaintiff was entitled to damages for income loss to age 60, on the basis that she would have retired at that age and that it was, in any event, the average retirement age for female workers in Canada and for health care workers in particular.
He had asked that the plaintiff’s actuary make certain calculations, including the present value of future income replacement benefits. This amount was determined to be $166,938.
Justice Hackland said, in para. 4 of his reasons, that the plaintiff’s first two offers “did not provide for any assignment of future income replacement benefits (IRB’s) to the defendant as a trial judge would be required to do when making an award for future income loss, see section 267.8 of the Insurance Act“. The section does not actually require that an assignment be made, but it does impose a trust on income benefits received after the plaintiff has recovered damages for income loss or loss of earning capacity. The relevant portion of section 267.8 reads as follows (we have highlighted some portions):
Future collateral benefits
(9) A plaintiff who recovers damages for income loss, loss of earning capacity, expenses that have been or will be incurred for health care, or other pecuniary loss in an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile shall hold the following amounts in trust:
- All payments in respect of the incident that the plaintiff receives after the trial of the action for statutory accident benefits in respect of income loss or loss of earning capacity.
- All payments in respect of the incident that the plaintiff receives after 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 receives after the trial of the action under a sick leave plan arising by reason of the plaintiff’s occupation or employment.
- All payments in respect of the incident that the plaintiff receives after the trial of the action for statutory accident benefits in respect of expenses for health care.
- All payments in respect of the incident that the plaintiff receives after the trial of the action under any medical, surgical, dental, hospitalization, rehabilitation or long-term care plan or law.
- All payments in respect of the incident that the plaintiff receives after the trial of the action for statutory accident benefits in respect of pecuniary loss, other than income loss, loss of earning capacity and expenses for health care.
Payments from trust
(10) A plaintiff who holds money in trust under subsection (9) shall pay the money to the persons from whom damages were recovered in the action, in the proportions that those persons paid the damages.
(11) Any dispute concerning a plaintiff’s liability to make payments under subsection (10) shall, on the request of a person who claims to be entitled to a payment under that subsection, be submitted to arbitration in accordance with the Arbitration Act, 1991.
Assignment of future collateral benefits
(12) The court that heard and determined the action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of the automobile, on motion, may order that, subject to any conditions the court considers just,
the plaintiff who recovered damages in the action assign to the defendants or the defendants’ insurers all rights in respect of all payments to which the plaintiff who recovered damages is entitled in respect of the incident after the trial of the action,
- for statutory accident benefits in respect of income loss or loss of earning capacity,
- for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan,
- under a sick leave plan arising by reason of the plaintiff’s occupation or employment,
- for statutory accident benefits in respect of expenses for health care,
- under any medical, surgical, dental, hospitalization, rehabilitation or long-term care plan or law, and
- for statutory accident benefits in respect of pecuniary loss, other than income loss, loss of earning capacity and expenses for health care; and
- the plaintiff who recovered damages in the action co-operate with the defendants or the defendants’ insurers in any claim or proceeding brought by the defendants or the defendants’ insurers in respect of a payment assigned pursuant to clause (a).
Application of subs. (9)
(13) Subsection (9) no longer applies if an order is made under subsection (12).
Thus, when a plaintiff recovers damages for income loss (which can only happen by court order), subsection 267.8(9) of the Act prevents double-recovery by imposing on future income replacement benefits a trust in favour of the tort insurer. That obligation arises by operation of law, without any further order of the court having to be made. In that event, future income benefits would be paid by the AB insurer to the plaintiff and then by the plaintiff to the tort insurer.
But the Act goes on to provide a mechanism that would remove the plaintiff from the process and permit future income benefits to be paid directly to the tort insurer by the AB carrier: subsection 267.8(12) says that that the court may order that the plaintiff assign to the tort insurer his or her rights to future accident benefits. In that event, subsection 267.8(13) would result in there being no obligation on the plaintiff to hold the future benefits in trust (since the plaintiff would not be receiving the benefits at all).
So, to return to this case, once Hackland J. had assessed damages for future income loss, the plaintiff no longer had any entitlement to receive income replacement benefits. She was obliged, by subsection 267.8(9), to hold those benefits in trust for Belair Insurance (as tort insurer).
However, the defence argued that because the plaintiff’s offer to settle had been silent with respect to the accident benefits claim, if that offer had been accepted, the plaintiff would have had double-recovery because she would have received the $350,000 from the tort settlement and would still have had the right to receive income replacement benefits. (The trust provisions of s. 267.8(9) would not have kicked in because the plaintiff would not have “recovered damages” for income loss.) Thus, Justice Hackland was in the position of comparing the recovery at trial (where, by statute, double recovery does not occur) with the plaintiff’s settlement offer (which dealt only with the tort lawsuit and therefore, would have permitted the plaintiff to receive both damages and income benefits).
Considering the tort action alone, for purposes of evaluating Rule 49 offers, the plaintiff’s net recovery in the tort action was $344,238.48 + $15,000.00 = $359,238.48. This was $9,502.90 more than her offer to settle and the trust provisions of s. 267.8(9) would have come into operation.
Is it necessary, for purposes of applying Rule 49, to do a present value calculation of future accident benefits and deduct that amount from the tort award, in order to arrive at the plaintiff’s true “net” recovery?
To answer this question, it is necessary to consider the wording of Rule 49.10. It says that where “the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle”, the costs consequences of the rule (substantial indemnity costs) are engaged. Is a judgment for $350,000 in which, by statute, benefits under a separate first party insurance contract are affected, as favourable as an offer to accept $350,000 in tort damages?
The problem is even clearer in situations where the tort and AB insurers are different companies. If the plaintiff offers to settle her tort claim against insurer A for $350,000, must she also include, as a term of her offer, that she will assign future accident benefits owing by insurer B? And if she fails to do so, is the court entitled to deduct some amount for future accident benefits, in order to compare the offer and the judgment?
It seems to some in our office that the answer to the latter question is “no”. While it is true that there is a certain “apples and oranges” element to evaluating Rule 49 offers in the auto insurance context, the reality is that the plaintiff’s future entitlement to income benefits is usually uncertain. To notionally deduct the present value of future accident benefits would require that a number of assumptions be made as to what benefits will actually be received by the plaintiff and for how long. The plaintiff would risk being penalized in costs on account of income benefits that she might never receive.
Others in our office view the matter differently and think that Justice Hackland’s approach might be the only way to avoid the double recovery that would result from an acceptance of the sort of settlement offer that was made by the plaintiff in this case. Even those subscribing to that point of view (here, at least) are troubled by a deduction of the full present value of the future benefits.
The point dealt with by Justice Hackland is an interesting one and we look forward to it being considered by other courts.