In Demers v. B.R. Davidson Mining & Development Ltd., Mr. Justice Douglas C. Shaw has held that, for the period November 1, 1996 to September 30, 2003, CPP benefits are not deductible from an award of tort damages in a motor vehicle case. A 2005 decision of the same court, Meloche v. McKenzie, came to the opposite conclusion, so it is quite possible that the defendant in Demers will appeal.
Update: We have been advised that this decision has, in fact, been appealed. (See comment below.)
For motor vehicle accidents occurring after September 30, 2003, s. 5.2 of O.Reg. 461/96 makes it clear that CPP benefits are to be deducted, by providing that such benefits are “deemed” to be payments for income loss or loss of earning capacity (and therefore deductible). However, until that amendment was made, the Insurance Act did not deal specifically with the character of CPP benefits. Earlier jurisprudence had held that CPP benefits were not payments for loss of income (since eligibility for CPP did not depend on the claimant having been employed), but the addition of the phrase, “or loss of earning capacity” to the collateral benefits provisions of s. 267.8(1) of the Insurance Act in Bill 59, left uncertainty as to whether that amendment produced a different result..
It was held by Justice Patterson, in Meloche v. McKenzie, that the benefits were deductible. In coming to this conclusion, His Honour applied what he described as a “broad, inclusive and encompassing” interpretation of s. 267.
In the Demers case, Justice Shaw undertook his own statutory interpretation and it led him in the opposite direction. He was of the view that if s. 267.8(1)2, in its original form, allowed for the deduction of CPP benefits, then there would have been no need to amend O.Reg. 461/96 to provide explicitly for their deductibility.
He also felt that it was significant that Justice Patterson had not been referred to a Court of Appeal decision in Kosanovic v. Wawanesa Mutual Insurance Co., which had principally dealt with the question of whether certain disability benefits to which the plaintiff was entitled reduced the amount available under uninsured motorist coverage. In the course of its reasons, the Court of Appeal said that the disability benefits “do not meet the statutory criteria for a deduction under s. 267.8(1)2 of the Act”.
Counsel for the plaintiff in Demers relied upon that passage and Justice Shaw agreed, saying that the decision was binding on him. Accordingly, he held that CPP benefits that had been paid to the plaintiff were not deductible from tort damages.
His Honour then turned to a consideration of whether disability benefits received from the Hospitals of Ontario Pension Plan (“HOOP”) were deductible. He held that they are not. He relied on the Divisional Court’s 2006 ruling in State Farm v. Scott, in which it was held that HOOP benefits were not deductible from income replacement benefits payable under the Statutory Accident Benefits Schedule. Justice Shaw felt that the same reasoning applied to tort damages. In his view, HOOP benefits are non-indemnity in nature and, absent a statutory provision such as the one that now applies to CPP benefits, should not be treated as deductible from tort damages.
His Honour added that, in the event his conclusion about the deductibility of these benefits were wrong, then he would only allow the benefits to be deducted net of income tax.
Finally, the plaintiff in this case had been paid some $40,405 from her accident benefits insurer by way of interest on overdue payments. (The SABS provides for interest to be paid at the rate of 2 per cent per month, compounded monthly.) The defendant argued that these payments should be deductible from the tort damages. However, Justice Shaw rejected that submission. He held that the interest payments represented only the time value of money on benefits unpaid by the no fault insurer and should not diminish the amount payable by the tort insurer.
(The conclusion about the time value of money seems somewhat debatable. Monthly interest of 2 per cent, compounded monthly is the equivalent of about 26.8% in simple interest. It is hard to imagine that in 2011, the time value of money would be that high.)