By Amanda Colarossi
Where a claimant is entitled to income replacement benefits (“IRB”), the accident benefits insurer is entitled to certain deductions when calculating the weekly IRB amount payable to the claimant.
Calculating the Weekly Base Amount
IRBs are paid at 70% of the claimant’s pre-accident gross income earnings, up to a maximum of $400 per week (unless optional IRBs were purchased) – this is the weekly base amount for IRBs.
In the case of a claimant who is not self-employed, pre-accident gross annual income is based on either the claimant’s gross employment income in the 4 weeks prior to the accident (multiplied by 13) or in the 52 weeks prior to the accident (SABSs.4(2)). If a claimant was self-employed, pre-accident gross annual income earnings will be based on gross employment income in the 52 weeks prior to the accident or, if the claimant was self-employed for at least one year before the accident, the claimant may choose to calculate gross annual employment income based on the last fiscal year of the business that ended on or before the day of the accident (SABS s.4(2)).
The claimant’s weekly amount of IRB payable is the lesser of the weekly base amount less the total of all “other income replacement assistance” or $400 (SABS s.7(1)).
Reductions for “Other Income Replacement Assistance” and “Gross Employment Income”
A claimant’s entitlement to IRBs is first adjusted by reducing the weekly base amount by “other income replacement assistance” being received by the claimant to calculate the weekly amount of IRB payable. “Other income replacement assistance” is defined in s.4(1) of the SABS to include “the amount of any gross weekly payment for loss of income that is received by or available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan” [emphasis added] (other than certain specific benefits listed in s.4(1)(a)).
Once the weekly amount of IRB payable is determined, insurers are also entitled to deduct 70% of any “gross employment income received by the insured as a result of being employed after the accident and during the period [the claimant] … is eligible to receive an IRB” from the amount to be paid as an IRB (SABS s.7(3)).
“Gross employment income” is defined in s.4(1) of the SABS to include “salary, wages and other remuneration from employment, including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada),” [emphasis added] (but excludes any retiring allowance and severance pay).
The question often before the Licence Appeal Tribunal (“LAT”) is what constitutes “other income replacement assistance” or “any gross employment income”.
The following is a discussion of the way the LAT has recently treated IRB deductions for Canada Pension Plan Disability and various Employment Insurance benefits.
Canada Pension Plan Disability
As noted above, IRBs are calculated by determining a weekly base amount less the total of “other income replacement assistance” (SABS s.7(1)(a)).
Because Canada Pension Plan Disability (“CPP Disability”) pension benefits are specifically recognized by the SABS to be an “income continuation benefit plan” (SABS s.3(7)(d)(i)), there is now little doubt that an insurer is entitled to deduct CPP Disability.
Importantly, s.4(1) of the SABS stipulates that income continuation benefits are deductible if they are “received by or available” to the claimant and the SABS requires claimants to apply for all other income replacement assistance available. Consequently, an insurer is entitled to deduct CPP Disability in certain situations where the benefit available is available to the claimant, but they did not apply for it, and they are not receiving it.
The deductibility of available (but not collected) CPP disability benefits as “other income replacement assistance” was originally recognized by FSCO and the same reasoning has now been applied by the LAT. In 18-000729 v Northbridge Personal Insurance Corporation, 2020 CanLII 14425, the LAT held that the insurer was able to deduct the applicable quantum of CPP disability because the claimant was entitled to the benefit, despite that the claimant had not applied for the benefits.[1] Caselaw has found that although the claimant does not have an obligation to appeal decisions denying collateral benefits entitlement, they must apply for all available benefits.[2]
Employment Insurance Benefits/CERB
The deductibility of employment insurance (“EI”) benefits are largely dependent on the type of EI received and for what purpose they were received. EI benefits are specifically excluded from the definition of “other income replacement assistance”, but they can be deductible as “gross employment income”.
EI sickness
In Aviva Insurance Company of Canada v Spence, 2022 ONSC 4988[3], the Divisional Court held that EI sickness benefits earned during a period of entitlement are deductible.
In that case,the claimant was employed as a full-time registered nurse, at the time of the accident. As a result of the accident, she applied for IRBs from her insurer and was entitled to $400.00 per week in accordance with her gross annual income. During her period of entitlement, she received EI sickness benefits in the amount of $562.00 per week.
At first instance, and on Reconsideration, EI sickness benefits were not found to be proper deductions because the EI sickness benefits were found to be a non-deductible “temporary disability benefit” as defined in s.47(3)(f)(i) of the SABS. However, the Divisional Court held that EI sickness benefits should be deducted from IRBs as “gross employment income” under s.7(3) of the SABS. The Court explained that in all areas of the SABS where EI is referenced, it is clear that EI is treated as income, regardless of the reason for or the time at which the benefits are received.
EI parental leave
In Manuel v Certas Direct Insurance Company, 2021 CanLII 2008[4], the LAT held that maternity leave benefits and the employer top-up amounts are deductible from IRBs as “gross employment income” under s.7(3) of the SABS.
In that case,the applicant went on maternity leave shortly after the accident and received EI maternity benefits. EI maternity benefits were found to fall within the definition of “gross employment income” as they are “any benefit received under the Employment Insurance Act”.
The LAT has further held that EI maternity benefits are deductible regardless of whether the benefit was being received before or was only commenced after the accident date (S.W. v Certas Insurance Company of Canada 2018 CanLII 83535[5]).
CERB
In Foster v Aviva General Insurance, 2021 CanLII 117413[6],the LAT held on Reconsideration that the Canada Emergency Response Benefit (“CERB”) which the claimant received during the COVID-19 pandemic was not “gross employment income” or “other remuneration from employment” because CERB eligibility was not “tied to employment status”. Therefore, CERB was found not to be deductible as per s.7(3) of the SABS.
Takeaway
What is and is not considered deductible from IRBs is often subject of debate, and hinges on the interpretation of the language in the SABS and the specific type of benefit payment available or received. The landscape may shift as the types and availability of government or private benefits change and as the interpretations of different LAT adjudicators may vary.
As noted above, these interpretive decisions are often contested all the way to the Divisional Court before the industry is provided clarity and direction on appropriate collateral deductions. It is, therefore, important to stay up to date on developing caselaw and consider the potential availability of IRB deductions on a case by case basis.
[1] https://canlii.ca/t/j5f9c
[2] McBeth v Allstate Canada, 2022 CanLII 65584 at para 19 <https://canlii.ca/t/jr08z>
[3] https://canlii.ca/t/jrqhx
[4] https://canlii.ca/t/jcmx6
[5] https://canlii.ca/t/hv0dd
[6] https://canlii.ca/t/jkl26
By Amanda Colarossi
Where a claimant is entitled to income replacement benefits (“IRB”), the accident benefits insurer is entitled to certain deductions when calculating the weekly IRB amount payable to the claimant.
Calculating the Weekly Base Amount
IRBs are paid at 70% of the claimant’s pre-accident gross income earnings, up to a maximum of $400 per week (unless optional IRBs were purchased) – this is the weekly base amount for IRBs.
In the case of a claimant who is not self-employed, pre-accident gross annual income is based on either the claimant’s gross employment income in the 4 weeks prior to the accident (multiplied by 13) or in the 52 weeks prior to the accident (SABSs.4(2)). If a claimant was self-employed, pre-accident gross annual income earnings will be based on gross employment income in the 52 weeks prior to the accident or, if the claimant was self-employed for at least one year before the accident, the claimant may choose to calculate gross annual employment income based on the last fiscal year of the business that ended on or before the day of the accident (SABS s.4(2)).
The claimant’s weekly amount of IRB payable is the lesser of the weekly base amount less the total of all “other income replacement assistance” or $400 (SABS s.7(1)).
Reductions for “Other Income Replacement Assistance” and “Gross Employment Income”
A claimant’s entitlement to IRBs is first adjusted by reducing the weekly base amount by “other income replacement assistance” being received by the claimant to calculate the weekly amount of IRB payable. “Other income replacement assistance” is defined in s.4(1) of the SABS to include “the amount of any gross weekly payment for loss of income that is received by or available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan” [emphasis added] (other than certain specific benefits listed in s.4(1)(a)).
Once the weekly amount of IRB payable is determined, insurers are also entitled to deduct 70% of any “gross employment income received by the insured as a result of being employed after the accident and during the period [the claimant] … is eligible to receive an IRB” from the amount to be paid as an IRB (SABS s.7(3)).
“Gross employment income” is defined in s.4(1) of the SABS to include “salary, wages and other remuneration from employment, including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada),” [emphasis added] (but excludes any retiring allowance and severance pay).
The question often before the Licence Appeal Tribunal (“LAT”) is what constitutes “other income replacement assistance” or “any gross employment income”.
The following is a discussion of the way the LAT has recently treated IRB deductions for Canada Pension Plan Disability and various Employment Insurance benefits.
Canada Pension Plan Disability
As noted above, IRBs are calculated by determining a weekly base amount less the total of “other income replacement assistance” (SABS s.7(1)(a)).
Because Canada Pension Plan Disability (“CPP Disability”) pension benefits are specifically recognized by the SABS to be an “income continuation benefit plan” (SABS s.3(7)(d)(i)), there is now little doubt that an insurer is entitled to deduct CPP Disability.
Importantly, s.4(1) of the SABS stipulates that income continuation benefits are deductible if they are “received by or available” to the claimant and the SABS requires claimants to apply for all other income replacement assistance available. Consequently, an insurer is entitled to deduct CPP Disability in certain situations where the benefit available is available to the claimant, but they did not apply for it, and they are not receiving it.
The deductibility of available (but not collected) CPP disability benefits as “other income replacement assistance” was originally recognized by FSCO and the same reasoning has now been applied by the LAT. In 18-000729 v Northbridge Personal Insurance Corporation, 2020 CanLII 14425, the LAT held that the insurer was able to deduct the applicable quantum of CPP disability because the claimant was entitled to the benefit, despite that the claimant had not applied for the benefits.[1] Caselaw has found that although the claimant does not have an obligation to appeal decisions denying collateral benefits entitlement, they must apply for all available benefits.[2]
Employment Insurance Benefits/CERB
The deductibility of employment insurance (“EI”) benefits are largely dependent on the type of EI received and for what purpose they were received. EI benefits are specifically excluded from the definition of “other income replacement assistance”, but they can be deductible as “gross employment income”.
EI sickness
In Aviva Insurance Company of Canada v Spence, 2022 ONSC 4988[3], the Divisional Court held that EI sickness benefits earned during a period of entitlement are deductible.
In that case,the claimant was employed as a full-time registered nurse, at the time of the accident. As a result of the accident, she applied for IRBs from her insurer and was entitled to $400.00 per week in accordance with her gross annual income. During her period of entitlement, she received EI sickness benefits in the amount of $562.00 per week.
At first instance, and on Reconsideration, EI sickness benefits were not found to be proper deductions because the EI sickness benefits were found to be a non-deductible “temporary disability benefit” as defined in s.47(3)(f)(i) of the SABS. However, the Divisional Court held that EI sickness benefits should be deducted from IRBs as “gross employment income” under s.7(3) of the SABS. The Court explained that in all areas of the SABS where EI is referenced, it is clear that EI is treated as income, regardless of the reason for or the time at which the benefits are received.
EI parental leave
In Manuel v Certas Direct Insurance Company, 2021 CanLII 2008[4], the LAT held that maternity leave benefits and the employer top-up amounts are deductible from IRBs as “gross employment income” under s.7(3) of the SABS.
In that case,the applicant went on maternity leave shortly after the accident and received EI maternity benefits. EI maternity benefits were found to fall within the definition of “gross employment income” as they are “any benefit received under the Employment Insurance Act”.
The LAT has further held that EI maternity benefits are deductible regardless of whether the benefit was being received before or was only commenced after the accident date (S.W. v Certas Insurance Company of Canada 2018 CanLII 83535[5]).
CERB
In Foster v Aviva General Insurance, 2021 CanLII 117413[6],the LAT held on Reconsideration that the Canada Emergency Response Benefit (“CERB”) which the claimant received during the COVID-19 pandemic was not “gross employment income” or “other remuneration from employment” because CERB eligibility was not “tied to employment status”. Therefore, CERB was found not to be deductible as per s.7(3) of the SABS.
Takeaway
What is and is not considered deductible from IRBs is often subject of debate, and hinges on the interpretation of the language in the SABS and the specific type of benefit payment available or received. The landscape may shift as the types and availability of government or private benefits change and as the interpretations of different LAT adjudicators may vary.
As noted above, these interpretive decisions are often contested all the way to the Divisional Court before the industry is provided clarity and direction on appropriate collateral deductions. It is, therefore, important to stay up to date on developing caselaw and consider the potential availability of IRB deductions on a case by case basis.
[1] https://canlii.ca/t/j5f9c
[2] McBeth v Allstate Canada, 2022 CanLII 65584 at para 19 <https://canlii.ca/t/jr08z>
[3] https://canlii.ca/t/jrqhx
[4] https://canlii.ca/t/jcmx6
[5] https://canlii.ca/t/hv0dd
[6] https://canlii.ca/t/jkl26