Collateral Benefits

Study guide: Exam 6C

Collateral Benefits are payments an injured person receives from a source other than the tortfeasor — Statutory Accident Benefits, employer sick pay, disability insurance, Employment Insurance, public health care — that may be deducted from a tort award to prevent double recovery for the same loss.

\text{Net award} = \text{Assessed damages} - \text{Deductible collateral benefits}

• The competing principles. Full compensation says the plaintiff should be made whole once, not twice; but the collateral source rule in its pure form says a wrongdoer should not benefit from insurance the plaintiff paid for. Canadian law resolves this statutorily in auto, where accident benefits are expressly deductible, and by common-law rules elsewhere.
• Deductibility is matched by head of damage. Income replacement benefits are deducted from the income-loss award; medical benefits from the future-care award. Deducting an income benefit from a non-pecuniary award would be a mismatch and is not permitted.
• Subrogation is the alternative mechanism. Where a benefit is not deducted, the payer typically has a right to recover from the tort award — provincial health insurers, for instance, have statutory subrogation for the cost of treating accident victims. Either way, the tortfeasor ultimately pays once and the plaintiff recovers once.
• Why it matters to the insurer. In auto, the same insurer often pays both the accident benefits and (through the liability policy of the at-fault driver) part of the tort award. Coordination determines the net cost of the system rather than merely who writes the cheque.
• Actuarial consequence. A change in the deductibility rules — or a benefit increase on the accident-benefit side — shifts cost between coverages without changing total system cost. A rate indication computed coverage by coverage will show a large movement in each, offsetting; treating either in isolation gets the answer wrong.
• Benefits from a source the plaintiff paid for privately, such as a personally purchased disability policy, are more likely to escape deduction than benefits mandated by statute — the distinction Canadian courts draw between charitable or self-funded benefits and statutory schemes.

Coordinating Benefits and a Tort Award A claimant's assessed damages are \$500{,}000: \$220{,}000 past and future income loss, \$130{,}000 future care, \$150{,}000 non-pecuniary. They have received \$85{,}000 of accident-benefit income replacement and \$40{,}000 of medical/rehabilitation benefits, both statutorily deductible. A \$45{,}000 tort deductible applies to the non-pecuniary award, and the claimant is 10\% contributorily negligent.

Compute the net tort payment.

Answer Apply each adjustment to the correct head, in order.

Income loss:

\$220{,}000 - \$85{,}000 = \$135{,}000

Future care:

\$130{,}000 - \$40{,}000 = \$90{,}000

Non-pecuniary, after the deductible:

\$150{,}000 - \$45{,}000 = \$105{,}000

Subtotal, then contributory negligence:

\begin{align*}
\text{Subtotal} &= \$135{,}000 + \$90{,}000 + \$105{,}000 \\
&= \$330{,}000 \\[4pt]
\text{Net award} &= 0.90 \times \$330{,}000 \\
&= \$297{,}000
\end{align*}

The claimant receives \$297{,}000 in tort plus the \$125{,}000 of benefits already paid, for \$422{,}000 against \$500{,}000 assessed — the gap being the deductible and their own share of fault.

For the insurer, the point is that \$125{,}000 of the total cost was paid years earlier on the accident-benefit side. Reserving the tort claim at assessed damages without allowing for the collateral offset over-reserves the liability coverage while the same cost sits, already paid, in the accident-benefit line.