A recent ruling by the Ontario Superior Court of Justice in Mazzucco et al v Herer et al confirms that long-term disability ("LTD") benefits may be deductible from awards for income loss.
The ruling was made during a trial of a medical malpractice action. In 2005, the plaintiff, Ms. Rita Mazzucco, suffered a stroke two days after discharge from a hospital admission to treat hypertension and a severe headache. Since then, the plaintiff had not returned to work. She received Canada Pension Plan (“CPP”) disability benefits as well as long-term disability ("LTD") payments from her LTD provider, Sun Life Financial. Her employer, a school board in Ontario, paid all of the premium costs for her LTD coverage in accordance with the terms of a collective agreement. The issue before the Court was whether the plaintiff's LTD payments should be deducted from any award for loss of income.
The Court recognized the long-standing principle that negligence damages are to be measured by actual loss and double recovery is prohibited. Yet, this principle has been subject to the "private insurance exception". Courts have applied this exception in the context of LTD benefits. In particular, if these benefits were obtained under the terms of a collective agreement, they were held not to be deductible from a claim for lost wages.
However, in Mazzucco, the Court recognized that the law on the deductibility of LTD benefits payments has evolved. The 2013 Supreme Court of Canada decision of IBM Canada Limited v Waterman introduced "a new era" regarding the private insurance exception. Waterman established that the more closely a benefit resembles, "in nature and purpose", an indemnity against the type of loss caused by a defendant's breach, the more likely it will be deductible.
Applying Waterman, the Court considered the nature and purpose of the plaintiff's LTD benefit. It determined that the benefit constituted an indemnity for the type of loss caused by the defendants' breach and should therefore be deducted from an award for wage loss. Further, in accordance with Waterman, the Court considered broader policy implications with respect to the deduction. The plaintiff's LTD benefit was paid pursuant to a policy of insurance paid by the plaintiff's employer, a public entity, which meant that the benefit was funded by Ontario taxpayers. Similarly, the defendants were paid through the Ministry of Health and thus, an award for lost wages would be indirectly funded by Ontario taxpayers. Without a deduction, the plaintiff would be paid twice from the public purse.
For these reasons, the Court instructed the jury to deduct LTD payments from any past or future income award. This case marks the first time that Waterman has been applied in this context in Ontario, and may be influential in clarifying the law on the deductibility of LTD payments.