Summaries Sunday: OnPoint Legal Research

One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.



Areas of law: Insurance law; Subrogation; Income replacement plan; Statutory exceptions

~The Insurance Act’s provisions excluding subrogation in cases where the insured receives income continuation or replacement payments apply where the party paying the benefits is an insurer under an insurance contract, but do not extend to employers ~

Background: The Appellant, Mr. Hammond, was injured in a motor vehicle accident involving the Respondent, Ms. DeWolfe. Mr. Hammond worked for the Appellant Syncrude Canada Ltd., and received temporary disability benefits from his employer for time he missed from work as a result of his injuries. The benefits plan included a provision that Syncrude was subrogated to the employee’s rights of recovery against the Respondent. The Alberta Insurance Act provided, in part, at s. 626.1 (now s. 570) that an award for a head of damages for which the claimant received benefits under a prescribed income continuation or replacement plan, or an income replacement plan or scheme, must be reduced by the aggregate of all payments both before and after the award. Syncrude and Mr. Hammond brought an action against the Respondent for damages, and Syncrude applied to the court for a preliminary determination as to whether Syncrude was subrogated to Mr. Hammond’s right of recovery in respect of income benefits paid by Syncrude to him, notwithstanding the provisions of s. 626.1. The chambers judge found that s. 626.1 applied, and that for this reason the benefits paid to Mr. Hammond were deductible from any damages he received. Syncrude had no right of subrogation. The chambers judge went on to find that Syncrude was entitled to claim damages for the loss of Mr. Hammond’s services. Syncrude appealed the finding with respect to s.626.1, and the Respondent cross appealed the finding that Syncrude was entitled to claim for damages.

Appellate decision: The appeal was allowed. The Court of Appeal noted that the question at issue was statutory interpretation, which is a question of law and attracts a standard of correctness on review. It is a general rule at common law that collateral benefits received by a plaintiff are deductable from a damages award. This is to avoid double recovery. However, there is an exception to this rule where the plaintiff will not actually recover twice because the employer or fund which paid the benefits is entitled to be reimbursed for them on the principle of subrogation. In considering whether s. 626.1 had the effect of negating this exception, the Court looked to Hansard, wherein the sponsor of the bill enacting the section remarked that the purpose of the bill was to clearly establish that when an insured has coverage through a disability program, the insurer is only responsible for topping up income replacement, above what is already being received through the disability program. The Court noted that the legislation did not define “income continuation plan” or “income replacement plan”, and that the term “income continuation plan” only appeared in a subsection regarding prescribed plans of this nature. No regulations prescribing income continuation or replacement plans existed. The Appellants argued that the temporary disability benefits constituted an income continuation plan and therefore fell outside the provisions of s. 626.1. The Respondent argued that the Appellants’ plan was not an income continuation plan because the payments were not identical to what Mr. Hammond’s income would have been. The Respondent further asserted that the terms “income continuation” and “income replacement” were interchangeable. The Court disagreed, finding that the language of the section, and the fact that it appears in the Insurance Act, along with the record as found in Hansard, suggested that the persons whose rights of subrogation were removed by the legislation were those who make a payment to an insured under a contract of insurance. The section was not intended to capture employers who provide temporary disability benefits to their employees. Having found in favour of the Appellants, the Court declined to consider the Respondent’s cross appeal on its merits.


When the language of a statute is both vague and ambiguous, the attempt to discern legislative intent is an exercise in futility. Consequently, it may be superfluous to note that the collateral benefit provisions at the heart of this decision were, in fact, quid pro quo elements of an historic bargain struck between insurers and the Alberta government in 2004. In effect, insurers agreed to lower automobile insurance premiums via regulation in exchange for certain cost-saving measures: a cap on general damages respecting “minor” injuries, gross-to-net income tax deductions, and deductions for collateral benefits (including wage replacement) “paid or payable” from a variety of loosely-defined sources.

Did the Alberta Legislature intend that employer-provided schemes of wage replacement would be caught by these provisions of the Insurance Act? In my view, the answer is clearly “yes”. My confidence in this regard is based on acknowledgment of the historic bargain mentioned above. In 2004, the Alberta government was desperate to reduce automobile insurance premiums -– particularly those affecting young male voters (sorry, I meant drivers) — and the insurers fought for every possible deduction to make the premium-reductions fiscally viable. The stage for insurance reform was thusly set, and the collateral benefit provisions reviewed by the Court in DeWolfe were the results of that process.

However, at the end of the day, evidence of intent is a poor substitute for legislative clarity. The Court of Appeal has not broken new ground here, but has merely reiterated age-old principles of statutory interpretation. As noted by Justice Costigan, it “would have been a relatively simple exercise to draft provisions that clearly apply” to an employer such as Syncrude. It remains to be seen whether the Alberta government is up to the task.

Certainly, the clock in this regard is loudly ticking. One of the other pillars of tort reform in this province — the Minor Injury Cap — has already been severely weakened by judicial interpretation in Sparrohawk v. Zapoltinsky, 2012 ABQB 34 (Q.B). One wonders how long the status quo of artificially-lowered automobile insurance premiums can continue, given the erosion of the insurers’ collective position. Perhaps threats of withdrawal from the market by some insurers will prompt the “simple exercise” that is now required of the Alberta government to fix this poorly-drafted legislation.”


Hammond v. DeWolfe is an important decision for employers, the personal injury bar and legislators.

The legal backdrop is the law of “double recovery” or “collateral benefits” in personal injury actions. The baseline rule established by the Supreme Court of Canada in Ratych v. Bloomer and Cunningham v. Wheeler is that, subject to certain exceptions, when a personal injury victim received benefits to cover losses for which damages would be awarded, such as benefits covering lost wages, these benefits had to be subtracted from any damages award. Otherwise, the plaintiff would be collecting twice for the same loss.

One of the exceptions to this rule is the subrogation exception—in cases where the provider of the benefit is subrogated to any claim of the plaintiff to obtain compensation in relation to the loss for which the benefit is provided, there is no deduction from the damages award to reflect the receipt of the benefits. In such circumstances, there no longer is double compensation, as it would be the benefit provider, and not the plaintiff, who actually enjoys the fruits of the claim.

In 2004, the Alberta legislature altered the law of “double recovery” through amendments to the Insurance Act such that plaintiffs in motor vehicle personal injury actions would face deductions from damages awards with respect to certain defined benefits they received. Further, no one would be permitted to launch any subrogated claims with respect to such benefits.

The benefits to which these legislative changes applied included benefits under an “income replacement plan”.

The question before the Court in Hammond was whether the deduction and bar on subrogation applied to benefits paid by an employer to an employee who missed work as a result of a car accident. Syncrude had paid out such benefits, and sought to exercise its right, contained in the employment contract, to subrogate for the amount paid out. The defendant took the position that the Insurance Act barred such an action. This was a case of first impression in the Alberta Courts.

In the first instance, Syncrude lost, with the Justice holding that the Insurance Act now barred such a subrogated claim. On appeal, the Edmonton Public School Board was granted leave to make submissions as an intervener, as its collective agreement for teachers had preserved a right of subrogation in the School Board’s favour when it paid out wage benefits to those unable to work due to motor vehicle accidents.

Over the course of several years, the School Board had collected several hundreds of thousands of dollars through such subrogated actions, and it was concerned that it would lose this ability if the lower Court’s interpretation of the Insurance Act were upheld. The School Board advanced the position that such an interpretation would negatively affect the public interest, as it would effectively redirect public funds that could be used to enhance the educational services it provided to the benefit of the party at fault for a motor vehicle accident.

The School Board’s basic submission was that if such an effect had truly been contemplated by Alberta’s legislature, it must have been made clear, either in the language of the Insurance Act or in the legislative debates surrounding the amendments. The legislation was unclear, it maintained, because there was no clear definition of precisely what was to be covered under “income replacement” benefits. Further, the legislative assembly never once mentioned the possibility of affecting public dollars during the debates concerning the amendments.

Ultimately, the Court of Appeal agreed that the legislation was simply too ambiguous, relying on the rule of statutory interpretation that common law rights—including rights of subrogation—cannot be removed by legislative action without clarity of intention. The key term at issue (“income replacement plan”) had not been defined by the legislature. The Insurance Act was held to be too ambiguous to bar subrogated actions by employers.

The decision is undoubtedly good news to employers in all sectors who maintain the right to subrogate with respect to wage benefits paid out to employees who miss time due to a car accident. It is also of importance to those who practice personal injury law—whether or not a wage benefit can be deducted from a personal injury award depends upon whether the employer has a contractual right of subrogation. Finally, the decision is of importance to legislators, as a reminder of the very clear language required to affect common law rights.

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