Ruling: Use Gross Amounts to Calculate Income Replacement Benefits

December 2017

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Insurers can deduct the gross amount of collateral benefits when calculating income replacement benefits (IRBs), the Financial Services Commission of Ontario has ruled.

The decision, in the matter of Jim Cousins and TD General Insurance Company (TD) (FSCO A16-003358), finally clarifies whether we should consider the gross (pre-tax) or net (after-tax) amounts of payments for accident-related loss of income.

The net-gross conundrum has roiled the industry ever since Statutory Accident Benefits Schedule – Effective September 1, 2010, Ontario Regulation 34/10 (new SABS) took effect in 2010. While previous legislation (old SABS) had mentioned “net weekly payments” explicitly, the new SABS is not as clear.

In the case at hand, Mr. Cousins was injured in an accident on October 29, 2013 and later received taxable short-term, long-term and Canada Pension Plan (CPP) disability benefits. Subsection 4(1) of the new SABS defines "other income replacement assistance" to be "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 ...".

TD argued that the drafters of the new SABS did in fact intend the change – hence the wording “gross weekly payment.” As further proof, TD noted that the old SABS provides a formula for the calculation of net weekly income, and specifies the deductions and tax credits necessary for doing so, but the new SABS is silent on the issue.

Counsel for Mr. Cousins argued that the words "received by" in the new SABS imply that the net, not the gross, amount of the collateral benefits received is to be deducted in the calculation of the IRB. In doing so, counsel relied on the decision of Stinson J in Anand v. Belanger, 2010 ONSC 5356. That decision, however, comes from a tort action in respect of a 2003 accident, when the old SABS still applied, and the SABS is contractual. Mr. Cousin's lawyer put forward that the contradiction between the wording "gross amounts" and "received by" resulted in an inequality to his client compared to an individual who received non-taxable benefits.

Arbitrator Kimberly Parish determined that TD could deduct the gross amount of the STD, LTD and CPP disability benefits in the calculation of the IRB. In doing so, she concluded that "[t]here was a clear change in the legislative intent" in the new SABS. It does not include the formula for calculating net weekly income from the old SABS, and "[t]he language in section 4(1)(a) of the [SABS] specifically refers to gross amounts." It is clear, she said, that the "total of all other income replacement assistance" means the gross amount.

For more information on this decision, please contact us directly.

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