Collateral Benefits
Issue
•	P has suffered harm caused by D
•	P consequently receives a monetary benefit from another source
•	P would not have received the benefit but for harm caused by D
•	Gift
•	Private insurance
•	Employment benefits

Policy
•	Should these collateral benefits be deducted from the damages recoverable from D?
•	From a deterrence perspective?
•	From a compensation perspective?
Problem
•	Optimal deterrence ≠ optimal compensation
•	Is tort law primarily concerned with compensation, or deterrence?
Policy
•	At the outset, it may be well to state once again the principle of recovery in an action for tort. Simply, it is to compensate the injured party as completely as possible for the loss suffered as a result of the negligent action or inaction of the defendant. However, the plaintiff is not entitled to a double recovery for any loss arising from the injury. 
•	Ratych
Private Insurance
•	For over 119 years, the courts of England and Canada have held that payments received for loss of wages pursuant to a private policy of insurance should not be deducted from the lost wages claim of a plaintiff. . . . I think the exemption for the private policy of insurance should be maintained. 
•	Is this sound as a matter of policy?

Private Insurance
•	More importantly it is based on fairness. . . . It makes little sense for a wrongdoer to benefit from the private act of forethought and sacrifice of the plaintiff.
•	When insurance payments are deducted from damages, the effect is that D gets the benefit of P’s insurance
•	What about deterrence and compensation?

Private Insurance Subrogation
•	Where the insurer has paid out under the insurance contract, it may bring the action against the third party in the insured’s name.  Any amount recovered goes to reimburse the insurer and any recovery in excess of the amount paid out by the insurer is payable to the insured.
•	Insurance Law in Canada, 2^nd ed. Brown & Menezes
Private Insurance Subrogation
•	If the insured has already exercised the right against the third party and recovered the value of the loss, and the insurer has paid out under the contract, the insurer may seek reimbursement from the insured.
•	Insurance Law in Canada, 2^nd ed. Brown & Menezes
Private Insurance Subrogation
•	If the third party has indemnified the insured and the insurer has not yet paid out, the insurer may withhold payment.
•	Insurance Law in Canada, 2^nd ed. Brown & Menezes
Private Insurance
•	As a result of subrogation rights
•	P is protected by insurance
•	D is liable to full extent of the loss
•	P is never over-compensated

Is insurance mitigation?
•	Mitigation
•	Loss avoidance
•	The loss is less than it would have been but for the insurance
•	Insurance
•	Loss bearing
•	The social harm due to the loss is reduced because it is spread, but the loss itself is the same
Employment Benefits
•	Are employment benefits received as a result of injury due to D’s negligence to be deducted?
•	Or should they be treated as private insurance benefits?
Ratych
•	The plaintiff argues that the contract by which his employer paid his loss of earnings during his period of disability was the equivalent of an insurance policy to which he had contributed, and therefore should not be brought into account.
Ratych
•	I accept that if an employee can establish that he or she has suffered a loss in exchange for obtaining wages during the time he or she could not work, the employee should be compensated for that loss. . . .. I also accept that if an employee can establish that he or she directly paid for a policy in the nature of insurance against unemployment, equivalent to a private insurance, he or she may be able to recover the benefits of that policy. . .
Ratych
•	The difficulty in this case is that neither a loss nor a contribution equivalent to payment of an insurance policy is established in this case. 
•	In fact, the trial judge held that as a matter of law employment benefits were to be treated in the same manner private insurance benefits.  There was therefore no evidence and no finding as to whether benefits had been specifically bargained and paid for.
Ratych
•	The question thus is essentially this -- must the plaintiff demonstrate a loss or contribution in order to recover, or is the court permitted to assume that because he was paid his earnings throughout his absence from work, he has in fact paid a quid pro quo and consequently suffered an equivalent loss?
Ratych
•	The rule remains as it has always been -- a plaintiff is obliged to prove his or her loss. . . .  The situation might be otherwise if the only inference which could be drawn from the payment of wages during the period in which the plaintiff is unable to work is that the plaintiff has given up a benefit in exchange for the wage benefit received. 
Ratych
•	A plaintiff may obtain the wage benefit even though he or she has only been on the job a few days and hence had contributed little or nothing to the hypothetical "pool" from which the benefits are drawn. 
•	How is this different from private insurance?
Ratych
•	Moreover, the provision of the benefit may have little or no relation to the employee's contribution. It may be the result of legislation.
•	If the benefit is the result of legislation, does this mean that it has no effect on the wage the employee would otherwise have been paid?
Ratych
•	It may stem from some consideration given by the union unrelated to the plaintiff's contribution, such as settlement of past claims of other persons. 
•	Does this imply that the benefits have no effect on the wage P would otherwise have been paid? 
Ratych
•	 It may be the result of increased profits due to windfall or the employer's sheer generosity. 
•	Does this imply that the benefits have no effect on the wage P would otherwise have been paid?

Ratych
•	The foregoing comments rest primarily on evidentiary considerations. Approaching the problem from a substantive point of view, it may be that there is a valid distinction between cases where a person has prudently obtained and paid for personal insurance and cases where the benefits flow from the employer/employee relationship. 
Ratych
•	The law has long recognized that in the first situation an exception should be made to the usual rule against double recovery. The existence of such an exception does not mean it should be extended to situations where personal prudence and deprivation are not demonstrated.
•	Is the requirement for payment or personal prudence?
Ratych
•	Those who have considered the question of loss distribution in the context of collateral damages generally agree that economic considerations favour deductibility, although the results may vary somewhat with the nature of the benefit. 
Ratych
•	“Perception of the collateral benefits problem as one primarily of alternative remedies, and acceptance of the validity of large-scale no-fault social insurance schemes to cushion misfortune, leads one to question the correctness of imposing too great a burden on tortfeasors, risk-creating enterprises, and their loss spreading mechanisms.”
•	Quoting Cooper-Stephenson and Saunders 
Ratych
•	These arguments suggest that deduction of collateral benefits from damage awards, including wage benefits, can be justified on a loss-distribution basis.
•	Compensation perspective
Ratych
•	There are two ways in which double recovery can be avoided. The first is to deduct the value of the benefit from the plaintiff's damages. 
•	The second way of avoiding double recovery is by readjustment of the loss, usually involving transferring the benefit to the third party. [e.g. subrogation]
•	Double recovery is seen as the key problem
•	No deduction unless double recovery is avoided
Ratych
•	Subrogation and independent action by the third party require that the benefactor make a claim against the plaintiff in the first case, against the tortfeasor in the second. Very often this is not done. 
•	How does this apply to private insurance?  Should private insurer be deducted unless the insurer pursues its subrogated claim?

Ratych
•	. .  in calculating damages under the pecuniary heads, the measure of the damages should be the plaintiff's actual loss. It is implicit in this that the plaintiff should not recover unless he can demonstrate a loss, and then only to the extent of that loss. Double recovery violates this principle. It follows that where a plaintiff sustains no wage loss as a result of a tort because his employer has continued to pay his salary while he was unable to work, he should not be entitled to recover damages on that account.
•	Compensation and double recovery
Ratych
•	 As a general rule, wage benefits paid while a plaintiff is unable to work must be brought into account and deducted from the claim for lost earnings. An exception to this rule may lie where the court is satisfied that the employer or fund which paid the wage benefits is entitled to be reimbursed for them on the principle of subrogation. 
Ratych
•	And recall
•	I accept that if an employee can establish that he or she has suffered a loss in exchange for obtaining wages during the time he or she could not work, the employee should be compensated for that loss. 
Ratych
•	In the context of labour negotiations, it strains common sense to imagine that an employer would agree to pay the wages of an employee who is absent from work due to illness or injuries received in an accident without receiving in return certain concessions from the employees through their union. Nothing is given gratuitously. 
•	Cory J dissenting
Ratych
•	In light of all these factors, I believe that it is inequitable and unrealistic to require, as a pre-requisite for non-deductibility, that the plaintiff employee prove he or she has given something in exchange for obtaining the sick leave benefit from his employer.
•	Cory J dissenting
Cunningham v Wheeler
•	Is Cunningham distinguishable from Ratych?
•	The trial judge found that the evidence established the disability benefits paid to Cunningham were directly paid for by him. He noted that any increase in the disability benefits would result in a proportionate decrease in the hourly wage rate or other benefits.
Cunningham v Wheeler
•	But I have no reason to think that the Peel Regional Board of Commissioners of Police [in Ratych] did not look at the costs of paying the salaries of injured policemen as part of the wage cost to the Board. 
•	BCCA
•	But Cf Ratych The difficulty in this case is that neither a loss nor a contribution equivalent to payment of an insurance policy is established in this case. 

Cunningham v Wheeler
•	The Court of Appeal refused to exempt the disability payments received by the plaintiff because they were obtained as a result of a collective bargaining agreement, rather than by way of a direct deduction from his pay. That, I think, is too narrow an exception. . . . The benefits for which employees have bargained in good faith should not be sacrificed simply because the mode of payment for the disability benefit is different from that in private insurance contracts. 
•	Cunningham v Wheeler
Cunningham v Wheeler
•	They were bargained for and obtained as a result of a reduction in the hourly rate of pay. These benefits were therefore obtained and paid for by the plaintiff just as much as if he had bought and privately paid for a policy of disability insurance.
•	Is this different from Ratych?
Cunningham v Wheeler
•	On the facts of Ratych v. Bloomer McLachlin J. found that it could not be established that the plaintiff in that case had paid for the benefits at issue. . . However, she held that if there were evidence that the plaintiff had paid for the benefits, they might not be deductible. In my view Ratych v. Bloomer, supra, simply placed an evidentiary burden upon plaintiffs to establish that they had paid for the provision of disability benefits. 
Cunningham v Wheeler
•	 What type of proof will be required to show that the benefits are in the nature of insurance? It is my opinion that what is required by the Ratych decision is that there be evidence adduced of some type of consideration given up by the employee in return for the benefit. The method or means of payment of the consideration is not determinative. Evidence of a contribution to the plan by the employee, whether paid for directly or by a reduced hourly wage reflected in a collective bargaining agreement, will be sufficient.
Cunningham v Wheeler
•	May be almost a presumption that employment benefits are bargained for
•	It is true that in the Shanks case, no evidence was called as to the collective bargaining process whereby the hourly wage rate was reduced in exchange for the provision of the collateral benefits such as these. . . .In any event, there is evidence of a direct contribution by the plaintiff to both the long-term and the short-term benefits in this case. There was a payroll deduction made for the employee's contribution to the long-term disability plan. 
Cunningham v Wheeler
•	If P has somehow paid for the benefits
•	Directly or indirectly
•	Through collective bargaining or otherwise
•	the benefits will be considered in the nature of private insurance and 
•	Will not be deducted from damages.
Subrogation
•	[S]ubrogation has no relevance in a consideration of the deductibility of the disability benefits if they are found to be in the nature of insurance. 
•	That is, if they are paid for by the employee
Subrogation
•	If benefits do not fall within the private insurance rule, they are nonetheless not deducted if there is a right of subrogation, whether or not it is exercised
•	[I]f the third party who paid the benefits has a right of subrogation then there should not be any deduction. It does not matter whether the right of subrogation is exercised or not. 
Summary
•	McLachlin J. focused consistently on compensation
•	Private insurance rule exists because of subrogation
•	Cory J. focused consistently on fairness
•	D should not get the benefit of insurance paid for by P
•	Which approach is better from the deterrence perspective?
Result
•	Ratych drastically narrowed by Cunnungham v Wheeler
•	Nonetheless, formal requirement to prove that benefits were paid for by employee
•	If benefits were not paid for, then the party giving the benefit must have a right of subrogation which has not been formally relinquished
No-Fault Auto Insurance
•	Although in Ontario the non-deductibility principle was abandoned in relation to motor vehicle accidents when a no-fault motor vehicle insurance regime was enacted, the general rule in other tort litigation of non-deductibility has not been altered: s. 267 of the Insurance Act, R.S.O. 1990, c. I.8. It is significant that this was done in the context of creating a new system for compensating victims of motor vehicle accidents, largely outside traditional tort law.
•	Why no deductibility in a no-fault regime?
M.B. v British Columbia
•	The policy against double recovery is alive and well at the SCC
•	In M.B. v British Columbia the SCC held that welfare benefits were to be deducted from damages for lost opportunity to earn income, on the basis that the benefits were a form of wage replacement and refusing deduction would amount to double recovery
NB Insurance Act
•	265.4(1)In an action for damages arising out of an accident, the amount recoverable by the plaintiff as damages for loss of income between the date of the accident and the date of the judgment shall, subject to subsection (4), be reduced by
•	(a)all payments that the plaintiff received for loss of income during that period under an enactment of any jurisdiction or under an income continuation benefit plan,
•	(a.1)all payments that the plaintiff received for loss of earning capacity during that period under a policy of disability insurance, and
•	(b)all payments that the plaintiff received during that period under a sick leave plan arising by reason of the plaintiff’s occupation or employment, whether or not the plaintiff’s credits under that plan can be characterized as a capital asset.
Gifts
•	Gifts are generally not deductable from the damages
•	Why not?  There is no right of subrogation.