With the passage of Bill 68 (the Ontario Motorist Protection Plan), which came into effect on June 22, 1990, the landscape of personal injury litigation in Ontario was forever altered. The right to sue for damages for pain and suffering and for economic loss was substantially restricted with the obvious result that there was a substantial decline in tort litigation. This trend continued with the enactment of Bill 164 and again with Bill 59 which came into force on November 1, 1996.
Ironically, first part claims, which prior to June 22, 1990, excited little attention from lawyers and adjusters alike, has grown in significance and importance as a vehicle to provide compensation for injured persons. The purpose of this paper is to provide you with guidelines as to how “cash out” accident benefits claims, to understand the complexity of the various schemes and to be made aware of the difficulties and risks associated with cashing out claims.
In order to “cash out” an accident benefit claim, it is important to appreciate the peculiarities of the various statutory accident benefit schemes and the interface or interrelationship between the SABS and the various tort compensation rules.
(accidents from Nov. 1, ’96)
(Jan. 1, ’94 – Oct. 31, ’96)
(June 22, ’90 – Dec. 31, ’93)
|1||Weekly indemnity or income replacement benefits||80% of net income up to $400.00 per week. May be increased if optional coverage purchased.||90% of netincome up to $1,000.00 per week.||80% of gross income up to $600.00 per week.|
|2||Time frame for Short-Term Income Replacement Benefits||Payable for 104 weeks after the accident if the insured person suffers a substantial inability to perform the essential tasks of his/her employment.||Payable for up to 2 years from the date of the accident if the insured person suffers a substantial inability to perform the essential tasks of his/her employment.||Payable for 156 weeks while insured person suffers a substantial inability to perform the essential tasks of his/her occupation or employment.|
|3||Long-Term Income Replacement Benefits||After 104 weeks, weekly benefit is payable if injury prevents insured from”engaging in any occupation or employment for which he or she is reasonably suited by education, training or experience.” Benefits payable to age 65, Then benefits reduced according to a formula.||After two years, loss of earning capacity benefit is payable if there is a total or partial restriction on earning capacity. Payable toage 65. At age 65, benefits are generally reduced.||After 156 weeks (3 years), if the insured person is continuously prevented from engaging in any occupation or employment for which he or she is reasonably suited by education, training or experience, he/she is entitled to receive Statutory Accident Benefits for the duration of the disability, i.e. for life.|
|4||Medical and Rehab Benefits||$100,000 basic limit. 10-year limit for adults, or 25 years, minus the age of child, whichever is greater. $1 million cap for catastrophic impairments.||$1 million cap- no time limit.||$500,000.00. 10 years for adults. For children20 years less the age of the child at the time of the accident.|
|5||Attendant Care||$3,000.00 per month limit for 2 years for non-catastrophic impairment up to $72,000.00. $6,000.00 monthly limit for catastrophic impairments with overall limit of $1 million. Optional coverage may be purchased.||$3,000.00 per month or $6,000.00 per month or $10,000.00 per month depending on extent of injury. No time limit. Indexed to inflation||$500,000.00. No time limit but payable $3,000.00 per month.|
|6||Benefits if no income||$185.00 per week. 6-month waiting period.||$185.00 per week.||$185.00 per week.|
1. WHEN TO “CASH OUT”
For the catastrophically injured, their claims can be cashed out as soon as a long-term care cost report and an actuarial report is obtained. In other cases, it is prudent to wait until a prognosis is available. Once the prognosis is determined, the time is ripe to negotiate settlement.
As well, once the injured person has recovered or has reached a plateau, it is appropriate to commence negotiations with the insurer.
2. WHAT INFORMATION IS REQUIRED FROM THE INSURER? Before any negotiation is undertaken, it is essential that you obtain a letter from the insurer outlining the total amount of benefits paid to date under the following headings:
- Weekly indemnity or income replacement benefits;
- Medical and rehabilitation expenses;
- Attendant care or care-giver expenses;
- Amounts paid for case management and for other rehabilitation services;
- Amounts paid for various medical assessments; and
- Miscellaneous expenses.
In addition, it is vital to obtain a copy of the complete accident benefit file, which contains all of the medical and rehabilitation reports, to ensure that you and the insurer have the same information.
In essence, you want to know what has been paid out. The significance? It give you an indication of what the insurer paid in the past and it may act as a useful indicator of what it may pay in the future.
Mary is a 50-year-old accounting clerk who was rear-ended in a car accident in 1992. She is unable to return to work and has developed chronic pain syndrome. She has ongoing neck and back pain, depression and anxiety. The insured pays her weekly income replacement benefits for three years, then cuts her off. The Plaintiff applies for mediation, which fails. An application for arbitration is about to be filed.
The Plaintiff’s doctors are supportive of her ongoing disability and indeed, Plaintiff’s counsel has referred the Plaintiff to a number of doctors who are experts in chronic pain and have confirmed that the prognosis is guarded. In addition, the Plaintiff’s counsel refers the Plaintiff to a vocational rehabilitation consultant who has opined that given the Plaintiff’s age, injuries and ongoing pain, she is completely unemployable, and if she were employable, she would not be a productive employee given the fatigue, depression and anxiety that she suffers from. The insurer, upon receipt of this report, wishes to negotiate a lump-sum payment.
The insurer has paid $60,000.00 in medical and rehabilitation expenses since the date of the accident, including thousands of dollars for case management services.
The Plaintiff obtains a future-care cost report and an actuarial report, which indicates that the present value of the Plaintiff’s entitlement to ongoing med/rehab is $100,000.00. The present value of the Plaintiff’s weekly indemnity payments is $300,000.00.
What to Do
- Obtain an actuarial report;
- Obtain a future-care cost report;
- Obtain a Medical/Legal report from vocational rehab consultant regarding employability; and
- Obtain copies of all reports in the insurer’s possession.
A 65-year-old female is injured in a car accident which occurred in 1993. She did not work outside the house. For a period of one year, she was incapable of carrying out her housekeeping activities including shopping and looking after the management of the household. While she has improved, she is required to take medication to control her neck and back pain and is incapable of cleaning her house and managing her household chores. The insurer wishes to “cash out” your client’s benefits.
The test for non-earner under the O.M.P.P. requires the insurer to pay a benefit of $185.00 week so long as the insured suffers a substantial inability to perform the essential tasks which he or she would normally perform.
In the above example, the Plaintiff returns to her routine, but cannot do any house cleaning and must take pain medication.
What to Do
- Obtain a long-term care cost report outlining how often the Plaintiff will require cleaning help and a list of the medication that the insured person requires, together with the cost of same.
- Send report to actuary or to an accounting firm, to determine present value of the cost of care.
- Negotiate “cash out” based on this information.
K. is an immigrant to Canada and is 25 on the date of the accident in 1994. He was working as a waiter in a restaurant while taking courses at night time to upgrade his education and to learn English. K. suffered significant soft-tissue injuries in a rear-end collision. He has ongoing back and neck pain, which have persisted. The insurer cuts him off before the two-year mark, based on a medical examination which says the insured can return to work as a waiter. The insurance company is still paying for physiotherapy treatments, but is unwilling to fund any retraining program. Because the insurance company as cut the insured off before the two-year mark and before it was required to make a loss-of-earning capacity benefit, K. must first mediate the termination of his income-replacement benefits. After the application for mediation is submitted, obtain the following:
- A long-term care cost report outlining the cost of the medication that the insured will require and the duration of this requirement;
- The cost and duration of physiotherapy treatments; and
- The cost of a retraining course.
When negotiating with the insurer, stress that you will attempt to have the benefits reinstated and then if successful, the insurer will be required to make a loss of earning capacity benefit offer. You can assume that the insurer will offer nothing for residual earning capacity. If the REC offer is indeed zero, you can then require that the insured be seen and assessed in accordance with the regulations at a Residual Earning Capacity DAC, the cost of which may vary between $10,000.00 to $15,000.00.
Assuming that the information obtained is that the insured may not be restricted in his ability to work, but is restricted in his ability to work as a waiter, there is, nonetheless, a significant cost to the insurer with respect to paying for the ongoing medical and rehabilitation expenses, and with respect to retraining expenses. Let us assume that the present value of those expenses amount to $40,000.00. Assume that the insurer has another $10,000.00 to $20,000.00 of expenses to incur on the file for various assessments, including DAC assessments. Use all this information to negotiate the best settlement for your client. Make sure you have updated medical information.
What to Do
- Obtain copies of all reports;
- Obtain a list of payments made;
- Obtain an estimate for retraining courses; and
- Request a future-care cost report.
“CASHING OUT” BENEFITS UNDER BILL 164
“Cashing out” benefits under Bill 164 is different than under the O.M.P.P. and Bill 59. Weekly income replacement benefits are indexed to inflation and in addition, the medical and rehabilitation benefits are not limited as to time. This creates tremendous risk and exposure to the insurer because of the “open ended” nature of its statutory obligation and creates a tremendous incentive to negotiate a “cash out” of accident benefit claims.
Some insurers are eager to “cash out”, but others, as of late, are reluctant to do so. However, it is in their economic self-interest to put an end to a potentially unlimited and uncertain liability. The minor, moderate, and catastrophic cases provide different challenges to counsel and different considerations apply.
Unlike the O.M.P.P. and Bill 59, which compels deference to the tort claim, with Bill 164 there is no interface or interaction between tort and the SABS because there is no deduction or credit to be given in the tort claim for the accident benefits received.
“CASHING OUT” ACCIDENT BENEFITS IN A CATASTROPHIC CASE – BILL 164
The same principles enunciated above apply in a catastrophic case. The tools to successfully negotiate out of a catastrophic case are future-care cost reports and actuarial reports and payment summaries setting out the total amounts paid to date. Future-care cost reports will frequently include the cost of renovations and appliances necessary to accommodate the needs of the injured person. The future-care cost report will be more lengthy and complex, and will provide for a substantial amount of attendant care benefits, particularly if somebody is either paraplegic, quadriplegic, or severely brain damaged.
Under Bill 164, benefits are open-ended. If a young person has sustained a catastrophic injury and whose life expectancy is not significantly reduced, the cost to the insurer is potentially in the millions of dollars. In addition, wage replacement benefits to which the injured person is entitled are indexed, which indeed creates a lot of host problems for the insurer. It is in their interest to negotiate a settlement. In these cases, a structured settlement must be utilized not only for the protection of your client, but to ensure that the funds necessary to him/her are available on a tax-free basis. If the insurer won’t structure – and it is difficult to conceive why it would not – but if, for whatever reason, the insurer will not structure, the insurer is required to “gross up” the settlement to compensate for the effects of taxation on the insured.
“CASHING OUT” UNDER BILL 59
Unless optional coverage of a million dollars for medical rehabilitation and attendant care is purchased, in a non-catastrophic cases, the benefits are modest in comparison to O.M.P.P. and Bill 164 and the size of the “cash out” will be modest. The $100,000.00 limit for medical and rehabilitation benefits is available for a period of 10 years from the date of the accident, or for a period of 25 years (less the age of a child at the time of the accident). Attendant care benefits are limited to $72,000.00. The same principles mentioned above apply.
Because the threshold under Bill 59 is so restrictive, cashing out benefits may be the only vehicle for injured persons, whose claims do not meet the threshold, to receive compensation.
PITFALLS OF “CASHING OUT”
The interface between Statutory Accident Benefits Schedules and tort
Both the O.M.P.P. and Bill 59 present problems to counsel attempting to negotiate a “cash out” of accident benefits while there is a viable tort claim. Section 267(1) of the Insurance Act reads as follows:
“267. (1) Collateral source rule not to apply – The damages awarded to a person in a proceeding for loss or damage arising directly 9r indirectly from the use or operation of an automobile shall be reduced by;
- all payments that the person has received or that were or are available for statutory accident benefits and by the present value of any statutory accident benefits to which the person is entitled;
- all payments that the person has received under any medical, surgical, dental, hospitalization, rehabilitation or long-term care plan or law and by the present value of such payments to which the person is entitled;
- all payments that the person has received or that were available for loss of income under the laws of any jurisdiction or under an income continuation benefit plan and by the present value of any such payments to which the person is entitled; and
- all payments that the person has received under a sick leave plan arising by reason of the person’s occupation or employment.”
The decision of Orchover v Wright 1996, 28 O.R. (3d) 263, illustrates the interface of tort and accident benefit claims and the pitfalls of “cashing out” without the consent of the insured.
In Orchover, the Plaintiff was injured in a car accident November 2, 1990. The Plaintiff applied for and received statutory accident benefits from her insurer, for the total amount of $45,641.00. These payments were made between November 9, 1990 and March 31, 1995. Thereafter, the Plaintiff negotiated a settlement or “cash out” of her accident benefits, whereby she received $190,000.000, of which $90,000.000 was allocated to a future loss-of-income and $100,000.00 was allocated to future care.
Mr. Justice Forget held, amongst other things, that the Defendant was entitled to a deduction of the full present value of the benefits that the Plaintiff was entitled to receive and not merely limited to a deduction of the benefits actually received. The result was quite damaging to the Plaintiff’s claim.
See also Collee, et al v Kyriacou, et al (1996) 31.05 (3d) 558, which also illustrates the risks to the Plaintiff in “cashing out” his benefits without the consent of the tortfeasor and of making an improvident settlement. In Collee, the “cash out” was held to be improvident and the tortfeasor was entitled to deduct the present value of the future benefits to which the Plaintiff was entitled, notwithstanding that this amounted to many times the actual value of the benefits received.
9. DISCLOSURE REQUIREMENTS
The easiest way around the problem illustrated in Orchover is to obtain the consent of the Defendant to the proposed “cash out”. The Defendant must agree that the amounts being paid are reasonable and that all that will be deducted at trial will be the amounts actually paid for by the accident benefits insurer.
If no such agreement can be obtained, the Plaintiff may nonetheless want to negotiate a “cash out” of his accident benefits claim because of the uncertainty of the tort litigation, and particularly when there exists a serious liability issue or if it is unclear whether the Plaintiff’s claim crosses the “threshold”. In such circumstances, it is essential that appropriate and full disclosure is made to the Plaintiff. Annexed to this paper is a disclosure statement which I have utilized, which explains in simple language the risks involved in cashing out. This does not immunize counsel from a negligence claim, but it provides a written record of what was recommended to and what was discussed with the Plaintiff.
10. PROCEDURAL REQUIREMENTS
A settlement is not effected until Section 9.1 of Regulation 664/90, a copy of which is attached, is complied with. This regulation requires that the insurer provide the insured with a statement outlining:
- A description of the benefits may be available to the injured person under the SABS;
- A description of the impact of the settlement under the benefits described in paragraph a) including the restriction of an insured person’s right to mediate, litigate, arbitrate, appeal, or apply to vary an order;
- A statement that an insured person may rescind the settlement within two business days after the settlement is entered into by delivering a written notice to the insurer;
- A statement that the tax implications of settlement may be different from the tax implications of the benefits described in paragraph (a).
- A statement of the insurer’s estimate of the commuted value of the benefit and an explanation of how the insured determined the commuted value;
- A statement advising the insured person to consider seeking independent legal, financial, medical advice before entering the settlement.
No “deal” is done until this release and disclosure statement is provided by the insurer. Insured persons who “cash out” their benefits have a two-day cooling-off period to change their minds. One of the issues to consider is when the “cooling off” period begins to run.
In Soordhar v. Citadel General Assurance “Cashing out”., (Arbitration #A-006428), a decision of the Arbitrator McMahon, the issue was when the “cooling-off” period applied. On March 28th, 1995, the solicitor for the insurer provided the written notice and release to counsel for the insured, who had 3 days earlier, confirmed acceptance of the insurance company’s offer on behalf of his client. On March 31, 1995, three days later, the insured attended at his counsel’s office and advised that he did not want to accept the offer.
According to this decision time, the “cooling-off” period does not begin to run until the written notice and disclosure statement is delivered and the release is signed by the insured.
- It seems trite, but to successfully negotiate a cash-out of your client’s accident benefit claim, it is necessary to know the case completely, to be in receipt of information as to the amount of benefits paid to date, to be armed with a future-care cost report, to obtain an actuarial report or accounting report quantifying the present value of the benefits to which your client is entitled, and to know the insurer’s cost of going to arbitration.
- Never negotiate a lump out without knowing the value of the case.
- While the insurer is not under any obligation to “cash out”, your client is entitled to receive benefits for as long as he needs them and as long as he meets the test set out in the legislation and interpreted by the arbitrators and the courts.
- Never negotiate in the dark without objective information.
- Always be aware of the interface of tort and SABS. If necessary, try and get the accident benefit insurer to “the negotiating table” or the “mediation table”.
- Always ensure you have copies of the complete accident file including all medical and rehabilitation reports.
- Make sure your client is fully informed. Provide your clients with documentation, written in simple language, which they can read and understand. Have them acknowledge that they have received the document. When the client does not understand English, you must arrange for the documents to be translated.
It is hoped that this paper will assist you in negotiating a “cash out” of your client’s accident benefits claim.
APPENDIX “A” Client Instructions re: Settlement of Statutory Accident Benefits under O.M.P.P.
APPENDIX “B” Client Instructions re: Settlement of Statutory Accident Benefits under Bill 164
APPENDIX “C” Section 9.1, Insurance Act Regulation 664/90
Re: Settlement of Statutory Accident Benefits Under O.M.P.P.
To: Law Firm
1. I instruct you to accept the offer of settlement of $_________________________, made by the Insurance Company at the mediation on _________________________, for a Full and Final Release of all Statutory Accident Benefits.
2. I understand that by accepting this offer, I will no longer be able to claim for weekly income benefits, medical and rehabilitation benefits, attendant care or other expenses as against Insurance Company as a result of my accident _________________________ on _________________________.
3. I acknowledge that by settling for the lump sum, I have compromised my claim for statutory accident benefits and I will never be able to claim again for medical, rehabilitation, attendant care and weekly indemnity payments that would be available to me.
4. I understand that by settling now, my tort claim may now be of no value since even if my case “crossed the threshold”, I would be required to give credit for weekly indemnity payments made by the accident benefit insurer. To date, over $_________________________ in indemnity payments have been made.
5. I acknowledge, as well, that the present value of the benefits due to me may be much more than $_________________________.
6. I agree to settle at this time in order to obtain a lump sum payment in order that I need not become compelled to attend on assessments, medical appointments, and participate in rehabilitation programs mandated by the accident benefit insurer and to avoid the risks of proceeding to arbitration.
Dated at Toronto, the _________________________ day of _________________________,________________.
Re: Settlement of Statutory Accident Benefits Under Bill 164 To: Law Firm Re: _________________________________________________________________
1. I instruct you to accept the offer of settlement of $______________________, made by the Insurance Company at the mediation on ______________________, for a Full and Final Release of all Statutory Accident Benefits.
2. I understand that by accepting this offer, I will no longer be able to claim for weekly income benefits, medical and rehabilitation benefits, attendant care or other expenses as against Insurance Company as a result of my accident ______________________ on ______________________.
4. I acknowledge that by settling for the lump sum, I have compromised my claim for statutory accident benefits and I will never be able to claim again for medical, rehabilitation, attendant care and weekly indemnity payments that would be available to me.
4. I understand that by settling now, my tort claim may now be of no value since even if my case “crossed the threshold”, I would be required to give credit for weekly indemnity payments made by the accident benefit insurer. To date, over $ ______________________ in indemnity payments have been made.
5. I acknowledge, as well, that the present value of the benefits due to me may be much more than $ ______________________.
7. I agree to settle at this time in order to obtain a lump sum payment in order that I need not become compelled to attend on assessments, medical appointments, and participate in rehabilitation programs mandated by the accident benefit insurer and to avoid the risks of proceeding to arbitration.
Dated at Toronto, the ______________________ day of ______________________, ______________________.
RE: REGULATIONS UNDER THE INSURANCE ACT, S.9.1
S.9.1 Regulations under the Act
b) if the person receiving statutory accident benefits from the first part insurer is claming them under a policy insuring a motorized snow vehicle and,
i) if the motorised snow vehicle was involved in the incident of which the responsibility to pay statutory accident benefits arises, or
ii) if motorcycle and motorized snow vehicles are the only types of vehicles insured under the policy.
(3) A second party insurer under a policy insuring a heavy commercial vehicle is obligated under section 275 of the Act to indemnify a first party insurer unless the person receiving statutory accident benefits first party insurer is claiming them under a policy insuring a heavy commercial vehicle. O. Reg. 780/93, ss. 1, 6.
SETTLEMENTS – STATUTORY ACCIDENT BENEFITS
9.1 (1) In this section, “settlement” means an agreement between an insurer and in insured person that finally disposes of a claim or dispute in respect of the insured person’s entitlement to one or more benefits under the Statutory Accident Benefits Schedule.
(2) Before a settlement is entered into between an insurer and an insured person, the insurer shall give the insured person a written notice that contains the following:
1. A description of the benefits that may be available to the insured person under the Statutory Accident Benefits Schedule and any other benefits that may be available to the insured person under a contract of automobile insurance.
2. A description of the impact of the settlement on the benefits described under paragraph 1, including a statement of the restrictions contained in the settlement on the insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act.
3. A statement that the insured person may rescind the settlement within two business days after the settlement is entered into by delivering a written notice to the insurer.
4. A settlement that the tax implications of the settlement may be different from the tax implications of the benefits described under paragraph 1.
5. If the settlement provides for the payment of a lump sum in an amount offered by the insurer and, with respect to a benefit under the Statutory Accident Benefits Schedule that is not a lump sum benefit, the settlement contains a restriction on the insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in section 280 to 284 of the Act, a statement of the insurer’s estimate of the commuted value of the benefit and an explanation of hoe the insurer determined the commuted value.
6. A statement advising the insured person to consider seeking independent legal, financial and medical advice before entering into the settlement.
S.15 Regulation 664
(3) A settlement may be rescinded by the insured person, within two business days after the settlement is entered into, by delivering a written notice to the insurer.
(4) If the insurer did not comply with subsection (2), the insured person may rescind the settlement after the period mentioned in subsection (3) by delivering a written notice to the insurer.
(5) A restriction on an insured person’s right to mediate, litigate, arbitrate, appeal or apply to vary an order as provided in sections 280 to 284 of the Act is not void under subsection 279(2) of the Act if,
(a) the restriction is contained in a settlement; and
(b) the insurer complied with subsection (2).0.Reg. 780/93, s. 7.
(Sections 280 to 284 of the Act)
10. A mediator is required, under subsection 280(4) of the Act, to attempt to effect a settlement of a dispute within sixty days after the date on which the application for the appointment of a mediator is filed.
11. An insured person shall pay a fee of $100 upon filing an application for the appointment of an arbitrator under subsection 282(1) of the Act. Reg. 850/93,s.1.
12. The expenses set out in the Schedule are prescribed for the purpose of subsection 282(11) of the Act.
13. A person who appeals an order of an arbitrator shall pay a fee of $250 upon delivering the notice of appeal to the Commission under section 283 of the Act. O. Reg. 850/93, s.2.
14. A person who applied under section 284 of the Act to vary or revoke an order shall pay a fee of $100 when the application is made.
APPLICATION OF SECTIONS 412 TO 417 OF THE ACT
15. (1) Sections 412 to 417 of the Act apply in respect of contracts of automobile insurance written on Ontario Policy Form 1 or 2.
(2) Sections 412 to 417 of the Act apply in respect of all types of endorsements to contracts of automobile insurance written on Ontario Policy Form 1 or 2.
(3) Despite subsections (1) and (2), sections 412 to 417 of the Act do not apply to contracts of automobile insurance that insure groups of at least five vehicles that are under common ownership or management and that are used for business, commercial or public purposes or to any endorsements of those contracts.