LTD Settlement Not Deductible from IRB

Typically, when an individual is claiming an IRB and has LTD benefits available to them, our first thought is to deduct the LTD benefits received from 70% of the person’s gross weekly pre-accident income. But what happens when the LTD claim is paid out as a settlement and not as a recurring payment?

In the recent LAT decision P.B. and The Co-operators Insurance Company (19-008343/AABS) the deductibility of LTD settlements was discussed where the adjudicator determined the LTD settlement the applicant received was not deductible from their IRB.

The applicant was in an accident on July 20, 2017 and was employed at the date of loss. Through her employer the applicant had access to LTD benefits that were payable after a 119-day elimination period that expired on November 16, 2017. The applicant was denied LTD benefits on January 9, 2018.

As a result of the denial, the applicant issued a Statement of Claim against the LTD carrier seeking the entitlement for LTD benefits from November 16, 2017 ongoing, including damages and fees. The Statement of Claim resulted in a settlement and lump sum payment of $120,000. The respondent then informed the applicant that her IRBs were recalculated as a result of the lump sum payment by deducting the settlement she had received from her pre-accident income.

The respondent indicated that as the settlement is equivalent to income replacement assistance, it is deductible under Section 7(1) of the Statutory Accident Benefits Schedule for accidents occurring on or after September 1, 2010 (“SABS”).

The adjudicator states, “Section 7(1) of the SABS states, “all other income replacement assistance, if any” are deducted from the weekly IRB base amount calculated under s. 7(2). Section 4(1) defines “other income replacement assistance” as (a) 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 under the laws of any jurisdiction or under any income continuation benefit plan or (b) the amount of any gross weekly payment for loss of income, other than a benefit or payment described in subclauses (a)(i) to (iii) that may be available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan but is not being received by the person and for which the person has not made an application.” The adjudicator then determined whether or not the applicant’s acceptance of the LTD settlement constitutes income replacement assistance or whether it was a settlement of a claim.

Based on the adjudicator’s review of the settlement document, they determined that as the settlement amount included non-LTD claims, such as aggravated, exemplary, and punitive damages, prejudgment and post-judgment interest, legal costs disbursements and applicable HST, the settlement was not confined to just an LTD payment.

The respondent relied heavily on an IRB/LTD calculation sheet that was used for settlement purposes by the applicant in order to argue that the settlement did not include non-LTD claims. They insisted that there is no evidence that the applicant negotiated for the non-LTD claims in her LTD settlement.

To aid in their defense, the applicant relied on Cromwell v. Liberty Mutual Insurance Co. and Vanderkop v. Personal Insurance Company of Canada as they both relate to LTD settlement breakdowns.

The Cromwell decision found that the lump sum negotiated for future benefits and extracontractual damages did not qualify as a “net weekly payment for loss of income” as the settlement did not constitute a payment for a specific period of time.

The Vanderkop decision, determined that, “settling a claim is merely a decision to compromise in the pursuit of the action because once LTD benefits were denied, they were no longer “available” to the insured.”

The adjudicator agreed that both of these decisions call in to question the allocation of the $120,000 LTD settlement to the applicant’s IRB calculation.

In their response to the applicant’s cases provided, the respondent relied on Cobb v. Long Estate and El-Khodr v. Lackie stating that the LTD deduction is meant to prevent double recovery.  They also provide the decision A.B. v. Waite to support its position that an LTD settlement is considered income replacement and should therefore be deducted from the applicant’s IRBs.

Based on their review, the adjudicator found that the cases provided by the respondent were distinguishable based on the fact that each LTD settlement featured a breakdown of the full and final settlements. However, this is not the case of the applicant’s LTD settlement given the limited breakdown provided.

The adjudicator concluded that, “Had P.B. settled her LTD claim for only past and future income benefits
then that amount would likely be deductible from the IRB”.  Given that the applicant’s LTD settlement did not provide a breakdown of the past and future income benefits and the settlement was not confined to just the LTD claim alone, the adjudicator determined that the LTD settlement is not deductible from the applicant’s IRBs.

Therefore, should an individual receive an LTD settlement, one should consider the breakdown of the LTD payments within the settlement and whether you are able to separate what constitutes an LTD payment and what does not.

Read the decision in full detail here:

P.B. and The Co-operators Insurance Company (19-008343/AABS)