On February 26, 2014, the Court of Appeal unanimously allowed the appeal of an employer seeking to recover the income benefits paid to an employee, from a third party tortfeasor (Hammond v DeWolfe, 2014 ABCA 81).

The employer, Syncrude, issued $38,668 in income benefits to its employee who missed time from work as a result of injuries sustained in a motor vehicle accident with the respondent tortfeasor. The payments were made pursuant to a temporary disability plan which formed part of the employment contract. The plan explicitly provided Syncrude with a right of subrogation against third parties responsible for causing the employee's illness. To this end, Syncrude and the employee brought an action against the respondent.

A preliminary issue arose as to the effect of the former section 626.1 (now section 570), of the Insurance Act, RSA 2000, c I-3, on Syncrude's subrogation rights. This provision governs reductions of automobile accident claim awards. Subsection 3 requires such an award to be reduced by certain payments received by the claimant, including those from specific sources or plans enunciated in subsection 4. Subsection 6 removes a person's right to subrogate to an insured's right of recovery.

The Chambers judge found section 626.1 applicable to the benefits paid under Syncrude's temporary disability plan. As a result, the benefits would be deductible from any damage award received by the employee and Syncrude would not have the ability to pursue recovery of the benefit payments from the tortfeasor.

The appeal attracted the attention of the Board of Trustees of Edmonton School District No. 7, who intervened in support of Syncrude's position. Syncrude took the position that its temporary disability plan was an "income continuation plan," not an "income replacement plan," with the result that section 626.1 did not properly apply to the payments in question. Not surprisingly, the respondent tortfeasor advanced the opposite view.

In addition, both Syncrude and the Board of Trustees pointed to the use of the word "insured" in section 626.1(6); they maintained that such language revealed the legislature's intent to limit the anti-subrogation provision to payments made under a contract of insurance. For her part, the respondent argued that subsection 3 referred to payments received by a "claimant," not an "insured" and furthermore, that the removal of the right of a "person" to subrogate captured a corporate entity like Syncrude.

The Court of Appeal began its discussion with reference to the common law. As a general rule, collateral benefits are deductible from a damages award so as to prevent double recovery on the part of a plaintiff. However, a common exception exists where the entity paying the benefit is entitled to reimbursement from the tortfeasor. In this way, the right of subrogation operates to prevent over-compensation of the plaintiff.

The Court then turned to the relevant provisions of the Insurance Act. With reference to their "vague and confusing nature," the Court could find no legislative or common law indication that a temporary disability plan like that of Syncrude was an income replacement plan within the meaning of section 626.1(4). Citing Hansard commentary on the passage of the provision, the Court held that the legislation was intended to prevent injured claimants from "double dipping" through the receipt of both disability benefits and an award of damages. This end would not be served by barring an employer's right to subrogate in these circumstances: the employee would only be paid once by the employer who could then recover those sums from the responsible party.

Ultimately, the Court of Appeal held that section 626.1 lacked the "clear and express language" required to support the result reached by the Chambers Judge. The provision, as it continues to read, was deemed ambiguous "at best." In the absence of an explicit indication from the legislature, the Court was not prepared to remove employers' common law right to pursue a subrogated claim for employee income benefits from tortfeasors.

In the result, insurers are not in a position to deduct benefits received by an employee in circumstances where the employer has a right of subrogation. The tortfeasor, not the employer, bears the financial burden of fully compensating the injured Plaintiff in such cases.

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