In an important decision for the auto insurance industry, the Nova Scotia Court of Appeal has confirmed that future CPP disability benefits are indeed deductible from damages awarded in Nova Scotia cases for future loss of earning capacity or future loss of income. The case is Sparks v Holland. It is a sequel, of sorts, to the Court of Appeal’s 2017 decision in Tibbetts v Murphy.
Section 113A of the Nova Scotia Insurance Act was at issue in both cases:
Effect of income-continuation benefit plan
113A In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by all payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income-continuation benefit plan if, under the law or the plan, the provider of the benefit retains no right of subrogation.
In Sparks, the judge below had concluded that only past CPP disability benefits (received before trial) could be deducted from damages for income loss or loss of earning capacity. A five-member panel of the Court of Appeal overturned this decision. Writing for the unanimous Court, Justice Farrar accepted the Appellant’s argument that the motion judge made two main errors: one related to stare decisis, and the other related to statutory interpretation.
On the first issue, the Court held that the motion judge in Sparks was bound to follow Tibbetts. The trial judge in Tibbetts had found that section 113A required the deduction of future CPP disability benefits, and the Court of Appeal in Tibbetts endorsed that finding “by necessary implication” when it upheld the trial judge’s interpretation as correct. The motion judge was wrong to conclude he was not bound by Tibbetts.
Moving on to statutory interpretation, the Court applied the well-known “modern principle” of statutory interpretation and made the following five key points about section 113A.
First, section 113A was part of the Automobile Insurance Reform Act (Bill 1), which was enacted in 2003 in order to “help reduce the sky-rocketing automobile insurance premiums being charged in Nova Scotia.” The Court of Appeal had already discussed this legislative intent in two previous decisions (Tibbetts, as well as Hartling v Nova Scotia (Attorney General)).
Second, section 113A in particular was intended to change the collateral benefits rule. Where this common law rule applies, a plaintiff is allowed to keep certain collateral benefits with no deduction from their tort damages, resulting in a form of double recovery. But the Court of Appeal in both Tibbetts and Sparks stated that section 113A was intended to eliminate this potential for double recovery.
Third, the Legislature’s purpose of eliminating double recovery would be “frustrated” if only pre-trial benefits were deductible.
Fourth, the phrase “loss of earning capacity” in section 113A needs to be interpreted in the context of Nova Scotia damages law. As Justice Farrar explained at paragraph 51: “‘Loss of earning capacity’ in Nova Scotia is generally understood to be a future-focused head of damages, awarded where the plaintiff will be capable of working post-trial, but not at her or his pre-injury level.” The motion judge did not interpret “loss of earning capacity” in its proper context.
Finally, the motion judge applied an “overly technical approach” to interpreting the phrase “payments…available before the trial of the action” and finding that it only refers to payments that were or could have been received before trial. As Justice Farrar explained, “the word ‘available’ has a broad meaning, and refers to payments that a person is entitled to, but has not yet received.”
Justice Farrar stated further:
 The words “available before the trial of the action” simply require that the Court be able to determine entitlement to any proposed source of deductions at the time of trial.
 This interpretation of “available” is consistent with the meaning of the word ‘available’ in relation to the deduction of “Section B” no-fault benefits under the Act as found by this Court.
In the end, the Court of Appeal adopted the interpretation that would best achieve the Legislature’s objective, commenting that: “It would be little more than a token gesture for the Legislature to eliminate double recovery to the date of trial, and to permit double recovery thereafter.”
Sparks has now provided a spark of necessary clarity in a complicated area of insurance law. Where the evidence shows that the plaintiff is entitled to receive CPP disability benefits post-trial, there will be a corresponding deduction from their tort damages for future loss of earnings. That is what section 113A requires, and what the Nova Scotia Legislature intended.
This update is not legal advice. If you have questions about how this case might apply to you, please contact one of the members of our Insurance team.
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