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Are ERBs Deductible from WIBs? N.S. Court Again Says Yes

Published:

November 14, 2023

Author(s):

• Jillian M. Kean, Lawyer
• Robert Mroz, Lawyer
• Sheila Strong, Litigation Law Analyst

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In its October 19, 2023 decision in Roach v. Nordic Ins. Co. of Canada, the Nova Scotia Supreme Court confirmed that Workers’ Compensation Earnings-Replacement Benefits (ERBs) are deductible from weekly indemnity benefits (WIBs) payable under the Nova Scotia Automobile Insurance Contract Mandatory Conditions Regulations – and that its 2018 decision in McLean v. La Portage Prairie Mutual Insurance Co. is binding precedent. The combined effect of the two decisions upholds the legislative scheme intended to control costs and allow for greater long-term stability.

In May 2004, the insured suffered a workplace injury while employed as an LPN. They successfully applied for Workers’ Compensation benefits and was paid Temporary Earnings-Replacement Benefits (TERB) under the Nova Scotia Workers’ Compensation scheme. In January 2010, their TERBs were replaced by Extended Earnings-Replacement Benefits (EERB). In October 2015, the insured was injured in a car accident. They were still receiving EERBs. They applied for WIBs under the Section B provisions of their automobile insurance policy. However, the Section B insurer denied the application on the grounds that the 2015 Section B benefits were offset by the insured’s 2004 EERBs. The insured sought an order to determine a question of law before trial under the N.S. civil procedure rules: how should the Workers’ Compensation EERBs be treated in the calculation of WIBs payable under the Nova Scotia Automobile Insurance Contract Mandatory Conditions Regulations? The Court’s answer: the insured’s EERBs from their 2004 workplace injury are deductible from the WIBs in relation to their 2015 car accident.

Legislative Schemes. The question before the Court involved the interplay of two legislative schemes: the N.S. Workers’ Compensation Act and the N.S. Automobile Insurance Contract Mandatory Conditions Regulations:

• Workers’ Compensation Act. The Workers’ Compensation Act provides for payment of a “permanent-impairment benefit” (PIB) where a workplace injury causes a permanent impairment and for payment of an earnings-replacement benefit (ERB) if the injury causes loss of earnings. If a workplace injury causes loss of earnings in the long term, the Workers’ Compensation Board is authorized to eventually replace the initial ERB, which is qualified as “temporary” (i.e. TERB), by the EERB. The worker’s ERB is the difference between 75% of the worker’s loss of earnings and their PIB. The ERB is payable until the loss of earnings has ended or is no longer caused by the injury, or until the worker turns 65.

• Automobile Insurance Contract Mandatory Conditions Regulations. Schedule 2, Section B, ss. II, Part II, of the Automobile Insurance Contract Mandatory Conditions Regulations governs the mandatory medical, rehabilitation and accident benefits in the standard automobile insurance policy. The Regulations provide for WIB benefits for loss of income from employment while the insured suffers injuries caused by the accident that render them substantially unable to perform the essential duties of their occupation or employment, provided they were employed at the date of the accident. The WIB is the lesser of $250 or 80% of the insured’s gross weekly income from employment less any “payments for loss of income from employment” received by or available to them under the laws of any jurisdiction, or “any wages or any wage or salary continuation plan available to them by reason of their employment”. The Regulations deem a person to be employed if, among other circumstances, they were actively engaged in an occupation or employment for wages or profit at the date of the accident.

McLean v. La Portage Prairie Mutual Insurance Co. is Binding. The facts in McLean are almost identical to those in Roach. In McLean, the insured suffered a workplace injury and successfully applied for the TERB, which was eventually replaced with the EERB. Three years later, he was injured in a motor vehicle accident while employed full time as a driver. After the accident, the insured couldn’t continue working and applied for WIBs. The Section B insurer refused on the grounds the insured’s EERBs were deductible from the Section B WIBs. As in Roach, the insured in McLean applied to have the issue of deductibility determined before trial. The Court in McLean decided the EERBs from the insured’s 2004 workplace injury were deductible from the WIBs in relation to the 2013 car accident. The insured argued the Court’s 2018 decision in McLean wasn’t binding on the Court for three reasons – all of which the Court rejected:

• Statutory Interpretation Principles. McLean didn’t correctly apply the principles of statutory interpretation: it focussed too “narrowly” on the grammatical and ordinary meaning of the wording of the Section B provisions without considering them in their entire context within the scheme of the Insurance Act and the Legislature’s intention. The Court decided that while case law mandates a “broad and liberal” interpretation of Section B provisions, that approach to the language of the provisions relevant in Roach would not have changed the outcome because the wording of those Section B provisions is unambiguous.

• Relevance of Ontario Cases. The Ontario cases on which McLean relied were all distinguishable on the facts: the plaintiffs were injured in car accidents while receiving short-term WCB earnings-replacement benefits and none were working at the time of their accidents. But the insureds in Roach and in McLean were receiving long term earnings-replacement benefits and working at the time of their accidents. The Court reasoned, however, that section 37 of the Workers’ Compensation Act refers only to “earnings-replacement benefits”, making no distinction between TERBs and EERBs. The Court concluded there was no relevant distinction between the reasoning in the Ontario cases, as the Court applied in McLean, and the circumstances in Roach.

• Meaning of “Employment”. The EERB was “income from an occupation or employment” for the purposes of calculating the rate of the Section B WIB. It wasn’t a payment for loss of income to be deducted from the WIB because it wasn’t received in relation to the insured’s 2015 accident. The Court acknowledged “employment” for the purposes of entitlement to WIBs (i.e. “substantial inability to perform the essential duties of his occupation or employment”) refers only to employment at the time of the accident for which the benefits are sought. This is inconsistent with the strict meaning of “employment” as meant in the phrase “less any payments for loss of income from employment received by or available to such person under… (ii) wage or salary continuation plans available to the person by reason of his employment” because that phrase includes other sources, such as the EERB benefits in Roach. The Court acknowledged the case law indicating “employment” and “employed” should have a consistent meaning throughout Part II of the Section B benefits provisions. But it reasoned the calculation/deduction provisions don’t make an express exception from the plain language of “wage or salary continuation plans available to the person by reason of his employment” that would limit its application to the insured’s employment at the time of the accident. The Court held the Section B provisions are unambiguous and different wording is necessary to support a contrary finding; the Legislature could have included language limiting the amounts deductible under Section B in the way the insured claimed if it intended to do so. Furthermore, the Workers’ Compensation Board clearly wasn’t the insured’s employer so the EERBs couldn’t be income from employment. The Court concluded deductibility of EERB benefits already being received from a previous job at the time of the accident isn’t inconsistent with the Section B legislative scheme and doesn’t lead to consequences inconsistent with its legislative purposes. The result in McLean is consistent with the statutory language and the outcome intended by the legislators and drafters of the Section B provisions.

The Court in Roach further noted that even if McLean weren’t binding on it, its analysis of the legislative schemes would have led to the same conclusion.

Legislative Interplay. The Court effectively adopted the reasoning in McLean, quoting extensively from it (particularly paragraphs 31, 32 and 36), and decided the EERB benefits the insured in Roach received from the 2004 workplace injury were properly deducted from their 2015 entitlement to WIBs in relation to the 2015 car accident.

• “The EERB benefit is in the nature of income replacement. By its very name, it is an earnings replacement benefit. Section 37 of the Worker’s Compensation Act refers to the requirement for a “loss of income” before such benefits are, or can be, paid.  The amount is directly related to the worker’s income, and is calculated by taking a percentage of that income. The benefit is not permanent but is rather “extended”; ending when the plaintiff reaches 65 years of age.”

• “Both the Act and the [insured’s] [Workers’ Compensation Board] decision separate the calculation of the EERB benefit from that of the PIB benefit, making a very clear distinction between the two. They are treated differently because their nature is different; they are payable for different reasons. While it appears that the PIB is paid in recognition of a permanent disability (akin to the loss of an asset), the EERB is not.”
• “[T]he EERB benefits payable to the [insured] are in the nature of income replacement. They are not in the nature of a “permanent disability pension based on the degree of physical impairment” (as, perhaps, the PIB benefit might be). …[T]he EERB benefits are a ’payment for loss of income from employment’, which must therefore be deducted as per the weekly indemnity benefits calculation.”

Please contact your McInnes Cooper lawyer or any member of our Insurance Defence Team @ McInnes Cooper to discuss the impact of Roach v. Nordic Ins. Co. of Canada on your claims.

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