LTD amount cannot be deducted from IRB - Agnieszka Stepien and Security National Insurance Co./Monnex Insurance Mgmt. Inc.

January 31, 2019, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

LTD amount cannot be deducted from IRB - Agnieszka Stepien and Security National Insurance Co./Monnex Insurance Mgmt. Inc.

Decision Date: October 30, 2018
Heard Before: Adjudicator: Edward Lee

DEDUCTION OF LTD FROM IRB BENEFIT: SABS and IRBs: can the LTD amount be deducted; Arbitrator erred in law when she applied section 7 of the SABs to allow Security/Monnex to reduce past IRBs it owed by the amount received as a lump sum of LTDs


Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 it is ordered that:

  1. The decision of the Arbitrator is rescinded in its entirety, and replaced with the following:

Security National is not entitled to deduct the amount that Ms. Stepien received as a lump sum for payment of past LTD benefits from Manulife Financial, less statutory deductions, from the amounts Security National owes for past IRBs.

  1. Ms. Stepien is entitled to her expenses of the hearing.
  2. The determination of the quantum of expenses of the hearing is remitted to a different arbitrator, if required.

If the parties are unable to agree about the expenses of this appeal, an expense hearing may be arranged in accordance with rule 79 of the Dispute Resolution Practice Code.


           This matter involves the SABS–1996

Ms. Stepien appeals a decision of Arbitrator Anschell  dated January 16, 2016. In that decision, the Arbitrator ruled that the entirety of a lump sum payment of LTDs could be applied retroactively to reduce the amount of IRBs Security National/Monnex has now agreed to pay her.

For reasons that follow the Arbitrator committed errors of law in her analysis and accordingly her decision is overturned.


Ms. Stepien was injured in a car accident on November 2, 2009 and received IRBs from Security/Monnex until these benefits were terminated in December 2011. At the time, Ms. Stepien also had coverage with an LTD carrier, and she applied for LTD benefits in August 2010. The LTD carrier denied this application in September 2010.  Ms. Stepien disputed Security/Monnex’s termination of her IRBs and sought arbitration at the FSCO. She also commenced litigation against her LTD carrier. From December 2011 and onward, she was in receipt of neither IRBs nor LTDs.

Finally, in March 2015, Ms. Stepien received a lump sum payment of $206,710.57 from her LTD carrier for arrears of LTDs up to February 28, 2015. This amount included interest of $7,507.40. Her LTD carrier also commenced paying monthly LTD benefits

In October 2015, Ms. Stepien and the Security/Monnex settled her accident benefits claim on the eve of her arbitration hearing. The parties agreed that Ms. Stepien met the test for IRBs, and the Security/Monnex would reinstate Ms. Stepien’s IRB benefits. Security/Monnex also agreed to pay past IRBs from the date of termination in December 2011 to the present. In regard to quantum, Security/Monnex’s position was that it could retroactively reduce the amount of any past IRBs it owed Ms. Stepien with the LTD lump sum payment she had received in March 2015. Ms. Stepien disputed this position and the parties proceeded to arbitration on this issue.

The issue was set out as follows:

“Is Security National entitled to deduct the amount that Ms. Stepien received as a lump sum payment of past Long Term Disability benefits from the Manufacturer’s Life Insurance Company (“Manulife Financial”), less statutory deductions, from the amounts owing by Security National for past IRBs?”

The Arbitrator held that Security/Monnex was entitled to deduct the amount Ms. Stepien received as a lump sum payment of past LTDs from the amounts owing to Ms. Stepien by Security/Monnex for past IRBs. The Arbitrator also determined that Security/Monnex was entitled to its expenses of the arbitration hearing.

For reasons that follow the Arbitrator erred in law in her analysis of the SABs and in allowing Security/Monnex to make this deduction.

The legal basis for Security/Monnex’s argument is found at section 7 of the SABs, which deals with collateral benefits.  Ms. Stepien argues section 7(1) contemplates only two possibilities. In the first, section 7(1)(1)(i) requires an insured to be receiving collateral benefits during the period in question. This is because section 7(1)(1)(i) contemplates “net weekly payments for loss of income that are being received by the person …”

The second situation contemplates a situation where collateral benefits are not being paid. Subsection 7(1)(1)(ii) allows a reduction where collateral benefits “are not being received by the person, but are available … unless the person has applied to receive…” the collateral benefits.

Ms. Stepien argues that Security/Monnex was not paying IRBs from December 2011 onward. During the same period, Ms. Stepien was not receiving LTDs. She had applied for them, but they had been denied. Those LTDs were not being received by Ms. Stepien at that time. Therefore, by a simple and plain reading of section 7, Security/Monnex is not entitled to reduce the amount of past IRBs by the amount Ms. Stepien received as a lump sum payment of past LTDs.

 Security/Monnex’s counter argument is that the legislative purpose of the SABs is to prohibit an insured from recovering from both an accident benefits carrier and an LTD carrier. Accordingly, the rule preventing double recovery would be rendered useless if an insurer were not entitled to a deduction for past LTD benefits from past IRBs that are owing. Further, the lump sum payment for LTDs was made for a period that corresponded to the period for which the insured has now agreed to pay IRBs. To rule otherwise would entitle the insured to a “windfall.”

At arbitration, the Arbitrator determined that she “prefer[ed]” the Insurer’s argument concerning double recovery and the legislative purpose of section 7(1) of the SABs. She cited from the decision of Delegate Makepeace in Allstate Insurance Company and De Rosa:

In my view the collateral benefits rules in the SABs are intended to achieve the same legislative purposes as the deduction from damages rules in the Insurance Act, - to prevent double recovery, give effect to rules about priority of payers, appropriate relief for accident victims, and minimize litigation.

The Arbitrator said little about why she preferred Security/Monnex’s arguments over the arguments of Ms. Stepien. In fact, the SABs themselves clearly demonstrate the legislature itself did not contemplate an absolute prohibition against double recovery. This is evident from Section 47 of the SABs, which sets out the process whereby an insurer might recover a benefit overpaid to an insured because of a payment of a collateral benefit.

Under that scheme, the insurer is first required to issue a notice for a repayment (s. 47(2)(a)). Subsection 47(2)(b) describes how and in what amounts the overpayment may be recovered. Subsections 47(3) and 47(4) state that an insured’s obligation to repay a benefit does not apply unless the notice is given within 12 months after the payment was made, except in cases of willful misrepresentation or fraud. [Emphasis mine]

Thus, the SABs envision scenarios where double recovery might occur, and this may be the case even when an insurer has been paying IRBs from the very start of a claim right up to the moment an LTD payment is made. This principle, that an insurer might only have a limited recovery for such overpayments (leading possibly to a double recovery), has been recognized and accepted in the jurisprudence.

In the instant case, Security/Monnex has not paid IRBs since they were terminated in December 2011. Similarly, the LTD carrier did not pay any LTDs until March 2015. During that entire period, Ms. Stepien received neither IRBs nor a similar collateral benefit, although she suffered (as is now recognized by the insurer), from a complete inability to engage in any employment for which she was reasonably suited by education, training, or experience. Further, there is no suggestion that Ms. Stepien at any time engaged in fraud or willful misrepresentation.

In her analysis, the Arbitrator cited the decision of Cromwell v. Liberty Mutual Insurance as authority for Security/Monnex’s proposition that it might deduct a lump sum of LTDs from past IRBs, but I find she misread and misapplied that decision. In Cromwell, the lump sum payment of LTDs was not applied retroactively to reduce past IRBs, even though in Cromwell, as in the instant case, there had been past periods during which the insurer had terminated and not paid IRBs. Instead, the lump sum LTD payment was applied as a deduction from future payments of IRBs, in accordance with the scheme set out in section 47 of the SABs.

This was the same approach taken by the trial court in Vanderkop and The Personal Insurance Company of Canada, another similar situation. In Vanderkop, the insured had both an accident benefits policy and a collateral benefits policy. She was injured in a motor vehicle accident in February 1997 and received IRBs until January 1998 when they were terminated. In June 1997, she applied for LTDs from her LTD carrier, but these were also denied. In June 1999, she commenced litigation for those LTDs. In January 2001, the accident benefits carrier paid her a lump sum of approximately $107,000.00 for IRBs it owed from January 1998 to January 2000. The accident benefits carrier continued to pay IRBs right up to Nov 27, 2002, when the insured settled her LTD claim with her LTD carrier for approximately $57,000.00. The accident benefits carrier then immediately ceased paying any further IRBs and sought to deduct the LTD lump sum from past IRBs paid.

The trial judge considered section 7(1)(ii) of the SABs. He cited the ruling of Chrappa v Ohm in the Court of Appeal “… which approved the analysis of Austin J. A. in Coderre, where he found that the plaintiff was not entitled to [LTD] benefits due to rejection of his claim by the collateral benefits insurer.”

The trial judge then ruled that the “… LTD benefits were not available to the insured, and there is no claim for the deductibility of LTD benefits or repayment of IRBs paid due to LTD benefits being available to the plaintiff…”

On appeal, the Court of Appeal considered section 7(1)(1)(ii) and ruled as follows:

[26] IRBs are to be reduced by LTD being received as a result of the accident. The legislation does not entitle Personal to set off hypothetical benefits applied for but refused. Ms. Vanderkop was not in receipt of LTD. As Manulife had denied her claim,  she cannot be described as entitled to the payment of LTD. That is, LTD was not“available” to her. To treat LTD as being available would effectively oblige an insured to litigate with their collateral benefits insurer, at their own risk and expense, for the benefit and at the discretion of, their accident benefits insurer. In our view, SABs places no such obligation on an insured.

The Court of Appeal applied the same contemporaneous approach to their analysis. During the time period in question, LTDs were not being received. The insured was not in receipt of LTDs (even though she was later paid a lump sum for LTDs). The insurer sought a reduction for LTDs from the quantum of IRBs paid to the insured. The Court of Appeal upheld the trial court and refused to allow the insurer to do so.

This is the same situation as the instant case. LTDs were not being paid to Ms. Stepien from December 2011 until March 2015. Ms. Stepien was not in receipt of LTDs during that period. To allow Security/Monnex to deduct this LTD amount from past IRBs would amount to an error of law and be contrary to the Court of Appeal’s approach.

I agree with Ms. Stepien that subsections 7(1)(1)(i) and (ii) provide a complete scheme for the calculation of IRBs in regard to reductions for “net weekly payments for loss of income.” A party that is not within the ambit of those provisions may not avail itself of those reductions. Nor does the SABs contemplate a complete bar to double recovery in every instance. Other competing policy considerations include the following: the goal of reducing economic dislocation and hardship to accident victims, allowing insureds to rely on benefits to meet current needs, recognizing the special vulnerabilities of accident victims, and not requiring insureds to finance or pursue litigation against third parties before they can become eligible for certain benefits.

Accordingly, I find the Arbitrator erred in law when she applied section 7 of the SABs to allow Security/Monnex to reduce past IRBs it owed by the amount Ms. Stepien received as a lump sum of LTDs in March 2015.


Posted under Accident Benefit News, Automobile Accident Benefits, Car Accidents, FSCO, Income Replacement Benefits

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