When it comes to calculating Income Replacement Benefits (IRB) for a claimant, we need to look at every financial aspect of the claim, including collateral benefits.
But what, exactly, constitutes a collateral benefit and when is it a factor in calculating the IRB payable?
This post relates to the post-September 2010 legislation. For our blog on the pre-September 2010 legislation, you may find it here.
Summary
Under the post-September 2010 legislation, collateral benefits are received by an insured as a result of a prior incident, meaning an incident which occurred prior to the automobile accident.They are deductible from the amount payable for IRBs and Non-Earner benefits (NEB), only if they are being received by the insured and considered temporary when the insured first qualified for the IRB or NEB.
For the purposes of calculating an IRB, collateral benefits are different that Other Income Replacement Assistance, which relate to benefits received as a result of the current accident, and are discussed in a separate blog.
Background
Collateral benefits are, in short, a payment for loss of income. They may be received by the insured from sources such as the Workplace Safety and Insurance Board, a private insurer, or even an IRB from a previous accident, as outlined in Section 47 of the SABS.
Under the current legislation (post-Sept 2010), collateral benefits are limited to past incidents. However, to put collateral benefits into perspective, under the previous legislation (pre-Sept 2010), collateral benefits where considered both current and past incidents. The new legislation considers benefits received for the current accident to be Other Income Replacement Assistance, provided they meet the criteria outlined in subsection 4(1) of the SABS.
But, let’s stick to collateral benefits as they relate to the current legislation.
Is this a deductible collateral benefit?
There appears to be a series of questions regarding collateral benefits to determine if the amount is deductible:
- Does the collateral benefit meet the definition of a temporary benefit? (s.47(3))
- If it doesn’t currently meet the definition of temporary benefit, did it at the time of the accident? (s.47(1)2)
- Was the collateral benefit being received, as opposed to receivable, by the insured when it was deemed temporary? (s.47(1))
If, based on the above questions, you cannot say the collateral benefit was being received when it was deemed temporary, the collateral benefit does not appear to be deductible.
While there are no decisions relating to this topic under the current legislation, we can look at past decisions to provide further guidance on this point.
In DeForest and Royal (FSCO P96-00066), Director’s Delegate Draper outlines the difference between a temporary and permanent disability benefit, and the impact on the calculation of an IRB or NEB. “… temporary disability benefits are payments for loss of income and therefore deductible, while permanent disability benefits are payments based on disability, not loss of income, and therefore not deductible.” He also notes later in the decision, that other long-term, but not necessarily permanent, benefits are specifically excluded from temporary disability benefits. This last point, and the clear identification of 104 weeks in many of the defined temporary disability benefits (s.47(3)), appears to support that anything in excess of 104 weeks at the date of loss would not be considered temporary.
The Director’s Delegate also acknowledged that what may have been a temporary disability at one point in time, can eventually become a long-term or permanent disability benefit. Therefore, section 47(1)2 identifies that if, at the time the insured first qualified for the IRB or NEB, the collateral benefit was considered a temporary disability benefit, it would be deductible as long as it continues to be received.
Specifically, if the benefit is “temporary” at the time of the MVA, as long as it is received, regardless of its future status as either long-term or permanent, it would be deductible. However, it is important to note that payments that change from temporary to long-term or permanent may also change the section under which they are being paid, pursuant to the policy or terms under which they are paid (ie. WSIB). In this case, it would appear necessary to reassess their status, to determine if they remain deductible under s.47(1)1.
What is the Collateral Benefit deducted from?
If the collateral benefit were deductible, as outlined above, it would be deducted from the IRB or NEB payable.
The IRB calculation is performed pursuant to section 7 of the SABS. It is only after this calculation has been completed that the collateral benefit is deducted. This is consistent with the FSCO decision, Penaglia and Allstate Insurance (FSCO A97-001704). “The temporary disability benefit paid by Aetna qualifies as a collateral benefit pursuant to section 75 of the Schedule. Pursuant to section 75(1)(1), of the Schedule, the net amount of such temporary disability payments would be deductible from any weekly income replacement benefits payable to an insured.”
Do we include Collateral Benefits in calculating pre-accident income?
Collateral benefits that are related to a prior incident are not included in the pre-accident income calculation, unless they are sick leave payments paid directly by the employer, in which case decisions support they would be considered income (Fortin and Economical (FSCO Appeal P02-00022); York Fire and Shearstone (FSCO Appeal P01-00013)).
While these decisions are all based on the prior SABS, there does not appear to be a material impact in the manner in which they are now applied.
Documentation to Request
The following documentation would provide details from which the deductibility of the collateral benefit, pursuant to s. 47, could be assessed:
- a copy of the insurance policy under which payments are being received;
- a timeline of the payments received by the insured, potentially including a complete summary of payments; and
- copies of cheque stubs outlining payment dates and amounts.
What does this mean for you?
In determining whether collateral benefits are deductible from either the IRB or NEB payable, ask yourself the following questions:
- Were the collateral benefits being received at the time of the accident?
- Were the collateral benefits being received in respect of an impairment that occurred before the accident?
- Had the collateral benefits been received for in excess of 104 weeks at the time of the accident?
- Based on the above, would the benefits meet the definition of temporary pursuant to section 47 of the SABS?
If you have specific questions about whether a benefit would be considered a collateral benefit for the purposes of calculating an IRB or NEB, don’t hesitate to contact an ADS accountant, who would be pleased to assist. You may do so at answers@adsforensics.com or 1-800-380-7908 ext ASK (275).
For additional information on related topics, see the following posts:
- Not a payment for loss of income? Not deductible from Income Replacement Benefits
- Long Term Disability Benefits – what is deductible? (Old SABS)
- When are Long-term disability (“LTD”) benefits deductible?
- Collateral Benefits are now Other Income Replacement Assistance – Post September 2010