The goal of the modern law of torts is to provide full and fair compensation to an injured party, not punish the tortfeasor: Andrews v. Grand Toy & Alberta,  2 SCR 229; Ratych v. Bloomer,  1 SCR 940 pp 963-964; Hall v. Hébert,  2 SCR 159; Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee,  1 SCR 359 pp 368-369, 385 & 396-397. In order to achieve its purpose, it has formulated rules to avoid under and overcompensation. One such rule is the collateral benefits rule.
As part of his or her claim, the victim of a tortious act must establish a loss, without which no remedy is justified. Thus, the law of torts will compare the situation of the victim prior and after the injury in an attempt to quantify the value of an award. Namely, where the injury leads to a loss of income, the plaintiff is made whole again when the shortfall in compensated.
However, following an injury, the victim may be entitled to income replacement benefits from other sources. Incidentally, he or she may have sustained no loss of income despite being totally incapacitated by the tortious act. Courts have struggled to identify the types of benefits that are relevant to an assessment of damages versus those that are not. The scenarios run a full spectrum of incapacity, temporary or permanent, with zero income replacement benefits, to partial income replacement benefits, to full income replacement benefits, to charitable gifts, to savings, to pensions, etc.
The cases of zero income replacement benefits, gifts and savings are fairly clear: awards of damages from tortfeasors do not take those into consideration. For example, the law does not require that a victim depletes his or her savings before compensating a loss of income. Partial and full income replacement benefits are not settled so easily however; a court’s conclusion will generally depend on the nature of the program giving rise to the benefits.
In Ratych, supra, the Supreme Court of Canada had to decide whether a police officer entitled to full income replacement benefits under his collective agreement when incapacitated in the course of his duties should also obtain an award of damages for loss of income during the same period. The Court specified that there was no subrogation claim from the employer to recover the benefits paid to the employee; the record also showed that the employee did not pay any premium for such benefits. In a split decision (5 v. 4), the majority stated at pp 971 & 972:
The House of Lords in Parry v. Cleaver held that benefits in the nature of proceeds of insurance should not be deducted from a plaintiff’s damages, on the principle that the plaintiff has paid for these benefits and should not be deprived of the consideration for which he has contracted. This Court has approved the principles enunciated in Parry v. Cleaver.
I accept that if an employee can establish that he or she has suffered a loss in exchange for obtaining wages during the time he or she could not work, the employee should be compensated for that loss. Thus in Lavigne v. Doucet the New Brunswick Court of Appeal quite rightly allowed damages for loss of accumulated sick benefits. I also accept that if an employee can establish that he or she directly paid for a policy in the nature of insurance against unemployment, equivalent to a private insurance, he or she may be able to recover the benefits of that policy, although I would leave resolution of this question for another case.
The difficulty in this case is that neither a loss nor a contribution equivalent to payment of an insurance policy is established in this case.
At pp 982-983, the majority formulated the general rule thusly:
As a general rule, wage benefits paid while the plaintiff is unable to work must be brought into account and deducted from the claim for lost earnings. An exception to this rule may lie where the court is satisfied that the employer or fund which paid the wage benefits is entitled to be reimbursed for them on the principle of subrogation. […] It will also be the case where the person who paid the benefits established a valid claim to have them repaid out of any damages awarded.
These comments should not be taken as extending to types of collateral benefits other than lost earnings, such as insurance paid for by the plaintiff and gratuitous payments made by third parties. Those issues are not before the Court and must be left for another day.
The issue was revisited in the case of Cunningham, supra. The three matters concerned unionized employees who received short and/or long-term wage replacement benefits during their time off work. A majority of the Court (4 v. 3) accepted that the unionized employees’ benefits should not be deducted from the award of damages where “the evidence demonstrates that the plaintiff paid for the wage indemnity or disability benefits, either monetarily by payroll deductions, or indirectly, through trade-offs such as lower wages” (p 415). It went further however (p 408):
The application of the insurance exception to benefits received under a contract of employment should not be limited to cases where the plaintiff is a member of a union and bargains collectively. Benefits received under the employment contracts of non-unionized employees will also be non-deductible if proof is provided of payment in some manner by the employee for the benefits. Although there may not be evidence of negotiations for the wage/benefits package which makes up the employee’s remuneration, evidence that the employer takes the cost of benefits into account in determining wages would adequately establish that the employee contributed by way of a trade-off against higher wages. Clearly, if the non-union employee contributed to the plan by means of payroll deductions, that would prove the employee’s contribution.
As for benefits of a type other than insurance, they are deductible except “if the third party who paid the benefits has a right of subrogation” (p 415). The minority acknowledged that charitable gifts and non-indemnity pension and insurance benefits are not deductible from an award of damages (p 393). See also Guy v. Trizec Equities Ltd,  2 SCR 756, and Waterman v. IBM Canada Ltd, 2013 SCC 70; for an example of deductible benefits, see Sylvester v. British Columbia,  2 SCR 315.
Thus, in 1994, collateral benefits received by the victim of a tortious act were not deductible from an award of damages if they were purchased either directly by the employee or through payroll deductions, or indirectly through wage concessions. In New Brunswick, the state of the law remained such until s. 265.4 was added to the Insurance Act, RSNB 1973, c. I-12, in 1996 (subsequently amended). It provides that:
265.4 (1) In an action for damages arising out of an accident, the amount recoverable by the plaintiff as damages for loss of income between the date of the accident and the date of the judgment shall, subject to subsection (4), be reduced by
(a) all payments that the plaintiff received for loss of income during that period under an enactment of any jurisdiction or under an income continuation benefit plan,
(a.1) all payments that the plaintiff received for loss of earning capacity during that period under a policy of disability insurance, and
(b) all payments that the plaintiff received during that period under a sick leave plan arising by reason of the plaintiff’s occupation or employment, whether or not the plaintiff’s credits under that plan can be characterized as a capital asset.
The provision is described as “a watershed event in the evolution of the law respecting the assessment of damages arising out of a motor vehicle accident”: Courtney v. Royal and SunAlliance Insurance, 2001 NBCA 53 para 13.
The link between s. 265.4 and the cases of Ratych and Cunningham, supra, can be gleaned by the attention given to the issue of subrogation in subsections (3) and (4), one of the factors upon which deductibility would pivot. The two subsections limit deductibility to where there is no subrogation right, as in the cases discussed.
Three noteworthy points can be made with respect to s. 265.4 and collateral benefits.
- Limited to Past Losses of Income
As far as the head of past loss of income is concerned, this provision terminated the potential collateral benefits exception for “income continuation benefit plans” and “sick leave plans”. Such benefits are now to be deducted even if in the form of an insurance plan, contrary to what has been held in Ratych and Cunningham, supra. However, the enactment does not speak of future losses of income (Abu-Bakare v. Vincent, 2003 NBCA 42 para 77)—an analysis under the collateral benefits rule still needs to be applied in that case.
- A Complete Code for Past Losses of Income
Arguably, s. 265.4 has completely replaced the collateral benefits rule when it comes to past losses of income; it is an exhaustive provision and only the benefits captured under any of the paragraphs are deductible from the award of damages. (See Related Link “Deductibility of CPP disability benefits from past loss of income”.) Another paper addresses what those benefits are.
- Limited to Benefits Received
A third important aspect of s. 265.4 is that it deals only with benefits that are “received”, as opposed to available. Therefore, entitlement by itself does not trigger the application of the provision, only the amounts paid to the victim of the tortious act. This contrasts with s. 263(2) of the Insurance Act, supra, that speaks of benefits received and available.
Thus, as far as common law awards of damages for past losses of income are concerned, s. 265.4 of the Insurance Act, supra, has essentially supplanted the collateral benefits rule. Rules of legislative interpretation have become the main consideration, although the nature of the benefits paid remain relevant to the provision.
This analysis is directed at collateral benefits in the context of damage awards against the tortfeasor at common law. Similar issues arise in the context of insurance law, i.e. when interpreting insurance contracts like Section B benefits, SEF 44 endorsements, etc. However, different considerations also come into play and are the subject of another paper.