Montgomery, J.:—These reasons are issued to advise the profession that, on the basis of a recent ruling of Revenue Canada, the scope of structured settlements has been expanded to apply in appropriate cases to self-insurers.
For the assistance of the Court on the motion to approve the structured settlement, counsel filed a joint factum which clearly set forth the requirements to comply with the tax ruling.
The new method of structuring is as follows:
A. The plaintiff and the defendant or its insurer (if there is an insurer) enter into a settlement agreement requiring periodic payments to be made to the plaintiff for a specified term in respect of a claim for damages resulting from personal injury or death.
B. The defendant or its insurer, with the consent of the plaintiff, may make a conditional assignment to an assignee of its rights and obligations in relation to the settlement agreement entered into by it with the plaintiff.
C. The plaintiff must consent in writing to the assignment by the defendant or its insurer to the assignee in order to ensure the enforceability by the plaintiff of the substituted performance by the assignee. There is a proviso that the plaintiff's consent must be expressly stipulated not to be or to be deemed to be or interpreted as being a novation of the structured settlement agreement.
D. The assignment, which will be in the form of a contract of insurance, will specifically provide for the assignee to effect the substituted performance of the settlement agreement and will be conditional, such that if the assignee fails to perform the structured settlement agreement the liability of the defendant or its insurer to perform the structured settlement agreement will cease to be conditional and will become primary and immediate.
E. The assignee is to be either an affiliate of the issuer of the annuity contract covering the structured settlement agreement or any other entity which is an assignee permitted to accept assignments of and to perform settlement agreements as may be established in the discretion of the courts, under any applicable legislation or otherwise.
F. If the entity which is to be assignee is an affiliate of the issuer, it is not necessary that it independently meet the requirements (financial or otherwise) established for it to be an assignee. In that case, as an inducement both to the plaintiff to consent to and to the defendant or its insurer to enter into the conditional assignment, the issuer will guarantee, indemnify or assure, contingently or otherwise, to each of the plaintiff and the defendant or its insurer, the substituted performance by the assignee of the structured settlement agreement. The liability of the issuer to the plaintiff and either the defendant or its insurer pursuant to the guarantee, indemnity or assurance must be expressly restricted to the substituted performance and neither of them is to acquire any rights against the issuer in, to or under the annuity contract itself.
G. The amount of the consideration to be paid by the defendant or its insurer to the assignee for its assumption of the liability to perform the structured agreement pursuant to the conditional assignment will be the sum equal to the amount of the premium to be paid to the issuer for the issuance of the annuity contract plus the amount of the nominal fee paid to the assignee to accept the conditional assignment.
H. Pursuant to the conditional assignment the assignee, as owner and beneficiary, will purchase a single premium non-assignable, non-commutable and non-transferable annuity contract from the issuer to fund its substituted performance of the structured settlement agreement and irrevocably direct the issuer to make the payments under the annuity contract to the plaintiff and otherwise comply with the provisions of Interpretation Bulletin No. IT-365R2 issued by Revenue Canada, Taxation on May 8th, 1987.
I. The issuer must be registered by the Province of Ontario and the Government of Canada, as may be necessary, and must, as shown on its financial statements, have an unappropriated surplus of $25,000,000.
J. The tax treatment for the defendant or its insurer is that, as a result of the assignment, it will not have acquired a direct interest in a life insurance policy and will not have a direct future liability pursuant to the structured settlement agreement. The consideration paid to the assignee represents a payment in respect of a current liability under the assignment agreement and is a deductible expense in the business of the defendant or its insurer in the fiscal year in which the consideration is paid. As the defendant or its insurer has no direct interest in the annuity contract it is not required to include the payments under the annuity contract in a fiscal year in the calculation of its income for the fiscal year and correspondingly, by reason of the assignment of the settlement agreement, is not entitled to deduct the payments made under the settlement agreement in the calculation of its income for the fiscal year in which those payments are made.
K. The receipt of the annuity payments by the plaintiff pursuant to the structured settlement agreement will remain, in the view of Revenue Canada Taxation, non-taxable as a payment for damages, notwithstanding the assignment of the performance of the structured settlement agreement by the defendant or its insurer.
L. The eligibility to deduct a reserve and to obtain the “wash” effect for a structured settlement agreement pursuant to the provisions of Interpretation Bulletin No. IT-365R2 and the Income Tax Act must be established by the assignee for itself.
The action arose out of a collision which occurred on January 14, 1988 between an INCO Limited ore train and a Canadian Pacific Limited train near Sudbury. Richard Kay, the engineer of the ore train, was killed in the crash.
I gave judgment on December 20, 1990 which provided inter alia, that Canadian Pacific Limited purchase an annuity contract for the benefit of the plaintiff Diane Kay in the terms agreed by the parties. It further provided that Canadian Pacific may make a conditional assignment to an assignee of its rights and obligations in relation to the agreed payments.
It must be understood, however, that the courts have no present power to order a structured settlement absent the consent of the parties, and the enabling tax ruling on the individual case.
I am grateful to all counsel for their considerable assistance.
Motion for approval granted.