Mogan T.C.J.:
1 The Appellant was temporarily disabled as a result of an automobile accident. The issue in this appeal is whether a certain amount paid by an insurance company with respect to the Appellant's temporary disability is to be included in the computation of her income.
2 On February 14, 1991, at approximately 20 minutes after 7:00 o'clock in the morning, the Appellant was injured in a motor vehicle accident on her way to work. She had a fractured sternum and an injury to her neck. As a result of these injuries, she missed approximately two and one-half years of work although she had tried to go back to work on two occasions but could not stay. She was in her own vehicle at the time of the accident and it was insured by The Missisquoi Insurance Company (hereafter referred to as “Missisquoi”) under a policy of insurance paid for by the Appellant. Under the Missisquoi policy, the Appellant was entitled to certain “no-fault” benefits. Through her employment with Canada Post, the Appellant was also insured under a disability insurance policy with Sun Life Assurance Company of Canada (hereafter referred to as “SunLife”).
3 Under the Missisquoi policy, the Appellant was entitled to payment of 80% of her gross weekly income (immediately before the accident) less any payments for loss of income received by her under an income continuation plan or sick leave plan with SunLife. In September 1991, the Appellant received the sum of $1,383.97 from SunLife for the period May 16 to June 23, 1991. That amount was deducted from the amounts otherwise payable to her under the Missisquoi policy. As of June 23, 1991, benefits were discontinued by SunLife. At that time, Missisquoi began topping up the Appellant's loss of income benefits to equal 80% of her gross pre-accident income as was their obligation under the policy and the Insurance Act.
4 Automobile insurance in the Province of Ontario is governed by Part VI (sections 224-289) of the Insurance Act, R.S.O. 1990, chapter I-8. It is difficult to determine from the provisions of that Act whether Missisquoi had a direct right of subrogation with respect to the no-fault benefits paid to the Appellant. Subsection 278(1) of that Act appears to grant a right of subrogation but subsection 267(4) of that Act appears to take away any right of subrogation. In my view, it does not matter whether Missisquoi had a right of subrogation as against SunLife because, by an agreement dated February 2, 1994 (Exhibit A-10), the Appellant (identified as the “Claimant”) granted to Missisquoi (identified as the “Insurer”) authority to commence an action against SunLife. The first two operative paragraphs of Exhibit A-10 are as follows:
1. The Claimant authorizes the Insurer to commence and conduct an action in the name of the Claimant in the Ontario Court (General Division) or such other Courts as may be necessary, against Canada Post Corporation and Sun Life of Canada and such other parties as the Insurer may deem necessary for the recovery of all disability benefits that should have been paid, and which may be payable in the future, pursuant to the Claimant's group insurance policy with Sun Life of Canada. The Claimant agrees to cooperate and assist the Insurer in conducting the said action. Without limiting the generality of the foregoing the Claimant agrees to appear as a witness on the Examinations for Discovery and at the trial of this matter, to execute any documents necessary to conduct litigation in this matter, and to submit to such medical examinations as may be required by the Rules of Civil Procedure.
2. The Insurer agrees to pay all costs associated with the litigation of this matter. The Insurer further agrees to indemnify the Claimant for any costs awarded against her personally as a result of the said litigation.
5 Exhibit A-10 is entitled “Assignment of Benefits and Cause of Action”. Although it is dated February 2, 1994, there had been some correspondence among the parties prior to that date. There were nine letters entered in evidence which I propose to review briefly in chronological order because they set the stage for what became the significant payment in this appeal.
| Exhibit No. | Date | Sender | Receiver | Subject |
|---|
| R-1 | Sept. 11/91 | SunLife | Canada Post and copy to Appellant | The letter enclosed a cheque for $1,383.97 and stated “This cheque completes payment of this claim in accordance with the information received”. |
| A-11 | Sept. 13/93 | Cockburn, Foster & Co. (Missiquoi's lawyer) | SunLife | The letter asks SunLife to provide the documentation on which it relied in terminating benefits as of June 23/91. |
| A-12 | Oct. 4/93 | SunLife | Cockburn, Foster & Co. | SunLife asks for additional authorization to release the information concerning the Appellant. |
| R-2 | Nov. 22/93 | SunLife | Cockburn, Foster & Co. | SunLife provides a summary of the benefits paid to the Appellant who is identified in the letter as "your client". |
| R-3 | Nov. 22/93 | SunLife | Dr. Susan Patel | It appears from the letter that the Appellant had designated Dr. Susan Patel as the physician through whom any information concerning her claim could be released to a third party like Missisquoi. |
| A-13 | June 7/94 | Cockburn, Foster & Co. | SunLife | Missisquoi's lawyer informs SunLife that they are of the opinion that the Appellant is entitled to a full two benefits from SunLife. |
| A-14 | July 15/94 | SunLife | Cockburn, Foster & Co. | SunLife states that its medical consultants are still of the opinion that the medical evidence does not substantiate a finding of total and continuous disability. |
| A-15 | Aug. 2/94 | Cockburn, Foster & Co. | SunLife | This letter encloses copies of reports from Dr. J.S. Patel (the Appellant's family physician) dated June 12/92 and April 29/93. The letter asks SunLife to reconsider its position. |
| A-16 | Aug. 17/94 | SunLife | Cockburn, Foster & Co. | This letter encloses the significant payment in the amount of $19,063.28. The letter is important and it is quoted in its entirety below. |
I acknowledge receipt of your letter of August 2, 1994 together with the additional medical reports.
The medical evidence submitted recently in support of this disability claim was reviewed by Sun Life's Medical Consultants and I wish to inform you that disability payments have been extended for the period of June 24, 1991 through December 10, 1992 in full and final settlement of this claim.
Our cheque in the amount of $19,063.28 payable to your client for the above-mentioned period is enclosed herewith. Our file is now closed.
I trust that this is to your entire satisfaction.
6 Although Exhibit A-16 states that the cheque is “payable to your client”, the SunLife cheque in the amount of $19,063.28 dated August 19, 1994 (Exhibit A-17) was in fact payable to “Cockburn, Foster, Townsend, Graham and Associates, ‘In Trust’”, which was the law firm representing Missisquoi throughout all of this correspondence. In other words, it was a lawyer from Messrs. Cockburn, Foster & Co. who signed each of Exhibits A-11, A-13 and A-15. Most of the correspondence from SunLife was signed by Mr. Jess Giangioppi, a senior claims analyst, who testified as a witness for the Respondent at the hearing of this appeal. His evidence was that SunLife would pay a claim like this without requiring a release from the claimant. His letter of August 17, 1994 (Exhibit A-16) contained the words “in full and final settlement of this claim”.
7 Notwithstanding the fact that SunLife did not require a release from the Appellant before issuing the cheque dated August 19, 1994 (Exhibit A-17), there was a release (Exhibit R-5) prepared by Messrs. Cockburn, Foster & Co. in which the Appellant released SunLife from any further claims in connection with the motor vehicle accident. Exhibit R-5 is headed “Full and Final Release” and states in part:
IN CONSIDERATION of the payment of the sum of NINETEEN THOUSAND SIXTY THREE DOLLARS AND TWENTY EIGHT CENTS ($19,063.28) inclusive of costs which is directed to my solicitors, Cockburn, Foster, Townsend, Graham & Associates, In Trust.
THE UNDERSIGNED does for herself, her heirs, executors, administrators, successors and assigns, release and forever discharge SunLife of Canada from any and all actions, causes of action, claims and demands for or by reason of any damage, loss or injury to person or property which heretofore has been or hereafter may be sustained in consequence of a motor vehicle accident which occurred on or about the 14th day of February, 1991, including all claims for benefits arising from the accident payable by SunLife of Canada pursuant to Group Contract LTD-12500, Subdivision 0001, Certificate No. 477-225-031.
AND IT IS HEREBY DECLARED that the terms of this settlement are fully understood, that the amount stated herein is the sole consideration for this release and that the said sum is accepted voluntarily for the purpose of making a full and final compromise, adjustment and settlement of all claims for injuries, losses and damages resulting or to result from the said accident.
8 The final document signed by the Appellant is entitled a “Release, Direction and Authorization” (Exhibit R-6). This document recites the history of events leading up to the payment and then, in the operative part, the Appellant releases Missisquoi and directs Messrs. Cockburn, Foster & Co. to pay the sum of $19,063.28 to Missisquoi. Specifically, paragraphs 1 and 4 of Exhibit R-6 state:
1. The undersigned does for herself, her heirs, executors, administrators, successors and assigns, release and forever discharge Missisquoi & Rouville Insurance Company for any and all actions, causes of action in consequence of the Assignment of Benefits and Cause of Action Agreement as between the parties dated the 2nd day of February, 1994.
4. The Claimant does hereby direct and authorize Cockburn, Foster, Townsend, Graham & Associates to pay the sum of $19,063.28 to the credit of Missisquoi & Rouville Insurance Company.
In accordance with Exhibits R-5 and R-6, the amount of $19,063.28 was paid by Messrs. Cockburn, Foster & Co. to Missisquoi. Mr. Giangioppi stated that he did not know under what circumstances the Release (Exhibit R-5) was signed in favour of SunLife.9 None of the witnesses knew why the Release (Exhibit R-5) and the Release and Direction (Exhibit R-6) were executed by the Appellant. I can only surmise that the Appellant returned to work in 1994 and, because Missisquoi was terminating its compensation payments to her, Missisquoi required a release from the Appellant with respect to both SunLife and Missisquoi so that the Appellant could not come back at a later time and claim that Missisquoi should have pursued SunLife for the recovery of some greater amount. There is a provision in paragraph 3 of the Assignment Agreement (Exhibit A-10) which states that if Missisquoi should recover from SunLife amounts in excess of a certain level, then such excess is to be paid to the Appellant. I note in the eighth recital of the Release, Direction and Authorization (Exhibit R-6) that the amount paid by SunLife did not exceed the level at which Missisquoi would have to pay any amount to the Appellant. Therefore, I conclude that Exhibits R-5 and R-6 were housekeeping documents as between the Appellant and Missisquoi designed primarily to protect Missisquoi from any future claims by the Appellant with respect to the automobile accident.
10 Having heard the Appellant's testimony, I am satisfied that when the amount of $19,063.28 was paid by SunLife to Messrs. Cockburn, Foster & Co. and later remitted by that law firm to Missisquoi, the Appellant gave no thought to any income tax consequences which may have been connected with that payment. By notice of reassessment dated December 18, 1995, the Minister of National Revenue reassessed tax for the Appellant's 1994 taxation year and included in the computation of her income the amount of $19,063.28. In making that reassessment, the Minister relied upon paragraph 6(1)(f) of the Income Tax Act which states in part:
The formula in subparagraphs (iv) and (v) is not relevant because no amount is in dispute. The only issue in this appeal is whether, in the special circumstances of this case, the amount paid by SunLife ($19,063.28) is to be included in computing the Appellant's income for 1994.11 The Appellant called as a witness Janet Morgan, an accident benefits specialist with Missisquoi. Ms. Morgan is an insurance adjuster and has been doing that work for Missisquoi for approximately eight years. She took over the Appellant's file in 1991 and confirmed that the Appellant had received benefits with respect to weekly income indemnity, retraining, physiotherapy and medical assistance. She also stated that Missisquoi paid 80% of the Appellant's gross earnings as a weekly income indemnity but that any benefit received by the Appellant from some other policy or insurance plan was deducted from the 80% to be paid by Missisquoi. For example, the SunLife payment of $1,383.97 paid with respect to the period May and June, 1991 was endorsed by the Appellant and delivered to Missisquoi. Ms. Morgan also confirmed that, under Exhibit A-10, Missisquoi acquired a subrogation right against SunLife and a right to sue SunLife in the name of the Appellant. And finally, although Missisquoi had paid to the Appellant a total amount of $57,853.23 over the period from May 1991 to some date in 1994, Missisquoi settled with SunLife on the basis that the payment from SunLife of $19,063.28 would extinguish any claim which Missisquoi might otherwise have against SunLife.
12 The parties to this appeal are in agreement that the Appellant and Canada Post were50/50contributors to the premiums payable to SunLife with respect to the Appellant's disability insurance. In argument, counsel for the Appellant conceded that if the amount of $19,063.28 had been paid by SunLife to the Appellant on a periodic basis, then those periodic payments would have been income to the Appellant under paragraph 6(1)(f) of the Income Tax Act. The Appellant's primary argument is based on the concept of receipt. The Appellant's counsel argued that, with respect to the amount $19,063.28, she did not receive any part of that amount within the meaning of paragraph 6(1)(f). Having regard to the flow of the money from SunLife to Cockburn, Foster & Co. and then from that law firm to Missisquoi, it is true that the Appellant did not receive any part of the $19,063.28 in the sense that she herself never had any part of that amount in hand. In my view, however, the concept of receipt as “money in hand” does not answer the question in this appeal.
13 It is a fact that the Appellant was insured with respect to disability under the group policy with Canada Post and SunLife. Although the Appellant did not herself pursue any claim against SunLife, she was receiving benefits from Missisquoi up to 80% of her pre-accident earnings and therefore, left to herself, had no reason to pursue SunLife. On the other hand, Missisquoi had a very real business reason to pursue SunLife because any amount which the Appellant could recover from SunLife would reduce the amounts otherwise payable by Missisquoi to the Appellant. It was for this reason that Missisquoi asked the Appellant to assign to Missisquoi any rights which the Appellant might have against SunLife. The Appellant agreed and the assignment is reflected in Exhibit A-10.
14 Although Exhibit A-10 is entitled “Assignment of Benefits and Cause of Action”, it is not so much an assignment as an authorization because the first operative paragraph commences with the words: “The Claimant authorizes the Insurer to commence and conduct an action in the name of the Claimant ... against Canada Post Corporation and SunLife ... for the recovery of all disability benefits that should have been paid ... pursuant to the Claimant's group insurance policy with Sun Life...”. As I interpret Exhibit A-10, the Appellant has appointed Missisquoi as her agent to commence an action against SunLife. The principal/agency relationship between the Appellant and Missisquoi is borne out by some of the words in Exhibits R-5 and R-6 in which the Appellant regards Cockburn, Foster & Co., as her own solicitors and the solicitors for Missisquoi. For example, in the very first paragraph of Exhibit R-5, the Appellant refers to Cockburn, Foster & Co. as “my solicitors”. And in the seventh recital of Exhibit R-6, the Appellant refers to Cockburn, Foster & Co. as the solicitors for Missisquoi which is identified in the document as the “Insurer”. Also, Exhibit A-10 is not a complete assignment because paragraph 3 provides that amounts recovered from SunLife in excess of a certain level are to be paid to the Appellant.
15 It is worth noting that both Exhibits R-5 and R-6 were signed by the Appellant on September 14, 1994. In other words, on that same day the Appellant regarded Cockburn, Foster & Co. as both her own solicitors and the solicitors for Missisquoi acting in a common cause against SunLife. There was a principal/agent relationship between the Appellant and Missisquoi to the extent that Missisquoi was authorized on the Appellant's behalf to conduct an action against SunLife; and to retain any amounts recovered from SunLife up to the level that Missisquoi was out-of-pocket in its compensatory payments to the Appellant. Any amounts recovered above that level were to be paid to the Appellant.
16 Janet Morgan testifying as an employee of Missisquoi was clear in her evidence that Missisquoi had paid to the Appellant the total amount of $57,853.23 with respect to her automobile accident; and that Missisquoi was content to settle with SunLife on the basis that it (Missisquoi) would recover only $19,063.28 to reimburse it for its compensatory payments to the Appellant. When counsel for the Appellant argues that she did not “receive” any amount from SunLife, I would observe that the Appellant had received more than $57,000.00 from Missisquoi and that Missisquoi was simply being reimbursed by SunLife up to the level of $19,063.28 consistent with the agreement (Exhibit A-10) between the Appellant and Missisquoi.
17 Having regard to the Appellant's automobile accident and resulting disability, she was the only person who could make a lawful claim against SunLife. If she had done so, and if she had recovered some amount with respect to loss of income, such amount would be included in the computation of her income under paragraph 6(1)(f). In the Appellant's special circumstances, she had no inclination to make a claim against SunLife because she was already receiving 80% of her pre-accident income from Missisquoi in accordance with the disability coverage in her private automobile insurance policy. According to the evidence of Janet Morgan, under the Missisquoi policy the Appellant was obliged to help Missisquoi to collect from SunLife any amount which the Appellant could have collected on her own. Although the point was not raised in evidence or argument, I assume that the amounts which the Appellant received from Missisquoi with respect to loss of income were not required to be included in the computation of her income for tax purposes.
18 If any amount which the Appellant may have received directly from SunLife with respect to loss of income would have been included in computing her income, should she be better off from an income tax point of view by receiving her “loss of income” compensation from Missisquoi and then authorizing Missisquoi to claim and collect whatever it could from SunLife? The amount $19,063.28 was paid by SunLife in August 1994 only after SunLife was persuaded that the Appellant was disabled up to December 10, 1992. See Exhibit A-16 quoted in full above. That amount would have been paid to the Appellant but for the terms of the assignment agreement (Exhibit A-10). Paragraph 3 of Exhibit A-10 contained the following formula for disbursing any monies recovered from SunLife:
3. The parties hereto agree that any monies recovered as a result of a Judgment, settlement or cost order in favour of the Claimant shall be disbursed as follows and in the following priority:
(a) First, the Insurer shall be entitled to recover both its solicitor and client costs as well as its judicial and extrajudicial costs paid to its own solicitors for fees and expenses in connection with the said action or settlement;
(b) Secondly, the Insurer shall be entitled to reimbursement of all no-fault benefits paid to the Claimant prior to such Judgment, Order or settlement;
(c) Thirdly, in the event that any monies are collected in excess of (a) and (b), the Insurer is entitled to receive a credit of such monies toward any no-fault benefits which may become payable to the Claimant after the date of such Judgment, Order or settlement;
(d) Fourthly, in the event that there are any monies collected in excess of that mentioned in (a) and (b), such monies shall be paid over to the Claimant.
19 I note that the opening words of paragraph 3 refer to “...any monies recovered as a result of a Judgment ... in favour of the Claimant...”. Exhibit A-10 identified the Appellant as the “Claimant”. Therefore, any monies recovered from SunLife were “in favour of” the Appellant. The fact that the Appellant had authorized Missisquoi to commence and conduct an action against SunLife in the name of the Appellant means that any monies recovered from SunLife were constructively received by the Appellant even if such monies were paid directly or indirectly (i.e. through a lawyer) to Missisquoi and retained by Missisquoi in accordance with Exhibit A-10.
20 When SunLife finally acknowledged in Exhibit A-16 its willingness to pay an additional amount of $19,063.28 “in full and final settlement of this claim”, that amount was payable only to the Appellant in accordance with the group policy between SunLife and Canada Post. The fact that the SunLife cheque (Exhibit A-17) was issued to Cockburn, Foster & Co. is not significant because that law firm was acting for both the Appellant (as principal) and for Missisquoi (as agent). The Appellant and Missisquoi as principal and agent had only the Appellant's claim against SunLife. There was constructive receipt by the Appellant when the amount was paid by SunLife to the law firm acting for both the Appellant and Missisquoi. The appeal is dismissed with costs.
Email this Content