Recently, the Ontario Supreme Court, in Cowley v Skyjack Inc., spoke to the potential for double recovery where a right of subrogation exists, but is not exercised.
The Plaintiff, Bruce Cowley, was injured while employed on a project involving the installation of solar panels on a work site. He used a skyjack to access the roof to carry out a roof top inspection. As he descended from the skyjack to the ground, his left small finger became caught in the skyjack’s latch and was torn off. He sought damages for economic losses, including past and future income. Mr. Cowley was in receipt of long-term disability benefits from his benefit provider, La Capitale, which the Defendants argued created a potential for double recovery.
The Defendants in this motion are Dickie Moore Rentals, who owned and leased the skyjack, the site’s construction company, Bondfield Construction Company Ltd, and the subcontractors for the project (whom Bondfield supplied the skyjack to), Campbell and Kennedy Electric (“Ottawa”) Ltd.
The relevant issue raised before the Ontario Supreme Court was whether the existence alone of a right of subrogation was a complete answer to the Defendants’ entitlement to a deduction of wage benefits from damages awarded against them for Mr. Crowley’s economic losses.
Subrogation & the Potential for Double Recovery
As a result of the accident, Mr. Cowley received long term disability benefits under his employment benefits policy with La Capitale. Notably, his policy provided that La Capitale was “subrogated to all rights of the participant against a third party liable for damages that results in an entitlement to payment of benefits”.
Relying on the Supreme Court of Canada case Cunningham v Wheeler, [1994[ 1 SCR 359, the Plaintiffs’ position was that the existence of La Capitale’s right of subrogation was a complete answer to the Defendants, regardless if exercised. Further, the Plaintiffs noted that it did not matter whether the subrogated interest arose from an equitable interest or based in contract.
The Defendants relied on the Supreme Court of Canada case IBM Canada Limited v Waterman,  3 SCR 985. In Waterman, the Court established a new approach to the issue of double recovery, and identified five factors to consider when determining if the private insurance exception applies. The Defendants stated that, relying on this approach, they were entitled to the deduction unless the Plaintiffs established that the disability benefits fall within the private insurance exception. Further, the Defendants submitted that the right of subrogation is not a complete answer to an entitlement for a deduction to damages.
In Cunningham, Cory J., writing for the majority, noted that if benefits do not fall within the private insurance exception, then it must be deducted from the wage claim unless the third party paying the benefits has a right of subrogation. In that case, there is no deduction, whether the right of subrogation is exercised or not. Cory J. wrote that the choice to exercise that right rests between the plaintiff and the third party; failing to exercise the right does not affect the defendant’s liability for damages. However, Cory J. noted that where the third party formally releases the right of subrogation, different considerations apply.
In addition to the case of Waterman, the Defendants rely on the minority decision of McLachlin J. in Cunningham, who was of the opinion that wage benefits paid to a plaintiff should be deducted from damages, except where the right of subrogation is exercised, so as to avoid double recovery. Interestingly, McLachlin J. emphasized that, at the time of Cunningham, subrogation was rarely exercised. According to the Defendants, the Waterman factors, to determine if the private insurance exception applies, stemmed, in part, from the reasonings of McLachlin J. in Cunningham.
The question before this Court, then, was whether the right of subrogation had to be exercised before a defendant is entitled to a deduction of its damages. Madam Justice Sylvia Corthorn found it did not.
Justice Corthorn noted that the Defendants overlooked submissions of Cromwell J. in Waterman, where he stated that there is no double recovery if the third party providing the benefits recovers the amount by subrogation. Cromwell J. states that the defendant pays the damages that they caused and the third party is reimbursed out of those damages. Contrary to McLachlin J.’s reasonings in Cunningham, twenty years prior, Cromwell J. noted that the use of the private insurance exception is rarely used due to the widespread use of subrogation.
Cromwell J. further notes that whether a third party is able to recover benefits depends on several factors, including the terms of the contract, and whether the plaintiff entirely or almost entirely achieves recovery of economic losses. If the third party and the plaintiff cannot agree to the amount that is owed to the third party, that is an issue to be resolved between the plaintiff and the third party, without the involvement of the tortfeasor.
Justice Corthorn further agreed with the Plaintiffs’ position that it did not matter whether the right of subrogation arises from equity or contract, finding that, in accordance with the British Columbia Supreme Court case of Provost v Bolton, 2018 BCSC 1090, the fact that La Capitale made long term disability benefit payments to Mr. Cowley was sufficient to establish an existence of an equitable right of subrogation.
Cowley v Skyjack Inc. confirmed the following:
(a) Where wage benefits are paid and a wage claim is pursued, a right of subrogation is a complete answer to a defendant’s request for a deduction to their damages award.
(b) The right of subrogation does not have to be exercised to be considered a complete answer to a request for a deduction.
(c) A right of subrogation need not only arise out of a contract or policy, but can exist arising out of equity.
On that basis, the potential for double recovery does exist, but given the widespread use of subrogation, rarely occurs.
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