Deductions from Damages: Collateral Benefits

• Author: Jamie Cassels/Elizabeth Adjin-Tettey
• Profession: Professor of Law, Vice President Academic, and Provost, University of Victoria/Professor of Law, University of Victoria
• Pages: 416-451

CHA PTER 13

DEDUCTIONS

FROM DAM AGES:

COLLATER AL BENEFITS

A. INTRODUCTION

1) The Issue Explained

Closely related to the issues of mitigation and “avoided loss” is the sub-

ject of collateral benef‌its. This subject arises whenever a plaintif f’s loss

(as a result of bre ach of contract or tort) is apparently ameliorated by

a payment from a third party (or “collateral source”). The question is

whether that pay ment should be t aken into account in calculati ng the

plaintiff ’s loss, thus reducing the dam ages payable by the defendant.

Collateral benef‌it s problems a rise in many context s in civil litiga-

tion. For example, in wrongful dismissal and personal injury cas es, the

plaintiff may receive employment insurance, welfare, or other a ssist-

ance that cushions the wage loss. In personal injury cases, the plaintiff’s

actual expenses for the cost of care and income los ses may frequently

be paid for by in surance or offset by income or benef‌its in kind from

a var iety of source s. Public healt h-care benef‌its will frequently cover

many of the plaintiff ’s medic al expen ses. Family members and charit-

able inst itutions m ay provide care to the plaintiff free of ch arge. The

plaintiff ’s wage los s may be defrayed, partly or in whole, by disabil-

ity i nsurance, an employer’s wage continuation plan, or a benevolent

fund. In every case, the question is whether the benef‌its received by the

plaintiff cancel the loss suffered.

416

Deductions from Da mages: Collateral Benef‌it s 417

2) Framework for Analysis

The tension over collateral benef‌its is acute. On the one hand, to permit

the plaintiff to claim a loss or ex pense that is not actually incur red (or

which is offset from another source) appears to overcompensate the

plaintiff. For example, a person who is injured but continues to receive

his salary from a disability fund will receive a “windfal l” or “double

compensation” if he is also permitted to claim lost income from the

defendant. On the other hand, to exclude such losse s from the plain-

tiff’s claim gives to the defendant the benef‌it of the program, essentially

“subsidizing” the defendant’s negligence. For those who believe that

tort law should play a deterrent role by charging wrong-doers with the

full costs of their activitie s, such a subsidy under mines the social pur-

pose of the law.

The law regarding collateral benef‌its is always evolving and the

questions raised largely involve policy considerations. The “fundamen-

tal” policy of tort is compensation of the plaintiff, not punishment of

the defendant, and from thi s perspective, a failure to deduct collateral

benef‌its amounts to double compensation or a windfall to the plainti ff.

In Ratych v. Bloomer,1 McLachlin J. stated:

The functional rational [sic] for the award of damages adopted in

the trilogy of Andre ws, Thornton and Ten o underlines the necessity

of using the plai nti ff’s actu al loss as the basis of his or her damages.

The award is justif‌ied, not bec ause it is appropr iate to punish the de-

fendant or enr ich the plaintiff, but because it w ill serve the pur pose

or function of restoring the pl aintiff as nearly as possible to his pre-

accident state or alternatively, where this c annot be done, providing

substitutes for what he lost.

The trilogy follows t he modern trend in the law of damages away

from a punitive approach which emphasizes the w rong the tort feasor

has committed. The link between the moral culpability of the tortfeasor

and his obligation to pay damages to the person he injures is frequently

tenuous in our technolog ical and mechanical e ra. A moment’s inatten-

tion is all t hat i s requi red to trigger astronomical damages. The risks

inherent in such activities as the use of our highways by motorists are

increasingly recognized as a general social burden. In this context, the

max im th at compe nsat ion must be fai r to bot h the pl ainti ff and the de-

fendant seems eminently reasonable … That fair ness is best achieved

by avoiding both undercompen sation and overcompensation.2

1 [1990] 1 S.C.R. 940 [Ratych].

2 Ibid. at 963 [emphasis i n original].

REMEDIES: THE L AW OF DAMAGES418

Thus, an emphasis on “compensation” indicates a general r ule of

deductibility. As McLach lin J. concluded, it is implicit in the compen-

sation principle that the “plaintiff should not recover unless he c an

demonstrate a loss, and then only to the extent of that loss.”3 D ouble

recovery violates this principle. While this may seem to provide a bene-

f‌it to t he defendant, this concern is attenuated by the widespread use

of liability insur ance, since often it will be the t hird-party insurer who

will be bearing the costs and not the defendant per sonally. Also per-

suasive i s the point that McL achlin J. makes concern ing t he problem

with assig ning moral culpability to certain negligent actions commen-

surate w ith their often catastrophic results. With powerful m achines

(and complex science) comes the potential for great harm even when

reasonable care is taken to prevent it.

However, tort law is often stated to have a deterrence function as

well. Under the deterrence theory, tortfeasors should bear the full cost

of t heir wrongdoing. This is said to provide incentives for those en-

gaged in potentia lly harmful or dangerous activities to take into ac-

count the full societal cost s of those activities. On this basis, collateral

benef‌its should not be deducted from damages award s, since deduction

would mean the benef‌it would inure to the defendant who would other-

wise be required to pay the full cost of the wrongdoing. And in addition

to deterrence, many f‌ind it disturbing that the wrongdoer should get

“credit” for pay ments m ade to her v ictim. Thes e notions were articu-

lated by Cory J. in Cunningham v. Wheeler:4 “Tort recovery is ba sed

on some wrongdoing. It makes little sense for a wrongdoer to benef‌it

from the private act of forethought and sacrif‌ice of the plaintiff.”5 Thus,

a plaint iff may end up recovering more than her actu al loss even if a

court disapproves of this outcome.6

On this view, non-deductibility furthers the principles of deter-

rence and avoids the moral dilemma of giving the wrongdoer the bene-

f‌it of payments intended for the plaintiff. It is said th at the existence of

liability insurance signif‌icantly under mines the deterrence rationale of

tort law (since damage awards are paid by insurers, not by wrongdoers);

however, as Calabresi has argued, even with insurance, tort law may

serve a more general deterrence function.7 Tort law causes t he costs of

3 Ibid. at 981.

4 [1994] 1 S.C.R. 359 [Cunn ingha m].

5 Ibid. at 401.

6 See Zacharia s v. Leys (2005), 36 C.C.L.T. (3d) 93 at para. 40 (B.C.C.A.), Southin

J.A.

7 G. Calabresi, The Cost of Acc idents: A Legal and Economic Analysis (New H aven:

Yale University Pre ss, 1970).