Deborah Shank, a Wal-Mart employee, was hit by a semi-trailer in Jackson, Montana. She suffered a catastrophic brain injury and requires lifelong 24-hour care. The story and outrage began when Wal-Mart’s disability insurer claimed much of the settlement proceeds. In the United States, auto insurance coverage is often minimal; the semi-trailer had only $1,000,000 insurance coverage. The disability insurer paid more for her past medical care than she had set aside in a special trust to provide for part of her ongoing care. Due to the public relations disaster which followed, Wal-Mart withdrew their claim for Ms. Shank’s trust (Google “Wal-Mart Shank” to read the story). While this story occurred in the USA, which has private medical care and low insurance limits, Canada’s principles are similar and comparable situations occur here.
Why Did This Happen?
The Shank tragedy arises from a legal principle called “subrogation”. Subrogation allows one party to legally step into another party’s shoes so as to have the benefit of their rights and remedies. For example, Joe works at the Big Box Factory folding boxes for $1,000 a week. Joe is injured in a car accident and off work for ten weeks. The Big Box Factory benefits policy states Joe will continue to receive his wages. Joe is paid $10,000 under the company’s disability policy and then returns to work. If Joe brings a claim for his injuries and losses arising from the car accident, his lawyer will claim for all of the losses arising from the collision including the $10,000 of lost wages.
But wait, Joe has already received that money. If paid again, he would receive double compensation for lost earnings. The Big Box Factory is actually out of pocket because they paid Joe’s wages and hired Jane to fold boxes for ten weeks. Therefore, the employer is fairly entitled to this portion of Joe’s settlement. This is a logical and simple example; real life situations are more complex.
Subrogation in Canada
In Canada, subrogation arises through the “common law”, by statute or by contract. Under the common law, the Big Box Factory develops a right to the wage loss Joe received from the third party, if certain conditions are met. The leading decision from the BC Court of Appeal, called Confederation Life v. Causton (1989) sets out the principles governing common law subrogation. One important component is that the person who is injured must recover fully for their losses before a subrogated interest can arise. In the example above, if the responsibility for the car accident was divided and Joe did not receive full compensation, he would not have to repay his employer. He wasn’t fully compensated, so they can’t be either. The common law only applies if there are no governing contracts or statutes.
Canadian disability benefits providers (i.e. Sun Life or Blue Cross) provide benefits pursuant to a contract or agreement, either with the company or directly with an individual. Through the terms of the contract, a disability insurer can limit coverage in any way that is agreed to. Not surprisingly, there is usually ‘fine print’ (i.e. they only pay for a limited number of physiotherapy sessions). As it relates to subrogation, the company can make specific rules, and usually do. The specific provisions vary, but a common term is that the injured person must pay back the disability insurer to the same extent that they succeed in their own claim. In other words, if the injured individual recovers only 50% of what they lost then the insurance company equally receives 50% of their own expenses. For example, the disability provider spends $1,000 for physiotherapy, that money is claimed, but the claim is only 50% successful, so they get their portion and the injured person receives their own portion. Lawyers consider that, in essence, to be a flow through.
Some disability contracts stipulate that the insurer’s expenses are to be repaid first. If there is nothing left for the individual, so be it. This can happen when a disability provider asks for a “reimbursement agreement” to be signed after an injury. These reimbursement agreements usually stipulate that the money paid to an injured person is a loan and thus must be repaid fully before the injured individual receives anything. Injured people who are asked to sign a “reimbursement agreement “should be very cautious. The disability policy may not require the injured person to sign a reimbursement agreement. However, if a disabled employee does sign, they may give up more than they bargained for in the first place.
Ms. Shank’s situation would not have occurred under Canadian common law. However, something similar could have happened in Canada depending on what was written in the contract under which she received benefits. It appears that the type of contract she had with Wal‑Mart’s insurer allowed them to be repaid first.
Differences and Similarities to the United States
With universal health care, Canadians are not presently required to repay the government for health care expenses. In the USA, this is often mandatory when a third party is responsible for the provision of health care. Of note, there is proposed BC legislation, (Bill 22 Health Care Costs Recovery Act), which would allow the government to make out of province insurers pay for health care expenses when their insured (clients) cause damage to others. ICBC is exempt in the proposed legislation.
In practice private, disability insurers on both sides of the border are often willing to compromise their subrogated claims. This is because subrogation allows the insurer to step into the injured persons shoes with regard to their own expenses. If they demand too much, the injured person may abandon the claim, which might end the insurer’s right to anything. As well, because disability policies apply regardless of how the incident occurred, while claims for negligence only relate to specific acts and the consequences that flow from those specific acts, it is difficult to discern which portion can be recovered and, as such, they sometimes take a flexible approach.
The case of Joe and his ten weeks off from the Big Box Company is a simple one. In reality, things are usually more complex. For example, a woman receives a small bump to the head in a collision, but is clearly disabled. If the disability policy requires total disability before payments are due under the policy, the woman must prove she is completely disabled before the insurer must pay benefits. This doesn’t mean that the entire disability must arise from the collision. Perhaps she had an active debilitating condition and this just pushed her over the edge, or not. The complexity arises because a legal claim and a disability benefits claim each have different requirements before payments must be made.
Exceptions and Exemptions
The above is premised on a disability policy provided gratuitously by an employer. There are times when subrogation does not occur despite the apparent provision of duplicate benefits. The leading Supreme Court Case is called Cunningham v. Wheeler . It provides an exemption for privately arranged benefits on the basis that the wrongdoer should not benefit from an individual’s private act involving forethought and sacrifice. For example; a father with young children purchases a life insurance policy to provide for his family. It pays benefits no matter how he dies, i.e. whether from cancer or if he is killed in a motor vehicle collision. If killed in a motor vehicle collision, his estate may be entitled to bring a claim against the individuals who wrongfully caused his death. If the legal action is successful, there is no deduction of the benefits his family receives under the insurance policy despite apparent “double compensation”. The courts have determined that it would be unfair to deny the family the benefits the father purchased for them through financial sacrifice and planning. Also, it would unfairly benefit the wrongdoer who caused his death. The same rule may apply if an employee makes there own direct or indirect contribution to the purchase of a disability policy.
The Shank case highlights two important principles. 1) Companies, in the United States at least, are becoming more organized and diligent in collecting subrogated benefits when something or someone causes harm to one of their employees to their financial detriment. 2) It demonstrates the benefits of advocacy because the bad press for Wal-Mart was not worth the money they may have been able to recover from Ms.Shank pursuant to their subrogation rights.
The moral is that what works on Wal-Mart may work elsewhere. Subrogation issues are complex. Seek legal advice should you have any questions about whether you may have to repay insurance benefits following an accident.