Structured Judgments – Section 55 Insurance (Motor Vehicle) Act R.S.B.C. 1996 c.231 (“Section 55”)
Structured judgment or periodic payment legislation in s. 55 of the Insurance (Motor Vehicle) Act R.S.B.C. 1996 c.231 came into effect by regulation on February 1, 1998. This legislation was intended to be modeled on s.116 of the Courts of Justice Act of Ontario.
The legislation reads:
55 (1) The court must order that an award for pecuniary damages in a motor vehicle action be paid periodically, on the terms the court considers just,
(a) if the award for pecuniary damages is, after section 25 has been applied, at least $100 000 and the court considers it to be in the best interests of the plaintiff, or
(b) if (i) the plaintiff requests that an amount be included in the award to compensate for income tax payable on income from investment of the award, and (ii) the court considers that the order, that the award be paid periodically, is not contrary to the best interests of the plaintiff.
(2) Despite subsection (1), the court must not make an order under this section
(a) if one or more of the parties in respect of whom the order would be made satisfies the court that those parties do not have sufficient means to fund the order, or
(b) if the court is satisfied that an order to pay the award periodically would have the effect of preventing the plaintiff or another person from obtaining full recovery for damages arising out of the accident.
(3) If the court does not make an order for periodic payments under this section, it may make an award for damages that includes an amount to offset liability for income tax on income from investment of the award.
Section 55 – Pitfalls & Considerations
Criteria for making the award
According to the statute, periodic payments can be awarded where a pecuniary award is over $100,000 and it is “in the best interests of the plaintiff” to make periodic payments, or the plaintiff requests a tax gross up and it is “not contrary to the best interests of the plaintiff” to grant the award for periodic payments.
An obvious question will be, when is it in the best interests (or not contrary to the best interests) of the plaintiff? Why might it never be?
- A plaintiff can almost always receive part or all of an award in a structured format. This is similar to the periodic payments, but the plaintiff has control of the terms
- When interest rates are low, the present value of a periodic payment plan is decreased. A plaintiff could better utilize the award by not purchasing an periodic payment plan at that time (the purchasing body would benefit from this purchase)
- The statute is not specific about allowing partial payments.
Must the Order for periodic payments be requested?
According to S. 55 “the court must” make an award for periodic payments if the criteria are met. However, in practice the court has never considered the award unless it has been pled by the defendant and requested at trial.
It is clear that only the defendants would ever request Periodic Payments. There is no advantage and no need for the plaintiff to ever request Periodic Payments. If the plaintiff wants a fixed income stream the plaintiff can purchase a structured settlement on terms they choose.
It is only of interest to the defendant’s insurer if they believe they will pay less over time because declining interest rates which will allow them to ultimately pay less.
Production of the Policy of Insurance
According to S.55(2) the order for periodic payments is not to be made where the defendant does not have the means to pay. Because S. 55 puts the defendants means to pay a judgment in issue, does this mean that the limits of the defendant’s policy of insurance and / or the defendant’s assets might be relevant and producible.
Periodic payments as Whole or Part?
The legislation states “an award for pecuniary damages in a motor vehicle action be paid periodically” does this mean that the entire amount must be paid periodically? Who may say or argue how the plaintiff should organize his or her finances.
Does the portion of a periodic payment award that consists of interest attract tax? See Bulletin # IT 365R2
(Bulletin says Order’s for periodic payments are not annuities. Do annuities attract tax?)
Periodic Payments Amounts
How is the amount determined? A damages award should already have considered life expectancy and discount rate in coming to a lump sum amount. Is it a double deduction to then take that lump sum amount value and cost out periodic payments for the future.
Fiction of legal fees
The fact that a plaintiff has a requirement to pay fees may not be considered in deciding upon periodic payments and the ultimate impact of making the award is then born by the plaintiff
Is S. 55 just an Order to purchase an Structured Settlement?
If Section 55 is based on it’s Ontario cousin and is an Order to purchase a Structured Settlement, who must pay the fees for the annuity. In Ontario solutions the solution has been to require the defendant to pay for the fees to place the Structured Settlement.
Judgment for Periodic Payments vs. Structured Settlement.
- A structured settlement is non-assignable. This can hamper the plaintiff’s choices. For example, if the plaintiff wants to buy a house subsequent to the structured judgment award. He or she may have saved the down payment, and the structured settlement’s income stream would pay for the mortgage, however, the bank will probably not discern this as an acceptable income stream.
- Presumably, a Judgment would be completely assignable. Interestingly, that could allow a plaintiff to assign the Judgment and convert it to a lump sum.
Application to vary
- A structured settlement is invariable.
- Presumably, an application to vary the Judgment for periodic payments could be brought in the same fashion that one would apply to the court to vary an Order for custody or support.
Is Section 55 Constitutional?
In Morrison, supra, the constitutionality of s.55 as a statute was raised. Evidence in that case entered by the Attorney General essentially admitted that the statute was enacted to prevent individuals who had received pecuniary judgments over $100,000 from squandering their money. These individuals must have suffered some impacts to their ability to earn income or require some significant care. These individuals are likely to be people with some disability. This statute is directed solely at this particular category of persons, as if to imply that these individuals alone require protection from themselves.