The Ontario Superior Court of Justice has provided important guidance on the application of the Court of Appeal’s decision in Cadieux v. Cloutier to a motor vehicle tort settlement reached before Cadieux was decided.
In The Estate of Ivo Lepan v. Lofranco Chagpar Barristers et al., 2026 ONSC 4855, Justice Patricia J. Moore considered whether a long-term disability settlement received by the plaintiff would have been deductible from damages in an underlying motor vehicle tort action that settled in 2013.
A central issue was whether the “silo approach” to collateral benefit deductions established by the Court of Appeal in Cadieux could be applied when determining the legal consequences of a settlement reached approximately five years before Cadieux was released.
The Court concluded that it could.
The Silo Approach
Section 267.8 of the Insurance Act requires certain collateral benefits to be deducted from damages awarded in motor vehicle cases.
Earlier decisions had applied what Justice Moore described as a strict matching approach when considering deductions for collateral benefits. Under that approach, courts focused more closely on matching particular collateral benefits to particular heads of damages.
In Cadieux, released in 2018, a five-member panel of the Ontario Court of Appeal endorsed what has become known as the “silo approach.” The Court rejected overly technical matching exercises and organized pecuniary damages and collateral benefits into three broad categories: income loss, health care expenses, and other pecuniary loss.
Under that approach, collateral benefits are considered within the corresponding silo rather than through an exact matching exercise.
Does Cadieux Apply to an Earlier Settlement?
The underlying tort action in Lepan settled in July 2013. The plaintiff argued that the law applicable at that time should govern and that the silo approach did not begin until December 4, 2018, when Cadieux was released.
The Court rejected that argument.
Justice Moore distinguished between a substantive change in legislation and a later appellate decision interpreting legislation that was already in force.
The Court found that Cadieux did not amend the legislation. Rather, it authoritatively interpreted the statutory deduction regime. Justice Moore concluded that the Court of Appeal had corrected the interpretation of the law as it already existed.
As she stated:
“Cadieux must therefore be applied retroactively because failure to do so would be an error; the law is the law.”
The plaintiff relied on Rivait v. Monforton and Knapp v. O’Neill in support of the argument that the pre-Cadieux approach should govern the 2013 settlement. Justice Moore reviewed both authorities and concluded that neither supported that proposition.
In Rivait, the passages relied upon reflected the opinion of a plaintiff expert rather than the opinion of the court. Knapp addressed the problem of relying on facts not known at the time of settlement, but did not address which law should apply.
Application to Long-Term Disability Benefits
The Court then considered the nature of the Manulife long-term disability policy.
The policy provided monthly disability benefits to eligible employed persons, and the amount of the benefit was tied to employment income. The LTD claim had settled in 2009 for a lump sum payment of $40,000.
Justice Moore concluded that the policy was plainly an income continuation plan.
The plaintiff argued that the LTD settlement could not be deducted because the release extended beyond disability benefits and did not allocate the settlement among separate heads of recovery.
The Court rejected that argument.
Justice Moore found that the submission reflected the reasoning of the earlier strict matching cases. In light of Cadieux, the better approach was to look at the economic substance of the payment. The Court accepted that LTD benefits were, in substance, income replacement.
The fact that the settlement documentation included broader releases or ancillary claims did not change the essential character of the payment.
The Court therefore concluded that the Manulife settlement proceeds fell within the income-loss silo contemplated by section 267.8.
Justice Moore also rejected the argument that the payment was not made “in respect of the incident.” The LTD claim arose from the alleged disability caused by the motor vehicle accident and was connected to the same income loss that formed part of the tort claim.
The Court ultimately declared that the Manulife LTD settlement would have constituted a deductible collateral benefit in the underlying tort action.
Why This Decision Matters
The most significant aspect of the decision is the Court’s treatment of the timing argument.
The plaintiff’s position was that the 2013 settlement should be assessed under the earlier matching approach because Cadieux had not yet been decided. Justice Moore rejected that argument because Cadieux did not substantively change the legislation. It corrected the interpretation of the existing statutory regime.
On that reasoning, the proper interpretation articulated in Cadieux applied when determining the deductibility of the 2009 LTD settlement in the underlying 2013 tort action.
That is an important distinction in cases involving older accidents, historical settlements, and professional negligence claims where a court is required to determine what legal consequences would have followed at an earlier point in time.
The decision also reinforces the continuing importance of looking at the economic substance of a collateral benefit when applying section 267.8. In the case of LTD benefits, the Court treated the settlement as income replacement and therefore within the income-loss silo.
Practical Takeaway
Parties assessing collateral benefit deductions should be cautious about assuming that the date of a later appellate decision determines whether the principles in that decision can be applied to an earlier settlement.
In Lepan, the Court concluded that Cadieux did not create a new statutory regime. It clarified the correct interpretation of legislation already in force.
As a result, the silo approach was applied in determining the deductibility of the LTD settlement in the underlying 2013 tort action.
At Flaherty McCarthy LLP, we regularly advise insurers and litigants on complex issues arising from motor vehicle claims, including collateral benefit deductions, tort damages, and the interaction between accident benefits, disability benefits, and tort recovery. Our lawyers continue to monitor developments in this area and their implications for both current and historical claims.
