How Insurers Deduct Thousands from Accident Victims’ Compensation

Insurers save thousands thanks to the threshold, deductible and damages limits

Imagine for a moment that you are suddenly injured in a car accident for which you are not at fault and are now stuck with its consequences, which most often include pain, suffering, loss of enjoyment of life, and impairments which impact your ability to earn a living.

Out of a common sense of fairness, one would expect our legal system to adequately compensate accident victims for the pain and suffering which they must endure.

However, few people are aware that under Canadian law, there is a cap on damages which a court can award for pain, suffering and loss of enjoyment of life. This cap was set by the Supreme Court of Canada back in 1978 in a trilogy case in Arnold v. Teno involving three individuals who all became quadriplegic as a result of a car accidents for which they were not at fault. The victims were aged 4, 15, and 21 at the time of their injuries. The Supreme Court awarded a one-time payment of $100,000 to each party to compensate for a lifetime of pain and suffering. In doing so, the court highlighted the importance of a limit on pain and suffering awards as a matter of public policy.

Most people are shocked when they learn of this cap – and justifiably so, as it is unconscionably low and does not nearly represent the actual pain and suffering that these individuals had to endure as a result of such catastrophic injuries.

Unfortunately however, the cap remains the law of the land in Canada today. The only saving grace is that the $100,000 award limit has been allowed to increase based on inflation and is currently valued at just over $360,000.

Ontario’s Statutory Deductible

To add insult to injury to car accident victims in Ontario, as of August 2015, the automatic statutory deductible was indexed to inflation (automatic $37,000 statutory deductible) on any pain and suffering award which does not exceed $124,000. Practically speaking, this means that such an award is automatically reduced by $37,000 by a stroke of the pen. This constitutes a direct saving to the insurance company who is defending the at-fault driver and is responsible for paying any settlement or judgment awarded to the injured party.

By way of example, let’s imagine you’re a mechanic: if your arm is broken as a result of a car accident, you may require surgery to repair your injury and six months’ worth of physiotherapy thereafter. Since you work in a physical environment, your employment may be negatively affected as well. Most would agree that this constitutes a serious injury. At trial, let us assume that you are able to convince the jury that your pain and suffering amounts to $60,000. Once the statutory deductible is applied, your award is now only worth $23,000! Most would agree that there seems to be an inherent unfairness to the way this works – and they would not be wrong.

Given the maximum amount awarded by the Supreme Court of Canada for pain and suffering, the reality is that most car accident injuries in Ontario, as serious as they may be, will be assessed below $124,000. This means that the insurance industry is saving a significant amount of money on the vast majority of car accident cases that occur throughout the province, all at the expense of injured victims.

The Threshold for Serious and Permanent Injury

To make matters even worse for car accident victims in Ontario, their injuries must also meet a threshold of being “serious and permanent” in order to successfully recover monies for pain and suffering. To meet this test, claimants are normally required to obtain extensive and often very expensive expert medical evidence, all at their own risk and expense.

To illustrate the implications of the threshold, if we use the above noted example, we know that the $60,000 pain and suffering award given to the mechanic is reduced to $23,000 by virtue of the statutory deductible. Following the jury verdict, the judge presiding over the trial will need to determine whether the injured party’s injuries meet the threshold definition of being permanent and serious. If the judge finds that the injuries do not meet the threshold, then the pain and suffering award is reduced to zero. Nothing!

Therefore, before one heeds to the rhetoric that is often heard and read about car accident victims and their lawyers being greedy and abusing the system, it is important to first have a reality check and to examine what the law really is in Canada and Ontario and how little it actually awards to injured people in the first place. Once such an examination occurs, it will become patently obvious to the reader where the true unfairness lies.

Knowing what you now know, in order to protect yourself and your family from potential financial hardship as a result of a car accident, we encourage you to contact your local insurance broker for information about purchasing increased accident benefits on your automobile policy.

John Michael Bray
Written by

John Michael is a director of the Ontario Trial Lawyer Association and a lawyer in Sudbury, Ontario where he practices in the area of personal injury law.

John Michael is at home in Northern Ontario. He has a love for the outdoors, including fishing and hunting. He is also participates in many team sports and enjoys food, culture, fine dining and travelling.