V o l u m e I I C h a p t e r 5. Sections 10 and 11: Limitation of Actions, Elections, Subrogations and Certification to Court

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1 V o l u m e I I C h a p t e r 5 Sections 10 and 11: Limitation of Actions, Elections, Subrogations and Certification to Court

2 Contents Limitation of Actions Against Workers... 5 Exception to Limitation of Actions Relating to Use or Operation of Motor Vehicles... 7 Three Month Time for Electing to Claim Compensation Under the Act or Bring an Action... 9 Section 10(6) and 10(11): Costs and Administration Charges on Subrogated Actions Apportionment of Damages Certification to Court F I N A L R E P O R T 3

3 R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a, F i n a l R e p o r t V O L U M E I I [Chapter 5] Sections 10 and 11: Limitation of Actions, Elections, Subrogations and Certification to Court Limitation of Actions Against Workers Section 10(1) of the Act states: 10(1) The provisions of this Part are in lieu of any right and rights of action, statutory or otherwise, founded on a breach of duty of care or any other cause of action, whether that duty or cause of action is imposed by or arises by reason of law or contract, express or implied, to which a worker, dependant or member of the family of the worker, is or may be entitled against the employer of the worker, or against any employer within the scope of this Part, or against any worker, in respect of any personal injury, disablement or death arising out of and in the course of employment and no action in respect of it lies. This provision applies only when the action or conduct of the employer, the employer s servant or agent, or the worker, which caused the breach of duty arose out of and in the course of employment within the scope of this Part. [Emphasis added] Limiting actions by workers and the dependants of deceased workers against employers is one of the founding principles of workers compensation in British Columbia and elsewhere. In contrast, the limitation of actions by workers and dependants against other workers was added to the legislation in Known as the worker-worker bar, the issue arose during the proceedings of the Commission of Inquiry, Workmen s Compensation Act ( ) headed by Mr. Justice Tysoe. The main advocate for the worker-worker bar was the All Canada Insurance Federation; no opinion on the issue was expressed by workers and those representing employers were divided on the issue. 5

4 VOLUME II: CHAPTER 5 S E C T I O N S 1 0 A N D 1 1 The Tysoe commission recommended against such a bar, citing two reasons: The historic compromise was designed to protect employers from legal action in exchange for which employers collectively fund no-fault benefits; as workers do not fund the system they should not receive a similar immunity. In pursuing subrogated actions against other workers, the board s general practice at the time was to pursue actions only against workers insured against such liability. According to that commission: only in exceptional and rare cases does the Board proceed against a negligent workman under its subrogation rights unless that workman is protected by insurance against his legal liability.i have not heard any evidence that anyone, other than the insurance company feels wronged or offended by this. Notwithstanding the commission s recommendation to the contrary, the Act was amended to introduce the worker-worker bar in With the greatest respect to the work of Mr. Justice Tysoe, this commission supports that amendment and believes that the worker-worker bar should be preserved. To begin with, it is not correct to state that workers have not funded the provincial compensation system in the past; from its inception until 1946, covered workers contributed to the Medical Aid Fund, a component of the provincial system. In addition, current economic theory generally suggests that all costs associated with workplace injuries are not borne exclusively by employers and that indirect costshifting from employers to workers in the form of reduced wages or benefits is a common practice. If the effect of that is to shift at least part of the funding of the no-fault system onto workers, it is reasonable that workers should also acquire the benefit of immunity from legal action which was obtained by employers at the system s inception. 6 R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a

5 Exception to Limitation of Actions Relating to Use or Operation of Motor Vehicles EXCEPTION TO LIMITATION OF ACTIONS RELATING TO USE OR OPERATION OF MOTOR VEHICLES Under the Act, no distinction is made between the consequences of motor vehicle accidents and other types of work-related injuries. Where a worker is injured or killed in a motor vehicle accident, the worker, or his or her dependants, is only barred from bringing legal action where the other party to the injury is either a worker or employer in the scope of Part 1 of the Workers Compensation Act and where both parties were acting in the course of their employment when the injury occurred. (The commission has no data on the frequency with which such circumstances arise or the number of parties apt to be affected by the current scope of the Section 10(1) bar.) Representatives on behalf of both labour and injured workers advocated introducing such a distinction, largely on the basis that motor vehicle insurance is compulsory and universal in British Columbia. These representatives suggested that the Section 10(1) bar harms workers and dependants in the case of motor vehicle accidents, barring them from seeking greater recovery through legal action than they can obtain through workers compensation benefits. They also suggested that this bar only benefits the Insurance Corporation of British Columbia, which would be liable to pay any damages awarded by the courts. One position advanced on behalf of workers suggested that the bar should be lifted only to the extent of permitting an election to bring legal actions arising from motor vehicle accidents involving the workers of separate employers. The bar against suing the worker s own employer or co-workers should be preserved. Employer interests generally opposed amending Section 10 on the basis that the mere presence of an insurer is not sufficient to warrant an exception to the statutory bar. Tysoe noted that removing the bar would involve employers in legal actions from which they had gained immunity in agreeing to the historic compromise. An exception for motor vehicle accidents has been adopted in some (not most) other Canadian jurisdictions. Where an exception has been made, it is generally limited in its scope. For example, the Manitoba Workers Compensation Act only allows suits against persons other than the worker s own employer or co-workers. The contention that only ICBC will be affected by modifying the statutory bar is likely to be true in the majority of cases, but not in all circumstances. Certain types of policy breaches entitle ICBC to recover damages paid to injured parties. Thus, for example, ICBC might pay damages to a plaintiff and then seek recovery from an insured worker or employer who had breached his or her policy by F I N A L R E P O R T 7

6 VOLUME II: CHAPTER 5 S E C T I O N S 1 0 A N D 1 1 misrepresenting the use to which the vehicle at issue would be put. The worker or employer sued, if the bar were lifted, might in effect have no protection from liability despite the mandatory provision for coverage in British Columbia. There is also the potential in the case of very serious injury or death for damages to far exceed an insured worker s or employer s policy limits. In any such circumstances, the worker or employer s own funds would be put at risk by virtue of the proposed exception to the statutory bar. That would be contrary to the fundamental scheme of the Act. As such, the commission believes that the workerworker bar, once adopted, should be applied in a manner consistent with that scheme. 8 R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a

7 Three Month Time for Electing to Claim Compensation Under the Act or Bring an Action THREE MONTH TIME FOR ELECTING TO CLAIM COMPENSATION UNDER THE ACT OR BRING AN ACTION Section 10(2) of the Act states: Where the cause of the injury, disablement or death of a worker is such that an action lies against some person, other than an employer or worker within the scope of this Part, the worker or dependant may claim compensation or may bring an action. If the worker or dependant elects to claim compensation, he or she must do so within 3 months of the occurrence of the injury or any longer period that the board allows. [Emphasis added.] Submissions were made to the commission suggesting that the timeframe for electing between claiming compensation and bringing an action should be more consistent with Section 55(2) which provides that, in the absence of special circumstances, applications for compensation must be made within one year. The time frame for making elections and the need for such discretion was addressed in the 1966 royal commission report: Subsection (1) of section 11 provides that, in the cases mentioned therein, a workman s election to claim compensation must be made within three months after the happening of the accident or, in case it results in death, within three months after the death. The Board drew my attention to the fact that whereas it has power to extend the time for election in the circumstances outlined in section 10, it is not given that power in the circumstances outlined in section 11. I can think of no good reason why this should be so. The Board has expressed its approval of the amendment of subsection (1) of section 11 by adding the following words at the end thereof: or within such longer period as either before or after the expiration of such three months the Board may allow. I RECOMMEND that such amendment be made. The discretion to extend the three-month period was added to the legislation in 1968, and is liberally exercised by the board. The commission heard from board representatives and other interested parties that the three month period (found in several jurisdictions other than British Columbia) is rarely, if ever, enforced against those workers or dependants who fail to make an election within the prescribed three months or who wish to change their minds after that period has elapsed. It appears that the primary aim behind the provision is to help ensure that decisions about whether to pursue litigation are made as early as possible. Workers and dependants who may be contemplating litigation as an alternative to claiming F I N A L R E P O R T 9

8 VOLUME II: CHAPTER 5 S E C T I O N S 1 0 A N D 1 1 compensation are thereby encouraged to seek legal and other advice on a timely basis. This makes it more likely that steps such as investigation into the circumstances of an injury and collecting witness statements will occur while witnesses recollections and other forms of evidence are relatively fresh. Such early preparation will generally benefit workers and dependants who elect to pursue litigation. It will also benefit the system overall where workers or dependants elect to claim compensation and the board ends up pursuing a subrogated action pursuant to Section 10(6). The commission is of the view that the current provision, coupled with the board s practice of using its discretion to grant liberal extensions, strikes an appropriate balance. Workers and dependants are encouraged by the three month time frame to make decisions as soon as possible so that preparation for legal action will not be unnecessarily hampered. At the same time, there is no indication that workers and dependants are being unduly prejudiced by the three month period in light of the board s liberal exercise of its discretion to allow a longer period. The commission sees no reason to alter the situation. 10 R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a

9 Section 10(6) and 10(11): Costs and Administration Charges on Subrogated Actions SECTION 10(6) AND 10(11): COSTS AND ADMINISTRATION CHARGES ON SUBROGATED ACTIONS Section 10(6) of the Act states: If the worker or dependant applies to the board claiming compensation under this Part, neither the making of the application nor the payment of compensation under it restricts or impairs any right of action against the party liable, but as to every such claim the board is subrogated to the rights of the worker or dependant and may maintain an action in the name of the worker or dependant or in the name of the board; and if more is recovered and collected than the amount of the compensation to which the worker or dependant would be entitled under this Part, the amount of the excess, less costs and administration charges, must be paid to the worker or dependant. The board has exclusive jurisdiction to determine whether to maintain an action or compromise the right of action, and its decision is final and conclusive. Section 10(11) of the Act states: Costs may, notwithstanding that a salaried employee of the board acts as its solicitor or counsel, be awarded to and collected by the board in an action taken by the board under this section. Where a worker or dependant has the right to bring an action against some person other than a worker or employer covered under the Act but elects (Section 10(2)) to claim compensation, the board has the right to bring an action against that person. If the board pursues such an action and recovers more than the amount of compensation paid to the worker or dependant, the board pays the excess recovered to the worker or dependant, after deducting an amount for costs and administration fees. Section 10(6) does not specify how administration charges are to be calculated; this is a matter of policy in British Columbia. The commission was advised that the present practice of the board is: first, to deduct from any excess recovery both costs paid and reserved by the board for the claimant (i.e., the claims costs ), and then to deduct a further 29% administration surcharge. The 29% fee is charged only against the claims costs and not the full amount recovered. It appears to take account of both legal costs and other aspects of administrative overhead. F I N A L R E P O R T 11

10 VOLUME II: CHAPTER 5 S E C T I O N S 1 0 A N D 1 1 The surcharge is based on the board s total administration costs divided by the cost of claims paid and pensions awarded in the year, and not on the costs of any specific claim. For example, in 1996 administration costs were calculated on the basis that claim costs were approximately $562 million and administration costs were $180 million. Submissions to the commission suggest that the 29% figure is too high an administration fee and that it results in greater deductions than those found in other Canadian jurisdictions. These submissions point out that actual administration costs vary, sometimes tremendously from case to case, and suggest that the administration fee should bear a closer connection with the board s actual costs of pursuing subrogated actions. The commission has three main concerns relating to the deduction of administration fees. First, the board should not be out of pocket as a result of pursuing subrogated claims. Such litigation benefits all participants in the system by shifting some of the costs off the system and onto third party defendants, and is also to the advantage of individual claimants who stand to benefit from recovery in excess of the claims costs through litigation. As such, it is appropriate that the worker bear some of the costs. Therefore, the commission considers it appropriate that there be some deduction from amounts recovered through subrogated actions to take account of the board s costs of pursuing such actions. Second, workers and dependants should not be treated differently depending upon whether they have the option of suing a third party rather than claiming under the Act. In general, workers and dependants who receive compensation under the Act are not called upon to pay for a portion of the board s overhead in administering their claims. Yet that is precisely what happens when an administration fee is applied to the claims costs portion of a sum recovered by the board through a subrogated action. In the commission s view, if an administration fee is to be deducted from only a portion of amounts recovered, it would make more sense to apply that fee to the excess rather than the claims costs. At the same time, the commission recognizes that it is difficult to separate the costs involved in recovery of the claim cost from recovery of the excess; they are intertwined. Third, to the extent that this can be reconciled with the above concerns, there should be some incentive for the board to pursue a subrogated claim for the benefit of a worker or dependant. The commission is concerned with the potential for an actual or perceived conflict of interest arising from the board s authority under Section 10(6) to decide whether to settle an action which the board has undertaken pursuant to its subrogation rights. The commission agrees that it is necessary that the board have such authority. However, as often arises in the insurance law context, there may be a perception that the party instructing counsel is primarily or 12 R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a

11 SECTION 10(6) AND 10(11): COSTS AND ADMINISTRATION CHARGES ON SUBROGATED ACTIONS exclusively interested in recovering the funds which it is obliged to pay out, and has no incentive to pursue additional recovery for the benefit of those entitled to the excess. Under the present approach, if the board has an opportunity to settle for its claim costs and the 29% administration fee on the claims costs, it has no financial incentive to pursue any further recovery. In fact, it stands to risk a good deal without prospect of corresponding gain by declining such a settlement. If anything, the current approach creates a financial disincentive for the board to pursue meritorious claims for the benefit of workers. The commission agrees with the submissions pointing out that the current 29% fee bears no relationship to the board s costs of pursuing subrogated actions. A survey of approaches taken to deduction of administration fees in other Canadian jurisdictions was undertaken at the commission s request. This showed little consistency among policies adopted elsewhere. Submissions suggesting that the 29% fee greatly exceeds administration fees applied in other provinces were not entirely borne out by the survey of other jurisdictions. While it is true that many jurisdictions apply a lower percentage, many of these apply that percentage to the entire amount recovered rather than the claims costs. For example, Ontario and New Brunswick reported charging a 10% administration fee on the total recovery. Alberta charges 15% of the full recovery, while Newfoundland and Labrador charges 12.5% of the claims costs, plus 10% of the excess recovered. Saskatchewan and Quebec do not pay excess recovery to workers, so the issue of a deduction does not arise. Nova Scotia appears to be the only other jurisdiction which charges the administration fee against the claims costs only. It does so at a rate of 10%. While this is substantially lower than the rate applied in British Columbia, it is also lower than those other jurisdictions which charge 10% or more against the entire amount recovered. Like British Columbia, all jurisdictions which retain outside counsel to handle some of the subrogated actions reported deducting the actual costs of employing such counsel from the amounts recovered, in much the same way actual claims costs are deducted. In addition, both British Columbia and other Canadian jurisdictions deduct disbursements incurred by both outside and in-house counsel, such as filing fees, reporters attendance at examinations for discovery, etc. The administration fees charged in other jurisdictions, as in British Columbia, include the costs of legal services provided by in-house legal counsel. F I N A L R E P O R T 13

12 VOLUME II: CHAPTER 5 S E C T I O N S 1 0 A N D 1 1 The commission concluded that applying an administration fee to the excess recovered, rather than to the claims costs or the entire amount recovered, would meet at least two of the three concerns outlined above. It would treat all workers and dependants the same in that none would be expected to contribute to the costs of administering claims. It would also create an incentive for the board to pursue additional recovery for workers and dependants, because the board s recovery would increase in proportion to the excess recovered. However, the commission is concerned that this approach might not meet the remaining concern that the board be reimbursed for all costs associated with pursuing subrogated actions. An alternative approach might be to deduct a percentage which is comparable to contingency fees which would be charged by private counsel in most personal injury actions. That would provide an incentive to the board to pursue litigation in that the board s recovery would increase in direct proportion to the amount recovered. However, if such a figure is applied to the full recovery, this would mean that some workers are being made to contribute to claims administration costs, as under the present approach. If it were applied only to the excess, there is a greater risk that the board would not be fully compensated for its actual costs. There is insufficient information regarding the board s actual costs of pursuing subrogated actions available to the commission to enable the commission to make final recommendations regarding the appropriate figure to be applied as an administration fee or the portion(s) of recovery against which that figure should be applied In light of the above concerns, the commission recommends that the board make a reasonable approximation of its costs associated with pursuing subrogated claims, and that the administration fee be based on that figure rather than the board s overall administration costs. Such an approximation might be made, for example, by estimating the total costs associated with the board s legal department, ascertaining roughly how much of the legal department s time is spent on subrogated actions, and apportioning accordingly. Once the rough costs have been ascertained, policy can be varied to take account of the three concerns outlined by the commission, to the extent that these can be reconciled with one another. Therefore, the commission recommends that: 197. the fee that the Workers Compensation Board charges for pursuing subrogated claims be more equitable to the board and to the injured worker and not be based on the board s overall administration costs. 14 R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a

13 APPORTIONMENT OF DAMAGES Apportionment of Damages Section 10(7) of the Act states: If, in an action brought by a worker or dependant of a worker or by the board, it is found that the injury, disablement or death, as the case may be, was due partly to a breach of duty of care of one or more employers or workers under this Part, no damages, contributions or indemnity are recoverable for the portion of the loss or damage caused by the negligence of that employer or worker; but the portion of the loss or damage caused by that negligence must be determined although the employer or worker is not a party to the action. This provision allows for an apportionment of blame among defendants who are before the court as well as those against whom an action is barred by Section 10(1). This is consistent with the current statutory and common law requiring a court to apportion blame, allowing the court to do so regarding both parties and non-parties, and precluding any financial liability on the part of those against whom an action is barred by Section 10(1). F I N A L R E P O R T 15

14 VOLUME II: CHAPTER 5 S E C T I O N S 1 0 A N D 1 1 Certification to Court Section 11 of the Act states: Where an action based on a disability caused by occupational disease, personal injury or death is brought, the board must, on request by the court or by any party to the action, determine any matter that is relevant to the action and within its competence under this Act and, without limiting the generality of the foregoing, may determine whether (a) a person was, at the time the cause of action arose, a worker within the meaning of this Part; (b) injury, disability or death of a worker arose out of, and in the course of, the worker s employment; (c ) an employer or the employer s servant or agent was, at the time the cause of action arose, employed by another employer; and (d) an employer was, at the time the cause of action arose, engaged in an industry within the meaning of this Part, and must certify its determination to the court. Section 11 provides a mechanism whereby the board certifies to a court its findings on any or all matters which would be relevant to determining whether an action is barred by the operation of Section 10(1). It is then up to the court to rule on the question of whether the action is statute-barred. Pursuant to the privative clause in Section 96(1), Section 11 determinations are not appealable to the courts. Recent judicial decisions (i.e., Kovach v. British Columbia Workers Compensation Board) have confirmed that matters itemized under Section 11 are at the heart of the board s special expertise, and that the board has exclusive jurisdiction to make such determinations. No submissions were received by the commission advocating changes to the procedure created by Section 11. Many of the matters determined under Section 11 are also relevant to a worker or dependant s entitlement to compensation under the Act, and the commission considers it appropriate that a specialized tribunal with expertise and familiarity regarding all aspects of the workers compensation scheme have the exclusive jurisdiction to make such determinations. At the same time, the commission considers that the certification process contemplated by Section 11 creates a useful formal process for ensuring that findings necessary to determine the application of Section 10(1) can be made and placed before the court in a timely manner. The commission recommends no changes to the certification process as set out in Section R o y a l C o m m i s s i o n o n W o r k e r s C o m p e n s a t i o n i n B r i t i s h C o l u m b i a