RCMP “Voluntary” Wage Loss Payments Deducted from Member’s Tort Award
Reasons for judgment were published this week by the BC Court of Appeal addressing the common law principles of subrogation and double recovery in a BC tort claim.
In the recent case (Provost v. Dueck) the Plaintiff RCMP officer was involved in a crash and sued for damages. At trial he was awarded various damages including $27,500 for past income loss for the months his injuries disabled him from work. During this time of disability, however, the RCMP continued to pay his full wages. Payments for other various benefits were made as well. These payments “were not made pursuant to a collective agreement or any other contractual arrangement. Rather, they were made pursuant to the longstanding “practice or policy” of the RCMP to continue to pay the full wage benefits of injured officers during their convalescence“.
The BC Court of Appeal held that in these circumstances the RCMP enjoyed no true rights of subrogation and that the awards should not have been made in tort as they would constitute double recovery. In ordering a deduction of these damages from the Plaintiff’s award the BC Court of Appeal provided the following reasons:
 The rule against double recovery provides that successful plaintiffs in tort claims are entitled to full compensation for their losses, but no more: Ratych at 962. There are exceptions to this rule for payments from third parties that are “charitable gifts” or in the nature of private insurance: Waterman at paras. 39–41.
 When a plaintiff obtains an indemnity from a third party that falls outside of these two exceptions, double recovery may be avoided in two ways: by deducting the benefit from damages or through readjustment of the loss, most commonly through subrogation: Ratych at 978.
 Subrogation is a doctrine that overcomes the lack of privity between an innocent third party who has paid compensation to the victim of a tort and the tortfeasor. It was described by this Court in Riley v. Ritsco, 2018 BCCA 366 [Riley] as follows:
 … Subrogation … allows an innocent third party who pays compensation to a victim, to stand in the shoes of the victim in recovering from the wrongdoer the amounts paid. The doctrine can operate in various ways. Depending on the contractual language and on statutory provisions, an insurer who has a right to a subrogated claim may be entitled to sue a tortfeasor directly, or may have a right to have the victim sue and hold proceeds for the insurer’s benefit. In no case, however, will a right of subrogation, without further contractual rights, entitle an insurer to recover more from the victim than the victim is able to recover from the tortfeasor.
 Subrogation shifts the financial burden of compensating the victim of a tort from the third-party to the tortfeasor without influencing the plaintiff’s overall entitlement: Somersall v. Friedman, 2002 SCC 59 at para. 50 [Somersall].
 The principal controversy between the parties is whether a right to subrogation can arise in the absence of a payment under a contract of indemnity. The parties agree that no such contract existed in this case…
 I would accept the appellants’ submission that “contractual” and “equitable” subrogation, as the parties characterize them, are not distinguished by the presence or absence of a contract, but rather by the presence or absence of a contractual term delineating the subrogation rights of the payor. At common law, an insurer acquires a subrogation right “as an incident” to a contract of indemnity: Glynn v. Scottish Union & National Insurance Co. Ltd.,  2 O.R. 705 (C.A.) at 717; Barbara Billingsley, General Principles of Canadian Insurance Law, 2nd ed. (Markham, ON: LexisNexis Canada, 2014) at p. 346, citing British Columbia Life and Casualty Co. v. Meek,  B.C.J. No. 980 at para. 12 (S.C.), aff’d 2000 BCCA 215. Unless modified by the parties, the nature and exercise of the subrogation right follows common law principles: Craig Brown and Thomas Donnelly, Insurance Law in Canada (Toronto: Thomson Reuters, 2019) at 13.2.
 Accordingly, parties may agree, in a contract, to structure the subrogation right differently, for instance to trigger the right before the insurer fully indemnifies the insured: Somersall at para. 53. But parties cannot avoid the requirement to have an underlying contract of indemnity. In my view, this follows from the reference at para. 46 in Falls Creek to the passage from Ryan v. McGregor,  1 D.L.R. 476 (Ont. C.A.), where the Court explained that “[a]n insurance company, having paid in pursuance of the contract of indemnity, is always subrogated to the right of action against the wrongdoer” (emphasis added): at 482.
 Nor, in my view, does the proposition that a right of subrogation may exist “in situations where the insurer was not legally obligated to pay its insured” assist the respondents. As the passage from Wellington Insurance at 194 demonstrates, this statement addresses situations where a payment was “honestly intended to be in satisfaction of a loss under [a] policy”, but which turns out in hindsight to have not been required. It refers to circumstances where there is some uncertainty as to whether a given payment falls under a contract of indemnity, not to circumstances where no such contract exists.
 This reading of Falls Creek is further supported by the fact that the subrogation right discussed by Justice Mackenzie in that case derived from a contractual indemnity obligation. There was thus neither the need, nor in my view, the intent, to expand the doctrine of subrogation to other circumstances as the respondents submitted to the judge.
 Respectfully, then, to the extent that decisions such as Tomas and Rix have found a common law right of subrogation to exist in the absence of a contract of indemnity, they were wrongly decided.
 The AG Canada cites two other cases—Ledingham v. Ontario (Hospital Services Commission),  1 S.C.R. 332 and Banque Financiere De La Cite v. Parc (Battersea) Ltd. and Others,  UKHL 7,  1 All E.R. 737—for the proposition that equitable subrogation does not require a contract of indemnity.
 The AG Canada points to a passage in Ledingham where the Court cited Chancellor Boyd’s statement in National Fire Insurance Co. v. McLaren (1886), 12 O.R. 682 (Ont. Ch.) that the “doctrine of subrogation is a creature of equity not founded on contracts, but arising out of the relations of the parties”. Chancellor Boyd’s next sentence, however, made clear that he was referring to “cases of insurance where a third party is liable to make good the loss…”, not cases where no such obligation exists. Furthermore, the Court in Ledingham was interpreting the meaning of “subrogation” as it appeared in The Hospital Services Commission Act, R.S.O. 1970, c. 209 and its regulations. In my view, it was not pronouncing on the issue before us.
 Banque Financière was not an insurance case, but rather dealt with subrogation in the context of a debt claim. In his reasons, Lord Hoffman drew a distinction between subrogation as a “contractual arrangement” and as an “equitable remedy to reverse or prevent unjust enrichment” stating:
Subrogation … is a contractual arrangement for the transfer of rights against third parties and is founded upon the common intention of the parties. But the term is also used to describe an equitable remedy to reverse or prevent unjust enrichment which is not based upon any agreement or common intention of the party enriched and the party deprived. The fact that contractual subrogation and subrogation to prevent unjust enrichment both involve transfers of rights or something resembling transfers of rights should not be allowed to obscure the fact that one is dealing with radically different institutions. One is part of the law of contract and the other part of the law of restitution. Unless this distinction is borne clearly in mind, there is a danger that the contractual requirement of mutual consent will be imported into the conditions for the grant of the restitutionary remedy or that the absence of such a requirement will be disguised by references to a presumed intention which is wholly fictitious.
 In Aldo Group Inc. v. Moneris Solutions Corporation, 2012 ONSC 2581, aff’d 2013 ONCA 725, the court, citing Banque Financière, explained that the restitutionary form of subrogation may serve as a remedy in creditor disputes, as for example, where “a mortgage lender whose own security fails for some reason [shows] that its monies were used … to discharge an earlier security”: at para. 77. In those circumstances, “Anglo-Canadian jurisprudence regards subrogation … as a remedy, not a cause of action …”: at para. 77. By contrast, “in the context of insurance law subrogation creates a right of action”: at para. 78.
 Accordingly, in my view, Banque Financière does not assist the AG Canada‘s position since it does not address the type of subrogation alleged to be at issue in this case. In any event, as the appellants point out, no claim in unjust enrichment was advanced by Cpl. Provost at the damages trial.
 Respectfully then, in my view, the trial judge’s reliance on Falls Creek was misplaced. Wellington Insurance and Qureshi are clear that subrogation requires a contract of indemnity at common law. In my view good reasons exist for this. When an insurer and insured are bound by such a contract, the insurer, in law, bears the financial brunt of the tortfeasor’s acts. It is therefore reasonable that the insurer would be permitted to “stand in the shoes of the victim” with respect to any causes of action against the tortfeasor: Riley at para. 110. It is otherwise when third parties voluntarily cover the plaintiff’s losses since in those cases the tortfeasor does not, in law, cause the third party’s expenses.
 It follows that the judge erred in finding that the AG Canada had a right of subrogation in respect of the RCMP payments. Absent the application of a different exception to the rule against double recovery, the RCMP payments ought to have been deducted.