History of Structured Settlements in Canada
History of Structured Settlements in Canada
In Canada prior to 1979, there was only one way to compensate individuals for personal injuries caused by the wrongful actions of others. Whether settled "out of court" or awarded at trial, payment was always a single lump sum.
The door for a new approach - the "structured settlement" - was first opened by the Thalidomide cases of the late 1960s and early 70s. For the first time, annuity contracts were purchased for the Thalidomide children and payments were deposited with the Official Guardian of Ontario.
In the late 70s, people began to look for more equitable ways to compensate for injury. In 1978, the Andrews v. Grand & Toy Alta. Ltd. case prompted Mr. Justice Dickson of the Supreme Court of Canada to call for legislation to address the problems of lump-sum settlements:
The subject of damages for personal injury is an area of law that cries out for legislative reform.... When it is determined that compensation is to be made, it is highly irrational to be tied to a lump sum system and a once-and-for-all award.
The lump sum award presents problems of great importance. It is subject to inflation, it is subject to fluctuation of investment, income from it is subject to tax...yet, our law of damages knows nothing of periodic payment.
The following year, Mr. Justice Bouck of the BC Supreme Court made a similar call for reform:
Perhaps the time has come to consider whether or not a defendant might provide a form of annuity instead of paying the actual (lump sum) damages.
In 1979, McKellar Structured Settlements Inc. - Canada's first company to specialize in structured settlements - was formed in Guelph, Ontario. Soon after, structures became widely used and evolved as a truly Canadian solution to the problems arising from "lump sum only" settlements.
Before founding McKellar Structured Settlements, Frank McKellar spent 15 years as a claims negotiator with a major casualty insurer. He observed with growing concern the speed at which so many plaintiffs spent their cash settlements. Lump sums intended to provide for a lifetime of care and income were spent - often in a few short years - leaving many virtually destitute. Neither the insurer that made the payment, nor the injured party that received it, benefited from the traditional method of settling these claims.
Sure that there was a better way for plaintiffs and insurers alike, Mr. McKellar successfully worked with Revenue Canada in 1979 and 1980 to obtain tax-free treatment of damages paid via the purchase of a structured settlement annuity. Since then, structures have grown dramatically in popularity for two principal reasons:
- They provide secure, tax-free payments, tailor-made to provide for the ongoing needs of an individual, and;
- Through impairment ratings and the tax-free quality of the payments, structures are an extremely effective settlement tool, bridging the divide that often separates plaintiff and defence in settlement negotiations.
McKellar has helped pave the way for this growth, by initiating every major development in the Canadian structure industry since its inception, including:
- Pioneering the concept of structured settlements in Canada (1979)
- Securing their tax-free status in Canada (1980)
- The introduction of Absolute Assignment (1991)
- Securing the right of commutation on reversions for casualty insurers (1993)
- Securing CRA's authority to structure Accident Benefit cases (1994)
- Securing CRA's approval to "structure" Long-term Disability payments (1999)
- Introduction of the concept of Concurrent Guarantees (2000)
- Introduction of new life insurers to the structured settlement market (ongoing)
The standard that has guided McKellar into its forth decade has been a commitment to urgency, quality and integrity. In an increasingly complex and demanding environment, McKellar continues to distinguish itself when measured against this standard, because of our people. With almost 40 people, McKellar is five times larger than our largest competitor, and is Canada's only national structure firm, with offices coast-to-coast.
