Dewitt v. State Farm: Implications for Structured Settlements

May 23, 2019

In its recent decision in Dewitt v. State Farm Mutual Automobile Insurance Co. (2019), the Superior Court of Ontario has held that a plaintiff is entitled to Statutory Accident Benefits Schedule (SABS) interest of 2% per month, compounded monthly, on 13 years of unpaid Income Replacement Benefits.

While unfortunate news for casualty insurers, the decision is welcome news to SABS claimants and those who represent them.  In addition, the decision has a greater impact on injured individuals who receive a structured settlement as part of their SABS settlement, because of a recent Advance Tax Ruling (ATR) obtained by McKellar Structured Settlements that confirms that SABS interest can be included in a tax-free structured settlement.

In January 2017, Canada Revenue Agency confirmed that pre-judgment or pre-settlement interest received on SABS claims can be structured. This ATR confirms that an interest award or settlement, in any amount, paid in respect of a claim for unpaid SABS benefits can receive the same tax-free treatment as all other SABS benefits that fund a structured settlement. As a result, even a large interest award need not result in the loss of many means-tested government benefits or attract the adverse tax treatment that results when settlement funds are placed in traditional investments.