11/16/2011 09:34 EST | Updated 01/16/2012 05:12 EST

Veterans in court to challenge federal disability benefit claw backs

HALIFAX - Disability benefits for thousands of former Canadian Forces members are being unjustly clawed back because the payments have been unfairly deemed income, lawyers for the veterans argued Wednesday in Federal Court.

The veterans, who have launched a class-action suit against the federal government, said their long-term disability benefits are being reduced by the amount of their disability pensions, with some of the most gravely injured not receiving any of their pension.

A dozen former military members, some using canes and one in a wheelchair, filed into the courtroom to hear arguments about what constitutes income and whether their monthly stipends should be reduced under their military insurance plan.

Ward Branch, a lawyer for one of the claimants, argued the disability benefit they get from Veterans Affairs for injuries sustained in service is for pain and suffering and does not qualify as income.

"We say you are certainly not gaining by being paid something to accommodate your disability," he said. "To equate that with the concept of income ... is not a reasonable interpretation."

The hearing is looking at whether the government has the legal right to claw back the disability benefit through the military insurance plan and if it is miscalculating the benefit.

Under the military insurance plan, injured veterans are entitled to a percentage of their former salaries. But the plan treats monthly pension payments as income and deducts the pension amount from what is paid to them.

Some veterans claim they are losing upwards of $3,500 a month in clawbacks.

Their lawyers have said thousands of veterans are being subjected to the same practice, putting the cost of stopping it and reimbursing veterans at around $320 million.

Dennis Manuge, who was injured in an accident at Canadian Forces Base Petawawa, Ont., just before being deployed to Bosnia in 2001, launched the lawsuit in 2007. It was certified by the Federal Court the following year.

Manuge said outside court that his monthly Veterans Affairs pension was reduced by $10,000 in clawbacks between 2003, when he was released from the Forces, and 2005.

"It is a pain-and-suffering payment for the non-economic losses associated with acquiring a physical or mental injury," he said. "It is simply not income."

Lawyers for the federal government cited other cases that have found such benefits to be income, adding that the definition of income can include a broad array of monies that are coming into a veteran's household.

Steve Dornan, who has terminal cancer and was medically released in 2010, said there are about 6,000 veterans whose benefits are being clawed back in this way.

"It's an unfair treatment to a small group of people when it's clearly written that it's not income," the 47-year-old said outside court. "It's not taxed and Canada Revenue has said it's not income."

The two-day hearing continues Thursday.