Note: This article was originally published by McInnes Cooper on January 30, 2017. It is reprinted with permission from the author.
On Jan. 27, 2017, the Supreme Court of Canada decided in Sabean v Portage La Prairie Mutual Insurance Co. that future CPP disability benefits are not deductible from coverage afforded by an SEF 44 Endorsement. The SCC stated that CPP disability benefits are not benefits from a “policy of insurance” within the meaning of the Endorsement. The court’s decision settled diverging judicial opinions on this issue, but only in the context of SEF 44. The question of the deductibility of CPP disability benefits in the context of tort damages is still under review by the courts, with a decision from the Nova Scotia Court of Appeal expected later in 2017. Here is what the court’s decision means for insurers.
Mr. Sabean was injured in a motor vehicle accident, and brought a claim in tort against the at-fault driver. The defendant’s liability insurer paid him approximately $382,000, leaving a deficit in his damages of approximately $83,400. Mr. Sabean claimed the balance from his own insurer under his SEF 44 Endorsement. SEF 44 is not part of the standard form automobile policy, but a contract for excess coverage over and above what an insured recovers from the at-fault driver. Portage sought to deduct Mr. Sabean’s future Canada Pension Plan disability benefits under clause 4(b)(vii) of SEF 44. Under clause 4(b)(vii), an amount the insured is entitled to recover from “any policy of insurance providing disability, loss of income, medical expense or rehabilitation benefits” is deductible from any amount owed to the insured by the SEF 44 insurer. Mr. Sabean argued future CPP disability benefits were not made under a policy for insurance, and therefore were not deductible.
Until now, there were opposite findings from the Nova Scotia and New Brunswick Courts of Appeal on this issue of deductibility. This decision has settled the conflicting authorities, and is now the standard across Canada for policies with similar wording. The Supreme Court of Canada concluded that future CPP disability benefits are not made pursuant to a true “policy of insurance.” Accordingly, future CPP disability benefits do not constitute a proper deduction under clause 4(b)(vii) of SEF 44.
Revisiting Ledcor and the principles of contractual interpretation
The court reiterated the principles of contractual interpretation as they apply to standard form contracts. The court recently confirmed in Ledcor Construction Ltd. Northbridge Indemnity Insurance Co. that where the language of a disputed clause is unambiguous, effect should be given to the clear meaning of the words of the clause. The SCC found that the wording of clause 4(b)(vii) was not ambiguous. In assessing ambiguity, the court advised that we must give deference to the understanding of an ordinary person applying for insurance. An average purchaser of insurance would interpret a “policy of insurance” as a private insurance contract, and not benefits provided under a mandatory statutory scheme like CPP Adopting a plain reading of contractual terms prevents insurers from broadening the meaning of the words beyond those written on the page.
How Sabean affects the administration of SEF 44 and other insurance contracts
There are a few ways in which this decision could affect insurers.
The court is sending a clear message that the basic law of contractual interpretation will apply; creative interpretations of standard form contracts are less likely to succeed. The courts will only engage in interpreting the contract where there is no clear meaning to the wording. Insurers should avoid reading beyond what is written on the pages of their policies. The court’s warning to insurers against relying on “specialized knowledge of the jurisprudence” could become an often-cited passage in coverage disputes.
Insurers should also be aware that although the tort action and SEF 44 coverage are intertwined, SEF 44 will still be read in line with its terms, regardless of whether it is “excess” insurance. “General principles of tort law are no substitute for the language of the policy,” and overcompensation is not necessarily avoided. If insurers wish to deduct CPP disability benefits (or anything else for that matter) from coverage provided, a specific reference to such a deduction will have to be included. Workers Compensation benefits, for example, are deductible under clause 4(b)(vii) of SEF 44. Such revisions should be clear, but also contain as much detail as practically possible: ambiguous exclusion clauses will be read very narrowly under the doctrine of contra proferentum (against the offerer, i.e., the insurer).
The deductibility of CPP diability benefits in the tort context is an ongoing matter before the Nova Scotia Court of Appeal (Tibbets v Murphy). A decision is expected in the spring of 2017. Again, there is conflicting case authority across Canada and each jurisdiction has its own legislative scheme governing the deductibility of income replacement and other benefits. Stay tuned.
Jillian Kean is an associate with McInnes Cooper in Halifax.
McInnes Cooper prepared this article for information; it is not legal advice. Consult McInnes Cooper before acting on it. McInnes Cooper excludes all liability for anything contained in or any use of this article. © McInnes Cooper, 2017. All rights reserved.