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AUTOMOBILE INSURANCE - Uninsured or underinsured motorist coverage

Tuesday, February 07, 2017 @ 10:28 AM  


Appeal by Sabean from a judgment of the Nova Scotia Court of Appeal setting aside a trial judge decision holding that future Canada Pension Plan (CPP) disability benefits were not to be deducted from the amount payable under Sabean’s excess insurance policy. Sabean was injured in a motor vehicle accident in 2004. In May 2013, a jury awarded Sabean damages for his injuries in the amount of $465,400. The amount he received from the tortfeasor’s insurer was about $382,000, leaving a shortfall of more than $83,000, which Sabean claimed under the excess coverage provisions of his SEF 44 Endorsement with Portage La Prairie Mutual Insurance Company (Portage). Clause 4(b)(vii) of the Endorsement stipulated that amounts recoverable under "any policy of insurance providing disability benefits or loss of income benefits or medical expense or rehabilitation benefits" were to be deducted from the shortfall of the damages awarded in determining the amount payable by the insurer to the eligible claimant. Sabean was entitled to receive future CPP disability benefits. Portage claimed that those amounts were to be deducted as recoverable benefits from a "policy of insurance" under clause 4(b)(vii) in determining the amount payable by Portage. Sabean disagreed. The trial judge in this case found that CPP benefits were not benefits from a "policy of insurance" under the Endorsement and thus would not be deducted from the amount payable by the insurer. The Nova Scotia Court of Appeal disagreed, concluding that the CPP was a "policy of insurance" under the Endorsement. The issue in this appeal was whether the CPP was a "policy of insurance providing disability benefits" within the meaning of clause 4(b)(vii) of the SEF 44 Endorsement.

HELD: Appeal allowed. The principles of contract interpretation applicable to standard form insurance contracts were confirmed by the jurisprudence. The overriding principle was that where the language of the disputed clause was unambiguous, reading the contract as a whole, effect should be given to that clear language. Only where the disputed language in the policy was found to be ambiguous, should general rules of contract construction be employed to resolve that ambiguity. Finally, if these general rules of construction failed to resolve the ambiguity, courts would construe the contract contra proferentem, and interpret coverage provisions broadly and exclusion clauses narrowly. At the first step of the analysis for standard form contracts of insurance, the words used were to be given their ordinary meaning. The SEF 44 Endorsement was a standard form contract. By the terms of the contract, the overarching purpose of the Endorsement was to provide the "excess" coverage that arose where an underinsured motorist could not pay the full amount of a court judgment. However, the amount payable by the insurer to the eligible claimant under the Endorsement was not the full amount of the shortfall that an underinsured motorist was unable to pay. Deductions stipulated under the Endorsement were subtracted from the shortfall. The ordinary meaning of "any policy of insurance providing disability benefits" under clause 4(b)(vii) was clear, reading this Endorsement as a whole. The use of the word "policy" clearly indicated a private contract of insurance. Portage asked the Court to read into those clear words the jurisprudence related to the collateral benefits rule in tort so that a "policy of insurance" would also include the CPP regime. An insurer could not rely on its specialized knowledge of the jurisprudence to advance an interpretation that went beyond the clear words of the policy. An average person applying for this additional insurance coverage would understand a "policy of insurance" to mean an optional, private insurance contract and not a mandatory statutory scheme such as the CPP. Thus, future CPP disability
benefits did not reduce the amount payable by the insurer under the Endorsement.

Sabean v. Portage La Prairie Mutual Insurance Co., [2017] S.C.J. No. 7, Supreme Court of Canada, B. McLachlin C.J. and M.J. Moldaver, A. Karakatsanis, R. Wagner, C. Gascon, S. Côté and R. Brown JJ., January 27, 2017. Digest No. 3637-010