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SCC benefits ruling seen as consumer win

Thursday, February 09, 2017 @ 7:00 PM | By Cristin Schmitz

In a win for consumers and injured plaintiffs across Canada, the Supreme Court has ruled 7-0 that insurers can’t reduce their excess insurance payouts under their auto policies’ standard endorsement form 44 by the amount of plaintiffs’ Canada Pension Plan disability benefits.

“The clear language of the provision, reading the contract as a whole, is unambiguous,” Justice Andromache Karakatsanis concluded in allowing plaintiff Andrew Sabean’s appeal from a 2015 Nova Scotia Court of Appeal in favour of the respondent insurer: Sabean v. Portage La Prairie Mutual Insurance Co. 2017 SCC 7.

The court’s decision means that Sabean, who was injured in a 2004 motor vehicle accident, will be able to recover under SEF 44 from his insurer Portage, the full $83,000 shortfall on a $465,400 damages award against his tortfeasor, whose insurer only paid Sabean about $382,000.

The ruling is also a victory for other plaintiffs whose cases were on hold pending the outcome of the case.

The court gives important guidance on interpreting adhesionary type (take it or leave it) contracts, said Sabean’s counsel Derrick Kimball of Kimball Law in Wolfville, N.S.

Kimball noted the SEF 44 endorsement, referred to as the “Family Protection” endorsement in Nova Scotia, is prevalent in similar terms in most of the common law jurisdictions in Canada that still have private auto insurance.

“This is a victory for the rule of law,” Kimball suggested by e-mail. “The endorsement used ordinary words and clear language. The court gave effect to the ordinary meaning of the words and gave clear direction to lawyers and judges on the correct approach to the interpretation of such contracts.”

In particular the judgment establishes that an insurer cannot rely on its specialized knowledge of the jurisprudence to advance an interpretation that goes beyond the clear words of the policy, Kimball elaborated. “In this case, the insurer Portage asserted that the meaning of the words in the endorsement were informed by earlier jurisprudence, the history of the endorsement and intention of the insurance industry. Such a view, if accepted, would indeed imbue the ordinary words and clear language with ambiguity. The Supreme Court made it abundantly clear that the consumer was ‘not someone with the specialized knowledge of the insurance industry,’ and such history could not assist in the interpretation of the language.”

Counsel for Portage were not immediately able to comment on the judgment.

University of Alberta law professor Barbara Billingsley, whose book General Principles of Canadian Insurance Law was relied on by the court, said Sabean reiterates and applies the previously established, basic interpretative principles for standard form insurance contracts.

“In Sabean Justice Karakatsanis makes clear that the primary objective of interpretation must be to give effect to the clear language of an unambiguous insurance contract clause, considering the clause in the context of the contract as a whole and applying the plain, ordinary meaning of undefined contract terms as they would be understood by the average insured,” Billingsley explained by e-mail. “In short, if an insurance company intends to limit its obligation to indemnify an insured, the insurer must do so expressly and unequivocally. This is not a new message, but it is nonetheless a critical message for insurers.”

The top court held that CPP disability (CPPD) benefits “are not disability benefits from a ‘policy of insurance’ within the meaning of cl. 4(b)(vii) of the SEF 44 Endorsement. Thus, future CPP disability benefits are not deductible from the amounts payable by the insurer under the Endorsement.”

Kimball suggested if the court had instead upheld the Nova Scotia Court of Appeal “it would have had a devastating impact on plaintiffs in Mr. Sabean’s position. The effect would be to claw back future CPP benefits, not only a hardship for injured parties but a cumbersome administrative odyssey as the parties account for future benefits as received.”

Halifax personal injury litigator Ray Wagner of the Atlantic Provinces Trial Lawyers Association, whose organization was denied permission by the top court to intervene in the appeal, said by e-mail “APTLA is pleased that accident victims do not have to endure additional hardship” as legislative changes have negatively affected people who have suffered significant injuries.

Wagner predicted Sabean “will have a significant impact on personal injury practice. Most of the significant and serious injury cases were not being settled due to the tension in the law between the difference of opinion between the Courts of Appeals in New Brunswick and Nova Scotia on CPPD deductibility from SEF44 coverage. The deduction had an enormous impact on a fair assessment of income loss claims.”

He said in other tort provinces CPP disability benefits were not being deducted from accident benefits.

Wagner noted the Ontario Court of Appeal has decided that CPPD benefits are not deductible from income loss claims — a related issue under reserve since last month at the Nova Scotia Court of Appeal in Tibbetts v. Murphy 2015 NSSC 280. “If CPPD is deductible from tort claims then accident victims are going to suffer from the further erosion of their prospective claims in a significant way,” he predicted.

SEF 44 is a standard form insurance contract that exists in similar terms across the country. Sometimes called Special or Family Protection Endorsements, Canadians buy it in addition to their existing auto insurance coverage. SEF 44 indemnifies insureds for any shortfall in the payment of a damages judgment by an underinsured tortfeasor, subject to the deductions set out in the endorsement. It stipulates that future benefits from a “policy of insurance providing disability benefits” are deducted from the shortfall in determining the amount payable by the insurer.

The respondent urged that the CPP is a “policy of insurance” and therefore an amount equal to Sabean’s future CPP disability benefits should be deducted from the shortfall in determining the amount owing pursuant to SEF 44.

But Justice Karakatsanis agreed with the 2013 decision of Nova Scotia Supreme Court (trial division) Justice Patrick Murray. “The ordinary meaning of the words at issue is clear, reading this Endorsement as a whole,” she reasoned. “An insurer cannot rely on its specialized knowledge of the jurisprudence to advance an interpretation that goes 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 do not reduce the amount payable by the insurer under the endorsement.”