Date: 20120501
Docket: T-463-07
Citation: 2012 FC 499
Ottawa, Ontario, May 1, 2012
BETWEEN:
DENNIS MANUGE
Plaintiff
and
HER MAJESTY THE QUEEN
Defendant
REASONS FOR ORDER AND ORDER
[1] This is a Class proceeding brought by the Plaintiff, Dennis Manuge, on behalf of
approximately 4,500 former members of the Canadian Forces (the Class).
[2] What is in issue in the proceeding is the legality of the Defendant’s policy of reducing longterm
disability (LTD) benefits payable to disabled Canadian Forces (CF) members under the CF
Service Income Security Insurance Plan (SISIP) Policy 901102 by the monthly amounts payable to
those members under the
Pension Act, RSC 1985, c P-6. The Class argues that this offset of
benefits is not contractually justified and that it also violates section 15(1) of the
Canadian Charter
Page: 2
of Rights and Freedoms
, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act
1982
(UK), 1982, c 11.
[3] To their credit, the parties have agreed to have the contractual aspect of their dispute
resolved on a preliminary basis by way of a motion brought under Rule 220 of the Federal Courts
Rules, SOR/98-106 [Rules]. To that end, they have submitted an Agreed Statement of Facts and
have posed the following questions of law for determination:
1. Are the pension payments made pursuant to section 21 of the
Pension Act
, “total monthly income benefits” as that term is
described in section 24(a)(iv) of Part III(B) of SISIP Policy
901102?
2. Are the pension payments made pursuance to section 21 of
the
Pension Act, “monthly pay in effect on the date of release
from the Canadian Forces” as that term is described in
section 23(a) of Part III(B) of SISIP Policy 901102?
[4] Central to the dispute is the interpretation of Article 24 of the SISIP Policy and, in particular,
whether monthly benefits payable to disabled CF members under the
Pension Act are “monthly
income benefits” as that phrase is used in the SISIP Policy. The relevant provision reads as follows:
24. Other Relevant Sources of
Income
a. The monthly benefit payable
at Section 23 shall be
reduced by the sum of:
(i) the monthly income
benefits payable to the
member under the
Canadian Forces
24. Autres sources de revenu
a. Le montant de la prestation
mensuelle versée selon
l’article 23 doit être réduit
du total des montants
suivant :
(i) de la prestation de
revenu mensuelle versée
au membre en vertu de
la Loi sur la pension de
Page: 3
Superannuation Act; and
(ii) the Primary monthly
income benefits payable
to the member under the
Canada or Quebec
Pension Plans (including
retroactive payments
covering the period
during which such
benefits were prefunded
under this Division 2);
and
(iii) the employment income
of the member unless
the member is
participating in a
rehabilitation program
approved by the Insurer
in which case the
monthly benefit will be
reduced in accordance
with Section 28; and
(iv) the total monthly income
benefits payable to the
member under the
Pension Act (including
dependant benefits and
retroactive payments
covering the period
during which such
benefits were prefunded
under this Division 2).
retraite des Forces
canadiennes; et
(ii) de la prestation de
revenu mensuelle versée
au membre en vertu du
Régime des pensions du
Canada ou de la Régie
des rentes du Québec (y
compris les versements
rétroactifs pour la
période pendant laquelle
ces prestations ont été
financées en vertu de la
présente section 2); et
(iii) du revenu d’ernploi du
membre, sauf si ce
dernier participe à un
programme de
réadaptation approuvé
par l’Assureur auquel
cas la prestation
mensuelle sera réduite
conformément aux
dispositions de l’article
28; et
(iv) de la prestation de
revenu mensuelle totale
versée au membre en
vertu de la
Loi sur les
pensions
(y compris les
indemnités de personnes
à charge et les
versements rétroactifs
pour la période pendant
laquelle ces prestations
ont été financées en
vertu de la présente
section 2).
[Emphasis added]
Agreed Statement of Facts (8 September 2011) at p 41 (“SISIP
Policy 901102”, Part III(B), art 24) [SISIP Policy].
Page: 4
[5] The Class argues that their
Pension Act payments are non-indemnity disability benefits
intended to compensate CF members for impairments to their quality of life and limitations on their
activities of daily living. Because these payments are not a form of income replacement, they are
not caught by the benefit offset in Article 24(a)(iv) of the SISIP Policy which only permits the
deduction of “monthly income benefits”.
[6] The Defendant argues that the contracting parties, the Chief of Defence Staff (CDS) and
Manulife Financial (Manulife), intended to offset these benefits and, in the context of the entire
scheme, that intention was manifest in the specialized language they used. According to the
Defendant, Article 24 of the SISIP Policy is simply an integration of benefits provision common to
many LTD insurance policies.
The SISIP Policy and the
Pension Act
[7] André Bouchard is the President of SISIP Financial Services. His affidavit provides helpful
historical background for the development of SISIP since its inception in 1969 and, for the most
part, that history is undisputed.
[8] SISIP was created because existing benefits programs accessible to CF members were
thought to be inadequate. SISIP was developed to provide “a group insurance plan that would
ensure that a disabled member or surviving depend[a]nts could maintain a reasonable standard of
living in the event of a disability or death”: Motion Record of the Defendant (Motion to Determine
Questions of Law) (28 October 2011) at p 28 (“Affidavit of André Bouchard” (28 October 2011) at
Page: 5
para 8) [Affidavit of André Bouchard]. The specific rationale for SISIP is contained in the
following passage from a briefing memorandum prepared for the CDS in June 1969:
2. Extensive study of the various forms of insurance coverage
provided by government indicated that more than fifty percent of
Canadian Forces personnel are inadequately protected by the Pension
Act and the Canadian Forces Superannuation Act, even though
entitlements under these acts are supplemented by benefits under
either the Canada or Quebec Pension Plans. One of the more
distressing aspects of this situation is that surviving widows and
children of personnel killed off duty or who suffer a non-service
disability during their first ten years of service, are left with little or,
in many instances, no income whatsoever with which to raise a
family or indeed to exist. Similarly, widows and children of
personnel with more than ten years service are required to accept an
overnight reduction in previous service income, ranging from 90% to
65% depending upon the length of service of the husband.
Obviously, some form of added protection is required to:
(a) provide an income to the widow and children of the
deceased or disabled serviceman who has insufficient
service to qualify for a service annuity;
(b) supplement the income from CFSA and Canada or
Quebec Pension Plans paid to the disabled
serviceman and the survivors of the deceased
serviceman to a level of approximately 60-80% of his
pay on death or disablement.
Affidavit of André Bouchard, Exhibit “A” at p 35 (“Brief for CDS
on the Servicemen’s Income Security Insurance Plan (SISIP)” (June
1969) at s 2).
[9] It is perhaps of some historical significance that the SISIP Policy, as initially proposed, was
seen as an income replacement supplement to the
Canadian Forces Superannuation Act, RSC 1985,
c C-17 [
CFSA], and the Canada and Quebec Pension Plans and separate from benefits payable
under the
Pension Act.
Page: 6
[10] SISIP was created under section 39 of the
National Defence Act, RSC 1985, c N-5, a
provision that authorizes the CDS to create programs for the benefit of CF members. Since its
inception, SISIP has been administered through a contract between the CDS and a private insurer
(now Manulife). Initial funding came entirely from voluntary premium payments from participating
members, but subsequent changes over the years have substantially reduced the percentage
contributions made by CF members. Since 2009, CF members pay 15% of the LTD premiums for
non-service-related disabilities and nothing for service-related disabilities. For regular members of
the CF who enlisted after April 1, 1982, participation in SISIP is mandatory and, since 1999,
participation by CF reserve members is also required.
[11] As initially conceived, the SISIP LTD benefit was reduced by amounts received by disabled
CF members under the
CFSA and the Canada and Quebec Pension Plans. Also, if a member
qualified for benefits under the
Pension Act on the basis of injury or death due to military service,
nothing was payable under the SISIP Policy.
[12] In 1971, CF members injured in “Special Duty Areas” were allowed to collect
Pension Act
benefits notwithstanding their continued service in the CF.
[13] In 1975, the basic SISIP LTD benefit was raised from 60% to 75% of a member’s income at
the time of release and monthly increments for dependant children were eliminated.
[14] In 1976, in recognition of the inadequacy of the monthly
Pension Act benefits, SISIP LTD
coverage was expanded to include service-related disabilities. It was at that point that the SISIP and
Page: 7
the
Pension Act schemes came together. According to Mr. Bouchard, it was also at that point that
benefits payable under the
Pension Act “were added to the list of applicable reductions” under the
SISIP Policy to prevent the “stacking” of payments from two federally-funded sources as well as for
reasons of “cost and equity”: Affidavit of André Bouchard at para 24.
[15] Mr. Bouchard’s affidavit provides the following additional rationale for the concern about
the “stacking” of benefits:
Discounting LTD benefits to take into account other sources of
income is a common feature of both public and private LTD
insurance plans, and is consistent with the objective of long term
disability insurance. Section 24(a)(iv) of Part III(B) of SISIP Policy
901102 (Exhibit “C”) is the provision that allows for the deduction of
other income from SISIP LTD benefits (“the set-off provision”).
[Emphasis added]
Affidavit of André Bouchard at para 19.
[16] In October 2000, the
Pension Act was amended to provide benefits to all members disabled
from military service injuries however occurring. Those disabled members who were able to
continue their military service were permitted to collect
Pension Act benefits in addition to their
salaries.
[17] In 2006, the
Canadian Forces Members and Veterans Re-establishment and Compensation
Act,
SC 2005, c 21 [New Veterans Charter], became law. It replaced the monthly Pension Act
benefits with a one-time lump sum award which is not deductible from the SISIP benefit. That
change was not made retroactive so as to apply to members of the Class.
Page: 8
[18] Mr. Bouchard characterizes the SISIP Policy as a contract between the CDS and Manulife
with benefits payable on a strictly contractual basis. He deposes that SISIP is an income
replacement scheme which guarantees a disabled CF member 75% of salary at the time of his or her
release. The SISIP benefits are not compensation for the gravity of one’s injuries or for the loss of
personal abilities. According to Mr. Bouchard, the
Pension Act offset in Article 24 is “required for
the proper functioning of a disability insurance scheme” and to prevent the theoretical potential for a
disabled member receiving “more funds in income replacement than he or she ever earned as an
employee”: Affidavit of André Bouchard at para 34. The SISIP Policy was not designed to bear the
entire burden of an income loss associated with a disability; instead, it shares that burden with other
programs such as the Canada Pension Plan, the
CFSA and the Pension Act. In short, Mr. Bouchard
apparently believes that the benefits payable under the
Pension Act are in the nature of income
replacements and are appropriately deducted from the SISIP benefits as a means of avoiding a
double-recovery for lost income.
[19] I accept Mr. Bouchard’s characterization of the SISIP as an income replacement scheme. In
fact, it appears to be classic indemnity insurance intended to replace a percentage of a CF member’s
lost income due to an inability to work.
[20] The
Pension Act provides pensions and other benefits to CF members except to the extent
that there is an entitlement to a lump sum award under the
New Veterans Charter. For members of
the Class, the
Pension Act applies and not the New Veterans Charter.
Page: 9
[21] Section 2 of the
Pension Act recognizes the Government of Canada’s (Canada) obligation to
compensate CF members who have been disabled or who have died in the service of Canadians.
This responsibility is met by giving a liberal construction to the language of the statute and by
giving the benefit of any doubt in the weighing of evidence to disabled veterans: see
Pension Act, s
5(3)(c). Section 3 of the
Pension Act defines disability as “the loss or lessening of the power to will
and to do any normal mental or physical act”.
[22] Section 35 of the
Pension Act provides that the amount of a disability pension shall be
determined in accordance with the assessment of the extent of the disability and is based on a set of
instructions and a table of disabilities made by the Minister of Veterans Affairs. Under section
35(4), a
Pension Act pension is not to be reduced because a disabled member “undertook work or
perfected themself in some form of industry” and, indeed, a
Pension Act disability benefit is payable
regardless of whether a disabled CF member continues in active service.
[23] The 2006 Table of Disabilities (Table) provides the following introduction:
The Table of Disabilities is the instrument used by Veterans Affairs
Canada to assess the degree of medical impairment caused by an
entitled disability. The Table of Disabilities has been revised using
the concept of medical impairment based on a per condition
methodology. The relative importance of that body part/body system
has been a consideration in the development of criteria to assess the
medical impairment resulting from the entitled disability. The
Disability Assessment will be established based on the medical
impairment rating, in conjunction with quality of life indicators
which assess the impact of the medical impairment on the
individual’s lifestyle.
Agreed Statement of Facts (8 September 2011) at p 321 (“Table of
Disabilities” (January 2006) at p 1, also available online:
d_total_2006.pdf >).
Page: 10
[24] According to the principles of assessment found in the Minister’s Table, the definition of
disability in the
Pension Act and the New Veterans Charter requires both medical (impairment) and
non-medical (quality of life) assessments. Medical impairment is made up of the physical loss or
alteration of any body part or system and the resulting functional loss. The quality of life
assessment examines a person’s ability to participate in activities of independent living, the ability
to take part in recreational and community activities and the ability to initiate and take part in
personal relationships. A major consideration in determining the quality of life effects is the degree
to which a disability has affected the usual or accustomed activities of the person being assessed.
[25] Although an assessment of the activities of independent living includes both domestic and
employment routines, the Minister’s Table makes it clear that one’s entitlement to a pension is not
dependent on a finding that a person cannot work.
[26] Once medical and quality of life ratings have been assessed, they are added to produce the
disability assessment from which the amount of the monthly
Pension Act benefit is derived. The
Table includes a disability scale measured in 20 increments from 5% to 100% disability. At each
increment, a basic pension benefit is indicated which is proportionate to the degree of disability
sustained.
[27] What is clear from the
Pension Act and the Minister’s Table is that the monthly benefit
payable to disabled members of the CF is not intended to be a form of income replacement. Instead,
it is designed to compensate for the loss of amenities of life and for the personal limitations and
Page: 11
sacrifices that arise from disabling injuries. This is not entirely lost on the Defendant. According to
a 2004 Reference Paper prepared by Veterans Affairs Canada, the purpose of
Pension Act disability
benefits is to “provide compensation for reductions in the quality, and sometimes the quantity, of
life experienced by the disabled” and not, as is commonly believed, to provide a form of income
replacement: Affidavit of Sergeant John G. Bartlett (22 September 2011), Exhibit “B” at p 8
(“Reference Paper: The Origins and Evolution of Veterans Benefits in Canada, 1914-2004” (March
2004) at p 5, also available online: ).
Issues
[28] Are the pension payments made pursuant to section 21 of the
Pension Act, “total monthly
income benefits” as that term is described in Article 24(a)(iv) of Part III(B) of SISIP Policy 901102?
[29] Are the pension payments made pursuant to section 21 of the
Pension Act, “monthly pay in
effect on the date of release from the Canadian Forces” as that term is described in Article 23(a) of
Part III(B) of SISIP Policy 901102?
Discussion
[30] To answer the questions posed on this motion, the Court is called to construe Article 24 of
the SISIP Policy and, in particular, to determine whether a disability pension payable under the
Pension Act
is included in the phrase “the total monthly income benefits payable to the member
under the Pension Act (including dependant benefits and retroactive payments covering the period
during which such benefits were prefunded . . .)”.
Page: 12
[31] Both parties agree that the principles of construction that apply to insurance contracts are
applicable: see Plaintiff’s Memorandum of Fact and Law: Motion to Determine Questions of Law
(22 September 2011) at para 128; Motion Record of the Defendant (Motion to Determine
Questions of Law) (28 October 2011) at p 6 (“Defendant’s Memorandum of Fact and Law” at para
16). The Defendant argues, however, that the members of the Class are not parties to the contract
and they must accept the interpretation of the SISIP Policy that the CDS and Manulife have
adopted. In effect, the Defendant submits that CF members are strangers to the contract who are
entitled to enforce the agreement but only on the terms that the CDS and Manulife accept, relying
on the authority of
Eli Lilly & Co v Novopharm Ltd, [1998] 2 SCR 129, [1998] SCJ no 59 (QL) [Eli
Lilly
], where the Court held at paragraph 53 that it was not open to a non-contracting party to rely
on the doctrine of
contra proferentem to undermine a contractual interpretation accepted by the
contracting parties. The Defendant also contends that the historical evolution of the SISIP Policy as
described by Mr. Bouchard confirms Canada’s intent to deduct the
Pension Act disability benefits
from SISIP LTD income.
[32] I do not accept that members of the Class are strangers to the SISIP Policy and legally
incapable of advancing their own interpretation of the contractual language.
Eli Lilly is
distinguishable. It involved a licensing agreement in which the non-contracting party had no
interest. By their very nature, policies of insurance are different; a beneficiary may be an insured
party to the policy but even a non-contracting beneficiary has a legal interest sufficient to have the
policy enforced and to argue for any interpretation that would be open to either of the contracting
parties. The fact that the SISIP Policy is a group policy and that the CDS and Manulife are named
parties does not support an argument that the covered CF members are not entitled to rely upon any
Page: 13
of the interpretive rules that apply to insurance contracts generally: see
Co-operators Life Insurance
Co v Gibbens
, 2009 SCC 59 at para 28, [2009] 3 SCR 605; Ryan v Sun Life Assurance Co of
Canada
, 2005 NSCA 12 at para 26, 230 NSR (2d) 132 [Ryan v Sun Life]; St-Laurent v Sun Life
Assurance Co of Canada
(1989), 101 NBR (2d) 354, [1989] NBJ no 535 (QL) (CA); Hoult Estate
v First Canadian Insurance Corp
, [1995] ILR 1-3125 at paras 17-18, 1994 CarswellBC 841 (WL
Can) (SC);
Milner v Manufacturer’s Life Insurance Co, 2006 BCSC 1571 at para 16, [2006] BCJ no
2787 (QL) [
Milner v Manufacturer’s Life]; Canada Life Assurance Co v Donohue (1999), 46 OR
(3d) 82 at para 15, [1999] OJ no 3549 (QL) (Sup Ct J) [
Canada Life v Donohue].
[33] Indeed, in the context of the extant contractual relationship between the CDS and Manulife
where the entire risk is underwritten by the CDS and managed by Manulife, the
de facto insurer is
the CDS and the
de facto insureds are CF members. This is consistent with the history of the SISIP
Policy which was drafted by the CDS and imposed by the CDS on CF members. CF members have
always paid or contributed to the cost of the program and the SISIP Policy expressly recognizes
their status as insureds: see for example SISIP Policy, Part I, art 27; SISIP Policy, Part III(A), arts
52-53. In particular, Article 52 describes how “an eligible member becomes insured” under the
LTD plan. This express recognition of CF members as insureds under the SISIP Policy and their
premium contributions are inconsistent with the Defendant’s argument that the only insured party is
the CDS. In this context, it is the insured CF members and Canada, through the CDS, that have
competing interests. Manulife is, in effect, a largely, if not entirely, disinterested third party that
would have no apparent interest in contesting the views of its commercial partner on whose behalf it
administers the plan.
Page: 14
[34] The Defendant’s argument that the interpretation of Article 24 may be aided by the
contractual history and Treasury Board motives outlined by Mr. Bouchard is similarly misguided. It
may well have been the CDS’s intention to set off the
Pension Act disability benefit from the SISIP
LTD benefit. But the SISIP Policy is not a statutory instrument to be interpreted by means of a
search for a Parliamentary intent. In interpreting a contract of insurance, the search is not for the
subjective intent of either contracting party but, rather, for the common intent of both parties which,
hopefully, can be found in the language they have employed and from the overall context in which
that language is to be applied. This point was well expressed by Justice Thomas Cromwell in
Ryan
v Sun Life
, above, at paragraph 24:
24 I mention this because the parties and the Chambers judge
referred to evidence concerning the exchange of drafts and
correspondence between the parties relating to this new subrogation
clause. While there can be little doubt from a review of this material
that the insurer's objective in advancing the language which was
subsequently adopted was to give it the right to share in all types of
damages, the issue is not what the insurer intended. Rather, as
Iacobucci, J. emphasized in Eli Lilly, the question is what was the
contractual intent of the parties. This is to be determined from the
words they used in light of the surrounding circumstances. Evidence
of the subjective intent of one of the parties has no independent place
in this endeavour; it is unnecessary to consider any extrinsic evidence
at all when the document is clear and unambiguous: Eli Lilly at
paras. 54-55.
[35] In
Milner v Manufacturer’s Life, above, the Court similarly inferred what the insurer was
attempting to accomplish in the drafting of a collateral source integration provision but rejected the
insurer’s interpretation because of a lack of clarity in the policy language. In short, what the drafter
of a policy may have had in mind is not the issue. The question is what the language employed
would objectively mean to the parties.
Page: 15
[36] Accordingly, the Defendant’s reliance on the 1976 SISIP Policy amendment is
misconceived: see above at para 14. Although Mr. Bouchard deposes that this change was made in
recognition of an overlap that arose when the SISIP Policy coverage was extended to serviceattributable
injuries, the issue for determination is whether the CDS chose adequate language to
achieve that result. After all, CF members were not privy to the CDS’s rationale for changes to the
SISIP Policy nor were they consulted.
[37] As a general rule, parol evidence is not admissible to establish the subjective intent of one
party to an insurance contract. The only basis for introducing parol evidence is to show an
underwriting purpose for a disputed term. This point was made in
Abdulrahim v Manufacturers
Life Insurance Co
(2003), 65 OR (3d) 543, [2003] OJ no 2592 (QL) (Sup Ct J):
67 Parol evidence relating to the surrounding circumstances of a
contract may be admissible in certain cases (for example, to explain
commercial purpose). Evidence as to subjective contractual intention,
however, including draft letters or other expressions of intention
made in the course of negotiations (Indian Molybdenum, supra at
503) and intentions in drafting or implementing an agreement (Eli
Lilly, supra at para. 59) is inadmissible. In Transcanada Pipelines,
Lane J. wrote at para. 12:
Direct evidence from a party as to his intention in the
use of particular language is not an admissible part of
the context. This is particularly so where, as here, the
party did not communicate the relevant intention at
the time to the opposite party.
68 Manulife has had complete control over the wording of this
contract, and it could have used more specific wording in
constructing the exclusion clause if it wished to limit the benefits
payable to the insured in these circumstances. The interpretive
principles articulated by the Supreme Court relating to insurance
contracts apply. In this regard, in Eli Lilly, supra, Iacobucci J. only
delved into the question of whether a party could call extrinsic
evidence in after specifically noting (at para. 53) that contra
proferentum and other interpretive principles did not apply, because
Page: 16
the claim was being brought by a third party. In the case before me,
these principles apply and compel me to find in favour of the
plaintiff.
[Emphasis added]
[38] I accept that Mr. Bouchard’s affidavit touches on an underwriting concern about the
avoidance of stacking income benefits. While this is admissible evidence, it is based on a
mischaracterization of the nature of the benefits payable to disabled CF members under the
Pension
Act
. They are not an indemnity for lost income. Rather, they represent compensation for
impairments to the activities in daily living including loss of function and for reductions in the
quality of life. In the result, Mr. Bouchard’s principal underwriting justification for deducting
Pension Act
benefits from a member’s SISIP LTD income (ie. to avoid an excess recovery of lost
income) is untenable. There is nothing untoward or objectionable about a disabled CF member
receiving a
Pension Act disability award in addition to an LTD benefit to compensate for lost
income. It is also not accurate for Mr. Bouchard to say that the Defendant’s offset of benefits under
Article 24(a)(iv) of the SISIP Policy represents a typical approach to the integration of benefits
under an LTD policy. The common law does not permit an LTD insurer to subrogate against an
insured’s non-indemnity entitlements and LTD insurers generally respect that distinction in their
policies: see
Gibson v Sun Life Assurance Co of Canada (1984), 45 OR (2d) 326, 6 DLR (4th) 746
(H Ct J);
Maritime Life Assurance Co v Mullenix (1986), 76 NSR (2d) 118, [1986] NSJ no 479
(QL) (SC (TD)). Where an insurer attempts to achieve a windfall by pursuing the recovery of
something different in kind from what they have paid to the insured, they are frequently
unsuccessful: see
Bannon v McNeely (1998), 38 OR (3d) 659 at paras 49-50, 159 DLR (4th) 223
(CA).
Page: 17
[39] I also do not recognize saving money as a legitimate underwriting concern. It is always in
the interest of the underwriter to save money in responding to claims and that advantage is
primarily, if not completely, obtained at the expense of the insured. Such an argument cannot be
used to assist an insurer or to interpret disputed policy language.
[40] Having determined that the Class is not contractually disadvantaged in the manner
suggested by the Defendant, it is important to recognize the principles that apply to the
interpretation of insurance contracts and, in particular, contracts of adhesion.
[41] In
Jesuit Fathers of Upper Canada v Guardian Insurance Co of Canada, 2006 SCC 21,
[2006] 1 SCR 744, the Supreme Court of Canada discussed the special interpretive rules that apply
to insurance contracts. In doing so, the Court was cognizant of the unequal bargaining power that
exists when the insurance agreement is formed. The following passages from the decision are
instructive:
27 Insurance policies form a special category of contracts. As
with all contracts, the terms of the policy must be examined, in light
of the surrounding circumstances, in order to determine the intent of
the parties and the scope of their understanding. Nevertheless,
through its long history, insurance law has given rise to a number of
principles specific to the interpretation of insurance policies. These
principles were recently reviewed by this Court in
Non-Marine
Underwriters, Lloyd’s of London v. Scalera
, [2000] 1 S.C.R. 551,
2000 SCC 24. They apply only where there is an ambiguity in the
terms of the policy.
28 First, the courts should be aware of the unequal bargaining
power at work in the negotiation of an insurance contract and
interpret it accordingly. This is done in two ways: (1) through the
application of the
contra proferentem rule; (2) through the broad
interpretation of coverage provisions and the narrow interpretation of
Page: 18
exclusions. These rules require that ambiguities be construed against
the drafter. . . .
29 Second, the courts should try to give effect to the reasonable
expectations of the parties, without reading in windfalls in favour of
any of them. In essence, “the courts should be loath to support a
construction which would either enable the insurer to pocket the
premium without risk or the insured to achieve a recovery which
could neither be sensibly sought nor anticipated at the time of the
contract” (
Consolidated-Bathurst Export Ltd. v. Mutual Boiler and
Machinery Insurance Co.
, [1980] 1 S.C.R. 888, pp. 901-902; Non-
Marine Underwriters
, at para.71).
30 Finally, the context of the particular risk must also be taken
into account. . . .
[42] The idea that the Court should look for meaning on the basis of the reasonable expectations
of the parties is not new. It goes back at least as far as the decision in
Consolidated Bathurst Export
Ltd v Mutual Boiler and Machinery Insurance Co,
[1980] 1 SCR 888, [1979] SCJ no 133 (QL),
where Justice Willard Estey held that literal meaning should give way to an interpretation that
promotes a fair and sensible commercial result. A construction that enables either of the parties to
achieve an unintended windfall at the expense of the other is usually to be avoided. It seems to me
that this is another way of saying that context takes precedence over strict literalism in the
interpretation of contracts of insurance. In the face of an ambiguity, however, the doctrine of
contra
proferentem
applies and the reasonable expectation of the insured is always favoured.
[43] It is, therefore, left to the Court to determine what was intended by the phrase “the total
monthly income benefits payable to the member under the Pension Act (including dependant
benefits and retroactive payments . . .)”. The task is not to interpret any particular word or phrase in
isolation but, rather, in the context of the complete agreement and the surrounding circumstances.
Page: 19
The search for meaning is performed by looking objectively for a common intention and one that
achieves a fair and sensible commercial outcome for the parties.
The Plaintiff’s Argument
[44] The Plaintiff’s principal argument for challenging the legality of the Defendant’s offset of
the
Pension Act benefit from the monthly SISIP benefit is that the former is not a “monthly income
benefit” as that phrase is used in Article 24(a)(iv) of the SISIP Policy. According to the Plaintiff,
the word “income” has interpretive significance as a qualifier to the words that precede and follow
it. “Income” signifies an intent to deduct only monthly
Pension Act benefits that can be
characterized as indemnities for lost income. That interpretation gives meaning to the word that is
consistent with its normal grammatical use and conforms with the income replacement character of
the SISIP benefit and the three other offsets described in Article 24. It also conforms to the
common law approach which denies rights of offset or subrogation to an LTD insurer with respect
to an insured’s non-indemnity entitlements.
[45] According to the Plaintiff, if the parties intended to deduct the monthly
Pension Act
disability benefit from the SISIP LTD benefit, there would be no need to use the word “income” at
all. It would have been sufficient to say “the total monthly benefits payable to the member under
the Pension Act”. This approach is employed in Article 64 of the SISIP Policy where the monthly
dismemberment benefit is “reduced by any monthly benefits payable pursuant to . . . [t]he Pension
Act . . .”: see SISIP Policy, Part III(A), art 64 [emphasis added]. The Plaintiff contends that the
addition of the qualifying term “income” in Article 24(a)(iv) indicates a different intent.
Page: 20
[46] In short, the Plaintiff says that the monthly
Pension Act disability benefit that the Defendant
has deducted from his SISIP LTD benefit and from other members of the Class is not payable with
respect to lost income and, therefore, does not qualify as an offset under Article 24(a)(iv).
[47] The Plaintiff invokes the authority of
Stitzinger v Imperial Life Assurance Co of Canada
(1998), 39 OR (3d) 566, 60 OTC 161 (Ct J (Gen Div)), which considered an LTD benefit
integration provision providing for the offset of “total monthly income from all sources”. The
insured recovered damages in an action against a tortfeasor, including damages for lost earning
capacity, that were payable periodically from an annuity. The insurer sought to deduct the annuity
benefits from its LTD obligation. In holding against the insurer, the Court characterized the award
of damages as compensation for the loss of personal ability and not a form of income replacement.
The fact that the damages were payable periodically did “not change their legal character” and the
payments were “not income within the meaning and intention” of the policy. The Court went on to
note that, at common law, the insurer’s right to subrogate against its insured’s collateral recoveries
only arose once the insured’s losses had been fully satisfied and not before. According to the
Plaintiff, this principle is violated by the SISIP offset because a disabled CF member is left
substantially under-compensated upon release. To the same effect is the decision in
Elliott and
Attorney-General of Ontario
, [1973] 2 OR 534 at para 6, [1973] OJ no 1934 (QL) (CA), where the
Court held that compensation for pain and suffering did “not bear the character of income as that
word is ordinarily understood”: see also
Doucet v New Brunswick, 2004 NBQB 398, 283 NBR (2d)
51.
Page: 21
The Defendant’s Argument
[48] The Defendant argues that Article 24 of the SISIP Policy must have been inserted for some
underwriting purpose and that, as it is written, it can only refer to one thing – the deduction of the
Pension Act
disability benefits, including dependent benefits, from the SISIP LTD payment.
According to the Defendant, there are no other extant benefits available to CF members or their
dependents under the
Pension Act that could be deducted.
[49] The Defendant also contends that the word “income” has a broader meaning than the one
the Plaintiff advances. It refers to the expansive definition of “income” in the
Income Tax Act, RSC
1985, c 1 (5th Supp), and in matrimonial cases concerned with spousal and child support. These
examples suggest that the word can include money coming from a diversity of sources including
disability pension benefits. The same point is made concerning the word “revenu” as it is used in
the French text of Article 24 of the SISIP Policy.
[50] The Defendant also relies on the phrase “monthly income benefit” in Articles 23 and 24 in
connection with the SISIP benefit and the offsets for superannuation, Canada and Quebec Pension
Plans and other employment income. According to this view, Article 24(a)(iv) represents a
consistent use of the word “income” in connection with the SISIP benefit and all of the applicable
deductions. A similar point is made about the
Pension Act which prohibits the assignment or
commutation of an award except to the extent of a holdback from a retroactive award to reimburse a
provincial welfare authority. This is said to be a recognition of the integration of
Pension Act
awards with provincial welfare schemes. The Defendant argues that the same is true of the
Page: 22
Departmental offsets that are recognized under section 32(2) of the
Pension Act and intended to
prevent the stacking of federal benefits.
[51] The Defendant further relies on an agreement signed by the Plaintiff and other members of
the Class as a condition of receiving SISIP benefits (the reimbursement agreement). Under that
agreement, a disabled plan member agrees to reimburse the insurer for amounts recovered from
third-party sources “including the Canada Pension Plan, Quebec Pension Plan, Canadian Forces
Superannuation Act, Government Employer Compensation Act (GECA), Worker’s Compensation
Act, Automobile Insurance and the Pension Act”: Affidavit of André Bouchard, Exhibit “D” at
p 40. The Defendant says that this agreement confirms the intent under the SISIP Policy to deduct
Pension Act
disability benefits from LTD income.
Discussion of Issue No. 1: Are the Pension Payments Made Pursuant to Section 21 of the
Pension Act, “total monthly income benefits” as That Term is Described in Article 24(a)(iv)
of Part III(B) of SISIP Policy 901102?
[52] The Defendant contends that Article 24(a)(iv) must include
Pension Act disability benefits
because there is no other extant benefit that would be caught by the provision. The Plaintiff answers
that insurance policies frequently contain generic exclusions or coverage limitations that have no
application to a particular insured or to a particular claim. The Plaintiff adds that the
Pension Act
could be amended at any time to create an income replacement benefit that would be deductible
from the SISIP LTD benefit and thereby give some practical effect to Article 24(a)(iv).
[53] What happened, of course, is that the Defendant did amend the
Pension Act to replace the
monthly
Pension Act disability benefit with a one-time lump-sum award that is not now deductible
Page: 23
from the SISIP LTD income stream. This amendment renders Article 24(a)(iv) of the SISIP Policy
meaningless for future claims so that its only arguable remaining significance is with respect to
claims which predate the
Pension Act amendment. It seems to me that this legislative history adds
some strength to the Plaintiff’s argument that there is nothing inherently problematic about a
contractual provision that limits coverage that has no immediate significance or practical effect.
This is, after all, not a statutory provision where the presumption against tautology might apply. For
a contract of insurance – and particularly group insurance – one could well expect to find limiting
provisions or exclusions that have no present application to a particular claim or claims.
[54] The Defendant’s remaining arguments are not compelling. The fact that the
Income Tax Act
and spousal and child support guidelines incorporate expansive definitions of income is hardly
surprising given the different purposes they serve. The authorities cited by the Plaintiff are stronger
comparators because they are concerned with principles of compensation for injury and related
claims for offset (or subrogation) of collateral source recoveries. Furthermore, it was open to the
CDS to include an expansive definition of “income” in the SISIP Policy but he elected not to do so.
The fact that the French word “revenu” is sometimes used to include pension income is similarly
not surprising inasmuch as many pensions are forms of income replacement or substitution. The
question remains as to whether the word “revenu” includes a disability benefit that bears no
relationship to an income loss. I can identify nothing in the French text of Article 24 that assists the
Defendant on this issue.
[55] The Defendant’s argument that the
Pension Act describes a disability pension as a “benefit”
also fails to answer the interpretive issue arising from Article 24. The essential problem remains
Page: 24
that the
Pension Act does not describe a disability pension as an “income benefit” and clearly it is
not.
[56] The fact that Articles 23 and 24 respectively describe the SISIP benefit and the offsets for
superannuation, Canada and Quebec Pension Plan benefits and employment income as “monthly
income benefits” does not assist the Defendant either because the SISIP benefits and all of the other
offsets identified in Article 24 are forms of income replacement or income substitution that fit
comfortably within the term “monthly income benefits”. This distinction does not detract from the
Plaintiff’s interpretation but actually supports it.
[57] The Defendant’s argument that sections 30 and 32 of the
Pension Act confirm an intent to
integrate disability pensions with the SISIP LTD benefits fails for much the same reason. The fact
that the
Pension Act recognizes and limits certain benefit overlaps does not mean that Article 24 of
the SISIP Policy accomplishes the same result. There is no question that the CDS is fully capable of
creating a lawful offset of benefits by statute or by contract notwithstanding the harshness of the
result. But when he does so by contract, clear language must be used to express that intent.
[58] The Defendant also invokes the reimbursement agreement signed by Class members which
states that CF members’ LTD benefits will be set off by other sources of income including
Pension
Act
benefits. However, I give this document no weight as a guide to interpreting Article 24 of the
SISIP Policy. It is an after-the-fact document that does not alter the SISIP Policy and, according to
Mr. Bouchard’s affidavit at paragraph 40, CF members are required to sign it as a condition of
receiving benefits. I would add that this agreement purports to include sources of income that are
Page: 25
nowhere referenced in the SISIP Policy (ie. Workers Compensation, automobile insurance) as
appropriate offsets and, therefore, appears to include recoveries that cannot be contractually justified
under the SISIP Policy. If anything, this document reflects a profound misunderstanding by the
Defendant about what is contractually appropriate to demand from an insured in terms of third-party
benefit offsets or recoveries.
[59] I have no doubt that the CDS could have drafted a provision that clearly authorized the
deduction of a CF member’s
Pension Act pension benefit from the SISIP LTD benefit. There is,
after all, no limit on what the parties to a contract may stipulate. However, the CDS drafted
Article 24 of the SISIP Policy by incorporating the limiting term “income” with respect to the offset
of
Pension Act benefits. The CDS did not include that limiting term in a number of other offset
provisions in the SISIP Policy or in the
War Veterans Allowance Act, RSC 1985, c W-3. And more
recently, a reduction to the earnings loss benefits payable under the
Canadian Forces Members and
Veterans Re-establishment and Compensation Regulations
, SOR/2006-50, was claimed for
“disability pension benefits payable under the
Pension Act”: see s 22(a). This provision very clearly
captures the
Pension Act disability benefit and the different approach in Article 24 indicates a
different intent.
[60] It seems to me that the term “income” cannot be ignored. The word is entirely unnecessary
if the intention was to provide for the deduction of
Pension Act disability benefits. In common
parlance, an “income benefit” is not a benefit in the nature of a
Pension Act disability award and, at
common law, the distinction is rigorously enforced by preventing an insurer from limiting its
liability in the way that the CDS has done against members of the Class. In fact, the common law
Page: 26
rationale behind the insurer’s right to subrogate against the insured’s collateral recoveries is to
prevent double recovery. The right to subrogate is not recognized where the effect is to leave the
insured under-compensated. This point is expressed by the Ontario Court of Appeal in the
following passage from
Bannon v McNeely, above, at paras 48-49:
48 In Jang, supra, Lambert J.A. for the British Columbia Court of
Appeal, concluded that:
The theory underlying s. 24 of the Insurance (Motor Vehicle) Act
is that there should not be double compensation for the same loss.
But that does not mean that all of the benefits paid under Pt. 7 must
be deducted one way or another from some item of damages, or from
the total award of damages.
It is only where the benefit corresponds
with the particular heading of claim for damages that the benefit is to
be deducted, and then only from the award for that particular head
of damages.
The requirement that the benefit match the claim is
implicit in the legislative scheme as it was described in Baart v.
Kumar, supra, and is explicit in s. 24(2), which matches "a claim for
damages" with "benefits respecting the claim." I do not think that the
claim there referred to is the whole claim; rather, it is a claim to a
particular heading of loss matched by a particular heading of
benefits. There was no match in this case between the benefits paid
to Mrs. Jang for homemaker disability and the claim made by Mrs.
Jang for general damages for pain, suffering and loss of amenities of
life. [Emphasis added]
49 Notwithstanding the far-reaching proposition I have quoted
from O'Donnell and most of the trial level decisions referred to
above, my opinion with respect to the deductibility of no-fault
benefits is more in accord with the approach taken by the British
Columbia Court of Appeal in Jang, supra. I believe that, where
possible, any no-fault benefit deducted from a tort award under s.
267(1)(a) must be deducted from a head of damage or type of loss
akin to that for which the no-fault benefits were intended to
compensate. In other words, and employing the comparison of
Morden J. in Cox, supra, if at all possible, apples should be deducted
from apples, and oranges from oranges. It follows further from this
conclusion that if the no-fault deduction exceeds the amount awarded
under the specific head of damages to which the no-fault benefits can
be attributed, then there cannot be resort to another portion of the tort
judgment for the balance. The particular plaintiff must account for
no-fault benefits to which he or she is entitled, but where as in the
case on appeal, the plaintiffs' case consisted of evidence directed
Page: 27
towards a tort judgment for a net award, the no-fault benefits have
been accounted for under appropriate damage headings.
[Emphasis added]
[61] The Defendant’s interpretation of Article 24(a)(iv) of the SISIP Policy is inconsistent with
the above approach and results in the substantial under-compensation of disabled CF members
following their release. The Defendant’s interpretation of Article 24(a)(iv) also creates particular
hardship for those who are the most in need of their
Pension Act benefits because of disabling
injuries.
[62] Viewed contextually and with the reasonable expectations of the parties in mind, what was
the common intent behind the use of the word “income” to qualify the word “benefit”? Would
anyone examining the SISIP Policy reasonably expect that a
Pension Act disability benefit that
bears no relationship to lost future income would, in the event of a disabling injury, be deducted
from a CF member’s SISIP income replacement benefit? Of perhaps greater significance is whether
a CF member who suffers a catastrophic combat injury at a level approaching 100% disability
would expect to effectively receive nothing more than 75% of his CF income and to be treated the
same as a CF member with a disability of lesser functional significance arising outside of his
military service.
[63] It seems to me that to ask these questions is to answer them. Giving effect to the SISIP
offset of
Pension Act disability benefits wholly deprives disabled veterans of an important financial
award intended to compensate for disabling injuries suffered in the service of Canadians. The SISIP
offset effectively defeats the Parliamentary intent that is inherent in the
Pension Act which is to
Page: 28
provide modest financial solace to disabled CF members for their non-financial losses. The
approach adopted by the Defendant does not lead to a fair or sensible commercial result and defeats
the reasonable expectation of CF members. CF members looking at the SISIP Policy and, in
particular Article 24, would expect that they were obtaining a meaningful and not illusory LTD
benefit payable over and above their
Pension Act disability entitlement for the loss of personal
amenities. This view is enhanced by the fact that disabled CF members who continue with their
active service are entitled to be paid and to keep their
Pension Act disability benefits and by the fact
that they lose their right of action against the Crown to pursue claims to damages (including income
losses) if a
Pension Act benefit is payable: see Crown Liability and Proceedings Act, RSC 1985, c
C-50, s 9. The practical consequence of the claimed offset is to substantially reduce or to extinguish
the LTD coverage promised to members of the Class by the SISIP Policy with particularly harsh
effect on the most seriously disabled CF members who have been released from active service.
That is an outcome that could not reasonably have been intended and I reject it unreservedly.
[64] Even if I am wrong in the interpretation I have placed on Article 24(a)(iv), the issue must be
resolved against the Defendant on the basis of the principle of
contra proferentem. Where a policy
of insurance contains exceptions and limitations to coverage, it is incumbent on the drafter to use
language that clearly expresses the extent and scope of those limiting provisions: see
Indemnity
Insurance Co of North America v Excel Cleaning Service
, [1954] SCR 169 at para 35, 1954
CarswellOnt 132 (WL Can). Here, the offset Canada has applied represents a substantial limitation
to a CF member’s LTD coverage: a limitation that effectively deprives the most seriously disabled
CF members from recovering much, if anything, for their income losses. Because the CDS did not
make it “perfectly clear” that he could deduct a member’s
Pension Act disability pension from the
Page: 29
SISIP LTD benefit, any ambiguity stands to be resolved in favour of the Plaintiff and the other
members of the Class: see
Canada Life v Donohue, above, at para 14.
[65] Having determined that the Defendant’s offset of
Pension Act disability benefits from LTD
income payable under the SISIP Policy is not contractually justified, it is unnecessary to consider
the second issue raised by the parties. A further case-management meeting with counsel will be
convened to discuss the implications of this decision for the continuation of the proceeding.
Page: 30
ORDER
THIS COURT ORDERS that
the Defendant’s offset of Pension Act disability benefits
from the SISIP LTD income payable to the Plaintiff and to the other members of the Class is in
breach of Article 24(a)(iv) of the SISIP policy.
"R.L. Barnes"
Judge
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET:
T-463-07
STYLE OF CAUSE:
MANUGE v HMTQ
PLACE OF HEARING:
Halifax, NS
DATE OF HEARING:
November 16 and 17, 2011
REASONS FOR JUDGMENT:
BARNES J.
DATED:
May 1, 2012
APPEARANCES:
Ward Branch
Daniel Wallace
FOR THE PLAINTIFF
James Gunvaldsen-Klaassen
Lori Rasmussen
FOR THE DEFENDANT
SOLICITORS OF RECORD:
McInnes Cooper
Halifax, NS
and
Branch MacMaster
Vancouver, BC
FOR THE PLAINTIFF
Myles J. Kirvan
Deputy Attorney General of Canada
Halifax, NS
FOR THE DEFENDANT