The standard form SEF 44 endorsement (The Endorsement) was recently interpreted by the Supreme Court of Canada in the case of Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7. The Endorsement indemnifies an eligible claimant from any shortfall in the payment of a personal injury judgment for damages arising from an underinsured tortfeasor but is subject to a list of deductions as set out in The Endorsement. One of the deductions states that all future benefits from a "policy of insurance providing disability benefits or loss of income benefits or medical expense or rehabilitation benefits" are deducted from the shortfall which the insurer must pay. The issue arising in this appeal was whether Canadian Pension Plan (CPP) disability benefits are "a policy of insurance." The Supreme Court of Canada determined that the wording of The Endorsement was unambiguous – an insurer cannot rely on any specialized knowledge of the insurance industry to advance an interpretation beyond the plain meaning of The Endorsement. An average person would equate a "policy of insurance" to mean an optional private insurance contract and not a mandatory statutory scheme such as CPP. As a result, future CPP disability benefits do not reduce the amount payable by the insurer under The Endorsement and cannot be deducted.
Sabean was injured in a motor vehicle accident and was awarded damages of $465,400. The tortfeasor's insurer paid approximately $382,000. Sabean claimed the shortfall from his own insurer under The Endorsement. The trial judge found that CPP benefits were not from a "policy of insurance" and therefore were not deductible. The Nova Scotia Court of Appeal found CPP disability benefits were a "policy of insurance," and overturned the trial judge's decision.
Justice Karakatsanis, writing for the Supreme Court of Canada, agreed with the trial judge that the CPP was not a "policy of insurance" based on the ordinary meaning of the words. Clause 4(b)(vii) of The Endorsement allows amounts recoverable under "any policy of insurance providing disability benefits or loss of income benefits or medical expense or rehabilitation benefits" to be deducted from the shortfall of damages to be paid by the insurer to the claimant.
The Court reiterated the principles of contract interpretation applicable to standard form insurance contracts that were confirmed in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37. The overriding principle is that where the language is unambiguous, effect should be given to the clear language, reading the contract as a whole.
The Court looked at the dictionary meaning of the words "policy of insurance" to find that it refers to a private contract purchased as a policy of insurance. In contrast, CPP benefits are provided under federal legislation, where the contributions are mandatory.
The Court found that the use of the word "policy" clearly indicates a private contract of insurance. It found that the reference to other legislation, such as the Worker's Compensation Act, show that the contract could have specifically referenced and included CPP benefits, if that was the intention.
The Respondent insurer argued that the decision in Canadian Pacific Ltd. v. Gill et al., 1973 SCR 654 which dealt with deductibility of CPP death benefits arising from an action under the Families' Compensation Act, showed that the CPP benefits are "so much of the same nature as contracts of insurance." The Court found that Gill was determined in a different context of interpretation of a distinct statute.
Further, the Court found that it cannot be assumed that the average person who applies to purchase the excess insurance under The Endorsement would know how such words have been interpreted by the Courts for the purposes of insurance legislation. This person is not someone with specialized knowledge of related jurisprudence or of the objectives of the insurance industry.
As a result, the Court found that an average person would not consider benefits provided under a mandatory statutory scheme to be a private insurance contract, and therefore not within the meaning of a "policy of insurance." The clear language of the provision is unambiguous, and therefore the CPP benefits are not deductible from the amounts payable by the insurer under The Endorsement.
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