Sabean v Portage La Prairie Mutual Insurance Co : Applying Ledcor and Ordinary Meaning
In its most recent decision, Sabean v Portage La Prairie Mutual Insurance Co, 2017 SCC 7 [Sabean], the Supreme Court of Canada (“SCC”) interprets whether the Canada Pension Plan (“CPP”) is a “policy of insurance providing disability benefits” within the meaning of certain insurance contract clauses. The case involves the interpretation of a Nova Scotia excess insurance policy, the SEF 44 Endorsement (“Endorsement”). The Endorsement is a standard form contract that exists in similar variations in other provinces. The Endorsement indemnifies the insured for any shortfall in the payment of damages awarded as a result of an accident. The Endorsement also sets out deductions to the shortfall that the insurance company can use for its calculations.
The Endorsement at issue stipulated that future benefits from a “policy insurance providing disability benefits” are deductible from the shortfall payable by the insurance. The question before the SCC was whether the CPP is a policy of insurance for the purpose of such contracts.
The decision in Sabean is not likely to impact Ontario law because it deals with a very specific insurance standard form contract in Nova Scotia. Nonetheless, it is significant as an example of how the SCC uses the contract interpretation approach it recently outlined in Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37 [Ledcor]. For an analysis of Ledcor see here.
Andrew Sabean was injured in a motorcycle accident in 2004. In 2013, Mr. Sabean was awarded damages for his injuries in the amount of $465,400. The amount Mr. Sabean received from the tortfeasor’s insurance was $382,000. The short fall of $83,000 was to be covered by Portage La Prairie Mutual Insurance Company (“Portage”), Mr. Sabean’s own insurance.
Clause 4(b)(vii) of Portage’s Endorsement stipulated that the amount to be recovered under “any policy of insurance providing disability benefits or loss of income benefits or medical expenses or rehabilitation benefits” are to be deducted from the shortfall of the damages in determining the amount payable by the insurer (Sabean, para 7). Portage wanted to deduct CPP benefits from the payment it had to make to Mr. Sabean.
At trial, the judge found that CPP benefits were not benefits from a “policy of insurance” and thus should not be deducted from the amount payable by the insurer (Sabean v Portage LaPrairie Mutual Insurance Company, 2013 NSSC 306). The Nova Scotia Court of Appeal (“NSCA”) disagreed and ruled that the CPP was a “policy of insurance” under the Endorsement and as such was deductible (Portage LaPrairie Mutual Insurance Company v Sabean, 2015 NSCA 53).
The SCC on the CPP
Justice Karakatsanis, for a unanimous court, agreed with the trial judge. She pointed out that an average person reading the insurance policy would understand the words “policy insurance” to mean an optional private insurance and not a mandatory statutory scheme (Sabean, para 4).
Justice Karakatsanis then applied the steps outlined by the SCC in Ledcor in her analysis. In Ledcor, the SCC confirmed that where the language of a disputed contract clause is unambiguous, reading the contract as a whole, effect should be given to the clear language (para 49). General rules of contract construction should apply only to cases where the language in the policy is ambiguous (para 50). Where the general rules of construction fail to resolve the ambiguity courts should interpret the coverage provisions broadly and the exclusion clauses narrowly (para 51).
In standard form contracts of insurance, the words used must be given ordinary meaning. The insurer argued that the overarching purpose of the Endorsement was to prohibit compensation. Justice Karakatsanis found that the existence of an excess insurance policy that provides coverage in excess to losses covered by a primary insurance company does not signal that the purpose of the Endorsement is to preclude “overcompensation” (Sabean, para 19).
Following the analysis outlined in Ledcor, the introductory words of clause 4(b) of the Endorsement stipulate that amounts recovered from “any source” are deductible from the amount payable to the claimant (para 22). This definition of “any source” is broad and can include CPP disability benefits. With respect to the amount that the eligible claimant is “entitled to recover,” clause 4(b) specifies nine sources that give rise to deductions and CPP is not outlined.
Justice Karakatsanis used the dictionary definition of “policy of insurance” to show that it commonly refers to a private contract (para 24). CPP benefits are provided under the federal Canada Pension Plan, RSC 1985, c C-8, and come with mandatory contributions; and as such, the CPP scheme is not a policy of insurance. Justice Karakatsanis asserted that had the contract included the legislated CPP disability benefits under clause 4(b) the average person would have known exactly what was not covered by the premiums paid (para 26). Thus, the ordinary meaning of “policy of insurance” should be limited to private contract of insurance.
Portage had argued that the SCC decision in Canadian Pacific Ltd v Gill,  SCR 654 [Gill], supports an alternative, reasonable interpretation of the disputed words at the first stage of Ledcor. The SCC had found in Gill that, for the purposes of the collateral benefits rule and the assessment of an award of damages in tort, CPP benefits were “an exact substitute for a privately arranged insurance policy (para 33).
Justice Karakatsanis rejected the argument that Portage could rely on Gill to illustrate that it intended to include CPP benefits in the list of benefits that would be deducted in the about calculations (para 35). It is also unreasonable that the average person who applies to purchase this excess insurance policy would consider the words in the policy with knowledge of how they were interpreted in the context of provincial insurance legislation and the collateral benefits rule in Gill (para 35). Further, Gill dealt only with the amount of damages and legislative intent and could thus be distinguished from Sabean.
In the end, Justice Karakatsanis maintained that the mere articulation of a differing interpretation of the policy does not always establish the reasonableness of that interpretation and does not necessarily create ambiguity (para 42). The appeal was allowed with costs.
Standard Form Insurance Contracts
The issue in Sabean was a very narrow one as the SCC was asked to look a very specific insurance contract in Nova Scotia. The SCC judgment brings Nova Scotia in line with other Atlantic provinces where CPP benefits are not deductible unless specified. Sabean does not change the law in provinces where CPP benefits have been found to be deductible in similar insurance claims.
Sabean is still important for all Canadian jurisdictions in its analysis of standard form contracts. In Sabean the SCC is sending a clear message that laws of contract interpretation apply to standard form insurance contracts. Meaning that, creative readings of standard form contracts by insurers are not likely to be upheld and are strongly discouraged. Justice Karakatsanis specifically says that “specialized knowledge of the jurisprudence” by the insurers cannot be relied on to advance a different interpretation of the standard form contract that goes beyond the clear words of the policy (para 4). For insurers and the insured alike, the analysis in Sabean will lead to more clarity in insurance contracts as insurers outline and clarify what is and is not included in the policies.