The author wish to thank Claudie Bélisle‐Desjardins, Marketing Intern, for her contribution
Future Canada Pension Plan ("CPP") disability benefits do not reduce the amount an insurer must pay out under a standard form contract providing underinsured motorist coverage ruled recently the Supreme Court of Canada. In reaching its decision, the court made clear that when interpreting a standard insurance policy, the words used must be given their ordinary meaning as understood by the average person applying for insurance.
In May 2013, Andrew Sabean was injured in a motor vehicle accident. As a result of a lawsuit brought against the other driver’s, a jury awarded him damages of $465,400, which exceeded the latter’s liability insurance, leaving a shortfall of $83,000. Sabean turned to his own insurer and claimed the amount of $83,000 under Nova Scotia SEF 44 Endorsement, a standard form contract. Because the Endorsement provides that amounts recoverable under "any policy of insurance providing disability benefits" are to be deducted from any shortfall, the insurer argued that future CPP disability benefits could be deducted from the amount payable thereunder.
The trial judge held that CPP disability benefits were not benefits recoverable from a “policy of insurance” under the Endorsement and thus could not be deducted from the amount payable. The Nova Scotia Court of Appeal, basing its decision on the drafting history of the policy and past case law, overturned the trial judge’s finding.
In its ruling, the Supreme Court revisited the principles of contract interpretation applicable to standard form insurance contracts and stated that "[t]he overriding principle is that where the language of the disputed clause is unambiguous, reading the contract as a whole, effect should be given to that clear language." The court also added that in the context of standard form insurance contract, "the words used must be given their ordinary meaning, as they would be understood by the average person applying insurance, and not as they might be perceived by persons versed in the niceties of insurance law".
It underlined the fact that an insurer cannot rely on its specialized knowledge of jurisprudence to advance an interpretation that goes beyond the clear words of a policy. The purchaser of insurance, the court wrote, “is not someone with the specialized knowledge of related jurisprudence or of the objectives of the insurance industry". Thus, the history and intention of the insurance industry in drafting the Endorsement could not assist in its interpretation.
Unlike the interpretation of statutes, where courts will look at the history and statutory context, as well as the intention of the legislator in drafting the law, when it comes to a standard form insurance policy, courts should rely on the ordinary meaning of the contract "as it would be understood by the average insured".
In light of the above, the court held that the ordinary meaning of a "policy of insurance", reading the Endorsement as a whole, is unambiguous. It refers to a private insurance policy purchased by an insured – not to a mandatory statutory protection such as the CPP. An average person would not consider benefits provided under a mandatory scheme to be a private insurance contract. As a result, the court concluded that future CPP disability benefits could not be deductible from the amount payable under the Endorsement.