Following its ruling in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, the Supreme Court of Canada, in Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, has once again addressed the interpretation of standard form insurance contracts.
The unanimous ruling pertains to Nova Scotia’s SEF 44 Endorsement (the "Endorsement"), an insurance policy that may be purchased by an insured person in addition to regular automobile insurance. The endorsement covers the insured victim of an accident for amounts that the motorist who is responsible for the accident is unable to pay. Thus, if the victim of an automobile accident cannot be compensated by the person responsible for the accident to the extent that a Court of law decides is just, coverage pursuant to the Endorsement will cover the shortfall.
However, the Endorsement, which is a standard form contract, is subject to several deductions, one of which is the focus of the Supreme Court ruling. Specifically, the Endorsement provides that any amounts that are recoverable by the insured under any “policy of insurance” providing disability benefits are to be deducted from the amount due by the insurer.
Using its specialized knowledge of insurance law jurisprudence, the insurer argued that the Canada Pension Plan (“CPP”) constitutes a “policy of insurance.” Based on this interpretation, the insurer argued that it could deduct CPP benefits from the amount it owed the insured pursuant to the Endorsement.
The Supreme Court refused to read into the words of the Endorsement, indicating that, in the absence of any ambiguity, the standard form contract must be interpreted through the eyes of an average person applying for the coverage in question. Indeed, such a person would understand a “policy of insurance” to mean an optional, private insurance contract and not a mandatory, statutory scheme like the Canada Pension Plan.
In the Absence of Ambiguity, the Analysis of Standard Form Contracts Must Not Go Beyond the Clear Words of the Contract
Contrary to its analysis in Ledcor, in which the intention of the parties was analyzed, the Supreme Court in Sabean saw no need to go beyond the clear words of the contract:
[13] At the first step of the analysis for standard form contracts of insurance, the words used must be given their ordinary meaning, “as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law”[…].
The Court asked what meaning an average person reading the contract would give to the term “policy of insurance”:
[26] The use of the word “policy” (i.e. “motor vehicle liability policy”) in cl. 4(b), paras. (v) and (ix), clearly indicates a private contract of insurance. […] The contract could have included the legislated CPP disability benefits under cl. 4(b)(vii); it referred specifically to legislated amounts in a number of other enumerated sources. Had the contract done so, an average person would have known exactly what they applied for as insurance, and what was and was not covered by the premiums paid under the Endorsement.
From the perspective of the average person, the seven judges of the supreme Court had no doubt as to the meaning of the contentious words:
[28] In my view, the ordinary meaning of a “policy of insurance” is limited to private contracts of insurance between an insured and a private insurance agency. An average person would not consider benefits provided under a mandatory statutory scheme to be a private insurance contract.
Setting Aside the Insurer’s Reasonable Alternative Interpretation
The Supreme Court did not allow an alternative reasonable interpretation stemming from the insurer’s specialized knowledge to prevail over that of the average person reading a standard form contract:
[35] First, it is wrong to rely on Gill to illustrate that insurance companies amended their policies in light of that judgment and thus intended to include CPP benefits. It cannot be assumed that the average person who applies to purchase this excess insurance policy would imbue the words in the Endorsement with knowledge of how they were interpreted by the courts for the purposes of provincial insurance legislation and the collateral benefits rule in tort. In this context, the purchaser 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 following Gill do not assist in the interpretation of this contract.
Interpreting a statute is different from interpreting a standard form contract, for which the focus must be on the insured:
[37] […] When interpreting a statute, the court searches for the intention of the legislature. In interpreting a standard form policy of insurance, the court is concerned with the ordinary meaning of the contract as it would be understood by the average insured.
The alternative interpretation, however reasonable, does not have the effect of creating ambiguity in words that are otherwise clear:
[42] The clear language of the provision, reading the contract as a whole, is unambiguous. There are no “two reasonable but differing interpretations of the policy”: […] The mere articulation of a differing interpretation does not always establish the reasonableness of that interpretation and does not necessarily create ambiguity.
Thus, the Supreme Court decided that benefits received under the Canada Pension Plan are not disability benefits from a “policy of insurance” and are therefore not deductible from the amounts payable by the insurer under the Endorsement.