On June 4, 2015, the NS Court of Appeal decided the value of future CPP disability benefits is deductible under the SEF 44 family protection endorsement because they fall into the definition of “any policy of insurance providing disability benefits or loss of income benefits”. The decision changes the law in NS, diverging from the NB law on the issue. The NS decision to go its own way creates two conflicting lines of authority on the issue of the deductibility of CPP disability benefits under the SEF 44 endorsement in Atlantic Canada – and uncertainty over which road PEI and NL will follow.

The claimants were in a motor vehicle accident.  Their claims were settled based on the Section A policy’s $500,000 limit of coverage.  They subsequently sued for the balance of their actual damages under the SEF44 endorsements in their respective policies. One issue: is the value of the claimants’ future CPP disability benefits deductible under the SEF 44. The NS Supreme Court said yes; the NS Court of Appeal agreed:

• Purpose of SEF 44 Endorsement. The SEF 44 endorsement is intended to provide “last ditch” or “safety net” coverage that exceeds any amount the insured actually recovers. Since it is an indemnity policy only intended to cover the insured up to the extent of her loss, it should not provide a “windfall of double recovery”.

• “Any policy of insurance” includes CPP Disability Benefits. In this context, the term “any policy of insurance” unambiguously includes CPP disability benefits. The Court of Appeal particularly relied on the Supreme Court of Canada’s decision in Canadian Pacific Railway v. Gill, [1973] SCR 654. The SCC decided that pensions payable under the CPP have the same nature as insurance contracts and are included under the definition of “any policy of insurance” – and are deductible – for the purpose of the BC Families Compensation Act.

Read the NS Court of Appeal’s decision in Portage Le Prairie Mutual Insurance Company v. Sabean and Hallett, 2015 NSCA 53.

Atlantic Canada Impact. Before the Sabean decision, there was but one line of Court of Appeal authority on the issue of the deductibility of CPP disability benefits under SEF44: that from NB, which NS and PEI had adopted. The Sabean decision changes the law in NS, diverging from NB and creating two conflicting lines of authority in Atlantic Canada and uncertainty in PEI and NL:

• New Brunswick. The Sabean decision takes NS in a different direction than NB. In Economical Mutual Insurance Co. v. Lapalme, 2010 NBCA 87, the NB Court of Appeal considered the same section of the SEF44 endorsement. The Court decided that CPP disability benefits paid to the insured between the date of her loss, and of her damages assessment (in minutes of settlement or a trial decision) are deductible because they were “actually recovered by an eligible claimant from any source”. But future CPP disability benefits are not deductible: CPP disability benefits might be a “substitute” for a disability insurance policy for purposes of the common law collateral rule, but the analogy does not transform CPP into an insurance policy for the purposes of section 4(b) of the NBEF44.  The As did the NS Court of Appeal in Sabean, the NB Court considered decisions that adopted Canadian Pacific Railway v. Gill to define CPP as an insurance policy but preferred the Ontario approach that benefits under statutory schemes are not an insurance contract (Ellis v. Fisher, 1977 CanLII 1277(ONSC), affirmed [1978] OJ No. 3715 (CA)). The NB Court also considered the dictionary definition of “insurance policy” and that in the NB Insurance Act, concluding each contemplates a document that evidences an insurance contract and therefore excluded legislation providing benefits.

• PEI. The decision creates uncertainty in PEI. In 2003, the PEI Court of Appeal decided a SEF44 insurer is entitled to deduct future WCB benefits in MacNeill v. The Co-operators General Insurance, 2003 PESCAD 9 (CA) but SEF44 section 4(b) lists future WCB benefits as a specific deduction. So this decision does not necessarily indicate a preference for the NS approach.

• Newfoundland and Labrador. The greatest uncertainty lies in NL where courts have not yet considered this issue at all. Like PEI, NL courts now face two Court of Appeal decisions, both of which will be persuasive, if not binding, and two divergent approaches with no indication which NL courts will prefer.

Insurance Act section 113A implications. There might be a question whether the Sabean decision has any implications for the interpretation of section 113A of the NS Insurance Act. Section 113A provides for “all payments in respect of the incident” for income loss or loss of earning capacity under the laws of any jurisdiction to be deducted from awards for income loss and loss of earning capacity. Its object is to narrow the scope of the common-law collateral benefits rule to reduce potential double recovery for loss of income.  We do not believe the Sabean decision has any implications for the interpretation of this section. Section 113A is limited to “payments in respect of the incident” giving rise to the loss of income claim. Several decisions (most recently Hollett v. Yeager, 2014 NSSC 207) have concluded that CPP disability benefits are a non-indemnity benefit triggered by the claimant’s disability – not by the incident giving rise to that disability. The phrase “any insurance policy” in the SEF44 endorsement is broad enough to include both indemnity and non-indemnity insurance policies. But “all payments in respect of the incident” can only include indemnity policies so CPP disability benefits are not deductible under section 113A of the Insurance Act.

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Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Insurance Defence Team to discuss this topic or any other legal issue.

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