2012 FC 499, 2012 FC 499

[2013] 4 F.C.R. 647 T-463-07 2012 FC 499 Dennis Manuge ( Plaintiff ) v. Her Majesty The Queen ( Defendant ) Indexed as: Manuge v. Canada Federal Court, Barnes J.—Halifax, November 16 and 17, 2011; Ottawa, May 1, 2012.

Veterans — Disability benefits — Motion for preliminary determination of question of law in class proceeding brought by plaintiff on behalf of approximately 4 500 former members of Canadian Forces (Class) — Proceeding involving legality of defendant’s policy of reducing long-term disability (LTD) benefits payable to disabled Canadian Forces (CF) members under CF Service Income Security Insurance Plan (SISIP) Policy No. 901102 by monthly amounts payable to members under Pension Act — SISIP constituting income replacement scheme, intended to replace percentage of CF member’s lost income due to inability to work; Pension Act providing pensions, other benefits to CF members except in specific circumstances — Whether pension payments made pursuant to Pension Act, s. 21 constituting “total monthly income benefits” as term described in SISIP Policy No. 901102,

Part III (B), S. 24(a)(iv) — Nature of benefits payable to disabled CF members under Pension Act mischaracterized — Not indemnity for lost income but representing compensation for impairments to activities in daily living, for reductions in quality of life — Nothing objectionable about disabled CF member receiving Pension Act disability award in addition to LTD benefit to compensate for lost income — Open to Chief of Defence Staff (CDS) to include expansive definition of “income” in SISIP Policy but electing not to do so — Pension Act not describing disability pension as “income benefit”; clearly not constituting such benefit — Term “income” cannot be ignored — CDS drafting SISIP Policy, S. 24 by incorporating limiting term “income” with respect to offset of Pension Act benefits while not including limiting term in other offset provisions in SISIP Policy — Defendant’s

interpretation of SISIP Policy, S. 24(a)(iv) resulting in substantial under-compensation of disabled CF members following release; creating hardship for those most in need of Pension Act benefits — Giving effect to SISIP offset of Pension Act disability benefits wholly depriving disabled veterans of important financial award intended to compensate for disabling injuries suffered in service of Canadians — Practical consequence of claimed offset to substantially reduce or extinguish LTD coverage promised to members of Class by SISIP Policy — Defendant’s offset of Pension Act disability benefits from SISIP LTD income breaching SISIP Policy

Section 24(a)(iv). Insurance —

Interpretation of insurance contract in Armed Forces context — Motion to resolve contractual aspect of dispute in present proceeding involving legality of defendant’s policy of reducing long-term disability (LTD) benefits payable to disabled Canadian Forces (CF) members under CF Service Income Security Insurance Plan (SISIP) Policy No. 901102 by monthly amounts payable to members under Pension Act — Whether members of CF represented herein (Class) not parties to insurance contract, obliged to accept

interpretation of SISIP Policy that Chief of Defence Staff (CDS), private insurer adopting — While members of Class not parties to contract entered into between CDS, private insurance company, not strangers to SISIP Policy, not legally incapable of advancing own

interpretation of contractual language — Where entire risk underwritten by CDS, managed by insurance company, de facto insurer constituting CDS, de facto insureds constituting CF members — SISIP Policy expressly recognizing status of CF members as insureds, in particular, under SISIP Policy, S. 52 — CF members’ premium contributions inconsistent with defendant’s argument that only insured party CDS — In interpreting contract of insurance, search not for subjective intent of either contracting party but for common intent of both parties — Even if SISIP Policy, S. 24(a)(iv) wrongly interpreted, issue having to be resolved against defendant on basis of principle of contra proferentem.

This was a motion for a preliminary determination of a question of law brought under rule 220 of the Federal Courts Rules in the context of a class proceeding brought by the plaintiff on behalf of approximately 4 500 former members of the Canadian Forces (the Class). At issue in this proceeding was the legality of the defendant’s policy of reducing long-term disability (LTD) benefits payable to disabled Canadian Forces (CF) members under the CF Service Income Security Insurance Plan (SISIP) Policy No. 901102 by the monthly amounts payable to those members under the Pension Act .

The Class submitted that this offset of benefits was not contractually justified and that it also violated subsection 15(1) of the Canadian Charter of Rights and Freedoms . The central element to the dispute was the

interpretation of

Section 24 of the SISIP Policy and, in particular, whether monthly benefits payable to disabled CF members under the Pension Act are “monthly income benefits” as that phrase is used in the SISIP Policy. The Class argued that the Pension Act payments are non-indemnity disability benefits intended to compensate CF members for impairments to their quality of life and limitations on their activities of daily living. Since these payments are not a form of income replacement, they are not caught by the benefit offset in

Section 24(a)(iv) of the SISIP Policy, which only permits the deduction of “monthly income benefits”. The defendant argued that the contracting parties, the Chief of Defence Staff (CDS), and the insurance company intended to offset these benefits and, in the context of the entire scheme, that intention was manifest in the specialized language they used. SISIP was created because existing benefits programs accessible to CF members were considered inadequate. Initially, the SISIP LTD benefit was reduced by amounts received by disabled CF members under other plans.

In 1976, the SISIP and the Pension Act schemes came together given the inadequacy of the monthly Pension Act benefits. SISIP is an income replacement scheme and is intended to replace a percentage of a CF member’s lost income due to the inability to work. The Pension Act provides pensions and other benefits to CF members except in specific circumstances.

Based on the Pension Act and the 2006 Table of Disabilities, the monthly benefit payable to disabled members of the CF is not intended to be a form of income replacement but is designed to compensate for the loss of amenities of life and for the personal limitations and sacrifices that arise from disabling injuries. The issues were whether the members of the Class were not parties to the insurance contract and had to accept the

interpretation of the SISIP Policy that the CDS and private insurance company adopted and whether pension payments made pursuant to

section 21 of the Pension Act constitute “total monthly income benefits” as that term is described in

Section 24(a)(iv) of

Part III (

B) of SISIP Policy No.

901102. Held , the defendant’s offset of Pension Act disability benefits from the SISIP LTD income payable to the plaintiff and to the other members of the Class is in breach of

Section 24.a.(iv) of the SISIP policy. While the members of the Class were not parties to the contract entered into between the CDS and the private insurance company, they are not strangers to the SISIP Policy and are not legally incapable of advancing their own

interpretation of the contractual language. In the context of the extant contractual relationship between the CDS and the insurance company where the entire risk is underwritten by the CDS and managed by the insurance company, the de facto insurer is the CDS and the de facto insureds are CF members. CF members have always paid or contributed to the cost of the program and the SISIP Policy expressly recognizes their status as insureds. In particular, under

Section 52 of the SISIP Policy, the CF members are expressly recognized as insureds and their premium contributions were inconsistent with the defendant’s argument that the only insured party is the CDS. Here, it is the insured CF members and Canada, through the CDS, that have competing interests while the insurance company is a largely, if not entirely, disinterested third party. The defendant’s argument that the

interpretation of

Section 24 may be aided by the contractual history and Treasury Board motives was also misguided. While it may well have been the CDS’ intention to set off the Pension Act disability benefit from the SISIP LTD benefit, the Policy is not a statutory instrument to be interpreted by means of a search for a Parliamentary intent.

In interpreting a contract of insurance, the search is not for the subjective intent of either contracting party but rather for the common intent of both parties which can hopefully be found in the language they have employed and from the overall context in which that language is to be applied. The nature of the benefits payable to disabled CF members under the Pension Act was mischaracterized. They are not indemnity for lost income but rather represent compensation for impairments to the activities in daily living including loss of function and for reductions in the quality of life.

Thus, the defendant’s principal underwriting justification for deducting Pension Act benefits from a member’s SISIP LTD income was untenable. There is nothing untoward or objectionable about a disabled CF member receiving a Pension Act disability award in addition to an LTD benefit to compensate for lost income. The Pension Act was amended to replace the monthly Pension Act disability benefit with a one-time lump-sum award that is not now deductible from the SISIP LTD income stream. This amendment renders

Section 24(a)(iv) of the SISIP Policy meaningless for future claims; thus, only claims predating the amendment are involved. This legislative history added some strength to the plaintiff’s argument that there is nothing inherently problematic about a contractual provision that limits coverage that has no immediate significance or practical effect. Furthermore, it was open to the CDS to include an expansive definition of “income” in the SISIP Policy but he elected not to do so.

The fact that the French word “revenu” is sometimes used to include pension income is similarly not surprising inasmuch as many pensions are forms of income replacement or substitution. As to whether the word “revenu” includes a disability benefit that bears no relationship to an income loss, nothing in the French text of

Section 24 assisted the defendant on this issue. The Pension Act does not describe a disability pension as an “income benefit” and clearly it is not. While the CDS could have drafted a provision that clearly authorized the deduction of a CF member’s Pension Act pension benefit from the SISIP LTD benefit, he drafted

Section 24 of the SISIP Policy by incorporating the limiting term “income” with respect to the offset of Pension Act benefits. The CDS did not include that limiting term in a number of other offset provisions in the SISIP Policy or other relevant legislation. The term “income” cannot be ignored. The word is entirely unnecessary if the intention was to provide for the deduction of Pension Act disability benefits.

In common parlance, an “income benefit” is not a benefit in the nature of a Pension Act disability award and, at common law, the distinction is rigorously enforced by preventing an insurer from limiting its liability in the way that the CDS has done against members of the Class. The defendant’s

interpretation of

Section 24(a)(iv) of the SISIP Policy was inconsistent with the common law approach of preventing double recovery and resulted in the substantial under-compensation of disabled CF members following their release. It also created particular hardship for those who are the most in need of their Pension Act benefits because of disabling injuries. Giving effect to the SISIP offset of Pension Act disability benefits wholly deprives disabled veterans of an important financial award intended to compensate for disabling injuries suffered in the service of Canadians.

The SISIP offset effectively defeats the Parliamentary intent that is inherent in the Pension Act , which is to provide modest financial solace to disabled CF members for their non-financial losses. The defendant’s approach does not lead to a fair or sensible commercial result and defeats the reasonable expectation of CF members.

The practical consequence of the claimed offset is to substantially reduce or to extinguish the LTD coverage promised to members of the Class by the SISIP Policy with particularly harsh effect on the most seriously disabled CF members who have been released from active service, an outcome that could not reasonably have been intended and which was rejected unreservedly. Even if the

interpretation placed on

Section 24(a)(iv) was wrong, the issue had to be resolved against the defendant on the basis of the principle of contra proferentem : where a policy of insurance contains exceptions and limitations to coverage, it is incumbent on the drafter to use language that clearly expresses the extent and scope of those limiting provisions. STATUTES AND REGULATIONS CITED Canadian Charter of Rights and Freedoms , being

Part I of the Constitution Act, 1982 ,

Schedule B, Canada Act 1982 , 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44], s. 15(1) . Canadian Forces Members and Veterans Re-establishment and Compensation Act , S.C. 2005, c. 21, s. 2 “disability”. Canadian Forces Members and Veterans Re-establishment and Compensation Regulations , SOR/2006-50, s. 22( a ). Canadian Forces Superannuation Act , R.S.C., 1985, c. C-17. Crown Liability and Proceedings Act , R.S.C., 1985, c. C-50, s. 9 (as am. by S.C. 2001, c. 4 , s. 39(F)). Federal Courts Rules , SOR/98-106, rr. 1 (as am. by SOR/2004-283, s. 2), 220. Income Tax Act , R.S.C., 1985 (5th Supp.), c. 1.

National Defence Act, R.S.C., 1985, c. N-5, s. 39 (as am. by R.S.C., 1985 (1st Supp.), c. 31, s. 60, App. I, s. 19). Pension Act, R.S.C., 1985, c.

P-6, s. 21, ss. 2, 3 “disability”, 5(3)(c) (as am.by S.C. 1995, c. 18, s. 47), 21 (as am. by R.S.C., 1985 (1stSupp.), c. 16, s. 2; S.C. 1990, c. 43, s. 8; 1995, c. 18, s. 76(F); 2000, c. 12, s. 212, c. 34, ss. 21, 43(E); 2003, c. 12, s. 2), 24 (repealed byS.C. 1995, c. 18, s. 48), 30 (as am. by S.C. 1995, c. 18, s. 75; 2000, c. 34, s. 24), 32 (as am. idem, s. 25), 35 (as am. by S.C. 1990, c. 43,s. 13; 1995, c. 18, ss. 55, 76(F); 2000, c. 34, ss. 27, 43(E); 2005, c. 21, s. 107). War Veterans Allowance Act, R.S.C., 1985, c. W-3. CASES CITED applied: Bannon v.

McNeely, , 38 O.R. (3d) 659, 159 D.L.R. (4th) 223, 34 M.V.R. (3d) 189 (C.A.). distinguished: Eli Lilly & Co. v. Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129, (1998), 161 D.L.R. (4th) 1, 80 C.P.R (3d) 321. considered: Ryan v. Sun Life Assurance Company, 2005 NSCA 12, 230 N.S.R. (2d) 132, 18 C.C.L.I. (4th) 204; Milner v. Manufacturer’s LifeInsurance Company, 2006 BCSC 1571, 42 C.C.L.I. (4th) 237, 43 C.C.L.T. (3d) 155; Re Canada Life Assurance Company v. Donohue,, 46 O.R. (3d) 82, 16 C.C.L.I. (3d) 63, [2000] I.L.R. 1-3747 (Sup. Ct.); Abdulrahim v.

Manufacturers Life InsuranceCo., , 65 O.R. (3d) 543, 44 M.V.R. (4th) 285 (Sup. Ct.); Jesuit Fathers of Upper Canada v. Guardian Insurance Co.of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, 267 D.L.R. (4th) 1, 36 C.C.L.I. (4th) 161; Consolidated Bathurst Export Ltd. v. MutualBoiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888, (1979), 112 D.L.R. (3d) 49, [1980] I.L.R. 595;Stitzinger v. Imperial Life Assurance Co. of Canada (1998), (ON SC), 39 O.R. (3d) 566, 2 C.C.L.I. (3d) 208, 60O.T.C. 161 (Gen.

Div.); Elliott and Attorney-General of Ontario, (ON CA), [1973] 2 O.R. 534, (1973), 34 D.L.R. (3d)486, 9 R.F.L. 279 (C.A.). referred to: Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59 , [2009] 3 S.C.R. 605, 313 D.L.R. (4th) 513, [2010] 1 W.W.R 575; St-Laurent v. Sun Life Assurance Co. of Canada (1989), (NB CA), 101 N.B.R. (2d) 354, 40 C.C.L.I. 41, [1989] I.L.R.9669 (C.A.); Hoult Estate v. First Canadian Insurance Corp., , 25 C.C.L.I. (3d) 255, [1995] I.L.R. 1-3125 (B.C.S.C.);Gibson v. Sun Life Assurance Co. of Canada (1984), (ON SC), 45 O.R. (2d) 326, 6 D.L.R. (4th) 746, 7 C.C.L.I. 65(H.

Ct.); Maritime Life Assurance Co. v. Mullenix and Denault-Preston (1986), (NS SC), 76 N.S.R. (2d) 118, 23C.C.L.I. 248, [1987] I.L.R. 8483 (S.C.T.D.); Doucet v. New Brunswick, 2004 NBQB 398, 283 N.B.R. (2d) 51; Indemnity Ins. Co. ofNorth America v. Excel Cleaning Service, (SCC), [1954] S.C.R. 169, [1954] 2 D.L.R. 721, [1954] I.L.R. 590. AUTHORS CITED Service Income Security Insurance Plan. SISIP Policy No. 901102,

Part I,

Section 27,

Part III (A), Sections 52, 53, 64,

Part III (B),Sections 23, 24, online: <https://www.cfpsa.com/en/AboutUs/SISIPFS/download/Documents/901102_e.pdf> Veterans Affairs Canada. Table of Disabilities, 2006, online: <http://www.veterans.gc.ca/pdf/dispen/tod2006/tod_total_2006.pdf> Veterans Affairs Canada. Reference Paper: The origins and Evolution of Veterans Benefits in Canada, 1914-2004.

Ottawa: VeteransAffairs Canada, 2004, online: <http://veteranvoice.info/ARCHIVE/info_EvolutionofVACBenefits.pdf> MOTION for a preliminary determination of a question of law brought under rule 220 of the Federal Courts Rules in the context of aclass proceeding brought by the plaintiff on behalf of approximately 4 500 former members of the Canadian Forces (CF) involving thelegality of the defendant’s policy of reducing long-term disability benefits payable to disabled CF members under the CF ServiceIncome Security Insurance Plan (SISIP) Policy No. 901102 by the monthly amounts payable to those members under the Pension Act.Offset of Pension Act disability benefits breaching SISIP policy.

APPEARANCES Ward Branch and Daniel Wallace for plaintiff James Gunvaldsen-Klaassen and Lori Rasmussen for defendant. SOLICITORS OF RECORD McInnes Cooper, Halifax, and Branch MacMaster LLP, Vancouver, for plaintiff.

Deputy Attorney General of Canada for respondent The following are the reasons for order and order rendered in English by [1] Barnes J.: This is a class proceeding brought by the plaintiff, Dennis Manuge, on behalf of approximately 4 500 former membersof the Canadian Forces (the Class). [2] What is in issue in the proceeding is the legality of the defendant’s policy of reducing long-term disability (LTD) benefits

payable to disabled Canadian Forces (CF) members under the CF Service Income Security Insurance Plan (SISIP) Policy No. 901102 by the monthly amounts payable to those members under the Pension Act , R.S.C., 1985, c. P-6. The Class argues that this offset of benefits is not contractually justified and that it also violates subsection 15(1) of the Canadian Charter of Rights and Freedoms , being

Part I of the Constitution Act, 1982 ,

Schedule B, Canada Act 1982 , 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]. [ 3 ] To their credit, the parties have agreed to have the contractual aspect of their dispute resolved on a preliminary basis by way of a motion brought under rule 220 of the Federal Courts Rules , SOR/98-106 [ r. 1 (as am. by SOR/2004-283, s. 2)] (Rules). To that end, they have submitted an agreed statement of facts and have posed the following questions of law for determination: 1. Are the pension payments made pursuant to

section 21 [as am. by R.S.C., 1985 (1st Supp.), c. 16, s. 2; S.C. 1990, c. 43, s. 8; 1995, c. 18, s. 76(F); 2000, c. 12, s. 212, c. 34, ss. 21, 43(E); 2003, c. 12, s. 2 ] of the Pension Act , “total monthly income benefits” as that term is described in

Section 24.a.(iv) of

Part III (

B) of SISIP Policy No. 901102? 2. Are the pension payments made pursuant to

section 21 of the Pension Act , “monthly pay in effect on the date of release from the Canadian Forces” as that term is described in

Section 23.a. of

Part III (

B) of SISIP Policy No. 901102? [ 4 ] Central to the dispute is the

interpretation of

Section 24 of the SISIP policy and, in particular, whether monthly benefits payable to disabled CF members under the Pension Act are “monthly income benefits” as that phrase is used in the SISIP policy. The relevant provision reads as follows (agreed statement of facts (8 September 2011), at page 41 (SISIP Policy No. 901102,

Part III (B),

Section 24) (SISIP policy)): 24. Other Relevant Sources of Income a. The monthly benefit payable at

Section 23 shall be reduced by the sum of: (

i) the monthly income benefits payable to the member under the Canadian Forces Superannuation Act ; and (ii) the Primary monthly income benefits payable to the member under the Canada or Quebec Pension Plans (including retroactive payments covering the period during which such benefits were prefunded under this Division 2); and (iii) the employment income of the member unless the member is participating in a rehabilitation program approved by the Insurer in which case the monthly benefit will be reduced in accordance with

Section 28; and (iv) the total monthly income benefits payable to the member under the Pension Act (including dependant benefits and retroactive payments covering the period during which such benefits were prefunded under this Division 2). [Emphasis added.] [ 5 ] The Class argues that their Pension Act payments are non-indemnity disability benefits intended to compensate CF members for impairments to their quality of life and limitations on their activities of daily living. Because these payments are not a form of income replacement, they are not caught by the benefit offset in

Section 24.a.(iv) of the SISIP policy which only permits the deduction of “monthly income benefits” [emphasis added]. [ 6 ] The defendant argues that the contracting parties, the Chief of Defence Staff (CDS) and Manulife Financial (Manulife), intended to offset these benefits and, in the context of the entire scheme, that intention was manifest in the specialized language they used. According to the defendant,

Section 24 of the SISIP policy is simply an integration of benefits provision common to many LTD insurance policies. The SISIP Policy and the Pension Act [ 7 ] André Bouchard is the President of SISIP Financial Services. His affidavit provides helpful historical background for the development of SISIP since its inception in 1969 and, for the most part, that history is undisputed. [ 8 ] SISIP was created because existing benefits programs accessible to CF members were thought to be inadequate.

SISIP was developed to provide “a group insurance plan that would ensure that a disabled member or surviving depend[a]nts could maintain a reasonable standard of living in the event of a disability or death”: motion record of the defendant (motion to determine questions of law) (28 October 2011), at page 28 (affidavit of André Bouchard (28 October 2011), at paragraph 8) (affidavit of André Bouchard).

The specific rationale for SISIP is contained in the following passage from a briefing memorandum prepared for the CDS in June 1969 (affidavit of André Bouchard, Exhibit “A”, at page 35 (brief for CDS on the Servicemen’s Income Security Insurance Plan (SISIP) (June 1969), at

section 2 )): 2. Extensive study of the various forms of insurance coverage provided by government indicated that more than fifty percent of Canadian Forces personnel are inadequately protected by the Pension Act and the Canadian Forces Superannuation Act , even though entitlements under these acts are supplemented by benefits under either the Canada or Quebec Pension Plans.

One of the more distressing aspects of this situation is that surviving widows and children of personnel killed off duty or who suffer a non-service disability during their first ten years of service, are left with little or, in many instances, no income whatsoever with which to raise a family or indeed to exist. Similarly, widows and children of personnel with more than ten years service are required to accept an overnight reduction in previous service income, ranging from 90% to 65% depending upon the length of service of the husband. Obviously, some form of added protection is required to: (

a) provide an income to the widow and children of the deceased or disabled serviceman who has insufficient service to qualify for a service annuity; (

b) supplement the income from CFSA and Canada or Quebec Pension Plans paid to the disabled serviceman and the survivors of the deceased serviceman to a level of approximately 60-80% of his pay on death or disablement.

[ 9 ] It is perhaps of some historical significance that the SISIP policy, as initially proposed, was seen as an income replacement supplement to the Canadian Forces Superannuation Act , R.S.C., 1985, c. C-17 (CFSA), and the Canada and Quebec Pension Plans and separate from benefits payable under the Pension Act . [ 10 ] SISIP was created under

section 39 [as am. by R.S.C., 1985 (1st Supp.), c. 31, s. 60, App. I, s. 19] of the National Defence Act , R.S.C., 1985, c. N-5, a provision that authorizes the CDS to create programs for the benefit of CF members. Since its inception, SISIP has been administered through a contract between the CDS and a private insurer (now Manulife). Initial funding came entirely from voluntary premium payments from participating members, but subsequent changes over the years have substantially reduced the percentage contributions made by CF members.

Since 2009, CF members pay 15% of the LTD premiums for non-service-related disabilities and nothing for service-related disabilities. For regular members of the CF who enlisted after April 1, 1982, participation in SISIP is mandatory and, since 1999, participation by CF reserve members is also required. [ 11 ] As initially conceived, the SISIP LTD benefit was reduced by amounts received by disabled CF members under the CFSA and the Canada and Quebec Pension Plans.

Also, if a member qualified for benefits under the Pension Act on the basis of injury or death due to military service, nothing was payable under the SISIP policy. [ 12 ] In 1971, CF members injured in “special duty areas” were allowed to collect Pension Act benefits notwithstanding their continued service in the CF. [ 13 ] In 1975, the basic SISIP LTD benefit was raised from 60% to 75% of a member’s income at the time of release and monthly increments for dependent children were eliminated. [ 14 ] In 1976, in recognition of the inadequacy of the monthly Pension Act benefits, SISIP LTD coverage was expanded to include service-related disabilities.

It was at that point that the SISIP and the Pension Act schemes came together. According to Mr. Bouchard, it was also at that point that benefits payable under the Pension Act “were added to the list of applicable reductions” under the SISIP policy to prevent the “stacking” of payments from two federally-funded sources as well as for reasons of “cost and equity”: affidavit of André Bouchard, at paragraph 24. [ 15 ] Mr.

Bouchard’s affidavit provides the following additional rationale for the concern about the “stacking” of benefits (affidavit of André Bouchard, at paragraph 19): Discounting LTD benefits to take into account other sources of income is a common feature of both public and private LTD insurance plans , and is consistent with the objective of long term disability insurance.

Section 24(a)(iv) of

Part III(

B) of SISIP Policy 901102 (Exhibit “C”) is the provision that allows for the deduction of other income from SISIP LTD benefits (“the set-off provision”). [Emphasis added.] [ 16 ] In October 2000, the Pension Act was amended to provide benefits to all members disabled from military service injuries however occurring. Those disabled members who were able to continue their military service were permitted to collect Pension Act benefits in addition to their salaries. [ 17 ] In 2006, the Canadian Forces Members and Veterans Re-establishment and Compensation Act , S.C. 2005, c. 21 (New Veterans Charter), became law.

It replaced the monthly Pension Act benefits with a one-time lump sum award which is not deductible from the SISIP benefit. That change was not made retroactive so as to apply to members of the Class. [ 18 ] Mr. Bouchard characterizes the SISIP policy as a contract between the CDS and Manulife with benefits payable on a strictly contractual basis. He deposes that SISIP is an income replacement scheme which guarantees a disabled CF member 75% of salary at the time of his or her release. The SISIP benefits are not compensation for the gravity of one’s injuries or for the loss of personal abilities. According to Mr.

Bouchard, the Pension Act offset in

article 24 [repealed by S.C. 1995, c. 18 , s. 48] is “required for the proper functioning of a disability insurance scheme” and to prevent the theoretical potential for a disabled member receiving “more funds in income replacement than he or she ever earned as an employee”: affidavit of André Bouchard, at paragraph 34. The SISIP policy was not designed to bear the entire burden of an income loss associated with a disability; instead, it shares that burden with other programs such as the Canada Pension Plan, the CFSA and the Pension Act . In short, Mr.

Bouchard apparently believes that the benefits payable under the Pension Act are in the nature of income replacements and are appropriately deducted from the SISIP benefits as a means of avoiding a double-recovery for lost income. [ 19 ] I accept Mr. Bouchard’s characterization of the SISIP as an income replacement scheme.

In fact, it appears to be classic indemnity insurance intended to replace a percentage of a CF member’s lost income due to an inability to work. [ 20 ] The Pension Act provides pensions and other benefits to CF members except to the extent that there is an entitlement to a lump sum award under the New Veterans Charter . For members of the Class, the Pension Act applies and not the New Veterans Charter. [ 21 ]

Section 2 of the Pension Act recognizes the Government of Canada’s (Canada) obligation to compensate CF members who have been disabled or who have died in the service of Canadians. This responsibility is met by giving a liberal construction to the language of the statute and by giving the benefit of any doubt in the weighing of evidence to disabled veterans: see Pension Act , paragraph 5(3)( c ) [as am. by S.C. 1995, c. 18 , s. 47].

Section 3 of the Pension Act defines “disability” as “the loss or lessening of the power to will and to do any normal mental or physical act”. [ 22 ]

Section 35 [as am. by S.C. 1990, c. 43, s. 13; 1995, c. 18, ss. 55, 76(F); 2000, c. 34, ss. 27, 43(E); 2005, c. 21, s. 107 ] of the Pension Act provides that the amount of a disability pension shall be determined in accordance with the assessment of the extent of the disability and is based on a set of instructions and a table of disabilities made by the Minister of Veterans Affairs. Under subsection 35(4), a Pension Act pension is not to be reduced because a disabled member “undertook work or perfected themself in some form of industry” and, indeed, a Pension Act disability benefit is payable regardless of whether a disabled CF member continues in active service.

[23] The 2006 Table of Disabilities (Table) provides the following introduction (agreed statement of facts (8 September 2011), at page321 (Table of Disabilities (January 2006), at page 1, also available online:<http://www.veterans.gc.ca/pdf/dispen/tod2006/tod_total_2006.pdf >): The Table of Disabilities is the instrument used by Veterans Affairs Canada to assess the degree of medical impairment caused by anentitled disability. The Table of Disabilities has been revised using the concept of medical impairment based on a per conditionmethodology.

The relative importance of that body part/body system has been a consideration in the development of criteria to assess themedical impairment resulting from the entitled disability. The Disability Assessment will be established based on the medicalimpairment rating, in conjunction with quality of life indicators which assess the impact of the medical impairment on the individual’slifestyle. [24] According to the principles of assessment found in the Minister’s Table, the definition of “disability” [at

section 3] in the PensionAct and [at

section 2] the New Veterans Charter requires both medical (impairment) and non-medical (quality of life) assessments.Medical impairment is made up of the physical loss or alteration of any body part or system and the resulting functional loss. The qualityof life assessment examines a person’s ability to participate in activities of independent living, the ability to take

part in recreational andcommunity activities and the ability to initiate and take

part in personal relationships.

A major consideration in determining the quality oflife effects is the degree to which a disability has affected the usual or accustomed activities of the person being assessed. [25] Although an assessment of the activities of independent living includes both domestic and employment routines, the Minister’sTable makes it clear that one’s entitlement to a pension is not dependent on a finding that a person cannot work. [26] Once medical and quality of life ratings have been assessed, they are added to produce the disability assessment from which theamount of the monthly Pension Act benefit is derived.

The Table includes a disability scale measured in 20 increments from 5% to 100%disability. At each increment, a basic pension benefit is indicated which is proportionate to the degree of disability sustained. [27] What is clear from the Pension Act and the Minister’s Table is that the monthly benefit payable to disabled members of the CF isnot intended to be a form of income replacement. Instead, it is designed to compensate for the loss of amenities of life and for thepersonal limitations and sacrifices that arise from disabling injuries. This is not entirely lost on the defendant.

According to a 2004Reference Paper prepared by Veterans Affairs Canada, the purpose of Pension Act disability benefits is to “provide compensation forreductions in the quality, and sometimes the quantity, of life experienced by the disabled” and not, as is commonly believed, to provide aform of income replacement: affidavit of Sergeant John G. Bartlett (22 September 2011), Exhibit “B” , at page 8 (Reference Paper: TheOrigins and Evolution of Veterans Benefits in Canada, 1914-2004 (March 2004), at page 68, also available online:<http://veteranvoice.info/ARCHIVE/info_EvolutionofVACBenefits.pdf>).

Issues [28] Are the pension payments made pursuant to

section 21 of the Pension Act, “total monthly income benefits” as that term isdescribed in

Section 24.a.(iv) of

Part III (

B) of SISIP Policy No. 901102? [29] Are the pension payments made pursuant to

section 21 of the Pension Act, “monthly pay in effect on the date of release from theCanadian Forces” as that term is described in

Section 23.a. of

Part III (

B) of SISIP Policy No. 901102? Discussion [30] To answer the questions posed on this motion, the Court is called to construe

Section 24 of the SISIP policy and, in particular, todetermine whether a disability pension payable under the Pension Act is included in the phrase “the total monthly income benefitspayable to the member under the Pension Act (including dependant benefits and retroactive payments covering the period during whichsuch benefits were prefunded)”. [31] Both parties agree that the principles of construction that apply to insurance contracts are applicable: see plaintiff’s memorandumof fact and law: motion to determine questions of law (22 September 2011), at paragraph 128; motion record of the defendant (motion todetermine questions of law) (28 October 2011), at page 6 (defendant’s memorandum of fact and law, at paragraph 16).

The defendantargues, however, that the members of the Class are not parties to the contract and they must accept the

interpretation of the SISIP policythat the CDS and Manulife have adopted. In effect, the defendant submits that CF members are strangers to the contract who are entitledto enforce the agreement but only on the terms that the CDS and Manulife accept, relying on the authority of Eli Lilly & Co. v.Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129 (Eli Lilly), where the Court held, at paragraph 53 that it was not open to anon-contracting party to rely on the doctrine of contra proferentem to undermine a contractual

interpretation accepted by the contractingparties. The defendant also contends that the historical evolution of the SISIP policy as described by Mr. Bouchard confirms Canada’sintent to deduct the Pension Act disability benefits from SISIP LTD income. [32] I do not accept that members of the Class are strangers to the SISIP policy and legally incapable of advancing their owninterpretation of the contractual language. Eli Lilly is distinguishable. It involved a licensing agreement in which the non-contractingparty had no interest.

By their very nature, policies of insurance are different; a beneficiary may be an insured party to the policy buteven a non-contracting beneficiary has a legal interest sufficient to have the policy enforced and to argue for any

interpretation thatwould be open to either of the contracting parties. The fact that the SISIP policy is a group policy and that the CDS and Manulife arenamed parties does not support an argument that the covered CF members are not entitled to rely upon any of the interpretive rules thatapply to insurance contracts generally: see Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at paragraph28; Ryan v. Sun Life Assurance Company, 2005 NSCA 12, 230 N.S.R. (2d) 132 (Ryan v. Sun Life), at paragraph 26; St-Laurent v.

SunLife Assurance Co. of Canada (1989), (NB CA), 101 N.B.R. (2d) 354 (C.A.); Hoult Estate v. First CanadianInsurance Corp., , 25 C.C.L.I. (2d) 255 (B.C.S.C.), at paragraphs 17–18; Milner v. Manufacturer’s Life InsuranceCompany, 2006 BCSC 1571, 42 C.C.L.I. (4th) 237 (Milner v. Manufacturer’s Life), at paragraph 16; Re Canada Life AssuranceCompany v. Donohue, , 46 O.R. (3d) 82 (Sup. Ct.) (Canada Life v. Donohue), at paragraph 15. [33] Indeed, in the context of the extant contractual relationship between the CDS and Manulife where the entire risk is underwritten

by the CDS and managed by Manulife, the de facto insurer is the CDS and the de facto insureds are CF members. This is consistent withthe history of the SISIP policy which was drafted by the CDS and imposed by the CDS on CF members. CF members have always paidor contributed to the cost of the program and the SISIP policy expressly recognizes their status as insureds: see for example SISIP policy,Part I,

Section 27; SISIP policy,

Part III (A), Sections 52–53. In particular,

Section 52 describes how “[a]n eligible member becomesinsured” under the LTD plan. This express recognition of CF members as insureds under the SISIP policy and their premiumcontributions are inconsistent with the defendant’s argument that the only insured party is the CDS. In this context, it is the insured CFmembers and Canada, through the CDS, that have competing interests. Manulife is, in effect, a largely, if not entirely, disinterested thirdparty that would have no apparent interest in contesting the views of its commercial partner on whose behalf it administers the plan. [34] The defendant’s argument that the

interpretation of

Section 24 may be aided by the contractual history and Treasury Boardmotives outlined by Mr. Bouchard is similarly misguided. It may well have been the CDS’ intention to set off the Pension Act disabilitybenefit from the SISIP LTD benefit. But the SISIP policy is not a statutory instrument to be interpreted by means of a search for aParliamentary intent.

In interpreting a contract of insurance, the search is not for the subjective intent of either contracting party but,rather, for the common intent of both parties which, hopefully, can be found in the language they have employed and from the overallcontext in which that language is to be applied. This point was well expressed by Justice Thomas Cromwell in Ryan v. Sun Life, above, atparagraph 24: I mention this because the parties and the Chambers judge referred to evidence concerning the exchange of drafts and correspondencebetween the parties relating to this new subrogation clause.

While there can be little doubt from a review of this material that theinsurer’s objective in advancing the language which was subsequently adopted was to give it the right to share in all types of damages,the issue is not what the insurer intended. Rather, as Iacobucci, J. emphasized in Eli Lilly, the question is what was the contractual intentof the parties. This is to be determined from the words they used in light of the surrounding circumstances.

Evidence of the subjectiveintent of one of the parties has no independent place in this endeavour; it is unnecessary to consider any extrinsic evidence at all whenthe document is clear and unambiguous: Eli Lilly at paras. 54-55. [Emphasis in original.] [35] In Milner v. Manufacturer’s Life, above, the Court similarly inferred what the insurer was attempting to accomplish in thedrafting of a collateral source integration provision but rejected the insurer’s

interpretation because of a lack of clarity in the policylanguage. In short, what the drafter of a policy may have had in mind is not the issue. The question is what the language employed wouldobjectively mean to the parties. [36] Accordingly, the defendant’s reliance on the 1976 SISIP policy amendment is misconceived: see above, at paragraph 14.Although Mr.

Bouchard deposes that this change was made in recognition of an overlap that arose when the SISIP policy coverage wasextended to service-attributable injuries, the issue for determination is whether the CDS chose adequate language to achieve that result.After all, CF members were not privy to the CDS’s rationale for changes to the SISIP policy nor were they consulted. [37] As a general rule, parol evidence is not admissible to establish the subjective intent of one party to an insurance contract. Theonly basis for introducing parol evidence is to show an underwriting purpose for a disputed term.

This point was made in Abdulrahim v.Manufacturers Life Insurance Co., , 65 O.R. (3d) 543 (Sup. Ct.) (at paragraphs 67–68): Parol evidence relating to the surrounding circumstances of a contract may be admissible in certain cases (for example, to explaincommercial purpose). Evidence as to subjective contractual intention, however, including draft letters or other expressions of intentionmade in the course of negotiations (Indian Molybdenum, supra at 503) and intentions in drafting or implementing an agreement (EliLilly, supra at para. 59) is inadmissible.

In Transcanada Pipelines, Lane J. wrote at para. 12: Direct evidence from a party as to his intention in the use of particular language is not an admissible part of the context. This isparticularly so where, as here, the party did not communicate the relevant intention at the time to the opposite party. Manulife has had complete control over the wording of this contract, and it could have used more specific wording in constructing theexclusion clause if it wished to limit the benefits payable to the insured in these circumstances.

The interpretive principles articulated bythe Supreme Court relating to insurance contracts apply. In this regard, in Eli Lilly, supra, Iacobucci J. only delved into the question ofwhether a party could call extrinsic evidence in after specifically noting (at para. 53) that contra proferentum and other interpretiveprinciples did not apply, because the claim was being brought by a third party. In the case before me, these principles apply and compelme to find in favour of the plaintiff. [Emphasis added.] [38] I accept that Mr.

Bouchard’s affidavit touches on an underwriting concern about the avoidance of stacking income benefits.While this is admissible evidence, it is based on a mischaracterization of the nature of the benefits payable to disabled CF membersunder the Pension Act. They are not an indemnity for lost income. Rather, they represent compensation for impairments to the activitiesin daily living including loss of function and for reductions in the quality of life. In the result, Mr.

Bouchard’s principal underwritingjustification for deducting Pension Act benefits from a member’s SISIP LTD income (i.e. to avoid an excess recovery of lost income) isuntenable. There is nothing untoward or objectionable about a disabled CF member receiving a Pension Act disability award in additionto an LTD benefit to compensate for lost income. It is also not accurate for Mr. Bouchard to say that the defendant’s offset of benefitsunder

Section 24.a.(iv) of the SISIP policy represents a typical approach to the integration of benefits under an LTD policy. The commonlaw does not permit an LTD insurer to subrogate against an insured’s non-indemnity entitlements and LTD insurers generally respect thatdistinction in their policies: see Gibson v. Sun Life Assurance Co. of Canada (1984), (ON SC), 45 O.R. (2d) 326, 6D.L.R. (4th) 746 (H. Ct.); Maritime Life Assurance Co. v. Mullenix and Denault-Preston (1986), (NS SC), 76 N.S.R.(2d) 118 (S.C. (T.D.)).

Where an insurer attempts to achieve a windfall by pursuing the recovery of something different in kind fromwhat they have paid to the insured, they are frequently unsuccessful: see Bannon v. McNeely, , 38 O.R. (3d) 659(C.A.), at paragraphs 49–50. [39] I also do not recognize saving money as a legitimate underwriting concern. It is always in the interest of the underwriter to savemoney in responding to claims and that advantage is primarily, if not completely, obtained at the expense of the insured. Such anargument cannot be used to assist an insurer or to interpret disputed policy language.

[40] Having determined that the Class is not contractually disadvantaged in the manner suggested by the defendant, it is important torecognize the principles that apply to the

interpretation of insurance contracts and, in particular, contracts of adhesion. [41] In Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, the SupremeCourt of Canada discussed the special interpretive rules that apply to insurance contracts. In doing so, the Court was cognizant of theunequal bargaining power that exists when the insurance agreement is formed. The following passages from the decision are instructive(at paragraphs 27–30): Insurance policies form a special category of contracts.

As with all contracts, the terms of the policy must be examined, in light of thesurrounding circumstances, in order to determine the intent of the parties and the scope of their understanding. Nevertheless, through itslong history, insurance law has given rise to a number of principles specific to the

interpretation of insurance policies. These principleswere recently reviewed by this Court in Non-Marine Underwriters, Lloyd’s of London v. Scalera, [2000] 1 S.C.R. 551, 2000 SCC 24.They apply only where there is an ambiguity in the terms of the policy. First, the courts should be aware of the unequal bargaining power at work in the negotiation of an insurance contract and interpret itaccordingly. This is done in two ways: (1) through the application of the contra proferentem rule; (2) through the broad

interpretation ofcoverage provisions and the narrow

interpretation of exclusions. These rules require that ambiguities be construed against the drafter.… Second, the courts should try to give effect to the reasonable expectations of the parties, without reading in windfalls in favour of anyof them. In essence, “the courts should be loath to support a construction which would either enable the insurer to pocket the premiumwithout risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract”(Consolidated-Bathurst Export Ltd. v.

Mutual Boiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888, pp.901-2; Non-Marine Underwriters, at para.71). Finally, the context of the particular risk must also be taken into account. [42] The idea that the Court should look for meaning on the basis of the reasonable expectations of the parties is not new. It goes backat least as far as the decision in Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888, where Justice Willard Estey held that literal meaning should give way to an

interpretation that promotes afair and sensible commercial result. A construction that enables either of the parties to achieve an unintended windfall at the expense ofthe other is usually to be avoided. It seems to me that this is another way of saying that context takes precedence over strict literalism inthe

interpretation of contracts of insurance. In the face of an ambiguity, however, the doctrine of contra proferentem applies and thereasonable expectation of the insured is always favoured. [43] It is, therefore, left to the Court to determine what was intended by the phrase “the total monthly income benefits payable to themember under the Pension Act (including dependant benefits and retroactive payments)” [in

Section 24.a.(iv) of the SISIP policy]. Thetask is not to interpret any particular word or phrase in isolation but, rather, in the context of the complete agreement and the surroundingcircumstances. The search for meaning is performed by looking objectively for a common intention and one that achieves a fair andsensible commercial outcome for the parties. The Plaintiff’s Argument [44] The plaintiff’s principal argument for challenging the legality of the defendant’s offset of the Pension Act benefit from themonthly SISIP benefit is that the former is not a “monthly income benefit” as that phrase is used in

Section 24.a.(iv) of the SISIP policy.According to the plaintiff, the word “income” has interpretive significance as a qualifier to the words that precede and follow it.“Income” signifies an intent to deduct only monthly Pension Act benefits that can be characterized as indemnities for lost income. Thatinterpretation gives meaning to the word that is consistent with its normal grammatical use and conforms with the income replacementcharacter of the SISIP benefit and the three other offsets described in

Section 24. It also conforms to the common law approach whichdenies rights of offset or subrogation to an LTD insurer with respect to an insured’s non-indemnity entitlements. [45] According to the plaintiff, if the parties intended to deduct the monthly Pension Act disability benefit from the SISIP LTDbenefit, there would be no need to use the word “income” at all. It would have been sufficient to say “the total monthly income benefitspayable to the member under the Pension Act”. This approach is employed in

Section 64 of the SISIP policy where the monthlydismemberment benefit is “reduced by any monthly benefits payable pursuant to . . . [t]he Pension Act ” (emphasis added): see SISIPpolicy,

Part III (A). The plaintiff contends that the addition of the qualifying term “income” in

Section 24.a.(iv) indicates a differentintent. [46] In short, the plaintiff says that the monthly Pension Act disability benefit that the defendant has deducted from his SISIP LTDbenefit and from other members of the Class is not payable with respect to lost income and, therefore, does not qualify as an offset underSection 24.a.(iv). [47] The plaintiff invokes the authority of Stitzinger v. Imperial Life Assurance Co. of Canada (1998), (ON SC),39 O.R. (3d) 566, 2 C.C.L.I. (3d) 208 (Gen. Div.), which considered an LTD benefit integration provision providing for the offset of“total monthly income from all sources”.

The insured recovered damages in an action against a tortfeasor, including damages for lostearning capacity, that were payable periodically from an annuity. The insurer sought to deduct the annuity benefits from its LTDobligation. In holding against the insurer, the Court characterized the award of damages as compensation for the loss of personal abilityand not a form of income replacement. The fact that the damages were payable periodically did “not change their legal character” and thepayments were “not income within the meaning and intention” of the policy.

The Court went on to note that, at common law, theinsurer’s right to subrogate against its insured’s collateral recoveries only arose once the insured’s losses had been fully satisfied and notbefore. According to the plaintiff, this principle is violated by the SISIP offset because a disabled CF member is left substantially under-compensated upon release.

To the same effect is the decision in Elliott and Attorney-General of Ontario, (ON CA),[1973] 2 O.R. 534 (C.A.), at page 536, where the Court held that compensation for pain and suffering did “not bear the character ofincome as that word is ordinarily understood”: see also Doucet v. New Brunswick, 2004 NBQB 398, 283 N.B.R. (2d) 51.

The Defendant’s Argument [ 48 ] The defendant argues that

Section 24 of the SISIP policy must have been inserted for some underwriting purpose and that, as it is written, it can only refer to one thing—the deduction of the Pension Act disability benefits, including dependent benefits, from the SISIP LTD payment. According to the defendant, there are no other extant benefits available to CF members or their dependents under the Pension Act that could be deducted. [ 49 ] The defendant also contends that the word “income” has a broader meaning than the one the plaintiff advances.

It refers to the expansive definition of “income” in the Income Tax Act , R.S.C., 1985 (5th Supp.), c. 1, and in matrimonial cases concerned with spousal and child support. These examples suggest that the word can include money coming from a diversity of sources including disability pension benefits. The same point is made concerning the word “ revenu ” as it is used in the French text of

Section 24 of the SISIP policy. [ 50 ] The defendant also relies on the phrase “monthly income benefit” in Sections 23 and 24 in connection with the SISIP benefit and the offsets for superannuation, Canada and Quebec Pension Plans and other employment income. According to this view,

Section 24.a. (iv) represents a consistent use of the word “income” in connection with the SISIP benefit and all of the applicable deductions. A similar point is made about the Pension Act which prohibits the assignment or commutation of an award except to the extent of a holdback from a retroactive award to reimburse a provincial welfare authority. This is said to be a recognition of the integration of Pension Act awards with provincial welfare schemes.

The defendant argues that the same is true of the Departmental offsets that are recognized under subsection 32(2) of the Pension Act and intended to prevent the stacking of federal benefits. [ 51 ] The defendant further relies on an agreement signed by the plaintiff and other members of the Class as a condition of receiving SISIP benefits (the reimbursement agreement).

Under that agreement, a disabled plan member agrees to reimburse the insurer for amounts recovered from third-party sources “including the Canada Pension Plan, Quebec Pension Plan, Canadian Forces Superannuation Act , Government Employer Compensation Act (GECA), Worker’s Compensation Act, Automobile Insurance and the Pension Act ”: affidavit of André Bouchard, Exhibit “D”, at page 40. The defendant says that this agreement confirms the intent under the SISIP policy to deduct Pension Act disability benefits from LTD income. Discussion of Issue No. 1: Are the Pension Payments Made Pursuant to

Section 21 of the Pension Act , “total monthly income benefits” as That Term is Described in

Section 24.a.(iv) of

Part III (

B) of SISIP Policy No. 901102? [ 52 ] The defendant contends that

Section 24.a.(iv) must include Pension Act disability benefits because there is no other extant benefit that would be caught by the provision. The plaintiff answers that insurance policies frequently contain generic exclusions or coverage limitations that have no application to a particular insured or to a particular claim. The plaintiff adds that the Pension Act could be amended at any time to create an income replacement benefit that would be deductible from the SISIP LTD benefit and thereby give some practical effect to

Section 24.a.(iv). [ 53 ] What happened, of course, is that the defendant did amend the Pension Act to replace the monthly Pension Act disability benefit with a one-time lump-sum award that is not now deductible from the SISIP LTD income stream. This amendment renders

Section 24.a. (iv) of the SISIP policy meaningless for future claims so that its only arguable remaining significance is with respect to claims which predate the Pension Act amendment. It seems to me that this legislative history adds some strength to the plaintiff’s argument that there is nothing inherently problematic about a contractual provision that limits coverage that has no immediate significance or practical effect. This is, after all, not a statutory provision where the presumption against tautology might apply.

For a contract of insurance—and particularly group insurance—one could well expect to find limiting provisions or exclusions that have no present application to a particular claim or claims. [ 54 ] The defendant’s remaining arguments are not compelling. The fact that the Income Tax Act and spousal and child support guidelines incorporate expansive

definitions of income is hardly surprising given the different purposes they serve. The authorities cited by the plaintiff are stronger comparators because they are concerned with principles of compensation for injury and related claims for offset (or subrogation) of collateral source recoveries. Furthermore, it was open to the CDS to include an expansive definition of “income” in the SISIP policy but he elected not to do so. The fact that the French word “ revenu ” is sometimes used to include pension income is similarly not surprising inasmuch as many pensions are forms of income replacement or substitution.

The question remains as to whether the word “ revenu ” includes a disability benefit that bears no relationship to an income loss. I can identify nothing in the French text of

Section 24 that assists the defendant on this issue. [ 55 ] The defendant’s argument that the Pension Act describes a disability pension as a “benefit” also fails to answer the interpretive issue arising from

Section 24. The essential problem remains that the Pension Act does not describe a disability pension as an “income benefit” and clearly it is not. [ 56 ] The fact that Sections 23 and 24 respectively describe the SISIP benefit and the offsets for superannuation, Canada and Quebec Pension Plan benefits and employment income as “monthly income benefits” does not assist the defendant either because the SISIP benefits and all of the other offsets identified in

Section 24 are forms of income replacement or income substitution that fit comfortably within the term “monthly income benefits”. This distinction does not detract from the plaintiff’s

interpretation but actually supports it. [ 57 ] The defendant’s argument that sections 30 [as am. by S.C. 1995, c. 18 , s. 75; 2000, c. 34, s. 24] and 32 [as am. idem , s. 25] of the Pension Act confirm an intent to integrate disability pensions with the SISIP LTD benefits fails for much the same reason. The fact that the Pension Act recognizes and limits certain benefit overlaps does not mean that

Section 24 of the SISIP policy accomplishes the same result. There is no question that the CDS is fully capable of creating a lawful offset of benefits by statute or by contract notwithstanding the harshness of the result. But when he does so by contract, clear language must be used to express that intent. [ 58 ] The defendant also invokes the reimbursement agreement signed by Class members which states that CF members’ LTD benefits will be set off by other sources of income including Pension Act benefits. However, I give this document no weight as a guide to interpreting

Section 24 of the SISIP policy. It is an after-the-fact document that does not alter the SISIP policy and, according to Mr. Bouchard’s affidavit, at paragraph 40, CF members are required to sign it as a condition of receiving benefits. I would add that this agreement purports to include sources of income that are nowhere referenced in the SISIP policy (i.e. Workers Compensation,

automobile insurance) as appropriate offsets and, therefore, appears to include recoveries that cannot be contractually justified under theSISIP policy. If anything, this document reflects a profound misunderstanding by the defendant about what is contractually appropriateto demand from an insured in terms of third-party benefit offsets or recoveries. [59] I have no doubt that the CDS could have drafted a provision that clearly authorized the deduction of a CF member’s Pension Actpension benefit from the SISIP LTD benefit. There is, after all, no limit on what the parties to a contract may stipulate. However, theCDS drafted

Section 24 of the SISIP policy by incorporating the limiting term “income” with respect to the offset of Pension Actbenefits. The CDS did not include that limiting term in a number of other offset provisions in the SISIP policy or in the War VeteransAllowance Act, R.S.C., 1985, c. W-3. And more recently, a reduction to the earnings loss benefits payable under the Canadian ForcesMembers and Veterans Re-establishment and Compensation Regulations, SOR/2006-50, was claimed for “disability pension benefitspayable under the Pension Act”: see paragraph 22(a). This provision very clearly captures the Pension Act disability benefit and thedifferent approach in

Section 24 indicates a different intent. [60] It seems to me that the term “income” cannot be ignored. The word is entirely unnecessary if the intention was to provide for thededuction of Pension Act disability benefits. In common parlance, an “income benefit” is not a benefit in the nature of a Pension Actdisability award and, at common law, the distinction is rigorously enforced by preventing an insurer from limiting its liability in the waythat the CDS has done against members of the Class.

In fact, the common law rationale behind the insurer’s right to subrogate against theinsured’s collateral recoveries is to prevent double recovery. The right to subrogate is not recognized where the effect is to leave theinsured under-compensated. This point is expressed by the Ontario Court of Appeal in the following passage from Bannon v. McNeely,above, at paragraphs 48–49: In Jang, supra, Lambert J.A. for the British Columbia Court of Appeal, concluded that: The theory underlying s. 24 of the Insurance (Motor Vehicle) Act is that there should not be double compensation for the same loss.

Butthat does not mean that all of the benefits paid under Pt. 7 must be deducted one way or another from some item of damages, or from thetotal award of damages. It is only where the benefit corresponds with the particular heading of claim for damages that the benefit is tobe deducted, and then only from the award for that particular head of damages [italics in original]. The requirement that the benefitmatch the claim is implicit in the legislative scheme as it was described in Baart v.

Kumar, supra, and is explicit in s. 24(2), whichmatches “a claim for damages” with “benefits respecting the claim.” I do not think that the claim there referred to is the whole claim;rather, it is a claim to a particular heading of loss matched by a particular heading of benefits. There was no match in this case betweenthe benefits paid to Mrs. Jang for homemaker disability and the claim made by Mrs. Jang for general damages for pain, suffering andloss of amenities of life.

Notwithstanding the far-reaching proposition I have quoted from O’Donnell and most of the trial level decisions referred to above, myopinion with respect to the deductibility of no-fault benefits is more in accord with the approach taken by the British Columbia Court ofAppeal in Jang, supra. I believe that, where possible, any no-fault benefit deducted from a tort award under s. 267(1)(

a) must be deductedfrom a head of damage or type of loss akin to that for which the no-fault benefits were intended to compensate. In other words, andemploying the comparison of Morden J. in Cox, supra, if at all possible, apples should be deducted from apples, and oranges fromoranges. It follows further from this conclusion that if the no-fault deduction exceeds the amount awarded under the specific head ofdamages to which the no-fault benefits can be attributed, then there cannot be resort to another portion of the tort judgment for thebalance.

The particular plaintiff must account for no-fault benefits to which he or she is entitled, but where as in the case on appeal, theplaintiffs’ case consisted of evidence directed towards a tort judgment for a net award, the no-fault benefits have been accounted forunder appropriate damage headings. [Underlining added.] [61] The defendant’s

interpretation of

Section 24.a.(iv) of the SISIP policy is inconsistent with the above approach and results in thesubstantial under-compensation of disabled CF members following their release. The defendant’s

interpretation of

Section 24.a.(iv) alsocreates particular hardship for those who are the most in need of their Pension Act benefits because of disabling injuries. [62] Viewed contextually and with the reasonable expectations of the parties in mind, what was the common intent behind the use ofthe word “income” to qualify the word “benefit”? Would anyone examining the SISIP policy reasonably expect that a Pension Actdisability benefit that bears no relationship to lost future income would, in the event of a disabling injury, be deducted from a CFmember’s SISIP income replacement benefit?

Of perhaps greater significance is whether a CF member who suffers a catastrophiccombat injury at a level approaching 100% disability would expect to effectively receive nothing more than 75% of his CF income and tobe treated the same as a CF member with a disability of lesser functional significance arising outside of his military service. [63] It seems to me that to ask these questions is to answer them.

Giving effect to the SISIP offset of Pension Act disability benefitswholly deprives disabled veterans of an important financial award intended to compensate for disabling injuries suffered in the service ofCanadians. The SISIP offset effectively defeats the Parliamentary intent that is inherent in the Pension Act which is to provide modestfinancial solace to disabled CF members for their non-financial losses. The approach adopted by the defendant does not lead to a fair orsensible commercial result and defeats the reasonable expectation of CF members. CF members looking at the SISIP policy and, inparticular

Section 24, would expect that they were obtaining a meaningful and not illusory LTD benefit payable over and above theirPension Act disability entitlement for the loss of personal amenities. This view is enhanced by the fact that disabled CF members whocontinue with their active service are entitled to be paid and to keep their Pension Act disability benefits and by the fact that they losetheir right of action against the Crown to pursue claims to damages (including income losses) if a Pension Act benefit is payable: seeCrown Liability and Proceedings Act, R.S.C., 1985, c. C-50,

section 9 [as am. by S.C. 2001, c. 4, s. 39(F)]. The practical consequence ofthe claimed offset is to substantially reduce or to extinguish the LTD coverage promised to members of the Class by the SISIP policywith particularly harsh effect on the most seriously disabled CF members who have been released from active service. That is anoutcome that could not reasonably have been intended and I reject it unreservedly. [64] Even if I am wrong in the

interpretation I have placed on

Section 24.a.(iv), the issue must be resolved against the defendant onthe basis of the principle of contra proferentem. Where a policy of insurance contains exceptions and limitations to coverage, it isincumbent on the drafter to use language that clearly expresses the extent and scope of those limiting provisions: see Indemnity Ins. Co.of North America v. Excel Cleaning Service, (SCC), [1954] S.C.R. 169, at page 180, Here, the offset Canada has applied

represents a substantial limitation to a CF member’s LTD coverage: a limitation that effectively deprives the most seriously disabled CF members from recovering much, if anything, for their income losses. Because the CDS did not make it “perfectly clear” that he could deduct a member’s Pension Act disability pension from the SISIP LTD benefit, any ambiguity stands to be resolved in favour of the plaintiff and the other members of the Class: see Canada Life v.

Donohue , above, at paragraph 14. [ 65 ] Having determined that the defendant’s offset of Pension Act disability benefits from LTD income payable under the SISIP policy is not contractually justified, it is unnecessary to consider the second issue raised by the parties. A further case management meeting with counsel will be convened to discuss the implications of this decision for the continuation of the proceeding. ORDER THIS COURT ORDERS that the defendant’s offset of Pension Act disability benefits from the SISIP LTD income payable to the plaintiff and to the other members of the Class is in breach of

Section 24.a.(iv) of the SISIP policy.