Standard Life Assurance Company of Canada v. Landry, 2012 NSSC 228

SUPREME COURT OF NOVA SCOTIA Citation: Standard Life Assurance Company of Canada v. Landry, 2012 NSSC 228 Date: 20120614 Docket: Hfx No. 274569 Registry: Halifax Between: The Standard Life Assurance Company of Canada Plaintiff v. Joan Marie Landry Defendant LIBRARY HEADING Judge : The Honourable Justice Gerald R. P. Moir Heard: December 21, 2011 Subjects: Bankruptcy and insolvency, debts surviving bankruptcy, default by alleged fiduciary; Fiduciary relationships, ad hoc , disability insured and insurer

Summary: A disability insured failed to repay overpayments resulting from retroactive payments of workers' compensation benefits. The disability insurer moved for a declaration that the liability survived the insured's bankruptcy because she was an ad hoc fiduciary. Its position was supported by a recent decision of the BCCA. Issue: Whether the insured's liability to repay the overpayments was a fiduciary obligation or a simple debt. Result: Motion dismissed. The British Columbia decision did not persuade.

Neither of the two criteria recognized by the Supreme Court of Canada for an ad hoc fiduciary relationship were present. The obligation to repay overpayments was a simple debt. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . SUPREME COURT OF NOVA SCOTIA Citation: Standard Life Assurance Company of Canada v. Landry,

2012 NSSC 228 Date: 20120614 Docket: Hfx No. 274569 Registry: Halifax Between: The Standard Life Assurance Company of Canada Plaintiff v. Joan Marie Landry Defendant Decision Judge: The Honourable Justice Gerald R. P. Moir Heard: December 21, 2011 Counsel: Darlene Jamieson, Q.C., for plaintiff Joan Marie Landry, on her own Moir J. : [ 1 ] Introduction . Standard Life obtained an order for

summary judgment against Joan Landry in March of 2010 for $94,189 plus interest and costs. Two weeks later, Ms. Landry made an assignment in bankruptcy. [ 2 ] Standard Life was Ms. Landry's long term disability insurer. She developed chronic pain after a slip and fall at work. Standard Life paid her disability benefits. [ 3 ] Eventually, she also received workers' compensation benefits. The

summary judgment was based on Ms. Landry's failure to reimburse Standard Life for some payments she received from the Workers' Compensation Board.

[4] Standard Life now moves for a declaration that the judgment debt is within the meaning of s. 178(1)(

d) of the Bankruptcyand Insolvency Act as a "... liability arising out of … defalcation while acting in a fiduciary capacity". [5] Issues. Standard Life does not argue that Ms. Landry was within one of the recognized categories of fiduciary, such astrustee, agent, or director. The issue is whether the parties had an ad hoc fiduciary relationship. [6] That said, one of the authorities relied on by Standard Life deals at length with subrogation. Subrogation founds a trust. Trustee and beneficiary is a recognized category.

Indeed, it is the paradigm of fiduciary relationship. [7] So, I feel compelled to also write briefly about the possibility of a per se fiduciary relationship. [8] Facts. By virtue of her employment with the Halifax School Board, Ms. Landry was covered by a Standard Life groupinsurance policy issued to the Nova Scotia Union of Public Employees in 1990. She suffered a slip and fall at work in 1991 and went onlong term disability for chronic pain. [9] Ms. Landry also made a claim for workers' compensation.

The Standard Life policy provides, "The monthly income payableunder this benefit will be reduced by any disability benefit which is payable … under … (b) ... Workers' Compensation Act". Ms.Landry signed a "Reimbursement Agreement".

The terms read: I, the undersigned, Joan Landry, insured under Policy No. 12919, Certificate No. 110-853-140, hereby request that The Standard LifeAssurance Company pay to me salary replacement benefits until a decision is rendered by the Workers' Compensation Board (W.C.B.),in my favour, granting me Workers' Compensation Benefits for the periods I am receiving insurance benefits from The Standard LifeAssurance Company. It is understood that such an amount does not take into account any amount to which I could be entitled by reasonof disability.

In turn, I hereby agree to repay The Standard Life Assurance Company the amount representing the reduced benefits to which it isentitled following the decision rendered in my favour by W.C.B. within ten days of receipt of a request to that effect. Both copies of this Agreement signed by the Employee shall be sent to The Standard Life Assurance Company for claim. It is agreed that the decision will be communicated to The Standard Life Assurance Company as soon as it is known. [10] At the time of Ms. Landry's injury, the Workers' Compensation Board would not compensate for simple chronic pain.

Thelegislation permitting this stance was offensive to equality rights, and it was struck down in Nova Scotia (Workers' Compensation Board)v. Martin, 2003 SCC 54 , [2003] S.C.J. 54. [11] Ms. Landry received numerous payments from workers' compensation. Often she endorsed a cheque from Workers'Compensation over to Standard Life. However, there was some dispute or confusion in the years following the Supreme Court decision,and some legislative attempts to deal with issues for quantifying disability caused by chronic pain. [12] Ms.

Landry received several cheques that she failed to endorse, that she cashed and used for her own purposes. When StandardLife sued her for these payments, she admitted some liability but disputed the amount. The

summary judgment decision settled thatquestion.

[13] Supported by some recent decisions in Alberta and British Columbia, Standard Life asserts that Ms. Landry is an ad hocfiduciary covered by s. 178(1)(d). In opposition to such a finding, Ms. Landry puts forward evidence tending to show that she was in noposition to undertake to act in the best interests of Standard Life. [14] Ms. Landry points out that she has a grade eight education. She was never in a position to calculate what was owed to StandardLife.

Especially, a retroactive payment of $79,117 was understood by her to have come about as a result of a crusade by her and othersculminating in "the Chronic Pain Bill passed by Legislation". [15] She swears, and I accept, that she relied on assurances given to her by union representatives and employees of the schoolboard. They were the ones in contact with Standard Life, and "I never knew and up until today still do not understand all of this". "Itwas never for me to know what or IF! was to be paid back to this Insurance Company." [16] For Ms.

Landry, the state of accounts between her and Standard Life is much confused. She believes that pension contributionsunder the policy have been stopped. On some occasions, Standard Life miscalculated what was due to her. At some point, a lawyer shehired calculated her liability to be $23,019. [17] Galambos v. Perez, 2009 SCC 48. This decision put to rest any view that an ad hoc fiduciary relationship can be based on thereasonable expectations of the party asserting fiduciary duty. It was nicely put by Dickson J. at p. 384 of Guerin v.

Canada, (SCC), [1984] 2 S.C.R. 335: "The fiduciary must relinquish self-interest; that is

an act which the fiduciary does, not

an act which isdone to the fiduciary." See Galambos, para. 78. [18] Galambos also gives us a clear statement of the fundamental underpinnings necessary for finding an ad hoc fiduciaryrelationship: discretionary power and an undertaking about how it will be exercised. [19] There is no fiduciary relationship without discretionary power to affect the interests of others. "The particular relationships onwhich fiduciary law focusses are those in which one party is given a discretionary power to affect the legal or vital practical interests ofthe other … .": Galambos, para. 70.

"It is fundamental to the existence of any fiduciary obligation that the fiduciary has a discretionarypower to affect the other party's legal or practical interests": para. 83. [20] Absence of discretionary power negates an ad hoc fiduciary relationship but "presence of this sort of power will not necessarilyon its own support the existence of an ad hoc fiduciary duty": para. 84.

An undertaking by the fiduciary to forego self-interest, in favourof loyalty to the other, is also fundamental. [21] There must be "an undertaking by the fiduciary, express or implied, to act in accordance with the duty of loyalty reposed onhim or her": Galambos, para. 75.

"Thus, what is required in all cases of ad hoc fiduciary obligations is that there be an undertaking onthe part of the fiduciary to exercise a discretionary power in the interests of that other party": para. 76. [22] Fiduciary duties are imposed automatically on the per se fiduciary because "this undertaking will be found in the nature of thecategory of relationship in issue": Galambos, para. 77.

As I see it, this observation points to a key distinction between finding a per sefiduciary obligation and finding an ad hoc fiduciary relationship. [23] Choosing to act as trustee, agent, director, solicitor, etc. triggers the undertaking of loyalty whether the fiduciary knows it ornot.

Finding an ad hoc fiduciary relationship entails a more complicated factual inquiry. [24] "The fiduciary's undertaking may be the result of the exercise of statutory powers, the express or implied terms of an agreementor, perhaps, simply an undertaking to act in this way": Galambos, para. 77. (The "perhaps" allows for Justice Cromwell's reluctance toprovide obiter dicta on whether the undertaking has to be mutual: see para. 66.) Some of the broad areas for factual inquiry into impliedagreements are mentioned at para. 79.

[25] Authorities Holding Disability Insureds to be Fiduciaries. Standard Life relies on two decisions in which the facts were similarto ours: Confederation Life Insurance Co. v. Waselenak, (AB KB), [1997] A.J. 1204 (Q.B.) and Armstrong v. Lang,2011 BCCA 205. [26] In Confederation Life, the insured became totally disabled in 1985. The disability insurer paid him benefits although he had anoutstanding workers' compensation appeal. The insured signed a reimbursement agreement. [27] The workers' compensation appeal was successful. The insured advised the insurer that it could cease making payments.

Theinsured did not tell the insurer that he received retroactive payments. As a result of these, the insurer had overpaid $64,802. [28] The insured made an assignment in bankruptcy, and the insurer was out the overpayment if the debt did not survive bankruptcy. [29] After commenting extensively on cases interpreting "defalcation while acting in a fiduciary capacity" in s. 178(1)(d), JusticeGallant adopted this

interpretation at para. 74: [D]ishonesty or a wrongful act like fraud or embezzlement need not be present in order to find that

an act of defalcation has occurred,within the meaning of that term in the Act. All that is necessary is that a party fails to account to another if he or she has an obligation todo so and is acting in a fiduciary capacity. I agree with that

interpretation. [30] Justice Gallant then considered whether the insured was a fiduciary to the insurer. At para. 78, Justice Gallant said that "theultimate question" was "whether the plaintiff could reasonably have expected that [the defendant] would act in the best interests of theplaintiff", the proposition later refuted by Galambos. [31] Notwithstanding that he thought expectations of the other party to be the ultimate question, Justice Gallant mentioneddiscretion and the undertaking.

He said, at para. 78, that the reimbursement agreement supported an expectation that the insured wouldact in the best interest of the insurer "considering the elements of discretion, influence, vulnerability and trust". He also accepted that thereimbursement agreement supplied the undertaking: para. 79 and 80. [32] Armstrong v. Lang was decided after, and in the light of, Galambos. [33] The insured was on long term disability for twelve years. She also pursued a claim for workers' compensation benefits, whichwere to be deducted from the disability benefits. She received retroactive benefits of $170,336.

She did not reimburse the insurer. Shewent bankrupt. [34] There were majority and minority reasons, both of which concluded that the debt survived bankruptcy. Both were based on anad hoc fiduciary relationship. Both referred to Galambos. Both recognized the need for proof of an undertaking to act in the interests ofthe insured. [35] On discretionary power, the minority, Justice Mackenzie, was of the view that the insured held the funds subject to theinsurer's beneficial interest arising from a right of subrogation. The insured had the "bare legal title".

"That gave her a discretionarypower to deal with the funds …": para. 27. [36] On the undertaking, Justice Mackenzie merely said, "Here the appellant does not dispute her obligation to repay the

Overpayment which satisfies the element of undertaking": para. 27. (The obligation to repay was found in the policy. There was noreimbursement agreement.) [37] The majority reached the same conclusion as the minority but "without recourse to the law of subrogation": para. 30. [38] The majority referred to the "two essentials of an ad hoc fiduciary duty": para. 44.

The insurer "meets both requirements" (stillpara. 44) because: 45 In order to maximize the funds available for benefit payments under the Plan, it was in the best interest of the Trust and themembers of the Plan, that the members pursue their entitlement to other benefits. By reason of provision 2 of the Plan, the letterconfirming approval by the Plan of the appellant's claim for benefits and the actual pursuance by the appellant of her WCB benefits, theappellant was obliged to proceed effectively with her WCB claim in the best interests of the Trust.

She had no legitimate, personalinterest in doing so, because the result legally could inure only for the benefit of the Trust due to the repayment obligations in effect toprevent double recovery. 46 Effective pursuance of the WCB claim was wholly within her power. The respondents had no ability to do so. The practicalinterests of the trustees were subject completely to the appellant's discretion. Payment of some or all of the money received from theWCB to the Trust as a refund of its overpayment was entirely in her hands. [39] Comments on Confederation Life and Armstrong v. Lang.

These authorities do not persuade me that a disability insured is anad hoc fiduciary to the insurer when she collects workers' compensation benefits on account of which she is obligated to makereimbursement of disability benefits paid by the insurer. They are not persuasive on the issue of discretion or on the issue of anundertaking. [40] One must approach the question of discretionary power with great care because it is here that we distinguish the power thatmakes a fiduciary from the position of a contracting party who remains autonomous, free to act in his or her self-interest.

In my view,the decision in Confederation Life and the majority reasons in Armstrong v. Lang intrude fiduciary duties too far into ordinary contract. [41] With respect, both decisions merely equate a contracting party's ability to breach the contract, and face the legal consequences,with the kind of discretion that makes one a fiduciary. The ability to breach, if it could be called a discretion, is not the kind ofdiscretionary power that makes a fiduciary. [42] The point is made very clear in Warrington v.

Great-West Life Assurance Co., (BC CA), [1996] B.C.J. 1944(C.A.), in which the British Columbia Court of Appeal rejected a claim that a disability insurer owed a fiduciary obligation to the insuredto make good on its promise of benefits. [43] At para. 10, Justice Newbury distinguished Warrington from the case of fiduciary obligations of an insurer on settlement: It is an obvious point of distinction that the power of an insurer to negotiate and settle claims on behalf of its insured has much more ofthe substance and appearance of a "trust" or discretionary power than does the obligation of an insurer to pay benefits to its insured.

Inthe latter context, the discretion open to the insurer is a very restricted one. The policies in question here, for example, requiredGreat-West to pay benefits on receiving "satisfactory proof" or "due written proof" of Mr. Warrington's disability.

The law is clear thatthis did not entitle the insurer to withhold payments of benefits on the basis of some arbitrary or purely subjective judgment. [44] She went on to say at the same paragraph: To my mind, the insurer's obligation to pay benefits under the policy upon receiving such proof is virtually indistinguishable from anyother contractual duty undertaken by a contracting party and it is a long stretch indeed to characterize its role in this regard as a fiduciaryone, even where the insured is "vulnerable" in the sense that he is in dire need of benefits.

Justice Newbury observed at para. 11 that the insurer "was bound by the policy to pay the benefits upon requisite proof" and "The insurer was not required, or authorized, to exercise any other judgment [than being satisfied on the requisite proof] of the kind that would necessitate the operation of Equity on its conscience". [ 45 ] To my mind, the same may be said of a disability insured's obligation, under the policy or a reimbursement agreement, to reimburse disability benefits after receiving prescribed benefits from others.

The contractual obligation is without discretion. [ 46 ] On the undertaking, a contractual obligation to pay money is not an undertaking to act in accordance with a duty of loyalty, to relinquish self-interest, or to exercise a discretionary power in the interests of the other party. Respectfully, Galambos contemplates a far more penetrating factual inquiry on the question of a fiduciary undertaking than we see in the authorities relied on by Standard Life. [ 47 ] Did Ms. Landry Exercise Discretionary Power? Neither the policy nor the reimbursement agreement gave Ms.

Landry discretionary power as could found an ad hoc fiduciary relationship. She was contractually obligated to reimburse Standard Life each time she received a workers' compensation benefit for the difference between what Standard Life actually paid to her and what it would have paid had the workers' compensation benefits been in hand. [ 48 ] Sometimes Ms. Landry performed her contract and sometimes she breached it. Of themselves, the breaches could not possibly make her a fiduciary. [ 49 ] Even if She Had Discretionary Power, Did Ms. Landry Undertake to Act in Standard Life's Interests?

There is no express undertaking. Galambos tells us that it can be implied "in the particular circumstances of the parties' ": para. 79. Important kinds of circumstances may include "professional norms, industry or other common practices and whether the alleged fiduciary induced the other party into relying on the fiduciary's loyalty". [ 50 ] Ms. Landry had a grade eight education. Communications with Standard Life were through lawyers, union representatives, and school board employees.

She had a confused understanding of her workers' compensation claims and their relationship to the disability benefits. [ 51 ] There is no evidence that Ms. Landry induced anyone to rely on her loyalty. [ 52 ] Ms. Landry's lack of sophistication on subjects about insurance and indemnity, her reliance on others, her communicating with Standard Life through others, and the uninformed state of her knowledge provide a background in which one would not instinctively go looking for a fiduciary. [ 53 ] With that background in mind, let us take a closer look at the terms of Ms.

Landry's group disability insurance and of the reimbursement agreement. [ 54 ] The policy covers 67% of "basic monthly income", subject to certain caps. The payments are indexed. The policy also provides for pension contributions. [ 55 ] The policy does not cover any lost income based on "regular overtime pay, bonus or other shift premium". It does not cover income after the insured turns sixty-five. [ 56 ] There is a further limit on the amount payable under the policy.

The total of all disability payments from the policy, CPP, workers' compensation, government auto insurance, and other government schemes cannot exceed 85% of net monthly salary as

calculated at the outset of the disability. [ 57 ] In addition to excluding significant amounts of lost income, the policy defines "disability" as that "which wholly prevents the participant from performing … [e]ach and every function of his regular employment" during a period in which temporary coverage is available and "Afterwards, any renumerated function or work for which he is reasonably fitted by training, education or experience." [ 58 ] This is far from a full indemnity policy.

It excludes a large percentage of regular income, it caps compensable income loss, it excludes income that would have been earned from overtime or the like, it is limited to 85% of salary after other forms of compensation are paid, and it does not cover employment income lost after age sixty-five. [ 59 ] The policy also provides for "Reductions" in monthly disability insurance payments for compensation paid under other income protections: The monthly income payable under this benefit will be reduced by any disability benefit which is payable or which would have been payable to the participant had a satisfactory application been made under:

a) The Canada/Quebec Pension Plans … ;

b) A Workmen's/Workers' Compensation Act;

c) A provincial auto insurance plan;

d) Any other government plan. Note the verbal phrase, "will be reduced". There is no express imposition of an obligation upon the insured to turn over payments received from other insurers, merely a provision allowing the insurer to reduce the disability payments. [ 60 ] Note also that the policy places a practical onus on the insured to pursue CPP disability benefits, workers' compensation, and so on.

The disability insurance payments will be reduced when the insured fails to make a satisfactory application. [ 61 ] I have quoted the terms from the reimbursement agreement at full in para. 9. [ 62 ] The agreement contains an acknowledgement that monthly insurance disability payments do not take into account what Ms. Landry may later receive from workers' compensation. She agrees to repay to the insurer the "amount representing the reduced benefits" due under the policy. She agrees to make that payment within ten days of the insurer's demand.

She agrees to keep the insurer informed about "the decision" of the Workers' Compensation Board. [ 63 ] The agreement covers a situation not expressly provided for in the policy. The policy does not deal with retroactive payment of benefits that allow for a reduction in the insurer's payment. Liability has to be implied. [ 64 ] Note that there is no agreement to turn retroactive workers' compensation payments over to Standard Life.

On the contrary, the liability that may be implied under the policy, and that is express under the reimbursement agreement, is to repay Standard Life for what would have been an overpayment when viewed retrospectively in light of successes under various workers' compensation appeals.

[65] Another thing needs to be emphasized about the reimbursement agreement. It does not equate the amount received fromWorkers' Compensation with the amount to be repaid. The phrase "the amount representing the reduced benefits" contemplates thatliability may be less than the amount of the workers' compensation retroactive payment.

One example would be where Workers'Compensation pays more than the 85% cap. [66] The policy, the reimbursement agreement, and the background circumstances do not give rise to an implied undertaking to actin accordance with a duty of loyalty, to relinquish self-interest, or to exercise a discretionary power in the interests of the other party. There was a promise to pay and nothing greater than that. [67] Standard Life, in the words of Galambos at para. 81, "assumed the position of a precarious unsecured creditor, not that of aprotected beneficiary." [68] Does Standard Life Have Rights Against Ms.

Landry on the Basis of Subrogation? This issue arises because of the minorityreasons in Armstrong v. Lang. [69] If Standard Life were subrogated to Ms. Landry's workers' compensation claim, there would be no need for an inquiry about anad hoc fiduciary relationship. Subrogation gives rise to a trust: Ledingham v. Ontario Hospital Services Commission, (SCC), [1975] 1 S.C.R. 332; Mutual Life Assurance Co. v. Tucker, 1993 NSCA 24 , [1993] N.S.J. 56 (C.A.). Trust is not only arecognized category of fiduciary relationship per se.

It is the paradigm of all fiduciary relationships. [70] Unlike the policy in Mutual Life Assurance Co. v. Tucker, the benefits paid by Standard Life were tied to actual lost income. In that case, the insured could keep income earned after the onset of the disability and collect disability benefits. So, the Standard Lifepolicy is for an indemnity, the threshold for subrogation rights. [71] Mutual Life was decided primarily on the ground that the disability policy at issue was not an indemnity policy.

However, analternate ground for holding that there were no rights akin to subrogation was adopted by the Court of Appeal. At para. 27 the courtsaid, "If the insurer wishes to be 'subrogated' for partial indemnity, or to impose duties upon the insured when action is brought against athird party, the provision should be made in the policy." [72] As was seen when we took a close look at the policy and the reimbursement agreement, no attempt was made to impose a truston the insured for retroactive payments of benefits that would have reduced the Standard Life payments. At best, the policy impliedsimple liability.

The reimbursement agreement created a creditor/debtor relationship, not a trust. [73] Conclusion. The motion by Standard Life for a declaration that the debt owed to it by Ms. Landry survives her bankruptcy isdismissed with costs in the amount of $1,500. J.