Porter v. Co-operators General Insurance Company, 2014 NSSC 425

SUPREME COURT OF Nova Scotia Citation: Porter v. Co-operators General Insurance Company , 2014 NSSC 425 Date: 2014-11-28 Docket: SN No. 281987 Registry: Halifax Between: Stella Porter Applicant and Co-operators General Insurance Company Respondent and The Board of Trustees of the Nova Scotia Public Service Long Term Disability Trust Fund Intervenor Library Heading Judge: The Honourable Justice James L. Chipman Heard: October 23, 2014, in Halifax, Nova Scotia Written Decision: November 28, 2014 Subject: Interaction between the S.E.F. No. 44 Family Protection Endorsement (“SEF 44”) and the Nova Scotia Public Service Long Term Disability Plan (“LTD Plan”)

Summary: By consent under Civil Procedure Rule 12, the parties asked the Court to answer five questions. Issues:

(1) Is the deduction pursuant to para 4(

b) of the S.E.F. No. 44 Family Protection Endorsement (“SEF 44”) for the long term disability benefits (“LTD benefits”) recovered by Porter from the Nova Scotia Public Service LTD Plan Trust Fund (“LTD Fund”) net of the amount that Porter is obligated to reimburse to the LTD Fund from her settlement with Nicholas Rutherford (the “Third Party”)?

(2) Is the assignment to Co-op (pursuant to para 10 of the SEF 44) of future LTD benefits payable to Porter the LTD benefits net of the LTD Fund’s right of offset pursuant to s. 9(8) of the Nova Scotia Public Service Long Term Disability Plan (“LTD Plan”)?

(3) Are the above deductions pursuant to para 4(

b) of the SEF 44 for LTD benefits and Canada Pension Plan disability benefits (“CPP”) net of income tax payable by Porter on those benefits?

(4) Are the amounts payable to Porter for LTD benefits and CPP for the period after the trial in this proceeding to be dealt with by way of an assignment pursuant to para 10 of the SEF 44 or are they to be considered in assessing the amount payable to Porter pursuant to para 4(

a) of the SEF 44?

(5) If the amount payable to Porter pursuant to para 4(

a) of the SEF 44 is more than the limit of coverage as determined by para 3 of the SEF 44 ($500,000 in this case), how, if at all, does this affect an assignment pursuant to para 10 of the SEF 44?

Result:

(1) Yes

(2) Yes

(3) Yes

(4) The amounts payable to Porter for LTD benefits and CPP for the period after the trial in this proceeding are to be dealt with by way of an assignment pursuant to para 10 of the SEF 44.

(5) If the amount payable by Porter pursuant to para 4(

c) of the SEF 44 is more than the limit of coverage as determined by para 3 of the SEF 44 ($500,000 in this case), the assignment pursuant to para 10 of the SEF 44 is not affected. 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: Porter v.

Co-operators General Insurance Company , 2014 NSSC 425 Date: 2014-11-28 Docket: SN No. 281987 Registry: Halifax Between: Stella Porter Applicant and Co-operators General Insurance Company Respondent and The Board of Trustees of the Nova Scotia Public Service Long Term Disability Trust Fund Intervenor Judge: The Honourable Justice James L. Chipman Heard: October 23, 2014, in Halifax, Nova Scotia Written Decision: November 28, 2014 Counsel: Colin D. Bryson, Q.C., for the Applicant and the Intervenor Robert M. Purdy, Q.C. and Jeremy P.

Smith, for the Respondent By the Court: Introduction [ 1 ] By Notice of Motion filed October 8, 2014, the Applicant, Stella Porter (“Porter”) moves for an order under Civil Procedure Rule 12 for a determination of a number of questions of law. The Respondent, Co-operators General Insurance Company (“Co-op”) agrees with placing the questions of law before the Court. During an October 20th Court initiated conference call the parties agreed to refine the questions, as follows:

1. Is the deduction pursuant to para 4(

b) of the S.E.F. No. 44 Family Protection Endorsement (“SEF 44”) for the long term disability benefits (“LTD benefits”) recovered by Porter from the Nova Scotia Public Service LTD Plan Trust Fund (“LTD Fund”) net of the amount that Porter is obligated to reimburse to the LTD Fund from her settlement with Nicholas Rutherford (the “Third Party”)? 2. Is the assignment to Co-op (pursuant to para 10 of the SEF 44) of future LTD benefits payable to Porter the LTD benefits net of the LTD Fund’s right of offset pursuant to s. 9(8) of the Nova Scotia Public Service Long Term Disability Plan (“LTD Plan”)? 3. Are the above deductions pursuant to para 4(

b) of the SEF 44 for LTD benefits and Canada Pension Plan disability benefits (“CPP”) net of income tax payable by Porter on those benefits? 4. Are the amounts payable to Porter for LTD benefits and CPP for the period after the trial in this proceeding to be dealt with by way of an assignment pursuant to para 10 of the SEF 44 or are they to be considered in assessing the amount payable to Porter pursuant to para 4(

a) of the SEF 44? 5. If the amount payable to Porter pursuant to para 4(

a) of the SEF 44 is more than the limit of coverage as determined by para 3 of the SEF 44 ($500,000 in this case), how, if at all, does this affect an assignment pursuant to para 10 of the SEF 44? [ 2 ] The evidence in support of the Motion consists of an uncontentious affidavit deposed September 23, 2014, by Porter. The affidavit exhibited the SEF 44 and LTD Plan. [ 3 ] At the commencement of the hearing counsel agreed that the Board of Trustees of the LTD Fund (“the Trustees”) should be granted Intervenor status. Accordingly, I permitted the consent motion.

Background [ 4 ] Porter (DOB May 30, 1963) was seriously injured in a motor vehicle accident on August 6, 2003 (“the MVA”). On account of her injuries sustained in the MVA, Porter went off work and has not returned. At the time of the MVA, she was employed as a case worker with the Nova Scotia Department of Community Services. By virtue of her employment, Porter was insured under the LTD Plan.

In the event Porter remains disabled, her LTD benefits will continue to the last day of the month in which she turns 60 years of age; i.e., May 30, 2023. [ 5 ] The at fault driver in the MVA, the Third Party, had a standard automobile insurance policy with limits of $500,000. Porter had a standard automobile insurance policy at the time of the MVA with Co-op. Co-op is an insurance company in the business of providing motor vehicle insurance coverage to members of the public.

Porter’s coverage with Co-op included policy limits of $1,000,000 and an SEF 44. [ 6 ] The parties agree, as I find, that Co-op could be liable to Porter up to the maximum amount of $500,000.

This sum – $500,000 – is the difference between the $1,000,000 policy limits of Porter’s policy with Co-op and the $500,000 policy limits of the Third Party. [ 7 ] In para 9 of her affidavit, Porter deposes: As a result of mediation in December 2006, I and the other individual injured in the accident settled our accident claim against the Third Party for the $500,000 limits of the Third Party’s motor vehicle liability insurance policy, with me receiving $277,692.85, plus $8,553.87 in costs and $4,035.65 in disbursements.

This settlement was consented to by the Defendant [Co-op]. [ 8 ] The settlement was finalized in early 2007. Porter alleges that her proceeds of settlement are woefully deficient, as she suggests a damages trial would result in an award in the order of $1,300,000. Overarching Issues and Authority [ 9 ] Porter and Co-op disagree on how the LTD Plan and SEF 44 interact. Each of the five questions raise legal issues involving the

interpretation of SEF 44. In oral and written submissions, the parties agree, as I find, that the Court is to be governed by the principles set out in the seminal case of Campbell-MacIssac v. Deveaux , 2004 NSCA 87 (“ Campbell-MacIssac ”), a decision of Saunders JA, Chipman and Cromwell JJA, concurring. Answers [ 10 ] Based on the authorities – especially Campbell-MacIssac – and the reasoning set out below, the Court answers “yes” to questions 1, 2 and 3.

The answer to question 4 is: The amounts payable to Porter for LTD benefits and CPP for the period after the trial in this proceeding are to be dealt with by way of an assignment pursuant to para 10 of the SEF 44. [ 11 ] As for question 5, the answer is: If the amount payable by Porter pursuant to para 4(

c) of the SEF 44 is more than the limit of coverage as determined by para 3 of the SEF 44 ($500,000 in this case), the assignment pursuant to para 10 of the SEF 44 is not affected. Question 1 Is the deduction pursuant to para 4(

b) of the SEF 44 for the LTD benefits recovered by Porter from the LTD Fund net of the amount that Porter is obligated to reimburse to the LTD Fund from her settlement with the Third Party? Answer

Yes. Background – SEF 44, para 4 and the LTD Plan, s. 16 [12] Paragraph 4(

a) provides that the amount payable under SEF 44 “shall be ascertained by determining the amount of damages theeligible claimant is legally entitled to recover from the inadequately insured motorist and deducting from that amount the aggregate ofthe amounts referred to in paragraph 4(b),” up to the limit of coverage as determined under para 3 ($500,000.00 in this case). [13] Para 4(

b) provides that the amount payable under SEF 44 “is excess to any amount actually recovered by the eligible claimantfrom any source (other than money payable on death under a policy of insurance) and is excess to any amounts the eligible claimant isentitled to recover (whether such entitlement is pursued or not)” from various enumerated sources, including “(vii) any policy ofinsurance providing disability benefits or loss of income benefits or medical expense or rehabilitation benefits…” [14] As such, subject to the limit imposed by para 3, the insurer is required to pay the amount the insured is “legally entitled torecover from the inadequately insured motorist,” minus the aggregate of “any amount actually recovered by the eligible claimant fromany source” and “any amounts the eligible claimant is entitled to recover” from certain specified sources, including disability or loss-of-income benefits provided under an insurance policy. [15] In this case, Porter has received LTD benefits through an employment-based insurance plan, the LTD Plan.

Under the terms ofthe LTD Plan Porter is obligated to reimburse the LTD Plan from the proceeds of her settlement with the Third Party. The LTD Planrequires reimbursement even though Porter has not been fully indemnified. The subrogation provision provides that any amountrecovered by the Trustees in an action (by Porter) against the Third Party “shall be applied to … payment of the costs actually incurred inrespect of the action, and reimbursement to the Trustees of any disability benefits paid,” while the balance, if any is paid to the employee(LTD Plan, s 16(1)(a)). There is no dispute on this point.

The subrogation provisions of the LTD Plan have been described as “harsh”but “clear”: “[t]he costs of recovery are deducted first, but then the Trustee takes priority with respect to the balance, leaving the insuredemployee to claim what is left over.” (Nova Scotia Public Service Long Term Disability Plan Trust Fund v. McNally, 1999 NSCA 129,at paras 46-47). Issue [16] The issue is whether the deduction pursuant to para 4(b)(vii) of SEF 44 is for the full amount of LTD benefits actually paid, orwhether the deduction is reduced by the amount which Porter is required to reimburse the LTD Plan?

In other words, is Co-op entitledto deduct the amount actually received, or is the deduction limited to the amount retained after the Third Party settlement? Campbell-MacIsaac Overview [17] In Somersall v Friedman, 2002 SCC 59, and Campbell-MacIsaac, the Supreme Court of Canada and the Nova Scotia Court ofAppeal, respectively, considered the general principles applicable in interpreting the SEF 44.

Saunders JA observed in Campbell-MacIsaac that the interpreting court must be mindful that a proceeding between an insurer and an insured is a first-party claim, not athird-party claim against a tortfeasor and their insurer; this, he said, is a “critical distinction” (para 49). He emphasized that Somersallconfirmed that the SEF 44 is an indemnity policy, “such that an insured is to receive no more and no less than full indemnity thuslimiting the insurer's liability to the actual loss proved and denying an insured ‘profit’ or overcompensation under the policy” (para 53).

Elaborating on the scope and purpose of SEF 44, Justice Saunders said: 55 It has been consistently recognized by the courts that SEF 44 coverage is "last ditch" or "safety net" coverage. It is, as its ownprovisions make clear, "excess" insurance. The principle that SEF 44 protection is "excess" coverage only and ought not to provide a"windfall" or double recovery was recognized by Glube, C.J.S.C., (as she then was) in Myers v. Zurich Insurance Co. (NS SC), [1992], 118 N.S.R. (2d) 379 where at para 24, she observed: ... The amount payable by Zurich is excess to amounts actually recovered from any source.

The Policy only pays "excess" amounts toany amounts actually recovered. The estate has actually recovered amounts from Omaha and MSI. The only amount unrecovered is theremainder of the funeral expenses. This is an action to indemnify persons as a result of a loss suffered because there was an under insuredmotorist. The estate is not entitled to receive any amounts for expenses which have been paid in full by others. This is not a case ofexcusing a tortfeasor from his or her wrongdoing, but rather, payment would result in a windfall to the applicants and would be contraryto the contract between the parties.

If Zurich had to pay these amounts, it would be contrary to the clear language of the Policy and inparticular the sections in the Endorsement. 56 In Kuzyk v. Commercial Union Assurance Company of Canada (1991), 1991 ABCA 260 , 84 D.L.R. (4th) 745 (Alta.C.A.) the court was considering the nature of the SEF 44 coverage. In referring to para 4 (

b) of the endorsement, the court stated at p.750: Nevertheless, because of this argument, I judge it prudent to deal also with a defence under the policy offered by the insurer. It is saidthat the policy excludes any claims already paid by other insurers, or by government agencies. Clause 4(

b) provides that a claim underthe policy by an eligible claimant is excess to any amount the claimant recovers "... from any source ...". This underlines the last-ditch or"safety net" nature of the policy, and raises a serious doubt about the status of the Minister. [Emphasis by Saunders JA] …. 57 From these and other authorities, I conclude that the SEF 44 endorsement is an indemnity policy which is intended to cover Dr.Campbell-MacIsaac up to the extent of her loss, such that she is to receive no more and no less than full indemnity. She can in no wayprofit from the insurance. Any analysis and

interpretation of the SEF 44 endorsement and its provisions must be consistent with thoseprinciples, that is that an insured is not to profit from the insurance and therefore is not entitled to double recovery.

[18] Saunders JA went on to say that “the specific terms of the SEF 44 endorsement should be read in the context of the wording ofthe entire endorsement and not in isolation. As well, the terms of the endorsement must be interpreted in light of its overall purpose, thatit is ‘last ditch,’ ‘safety net’ and ‘excess insurance’” (para 58). He expanded on this by reference, at para 59, to the following passagefrom Consolidated Bathurst Export Limited v Mutual Boiler and Machinery Insurance Company, (SCC), [1980] 1 SCR888: Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of constructionlead a court to search for an

interpretation which, from the whole of the contract, would appear to promote or advance the true intent ofthe parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about anunrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted.Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as theinterpretation which would promote the intention of the parties. Similarly, an

interpretation which defeats the intentions of the partiesand their objective in entering into the commercial transaction in the first place should be discarded in favour of an

interpretation of thepolicy which promotes a sensible commercial result. It is trite to observe that an

interpretation of an ambiguous contractual provisionwhich would render the endeavour on the part of the insured to obtain insurance protection nugatory, should be avoided.

Said anotherway, the courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or theinsured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract. [Emphasis by SaundersJA] [19] Justice Saunders cited Hilliker’s Liability Insurance Law in Canada for the proposition that the rule of construction based onthe “plain, ordinary and popular sense” of words “does not mean that one ignores the context in which the words are found.

Rather, it isa cardinal rule that a contract of insurance should be considered in its entirety and be constructed liberally so as to give effect to thepurpose in which it was written” (Campbell-MacIssac at para 60, citing Gordon Hilliker, Liability Insurance Law in Canada, 3d edn(Toronto: Butterworths, 2001), at 27-28). Further, Brown’s Insurance Law in Canada emphasized that the reference in the leading caseswas to “the reasonable expectations of the parties, not just the insured”, and, accordingly, “an

interpretation should avoid windfalls forinsureds as much as insurers” (para 60, citing Craig Brown, Insurance Law in Canada (Thompson Canada, looseleaf), at p 8-15). Insummary, he said (at para 62, citing Somersall at para 33): particular words and phrases should not be lifted from the contract and considered in isolation.

They must be interpreted within thecontext, scheme and objectives of the entire endorsement which is to provide "last ditch," "safety net" and "excess" protection to Dr.Campbell-MacIsaac that is "no more and no less than full indemnity" and without profit or windfall or double recovery, all in keepingwith "the mutual obligations created by the SEF 44" endorsement… [20] In Campbell-MacIsaac, the Court of Appeal ruled that the trial judge erred by applying the common law collateral benefits rule,which, Saunders JA, stated is intended to bar a tortfeasor from claiming the benefit of private insurance benefits received from theplaintiff’s own insurer.

The rule had no application, however, to a first-party insurance litigation between an insured and his or her owninsurer, which was governed by “the contractual provisions that bound these two parties, which in the circumstances of this case, requireparticular regard to interpretative rules applicable to insurance contracts, and the unique features of the SEF 44 endorsement” (para 66). On the appeal, the respondent conceded that the insurer was “entitled to have taken into account to its credit the amount paid to Dr.Campbell-MacIsaac as past LTD payments.

Such a concession seems hardly surprising” (Saunders JA commented) “in light of the words‘excess to any amount actually recovered ...’” (para 71). [21] The live issue remaining in Campbell-MacIsaac was whether future LTD benefits fell within the SEF 44 reference to amountsthe insured “is entitled to recover…” Saunders JA held that the future amounts were included in the “aggregate of amounts” referred toin para 4(

a) as being deductible by the insurer under para 4(b). He concluded, “the words ‘entitled to recover’ encompass both benefitspayable to the insured in future, and equally to past benefits to which the insured was entitled, but which have not yet been received”(para 77). This reasoning, he held at para 78: reflects the excess coverage protection intended by the SEF 44 endorsement for damages not recoverable from the inadequately insuredmotorist, but not in a way that would enable the plaintiff to obtain a profit or windfall at the insurer's expense. Any other

interpretationwould in my view render meaningless and would not reflect the true intent of the parties when they entered into this contract ofinsurance. [22] Justice Saunders adopted the comment of Webber JA in MacNeill v Co-Operators General Insurance Co, 2003 PESCAD 9,that “[t]he legal entitlement to those benefits existed at the date of the accident and encompasses all benefits flowing from the accident”(para 79, citing MacNeill at para 61).

Our Court of Appeal concluded, accordingly, that “the stream of LTD benefits to which Dr.Campbell-MacIsaac is entitled at the time of judgment, staggered as it is over time, must upon receipt by Dr. Campbell-MacIsaac, befactored to the credit of Lombard in calculating its liability to Dr. Campbell-MacIsaac under the SEF 44 endorsement” (para 80). [23] The LTD Plan in Campbell-MacIsaac did not include a right of subrogation. Accordingly, the insured was not required toreimburse the LTD Plan in respect of other funds she received (para 12).

Discussion of the Caselaw in the Context of the Question [24] In this reference, Porter argues that if the SEF 44 deduction fails to account for her obligation to reimburse the LTD Plan, shewill not be fully indemnified. This, she submits, would be contrary to the principle that SEF 44 coverage provides “last ditch” excessinsurance amounting to “no more and no less than full indemnity.” She will only be fully indemnified, she says, if the SEF 44 coverageis increased to account for the amount she is required to reimburse the LTD Plan from the Third Party settlement.

In effect, she argues,amounts that are received through the settlement but which are not retained are not “recovered” within the meaning of SEF 44, para 4(a). [25] Porter relies on the “remarkably similar” precedent of Boisjoli (cob Chi-Shae Enterprises) v Zurich Insurance Co (2000), (AB KB), 264 AR 382. In that case, the insured had received a settlement under the tortfeasor’s insurance policy, out ofwhich he reimbursed the Workers’ Compensation Board for an income replacement payment in accordance with a statutory right of

subrogation. His insurer took the position that the fact that he was required to reimburse WCB was irrelevant to the SEF 44 calculation. The court held that the amounts he was required to reimburse were not amounts that he “recovered” or was “entitled to recover” for thepurposes of SEF 44.

Moshansky J said: 18 Clause 4 (b)(viii) does not address specifically the situation where a claimant such as the Plaintiff, as in the present case, is able torecover only a portion of his total damages against an underinsured at-fault motorist because there are other competing claimants for theavailable funds and where the Plaintiff is obliged to claim and remit to the Workers' Compensation Board the amount of the benefitspaid on his behalf by the Board. Clause 4(b)(viii) of the S.E.F. 44 endorsement thus is ambiguous in this regard.

I agree with theargument of counsel for the Plaintiff that the restrictions on payment contained in clause 4(b)(viii) should be construed strictly againstthe insurer and any ambiguity ought to be resolved in favour of the Plaintiff. 19 If one were to accede to the position taken by the Defendant Zurich that it is entitled to deduct the amount of the Workers'Compensation Board subrogated claim on the facts of this case then the effect would be to benefit an insurer rather than the individualinsured. This clearly would be to the detriment of the insured.

That, in my view, is not the intention of the S.E.F. 44 endorsement whichsignificantly, I think, bears the heading "Family Protection Endorsement" and clearly is designed to provide indemnity to the injuredclaimant against the risk that the "at fault motorist" is under-insured… [26] Porter submits that Boisjoli is “on all fours” with the present case. Co-op denies this. Co-op says SEF 44 is “last ditch”insurance.

It points to the fact that determination of the amount due under SEF 44 is a two-step process, requiring a calculation ofdamages to be recovered from the tortfeasor, followed by a deduction of the aggregate under para 4(b). It also states that Porter’sentitlement to SEF 44 benefits crystallized as of the date of the MVA. With respect, in my view, none of this is an answer to Boisjoli. [27] Co-op puts great stock in the fact that the Nova Scotia Court of Appeal held that Doran v Commercial Union Assurance Co ofCanada (2000), (NS SC), 182 N.S.R. (2d) 329 was wrongly decided.

In Doran, the plaintiff had a judgment against atortfeasor, who was an uninsured motorist. The plaintiff subsequently brought an action against his own insurer. The issue before thetrial judge was whether future CPP disability benefits (with an agreed capitalized value of about $80,000) were deductible under para4(

b) of SEF 44. The trial court found the wording of para 4(

b) to be ambiguous, and applied the doctrine of contra proferentum,concluding that it “should be interpreted as permitting the S.E.F. 44 insurer to deduct from its liability, all CPP disability benefitsactually recovered or paid to the plaintiff to the date of the tort judgment but not benefits … which the plaintiff may be entitled torecover in the future” (Doran at para 20). It was this conclusion that was overruled in Campbell-MacIsaac (paras 77, 78). [28] Co-op goes on to argue that “[i]f, in the exercise of its subrogation rights, the LTD fund has reimbursed itself out of Ms.

Porter’stort recovery … it does so because she otherwise would receive a windfall or double recovery.” The SEF 44 insurer, it argues, shouldnot be required to “give this windfall back to her … Put another way, the fact that Ms. Porter received a portion of her tort damages asTrustee for the LTD fund should be of no consequence” to the SEF 44 deduction. [29] Co-op cites the New Brunswick Court of Appeal decision in Economical Mutual Insurance Co v Lapalme, 2010 NBCA 87solely for the purpose of arguing that it does not govern here.

In Lapalme, the respondent insured was injured in a car accident with anunderinsured motorist. She subsequently settled the claim with the other driver’s insurer for $200,000, which was the policy limit. Shesought the excess from her own SEF 44 insurer. She was receiving CPP disability benefits, and the motions judge ruled that the insurercould only deduct amounts actually received up to the date the claim against the other driver was settled.

On the insurer’s appeal, theNew Brunswick Court of Appeal held that although the insured’s right to damages arose as of the accident, the quantum of damages(which was not agreed in the settlement) was to be determined at the time of adjudication. Accordingly, Drapeau CJNB held the insurercould deduct CPP disability amounts received by the insured up to the determination of her damages by the court.

The CPP paymentswere not akin to benefits under another insurance policy, so the provisions of the policy allowing the insurer to deduct all recoverableamounts did not apply in the circumstances. [30] Lapalme involved no issues concerning subrogation or assignment of rights of action (para 18). The issue was the

interpretationof SEF 44 para 4. Drapeau CJNB noted that the quantification process under para 4 was not in issue in Somersall (paras 31 and 40). Hemade a distinction between amounts that are “actually recovered” and amounts to which the insured was entitled, holding that the insurercould only deduct the former.

This was based on a reading of Somersall by which entitlement to damages crystallizes as of the date ofthe accident, but the amount actually deductible is determined based on the amount actually recovered at the time of adjudication (paras41-52). [31] Co-op agrees that Lapalme, like most of the other caselaw before the court, “does not specifically address the situation of asubrogation claim which claws back those benefits (as in the present case)…” Co-op also agrees that if Boisjoli is correct, and benefitssubject to such a clawback are not actually recovered, they would not be deductible according to the reasoning in Lapalme.

Co-opsuggests that this result is contrary to MacNeill and Campbell-MacIsaac, which indicate that there is no distinction for these purposesbetween amounts actually recovered and amounts the insured is entitled to recover. [32] In my view, whether or not Lapalme is actually contrary to Campbell-MacIsaac – Chief Justice Drapeau was of the view that hewas distinguishing it, not disagreeing with it (para 18) – it is not of great assistance to the issue here. Analysis [33] Para 4 of SEF 44 is silent on the effect of a “clawback” of the kind arising in this case.

In Boisjoli the court found the provisionto be ambiguous on exactly this point. It is not clear what is meant by “recover” under para 4(b). For instance, has Porter “recovered”money that is already earmarked for reimbursing her LTD Plan? The specific words of SEF 44 provide no guidance. [34] To my mind, the language of the para in question can bear two

interpretations: either the amount reimbursed to the LTD Planwas not actually “recovered” for the purposes of para 4(b), and should therefore not be deducted from the SEF 44 payment, or it was. Are these both reasonable

interpretations? The plain meaning of “recovered” could well be taken to mean something more than the merepassage of funds through the insured’s hands in order to reimburse the LTD Plan.

[ 35 ] In my view the most logical

interpretation is that the recovery in question should be for Porter’s own benefit. Further, this seems more consistent with the intention of Porter in taking out “last-ditch” insurance coverage. This is a plain language

interpretation. On the other hand, even if one accepts ambiguity arises, contra preferentum yields a like result. For instance, in applying contra preferentum , it is immediately obvious that the insurer, as the drafter of the policy, was free to include language making it clear that the SEF 44 payment would be reduced by amounts that were themselves subject to reimbursement obligations. Further, because para 4(

b) amounts to an exclusion clause, it must be interpreted narrowly in the event of ambiguity. [ 36 ] Co-op has placed great emphasis on the rather vaguely-framed principle, derived from Somersall , that entitlement “crystallizes” at the date of the MVA. They go on to argue that it follows from this statement that any consideration of the implications of a clawback of revenues identified in para 4(

b) is excluded. It is not clear why this would be the case, however. Even if entitlement under the LTD Plan arises for SEF 44 purposes at the date of the MVA, the clawback must be a component of that entitlement. The obligation already exists. It seems artificial to claim that the entitlement to recover LTD benefits crystallizes at the date of the MVA, but the obligation to reimburse the LTD Plan for any damage recovery does not. Co-op cites the examples of MacNeill and Somersall , where, it submits, “subsequent events” were not taken into consideration.

Importantly, however, the subsequent events in those cases – a limits agreement in Somersall , a legislative amendment in MacNeill – did not arise from obligations or agreements that already existed at the time of the relevant accidents. By contrast, the obligation to reimburse the LTD Plan from a tort recovery was already in place at the time of the MVA in the present case. Question 2 Is the assignment to Co-op (pursuant to para 10 of the SEF 44) of future LTD benefits payable to Porter the LTD benefits net of the LTD Fund’s right of offset pursuant to s. 9(8) of the LTD Plan? Answer Yes.

Discussion and Analysis [ 37 ] S. 9(8) of the LTD Plan provides that the LTD benefits shall be reduced by “the amount of earnings recovered through a legally enforceable cause of action against some other person or corporation.” According to Porter, this provision creates an offset against future LTD benefits, based on the amount recovered from the Third Party. This was the conclusion in Nova Scotia Public Service Long Term Disability Plan Trust Fund v Warner , 2006 NSSC 160 .

In that case, Scanlan J (as he then was) held that a diminished earnings capacity award “represents ‘earnings’ which likely will be lost in the future. Those earnings fall within the provisions of s. 9(8) of the plan” (para 6). Justice Scanlan went on in para 6 to say that difficulty in calculation “should not be used as the basis to allow the employee to enjoy the benefit of a double recovery. It is clear the parties to the plan intended to cover the employee as against loss of income.

If the employee receives that income from a third party there is in fact no loss.” [ 38 ] For the same reasons as under question (1), Porter submits that the assignment of her right to future LTD benefits should be net of the offset under s. 9(8) of the LTD Plan. Any other result, she submits, would not provide full indemnity. [ 39 ] Co-op maintains that Porter’s argument is circular: the SEF 44 insurer would have the right to the assignment of the LTD benefits, but the LTD fund could reduce the benefits payable and assignable by the amount paid to Porter by the Third Party.

I am not convinced this is actually circular. In effect, the LTD Plan contemplates the reduction of future benefits based on the amount recovered from the tortfeasor – not from the SEF 44 insurer – on account of lost earning capacity. This may be unfavourable to the SEF 44 insurer, but that does not make it circular.

In any event, counsel’s respective comments at the hearing indicate that this argument by Porter was premised on the belief that the LTD Plan was claiming the right to move against the SEF funds, which is, it appears, not the case. [ 40 ] As a threshold issue, Co-op says the provision for subrogation in respect of “any disability benefits paid” in s. 16(1)(

a) of the LTD Plan does not apply to future disability benefits. This was the conclusion of the Court of Appeal in Ryan v Sun Life Assurance Co of Canada , 2005 NSCA 12 , where Cromwell JA (as he then was) made the following comment as to whether a disability insurer’s right of subrogation out of a lump-sum settlement encompassed future benefits, or only benefits paid to the date of the settlement: 56 Paragraph 2 does not support the insurer's position. It contemplates one payment by the employee to the insurer out of the recovery of the amount paid to the employee under the policy.

The use of the past tense - paid - to describe the amount of benefits to be repaid suggests that there is no obligation to reimburse the insurer for payments to be made in the future, that is, after the date of reimbursement. [ 41 ] Co-op submits, on this authority, that the word “paid” in s. 16(1)(

a) of the LTD Plan limits the potential subrogation to recovery of amounts already paid to Porter, and does not capture future benefits that may be payable. [ 42 ] Co-op reiterates that (as indicated in Somersall and Campbell-MacIsaac ) Porter’s entitlement to insurance benefits “exists and is and is to be assessed as and from the date of the accident from which they flow.” It follows from this (according to Co-op) that the assessment of the deduction under para 4(

b) of SEF 44 “takes place before any future consideration of whether the LTD fund has a right to reduce payments to [Porter] and therefore should not be taken into account.” [ 43 ] In addition, Co-op submits, s. 9(8) of the LTD Plan contemplates a reduction of LTD benefits on account of earnings recovered through “a legally enforceable cause of action against some other person…” Co-op says this refers to a third-party claim against a tortfeasor and their insurer, not a first-party claim under an insurance contract.

By way of example, Co-op cites Inglis v Nova Scotia Public Service Long Term Disability Trust Fund (Trustees of) , 2012 NSSC 11 , where the plaintiff had originally brought an action against the Province for, inter alia , wrongful dismissal, as well as against the LTD Plan Trustees. The plaintiff had settled against the Province. At the conclusion of trial as against the LTD Plan, McDougall J attributed a portion of the settlement funds from the Province to earnings, which would be offset by “the equivalent amount of LTD benefits from the amount owed to the plaintiff for the period of his loss” (para 11).

[44] Co-op goes on to review various

definitions of “cause of action.” The principle modern Canadian definition, as found inDanyluk v Ainsworth Technologies Inc, 2001 SCC 44, para 54, is that a cause of action comprises “every fact which it would benecessary for the plaintiff to prove, if disputed, in order to support his or her right to the judgment of the court…” Co-op says that “inthe normal course” there would be no cause of action between an insured and their SEF 44 insurer in the processing of a claim, andtherefore nothing to reduce LTD payments by under s. 9(8).

Put differently, s. 9(8) of the LTD Plan does not permit the LTD insurer toreduce the benefit paid by an amount recovered by way of an insurance claim against the employee’s own SEF 44 insurer. The latteramount would not be a recovery by way of a “cause of action.” [45] As I understand Co-op’s position at the hearing, the arguments around the definition of “cause of action” are essentially moot,having been based on the belief that the LTD Plan was proposing to deduct the SEF 44 amounts. This is not the case. As such, as I readit, the question is essentially the direct

interpretation of the effect of the reduction under s. 9(8) of the LTD Plan upon the SEF 44payment. Accordingly, the relevant considerations are similar to those under question (1). Question 3 Are the above deductions pursuant to para 4(

b) of the SEF 44 for LTD benefits and CPP net of income tax payable by Porter on thosebenefits? Answer Yes. Discussion and Analysis [46] The LTD benefits and CPP disability benefits received by Porter are taxable benefits. In the result, the amounts she actuallyreceives are net of taxes. That being the case, she says, the deduction for those amounts under para 4(

b) of SEF 44 should also be net oftax. If the full amounts are deducted (i.e. including tax), she submits, she will not be fully indemnified. [47] Co-op maintains that because Porter’s entitlement to insurance benefits “exists and is to be assessed as and from the date of theaccident from which they flow,” the deduction under s 4(

b) of SEF 44 ignores any “future consideration of whether the LTD fund has aright to reduce payments to [Porter]…” Co-op therefore submits, whether Porter will be taxed on the LTD benefits in the future isirrelevant to the SEF 44 deduction. [48] Porter cites Bapoo v Co-operators General Insurance Co, (ON CA), [1997] OJ No 5055 (Ont CA), leave toappeal denied, [1998] SCCA No 62, where the respondent received weekly loss-of-income benefits from his car insurer, from whichLTD benefits received from his group disability insurer were to be deducted.

The deduction applied to amounts “received by or availableto the insured person under the laws of any jurisdiction or under any income continuation benefit plan…” (para 6). Relying on the“modern approach” to

interpretation, by which the provision must be interpreted in its total context, Laskin JA said, for the majority: 9 Interpreting s. 12(4)(

b) to permit Co-Operators to deduct only the net disability income payments received by Bapoo does not offendthe legislative text, gives effect to the purposes of the

Schedule and, most important, is reasonable and just. On the other hand,interpreting s. 12(4)(

b) to permit the deduction of gross disability income payments penalizes those insureds who prudently arrange fortheir own insurance or collateral benefits in the event of an accident, and therefore produces an unjust result. [49] Laskin JA held that the insurer’s position, if accepted, would leave the insured in a worse position than if he had not obtaineddisability income protection.

It would also undermine the purposes of deduction – those being, variously, “to ensure than injuredinsureds receive a fair or adequate level of income replacement”, “to ensure that injured insureds are not overcompensated… byprecluding injured persons from recovering full income replacement benefits both from their car insurer and their disability carrier and,therefore, from receiving more than their actual wages”, and making “the car insurer the last or the residual payer” (paras 14-16). [50] Porter submits, and I find persuasive, the reasoning of the majority in Bapoo with respect to the words “received by or availableto” is equally applicable to the

interpretation of the phrases “recovered by” and “entitled to recover” under SEF 44. Once again, theconsiderations on this issue seem to me to mirror those at play on questions (1) and (2), with a similar result. Question 4 Are the amounts payable to Porter for LTD benefits and CPP for the period after the trial in this proceeding to be dealt with by way of anassignment pursuant to para 10 of the SEF 44 or are they to be considered in assessing the amount payable to Porter pursuant to para 4(a)of the SEF 44?

Anwer The amounts payable to Porter for LTD benefits and CPP for the period after the trial in this proceeding are to be dealt with by way of anassignment pursuant to para 10 of the SEF 44.

Discussion and Analysis [51] SEF 44 provides for assignment of rights of action pursuant to para 10, which states that where a payment is made under SEF44 (i.e. under para 4(a)), the insurer “is entitled to receive” from the insured “in consideration thereof, an assignment of all rights ofaction whether judgment is obtained or not…” In Campbell-MacIsaac it was determined that there was a risk that the “present value” ofthe future stream of LTD benefits would not reflect the actual entitlement as determined over time, which was subject to ongoingassessment (paras 82-86). [52] Subject to the result on question (5), Porter agrees that upon payment to her by Co-op of the amount owing under SEF 44, on

request she will assign all rights of action in respect of the claims arising from the MVA, including the claim for LTD benefits (the latter being net of applicable offsets and taxes). She maintains that Co-op is not entitled to deduct a lump sum on account of future benefits unless that amount has been finally determined. Co-op appears to agree that there is no present entitlement to the present value of the future LTD stream. As such, Co-op submits and I agree, that those amounts should be dealt with by way of assignment pursuant to para 10 of SEF 44. Question 5 If the amount payable to Porter pursuant to para 4(

a) of the SEF 44 is more than the limit of coverage as determined by para 3 of the SEF 44 ($500,000 in this case), how, if at all, does this affect an assignment pursuant to para 10 of the SEF 44? Answer If the amount payable by Porter pursuant to para 4(

c) of the SEF 44 is more than the limit of coverage as determined by para 3 of the SEF 44 ($500,000 in this case), the assignment pursuant to para 10 of the SEF 44 is not affected.

Discussion and Analysis [ 53 ] Para 10 of SEF 44 provides, inter alia , that “[w]here a payment is made under this endorsement, the Insurer is entitled to receive from the eligible claimant, in consideration thereof, an assignment of all rights of action whether judgment is obtained or not…” [ 54 ] Porter agrees that it is possible to interpret para 10 of SEF 44 so as to conclude that the right of assignment operates immediately upon payment of the $500,000 limit by Co-op. She argues, however, that this would be inconsistent with the principle of “no more and no less” than full indemnity.

Porter refers to the following comments in Campbell-MacIsaac : 57 From these and other authorities, I conclude that the SEF 44 endorsement is an indemnity policy which is intended to cover Dr. Campbell-MacIsaac up to the extent of her loss, such that she is to receive no more and no less than full indemnity. She can in no way profit from the insurance. Any analysis and

interpretation of the SEF 44 endorsement and its provisions must be consistent with those principles, that is that an insured is not to profit from the insurance and therefore is not entitled to double recovery. 58 In addition, I hold the view that the specific terms of the SEF 44 endorsement should be read in the context of the wording of the entire endorsement and not in isolation.

As well, the terms of the endorsement must be interpreted in light of its overall purpose, that it is "last ditch," "safety net" and "excess insurance." [ 55 ] As such, Porter argues that “the right of assignment is suspended until full indemnity is achieved through payment from other sources.” She adds that a right of assignment arising short of full indemnity would (in theory) lead to different results depending on when the insurer makes the payment. [ 56 ] Co-op says that even if the amount payable pursuant to para 4(

b) exceeds the limit of coverage under para 3, this has no effect on the assignment under para 10. Co-op notes that para 10 has effect where a payment has been made by the insurer under SEF 44, and that it pertains to all rights of action “whether judgment is obtained or not.” Co-op also points to the conclusion in Campbell-MacIsaac that the insurer was entitled to a subrogation and assignment “to the extent of its liability” to the insured.

Similarly, in this case, Co-op says, its rights of subrogation and assignment would be limited by para 3. [ 57 ] Co-op also submits that this issue is premature, as it anticipates a situation that may not arise. While this may be the case, the motion is one for settlement of points of law, and it does not seem unreasonable to address a point which may yet arise on the facts. [ 58 ] Finally, in my view there is no support in the language of para 10 for Porter’s contention that the assignment is somehow deferred pending recovery of full indemnity.

It is clear that the right to the assignment arises “where a payment is made” under SEF 44. Conclusion and Costs [ 59 ] The within questions are obviously complicated. It is hoped that the analysis and answers will assist in bringing the parties’ longstanding litigation to a more timely conclusion. In any case, the parties agreed when canvassed immediately post hearing that they would be content to each bear their own costs. In all of the circumstances I believe this to be a fair outcome and order accordingly. Chipman, J.