The Board of Trustees of the Nova Scotia Public Service Long Term Disability Fund v. Garnier, 2023 NSSC 1

SUPREME COURT OF Nova Scotia Citation: The Board of Trustees of the Nova Scotia Public Service Long Term Disability Fund v. Garnier , 2023 NSSC 1 Date: 20230104 Docket: Hfx No. 511482 Registry: Halifax Between: The Board of Trustees of the Nova Scotia Public Service Long Term Disability Fund Applicant and Vince Garnier Respondent DECISION Judge: The Honourable Justice Glen G. McDougall Heard: August 30, 2022, in Halifax, Nova Scotia Final Written Submissions: October 3, 2022 Counsel: Colin D.

Bryson, K.C., for the Applicant Vince Garnier – Self-Represented – for the Respondent By the Court: Introduction [ 1 ] This is an application by the Board of Trustees of the Nova Scotia Public Service Long Term Disability Plan Trust Fund (“the Board”) seeking reimbursement of $60,533.81 in long term disability (“LTD”) benefits paid to Vince Garnier. The LTD benefits were paid on an interim basis, on the condition that Mr. Garnier file a claim for Workers’ Compensation benefits.

If that claim was successful, he would be required to reimburse the Nova Scotia Public Service Long Term Disability Plan Trust Fund (“LTD Fund”) the benefits paid. Mr. Garnier was successful in his Workers’ Compensation claim, but has only made a partial reimbursement to the LTD Fund. The Trustees filed this application for an order for reimbursement of the amount still outstanding. [ 2 ] Mr. Garnier says his reimbursement obligation is limited to the monies he received as a result of his successful Workers’ Compensation claim.

He says he was never told that he would be personally responsible for any shortfall if the Workers’ Compensation award was insufficient to fully repay the LTD Fund. He further submits that such an

interpretation is not supported by the language of the Nova Scotia Public Service Long Term Disability Plan (“LTD Plan”). Mr. Garnier asks the court to dismiss the Board’s application. Background [ 3 ] The LTD Plan is a long term disability plan created and authored by the Nova Scotia Government Employees Union (“NSGEU”) and the Province of Nova Scotia, and forms part of the employment compensation package contained in the various collective agreements between the NSGEU and the Province. [ 4 ] Vince Garnier was a “managerial” employee of the Province of Nova Scotia.

In other words, his employment was not governed by a collective agreement. As a managerial employee, his participation in the LTD Plan was mandated by s. 12 of the General Civil Service Regulations : Mandatory participation in benefit plans 12 Except as provided in Sections 13 and 14 and any applicable legislation, an employee must participate in all of the following benefit plans as a condition of employment: (

a) the Consolidated Health and Dental Plan;

(

b) the Basic Group Life Insurance Plan; (

c) the Nova Scotia Public Service Long Term Disability Plan; (

d) the Public Service Superannuation Plan. [ 5 ] The applicant is a board of trustees appointed by the NSGEU and the Province to administer the LTD Fund in accordance with a Trust Agreement between the NSGEU, the Province, and the Board , and in accordance with the LTD Plan. The purpose of the LTD Fund is set out at

article 5 of the Trust Agreement: 5.01 From monies received into the Fund there shall be established, maintained and continued the Nova Scotia Public Service Long Term Disability Plan Trust Fund which shall be used exclusively for the purpose of providing long-term disability benefits and ancillary benefits in accordance with the terms of the Plan herein and paying the costs of administration of the Fund, including all appropriate expenses, such expenses incurred by the Board of Trustees and exercising their discretion pursuant to this Agreement. 5.02 Furthermore, the Trustees shall utilize the Fund to assist in the recovery and return to work of beneficiaries. [ 6 ] The Board’s general duties and powers are outlined in

article 8. It states, in part: 8.01 The Trustees shall have the duty and responsibility to ensure that the Fund operates so that the purpose of the Fund is achieved. Except as otherwise provided in any Plan or this Agreement, and notwithstanding the generality of the foregoing, the Trustees shall have the authority provided by the Trustee Act of the Province of Nova Scotia, and as well shall have the following powers: (

a) to establish and administer the Fund on behalf of Employees to ensure that the assets of the Fund are used for the purpose of providing long-term disability benefits and other such ancillary benefits as determined by the Trustees; … (

c) to enter into any contracts or agreements, either with private individuals, corporations or any government agency or union, which can, directly or indirectly, assist the Trustees in carrying out the terms of this Agreement and the Plan; … (

l) to interpret and construe the Plan and determine all questions of eligibility, duration of service, continuity of service, dates of birth, membership or retirement, computation of benefits, value of benefits, and similarly related matters of the purpose of the Plan; … (

n) to do all acts, whether or not expressly authorized herein which the Trustees deem necessary to accomplish the general objectives and purposes of the Trust, and the Trustees may act either through the Board of Trustees as a whole or through the establishment of separate committees for the purpose of administration of the Fund; … [ 7 ] The definition of “employer” at

article 2.14 of the Trust Agreement includes the Province. The definition of “employee” at 2.12 includes “any person or group of persons set out in

Schedule ‘A’ … of the Agreement who are required to make contributions to the Plan.”

Schedule “A” includes “[e]mployees appointed under the Civil Service Act to Managerial and Confidential excluded positions in the Civil Service.” [ 8 ] Coverage for managerial employees is also addressed in s. 3(2) of the LTD Plan, which states: 3. This Plan applies to, … (2) groups of persons as outlined in

Schedule “A” of the Trust Agreement; … [ 9 ] The Board retained Manulife Financial as “Plan Administrator” to administer the LTD Plan on its behalf. In that role, Manulife Financial pays LTD benefits and collects reimbursements of LTD benefits on behalf of and as agent for the LTD Fund. [ 10 ] Vince Garnier became disabled as of September 17, 2015, due to an injury that occurred at work. He applied for LTD benefits under the LTD Plan and was determined to be “disabled”, as defined in the LTD Plan, from that injury. However, because Mr.

Garnier was injured at work, he was potentially entitled to “injury on duty leave” benefits from the Province, pursuant to s. 96(1) of the General Civil Service Regulations : Leave and pay for employees injured while working 96

(1) If the Workers’ Compensation Board determines that an employee is unable to perform their duties because of an injury the employee received while working, the Deputy Head must grant the employee injury on duty leave, and must pay the employee an amount equal to the employee’s net average pre-disability salary for the period specified by the Workers’ Compensation Board. [ 11 ] An employee who is determined by the WCB to be unable to perform their duties because of a workplace injury, and who is therefore entitled to “injury on duty leave” benefits from the Province, is not eligible to receive LTD benefits under the LTD Plan.

Section 7(7) of the LTD Plan identifies a list of circumstances where no benefits are payable, including: 7(7) No benefits shall be payable under the Plan because of: … (

h) disability which occurred at work and is deemed to be a fully compensable injury by the Workers’ Compensation Board; [ 12 ] At the time Mr. Garnier filed his application for LTD benefits, the WCB had not yet determined whether his disability was a “fully compensable injury” as contemplated by s. 7(7) of the LTD Plan.

According to the affidavit evidence of Theresa Williams, Director of Claims Management for the LTD Fund, the practice of the LTD Fund in such a situation is to pay the employee LTD benefits on an interim basis, on the condition that the employee file a claim for WCB benefits, and, if the employee’s injury is approved as fully compensable, to reimburse the LTD Fund the LTD benefits paid. [ 13 ] As part of Mr.

Garnier’s application for LTD benefits, he signed a Member Employee Statement , which included the following: I agree to refund any monies which may be due to Manulife Financial as a result of payment of disability benefits from any source listed above and/or in accordance with the provisions of the Nova Scotia Public Service Long Term Disability Plan Trust Fund administered by Manulife Financial. The “sources listed above” included Workers’ Compensation. [ 14 ] On January 29, 2016, Mr. Garnier had a telephone conversation with Nola Fredericks, Case Manager for Manulife Financial, about his claim. Ms.

Fredericks made the following notes in relation to the call: He understands that any work activity needs to be reported to LTD and also any income that could potentially be an offset to his LTD. He has applied for EI in the event that LTD wasn’t approved and there is a WCB application as well, no decision has been made. He understood that if WCB is approved, down the line, his LTD claim would close and he would owe back those funds. [ 15 ] Mr. Garnier began receiving LTD benefits as of February 17, 2016. Although his WCB claim was initially denied, he filed an appeal of that decision. On September 11, 2017, Mr.

Garnier sent an email to Cheryl Young, Case Manager for Manulife Financial, stating as follows: My WAP advisor has a teleconference scheduled with WCB and others on Sep. 13 regarding my appeal and I believe that the … report may help me win the WCB appeal, which would mean that WCB would have to reimburse Manulife. [ 16 ] On December 17, 2017, Mr.

Garnier signed an “Agreement Regarding Workers’ Compensation Benefits and STD/LTD Benefits” (“reimbursement agreement”), which stated: I hereby request that Manulife Financial continue to pay benefits to me under this Short Term Disability/Long Term Disability (STD/LTD) plan while my application for disability benefits under the applicable Workers’ Compensation legislation (“WCB Benefits”) is being adjudicated by the appropriate authority. … In consideration of Manulife Financial’s agreement to continue the payment of STD/LTD benefits, I hereby agree: (1) to forward Manulife Financial a copy of the decision rendered by WCB with respect to my application for benefits as soon as I receive it; (2) to appeal within 30 days if requested by Manulife Financial, any decision declining my application for WCB Benefits and to forward to Manulife Financial a copy of the appeal decision rendered by WCB as soon as I receive it; (3) that all costs associated with my application for WCB Benefits and appeal (if any) are to [ sic ] borne by me alone; (4) to reimburse Manulife Financial, if I am awarded WCB Benefits, the amount of any resultant overpayment immediately upon request and in a lump sum.

I understand that, should I receive a WCB award, I hold those funds in trust for Manulife Financial; (5) that, should I fail to reimburse Manulife Financial upon demand, Manulife Financial may exercise any legal right to collect the overpayment, including, but not limited to the deducting of the amount of any overpayment, from the whole or part of any benefits which would otherwise be payable to me, until the total amount of the overpayment has been reimbursed; (6) to sign the WCB assignment form provided by Manulife Financial. … [ 17 ] In a written decision dated December 19, 2019, the Workers’ Compensation Appeals Tribunal held that Mr.

Garnier’s injury occurred at work, and referred the matter back to the WCB to determine the “nature and extent” of his WCB benefit entitlement. While the court does not have a copy of the WCB’s decision, Theresa Williams stated at para. 17 of her affidavit that the WCB benefit entitlement “was determined to be a fully compensable injury in early July 2020.” She indicated that the LTD Fund was so advised by the Nova Scotia Public Service Commission (“PSC”), and payment of Mr. Garnier’s LTD benefits was discontinued because he would be receiving WCB benefits. In total, Mr.

Garnier was paid $232,285.74 in LTD benefits to July 7, 2020. [ 18 ] In a letter to Mr. Garnier dated August 25, 2020, the PSC outlined the impact of his retroactive WCB award. The letter stated,

in part: As a result of the WCAT decision, you are not entitled to receive Long Term Disability (LTD) benefits from the Nova Scotia Public Service (NSPS) Ltd Plan. As such, your LTD benefits ceased on July 16, 2020 and your Injury on Duty (IOD) benefits payments started during that pay period, with a deposit date of July 30, 2020. As you were advised by Manulife Financial via letter dated July 30, 2020, you were paid LTD benefits in the amount of $227,307.84 which must be repaid. The amount of retroactive IOD pay from your WCB claim is $490,021.56.

From that amount, the employer will recover $35,469.93 of Short Term Illness (STI) benefits paid to you which must be recouped as your status was changed from STI to IOD/WCB. The employer will also deduct the offset of the Extended Earnings Replacement Benefit (EERB) in the amount of $72,532.80 paid directly by WCB, as well as the CPP Disability benefit amount of $44,778.93 paid directly by Service Canada.

Once these adjustments are made, you will have gross retroactive IOD earnings of $337,239.90, from which you are required to pay $157,198.01 in statutory deductions (most of which is for income tax) , as well as $11,632.14 in retroactive benefit premiums owing. As a result of these adjustments, your net retroactive IOD pay is $170,716.65. … You may work directly with Manulife to pay the full amount owing of $227,307.84, or you may request that the employer facilitate the reimbursement by remitting the net retroactive payment of $170,716.65 directly to Manulife Financial.

We have provided this service to others and have found it to be administratively efficient for all involved. If you opt to have the employer facilitate the reimbursement, we require your written authorization to do so (please see the attached “Authorization and Direction to Pay” form).

Please note, you will be required to pay the outstanding amount of $56,591.19 directly to Manulife Financial. (Emphasis added) [ 19 ] The “Authorization and Direction to Pay” form stated: I hereby authorize the Province of Nova Scotia to deduct a total of $170,716.65 from my retroactive Injury on Duty/WCB benefits payments, in relation to Workers Compensation Appeal Tribunal Decision … entitling me to WCB benefits from September 17, 2015, and the resulting overpayment to Manulife … The $227,307.84 represents an overpayment of long-term disability benefits that I received from Manulife since February 17, 2016, as confirmed by letter to me from Manulife Financial dated July 30, 2020.

I understand that the Province of Nova Scotia will remit the sum of $170,716.65 to Manulife Financial on my behalf . I further understand that, if the amount remitted to Manulife Financial by the Province of Nova Scotia is not the full amount owed, Manulife will work directly with me to collect the balance owing. (Emphasis added) Mr.

Garnier signed the authorization form on December 18, 2020. [ 20 ] Theresa Williams explained in her affidavit that the figure of $227,307.84 cited by the PSC to be reimbursed to Manulife Financial was incorrect, as the correct amount was the $232,285.64 in LTD benefits paid to July 7, 2020. The difference between the $232,285.64 in LTD benefits paid to Mr. Garnier and the $227,721.64 stated in the PSC letter was the statutory source deduction withheld by Manulife Financial from the LTD benefits paid to Mr. Garnier in 2020.

In the normal course, those funds would be remitted to Canada Revenue Agency at the end of 2020. [ 21 ] Ms. Williams went on to state in her affidavit: 22. After the reimbursements (other than to Manulife Financial) and the statutory deductions set out in the PSC Letter, and accounting for a further payment of $2,306.90 in IOD benefits to Mr. Garnier for the “current period”, only $170,716.65 remained from the IOD Award to reimburse Manulife Financial, leaving a shortfall of $61,568.99. The $170,716.65 was reimbursed to the LTD Fund in December 2020. 23.

This shortfall occurred because the statutory deduction for income taxes was based on Mr. Garnier’s full IOD Award and not the IOD Award net of the reimbursements listed in the PSC Letter, on which Mr. Garnier had already paid income taxes as those benefits were received from 2015 to 2020. As a result, Mr. Garnier was entitled to a substantial income tax refund, which would have resulted in far more than enough to cover the shortfall of $61,568.99 payable to Manulife Financial (the LTD Fund). 24. To assist Mr. Garnier in obtaining this tax refund, for which Mr.

Garnier said he would need to retain an accountant, Manulife Financial agreed to release to Mr. Garnier the statutory source deductions that it was holding (referenced in paragraph 20 herein), as it would not be required to be remitted to the Canada Revenue Agency if there was a substantial reimbursement of the LTD Fund by Mr. Garnier in 2020. In December 2020 those statutory source deductions were $5,412.28 and were released to Mr. Garnier as part of obtaining his consent to the Public Service Commission releasing the $170,716.65 to Manulife Financial. 25. Mr.

Garnier’s debt to the LTD Fund was reduced to $60,553.81 on or about July 14, 2021 as a result of a payment of $1,015.65 received from the Nova Scotia Pension Services Corporation on account of an overpayment of pension premiums by Mr. Garnier. (Emphasis added) [ 22 ] As Mr. Garnier did not make any additional reimbursement payments to the LTD Fund, the Board filed a notice of application to recover the funds on December 17, 2021. The Board relies on s. 7(7)(

h) of the LTD Plan, the Member Employee Statement Mr. Garnier signed as part of his application for benefits, and the reimbursement agreement signed by Mr. Garnier on December 17, 2017. [ 23 ] Mr. Garnier filed a notice of contest on December 23, 2021, and an amended notice of contest on February 17, 2022. [ 24 ] Mr. Garnier is self-represented. In his amended notice of contest, he advances a variety of grounds. Some grounds appear to

have been based on misunderstandings of the relevant documents, and were not raised in Mr. Garnier’s closing submissions. For instance, he alleges that the Board’s claim against him has no legal basis because he never signed a “participation agreement” with respect to the LTD Plan. The rebuttal affidavit of Theresa Williams explains, however, that the “participation agreement” provisions of the Trust Agreement permit the Board to add employment groups as beneficiaries by way of a participation agreement between the new employer and the Board. Mr.

Garnier’s participation in the LTD Plan was not based on a participation agreement. [ 25 ] In other grounds, he says recovery should be denied to the Board because it was negligent in failing to prevent an overpayment, and in its overall administration of his claim. As I indicated to Mr. Garnier at the hearing, I am not prepared to consider these allegations in the absence of a respondent’s claim in negligence.

Nor am I prepared to consider arguments that the LTD Plan is invalid because the Board was not properly constituted, which was not raised in the notice of contest, or that the LTD Plan does not apply to managerial employees like Mr. Garnier because they were not represented during negotiations. As noted earlier, Mr. Garnier’s participation in the plan is mandated by the General Civil Service Regulations , the validity of which is not challenged in this proceeding. [ 26 ] These reasons will focus on the grounds raised by Mr. Garnier that relate to the proper

interpretation of the LTD Plan, which he says does not support any legal obligation on his part to repay the LTD Fund for any shortfall between the LTD benefits he received and the retroactive lump sum WCB award. I will also address his argument that the LTD Fund is not entitled to any refund he might be eligible for with respect to his 2020 income taxes.

The Evidence [ 27 ] The Board filed affidavits from Nola Fredericks, Case Manager with Manulife Financial from 2007-2016 and currently an Appeals Specialist for the same employer; Theresa Williams, Director of Claims Management for the LTD Fund; and Susan Dower, Manager of Payroll Client Relations in the Department of Service Nova Scotia & Internal Services for the Province of Nova Scotia. The Board also filed supplemental affidavits from Ms. Williams and Ms. Dower, along with a rebuttal affidavit from Ms. Williams. Mr. Garnier cross-examined each of the affiants. [ 28 ] For his part, Mr.

Garnier filed his own affidavit. He was not cross-examined on his evidence. [ 29 ] Cross-examination of the applicant’s witnesses occurred on August 16, 2022. Closing arguments were scheduled for the following day, but the matter could not proceed because Mr. Garnier was unable to attend court for medical reasons. Closing arguments were set over to August 30, 2022. On August 24, Mr. Garnier wrote to the court requesting permission to file his closing arguments in writing. His email request was accompanied by a letter from one of his treating physicians, asking the court to consider the request. I granted Mr.

Garnier’s request on August 30, and set filing deadlines ranging from September 9 to October 7. I also reserved the right to ask the parties to appear in person or by telephone to answer any questions I might have after reviewing their submissions. Nola Fredericks [ 30 ] In her affidavit, Ms. Fredericks stated that Manulife Financial is the “Plan Administrator” for the LTD Fund. One of her roles as a case manager with Manulife Financial was to administer long term disability claims of insureds under the LTD Plan. [ 31 ] In January 2016, Ms. Fredericks was the case manager for Mr.

Garnier’s claim for LTD benefits under the LTD Plan. She said her role at that early stage of the claim was to ensure that Mr. Garnier submitted the required claim documents, and to meet or speak with Mr. Garnier to begin the work of assessing his claim. [ 32 ] From the claim documents submitted by Mr. Garnier, Ms. Fredericks knew that his claim for disability benefits arose from a workplace injury and that he had applied for WCB benefits. [ 33 ] Ms.

Fredericks stated that, from her experience working with LTD Plan claims, she was aware that the LTD Plan contained an exclusion in relation to claims involving a disability which occurred at work and is deemed to be a fully compensable injury by the WCB.

She was also aware that the LTD Fund’s practice in cases where the WCB has not yet determined whether the disability is a fully compensable injury is to pay the employee LTD benefits on an interim basis, on the condition that if the claim is approved as fully compensable, the employee will reimburse the LTD Fund the LTD benefits paid. [ 34 ] On January 29, 2016, Ms. Fredericks had her initial interview with Mr. Garnier in a lengthy phone conversation. She said they spoke about his claim in general, why he felt that he was disabled, and his medical treatment. Since Ms. Fredericks was aware of Mr.

Garnier’s WCB claim, she also explained to him that he was obligated to pursue his WCB claim and, if he were found to be disabled under the LTD Plan, his LTD benefits would be paid to him while he pursued the WCB claim, but that those LTD benefits would have to be reimbursed by Mr. Garnier if his WCB claim was successful. Ms. Fredericks attached a copy of her notes of the call as an exhibit to her affidavit. [ 35 ] On cross-examination, Mr. Garnier asked Ms. Fredericks about her understanding, as a case manager, of the meaning of “fully compensable injury” in s. 7(7)(

h) of the LTD Plan. Ms. Fredericks said “fully compensable injury” is WCB’s term or “jargon”. She said Manulife would get a letter from WCB stating that an injury was determined to be a “fully compensable injury”. Ms. Fredericks confirmed that “fully compensable injury” is not defined in the LTD Plan. [ 36 ] Mr. Garnier asked Ms. Fredericks how she would explain “fully compensable” to him, as a client. She said it means that “they’ve determined that the injury would be fully compensable to you, like, they’ve accepted that it’s not a partial disability.” [ 37 ] Mr. Garnier asked Ms.

Fredericks about the definition of “overpayment”. She said, “Well, in this case, if Workers’ Compensation is approved, which it was in this case, then you weren’t entitled to LTD benefits. So that entire amount would have to be reimbursed.” [ 38 ] Ms. Fredericks was directed to a copy of the LTD Plan and asked whether there is anything in the document that says a claimant would be responsible for paying back 100% of the LTD Plan in the event that the claimant’s WCB claim is approved. Ms.

Fredericks pointed to s. 9(4), which states: 9. The benefits to which an employee is entitled under this

section shall be reduced by: … (4) the amount of Workers’ Compensation payments, except permanent partial disability awards; … [ 39 ] Ms. Fredericks said this provision applied to Mr. Garnier’s claim. He suggested to her that the reference in s. 9(4) to the LTD benefits being “reduced by” the amount of WCB payments is inconsistent with her earlier statement that all LTD benefits would need to be repaid if the employee’s WCB claim was approved. She reiterated that her statement that 100% of the LTD benefits must be paid back is based on the training she received and her experience as a case manager. [ 40 ] Mr.

Garnier asked Ms. Fredericks if she ever told him, orally or through email, that he would be responsible to repay potentially tens of thousands of dollars to the LTD Fund if his WCB claim was successful. Ms. Fredericks responded that she told him during the initial phone call in 2016 that he would have to reimburse the LTD benefit payments if the WCB claim was successful. [ 41 ] On re-direct examination, Ms. Fredericks was reminded of Mr.

Garnier’s question regarding which provision in the LTD Plan creates an obligation on an employee to reimburse 100% of the LTD benefits if their WCB claim is approved, along with her response, which was s. 9(4). She was then referred to s. 7(7)(

h) of the LTD Plan and agreed that that

section “is also responsive to that question.” Theresa Williams [ 42 ] Much of Theresa Williams’ affidavit evidence has already been discussed in the “Background”

section of this decision. [ 43 ] As Director of Claims Management for the LTD Fund, Ms. Williams provided general information about the Board, the LTD Plan, and Manulife’s role as “Plan Administrator”. She cited s. 7(7)(

h) of the LTD Plan, which provides that no benefits are payable due to a disability which occurred at work and is deemed to be a fully compensable injury by the WCB. Ms. Williams explained the LTD Fund’s practice where an employee has an outstanding WCB claim and files a claim for benefits under the LTD Plan; she said the LTD Fund pays the employee LTD benefits on an interim basis, on the condition that if the employee’s WCB claim is approved as fully compensable, the employee agrees to reimburse the LTD Fund the LTD benefits paid. [ 44 ] Ms.

Williams also reviewed the information in the LTD Plan files pertaining to Mr. Garnier’s claim, and attached key documents as exhibits. These exhibits included the Employee Statement signed by Mr. Garnier on January 7, 2016; Ms. Fredericks’ notes from her call with Mr. Garnier on January 29, 2016; Mr. Garnier’s email to Cheryl Young dated September 11, 2017; the reimbursement agreement signed by Mr. Garnier on December 17, 2017; a statement of LTD benefits paid to Mr.

Garnier pursuant to the LTD Plan for the period from February 17, 2016 to July 4, 2020 ($232,285.74); and a copy of the August 25, 2020 letter from the PSC which addressed the consequences of Mr. Garnier’s retroactive WCB award, including the deductions that would need to occur and the resulting shortfall between the WCB award and the total LTD benefits received by Mr. Garnier. Ms. Williams attributed the shortfall to the fact that “the statutory deduction for income taxes was based on Mr. Garnier’s full IOD Award and not the IOD Award net of the reimbursements listed in the PSC Letter, on which Mr.

Garnier had already paid income taxes as those benefits were received from 2015 to 2020” (para. 23, Williams affidavit). Ms. Williams indicated that Mr. Garnier would be entitled to a substantial income tax refund “which would have resulted in far more than enough to cover the shortfall of $61,568.99 payable to Manulife Financial (the LTD Fund)” (para 23, Williams affidavit). Ms. Williams also noted that Mr.

Garnier’s debt to the LTD Fund was reduced to $60,533.81 on July 14, 2021, as a result of a payment of $1,015.65 received from the Nova Scotia Pension Services Corporation on account of an overpayment of pension premiums by Mr. Garnier. [ 45 ] On cross-examination, Mr. Garnier referred Ms. Williams to s. 9(4) of the LTD Plan and asked her whether any of those subsections applied to his claim. She said no. When it was put to her that Ms. Fredericks testified earlier that s. 9(4) does apply to him, Ms. Williams indicated that Ms. Fredericks’ response was incorrect.

Susan Dower [ 46 ] Susan Dower is the Manager of Payroll Client Relations in the Department of Service Nova Scotia & Internal Services for the Province. In her affidavit, she stated that she was directly involved in managing the payment to be made to Vince Garnier by the Province as a result of the December 19, 2019 decision of the WCAT which found that Mr. Garnier could not work due to an injury sustained at work. [ 47 ] Ms. Dower explained that the Province is self-insured for workers’ compensation claims made by employees like Mr. Garnier.

The employee’s entitlement to benefits is set out in s. 96 of the General Civil Service Regulations .

When an employee is found to be unable to perform their duties because of an injury the employee received while working, s. 96(1) states that the employee is entitled to “injury on duty leave” of “an amount equal to the employee’s net average pre-disability salary for the period specified by the Workers’ Compensation Board.” Section 96(2) and (3) of the Regulations provide that the amount payable under s. 96(1) must be reduced by “partial earnings loss replacement” benefits under the Canada Pension Plan or other publicly funded third party payments received by the employee that relate to employment and disability. [ 48 ] Ms.

Dower addressed the retroactive award Mr. Garnier received as a result of the WCAT decision, along with the necessary statutory deductions, as follows: 7. As a result of the WCAT decision, it was determined that Mr. Garnier was owed $490,021.56 in retroactive injury on duty leave benefits, with those benefits to be reduced by payments previously made to Mr. Garnier, specifically; STI benefits from the Employer, Canada Pension Plan disability benefits from Service Canada and Extended Earnings Replacement Benefits (“EERB”) from the NS

Workers’ Compensation Board. 8. The amount payable to Mr. Garnier was required to be further reduced by the statutory deduction for income taxes payable by Mr. Garnier. This statutory deduction would be based on the injury on duty leave benefits payable, net of the above referenced offsets for STI benefits, Canada Pension Plan disability benefits and EERB. 9. According to the letter dated August 25, 2020 from Colin MacDonald of the Public Service Commission … the amount payable to Mr. Garnier net of the offsets and statutory deductions was $170,716.65, which Mr.

Garnier agreed could be withheld from his retroactive injury on duty leave payment and remitted to Manulife Financial/the NSPS LTD Plan pursuant to Mr. Garnier’s reimbursement obligation to Manulife Financial/the NSPS LTD Plan. The $170,716.65 was reimbursed to Manulife on December 31, 2020. 10.

Between the issuing of the letter dated August 25, 2020 from Colin MacDonald and December 31, 2020, there were adjustments made to the estimated calculations outlined in the letter before the final payment was issued, resulting in a further $11,420.70 being available to reimburse Manulife Financial/the NSPS LTD Plan or pay to Mr. Garnier. The adjustments were required to incorporate additional information received after the August 25, 2020 letter to Mr. Garnier. As the authorization from Mr. Garnier was only for the $170,716.65, the $11,420.70 was paid directly to Mr. Garnier.

The following is how the $490,021.56 was offset and paid:

a) Offset for STI benefits $ 35,469.93

b) Offset for EERB benefits paid $ 2,459.35

c) Offset for CPP Disability benefits paid $ 72,432.63

d) Canada Revenue Agency – statutory deductions $185,995.29

e) Retroactive benefit premiums $ 11,527.01

f) Manulife Financial $170,716.65

g) Vince Garnier $ 11,420.70 [ 49 ] Ms. Dower also gave the following evidence regarding deductions Mr. Garnier would be entitled to in the calculation of his taxable income for 2020: 11. Mr. Garnier would have been entitled to two substantial deductions in the calculation of his taxable income for 2020. Those deductions were:

a) A deduction for the $170,716.65 deducted from his retroactive injury on duty payment, that the Employer remitted to Manulife Financial/the NSPS LTD Plan on his behalf; and

b) A deduction of $127,953 reported by the Province in box 77 of the 2020 T4 issued by the Province to Mr. Garnier enabling him to claim an “employment expense deduction” to reduce his tax payable. [ 50 ] In her supplemental affidavit, Ms. Dower attached a copy of the Authorization and Direction to Pay form signed by Mr. Garnier on December 18, 2020. [ 51 ] On cross-examination, Ms. Dower indicated that she has held the position of Manager of Payroll Client Services since 2019.

She stated that she has worked for the Province since 1994 in various human resources and payroll-related positions. [ 52 ] When asked to explain what it means that the Province is “self-insured”, Ms. Dower stated that when an employee is found by the WCB to be entitled to workers’ compensation benefits, the Province pays the employee directly. The WCB does not pay the employee.

The Province pays the WCB a fee to administer workers’ compensation claims of provincial employees, but the benefits, if awarded, are paid by the Province to the employee directly. [ 53 ] With respect to the $185,995.29 in statutory deductions remitted by the Province to CRA, Ms. Dower stated on cross- examination that the Province is required by CRA to report all the income in the year that it is earned. As a result, Mr. Garnier’s T4 issued by the Province stated that he earned close to half a million dollars in 2020. [ 54 ] Mr. Garnier asked Ms.

Dower about the reference in her affidavit to two substantial deductions that he would be entitled to in the calculation of his taxable income for 2020. He suggested to her that she was asking the court to infer, based on this information, that he would be entitled to a substantial refund. Ms. Dower said she could not say whether Mr. Garnier would receive a refund because she was not aware of the details of his finances. [ 55 ] Mr. Garnier asked Ms.

Dower to confirm that nowhere in the Authorization and Direction to Pay form does it state that he could or would be personally responsible to pay the LTD Fund the difference between $227,307.84 and $170,716.65. She responded by noting that the first sentence of the second paragraph confirms that the overpayment was $227,307.84. The form further provides that Mr. Garnier authorizes the Province to remit $170,716.65 to Manulife.

Finally, the last sentence states: “I further understand that, if the amount remitted to Manulife Financial by the Province of Nova Scotia is not the full amount owed, Manulife will work directly with me to collect the balance owing.” Ms. Dower said that these sentences, taken together, indicate that Mr. Garnier would be personally responsible for the outstanding balance. [ 56 ] On redirect examination, Ms. Dower was referred to the August 25, 2020 letter from the PSC to Mr.

Garnier, which stated, “You may work directly with Manulife to repay the full amount owing of $227,307.84, or may request that the employer facilitate the reimbursement by remitting the net retroactive payment of $170,716.65 directly to Manulife Financial. … Please note, you will be

required to pay the outstanding amount of $56,591.19 directly to Manulife Financial”. She agreed that this letter, which attached the Authorization and Direction to Pay form, let Mr. Garnier know that he would be personally responsible to repay the outstanding amount to Manulife. Vince Garnier [ 57 ] As noted earlier, Mr. Garnier filed his own affidavit. The Board objected to numerous paragraphs in Mr. Garnier’s affidavit (29, 31, 34, 37, 40, 41, 43, 46, 47, and 48) on the basis that they contained opinion or legal argument and should therefore be struck.

The Board also objected to paras. 33 and 41 on the basis that they referred to “without prejudice” conversations between Mr. Garnier and the Board’s counsel. As I ruled at the hearing, the objections related to opinion or legal argument were valid, and I have disregarded those portions of Mr. Garnier’s affidavit. I did not strike paras. 33 and 41, as the matters discussed therein could be addressed in cross- examination. [ 58 ] Mr.

Garnier stated in his affidavit that in March 1999, he commenced employment as an Inspector Specialist with the Department of Labour (Occupational Health and Safety (OHS) Division), Province of Nova Scotia. As a result, he became a member of the NSGEU. [ 59 ] In 2003, Mr. Garnier was promoted to Regional Manager for Cape Breton Island, a non-union position. In 2005, he was promoted to Provincial Manager of the OHS Division. In 2009, he was promoted to Provincial Director of Investigations, Technical and Internal Services with the OHS Division. In 2012/13, Mr.

Garnier accepted a position as the Provincial Director of OHS with the Department of Transportation and Infrastructure Renewal. [ 60 ] Mr. Garnier stated that during his employment, the Province deducted health and disability insurance premiums from his bi- weekly salary. [ 61 ] In 2011, Mr. Garnier travelled to Lima, Peru as a representative of the Government of Canada to assist with the negotiation of labour legislation among the governments of the Peru, Bolivia, Ecuador and Colombia. Mr.

Garnier stated that while he was in Peru, he “contracted a disease that seriously adversely affected my bowels.” At some point thereafter, he filed a WCB injury claim, which was approved. [ 62 ] In September 2015, Mr. Garnier’s injury became “much worse”, and he was placed on short term illness (STI) leave. Mr. Garnier stated that after completing the STI period, he was transferred to long term disability. [ 63 ] Mr. Garnier filed a claim for CPP disability benefits and was approved. He also filed a WCB claim, which was initially denied. Mr. Garnier appealed the WCB decision to the WCAT.

On December 19, 2019, the WCAT released a decision approving Mr. Garnier’s claim. Mr. Garnier stated in his affidavit: 18. At the commencement of my LTD in early 2016 and until the WCAT decision was released in late 2019, I received disability benefits based on my mandatory participation in an insurance plan and the contribution of premiums I was required to pay during my employment. 19. As a result of the successful WCAT decision, the employer ceased its disability benefits to me because the WCB was, retroactively, responsible for such costs. [ 64 ] Mr. Garnier continued: 21.

The “Authorization and Direction to Pay” form, a copy of which is attached as Exhibit “A” to the Affidavit of Susan Dower, refers (in the first para.) to the disability benefits it paid to me as an “overpayment”. It was/is my understanding that once the WCAT decision was made in my favour, all benefits paid to me by my employer’s insurer were classified as an “overpayment” because the WCB would be issuing a retroactive disability payment. 22.

The last paragraph on the noted form ends with the sentence: “I further understand that, if the amount remitted to Manulife Financial by the Province of Nova Scotia is not the full amount owed, Manulife Financial will work directly with me to collect the balance owing. ” (emphasis added) 23. Per the above statement regarding the potential for Manulife to not receive the full amount from the “Province of Nova Scotia”, and that Manulife would “work directly with me to collect the balance owing”, three factors are relevant: 1. I had no understanding of any payment owed by the PNS to Manulife.

The only monies I believed would be owed to Manulife were from the WCB, not the PNS. 2. I believed that by asking me to work directly with their staff to recover any potential balance owing the intent was for me to authorize the WCB and/or the PNS to reimburse any monies owed to Manulife directly, rather than send me a cheque (or direct deposit to my account) and then send those same funds to Manulife. 3.

Nowhere in the “Authorization and Direction to Pay” form does it state that I would be personally responsible to pay Manulife any monies other than the amount it would receive because of the WCAT decision. [ 65 ] Mr. Garnier further indicated that his tax return for 2020 remains under review due to errors made by the Province, including mistakenly deducting employment insurance premiums from his salary during his disability leave, and failing to issue him a T1198 form regarding the lump sum payment. [ 66 ] With respect to the January 29, 2016 telephone conversation between Mr. Garnier and Ms. Fredericks, Mr.

Garnier gave the following evidence:

35. Para. 13 of Ms. Williams’ Affidavit references a phone call, reportedly, between Nola Fredericks (Manulife case manager) and me on January 29, 2016. The information quoted in that paragraph is not a verbatim reflection of any such conversation. Instead, it is an interpreted

summary by Ms. Fredericks. My clear recollection of my many discussions with Manulife staff is that they consistently informed me that if my WCB claim (and WCAT appeal) was successful, Manulife would be reimbursed by the WCB. Period. 36. That belief is supported in para. 14 of her Affidavit wherein she references an email from me to Cheryl Young (Manulife case manager). In that email, dated September 17, 2017, I wrote that if I was successful with the WCB appeal, it would ‘mean that WCB would have to reimburse Manulife”.

This is further evidence of my belief that I would not be held personally responsible to reimburse any monies to Manulife above and beyond those that would be provided by the WCB. [ 67 ] Finally, Mr. Garnier addressed the $5,412.28 paid to him in December 2020: 50. Ms. Williams also discussed the $5,412.28 paid to me in December 2020. I disagree with her understanding of those monies. The male employee of Manulife (discussed earlier) simply informed me (during a December 2020 phone call) that those funds were owed to me or could be applied to my federal taxes owing.

I explained to him that based on what I believed were mistakes by the PNS and Manulife in the [mis]calculation of several years of disability benefits, I needed to hire an experienced Chartered Accountant to reassess my tax returns for the years 2015-20 inclusive, and that I could not afford the likely expense. I agreed to accept that $5,412.28 from Manulife to offset that cost. At no time did this male employee tell me that the $5,412.28 would be added to the overpayment calculated by Manulife and allegedly owed by me.

I also explained to this male employee that my questions to Manulife staff (Cheryl Young) regarding how Manulife arrived at its calculations had gone unanswered. … Argument [ 68 ] The Board’s position is that its claim for reimbursement of the $60,533.81 balance of the LTD benefits it paid Mr. Garnier is straightforward. Section 7(7)(

h) of the LTD Plan is an exclusion which provides that no benefits shall be payable because of disability which occurred at work and is deemed to be a fully compensable injury by the WCB. If the criteria in s. 7(7)(

h) apply to Mr. Garnier’s disability, he was never entitled to disability benefits under the LTD Plan. [ 69 ] As the Board’s witnesses explained, the LTD Fund has a practice of paying benefits on a conditional basis while employees like Mr. Garnier file a claim with the WCB, the results of which determine whether the exclusion applies. The reimbursement agreement signed by Mr. Garnier made clear that the LTD benefits paid were conditional, and created a trust over any retroactive WCB award. When the WCAT allowed Mr. Garnier’s appeal and the WCB went on to find that his injury was fully compensable, s. 7(7)(

h) of the LTD Plan was triggered, and Mr. Garnier became liable to reimburse the LTD Fund for the benefits it previously paid on a conditional basis. [ 70 ] The Board submits that Mr. Garnier has not established that employees like him suffer any hardship as a result of the operation of s. 7(7)(

h) and the obligation to reimburse any LTD benefits paid on a conditional basis prior to a WCB decision. His successful WCAT appeal and subsequent WCB decision resulted in him replacing a 70% LTD benefit with injury on duty benefits equivalent to 100% of his salary. The Board says this would have been known when s. 7(7)(

h) was drafted and the reimbursement agreement signed. Moreover, Mr. Garnier received $379,659.65 in injury on duty benefits pre-tax, $147,373.91 more than the $232,285.74 in pre-tax LTD benefits he received. Finally, Mr. Garnier has failed to show that the sizeable deductions he is entitled to in relation to his 2020 taxable income will not yield a significant tax refund. [ 71 ] The primary argument or defence advanced by Mr. Garnier is that the language of the LTD Plan does not support the Board’s position that he is personally responsible to repay Manulife, as Plan Administrator of the LTD Fund, any amount over and above the amount of the retroactive WCB award. Mr. Garnier says s. 7(7)(

h) of the LTD Plan does not apply to his situation. He relies instead on s. 9(4), which states: 9. The benefits to which an employee is entitled under this

section shall be reduced by: … (4) the amount of Workers’ Compensation payments, except permanent partial disability awards; … [ 72 ] Mr. Garnier submits that the words “shall be reduced by” are of critical importance. He states at pp. 3-4 of his closing submissions: Those words should not be misconstrued as meaning that the disabled worker would personally be responsible to repay potentially tens or even hundreds of thousands of dollars more than what a favourable WCB decision awarded.

Respectfully, I submit that that subsection means that if WCB (or the WCAT) grants an appeal, the LTD Fund benefits would cease and only the monies received following the WCAT decision would be owed to Manulife because that sum would represent a DUPLICATE payment. I submit that this is a common sense

interpretation of the language in the Plan text. Of importance and significance to my case, I was never paid the same amount twice from the same injury. The sum or benefits paid to me by Manulife and the WCB were different. Case law across Canada on this type of disability insurance is consistent: the amount awarded by the WCB to the injured worker is the sum reimbursed to the insurer. Nothing more. That practice is clearly in keeping with the language of the Plan, which says that benefits from the Fund “ shall be reduced by ” benefits received from collateral sources for the same injury.

(Mr. Garnier’s emphasis) [73] Mr. Garnier submits that the exclusion under s. 9(4) of the LTD Plan must be interpreted narrowly. He says that a narrowinterpretation of the words “shall be reduced by” would be that the sum awarded by the WCB must be reimbursed to the LTD Fund. Mr.Garnier cites Abdulrahim v. Manufactures Life Insurance Co., (ON SC), [2003] O.J. No. 2592 (Ont. Sup. Ct.

J.),where the court stated: 14 Manulife wrote on August 27 confirming approval of Mohamed's LTD benefits and its calculation of LTD benefits payable fromMay 23, 2002 (the end of the Qualifying Period) in the amount of $2,558.00 per month less WSIB benefits of $2,347.61 per month.Manulife offered the following explanation for this calculation: "Given that Mr. Abdulrahim's WSIB claim had been approved, we arerequired to offset the WSIB benefits to which [sic] he is entitled to receive." According to Manulife, Mohamed's net LTD benefit is$240.39 per month.

Manulife also approved a Waiver of Premium claim with respect to Mohamed's life insurance premiums. 15 The Policy includes the following set-off provision or exemption clause, which provides in part as follows: The Amount of Disability Benefit payable is the Benefit Amount shown in the Benefit Schedule, less any amount of benefits theEmployee receives, or is entitled to receive, from the following sources for the same or related Disability: a)Workers' Compensation or similar coverage; (Mr. Garnier’s emphasis) [74] Mr.

Garnier says this decision makes clear that only the sum awarded by the WCB was to be reimbursed to Manulife. [75] With respect to s. 7(7)(

h) of the LTD Plan, Mr. Garnier says it does not permit the LTD Fund to seek repayment of benefitspaid prior to a decision to award WCB benefits. He writes at pp. 17-18 of his closing submissions: Counsel suggests that this court should rely on ss. 7(7)(

h) of the Plan. I disagree. The exclusion clause at s. 9(4) cannot be ignored. As I mentioned earlier, ss. 7(7)(

h) states that “No benefits shall be payable under the Plan because of a disability that occurred at workand is deemed to be a fully compensable injury by the WCB”. Of great importance is the fact that ss. 7(7)(

h) DOES NOT permit the Fund to seek benefits paid prior to a decision to award WCBbenefits. That subsection uses the word “payable” not “paid” or “previously received”. “Payable” means ‘going forward’, or ‘to be paid’. In February 2016, I fully qualified for benefits from the LTD Fund. I was entitled to the sum of benefits I received. In 2020, when it wasdecided that my disability was indeed work-related and compensable by the WCB, the Applicant ceased payments, pursuant to ss. 7(7)(h), as it was entitled. With that I have no argument. However, as stated earlier, ss. 7(7)(

h) does not specifically permit the Applicant to seek any retroactive recovery of benefits that wereproperly and justly paid prior to the point in time when the decision was made by WCAT that the injury was to be covered by theWCB. It is well established that the legislative purpose of the Civil Service Act in terms of disability benefits is to promote fair compensationto injured plaintiffs and to prevent double recovery. The only double recovery I received was in relation to the sum awarded by the WCB, which the Applicant was reimbursed in full.

The only “overpayment”, if you will, relates to the eventual award by the WCB. That’s it. Having said that, based on the actualwording in the Plan, neither ss. 7(7)(

h) nor 9(4) state that benefits paid prior to the receipt of collateral benefits must be repaid.These subsections merely require: 1) benefits from the fund to cease at a specific point in time; or 2) benefits from the fund to be reducedbased on collateral benefits received. Clearly, the intent of the LTD Plan and all common sense public policy is not to put a disabled employee in a worse position, whether ornot collateral benefits were approved. … Also … the Plan text does not explicitly provide the Applicant authority to seek recovery of benefits, retroactively or otherwise.

Instead,the Plan simply requires benefits to stop if WCB benefits are approved. There is no recovery provision in the Plan, other than in theSubrogation clause, which does not mention WCB or CPP benefits. (Mr. Garnier’s emphasis) [76] Mr. Garnier further argues that the term “fully compensable injury” in s. 7(7)(

h) is ambiguous and should be interpreted in hisfavour. He says it is not defined in the Workers’ Compensation Act, S.N.S. 1994-95, c. 10, the LTD Plan, or any other relevantdocument. According to Mr. Garnier, the most reasonable

interpretation of “fully compensable injury” is an injury for which the WCBwould “fully compensate” both the employee and Manulife for the disability benefits it paid to an employee. [77] Finally, Mr. Garnier submits that the LTD Fund is attempting to recover what it assumes that he will receive from CRA in a taxrefund. He says case law shows that an insurer has no legal right to an insured’s tax refund. On this point, Mr. Garnier cites thefollowing statement in Nemchin v. Green, 2021 ONCA 238:

[38] I do not accept the respondent's submission that the trial judge's order causes no prejudice to the appellant because she can simplyapply for a tax refund and be in no worse position. First, it is by no means certain that the CRA would agree that the appellant isentitled to a refund of the taxes remitted by Sun Life. It is dependent on a whole host of variables, including the appellant's personal taxcircumstances about which there is no evidence. Second, the appellant would likely be required to incur considerable expense toascertain whether the CRA accepts this position.

This additional financial burden is contrary to s. 267.8 of the Insurance Act since itundermines the purpose of full compensation for the appellant. (Mr. Garnier’s emphasis) [78] Mr. Garnier says allowing the Board to recover any amount he is entitled to from CRA would similarly undermine the purposeof full compensation for him. [79] In reply, the Board submits that its claim does not depend on whether Mr. Garnier receives a tax refund. Its position is simplythat the payment of LTD benefits to Mr. Garnier was conditional pending the WCB’s decision.

The WCB’s determination that hisdisability was a fully compensable injury meant that Mr. Garnier was never entitled to the LTD benefits paid to him, so those funds mustbe reimbursed in full. The Board submits that where the money comes from is irrelevant to the liability but, obviously, the payment fromthe Province was a logical source, as is any tax refund, or any of Mr. Garnier’s assets. [80] The Board further submits at p. 5 of its post-hearing rebuttal memorandum: 13. For the record, the evidence relating to Mr.

Garnier being entitled to substantial tax deductions, combined with him receiving 100%of salary, was not tendered because the LTD Fund’s right of recovery is dependant on there being a tax refund. Rather, it was tendered todemonstrate the reasonable expectations of the drafters of section 7(7)(

h) of the LTD Plan, namely that Mr. Garnier should be better offon an after tax basis having been successful in his WCB appeal, even after reimbursing the LTD Fund in full. … [81] The Board submits that the facts in Nemchin are distinguishable, and the case does not establish that the Board cannot look toMr. Garnier’s tax refund for reimbursement or require that Mr. Garnier seek a tax refund. Law and analysis [82] In a series of three decisions, the Supreme Court of Canada set out the general interpretive approach to insurance contracts –Progressive Homes Ltd. v.

Lombard General Insurance Co. of Canada, 2010 SCC 33 , [2010] 2 S.C.R. 245; LedcorConstruction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 , [2016] 2 S.C.R. 23; and Sabean v. Portage LaPrairie Mutual Insurance Co., 2017 SCC 7 , [2017] 1 S.C.R. 121. [83] The three-step approach was summarized in Ledcor as follows: [49] The parties agree that the governing principles of

interpretation applicable to insurance policies are those summarized byRothstein J. in Progressive Homes. The primary interpretive principle is that where the language of the insurance policy is unambiguous,effect should be given to that clear language, reading the contract as a whole … [50] Where, however, the policy’s language is ambiguous, general rules of contract construction must be employed to resolve thatambiguity. These rules include that the

interpretation should be consistent with the reasonable expectations of the parties, as long as thatinterpretation is supported by the language of the policy; it should not give rise to results that are unrealistic or that the parties would nothave contemplated in the commercial atmosphere in which the insurance policy was contracted, and it should be consistent with theinterpretations of similar insurance policies. … [51] Only if ambiguity still remains after the above principles are applied can the contra proferentem rule be employed to construethe policy against the insurer … Progressive Homes provides that a corollary of this rule is that coverage provisions in insurance policiesare interpreted broadly, and exclusion clauses narrowly. [52] It is also important to bear in mind this Court’s guidance in Progressive Homes on the “generally advisable” order in which tointerpret insurance policies (para. 28).

Although that case involved commercial general liability policies and not builders’ risk policies,the two types of policies share a similar alternating structure: they set out the type of coverage followed by specific exclusions, withsome exclusions containing exceptions. As such, the insured has the onus of first establishing that the damage or loss claimed fallswithin the initial grant of coverage. The parties in these appeals have conceded that this particular onus has been met: trial judge’sreasons, at para. 9. The onus then shifts to the insurer to establish that one of the exclusions to coverage applies.

If the insurer issuccessful at this stage, the onus then shifts back to the insured to prove that an exception to the exclusion applies … (Citations omitted) [84]

Section 7 of the LTD Plan is entitled “Eligibility for Benefits”. Under s. 7(1), “when illness or injury results in the disability ofan employee, the employee shall be eligible for benefits from the first day following the elimination period.” The LTD Plan defines“disability” at s. 1(c): “disability”/”disabled” means the complete inability, as defined from time to time in Guidelines made pursuant to this Plan, of anemployee, because of illness or injury, to perform the regular duties of his/her occupation during the applicable elimination period andthe next 30 months of any period of disability.

Thereafter, an employee remains disabled if he/she is unable to engage in any occupationfor remuneration or profit for which the employee is or may become fit through education, training, experience or rehabilitation, whichoccupation pays not less than 80% of the current rate of the position, class and step he/she held prior to disability; [85] “Elimination period” for full-time employees is defined at s. 1(d)(

i) as “100 consecutive work days of short-term illness leaveor 100 days of short-term illness due to the same or related cause”.

[ 86 ] Section 7(7) of the LTD Plan sets out a series of exclusions to the initial grant of coverage at s. 7(1). If any of the criteria under s. 7(7) are met, no benefits are payable under the LTD Plan. Section 7(7)(

h) provides: 7(7) No benefits shall be payable under the Plan because of: … (

h) disability which occurred at work and is deemed to be a fully compensable injury by the Workers’ Compensation Board; [ 87 ] The policy wording is not ambiguous. At the time of his application in 2016 for benefits under the LTD Plan, Mr. Garnier met the eligibility requirement under s. 7(1) that he be disabled due to illness or injury. It could not be determined, however, whether benefits were in fact payable to him under the LTD Plan until the WCB made a decision on his claim for workers’ compensation benefits. Recognizing that it would create a hardship for employees like Mr.

Garnier if they could not access any benefits until the WCB rendered its decision, the LTD Fund’s practice in such cases is to enter into an agreement with the employee to pay benefits on an interim basis, on the condition that if the employee’s WCB claim is approved as fully compensable, the employee must reimburse the LTD Fund the LTD benefits paid. [ 88 ] Mr. Garnier’s reliance on s. 9(4) of the LTD Plan and the Abdulrahim decision – which involved an entirely different insurance policy – is misplaced.

Section 9 falls within the

section of the plan dealing with “Amount of Coverage”. Its provisions apply to employees who are entitled to benefits under the LTD Plan. As noted above, Mr. Garnier was in receipt of benefits on an interim basis only; no final decision had been made with respect to whether benefits were payable to him under the LTD Plan.

Section 9 reads: 9. The benefit to which an employee is entitled under this

section shall be reduced by: (1) the amount of disability benefit entitlement under the Canada Pension Plan, excluding children’s benefits and excluding the indexing added to the said entitlement after December 31, 2005 (Amended May 24, 2006; effective January 1, 2006); (2) the amount of benefits payable from any other group disability plan or pension plan, sponsored by the Employer; (3) the amount of income received from rehabilitative employment in accordance with subsection (6) or (6)(

a) of

Section 8 ( Amended January 1, 2009 ); (4) the amount of Workers’ Compensation payments, except permanent partial disability awards; (5) the amount of benefits payable from any disability plan sponsored by any employer, since inception of this Plan; (6) the amount of benefits payable as a result of a disability which occurred at work and is deemed to be less than 65 percent compensable by the Workers’ Compensation Board; (7) the amount of income received by an employee from self-employment as set out in guidelines made pursuant to this Plan; (8) the amount of earnings recovered through a legally enforceable cause of action against some other person or corporation. [ 89 ] The effect of the WCAT decision allowing Mr.

Garnier’s appeal and the subsequent WCB decision awarding him benefits equivalent to 100% of his salary was not, as he suggests, that he was no longer entitled to benefits under the LTD Plan. The effect was that he was never entitled to benefits under the LTD Plan in the first place. In other words, contrary to his submissions, he never “fully qualified for benefits from the LTD Fund”, nor was he “entitled to the sum of benefits [he] received”.

He was never eligible for the benefits he was paid by the LTD Fund on an interim basis, and, for that reason, the LTD Fund is entitled to repayment for those amounts, not the amount of the retroactive WCB award. [ 90 ] As Mr. Garnier notes, s. 7(7) of the LTD Plan does not explicitly contemplate recovery by the Board of benefits paid on a conditional basis prior to a decision by the WCB. That is because it does not explicitly contemplate the interim payment of benefits to employees like Mr. Garnier at all. The Board, exercising its broad powers under

article 8 of the Trust Agreement, makes such payments on a conditional basis to assist these employees who would otherwise have limited or no income until their eligibility for benefits under the LTD Plan could be fully determined. The employees, in turn, agree to reimburse the LTD Plan for any benefits paid in the event that their WCB claims are approved. If, as Mr. Garnier argues, the Board lacks the authority to recover benefits paid prior to a WCB decision because such power is not outlined in s. 7(7), it follows that the Board had no authority to pay Mr. Garnier any benefits at all prior to the WCB decision.

In that case, Mr. Garnier has been unjustly enriched as a result of receiving those payments. Put differently, Mr. Garnier would be liable to repay the outstanding amount either way. [ 91 ] Mr. Garnier also argued that the phrase “fully compensable injury” in s. 7(7) is ambiguous and should be interpreted in his favour.

He says it can be interpreted as meaning an injury for which the employee is entitled to full compensation, as the Board suggests, but that it is more properly understood as meaning an injury for which the WCB would fully compensate Manulife (as Plan Administrator of the LTD Fund) for the disability benefits previously paid to the employee. That is how he interpreted it. Mr. Garnier submits that, in light of the ambiguity, the contra proferentem rule should apply and the language should be interpreted against the Board. [ 92 ] In my view, “fully compensable injury” is not ambiguous.

It means an injury for which the WCB determines that the employee is entitled to the maximum compensation available, which is 100% of the employee’s pre-injury salary. Even if I had found that the words are ambiguous, and that that ambiguity remains after applying general rules of contract construction, this court has previously held that the contra proferentem rule has no application to the LTD Plan. In Nova Scotia (Public Service) v.

Warner , 2006 NSSC 160 , Scanlan J. (as he then was), stated: [4] The respondent employee argues that the contra proferentem rule should apply, and the plan should be interpreted as against the

Trustee. This is a plan that is worked out as between the union and the employer. There is nothing to suggest that any one party drafted the contract or was in a position [ sic ] dominance in the negotiation process. This was not a situation where a single employee negotiated with an employee and then the employer prepared the resulting contract.

This a joint agreement worked out by an employer and a union and the contra proferentem has no application here. [ 93 ] In any event, I find that the language of the LTD Plan is not ambiguous, and the Board is entitled to reimbursement of the $60,553.81 in LTD benefits that remains outstanding. I accept the Board’s evidence that the $5,412.28 paid to Mr. Garnier in December 2020 consisted of statutory source deductions, and that those amounts should be included in the balance owing. [ 94 ] On the issue of a potential tax refund, Mr.

Garnier relies on the Nemchin decision to argue that the Board has no legal right to any tax refund he might be entitled to in relation to his 2020 tax return. In Nemchin , the appellant became totally disabled following a motor vehicle accident involving the respondent. On April 5, 2017, the jury awarded the appellant significant damages because of her injuries.

With respect to her future loss of income claim, the appellant received an award of $540,000, net of a 10% reduction for the appellant's contributory negligence. [ 95 ] Following the accident, the appellant qualified for and received LTD benefits from Sun Life, her employer's group benefits insurer. Both the appellant and her employer had contributed to the plan. As a result, Sun Life deducted and remitted income taxes from its payments to the appellant under the plan and provided to the appellant an annual T4A slip for the gross benefit.

Between the April 5, 2017 judgment and the payment of the damages by the respondent's insurer on November 14, 2019, the appellant received from Sun Life net after-tax payments totalling $104,162.34. The respondent then brought a motion under s. 267.8 of the Ontario Insurance Act to require the appellant to assign her rights to the Sun Life LTD benefits from the date of the judgment to the respondent’s insurer. [ 96 ] The relevant provisions of s. 267.8 were as follows: Future collateral benefits

(9) A plaintiff who recovers damages for income loss, loss of earning capacity, expenses that have been or will be incurred for health care, or other pecuniary loss in an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile shall hold the following amounts in trust: … 2. All payments in respect of the incident that the plaintiff receives after the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan . … Payments from trust

(10) A plaintiff who holds money in trust under subsection (9) shall pay the money to the persons from whom damages were recovered in the action, in the proportions that those persons paid the damages. … Assignment of future collateral benefits

(12) The court that heard and determined the action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of the automobile, on motion, may order that, subject to any conditions the court considers just, (

a) the plaintiff who recovered damages in the action assign to the defendants or the defendants' insurers all rights in respect of all payments to which the plaintiff who recovered damages is entitled in respect of the incident after the trial of the action , ... (ii) for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan, ... (

b) the plaintiff who recovered damages in the action co-operate with the defendants or the defendants' insurers in any claim or proceeding brought by the defendants or the defendants' insurers in respect of a payment assigned pursuant to clause (a). (Emphasis added) [ 97 ] The issue was whether the respondent’s insurer was entitled to a credit for the gross LTD benefit, or only the LTD benefit net of the tax deducted. If the former, the appellant would have been required to remit to the insurer the amount received from Sun Life (the LTD benefits net of taxes), and make up payment representing the taxes deducted. [ 98 ] The trial judge held that s. 267.8(12)(

a) called for the assignment of the gross amount of the Sun Life benefits, and not the net after-tax payments. She rejected the appellant's submission that a ruling from the CRA should be obtained to determine if the appellant's tax liability and Sun Life's tax withholding obligation would change once the rights to the payments under the plan were assigned to the respondent's insurer.

She found that Sun Life's obligation to withhold income tax was irrelevant to the appellant's right to receive the gross amount of the payments. [ 99 ] On appeal, the court held that the trial judge misinterpreted ss. 267.8(9) , (10) , and (12) (a)(ii) of the Insurance Act , and failed to take into account Sun Life's withholding and remittance of income tax as a statutory trust and its effect on the appellant's rights under the

plan. With respect to ss. 267.8(9) and (10) , the court stated: 25 Subsections 267.8(9) and (10) impose a statutory trust on the payments that the plaintiff actually receives for the benefit of the defendant or the defendant's insurer.

These provisions reflect basic trust principles: a trustee is only chargeable for the trust property that he or she actually holds or controls; and the trust property does not form part of the trustee's property but is held for the beneficiary of the statutory trust … Under ss. 267.8(9) and (10), the plaintiff as trustee holds the monies received in trust for the defendant or the defendant's insurer who pays the judgment damages. 26 The trust property in the present case consisted of the net after-tax payments that the appellant received pre-assignment from Sun Life from the date of the judgment in the amount of $104,162.34 .

The appellant, as trustee, was only required to hold in trust and then pay to the respondent's insurer these actual payments from Sun Life, which were net of tax. Contrary to the provisions of ss. 267.8(9) and (10), the trial judge's order erroneously inflated that amount to $124,951.05, representing the gross pre-tax amount, which had the effect of reducing the appellant's compensation by $20,788.71 once the trust funds were set off against the judgment damages.

The appellant was never required to hold this amount in trust and it should be repaid. (Emphasis added) [ 100 ] On the effect of Sun Life’s statutory obligations, the court wrote: 35 The respondent argues that, post-assignment, Sun Life is no longer required to withhold and remit taxes because the appellant no longer receives the benefit of the plan payments; however, as I explain in para. 38 below, this is by no means certain absent a court order or CRA ruling.

Moreover, it is common ground that pre-assignment, Sun Life was obliged under the provisions of the Income Tax Act , R.S.C. 1985, c. 1 (5th Supp .), to deduct and remit taxes from payments made directly to the appellant for her benefit under Sun Life's income continuation plan.

Further, post-assignment, Sun Life intends to continue withholding and remitting income taxes regardless of whether the payments are issued directly to the appellant or to the respondent's insurer, until otherwise exempted by court order or CRA ruling. 36 The parties did not reference the provisions of the Income Tax Act that give rise to Sun Life's statutory obligations to withhold and remit taxes. Presumably, the income from the plan is taxable in the hands of the appellant under s. 6(1) (

f) of the Income Tax Act because both the appellant and her employer contributed to the plan … If that is the case, then the income from Sun Life under the income continuation plan would fall under the definition of "salary or wages" in s. 248. Under s. 153 of the Income Tax Act , "Every person paying at any time in a taxation year (

a) salary, wages or other remuneration ... shall deduct or withhold from the payment" the payee's tax. This is no mere "mechanical exercise" as the trial judge stated.

Amounts deducted but unremitted by any person are deemed to be held "separate and apart from the property of the person" and "in trust for Her Majesty and for payment to Her Majesty" pursuant to s. 227(4) of the Act. 37 Regardless if its position is correct, the fact that Sun Life purports to withhold and remit income taxes pursuant to a statutory obligation to the CRA means that those monies are imposed with a statutory trust and therefore do not form part of the payments made under the plan.

Even if the respondent prevails and Sun Life is no longer required to withhold and remit taxes, this does not alter the nature and effect of its present withholdings and remittances as statutory trust funds. In consequence, so long as Sun Life withholds and remits taxes pursuant to the statutory trust provisions of the Income Tax Act , Aviva's assigned rights are to the net after-tax payments. 38 I do not accept the respondent's submission that the trial judge's order causes no prejudice to the appellant because she can simply apply for a tax refund and be in no worse position.

First, it is by no means certain that the CRA would agree that the appellant is entitled to a refund of the taxes remitted by Sun Life. It is dependent on a whole host of variables, including the appellant's personal tax circumstances about which there is no evidence. Second, the appellant would likely be required to incur considerable expense to ascertain whether the CRA accepts this position. This additional financial burden is contrary to s. 267.8 of the Insurance Act since it undermines the purpose of full compensation for the appellant. (Emphasis added) [ 101 ] The Nemchin decision does not support Mr.

Garnier’s position that it would be unfair to require him to account for any tax refund he receives as a result of the payment made by the Province to CRA pursuant to its statutory obligations. The court in Nemchin held that it would be unfair to expect or require the appellant to assume the financial burden of seeking a favourable ruling from CRA on the uncertain issue of whether she was entitled to a refund of the taxes remitted by Sun Life. The Board in this case expects nothing from Mr.

Garnier other than to file his taxes in the ordinary course and as required by law, and to claim the almost $300,000 in deductions available to him. The two situations are not at all analogous. [ 102 ] In its post-hearing rebuttal memorandum, the Board requests that the court grant a declaration that any income tax refund related to the amount remitted to CRA by the Province from the injury on duty award be deemed to be held in trust for the Board to the extent of $60,533.81. The Board relies on paragraph 4 of the reimbursement agreement signed by Mr.

Garnier, which states: I understand that, should I receive a WCB award, I hold those funds in trust for Manulife Financial; [ 103 ] The only relief sought by the Board in its notice of application, however, is “an order for payment of the sum of $60,553.81”, which I grant. There is no reference to declaratory relief. Moreover, the Board has not provided any authorities to support its position that the trust created in the reimbursement agreement extends to any tax refund Mr. Garnier may receive in connection with the amount paid by the Province to CRA in accordance with its statutory obligation.

I therefore decline to grant the declaration proposed by the Board. Conclusion [ 104 ] The Board’s application is allowed. I would ask applicant’s counsel to prepare the order.

[ 105 ] I will leave it to the parties to attempt to agree on costs. If they are unable to do so, I will accept written cost submissions within 30 calendar days of the release of this decision. McDougall, J.