Co-operators Life Insurance Company Appellant (Defendant (Plaintiff by Counterclaim)) v. The Spencer Health Network Inc., 2021 SKCA 161

Court of Appeal for Saskatchewan Docket: CACV3315 Citation: Co-operators Life Insurance Company v The Spencer Health Network Inc. , 2021 SKCA 161 Date: 2021-12-09 Between: Co-operators Life Insurance Company Appellant (Defendant (Plaintiff by Counterclaim)) And The Spencer Health Network Inc. Respondent (Plaintiff (Defendant by Counterclaim)) Before: Jackson, Tholl and Kalmakoff JJ.A. Disposition: Appeal allowed in part Written reasons by: The Honourable Madam Justice Jackson In concurrence: The Honourable Mr. Justice Tholl The Honourable Mr.

Justice Kalmakoff On appeal from: 2018 SKQB 244 , Regina Appeal heard: January 20, 2021 Counsel: James Ehmann, Q.C., and Jason Clayards for the Appellant Peter Bergbusch, Q.C., for the Respondent Jackson J.A. I. Introduction [ 1 ] This is an appeal from the trial decision of a judge of the Court of Queen’s Bench in a civil matter: The Spencer Health Network Inc. v Co-operators Life Insurance Company , 2018 SKQB 244 , 85 CCLI (5th) 249 [ Trial Decision ]. The factual matrix is complex, but the issues are narrow. They concern the trial judge’s

interpretation of various contracts in the domain of extended health care insurance. [ 2 ] The parties are Co-operators Life Insurance Company [Co-operators] and The Spencer Health Network Inc. [Spencer or SHN]. Co-operators is an insurance corporation that provides, among other products and services, extended health care insurance [EHC or EHC insurance] to other corporations.

Spencer is a corporation that develops and manages vision care benefit plans for groups and individuals in Canada. [ 3 ] On November 17, 2000, Co-operators and Spencer executed a service agreement that took effect on January 1, 2001 [Service Agreement]. Under its terms, Spencer contracted to provide vision care benefits to individuals who had EHC insurance under group contracts of insurance issued by Co-operators [Spencer Plan].

In exchange, Co-operators agreed to pay fees to Spencer for individuals coming within the Spencer Plan [Access Fees]. [ 4 ] No difficulties arose until Co-operators discovered what it thought was an overpayment. On September 29, 2008, Co- operators notified Spencer that it intended to terminate the Service Agreement as of December 31, 2008.

Then, on October 10, 2008, Co- operators advised Spencer that it had paid for a contract involving Johnston Group Inc. [Johnston] that did not fall within the terms of the Service Agreement. [ 5 ] The principal of Spencer, Donald Sklar, believed the Service Agreement encompassed all individuals within Co-operators’ book of business – including insurance contracts of the nature Co-operators had with Johnston. In due course, Spencer discovered that Co- operators had not paid the Access Fees for other contracts that it considered to be similar to the Johnston agreement and sued Co-operators for breach of contract.

Co-operators counterclaimed to recover what it asserted was an overpayment with respect to the Johnston contract in the approximate amount of $85,000. [ 6 ] Spencer’s breach of contract claim and Co-operators’ counterclaim required the trial judge to interpret the Service Agreement. In broad terms, he held that Co-operators was required to pay Access Fees for all employees under group contracts of EHC insurance issued by Co-operators, whether or not they had access to the Spencer Plan or were receiving benefits under it.

The sole criteria was whether the employee was “covered under a group contract of Extended Health Insurance issued by Co-operators” (taken from the definition of Insured Lives under the Service Agreement at clause 1.05). Thus, the trial judge resolved this issue in favour of Spencer. [ 7 ] By way of application of this

interpretation, the trial judge found that Co-operators was required to pay Access Fees for some, but not all, of its insurance contracts or arrangements. In the result, he ordered Co-operators to pay Access Fees for the Johnston contract and all but one of eight arrangements between Co-operators and the Trustees of the Retailers, Wholesalers and Manufacturers Group Insurance Trust [RWAM]. The value of the RWAM arrangements at issue in this appeal is $388,925.32, plus pre-judgment interest. [ 8 ] On appeal, Co-operators challenges the trial judge’s

interpretation of the Service Agreement and his inclusion of the Johnston and RWAM arrangements. Co-operators also submits that the trial judge erred by not finding that Spencer was estopped from claiming a breach of contract because it had not challenged how it had been paid under the Service Agreement until the overpayment was identified. Co-operators also argues that the trial judge should have found that Spencer was out of time to bring its action. Spencer resists these arguments.

[ 9 ] For the reasons that follow, I find the trial judge did not err in his

interpretation of the Service Agreement. However, I conclude that the trial judge did err in his application of the Service Agreement to the seven RWAM groups that are in issue on this appeal. As a result, I would allow that aspect of the appeal and set aside the trial judge’s award of damages with respect to those groups, making it unnecessary to consider Co-operators’ further defences relating to limitation periods or estoppel. I take a different view of the counterclaim.

I agree with Spencer and conclude that the trial judge did not err in his application of the Service Agreement to the Johnston contract, which means that I would dismiss Co-operators’ appeal from the trial judge’s dismissal of its counterclaim. II. Issues [ 10 ] In

summary form, Co-operators asserts that the trial judge erred: (

a) by interpreting the scope of the Service Agreement in the manner he did; (

b) by finding that Co-operators was required to pay the Access Fees for the Johnston contract; (

c) by finding that Co-operators was required to pay the Access Fees for all but one of the RWAM groups; (

d) by holding that Spencer’s claim, or any part of it, was not statute barred; and (

e) by holding that Spencer was not estopped from pursuing its claim. [ 11 ] I will organize my reasons to address each of the above claims as they fall in the list above. But, before doing so, I will provide the key provisions of the Service Agreement and a glossary of the short forms that I will use (which I will also define when each is first used). III. Key provisions of the Service Agreement [ 12 ] The key provisions of the Service Agreement are set out below:

SECTION I –

DEFINITIONS In this Agreement: 1.01 – “Access Fee” means the fee paid by Co-operators to SHN for the Members who have extended health and/or vision care benefits, to have access to the Plan. 1.02 – “Benefits” means the vision care benefits the Member is eligible to receive from Co-operators. … 1.04 – “Members” means persons (employees, dependants) covered under a group contract of Extended Health Insurance issued by Co- operators. 1.05 – “Insured Lives” means persons (excluding dependants) covered under a group contract of Extended Health Insurance issued by Co-operators. … 1.08 – “Plan” means The Spencer Vision Plan as described in this Agreement. … 1.10 – “Usage Fee” means the difference between the amount paid to a Provider and the amount billed by SHN to Co-operators and has no meaning when applied to laser surgery benefits.

SECTION II – SHN OBLIGATION 2.01 SHN will make available to Members, the Plan, consisting of: a. The components as described in

Section 7 and specific benefit enrichments and usage fees to be determined on an individual client basis. b. Administration of the Plan in either paper or [electronic data interchange] formats. c. Access to a toll free number and call centre that operates 24 hours per day to provide Members with information about the program. A website and link will be operational in 2001. d. Complete reporting on details of usage of the Plan in existing or custom format. …

SECTION III – CO-OPERATORS OBLIGATIONS

3.01 Co-operators agrees as and from the Effective Date to include the Plan as a benefit for its Members. …

SECTION IV - FEES … 4.02 Co-operators will pay quarterly to SHN, from the Effective Date, the Access Fee. The Access Fee shall be seven cents ($.07) per month plus applicable taxes times the number of Insured Lives, whether or not they have Benefits. … 4.03 SHN shall pay to Co-operators 55% of the Usage Fee after payment has been made by Co-operators to SHN. … …

SECTION VII – PLAN COMPONENTS 7.01 The Plan will, through utilization of the Plan Card(s), allow Members with Benefits to enrich their benefits between 15%–20%.

The enriched benefit will generally be in accordance with the following formula: Standard > Enriched $100 > $120 = 20% Usage Fee = $4 Provider Payment = $96 $150 > $175 = 17% Usage Fee = $10 Provider Payment = $140 $200 > $235 = 17.5% Usage Fee = $12 Provider Payment = $188 7.02 The Plan will, through utilization of a Plan Card, allow Members without Benefits to receive a discount of up to 5% (maximum $25.00) for the purchase of vision care products from a Provider. 7.03 The Plan will allow Members to receive a Refractive Laser surgery benefit of $170 per Paid Procedure.

SECTION VIII – PLAN OPERATION 8.01 The Member must provide the Provider with his or her Plan Card and such other identification as the Provider requires. After showing the agreed upon identification: a. The Member will have access to the Plan to fill a vision care prescription whether or not that Member has a vision care benefit. b. For those Members without a Benefit, the Plan will entitle them to a discount of 5% (not to exceed $25.00) off the regular or sale price for all products sold by the Provider. IV. Glossary of short forms [ 13 ] The short forms that I will use in these reasons are set out below: Short Form Description Access Fee(

s) the fee Co-operators owed Spencer under clause 4.02 of the Service Agreement, as defined by clause 1.01 ASO an administrative services only arrangement Co-operators Co-operators Life Insurance Company EHC insurance extended health care insurance coverage excluded group a group that did not have a group contract of EHC insurance issued by Co-operators full service contract a contract in which the insurer charges for coverage and assumes full responsibility for the cost of the benefits included contract a contract between Co-operators and a Plan Sponsor or a third party administrator (TPA), which was a group contract of EHC insurance issued by Co-operators Insured Lives the lives for which the Access Fees were to be calculated (defined by clause 1.05 and relevant to the calculation in clause 4.02) Johnston Johnston Group Inc.

Johnston contract a contract between Co-operators and Johnston Plan Sponsor a corporation – usually an employer that sponsors or provides group benefit plans for its employees or members PVS Preferred Vision Services, a corporation providing enhanced vision care benefits PVS Agreement an agreement between Co-operators and PVS that the Service Agreement replaced PVS benefits the benefits offered by PVS RA arrangements refund accounting arrangements or retention plans that allow a Plan Sponsor to share in the plan’s financial results RWAM Trustees of the Retailers, Wholesalers and Manufacturers Group Insurance Trust RWAM arrangements a catch-all term describing the multiple agreements between RWAM and Co-operators Service Agreement the November 17, 2000, agreement between Co-operators and Spencer Spencer or SHN The Spencer Health Network Inc.

Spencer Plan the benefits Spencer would provide under the Service Agreement Spreadsheet or Exhibit D-13 a spreadsheet prepared by Co-operators that listed all groups for which Co-operators had not made payment to Spencer

stop loss contract a contract with an insurance corporation, whereby, if a claim total exceeds a threshold amount, the Plan Sponsor’s liability will be capped and the insurance corporation will pick up the excess TPA a third party administrator Trial Decision The Spencer Health Network Inc. v Co-operators Life Insurance Company , 2018 SKQB 244 , 85 CCLI (5th) 249 Short Form Description V. The scope and

interpretation of the Service Agreement [ 14 ] The Trial Decision begins its analysis by examining the Service Agreement. This is an appropriate place to start. A. Crystallizing the contractual dispute [ 15 ] The core provision of the Service Agreement is as follows: 4.02 Co-operators will pay quarterly to SHN, from the Effective Date, the Access Fee .

The Access Fee shall be seven cents ($.07) per month plus applicable taxes times the number of Insured Lives , whether or not they have Benefits . (Words in bold are key terms that are defined in the Service Agreement) [ 16 ] Co-operators’ position was, and still is, that its obligations extended to those Insured Lives that have access to the Spencer Plan only. It reached that

interpretation by focusing on the defined term of Access Fee :

Section I –

Definitions In this Agreement: 1.01 “Access Fee” means the fee paid by Co-operators to SHN for the Members who have extended health and/or vision care benefits, to have access to the Plan. [ 17 ] Co-operators asserts that its only obligation was to pay a fee for “Members who have … access to the Plan”, i.e., access in fact.

That is how Co-operators operated until it discovered what it believed was an overpayment on the Johnston contract, which, according to Co-operators, has no “Members who have extended health and/or vision care benefits”, to use the words of the definition of Access Fee . [ 18 ] In determining its obligations under the Service Agreement, Co-operators also drew a distinction between the various types of models by which it delivered insurance.

At its most basic, Co-operators provides insurance and insurance-related services to clients, usually employers, who sponsor or provide group benefit plans for its employees or members [Plan Sponsor]. In some cases, Co-operators will have a direct relationship with the Plan Sponsor under which the insurer charges for coverage and assumes full responsibility for the cost of the benefits [full service contracts] or through refund accounting arrangements [RA arrangements], but this is not always so.

Instead, Co-operators may provide insurance or claims processing services to the Plan Sponsor “in the background” through a TPA. The Johnston and RWAM groups are TPA arrangements. [ 19 ] As to insurance coverage itself, a Plan Sponsor can manage its financial risk of the benefit plan in different ways. For instance, a Plan Sponsor that self insures benefits for its members can buy a stop loss policy from an insurance corporation [stop loss contract] to insure itself.

In that case, when a claim total exceeds a threshold amount, the Plan Sponsor’s liability will be capped and the insurance corporation will pick up the excess. The trial judge found the Johnston contract and one of the RWAM arrangements to be stop loss contracts. [ 20 ] A Plan Sponsor might also choose a form of insurance that allows it to share in the plan’s financial results through RA arrangements. Under this type of policy, the insurer refunds any surplus to the Plan Sponsor and may be responsible for any losses. [ 21 ] Another policy type is the administrative services only policy [ASO].

An ASO is an agreement whereby the insurance corporation or TPA performs administrative tasks only, as outlined in the contract between the parties. Spencer conceded at trial that ASO agreements are not group contracts of EHC insurance and thus did not count towards the calculation of the Access Fees. The trial judge also made a clear finding that “ASO arrangements are not group contracts of EHC” (at para 130). [ 22 ] Thus, Co-operators’ various insurance policies referred to at trial and in these reasons look like this: (

a) full service contracts (full responsibility for the cost of the benefits); (

b) RA arrangements (share in the plan’s financial results); (

c) TPA contracts (contracts administered by third party administrators); (

d) stop loss contracts (insurer responsible for benefits when a threshold is reached); and (

e) ASO arrangements (administrative services only). [ 23 ] Co-operators took the position that it was required to pay an Access Fee only with respect to those persons who were covered under a plan issued by it when it was in a direct contractual relationship with a Plan Sponsor through a full service contract or an RA arrangement. According to Co-operators, it had no obligation to pay an Access Fee with respect to TPAs, stop loss contracts or ASOs. If it

offered the Spencer Plan to a TPA, and the latter accepted, Co-operators would pay Access Fees for the Insured Lives in that insured group. [ 24 ] Spencer, on the other hand, maintained and continues to maintain that it was entitled to receive Access Fees for the whole of Co-operators’ book of business: that is to say, for all Insured Lives, regardless of whether or not they have access to the Spencer Plan – a much broader group than Co-operators contemplated by its

interpretation of the Service Agreement and which would include all TPAs and stop loss contracts, the Johnston contract and RWAM groups, except for ASOs. [ 25 ] In support of its position, Spencer relies on clause 3.01 of the Service Agreement and the distinction between the

definitions of Members and Insured Lives , as those

definitions appear in clauses 3.01 and 4.02:

Section III – Co-operators Obligations 3.01 Co-operators agrees as and from the Effective Date to include the Plan as a benefit for its Members. [wherein] 1.04 – “Members” means persons (employees, dependants) covered under a group contract of Extended Health Insurance issued by Co- operators. … 4.02 Co-operators will pay quarterly to SHN, from the Effective Date, the Access Fee. The Access Fee shall be seven cents ($.07) per month plus applicable taxes times the number of Insured Lives, whether or not they have Benefits.

The Access Fee, along with reporting Insured Lives for the substantiation of the fee shall be due and payable to SHN on or before April 25th, 2001 and by the 25th day after the end of each quarter thereafter. [wherein] 1.05 – “Insured Lives” means persons (excluding dependants) covered under a group contract of Extended Health Insurance issued by Co-operators. [ 26 ] For Spencer, clause 3.01 places a clear obligation on Co-operators to include the Spencer Plan as a benefit for its Members who are defined by the sole criteria of being “covered under a group contract of Extended Health Insurance issued by Co-operators” and pays the Access Fee for Insured Lives – a smaller group. [ 27 ] Further, Spencer directs the Court to consider that it was offering two types of benefits (with two types of cards).

Spencer provided an Advantage Card, for members whose group plans included a vision care benefit. For other group plans, Spencer provided a Courtesy Card, consisting of a point-of-sale discount (a benefit Spencer offered only to Co-operators at that time). Usage of the Courtesy Card could not be tracked, as there were no claims to be processed. Further, according to the evidence, Co-operators actively encouraged group plan members to photocopy the Courtesy Card, so as to maximize the benefit that was being provided to them under the Service Agreement. From this, Spencer submits that limiting the

interpretation of the Service Agreement only to those group contracts of insurance that provided vision care benefits or to those TPAs that had accepted the Spencer Plan was contrary to its bargain with Co- operators. According to Spencer, the Service Agreement had a far greater reach than that. B. The trial judge’s reasons [ 28 ] In the initial stage of his reasons, after a comprehensive review of the law regarding contract

interpretation, the trial judge divided his adjudicative task into two parts: (

a) how should the Service Agreement be interpreted; and (

b) of the various types of contracts with Co-operators, which of them came within the definition of “a group contract of Extended Health Insurance issued by Co-operators”, as that phrase is used in the Service Agreement? At this point in my analysis, I am considering the first of those two questions. [ 29 ] In terms of his conclusion, the trial judge found that “the ordinary and grammatical meaning of the relevant provisions of the service agreement consistent with the surrounding circumstances is clear” (at para 88). According to this

interpretation, whether group plan members had access to the Spencer Plan was irrelevant. In short, the trial judge found that the formula in the Service Agreement included group plans issued by Co-operators, even if those plans did not include the Spencer Plan as part of the group benefits package. [ 30 ] To break the trial judge’s reasons down further, he interpreted clause 4.02 by reading in the

definitions of Insured Lives and Benefits in this way: “ the access fee shall be seven cents per month times the number of ‘persons (excluding dependants) covered under a group contract of Extended Health Insurance issued by Co-operators ’, regardless of whether they are eligible to receive vision care benefits under the group contract” (emphasis in original, at para 88). [ 31 ] With this approach, the trial judge found there were only two criteria for a person to be counted as a person for whom the Access Fee had to be paid: (

a) they had to be covered under a Co-operators’ EHC insurance group contract; and (

b) they must not be a dependent. In reaching this conclusion, two matters were significant for the trial judge.

[32] First, the Service Agreement did not say “the people who are counted are limited to those for whom – in the language of Clause3.01 – Spencer benefits have been ‘included’ by Co-operators”(at para 89).

This meant that “Co-operators was obliged to pay seven centsper month for every person, excluding dependents, covered under a Co-operators group EHC contract [calculation group]” (emphasis inoriginal, at para 90). [33] Second, there were no limiting words in the Service Agreement that would restrict the payment of an Access Fee in the mannersuggested by Co-operators: i.e., limiting the Access Fee to only full service contracts and RA arrangements.

To express this in a differentway, there were no limiting words in the Service Agreement that expressly excluded TPAs or stop loss contracts. [34] The only issue was one of application, i.e., of the contracts in evidence, which of them were group contracts of “ExtendedHealth Insurance issued by Co-operators”, as mentioned in the definition of Insured Lives. I will review the trial judge’s reasons on thispoint when I consider Co-operators’ appeal in relation to this aspect of the trial judge’s decision. C.

Considerations on appeal [35] At the outset, it should be understood that Co-operators does not take issue with the trial judge’s statement of the law. Instead,in its written argument, Co-operators argues that “[a]fter correctly identifying the relevant principles, the trial judge erred” with respect tohow he interpreted the Service Agreement.

In light of the standard of review, this is a difficult position for any appellant to take – and inlight of the trial judge’s detailed analysis – particularly in this case. [36] In interpreting the Service Agreement, the trial judge was determining the objective intent of the parties, which involved issuesof mixed fact and law: Sattva Capital Corporation v Creston Moly Corporation, 2014 SCC 53 at paras 43–55, [2014] 2 SCR 633 [Sattva]. [37] On appeal, this Court’s task is to review the trial judge’s

interpretation according to the applicable standard of review. Absentan extricable question of law, the standard of review of a trial judge’s

interpretation of a contract is palpable and overriding error: HeritageCapital Corporation v Equitable Trust Company, 2016 SCC 19 at para 24, [2016] 1 SCR 306; Directcash Management Inc. v Seven OaksInn Partnership, 2014 SKCA 106 at para 12, [2015] 5 WWR 129; and Mosten Investments LP v The Manufacturers Life InsuranceCompany (Manulife Financial), 2021 SKCA 36 at para 33, [2021] 9 WWR 1, leave to appeal to SCC refused, , and [Mosten]. [38] In this part of the appeal, Co-operators asserts the following: (

a) the trial judge erred by failing to take into account the definition of Access Fee when construing clause 4.02; (

b) the trial judge erred with respect to his factual findings regarding the surrounding circumstances: (

i) by not considering the impact of an initial draft of the Service Agreement; (ii) by not factoring in Mr. Sklar’s special knowledge of Co-operators’ business; (iii) by not considering the special position of TPAs; (iv) by not recognizing that any

interpretation other than that put forward by Co-operators would lead to an absurdity, i.e., itreceived nothing for its bargain; and (

v) by failing to recognize that Mr. Sklar actually agreed with Co-operators as to the

interpretation of the Service Agreement; and (

c) the trial judge erred by failing to consider the effect of Mr. Sklar’s subsequent conduct on the

interpretation of the ServiceAgreement. [39] I will address each of the above alleged errors under separate headings. Before doing so, it may be helpful to reiterate that thisappeal is only about Co-operators’ obligation to pay for the Insured Lives covered by the Johnston contract and the RWAM arrangements– no other contract or arrangement is in issue. The trial judge’s

interpretation of the Service Agreement is being considered to determinewhether, by its terms, Co-operators owed any obligation to pay the Access Fee for stop loss contracts and group contracts of insuranceadministered by a TPA. This means that if the trial judge committed a reversible error with respect to his

interpretation of the ServiceAgreement as to stop loss contracts and TPA insurance, it would not be necessary to go on to consider his application of his

interpretationto the specific contracts and arrangements in question. 1. The definition of Access Fee [40] Co-operators submits that the trial judge erred by failing to take into account the definition of Access Fee when construingclause 4.02.

If he had done so, according to Co-operators, the ordinary and grammatical meaning of the Service Agreement would dictatethat the Access Fee need only be paid when a member had access to the Spencer Plan – which would exclude stop loss contracts and TPAinsurance, without the contract holder’s agreement. [41] As I indicated above, the trial judge paraphrased clause 4.02 like this: “the access fee shall be seven cents per month times thenumber of ‘persons (excluding dependants) covered under a group contract of Extended Health Insurance issued by Co-operators’,regardless of whether they are eligible to receive vision care benefits under the group contract” (at para 88). [42] Co-operators submits that, by not adding in the definition of Access Fee as part of his reasoning process, the trial judgecommitted an error of law.

According to Co-operators, the trial judge should have interpreted clause 4.02 in this way (where theunderlined, read-in terms reflect the

definitions found in the Service Agreement): Service Agreement Clause Clause with Read-In

Definitions

4.02 Co-operators will pay quarterly to SHN, from the Effective Date, the Access Fee . The Access Fee shall be seven cents ($.07) per month plus applicable taxes times the number of Insured Lives , whether or not they have Benefits . 4.02 Co-operators will pay quarterly to SHN, from the Effective Date, the fee paid by Co- operators to SHN for the [persons (employees, dependants) covered under a group contract of Extended Health Insurance issued by Co- operators] who have extended health and/or vision care benefits, to have access to the Plan .

The fee paid by Co-operators to SHN for [persons (employees, dependents) covered under a group contract of Extended Health Insurance issued by Co-operators] who have extended health and/or vision care benefits, to have access to the Plan shall be seven cents ($.07) per month plus applicable taxes times the number of persons (excluding dependants) covered under a group contract of Extended Health Insurance issued by Co-operators , whether or not they have vision care benefits . [Where the definition of Members has been read into Access Fee] [ 43 ] As the Court in Mosten indicated, a failure to “consider a material part of the contract” or to “give effect to important words in the contract” can give rise to a question of law (at para 46).

In my respectful view, however, the trial judge did not commit either of those errors. Further, if I were satisfied that the trial judge had erred by approaching the

interpretation of clause 4.02 in the way suggested, I would nonetheless have arrived at the same conclusion as he. [ 44 ] According to Co-operators, the payment of the Access Fee contemplates compensation for only those Insured Lives who are accessing the Spencer Plan. However, the payment of the Access Fee is not so restricted. The Access Fee is the fee to be paid by Co- operators to Spencer “for the Members who have extended health and/or vision care benefits , to have access to the Plan” (emphasis added).

In other words, the Access Fee is to be paid to Spencer to allow Co-operators to make the Spencer Plan available to its Members, rather than as compensation to Spencer for those Insured Lives that are receiving such benefits. To have access is prospective and contemplates that Co-operators is paying for the right to make the Spencer Plan available. [ 45 ] This obligation is not qualified. It is not dependent on a Plan Sponsor agreeing to include the Spencer Plan as a benefit for its members.

As Spencer asserts, Co-operators’ argument overlooks the proper effect of clause 3.01, which imposes upon Co-operators an obligation to include the Spencer Plan as a benefit for its Members: “Co-operators agrees … to include the [Spencer] Plan as a benefit for its Members”. Further, Co-operators’ failure to include the Spencer Plan as a benefit for its Members does not affect clause 4.02, relating to the calculation of the Access Fee for Insured Lives.

To repeat, the Access Fee was for Co-operators to have the ability to offer the Spencer Plan to all individuals within its network; Co-operators’ corresponding obligation was to “include the Plan as a benefit for its Members”.

To hold otherwise would mean that, by breaching clause 3.01 of the Service Agreement, Co-operators could thereby reduce its obligation to Spencer. [ 46 ] In reaching this conclusion, I observe that the definition of Access Fee refers to those Members who have access to vision care benefits (which accords with the definition of Benefits in the Service Agreement) or to those with extended health benefits or both.

The unfortunate use of “and/or” in the definition of Access Fee leads to that result by its terms, i.e., Access Fee means the fee paid by Co- operators to Spencer for the Members who have extended health and/or vision care benefits , to have access to the Plan. This definition explicitly includes those Members who do not have vision care benefits, but who might have extended health benefits.

Further, Benefits is only defined to mean “vision care benefits the Member is eligible to receive …”, thus setting up a distinction in the Service Agreement between types of benefits. [ 47 ] This distinction is carried forward in Sections VII and VIII of the Service Agreement by referring to those members who have Benefits (i.e., vision care benefits) and those who do not: 7.02 The Plan will, through utilization of a Plan Card, allow Members without Benefits to receive a discount of up to 5% (maximum $25.00) for the purchase of vision care products from a Provider. …

SECTION VIII – PLAN OPERATION 8.01 The Member must provide the Provider with his or her Plan Card and such other identification as the Provider requires. After showing the agreed upon identification: a. The Member will have access to the Plan to fill a vision care prescription whether or not that Member has a vision care benefit . b.

For those Members without a Benefit , the Plan will entitle them to a discount of 5% (not to exceed $25.00) off the regular or sale price for all products sold by the Provider. (Emphasis added) [ 48 ] Clauses 7.02, 8.01a and 8.01b contemplate Members having access to the Spencer Plan, without having corresponding access to vision care benefits. With these clauses, there is a direct capture of those Insured Lives who have Advantage Card benefits (access to vision care benefits) and those who do not, but who have access to Courtesy Card benefits (access to a point-of-sale discount only).

[ 49 ] It is for these reasons that I conclude the trial judge did not commit an error of law by failing to give greater weight to the definition of Access Fee when he was considering the

interpretation of clause 4.02 and focusing, instead, on Insured Lives. If he had emphasized the definition of Access Fee, it would have served only to reinforce his conclusion. [ 50 ] I will now provide my reasons as to why I conclude that the trial judge did not make the suggested errors with respect to his consideration of the surrounding circumstances. 2. Surrounding circumstances: Contractual

interpretation [ 51 ] In Sattva , the Supreme Court confirmed the role of surrounding circumstances in contractual

interpretation: “a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract” (at para 47). Co-operators argues that the trial judge erred in his

interpretation of the Service Agreement by not taking into account the surrounding circumstances in accordance with Sattva . a. Consideration of the initial draft [ 52 ] It is true that the initial draft of the Service Agreement provided to Co-operators by Mr. Sklar did not include the definition of Access Fee. This was added at the request of Co-operators.

From this, Co-operators asserts that it “was obviously added for the purpose of making it clear that the fee was to be consideration for the provision by Co-operators to its clients of access to the Spencer Plan”. [ 53 ] However, if anything, the converse is true. Another look at clause 1.01 bears this out: Access Fee means the “fee paid by Co- operators to SHN for the Members who have extended health and/or vision care benefits, to have access to the Plan”. This clause expressly provides that the Access Fee will be paid for Members “to have access to the [Spencer] Plan”.

Therefore, this argument merely recasts Co-operators’ immediately preceding argument and can be addressed, in

summary, as follows: (

a) The addition of the phrase “to have access” provides that Co-operators is paying for the right to make the Spencer Plan available to members of its network. It is not confined to those Members who presently have access. (

b) The definition of Access Fee explicitly includes those Members who do not have vision care benefits but who do have extended health benefits. The word benefits is not capitalized. Further, the definition of Access Fee refers to those Members who have access to vision care benefits (which accords with the definition of Benefits in the Service Agreement) or to those with extended health benefits or both. (

c) Other parts of the Service Agreement draw a distinction between Members with Benefits and Members without. [ 54 ] The trial judge did not err by failing to take into account how the definition of Access Fee came to be added to the Service Agreement. b. Spencer’s knowledge of Co-operators’ business [ 55 ] Some additional background is required to assess this aspect of the submissions. A central thrust of Co-operators’ argument is that Mr. Sklar’s understanding of Co-operators’ book of business should have played a greater role in how the Service Agreement is interpreted.

In my view, this is a challenge to the trial judge’s findings of fact, which are derived largely from his assessment of the credibility of the key witnesses. I see no basis to find that the trial judge made a palpable and overriding error of fact that would permit this Court to intervene with respect to these findings. [ 56 ] In its factum, Co-operators argues that Spencer “was certainly interested in the size of the book of business of Co-operators on which the Access Fee would be paid”. In support of this proposition, Co-operators relies upon a fax sent by Mr.

Sklar to one of Co- operators’ employees, which reads as follows: “Jeff May has previously alluded to a particular large group in BC. I have never been clear as to whether or not they will be participants, or if The Co-operators will have BC clients. Please clarify”.

From this, Co-operators submits that “[w]hether a particular [British Columbia] client of Co-operators would be a participant in the Spencer Plan would be of no interest to Spencer if the Access Fee was paid irrespective of access to the Spencer Plan” – which is to say, Spencer would welcome as many clients as possible as it would increase its revenue. [ 57 ] I agree with Co-operators to this limited extent. The fax is clearly some evidence that Mr. Sklar knew the limits of the Service Agreement, but the trial judge did not find differently. He said as follows: [25] As with Mr.

May, I had difficulty with aspects of Mr. Sklar’s evidence, and concluded that he was not entirely credible or reliable. I will note three key examples of evidence that led to that conclusion. First, Co-operators submitted Mr. Sklar’s evidence that he and Mr. May did not discuss the number of Co-operators [Preferred Vision Services (PVS)] or EHC clients – particularly given that Mr. May and Mr. Sklar had a prior relationship as a result of their involvement in the Co-operators/PVS arrangement – was incredible. [26] I agree.

I did not believe his explanation that he did not care about the number because Co-operators was a large client and Spencer would get the whole book. The size of the group was significant . Mr. Sklar testified that he hoped they would generate more activity at provider locations as that was an important element of Spencer’s business. Absent any estimate of the size or nature of the client group, Mr. Sklar would not know Spencer’s revenue or claims processing requirements. Further, the following August 21, 2000, email [ sic ] (Exhibit P-3, Tab 206) from Mr. Sklar to Ms. Bacsu confirms that Mr. Sklar and Mr.

May, at some point, had at least some discussion about the constitution of Co-operators’ book of business … . (Emphasis added) He then proceeded to quote from the same fax that Co-operators relies on in this argument. [ 58 ] But what to make of this finding? Co-operators submits that this one finding should have led to a different

interpretation of

clause 4.02 of the Service Agreement. In my view, this argument is an indirect attempt to set aside the trial judge’s finding of credibility with respect to the more significant issue, which is whether the trial judge erred by finding Mr. Sklar did not know the whole of Co- operators’ business. [ 59 ] In that regard, it is important to note that the Service Agreement was initially negotiated by Mr. Sklar, on behalf of Spencer, and Jeff May, on behalf of Co-operators. Mr. May was a member of the Co-operators’ group management team, which included the vice president, to whom he reported.

The trial judge found the evidence pertaining to the Sklar–May negotiations, and the documentary record, to be “thin” (at paras 12 and 34). Nonetheless, the primary evidence came from Mr. May and Mr. Sklar. [ 60 ] The trial judge assessed the testimony of each of Mr. May and Mr. Sklar and found both of them not to be completely reliable. In that regard, he wrote as follows: [30] In the result, I find that both Mr. May and Mr. Sklar exaggerated certain aspects of their testimony. Mr.

Sklar was aware that replacing PVS with Spencer – which he expressly pitched as a superior product – was a central element of this negotiation . I concluded that while he did not know all of the details as to the names and size of Co-operators’ group plan clients, he and Mr. May had some discussions as to the composition of Co-operators’ group plan EHC client base. I concluded he was aware of the approximate size of Co- operators’ PVS client base . He was, at a minimum, aware that Co-operators’ EHC benefits were likely delivered to some group clients through TPA. [31] However, I am not persuaded that Mr.

Sklar and Mr. May agreed that the Co-operators/Spencer agreement was intended to relate to the PVS clients . Further, I find Mr. Sklar did not have a comprehensive or detailed understanding of the identity or size of Co-operators’ EHC group clients or the various delivery models used by Co-operators . Co-operators’ TPA, ASO, stop loss and refund accounting arrangements were contracts between Co-operators and their clients. The nature of those arrangements varied. Mr. Sklar had dealt extensively with insurance companies, but was not in the insurance business.

In particular, I concluded that he did not know that Co- operators was, as it claims, unable to unilaterally extend Spencer benefits to members of group plans administered by TPA. [32] Further, I was not satisfied that Mr. Sklar and Mr. May had a common understanding as to the manner in which the access fee would be calculated . They agreed it would be seven cents. They agreed the fee would be paid to provide EHC group plan members the right to access the applicable Spencer benefits described above.

However, I am not persuaded they had the same understanding of whether the fee would be calculated on the basis of all members of Co-operators’ EHC group plans, regardless of whether Spencer benefits had been extended to those members . (Emphasis added) [ 61 ] In essence, Co-operators asserts that the trial judge should have found that Mr. Sklar knew what was going to be in – or out – of the Service Agreement. However, this is not what the trial judge determined.

He made a clear finding of fact, based on his assessment of the credibility of the witnesses to the contrary, and, as such, this engages the standard of review of palpable and overriding error. [ 62 ] In Benhaim v St-Germain , 2016 SCC 48 , [2016] 2 SCR 352, Wagner J. (as he then was) endorsed this formulation of that standard: [38] It is equally useful to recall what is meant by “palpable and overriding error”. Stratas J.A. described the deferential standard as follows in South Yukon Forest Corp. v.

R. , 2012 FCA 165 , 4 B.L.R. (5th) 31, at para. 46 : [46] Palpable and overriding error is a highly deferential standard of review … . “Palpable” means an error that is obvious. “Overriding” means an error that goes to the very core of the outcome of the case. When arguing palpable and overriding error, it is not enough to pull at leaves and branches and leave the tree standing. The entire tree must fall. [39] Or, as Morissette J.A. put it in J.G. v. Nadeau , 2016 QCCA 167 , at para. 77 , [translation] “a palpable and overriding error is in the nature not of a needle in a haystack, but of a beam in the eye.

And it is impossible to confuse these last two notions”. [ 63 ] A finding of credibility is the quintessential finding of fact. If the palpable and overriding error standard means anything, it must mean that, when a trial judge refers to all of the evidence supporting and contradicting a proposition – and then finds, based on his weighing of a witness’s testimony, some but not all of the evidence is accepted – that finding must be virtually unassailable. The trial judge determined that Mr.

Sklar had not been completely forthcoming with respect to what he knew; but, nonetheless found, on the crucial point as to how the Access Fees would be calculated, that he could rely on Mr. Sklar’s testimony. [ 64 ] Thus, the trial judge did not commit a reversible error by not giving greater weight to what Mr. Sklar knew about the business of Co-operators in his

interpretation of the Service Agreement. c. Special position of TPAs [ 65 ] The trial judge found that “Spencer did not know Co-operators could not include Spencer benefits for all group EHC members” (at para 151). Co-operators attempts to get at this finding of fact by pointing to the special position of TPAs, as understood by Mr. Sklar. [ 66 ] When Mr. Sklar testified, he was asked a series of questions about an insurance corporation, like Co-operators, going behind a TPA in an “attempt to alter [a] benefit program” already offered to clients by the TPA. Mr.

Sklar ultimately stated that, “[p]ersonally, I don’t think it’s a good idea”. When Mr. May testified, he stated, “If I went around the broker and said to a client, here’s a benefit and didn’t deal through the broker, that would poison that relationship completely”. Given this testimony, Co-operators submits that the trial judge’s finding as to the extent of Spencer’s knowledge constitutes a palpable and overriding error of fact. [ 67 ] In my view, the trial judge’s assessment of the evidence on this point benefits from considerable deference. Further, I believe that Co-operators has missed the mark.

Understanding that Co-operators could not impose the Spencer Plan on fully insured plans administered by a TPA does not equate with a finding that Co-operators could not make efforts to market the Spencer Plan to the TPA.

Indeed, there was some evidence that Co-operators had offered the Spencer Plan to corporations with which it had a TPA relationship,including RWAM. In that case, the evidence showed that RWAM had declined the Spencer Plan, preferring, instead, to remain with PVS,a corporation that had been providing enhanced vision benefits to Co-operators before it switched to Spencer.

But that said, this was someevidence from which the trial judge could infer that it was open to Co-operators to use its best efforts to market the Spencer Plan, at thevery least, as a marketing tool, even if the TPA did not accept the overture. [68] As Spencer demonstrates in its factum, Co-operators could have sought to exclude, or carve out, various types of insurancearrangements, such as stop loss contacts or, indeed, relationships with TPAs, from the definition of group contracts of EHC insurance.There was no evidence that such an exclusion was discussed by Mr. May and Mr. Sklar at all.

Indeed, there was no evidence that Mr. Mayraised a concern that Co-operators could not include the Spencer Plan as an ancillary benefit to group plans of EHC insuranceadministered by TPAs. [69] At paragraph 105, the trial judge agreed with Spencer’s position that the parties could have included wording in clause 3.01 tothe effect that Co-operators was not obliged to extend the Spencer Plan to TPA plans, if that were intended. For comparison purposes, thetrial judge had before him the PVS Agreement. Both Mr. Sklar and Mr. May were involved in negotiating that agreement, which theService Agreement replaced.

According to the terms of the PVS Agreement, Co-operators had expressly excluded one client, CU+CHealth Services Society, from its application. Moreover, the PVS Agreement only obliged Co-operators to “market the PVS vision careprogram to all group plan members with extended health benefits”. Since Mr. May and Mr.

Sklar were both familiar with the PVSAgreement, it would have been a simple matter to exclude persons insured under any individual form of group contract of insurance issuedby Co-operators in the same or similar manner as to what occurred in the PVS Agreement – if that had been the understanding. [70] Thus, I would give no effect to Co-operators’ attempt to challenge the finding of fact as to what Mr. Sklar knew regardingTPAs. The trial judge concluded that Mr. Sklar “was not entirely credible or reliable” (at para 25). However, he was not persuaded that akey Co-operators’ witness, Mr.

May, was completely reliable either. He found both of them had “exaggerated certain aspects of theirtestimony” (at para 30). The trial judge was required to thread his way through the testimony of these two witnesses to find the factsbecause “the documentary record relating to the contract negotiations [was surprisingly] thin” (at para 34). It was open to him to acceptsome of Mr. Sklar’s evidence and to conclude that, while Mr.

Sklar knew something of Co-operators’ business operations, he did notknow that “Co-operators could not include Spencer benefits for all group EHC members” (at para 151), including those administered byTPAs. d. The something for nothing argument [71] This is Co-operators’ fourth argument regarding surrounding circumstances and, perhaps, its strongest. According to Co-operators, if it is “obligated to pay the Access Fee for persons … who did not have access to the Spencer benefits”, the Service Agreementwould be a contract to pay something for nothing.

Co-operators submits that the Service Agreement should be interpreted so as to avoidthis result. [72] Co-operators relies on Anderson v Bell Mobility Inc., 2015 NWTCA 3 at paras 29–31, [2015] 2 WWR 215, leave to appeal toSCC refused, [Bell], for the proposition that a contract to pay something for nothing will generally be regarded asabsurd and courts will not find a contract has that effect, except in the case of absolutely clear language. Co-operators asserts that if thetrial judge’s

interpretation of the Service Agreement is sustained, the result is absurd because it has received nothing for its bargain. [73] The trial judge addressed this point: [107] Finally, Co-operators submits that the Spencer approach would oblige Co-operators to pay “something for nothing” and that thiscase is like Bell. With the greatest respect, I do not agree. The relevant provisions of the service agreement, unlike the provisions at issuein Bell, are not ambiguous.

Co-operators paid an access fee calculated on the basis of employees only, to secure the right of access to theSpencer plan for all group EHC employees and dependents. Co-operators did not receive something for nothing. It received exactly that.There is nothing in the agreement or the law that requires that the calculation of a fee be based on the number of individuals that willbenefit under the agreement.

The exclusion of dependents from the calculation itself demonstrates that fact. (Emphasis added) [74] Co-operators acknowledges that the trial judge did consider the Bell case, but nonetheless submits that he did not understandthe argument that was being made. Co-operators argues that Spencer’s

interpretation of the Service Agreement means that it “would paysomething for nothing (like the 911 system access fee at issue in [Bell] in areas where no 911 service existed)”.

In that regard, Co-operators admits that it received something for the fully insured plans and for RA arrangements; but, if the Service Agreement isinterpreted so as to extend to TPAs and stop loss contracts, and it was required to pay the Access Fee whether the Spencer Plan wasaccepted by these groups or not, it received nothing for so doing. [75] To reiterate, the evidence showed that Co-operators could not force TPAs to accept the Spencer Plan, unless they agreed. TheSpencer Plan could be offered and refused.

In the case of the Johnston contract, the Spencer Plan was not offered because Co-operatorsdid not consider it to be a contract of extended health insurance issued by it. The Johnston contract was a stop loss contract, which Co-operators believed was reinsurance only. In the case of the various RWAM groups, these too were TPAs, which could decline the SpencerPlan. Without considering the specific arguments to come in relation to Johnston and RWAM, any

interpretation of the Service Agreementthat did not account for their special position meant that Co-operators would pay Spencer Health for employees who would receivenothing in return – or Co-operators would be required to absorb the Access Fee costs and be unable to recoup those costs from the TPAs. [76] In concrete dollar terms, with respect to the matters that are at issue in this appeal, from January of 2001 to December of 2008,Co-operators is asked to pay $85,000 dollars for the Johnston contract and $388,925.32 for the RWAM arrangements, for a total of$473,925.32 – and no employee would receive a corresponding benefit.

This is so because Co-operators did not offer the Spencer plan toJohnston and RWAM did not want it. If Spencer had succeeded on the basis of Co-operators’ whole book of business, as originallyalleged, it would have received $85,000 dollars for the Johnston contract (which it did), plus an additional $559,392.96 for all “unpaidlives”, for a total of $644,392.96. By way of contrast, the total amount paid by Co-operators for its fully insured plans over the entire life

of the Service Agreement was $482,107.77. [ 77 ] I am not, however, prepared to say that the trial judge did not understand this. Co-operators switched from the PVS Agreement to the Spencer Plan for a series of reasons, including the ability to increase its profile in the vision care business and, specifically, to capitalize on the growing interest in laser care.

The trial judge was aware of this aspect of the deal that Co-operators had made. [ 78 ] Further, as noted by the Supreme Court in Pacific National Investments Ltd. v Victoria (City), 2004 SCC 75 , [2004] 3 SCR 575, it is not the role of a court to “rewrite a contract for the parties. Nor is it their role to relieve one of the parties against the consequences of an improvident contract” (at para 31).

Thus, even if the payment of the same Access Fee for Members, whether or not they had access to the Spencer Plan, was improvident or unwise, it is not this Court’s role to relieve Co-operators from its obligations under a contract it now regrets. The trial judge understood this aspect of the law, too. e. Mr. Sklar’s understanding of the Service Agreement [ 79 ] Under its fifth argument regarding surrounding circumstances, Co-operators asserts that its

interpretation is consistent with Mr. Sklar’s own understanding of the Service Agreement. Co-operators refers to Mr. Sklar’s answers during questioning that were read into evidence at trial, where he agreed that the Access Fee was “the fee paid by Co-operators to Spencer for members with extended health benefits to have access to the Spencer Plan”. Quite clearly, this is true. But that does not change the proper

interpretation of the Service Agreement. [ 80 ] As I have indicated earlier, the Service Agreement was not confined to those who had access to vision benefits. It was, according to the trial judge, a fee to be paid for Members to have access – a future prospect. Mr. Sklar’s testimony does not acknowledge this nuance, but the goal of his claim was to prove that the Access Fee was payable on Co-operators’ whole book of business, according to the Service Agreement, which uses those precise words: “to have access to the Plan” (clause 1.01). f.

Conclusion on surrounding circumstances [ 81 ] In my respectful view, much of what Co-operators asserts constitutes surrounding circumstances is an attempt to find error with the trial judge’s findings of fact, which do not, in my opinion, undermine the trial judge’s

interpretation of the Service Agreement. None of Co-operators’ arguments rises to the level of palpable and overriding error of fact or, indeed, undermine the reasonableness of the trial judge’s

interpretation of the Service Agreement. 3. Subsequent conduct [ 82 ] Co-operators correctly asserts that evidence of subsequent conduct is admissible in relation to the

interpretation of a contract – if there is ambiguity in the written agreement. With this as the starting point of its analysis, Co-operators asserts that the trial judge should have found the Service Agreement to be ambiguous and then gone on to admit some evidence that might be said to show Mr. Sklar knew more about the special position of TPAs than he let on. [ 83 ] On November 15, 2001, approximately a year after the Service Agreement was signed, Murray Ceulemans of Co-operators wrote an email to Mr.

Sklar, advising as follows: Co-operators also uses the services of third party claim administrators (TPAs) to reimburse Extended Health Care on certain groups. As yet, we haven’t extended Spencer Vision benefits to the insured members of those groups. The stumbling block is the logistics of getting claim forms re-directed (faxed) to the proper claims office. [ 84 ] In an email reply on November 16, 2001, Mr. Sklar asked Mr. Ceulemans to “please look at making the benefit available to those groups as well”, in reference to the TPAs. The trial judge described Mr.

Sklar’s explanation as to what this correspondence meant as “tortuous” (at para 60). Specifically, the trial judge rejected the testimony of Mr. Sklar that the word benefit in his November 16, 2001, email really meant claims processing services. [ 85 ] Nonetheless, the trial judge did not take the next step and hold that Mr. Sklar knew there were limits on the types of contracts for which the Access Fee would be required to be paid. On this point, he wrote, “the fact that Mr.

Sklar knew some groups administered by some TPA were not extended Spencer benefits does not mean he knew Spencer was not being paid for all members of group EHC plans” (at para 98). [ 86 ] The trial judge also made it clear that what Co-operators was asserting as surrounding circumstances, which included some subsequent conduct, was not grounded in the facts: [99] Second, the facts relied on by Co-operators as surrounding circumstances in support of its proposed

interpretation are not the facts as found. As noted above, Mr. Sklar was aware that TPA carried out administrative functions in relation to group plans. He may well have been aware that Co-operators dealt with TPA. However, I was not persuaded he had a detailed or comprehensive picture of the identity or functions of the TPA in general, or the contractual or business relationship between Co-operators and the TPA.

In particular, I was not persuaded that he knew or ought to have known that Co-operators could not – whether from a legal or business perspective – decide to include Spencer benefits for all members of EHC group plans issued by Co-operators . [100] Third, and in particular, I am not persuaded, based on the November 15–16, 2001, correspondence and my conclusion that Mr. Sklar knew some TPA were not included, that Mr. Sklar knew Co-operators could not extend – as opposed to had not yet extended Spencer benefits – to some TPA groups . Just as Mr. Sklar’s email does not demand that all TPA groups be included, Mr.

Ceulemans’ email does not say or imply that Co-operators was not entitled to include Spencer benefits for TPA groups. Rather, it said certain TPA had not been included solely for administrative reasons. [101] In my view, Mr. Sklar’s November 16, 2001, response must be understood in light of its purpose. Co-operators was an important

Spencer client. Mr. Sklar had a solution to Mr. Ceulemans’ administrative problem. He also saw an opportunity. The November 16, 2001, email from Mr. Spencer to Mr. Ceulemans was, as Mr. Sklar noted, also an attempt to market additional services to Co-operators. In these circumstances, I have no difficulty understanding why he used the polite phrase “please consider”, rather than demanding compliance. I am not prepared to draw the inference that he did not believe Co-operators was obliged to include TPA. [102] Co-operators submits that the fact Mr.

Sklar encouraged Co-operators to include these TPA demonstrates that he knew Spencer would only be paid for those members if they were included, as there was no other reason to include them. Mr. Sklar agreed that Spencer was better off in the sense as it would incur less administrative costs with less insured lives than more. [103] I note, however, that Mr. Sklar also made it clear that extending the Spencer benefit to more individuals was beneficial to Spencer. That evidence is consistent with the fact that Spencer publicly announced the growth in the number of members with coverage.

There is, among other things, a rational connection between the number of members and the ability to negotiate discounts from service providers, which is a fundamental element of the Spencer business model. (Emphasis added) These reasons could not be clearer. The trial judge did not accept Co-operators’

interpretation of the November 15–16, 2001, correspondence. [ 87 ] Moreover, the trial judge did not find clause 4.02 of the Service Agreement ambiguous, which would preclude the consideration of subsequent conduct in any event: [104] … Further, and in any event, the November 15–16, 2001, correspondence is subsequent conduct. Evidence of subsequent conduct is admissible in relation to the

interpretation of the contract only if there is ambiguity in the written agreement: [citations omitted]. In my view, the language at issue , considered in light of the surrounding circumstances, is not ambiguous . Evidence of the November 15–16, 2001, correspondence is accordingly inadmissible in relation to this issue. (Emphasis added) [ 88 ] On this point, Co-operators asserts that the trial judge erred by failing to find clause 4.02 to be ambiguous. According to Co- operators, if the trial judge had recognized the essentially ambiguous nature of the Service Agreement, he would have admitted evidence of key subsequent conduct that would have unlocked the

interpretation of the agreement in its favour. [ 89 ] Again, this is a very difficult argument to make successfully in this appeal. Co-operators does not assert any other basis upon which to find that the Service Agreement is ambiguous – other than to reiterate how it would have interpreted the agreement. In such circumstances, there is no merit to Co-operators’ argument that this Court should now find that the trial judge erred by not concluding that the agreement was ambiguous. D. Conclusion on the scope and

interpretation of the Service Agreement [ 90 ] The trial judge summarized his

interpretation of the Service Agreement as follows (at para 108): (

a) clause 4.02 required the payment of “seven cents per month for all persons (except dependents) covered under a group contract of Extended Health Insurance issued by Co-operators …”; (

b) Co-operators was obliged to make the above payment “regardless of whether Spencer benefits had been extended to that group as provided by Clause 3.01”; and (

c) the calculation group included “group plans of EHC insurance issued by Co-operators and administered by TPA …”. [ 91 ] I find that the trial judge made no error of law or fact in thus deciding. VI. Application of the Service Agreement to the Johnston contract [ 92 ] That brings us to the second part of the trial judge’s analysis, being whether Co-operators was required to pay Access Fees in relation to any particular contract or arrangement.

Having determined that the only limiting factor in the Service Agreement was whether there was “a group contract of Extended Health Insurance issued by Co-operators”, the trial judge turned to the question of which of the various contracts or arrangements referred to in the evidence came within this

interpretation. The trial judge defined a contract coming within the definition of “a group contract of Extended Health Insurance issued by Co-operators” as an included contract and those falling without as being an excluded group . I, too, will use those short forms. [ 93 ] These were the contracts and groups in issue at trial: (

a) a group of contracts for which the trial judge found “virtually no evidence of Co-operators’ arrangement …” (at para 129), other than being mentioned on a spreadsheet, which listed agreements for which Co-operators had not made payments to Spencer [Spreadsheet or Exhibit D-13], i.e., AGA, Paccar and Merit Trucking; (

b) a services and marketing agreement between Co-operators and Gr 77 WSG [ Gr77 ]; (

c) three Federated Co-operatives Limited [FCL] stop loss contracts;

(

d) a stop loss contract identified as RWAM 775008; (

e) the Johnston contract (a stop loss contract); (

f) two contracts identified as RWAM 775 and RWAM 6012; and (

g) five other RWAM groups. [ 94 ] The trial judge held that none of the contracts falling in categories (

a) through (

d) above were group contracts of EHC insurance issued by Co-operators. Spencer does not appeal the trial judge’s exclusion of those contracts. [ 95 ] The trial judge included the Johnston contract and the seven other RWAM groups mentioned in (

f) and (g). Co-operators appeals the inclusion of those contracts and groups. At this point, however, I am reviewing the Johnston contract only. I do so here, even though the Johnston contract formed part of Co-operators’ counterclaim, because this is the order in which the trial judge considered matters, and it helps place his analysis of the RWAM arrangements in context. A. Terms of the Johnston contract [ 96 ] The facing page of the Johnston contract provides as follows: Clients of the Johnston Group Inc. Extended Health Care insurance above the Stop Loss Levels. GROUP POLICY NO.

G. 7948 Pursuant to the application for this Policy by JOHNSTON GROUP INC. (hereinafter called the Policyholder) which application is made a part of this contract and in consideration of the payment when due of the premiums required by the provisions of this Policy.

CO-OPERATORS LIFE INSURANCE COMPANY (hereinafter called Co-operators Life or the Insurance Company) hereby agrees to pay the benefits with respect to those Employees who are insured hereunder and entitled to such benefits in accordance with and subject to the provisions of this Policy. [ 97 ] The relevant provisions are as follows: [Covered Person] “Covered Person” is an eligible Member or any eligible Dependent of a Member for whom the Policyholder identifies as being entitled to coverage under this Policy and for whom the Policyholder has paid the required premium.

The Covered Person must be insured under the Participating Company’s basic group extended health care plan and be a permanent Canadian resident who is also insured under a provincial Government Health Insurance Plan. … [Member] “Member” is a person who is eligible for coverage under this Policy in accordance with the definition of a Member under the Participating Employer’s or Company’s basic group extended health care Plan. … [Participating Company] “Participating Company” shall mean an Employer or Company who has agreed to participate in the Policyholder’s benefit Plan and whose participation has been approved by the Third Party Administrator acting on behalf of the Insurance Company. … [Third Party Administrator (TPA)] “Third Party Administrator” is the Johnston Group Inc. … Provisions 2 Insuring Provisions 2.1 Eligibility of a Member As provided in the Participating Employer’s basic group extended health care Plan, eligibility applies to all eligible active employees and

eligible retirees of Participating Employers of the Policyholder and employees on approved leave of absence or on disability, as provided herein, and their eligible Dependents. The maximum benefit payable is 2 years for disabled employees unless a union or employment agreement provides for a longer payment period. In all cases, coverage for a disabled employee will continue for a maximum of 24 months from the date of disability, once the disabled employee turns age 65.

Further, all eligible persons must be under 85 years of age and living in Canada and have current Provincial or Federal Government Health Insurance Plans in force to maintain eligibility. … Provisions 5 Claims Provisions 5.1 Payee Benefits payable under this Policy are payable to the Member. … 5.3 Claim Form A Member must submit a claim for benefits under this Policy on the Insurance Company’s claim form (the “Claim Form”) provided to the Member at the time of claim by Maximum Benefit or the Participating Company.

The Claim Form shall be completed by the Member, the Participating Company and where necessary, a Physician. … 5.7 Co-ordination of Benefits Co-operators Life will co-ordinate benefits payable under this Policy with other Plans which also cover an insured person for similar benefits.

If a Member or Dependent who is covered for Extended Health Care benefits and/or Out of Province/Canada benefits under this Policy is also covered under any other Plan which provides similar benefits, the amount of benefits payable under this Policy for Allowable Expenses incurred during any benefit year shall be co-ordinated and/or reduced so that the benefits payable from all Plans shall not exceed 100% of the actual Allowable Expenses. … Provision 9 Extended Health Care Benefits 9.1 Extended Health Care Stop Loss Eligible Claims When, by reason of bodily Injury or by reason of Sickness, the Covered Person incurs any Medical Expenses, which are eligible expenses under the Participating Employer’s basic extended health insurance Plan and this Stop Loss Insurance Policy, the Insurance Company shall reimburse the Plan Sponsor on behalf of the Covered Person for the expenses incurred over and above the Individual Stop Loss Level.

Individual Stop Loss Levels : The Stop Loss level for Members is indicated on the Participating Employers’ Master Application: $3,000 or $5,000 or $7,500 or $10,000 or $15,000 or $20,000 or $25,000 9.2 Covered Extended Health Care Exclusions, Limitations and Special Provisions: … Notwithstanding any provision in the Participating Employer’s Plan, no coverage is provided herein for any expenses caused directly or indirectly, in whole or in part, by any of the following: … 5. Laser Vision Surgery … . B.

The trial judge’s reasons on the Johnston contract [ 98 ] The trial judge’s conclusions regarding the Johnston contract were as follows: [114] Mr. Quinn agreed that the insurance provided by the Johnston agreement covered claims in excess of the stop loss levels, including claims for EHC benefits. He did not agree the Johnston agreement was an EHC group policy. He said he did not think it was administered in the manner indicated in the agreement, but gave no further evidence of what he meant. Both Ms. Kempa and Mr. Quinn also said stop loss policies are not group EHC policies. Mr.

Quinn said an insurer does not pay individual transactions under a stop loss policy. [115] I agree that a stop loss policy which obliged Co-operators to pay the policyholder for EHC claims in excess of a specified amount would not, for that reason alone, constitute a group contract of EHC insurance within the meaning of the definition of “Insured Lives”. However, I am not satisfied a reference to a group contract could never include a stop loss policy, regardless of its terms or the context in which the question is asked.

Here, the question is the meaning of “group contract of extended health insurance” in Clause 1.05. That

phrase is not defined. Just as the service agreement does not expressly include a refund accounting arrangement, it does not expressly exclude stop loss arrangements. [116] In the result, I must consider the nature of the stop loss arrangements at issue. The Johnston agreement, which is describe above, was a single contract of insurance between an insurer and another legal entity.

Co-operators expressly agreed to insure and pay extended health care benefits to the individuals who fell within the definition of “Member”. [117] Co-operators submitted that the Johnston agreement should be excluded because Spencer benefits could not be offered to Johnston group members absent underlying health insurance. It is not apparent why that is so. If the Johnston agreement related to an underlying Co-operators EHC policy, Spencer could enrich the benefit payable under that policy.

However, even if there was no such policy and Co- operators could not provide the advantage benefit, a courtesy card could be provided to Johnston members, to provide the laser benefit – which was not provided by the Johnston agreement – and the point-of-sale discount. [118] In my view, the Johnston agreement was a group contract of EHC insurance issued by Co-operators within the meaning of [Clause 1.05] of the service agreement, based on its specific terms. [ 99 ] Co-operators submits that the trial judge erred: (

a) by finding that the Johnston contract was an included contract because “uncontroverted evidence” demonstrates that a stop loss policy cannot also be a group contract of EHC insurance, which evidence includes the following: (

i) the claims were reimbursed in the aggregate; (ii) policyholders were either insured by other companies or self-insured up to the stop loss limit; and (iii) Johnston was administering the stop loss policy; (

b) by finding that Co-operators could have extended the Spencer Plan to the Johnston contract “demonstrates a fundamental misinterpretation of the Agreement”; (

c) by failing to recognize that Johnston was a TPA with multiple participating employers that chose their insurance agreements, and those agreements dictated whether or not the policy was a group contract for EHC insurance; (

d) by failing to recognize that the Johnston contract demanded that Co-operators pay the Plan Sponsor, rather than the Member; and (

e) by ignoring or failing to give effect to those portions of the Johnston contract that expressly excluded some services the Spencer Plan provided. [ 100 ] I will address these arguments in the analysis that follows. C. Analysis as it relates to the Johnston contract [ 101 ] In my respectful view, Co-operators’ arguments with respect to the Johnston contract are, largely, a restatement of its arguments that the trial judge erred by finding that clause 4.02 of the Service Agreement required the payment of the Access Fee with respect to individuals whether or not they had benefits.

As part of its argument that clause 4.02 should be interpreted differently, Co-operators stressed the special nature of TPAs and stop loss contracts. With these submissions about the Johnston contract, Co-operators is resurrecting those arguments. [ 102 ] The trial judge held that the Service Agreement obligates Co-operators to pay the Access Fee for Insured Lives, regardless of whether or not they have Benefits.

The only requirement to be an Insured Life is that one must be covered under a group contract of EHC insurance issued by Co-operators (excluding dependants). [ 103 ] Having determined that the presence of a TPA or stop loss contract did not affect the ordinary and grammatical meaning of the Service Agreement, the task of the trial judge in relation to the Johnston contract was to apply his

interpretation of the Service Agreement to it and, at the same time, construe the Johnston contract. Thus, we are again in the realm of appellate review based on the standard of palpable and overriding error unless an extricable error of law can be found. [ 104 ] As the trial judge noted at several points in his analysis, the evidence was thin . For example, there was no evidence from any TPA, including Johnston, on any of the matters in issue. But, unlike the contracts and groups that the trial judge excluded, the Johnston contract formed part of the record.

The trial judge also had more detailed evidence in the form of the testimony of Conor Quinn, vice- president of Group Benefits with Co-operators, who testified about the Johnston contract. Mr. Quinn had been in the insurance business, first with Crown Life and then with Co-operators for more than 20 years. The trial judge relied on his evidence extensively. [ 105 ] Mr. Quinn testified as follows: (

a) pursuant to the Johnston contract: (

i) a covered person is an eligible member or dependent; (ii) a member is a person who is eligible for coverage in the policy; (iii) a member is an individual, rather than an employer; (

b) there were similarities between the definition of member in the Johnston contract and Insured Lives in the Service Agreement;

(

c) the Johnston contract provided a group plan through employers to employees; (

d) the benefits in the Johnston contract were payable to the members (i.e., individuals); (

e) he did not believe that individual members would submit claims to Co-operators – however, the Johnston contract was an insurance relationship engaging Co-operators, which involved extended health care insurance; and (

f) Co-operators would have been “on the hook” for certain payments, including extended health care benefits. [ 106 ] In my view, the above supports the trial judge’s

interpretation that the Johnston contract was an included contract. When Mr. Quinn’s testimony is considered in conjunction with the trial judge’s observation that “benefits under the agreement were payable to the member” (at para 69), and a member was an individual, his decision regarding the Johnston contract is beyond reproach. [ 107 ] However, Co-operators correctly points out that clause 9.1 of the Johnston contract appears to conflict with clause 5.1 of the same.

Clause 5.1 provides that “[b]enefits payable under this Policy are payable to the Member”, but clause 9.1 provides as follows (repeated here for reference): 9.1 Extended Health Care Stop Loss Eligible Claims Covered Person incurs any Medical Expenses, which are eligible expenses under the Participating Employer’s basic extended health insurance Plan and this Stop Loss Insurance Policy, the Insurance Company shall reimburse the plan Sponsor on behalf of the Covered Person for the expenses incurred over and above the Individual Stop Loss Level. [ 108 ] Co-operators asserts that the trial judge did not directly respond to this ambiguity or identify it in his reasons, but he clearly did so: [69] The Johnston agreement also provided (in

Section 5.1) that benefits under the agreement were payable to the member and (in

Section 5.3) that the member must submit a claim on a Co-operators claim form.

Section 9.1 provided that Co-operators would reimburse the plan above at the individual stop loss level. Mr. Quinn agreed that the insurance provided by this agreement covered claims in excess of that amount, including claims for EHC benefits. He further agreed that a courtesy card, at least, could be offered to all covered members and dependents if both Johnston and the plan sponsor consented.

Co-operators never extended such an offer. [ 109 ] Further, the trial judge implicitly considered this inconsistency in resolving whether the Johnston contract was a group contract of EHC insurance, and he held that the Johnston contract was an included contract “based on its specific terms” (at para 118). In light of Mr. Quinn’s evidence, which left it open to the trial judge to conclude that benefits were being paid to the member, rather than the Plan Sponsor, I would not intervene. [ 110 ] Moreover, whether the trial judge addressed this inconsistency is of no consequence.

It was Co-operators’ position at trial, and remains so on appeal, that stop loss policies are not group contracts of extended health insurance because, under those policies, it is not liable for individual members of the group, but to the Plan Sponsor or to the TPA. In such circumstances, Co-operators submits, there is no underlying EHC insurance as the stop los

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