Prystupa v. Desjardins Financial Security Life Assurance Company, 2015 ONCA 298

Prystupa v. Desjardins Financial Security Life Assurance Company

[Indexed as: Prystupa v. Desjardins Financial Security Life Assurance Co.]

Ontario Reports

Court of Appeal for Ontario,

Hoy A.C.J.O., Watt, D. Brown JJ.A.

May 1, 2015

126 O.R. (3d) 386 | 2015 ONCA 298

Case Summary

Insurance — Interpretation and construction — Long-term disability policy containing term that disability benefits would be reduced by amount of Canada Pension Plan ("CPP") benefits to which insured was entitled — Insured bringing action against insurer alleging that insurer had miscalculated her monthly benefits — Proper treatment of CPP [page387] disability benefits not an issue in that action — Parties entering into settlement agreement which established amount of monthly benefits payable to insured — Insured executing release which stated that policy continued to apply — Insured subsequently applying for and receiving CPP disability benefits — Minutes of settlement not modifying policy's general provision that long-term disability benefits would be reduced by amount of CPP disability benefits.

The plaintiff was receiving long-term disability benefits from the defendant. The policy provided that disability benefits would be reduced by any amount for which the plaintiff was eligible under the Canada Pension Plan. A dispute arose between the parties about the calculation of the monthly benefit under the policy. The proper treatment of CPP disability benefits was not an issue in that action. The parties entered into a settlement agreement which set out the amount of monthly benefits payable to the plaintiff. The plaintiff executed a release which acknowledged that the policy continued to apply to her. She subsequently applied for CPP disability benefits and was informed in January 2014 that she was eligible for CPP disability benefits retroactive to January 2013. The defendant took the position that the CPP disability benefits were a direct offset from LTD benefits under the policy and sought to recover an overpayment made to the plaintiff. The plaintiff brought an application for a declaration that the minutes of settlement should be interpreted so that the direct offset provisions of the policy concerning CPP disability benefits did not apply to her. The application was dismissed. The plaintiff appealed.

Held, the appeal should be dismissed.

The application judge was correct in finding that the minutes of settlement did not contain any discussion or modification of the policy's general provision that the LTD benefits should be reduced by the amount of any CPP disability benefits.

Cases referred to

Holmes v. Desjardins Financial Security Life Assurance Co., [2014] O.J. No. 3880, 2014 ONSC 4695, 39 C.C.L.I. (5th) 159, 244 A.C.W.S. (3d) 690 (S.C.J.); Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, 2014EXP-2369, J.E. 2014-1345, 373 D.L.R. (4th) 393, [2014] 9 W.W.R. 427, 59 B.C.L.R. (5th) 1, 461 N.R. 335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, 242 A.C.W.S. (3d) 266

APPEAL from the judgment of McLean J. of the Superior Court of Justice dated October 2, 2014 dismissing an application for a declaration interpreting the minutes of settlement.

Allan Rouben, for appellant.

Grace Patenall and Emily Caputo, for respondent.

BY THE COURT: --

Background

1The appellant, Katrina Prystupa, appeals from the oral judgment of McLean J. dated October 2, 2014, in which he dismissed her application and the cross-application brought by the [page388] respondent, Desjardins Financial Security Life Assurance Company ("Desjardins").

2In her application, Ms. Prystupa had sought declarations interpreting s. 3 of Minutes of Settlement entered into on April 13, 2011 with Desjardins and the Canadian Bar Insurance Association (the "Minutes"). The settlement resolved a 2008 action commenced by Ms. Prystupa in which she had sought payment by Desjardins of disability benefits under a group insurance policy (the "Policy").

3Ms. Prystupa had applied to Desjardins for long-term disability benefits in June 2006. A dispute arose between the parties about the calculation of the monthly benefit under the Policy, including the amount of Ms. Prystupa's pre-disability income. The Policy provided that Desjardins would make Monthly Income Payments while an employee continued to be totally disabled "in accordance with the applicable provisions of this policy". The Policy stated:

The amount of Monthly Income payable under this Benefit will be the amount shown in the Benefit Schedule based on the monthly Earnings in effect immediately prior to commencement of Total Disability.

4The Policy contained a section entitled, "Reduction of Monthly Income Payments", which described direct and indirect offsets to benefit payments. In the direct offset provisions, the Policy stated that "the Monthly Income otherwise payable to an Employee under this Benefit will be reduced by . . . b) any amount to which the Employee is eligible to apply for under the Canada Pension Plan . . .".

5The main claim advanced by Ms. Prystupa in her 2008 action in respect of her Long-Term Disability ("LTD") benefits was described in para. 19 of her Statement of Claim:

The plaintiff disputes, however, the calculation of the monthly benefit. Specifically, the plaintiff claims that Desjardins has miscalculated her pre-disability income and, since becoming partially disabled, Desjardins has miscalculated the amount of her monthly benefit, citing an interpretation of the policy that would deny the plaintiff her actual loss.

6In its Amended Statement of Defence, Desjardins had denied that Ms. Prystupa had been totally disabled since September 2008, and pleaded that it had paid her benefits since that time under the Policy's rehabilitation clause.

7The Minutes resolved those disputes. Section 3 of the Minutes stated:

Desjardins agrees that, for purposes of interpretation of its disability policy into the future, as it applies to the Plaintiff, the following is admitted:

(a) the Plaintiff's Pre-Disability Income is set at $17,500; [page389]

(b) the clause entitled "Benefit Under Rehabilitation" shall have no application to the Plaintiff's ongoing claim under the terms of the policy;

(c) payment of monthly benefits, up to $2,000 a month, shall continue to be paid to the Plaintiff so long as the Plaintiff is unable to practice law, as a result of sickness or injury, at the same capacity as prior to the onset of her disability, until the Plaintiff attains her sixty-fifth (65th) birthday . . .

(d) monthly LTD benefits shall be calculated based on the Plaintiff's PDI, as set out above, less net monthly earnings, to a maximum of $2,000/month. The Plaintiff shall not be entitled to an LTD benefit for any month(s) in which her net monthly earnings exceeds her PDI.

(Emphasis added)

8Section 5 of the Minutes required Ms. Prystupa to execute a full and final release in favour of the defendants in a form satisfactory to defendants' counsel (the "Release"). The Release signed by Ms. Prystupa on May 20, 2011, stated, in part:

AND IT IS UNDERSTOOD AND AGREED that the Policy continues to apply to the Releasor with respect to disability benefits and that the Policy will be administered as follows . . .

The Release then reproduced s. 3 of the Minutes.

9In 2013, after concluding the settlement with Desjardins, Ms. Prystupa applied for disability benefits under the Canada Pension Plan ("CPP"). In January 2014, Ms. Prystupa was informed that she was eligible for the CPP Disability Benefit, retroactive to January 2013, in an initial monthly amount of $1,101.08.

10Ms. Prystupa informed Desjardins about her entitlement to CPP Disability Benefits. By letter dated February 5, 2014, Desjardins told Ms. Prystupa that the CPP Disability Benefits were a direct offset from LTD benefits under the Policy and requested that she refund $14,314.04 as overpayments made to her from the commencement of her receipt of the CPP Disability Benefit. Desjardins also advised that upon receipt of the overpayment, Ms. Prystupa's benefits would resume at a revised monthly LTD benefit amount of $898.92.

11In June 2014, Ms. Prystupa commenced an application in which she sought a declaration that s. 3 of the Minutes be interpreted so that the direct offset provisions of the Policy concerning CPP Disability Benefits did not apply to her.

The Application and Judgment

12It was against that background that the application judge gave his brief oral reasons dismissing the application. He stated: [page390]

Clearly, in the Minutes of Settlement, there was no discussion or no excising of the policy general provisions that disability benefits should be reduced by the amount of Canada Pension Plan benefits should they be obtained. This was clearly not brought in the release, nor in the Minutes of Settlement, and is not dealt with in any way in these two documents.

What was dealt with was the fact that, indeed, what the nature, the pith and substance of the Minutes of Settlement in the release was, the disability benefits were going to be paid on certain conditions based on certain amounts.

Clearly, when the releasor agreed that the policy provisions would still be in effect, subject to the amendments in the Minutes of Settlement, the clear implication is that any deductions for Canada pension found in the policy itself would be applicable. This was not otherwise dealt with. Clearly, when the releasor agrees that the policy would otherwise be applicable, indeed the payments are still made under the policy itself.

Positions of the Parties

The appellant

13Ms. Prystupa submits that the application judge made several errors:

(i) When interpreting the Minutes, he failed to consider the surrounding circumstances which led to their execution;

(ii) He failed to consider the Minutes as a whole. Had he done so, according to Ms. Prystupa, he should have concluded that the Minutes constituted a comprehensive and exhaustive formula for the calculation of her monthly LTD benefits. Since the Minutes made no reference to CPP Disability Benefits, a proper interpretation of the Minutes would conclude that Desjardins could not deduct them when calculating the Monthly Income payable to her;

(iii) He failed to treat the absence of any mention of the CPP Disability Benefits in the Minutes as an ambiguity in the contract which should be resolved against the insurer; and

(iv) He erred in failing to direct a trial of her claim in respect of the Minutes and her claim for punitive damages.

14Desjardins submits that the application judge properly interpreted the Minutes and Release as amending only certain terms [of] the Policy, with the result that Ms. Prystupa's ongoing LTD benefits would be subject to the CPP offset provision which remained in the Policy. [page391]

Analysis

15As the application judge was engaged in the interpretation of contractual documents, the standard of review set out in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53 applies. In that case, the Supreme Court of Canada held that contractual interpretation involves issues of mixed fact and law because it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.

16As a result, deference is owed to first instance decision-makers on points of contractual interpretation, except with respect to an extricable question of law. Extricable legal errors in the context of contractual interpretation include "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor": Sattva, at para. 53. The Supreme Court of Canada observed, however, at para. 54, that "courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation".

17When interpreting a contract, a court 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: Sattva, at para. 47.

18The Minutes had to be interpreted in light of the context in which they arose -- i.e., the settlement of the disputed issues in Ms. Prystupa's 2008 action. The proper treatment of CPP Disability Benefits under the Policy was not in issue in that action, and it was common ground between the parties that there had been no discussion about the treatment of CCP Disability Benefits during the negotiations which led to the signing of the Minutes. The application judge was correct in finding that the Minutes did not contain any discussion or modification of the Policy's general provision that the LTD benefit should be reduced by the amount of any CPP Disability Benefits.

19The opening language of s. 3 of the Minutes clearly stated that the agreement made by Desjardins was "for purposes of the interpretation of its disability policy into the future". The Release, which Ms. Prystupa had executed pursuant to s. 5 of the Minutes, contained a clear agreement by her "that the Policy continues to apply to the Releasor with respect to disability benefits", subject only to the alterations agreed to by the parties in s. 3 of the Minutes. Although the Minutes expressly provided [page392] that one provision of the Policy would no longer apply to Ms. Prystupa's claim -- the "Benefit Under Rehabilitation" clause -- neither the Minutes nor the Release amended the provisions of the Policy concerning the direct offset of CPP Disability Benefits. Consequently, it was open to the application judge to conclude that "when [Prystupa] agreed that the policy provisions would still be in effect, subject to the amendments in the Minutes of Settlement, the clear implication is that any deductions for Canada pension found in the policy itself would still be applicable".

20Not only is that interpretation by the application judge entitled to deference, we think it was correct.

21We do not accept Ms. Prystupa's submission that the treatment of the CPP Disability Benefits formed part of the settlement reached concerning the calculation of her monthly LTD benefit. The Policy does not treat direct offsets as part of the insured's monthly earnings. The direct offset provisions of the Policy clearly state that that "the monthly income otherwise payable to an employee under this benefit will be reduced by" the CPP Disability Benefits. See, also, Holmes v. Desjardins Financial Security Life Assurance Co., [2014] O.J. No. 3880, 2014 ONSC 4695 (S.C.J.), at para. 20.

22Ms. Prystupa submits that, at the very minimum, an ambiguity existed in the Minutes which should be resolved against Desjardins. We do not agree. The evidence disclosed that the Minutes were the product of a negotiated settlement of the action, with counsel for both parties participating in the drafting of the Minutes. Two consequences result from that. First, the contra proferentem principle does not apply in the circumstances. Second, there is no merit to Ms. Prystupa's submission that in those circumstances Desjardins owed her a duty to spell out specifically in the Minutes that the CPP Disability Benefit offset would continue. The parties were free to raise and settle those matters they considered appropriate in those arm's-length negotiations.

23Finally, Ms. Prystupa submits that the application judge erred by failing to direct a trial of issues with respect to the interpretation of the Minutes and her claim for punitive damages. We see no merit in this submission. The material facts before the application judge were not in dispute, and the application procedure provided a fair and proportionate means by which to adjudicate the interpretation of the Minutes. The application judge ruled in favour of Desjardin's interpretation of the Minutes, so there was no basis for Ms. Prystupa's claim for punitive damages. [page393]

24For these reasons, we dismiss the appeal.

25Desjardins seeks partial indemnity costs of the appeal in the amount of approximately $9,000. We see no reason why costs should not follow the cause, and we consider the amount sought reasonable. Ms. Prystupa shall pay Desjardins costs of the appeal fixed in the amount of $9,000, inclusive of disbursements and HST.