A triumph of common sense over fine print

By Jim Quail

Andrew Sabean lives in Nova Scotia.  In 2004, he was the victim of a traffic accident.  Unlike here in BC, Nova Scotia does not have a one-stop-shop public auto insurer, so big claims often end up as battles between insurance companies about who has to pay claims.

Mr. Sabean won his lawsuit and the at-fault driver’s insurance company paid out. However, the insurer only paid to the limit of the other driver’s policy, more than$83,000 less than Mr. Sabean’s damages.  He had coverage under his own car insurance for cases like this where the other driver is underinsured, so he made a claim against his own insurer, Portage La Prairie Mutual Insurance Co., for the remaining amount.

His insurance refused to pay. What Mr. Sebean didn’t realize was that the fine print in his policy deducted disability benefits from a “policy of insurance” from whatever payments they would have to make to him. They  said that future CPP Disability Benefits that he was entitled to should be clawed back from the total they owed him.  Mr. Sebean sued his own insurance company and won, but the company succeeded in an appeal to the Nova Scotia Court of Appeal.  So he had to go all the way to the Supreme Court of Canada to claim the full benefit he had paid for when he purchasedhis car insurance from Portage La Prairie Mutual.

The Supreme Court unanimously allowed his appeal.  Most significantly, they said that when it comes to interpreting the words of an insurance policy (or similar kind of document) the proper vantage point is what a reasonable non-expert member of the public would understand the words to mean when they enter into the contract.  The insurance company could not rely on a previous ruling by the Supreme Court itself to justify its restrictive interpretation of the rules.  A person in Mr. Sabean’s position would not be expected to know the jurisprudence, so it could not be used against him.

The Supreme Court said,

The ordinary meaning of the words at issue is clear, reading this Endorsement as a whole. An insurer cannot rely on its specialized knowledge of the jurisprudence to advance an interpretation that goes beyond the clear words of the policy. An average person applying for this additional insurance coverage would understand a “policy of insurance” to mean an optional, private insurance contract and not a mandatory statutory scheme such as the CPP . Thus, future CPPdisability benefits do not reduce the amount payable by the insurer under the Endorsement.

This is a victory for common sense and accountability.  Insurance companies and other businesses can’t rely on their specialized, technical expertise to over-ride what a reasonable inexpert consumer would think the fine print means.

It is important to note that this is applicable in situations where there is a significant disparity in the specialized knowledge or expertise of the parties.  I doubt that it will be applied, for example, to eliminate the general presumption in the interpretation of collective agreements that unions and employers are aware of legal rulings, etc. when they craft the words of their provisions.

The full text of the Supreme Court decision is posted here.

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