Garneau v. Industrial Alliance Insurance and Financial Services Inc.

Garneau v. Industrial Alliance Insurance and Financial Services Inc. Collection Decisions of the Court of Appeal Date 2015-04-09 Neutral citation 2015 ONCA 234 Docket numbers C58855 Judges Lauwers, Peter D.; Hourigan, C. William; Pardu, Gladys I. Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Garneau v. Industrial Alliance Insurance and Financial Services Inc., 2015 ONCA 234 DATE: 20150409 DOCKET: C58855 Lauwers, Hourigan and Pardu JJ.A. BETWEEN Denise Garneau Plaintiff (Appellant) and Industrial Alliance Insurance and Financial Services Inc. Defendant (Respondent) Nikiforos Iatrou and Katharine Montpetit, for the appellant Stephen Victor, Q.C. and David Cutler, for the respondent Heard: March 3, 2015 On appeal from the judgment of Justice Robert J. Smith of the Superior Court of Justice, dated March 7, 2014, with reasons reported at 2014 ONSC 1495. Lauwers J.A.: OVERVIEW [1] The respondent insurer overpaid about $114,000 in long-term disability (“LTD”) benefits to the appellant. The respondent then reduced the appellant’s monthly benefit payments to reimburse itself for the overpayment. The appellant brought an action for a declaration that the respondent was not entitled to do so. The motion judge granted the respondent’s motion for summary judgment and dismissed the action. [2] On appeal, the appellant argues that, in failing to prevent the respondent from reducing her monthly benefit payments to reimburse itself for the overpayment, the motion judge erred in interpreting the LTD insurance policy. The appellant also argues that the motion judge erred in finding that the respondent had not breached its fiduciary duty and duty of good faith. For the following reasons, I would dismiss the appeal. FACTS [3] No facts are in dispute since the motion judge proceeded on the assumption that the facts as pleaded by the appellant were correct. [4] The appellant, who suffers from Fibromyalgia, began receiving LTD benefits from the government in 1996. On June 28, 2002, she took medical retirement from her government job and began receiving superannuation benefits. The appellant’s LTD Policy provided that the amount of her monthly LTD benefits payable would be reduced by the amount she received as superannuation benefits and the amount received from Canada Pension Plan (“CPP”). [5] On June 13, 2002, the Superannuation Insurance Section of the government (“Superannuation”) sent a letter to the respondent informing it that the appellant would retire effective June 28, 2002. While the respondent insurer initially denied having received this letter, the motion judge accepted that it had been received but was not forwarded to the proper department. [6] For employees like the appellant, who were in receipt of LTD benefits on the date of retirement, Superannuation’s usual practice was to send a form to the LTD insurer outlining the precise amount of retirement benefits the employee would receive. Superannuation failed to send the appellant’s form to the respondent until September 24, 2007, about five years after her retirement. [7] The respondent therefore made full LTD benefit payments to the appellant without any reduction to account for her Superannuation or CPP benefits from June 2002 until September 24, 2007, when it discovered the error. By that point, the appellant had been overpaid $114,644.76. [8] To reimburse itself for this overpayment, the respondent reduced the appellant’s LTD benefits to zero for the months of October through December 2007, but later repaid her 50 percent of her LTD benefits entitlement for those three months. The respondent then began to pay the appellant 50 percent of her LTD benefits each month, applying the other 50 percent to reduce the overpayment. (The respondent accepts that interest is not exigible on the overpayment balance.) The appellant receives $803.43 per month as CPP benefits and $1,726 per month as retirement benefits. The 50 percent reduction to the appellant’s LTD benefits has reduced her overall annual income from $49,152, during the time she was being overpaid, to approximately $39,700. [9] The motion judge accepted, for the purpose of his analysis, the following additional facts: · The appellant relied on her former employer, Superannuation, and the respondent to calculate and pay her the correct amount of benefits; · The appellant was unaware that she was being overpaid by approximately $1,726 per month; · The appellant believed Superannuation had informed the respondent of her retirement; and, · The following factors contributed to the overpayment: the respondent’s failure to follow up on the June 13, 2002 letter from Superannuation informing it of the appellant’s upcoming retirement; Superannuation’s failure to send the respondent the form detailing the appellant’s pension entitlements in a timely manner; and the appellant’s failure to inform the respondent that she was receiving a retirement pension. [10] In 2009, the appellant moved for an order limiting the respondent to a 20 per cent reduction in her monthly LTD benefits, based on the Wages Act, R.S.O. 1990, c. W-1, s. 7. In particular, the appellant argued that since the Act exempts 80 percent of wages, which includes disability payments, from seizure or garnishment, the same proportional exemption should apply to her LTD benefit payments. Métivier J. dismissed the appellant’s motion, for the reasons reported at 74 C.C.L.I. (4th) 132, [2009] O.J. No. 2203 (S.C.). She held that the overpayment was a debt, not a wage, and as a result, the Wages Act did not apply. Leave to appeal this decision to the Divisional Court was denied. DECISION BELOW [11] The motion judge held that the respondent “was entitled to use the self-help remedy of deducting [the appellant’s] LTD benefits to repay the overpayment by the terms of the disability policy”. He relied on the reasoning of Perell J. in the decision in Ruffolo v. Sun Life Assurance Co. of Canada (2007), 56 C.C.L.I. (4th) 116, [2007] O.J. No. 4541 (S.C.), at para. 7. [12] The motion judge found that the respondent did not owe an ad hoc or situation specific fiduciary duty to the appellant. He cited this court’s statement in Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 18 O.R. (3d) 663 (C.A.), at p.669, para. 14: “The fact that a contract is one of utmost good faith does not however mean that it gives rise to a general fiduciary relationship ... The insurer-insured relationship is contractual, the parties are parties to an arm’s-length agreement.” [13] The motion judge found the respondent’s ongoing 50 percent reduction in LTD benefit payments to be reasonable in the circumstances and not unfair to the appellant; it did not amount to a breach of its duty of good faith or fair dealing. [14] Finally, the motion judge determined that the respondent’s reduction of the LTD benefits payable to the appellant did not constitute malicious, oppressive or highhanded conduct entitling the appellant to aggravated, exemplary, punitive or special damages. Since the appellant could not succeed on her underlying tort claims, no trial was required to determine damages. ISSUES AND ANALYSIS [15] I see no error in the motion judge’s determination that a summary judgment motion was appropriate in this case. The appellant makes five arguments which I set out and address below. (1) Did the motion judge fail to consider and apply the appropriate test for determining whether the respondent owed the appellant an ad hoc fiduciary duty? [16] The test for establishing an ad hoc fiduciary duty has been modified since Frame v. Smith, [1987] 2 S.C.R. 99. This duty will only be found where the alleged fiduciary has provided an express or implied undertaking to act in the best interests of the other party: Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247, at para. 66; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, at para. 30. [17] The appellant relies on the terms of a release signed on April 25, 2001 by the appellant in favour of the respondent’s predecessor. The release contains no wording which might suggest that it is to function as an undertaking by the insurer to act in the appellant’s best interests, nor do the circumstances in which the appellant provided the release give rise to an implied undertaking by the respondent. [18] There is also no basis for the appellant’s argument that the motion judge only considered one paragraph of the decision in Fiberglass Manufacturing. His reasons do not suggest he believed a fiduciary duty could never exist between an insurer and an insured, as alleged by the appellant. [19] In my view, the motion judge correctly concluded the respondent did not owe the appellant an ad hoc fiduciary duty in the circumstances of this case. (2) Did the motion judge err in interpreting or applying the Clerical Error Clause in the LTD Policy? [20] The LTD Policy provides that “[c]lerical error shall not prejudice the rights of the Insurer or of any person having a beneficial interest in the insurance” (the “Clerical Error Clause”). The motion judge found that the respondent’s failure to follow up on the June 2002 letter from Superannuation informing it that the appellant would retire effective June 28, 2002 constituted a clerical error. [21] The appellant submits that this was not a mere clerical error and so the motion judge erred in concluding that the respondent could not be prejudiced by the error. However, on my reading, the Clerical Error Clause played only a minor role in the motion judge’s reasons. The sole reference to it in the motion judge’s analysis was at para. 28, where he said that the overpayment was “caused as a result of clerical error and also as a result of not being advised that Ms. Garneau had retired and had commenced receiving retirement benefits.” He made no mention of prejudice to the respondent resulting from the error, as alleged by the appellant. [22] I see no error in the motion judge’s interpretation of the Clerical Error Clause. At no point did he suggest that the respondent was entitled to repayment of the overpayment based solely on the Clause. Accordingly, I would dismiss this ground of appeal. (3) Did the motion judge err in interpreting and applying the Reduction of Payable Benefits Clause in the LTD Policy? [23] This issue is the heart of the appeal. The LTD Policy contains a “Reduction of Payable Benefits Clause”, which provides: Reductions In calculating the amount of an employee’s Monthly Income Benefit, the amount of the benefit otherwise payable hereunder in respect of any month or partial month of total disability shall be reduced by 100% of: (1) the amount of income paid or payable to the employee or on his or her account, for such month or partial month under the Governor General’s Act, the Lieutenant Governors Superannuation Act, the Members of Parliament Retiring Allowances Act and any other pension or retirement plan provided to the employee by or through his or her Participating Employer or administered by the Participating Employer; … (5) The amount of any income or benefit payable to the employee or on his or her account for such month or partial month under the Public Service Superannuation Act, including any contributions for elective service. (Emphasis added.) [24] The appellant argues that the respondent’s reduction of monthly payments must be expressly authorized by the language of the LTD Policy. She makes three associated arguments: first, para. (5), not para. (1), of the Reduction of Payable Benefits Clause applies in this case; second, para. (5) does not permit the deduction of past overpayments from current monthly benefits; and third, nothing in the Clause permits the respondent to reduce the appellant’s LTD benefits at a rate of 50 percent or 100 percent. [25] The first and second issues are best addressed together. (i) Does para. (1) or para. (5) of the Reduction of Payable Benefits Clause Apply? (ii) Does para. (5) of the Reduction of Payable Benefits Clause Permit the Reduction of LTD Benefits to the Appellant? [26] The motion judge seems to have relied on para. (1) of the Reduction of Payable Benefits Clause as the basis for his conclusion that the respondent was permitted to reduce the appellant’s LTD benefits to account for superannuation payments she had received. I draw this inference from para. 21(i) of the reasons, where the motion judge refers to p. 28 of the policy, which contains para. (1) of the Reduction of Payable Benefits Clause, while para. (5) of the Clause is found on the following page. [27] The appellant concedes that benefits paid under the LTD policy fall under the Reduction of Payable Benefits Clause, within the wording of para. (1) as “any other pension or retirement plan provided to the employee by or through his or her Participating Employer or administered by the Participating Employer”. However, the appellant argues that because para. (5) is more specific, it takes precedence and applies to individuals like the appellant who receive income or benefits payable under the Public Service Superannuation Act, R.S.C. 1085, c. P-36 (“PSSA”). The key difference is that while para. (1) refers to amounts “paid or payable”, para. (5) refers only to amounts “payable”, which the appellant says do not include overpayments made in the past. [28] The appellant argues that, in relying on para. (1), the motion judge relied in error on the affidavit of Anna Antonini, a “Disability Specialist” employed by the respondent, which stated the respondent was entitled to deduct “the amount of income paid or payable” (emphasis added) as superannuation benefits, quoting the words of para. (1) of the Reduction of Payable Benefits Clause. [29] The overpayment the respondent is collecting was “paid”, and could fit under para. (1) as an appropriate basis for a reduction in the appellant’s monthly LTD benefits, under the expression “the amount of income paid or payable to the employee” (emphasis added). If this is the correct interpretation, the overpayment can be collected, as the respondent is doing, subject to the appellant’s arguments about the rate of reduction. [30] However, the appellant asserts that para. (5) of the Reduction of Payable Benefits Clause is applicable; it provides, by contrast to para. (1), that the respondent is entitled to deduct from its monthly LTD benefits payment only “the amount of income or benefit payable” (emphasis added) under superannuation. The appellant argues that the difference in language is critical, since para. (5) is only forward looking in stating that the respondent may reduce its monthly LTD payment only by “any income or benefit payable”, while para. (1) is both backward and forward looking, (emphasis added). [31] Therefore, argues the appellant, para. (5) cannot be used by the respondent as the basis for recovering past overpayments from the current LTD benefit payments; it only permits the respondent to reduce the current LTD benefit payments by the amount of current superannuation payments. If this is the correct interpretation, then the respondent cannot use the self-help remedy and must pursue the appellant in a separate action with its attendant uncertainties and difficulties in collection. [32] The appellant argues that Ruffolo is not an applicable precedent because the policy in that case provided that the insurer could reduce the monthly benefit by the amount of disability benefits which were “paid or may become payable” (emphasis added). [33] There are two approaches to characterizing the distinction between para. (1) and para. (5) of the Reduction of Payable Benefits Clause. The first is to read the two provisions as distinct and separate, and find that the appellant falls squarely under para. (5) and exclusively under that deduction entitlement. This is the approach favoured by the appellant. [34] The second approach is to read the two provisions together, so that the general reduction principle is set out in para. (1), but the method for implementing the reduction for recipients of payments under the PSSA (by reducing monthly LTD payments) is specified in para. (5). [35] I would take the second approach since it best accords with the key principle of contractual interpretation that “the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract”: Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 64; see also BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12, at pp. 23-24, [1993] S.C.J. No. 1, at para. 9. See also Brissette Estate v. Westbury Life Insurance Co.; Brissette Estate v. Crown Life Insurance Co., [1992] 3 S.C.R. 87, [1992] S.C.J. No. 86, at para. 42. [36] In Solway v. Lloyd’s Underwriters (2006), 80 O.R. (3d) 401, Moldaver J.A. stated, at para. 43: [A]n insurance contract, like any other contract, should be construed in a manner that attempts to harmonize and make sense out of the various provisions contained in it, and does not strain them. Ambiguities are to be resolved in favour of the insured. But ambiguity does not exist whenever the policy contains wording that could be open to two or more reasonable interpretations. Before resorting to the contra proferentem principle, an effort should be made to interpret the policy in a commercially reasonable fashion and in a way that gives effect to the reasonable expectations of the parties. I find these words to be especially apt for this case. [37] In my view, the word “payable” in para. (5) is not meant to be understood as distinctive from the expression “paid or payable” found in para. (1). In the chart that follows para. (5), which details the ways in which reductions may be made, the distinction between “paid” and “payable” simply disappears. This is shown by the fact that if an employee elects to take the option available under the PSSA of a “lump sum payment”, the chart specifically details “[h]ow the employee’s monthly income benefit will be reduced” by stating: The employee’s Monthly Income Benefit will be immediately reduced by the monthly amount equivalent to the immediate annuity. The reductions will continue until such time as the employee’s Monthly Income Benefit payments have been reduced by the full amount of the Lump Sum. [38] The “lump sum payment” is made before the stream of monthly income benefits begin, making it an amount “paid” in the past. The chart is explicit that this “paid” amount is to be recovered out of current monthly LTD payments. Thus, para. (5), properly construed, uses the word “payable” in a manner that includes payments that have already been made. A common sense reading of the Reduction of Payable Benefits Clause in the LTD Policy entitles the respondent to deduct retirement benefits that have been received. [39] This interpretation is also consistent with Perrault v. Manufacturer’s Life Insurance Co. (2006), 39 C.C.L.I. (4th) 285 (Ont. S.C.). As in this case, the policy in Perrault used only the word “payable”, and not “paid”. Nonetheless, the court concluded the insurer was entitled to reduce LTD benefit payments by 100 percent going forward to compensate for a past overpayment. [40] Therefore, I would not interfere with the motion judge’s conclusion that the Reduction of Payable Benefits Clause permits the respondent to reduce the appellant’s LTD benefits to account for superannuation payments she received in the past. (I note that the respondent only asserted a right to set off under the insurance policy, not a common law or equitable right.) (iii) Does the Reduction of Payable Benefits Clause permit the respondent to reduce the appellant’s LTD benefits at a rate of 50 percent or 100 percent? [41] The appellant argues that there must be express authorization in the Policy to permit the insurer to apply any rate of reduction to LTD payments. Such authorization is found in para. (1) of the Reduction of Payable Benefits Clause, which I have found to apply in this case; para (1) expressly authorizes the insurer to withhold 100 percent of the monthly payments until the overpayment is retired. It is to the insurer’s credit that it has withheld benefits at a lower rate (50 percent), recognizing the appellant’s need. (4) Did the motion judge err in his calculation of the reduction in LTD benefits allowable under the Wages Act? [42] The appellant argues the motion judge erred by calculating the rate of permissible income reduction against the appellant’s total income, rather than solely against the source of income at issue (the LTD benefits). In the appellant’s view, had the motion judge applied the proper calculation, it would be clear that the 50 percent reduction vastly exceeds the 20 percent rate permissible under the Wages Act. [43] There may be some merit to the appellant’s argument that the appropriate rate of income reduction under the Wages Act should be calculated based solely on the income source that is being reduced. However, Métivier J.’s conclusion that the Wages Act does not apply precludes the appellant’s argument that the respondent’s 50 percent reduction to her LTD benefits violates that Act. The motion judge did not purport to overturn Métivier J.’s conclusion that the Wages Act was inapplicable or purport to apply the Wages Act; he simply referenced it as a useful tool for evaluating the reasonableness of the reduction in benefits. [44] I would agree with the respondent’s submission that there was no palpable and overriding error in the motion judge’s determination that reducing a debtor’s total income by approximately 20 percent in order to discharge a debt obligation is not unreasonable. (5) Did the motion judge err in failing to award aggravated, exemplary and punitive damages for breach of the duty of good faith? [45] The appellant argues that the respondent breached its duty of good faith by withholding 50 or 100 percent of her LTD benefits without a contractual basis for doing so, and by failing to properly apply the Wages Act. This final ground of appeal is based on the rejected first three grounds of appeal, so it too must fail. Since the appellant has been unsuccessful in her claims, there is no basis for an award of aggravated, exemplary and punitive damages against the respondent. DISPOSITION [46] I would dismiss the appeal, with costs fixed at $20,000 in view of the appellant’s failure to accept the respondent’s settlement offer. These are to be added to the overpayment balance to be repaid on the same basis. Released: April 9, 2015 “PL” “Peter Lauwers J.A.” “I agree C.W. Hourigan J.A.” “I agree G. Pardu J.A."