



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 appellants 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 respondents 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 appellants 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, Superannuations 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 appellants 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
    appellants 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 appellants
    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 respondents failure to
    follow up on the June 13, 2002 letter from Superannuation informing it of the
    appellants upcoming retirement; Superannuations failure to send the respondent
    the form detailing the appellants pension entitlements in a timely manner; and
    the appellants 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 appellants 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 appellants] 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 courts
    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 arms-length
    agreement.

[13]

The
    motion judge found the respondents 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 respondents 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 judges 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 respondents predecessor.  The release contains no
    wording which might suggest that it is to function as an undertaking by the
    insurer to act in the appellants 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 appellants 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 respondents 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 judges reasons. The sole reference to it in the motion
    judges 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 judges 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 employees 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
    Generals 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 respondents 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 appellants 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 appellants 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 appellants 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
    appellants 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. Lloyds 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 employees monthly income benefit will be reduced by stating:

The employees 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 employees 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. Manufacturers 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 judges conclusion that the Reduction of
    Payable Benefits Clause permits the respondent to reduce the appellants 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 appellants 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 insurers credit that it has withheld benefits at a
    lower rate (50 percent), recognizing the appellants 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 appellants total income, rather than solely
    against the source of income at issue (the LTD benefits). In the appellants
    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 appellants 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
    appellants argument that the respondents 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 respondents submission that there was no palpable and
    overriding error in the motion judges determination that reducing a debtors
    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
    appellants failure to accept the respondents 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."


