Industrial Alliance Insurance and Financial Services Inc. v. Brine, 2015 NSCA 104

• Judge: Fichaud, Oland and Scanlan, JJ.A.
• Court: Court of Appeal of Nova Scotia (Canada)
• Case Date: November 17, 2015
• Jurisdiction: Nova Scotia
• Citations: 2015 NSCA 104;(2015), 367 N.S.R.(2d) 108 (CA)

Ind. Alliance Ins. v. Brine (2015), 367 N.S.R.(2d) 108 (CA);

    1157 A.P.R. 108

MLB headnote and full text

Temp. Cite: [2015] N.S.R.(2d) TBEd. NO.022

Industrial Alliance Insurance and Financial Services Inc. (appellant/respondent by cross-appeal) v. Bruce Brine (respondent/appellant by cross-appeal)

(CA 431538; 2015 NSCA 104)

Indexed As: Industrial Alliance Insurance and Financial Services Inc. v. Brine

Nova Scotia Court of Appeal

Fichaud, Oland and Scanlan, JJ.A.

November 17, 2015.

Summary:

In 1995, Brine's insurer approved him for long-term disability benefits for disabling depression. Brine's employer (Ports Canada) had dismissed him. Rehabilitation counselling services were provided but terminated after 2.5 years. In October 1998, the insurer ceased paying disability benefits because undisclosed lump sum benefits of almost $100,000 received from the Canada Pension Plan (CPP) and Public Service Superannuation (PSS) should have been deducted from his disability benefits, resulting in an overpayment entitling the insurer to clawback benefits until the overpayment was reduced to zero. In 1999, Brine declared bankruptcy when the overpayment stood at $62,036.81. The insurer continued to withhold disability benefits until 2003, when the overpayment balance reached zero. The insurer took the position that the overpayment survived Brine's bankruptcy because of his alleged fraud in not disclosing receipt of the funds. In 2004, Brine received a negotiated settlement of $300,000 respecting his 1996 human rights complaint against Ports Canada. The insurer also continued to provide Brine with T4 slips indicating that benefits were taxable income, notwithstanding two separate rulings in the Tax Court of Canada that the benefits were not taxable income. Brine sued the insurer, by way of counterclaim, for damages for breach of the insurance contract and breach of its duty of utmost good faith. Brine sought aggravated and punitive damages for bad faith. The insurer claimed a subrogated right to the $300,000 settlement in the human rights complaint notwithstanding that the sum was expressed as general damages for mental distress, etc., rather than on account of lost income. The insurer's claim for the overpayment was discontinued, as the balance was now zero.

The Nova Scotia Supreme Court, in a judgment reported (2014), 346 N.S.R.(2d) 315; 1095 A.P.R. 315, allowed Brine's claim in part. The court held as follows: (1) the almost $100,000 in benefits received retroactively from CPP and PSS were deductible from disability benefits; (2) the insurer was not estopped from claiming the overpayment as there was no representation that the insurer would not seek to recoup the overpayment and there was no detrimental reliance by Brine; (3) the insurer was not entitled to recoup the overpayment by an upfront clawback of all disability benefits until the overpayment balance reached zero (the policy provided for the overpayment to be prorated and an equal amount deducted each month until age 65); (4) the balance of the overpayment still owing as of the date of Brine's bankruptcy was discharged under s. 178(1) of the Bankruptcy and Insolvency Act (Brine not a "fiduciary" and not guilty of fraud or dishonest conduct); (5) the insurer breached its duty of utmost good faith. Damages were awarded as follows: $62,036.81 for the balance of the overpayment owing at the time of Brine's bankruptcy that would not have survived the bankruptcy; $30,000 general damages for mental distress caused by the additional stress caused by the improper clawback; $150,000 aggravated damages for breach of the utmost duty of good faith and $500,000 punitive damages to deter like behaviour. The insurer's claim for a subrogated right to $280,000 of the $300,000 human rights complaint settlement was allowed to the extent of $210,000 as the monies were primarily on account of income loss rather than general damages. A deduction of $70,000 was awarded to reflect the legal costs Brine incurred in litigating the complaint. The insurer appealed. Brine cross-appealed.

The Nova Scotia Court of Appeal allowed the appeal in part and dismissed the cross-appeal. The appeal was allowed to the extent that the awards of $30,000 (mental distress) and $150,000 (aggravated damages) were replaced with one award of $90,000 compensatory damages and punitive damages, which were inordinate, were reduced from $500,000 to $60,000.

Bankruptcy - Topic 8983

Discharge of debtor - Liabilities not released by discharge - Act of defalcation in fiduciary capacity - In 1995, Brine's insurer approved him for long-term disability benefits for disabling depression - Brine's employer had dismissed him - In October 1998, the insurer ceased paying disability benefits because undisclosed lump sum benefits of almost $100,000 received from the Canada Pension Plan and Public Service Superannuation should have been deducted from his disability benefits, resulting in an overpayment entitling the insurer to clawback benefits until the overpayment was reduced to zero - In 1999, Brine declared bankruptcy when the overpayment stood at $62,036.81 - The insurer continued to withhold disability benefits until 2003, when the overpayment balance reached zero - The insurer took the position that the overpayment survived Brine's bankruptcy because he was a fiduciary and acted fraudulently in not disclosing receipt of the funds - The trial judge held that the balance of the overpayment still owing as of the date of Brine's bankruptcy was discharged under s. 178(1) of the Bankruptcy and Insolvency Act - Brine was not a "fiduciary", as he made no promise of loyalty and had no discretionary power to alter the insurer's legal or practical interests - There was also no fraud or dishonest conduct - On appeal, the insurer no longer argued breach of fiduciary or fraud - The Nova Scotia Court of Appeal affirmed Brine's entitlement to the $62,036.81 - The court stated that the insurer's claim "for Mr. Brine's pre-bankruptcy debt for the overpayments was extinguished by Mr. Brine's discharge from bankruptcy. After his discharge, [the insurer] could no longer reduce Mr. Brine's ongoing post-bankruptcy disability benefits with what remained of the pre-bankruptcy debt. By improperly reducing Mr. Brine's post-bankruptcy benefits, [the insurer] breached the contract by underpaying the benefits due under the Policy" - Actually, properly applying the policy's Pro Rata clause respecting repayment of overpayments, the amount of overpayments actually overdue at the date of discharge from bankruptcy was $78,109.38 rather than $62,036.81 - However, since Brine did not cross-appeal the damage award, the court had no jurisdiction to increase the damage award to the amount it should have been - See paragraphs 19 to 61.

Bankruptcy - Topic 8987

Discharge of debtor - Liabilities not released by discharge - Act of fraud of debtor - [See Bankruptcy - Topic 8983 ].

Contracts - Topic 7400

Interpretation - General principles - General - At issue was the interpretation of a discrete clause in a long-term disability insurance contract - In interpreting that contract, the Nova Scotia Court of Appeal applied the contractual interpretation principles set out in Sattva Capital (SCC 2014), which provided that "Contractual interpretation involves issues of mixed fact and law as 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" - See paragraphs 38 to 40.

Damage Awards - Topic 205

Injury and death - Psychological injuries - Mental distress (incl. nervous shock) - In 1995, Brine's insurer approved him for long-term disability benefits for disabling depression - Brine's employer had dismissed him - Rehabilitation counselling services were provided but terminated after 2.5 years - In October 1998, the insurer ceased paying disability benefits because undisclosed lump sum benefits of almost $100,000 received from the Canada Pension Plan (CPP) and Public Service Superannuation (PSS) should have been deducted from his disability benefits, resulting in an overpayment entitling the insurer to clawback benefits until the overpayment was reduced to zero - In 1999, Brine declared bankruptcy when the overpayment stood at $62,036.81 - The insurer continued to withhold disability benefits until 2003, when the overpayment balance reached zero - Brine sued the insurer, by way of counterclaim, for damages for breach of the insurance contract - The trial judge held that the almost $100,000 in benefits received retroactively from CPP and PSS were deductible from disability benefits - However, the insurer was not entitled to recoup the overpayment by an upfront clawback of all disability benefits until the overpayment balance reached zero - The policy provided for the overpayment to be prorated and an equal amount deducted each month until age 65 - This added financial stress caused Brine further mental distress - The court awarded Brine $30,000 general damages for mental distress for breach of contract - The court also awarded $150,000 aggravated damages for other incidents breaching the insurer's duty of good faith - The Nova Scotia Court of Appeal allowed the insurer's appeal to the extent of replacing the awards of $30,000 (mental distress) and $150,000 (aggravated damages) with one award of $90,000 compensatory damages - See paragraphs 146 to 169.

Damage Awards - Topic 1007

Contracts - General - Breach of contract - Injured feelings or emotional upset - [See Damage Awards - Topic 205 ].

Damage Awards - Topic 2030.6

Exemplary or punitive damages - Breach of duty of good faith - [See Insurance - Topic 730 ].

Damage Awards - Topic 2412

Aggravated damages - Insurers - [See Insurance - Topic 730 ].

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - [See Bankruptcy - Topic 8983 ].

Insurance - Topic 730

Insurers - Duties - Duty of good faith - In 1995, Brine's insurer approved him for long-term disability benefits for disabling depression - Brine's employer (Ports Canada) had dismissed him - Rehabilitation counselling services were provided but terminated after 2.5 years - In October 1998, the insurer ceased paying disability benefits because undisclosed lump sum benefits of almost $100,000 received from the Canada Pension Plan and Public Service Superannuation should have been deducted from his disability benefits, resulting in an overpayment entitling the insurer to clawback benefits until the overpayment was reduced to zero - In 1999, Brine declared bankruptcy when the overpayment stood at $62,036.81 - The insurer continued to withhold disability benefits until 2003, when the overpayment balance reached zero - The insurer took the position that the overpayment survived Brine's bankruptcy because of his alleged fraud in not disclosing receipt of the funds - In 2004, Brine received a negotiated settlement of $300,000 respecting his 1996 human rights complaint against Ports Canada - The insurer also continued to provide Brine with T4 slips indicating that benefits were taxable income, notwithstanding two separate rulings in the Tax Court of Canada that the benefits were not taxable income - Brine sued the insurer, by way of counterclaim, for damages for breach of its duty of utmost good faith - He sought aggravated and punitive damages for bad faith - The trial judge held that the insurer breached its duty of utmost good faith in the manner in which it terminated (and refused to reinstate) rehabilitation services, in failing without excuse to make timely disclosure of documents, in failing to respond to Brine's repeated requests, after the tax rulings, to change the T4 slips to show benefits not as taxable income and in the manner in which one of the insurer's critical witnesses testified with no regard to the truth in an attempt to paint Brine in a negative light - The upfront clawback of the overpayment, the advancing of the argument that the overpayment survived the bankruptcy and the allegations of dishonesty by Brine did not breach the duty of utmost good faith - The court awarded $150,000 aggravated damages and $500,000 punitive damages for the insurer's highhanded conduct - The Nova Scotia Court of Appeal held that the trial judge did not err in her findings respecting the breach of the duty of good faith - However, the awards of $30,000 (mental distress) and $150,000 (aggravated damages) were replaced with one award of $90,000 compensatory damages and punitive damages, which were inordinate, were reduced from $500,000 to $60,000 - See paragraphs 72 to 224.

Insurance - Topic 1851

The insurance contract - Interpretation of contract - General - [See Contracts - Topic 7400 ].

Insurance - Topic 2880

Subrogation - Employer's group disability policy - In 1995, Brine's insurer approved him for long-term disability benefits for disabling depression - Brine's employer (Ports Canada) had dismissed him - Rehabilitation counselling services were provided but terminated after 2.5 years - In October 1998, the insurer ceased paying disability benefits because undisclosed lump sum benefits of almost $100,000 received from the Canada Pension Plan and Public Service Superannuation should have been deducted from his disability benefits, resulting in an overpayment entitling the insurer to clawback benefits until the overpayment was reduced to zero - In 1999, Brine declared bankruptcy when the overpayment stood at $62,036.81 - The insurer continued to withhold disability benefits until 2003, when the overpayment balance reached zero - In 2004, Brine received a negotiated settlement of $300,000 respecting his 1996 human rights complaint against Ports Canada - The parties to the settlement labelled the monies as general damages notwithstanding the bulk of the funds were for lost income due to his termination - The insurer claimed a subrogated right to $280,000 of the $300,000 settlement in the human rights complaint on the ground that it was on account of income that should have been deducted from the disability benefits - The trial judge agreed - However, the insurer was entitled to judgment for only $210,000 of the funds, as Brine was to be credited $70,000 respecting the legal costs of pursuing the human rights complaint - The Nova Scotia Court of Appeal affirmed the decision - See paragraphs 225 to 238.

Insurance - Topic 3642

Accident and sickness insurance - Benefits - Deductions - Income from other sources - In 1995, Brine's insurer approved him for long-term disability benefits for disabling depression - Brine's employer (Ports Canada) had dismissed him - In October 1998, the insurer ceased paying disability benefits because undisclosed lump sum benefits of almost $100,000 received from the Canada Pension Plan (CPP) and Public Service Superannuation (PSS) should have been deducted from his disability benefits, resulting in an overpayment entitling the insurer to clawback benefits until the overpayment was reduced to zero - In 1999, Brine declared bankruptcy when the overpayment stood at $62,036.81 - In 2004, Brine received a negotiated settlement of $300,000 respecting his 1996 human rights complaint against Ports Canada - Brine sued the insurer, by way of counterclaim, for damages for breach of the insurance contract and breach of its duty of utmost good faith - The insurer claimed a subrogated right to the $300,000 settlement in the human rights complaint notwithstanding that the sum was expressed as general damages for mental distress, etc., rather than on account of lost income - The insurer's claim for the overpayment was discontinued, as the balance was now zero - The trial judge allowed Brine's claim in part - The court held that the almost $100,000 in benefits received retroactively from CPP and PSS were deductible from disability benefits and the insurer was not estopped from claiming the overpayment as there was no representation that the insurer would not seek to recoup the overpayment and there was no detrimental reliance by Brine - The insurer was not entitled to recoup the overpayment by an upfront clawback of all disability benefits until the overpayment balance reached zero (the policy provided for the overpayment to be prorated and an equal amount deducted each month until age 65) - The Nova Scotia Court of Appeal affirmed that the insurer had a subrogated claim to the $210,000 - See paragraphs 225 to 238.

Cases Noticed:

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1, refd to. [para. 18].

Ruffolo et al. v. Sun Life Assurance Co. of Canada, [2007] O.T.C. Uned. 085 (Sup. Ct.), affd. (2009), 247 O.A.C. 209; 2009 ONCA 274, leave to appeal denied (2009), 401 N.R. 390 (S.C.C.), refd to. [para. 36].

Creston Moly Corp. v. Sattva Capital Corp., [2014] 2 S.C.R. 633; 461 N.R. 335; 358 B.C.A.C. 1; 614 W.A.C. 1; 2014 SCC 53, appld. [para. 37].

Fontaine et al. v. Canada (Attorney General) et al., [2015] A.R. Uned. 60; 2015 ABCA 132, refd to. [para. 40].

Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. et al. (2015), 599 A.R. 363; 643 W.A.C. 363; 2015 ABCA 121, refd to. [para. 40].

Precision Plating Ltd. et al. v. AXA Pacific Insurance Co. et al. (2015), 374 B.C.A.C. 37; 642 W.A.C. 37; 2015 BCCA 277, refd to. [para. 40].

R. v. Mian (M.H.), [2014] 2 S.C.R. 689; 462 N.R. 1; 580 A.R. 1; 620 W.A.C. 1, refd to. [para. 61].

Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3; 350 N.R. 40; 227 B.C.A.C. 39; 374 W.A.C. 39, refd to. [para. 63].

702535 Ontario Inc. et al. v. Non-Marine Underwriters, Lloyd's, London et al. (2000), 130 O.A.C. 373; 184 D.L.R.(4th) 687 (C.A.), refd to. [para. 67].

Ackermann v. Kings Mutual Insurance Co. (2010), 292 N.S.R.(2d) 120; 925 A.P.R. 120; 2010 NSCA 39, refd to. [para. 68].

Bhasin v. Hrynew et al., [2014] 3 S.C.R. 495; 464 N.R. 254; 584 A.R. 6; 623 W.A.C. 6, refd to. [para. 80].

Kang v. Sun Life Assurance Co. of Canada (2013), 303 O.A.C. 64; 2013 ONCA 118, refd to. [para. 102].

All-Up Consulting Enterprises Inc. et al. v. Dalrymple et al. (2013), 327 N.S.R.(2d) 41; 1036 A.P.R. 41; 2013 NSSC 46, dist. [para. 132].

Wood v. Grand Valley Railway Co. (1915), 51 S.C.R. 283, refd to. [para. 132].

Wilson et al. v. Roswell, [1970] S.C.R. 865, dist. [para. 132].

Ediger v. Johnston, [2013] 2 S.C.R. 98; 442 N.R. 105; 333 B.C.A.C. 1; 571 W.A.C. 1, refd to. [para. 135].

Kern v. Steele (2003), 220 N.S.R.(2d) 51; 694 A.P.R. 51; 2003 NSCA 147, refd to. [para. 135].

Nance v. British Columbia Electric Railway Co., [1951] A.C. 601 (P.C.), refd to. [para. 140].

Woelk v. Halvorson, [1980] 2 S.C.R. 430; 33 N.R. 232; 24 A.R. 620, refd to. [para. 140].

Andrews et al. v. Keybase Financial Group Inc. et al. (2014), 340 N.S.R.(2d) 239; 1077 A.P.R. 239; 2014 NSSC 31, refd to. [para. 143].

Branco v. American Home Assurance Co. et al. (2015), 460 Sask.R. 176; 639 W.A.C. 176; 2015 SKCA 71, varying (2013), 416 Sask.R. 77; 2013 SKQB 98, refd to. [para. 149].

Keays v. Honda Canada Inc., [2008] 2 S.C.R. 362; 376 N.R. 196; 239 O.A.C. 299, refd to. [para. 150].

Blackwater et al. v. Plint et al., [2005] 3 S.C.R. 3; 339 N.R. 355; 216 B.C.A.C. 24; 356 W.A.C. 24, refd to. [para. 159].

Tomah et al. v. Sylliboy et al. (2010), 298 N.S.R.(2d) 135; 945 A.P.R. 135; 2010 NSSC 439, refd to. [para. 159].

Merrick v. Guilbeault et al. (2009), 276 N.S.R.(2d) 68; 880 A.P.R. 68; 2009 NSSC 60, refd to. [para. 159].

Fernandes v. Penncorp Life Insurance Co. (2014), 325 O.A.C. 79; 2014 ONCA 615, refd to. [para. 160].

Fowler v. Maritime Life Assurance Co. (2002), 216 Nfld. & P.E.I.R. 132; 647 A.P.R. 132 (N.L.T.D.), refd to. [para. 160].

Boucher v. Wal-Mart Canada Corp. et al. (2014), 318 O.A.C. 256; 2014 ONCA 419, refd to. [para. 163].

Clarfield v. Crown Life Insurance Co., [2000] O.T.C. 757 (Sup. Ct.), refd to. [para. 164].

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Plester v. Wawanesa Mutual Insurance Co. (2006), 213 O.A.C. 241 (C.A.), leave to appeal denied (2006), 363 N.R. 392 (S.C.C.), refd to. [para. 165].

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Asselstine v. Manufacturers Life Insurance Co. et al. (2005), 213 B.C.A.C. 102; 352 W.A.C. 102; 2005 BCCA 292, refd to. [para. 166].

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Saunders v. RBC Life Insurance Co. (2007), 267 Nfld. & P.E.I.R. 260; 811 A.P.R. 260; 2007 NLTD 104, refd to. [para. 166].

Lumsden v. Manitoba (2009), 236 Man.R.(2d) 130; 448 W.A.C. 130; 2009 MBCA 18, refd to. [para. 166].

McQueen v. Echelon General Insurance Co. (2011), 285 O.A.C. 64; 2011 ONCA 649, refd to. [para. 166].

Gerber v. Telus Corp. et al. (2004), 346 A.R. 386; 320 W.A.C. 386; 2004 ABCA 118, refd to. [para. 166].

Evans v. Crown Life Insurance Co., [1996] B.C.J. No. 1347 (S.C.), refd to. [para. 166].

McCallum v. Manitoba (2006), 203 Man.R.(2d) 161; 2006 MBQB 114, refd to. [para. 166].

Eddie v. Unum Life Insurance Co. of America (1999), 128 B.C.A.C. 257; 208 W.A.C. 257; 1999 BCCA 507, refd to. [para. 166].

Warrington v. Great-West Life Assurance Co., [1996] 10 W.W.R. 691; 81 B.C.A.C. 164; 132 W.A.C. 164 (C.A.), refd to. [para. 166].

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Marchen v. Dams Ford Lincoln Sales Ltd. (2010), 282 B.C.A.C. 120; 476 W.A.C. 120; 2010 BCCA 29, refd to. [para. 178].

Khazzaka v. Commercial Union Assurance Co. of Canada (2002), 162 O.A.C. 293 (C.A.), refd to. [para. 179].

Sigrist v. McLean et al., [2011] O.T.C. Uned. 7114; 2011 ONSC 7114, refd to. [para. 179].

Kelly v. Norsemont Mining Inc., [2013] B.C.T.C. Uned. 147; 2013 BCSC 147, refd to. [para. 179].

Hill v. Church of Scientology of Toronto and Manning, [1995] 2 S.C.R. 1130; 184 N.R. 1; 84 O.A.C. 1, refd to. [para. 184].

Barthe v. National Bank Financial Ltd. (2015), 359 N.S.R.(2d) 258; 1133 A.P.R. 258; 2015 NSCA 47, refd to. [para. 202].

McNeil v. Brewers Retail Inc. et al., [2008] O.A.C. Uned. 724; 2008 ONCA 405, refd to. [para. 203].

Kogan v. Chubb Insurance Co. of Canada et al., [2001] O.T.C. Uned. 424 (Sup. Ct.), refd to. [para. 207].

Cinar Corp. et al. v. Robinson et al. (2013), 452 N.R. 123; 2013 SCC 73, refd to. [para. 215].

Ferguson v. National Life Assurance Co. of Canada (1996), 1 O.T.C. 81 (Gen. Div.), refd to. [para. 223].

Nova Scotia Public Service Long Term Disability Plan Trust Fund v. McNally (1999), 179 N.S.R.(2d) 314; 553 A.P.R. 314; 1999 NSCA 129, refd to. [para. 229].

Inglis v. Nova Scotia (Attorney General) et al. (2007), 259 N.S.R.(2d) 360; 828 A.P.R. 360; 2007 NSSC 314, refd to. [para. 230].

Inglis v. Nova Scotia (Attorney General) et al. (2009), 283 N.S.R.(2d) 193; 900 A.P.R. 193; 2009 NSSC 254, refd to. [para. 230].

Counsel:

Michelle C. Awad, Q.C., and Danielle Kershaw, for the appellant;

Barry Mason, Q.C., and Glenn Jones, for the respondent.

This appeal and cross-appeal were heard on April 16, 2015, at Halifax, N.S., before Fichaud, Oland and Scanlan, JJ.A., of the Nova Scotia Court of Appeal.

On November 17, 2015, the following judgment was delivered by the Court.