Introduction

In Sabean v Portage La Prairie Mutual Insurance Co., the Supreme Court of Canada (SCC) found that, in standard form contracts, insurers cannot rely on specialized legal knowledge to advance interpretations departing from the ordinary meaning of provisions.1 This will have repercussions throughout other industries that rely heavily on standard form contracts, such as oil and gas, banking, information technology, construction, real estate, franchising, and sales.

Key Rules of Interpretation

  • Courts will not allow the drafter of the contract to benefit by applying sector-specific knowledge and law to interpret contractual provisions;
  • Instead, courts will apply the ordinary meaning of the language in provisions;
  • When provisions are ambiguous, the court will apply the established principles of contractual interpretation to resolve the ambiguity; and
  • When this fails, any ambiguity will be resolved against the drafting party.

Facts

This case involved a car accident victim's insurance recovery. The at-fault driver had failed to pay the victim his full damages. The victim then sought the balance of the damages under an excess insurance policy, which he had taken out under a standard form contract. Excess insurance (beyond the standard car insurance) protects individuals if they are injured and the driver causing the injury carries insufficient insurance to cover the damages.

One of the provisions of the excess insurance policy provided that the value of any future benefits from a "policy of insurance providing disability benefits" would be deducted from the amount payable under the excess insurance policy. The insurer tried to deduct the value of Canada Pension Plan (CPP) disability benefits from the amount claimed by the insured victim.

SCC Decision

In deciding this case, the SCC relied on the established principles of contractual interpretation and, somewhat unusually, on dictionaries. These led the SCC to find that an average person purchasing excess insurance would understand a "policy of insurance" to mean an optional, private insurance contract, and not a mandatory statutory scheme, such as CPP. The insurer argued that, in the full contractual context, such an unsophisticated interpretation would ignore the legal meaning and intent of "policy of insurance" in the insurance industry. The SCC found such industry intention irrelevant, and held that the drafter of the contract could not rely on its specialized legal knowledge to advance an interpretation that would go beyond the ordinary meaning of the contractual language. Thus, the SCC decided that the insurer could not deduct CPP disability benefits from the amount payable under the excess insurance policy.

Concluding Thoughts

Courts do consider the context of a contract when interpreting it. But obscure industry meanings—even when rooted in legal precedent—will not allow an industry insider who drafted a standard form contract to benefit at the expense of the other party. For the industry insider, too much sophistication can be a hazard.

Footnote

1.2017 SCC 7

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