Canada: The Injured & The Restless: Principles Of Contractual Interpretation Leave Insured With An Uphill Battle For Mattress Coverage

Last Updated: July 16 2019
Article by Sara E. Hart and David Cowley-Salegio

Interpreting Contracts

The general principles of contractual interpretation require a decision-maker to read the contract before them as a whole, giving the words used their ordinary and grammatical meaning, in a manner consistent with the surrounding circumstances known to the parties at the time of formation of the contract.  While remaining faithful to the actual language of a contract and without deviating from those words, the decision-maker may consider surrounding circumstances (often called the "factual matrix") to aid in contractual interpretation.

Standard Form Contracts Are Unique

These principles are set out by the Supreme Court of Canada (the "Supreme Court") in Creston Moly Corp v Sattva Capital Corp,1 and they apply broadly.  However, subsequent to Sattva, courts disagreed on whether the interpretive principles articulated in that decision also applied to standard form contracts—some appellate courts said they did, some said they did not.  As a result, two years later, the Supreme Court clarified in Ledcor Construction Ltd v Northbridge Indemnity Insurance Co2 that standard form contracts (e.g. insurance contracts) are unique and must be treated as an exception to the general principles from Sattva.  The Court in Ledcor observed that the interpretation of standard form contracts has precedential value, since the same language will appear in similarly worded contracts across jurisdictions, and there is no meaningful factual matrix that is specific to the parties that could assist with the interpretation process.

Interpreting Insurance Contracts

As such, insurance contracts have their own unique set of interpretive principles that differ in meaningful ways from the general principles of contractual interpretation applicable at large.  The principles that apply to insurance contracts were summarized by the Supreme Court in Progressive Homes Ltd v Lombard General Insurance Co of Canada:3

  1. When the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole.
  2. Where the language of the policy is ambiguous, the court should:
    1. prefer interpretations that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy;
    2. avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded; and
    3. strive to ensure that similar insurance policies are construed consistently.
  3. If and when the above rules fail to resolve the ambiguity, the court should construe the policy contra proferentem, i.e., against the insurer, with the corollary that coverage provisions are interpreted broadly and exclusion clauses narrowly.4

The cumulative result of these Supreme Court decisions is a firm and established interpretive framework within which courts will determine the meaning of provisions in standard form contracts of insurance.

An Alberta Case

Alberta's Standard Automobile Policy, the SPF 1, is such a standard form contract.  It is not negotiated between parties on a clause-by-clause basis, as, in fact, content is stipulated by provincial legislation.  More specifically, section 573 of Alberta's Insurance Act5 enables the Automobile Accident Insurance Benefits Regulation,6 which in turn provides the specific language for Section B Accident Benefits ("Section B") of the SPF 1. 

A recent Alberta decision puts the interpretive framework for insurance contracts into practice with respect to a provision of Section B.

In Rahall v Intact Insurance Company,7 the Plaintiff, Mohamed Rahall ("Mr. Rahall"), sued the Defendant, Intact Insurance Company ("Intact") on the basis of the latter's refusal to pay for an Intellibed Mattress (the "mattress").  The claim centered on the interpretation of provision 1(b) of subsection 1 of Section B of the SPF 1, which reads:

(1) In respect of...

(b) injuries...
all reasonable expenses incurred within 2 years from the date of the accident as a result of those injuries for necessary medical, surgical, chiropractic, dental, hospital, psychological, physical therapy, occupational therapy, massage therapy, acupuncture, professional nursing and ambulance services and, in addition, for other services and supplies that are, in the opinion of the insured person's attending physician and in the opinion of the Insurer's medical advisor, essential for the treatment or rehabilitation of the injured person.

Mr. Rahall argued that Intact breached the terms of his SPF 1 policy, and he applied to amend his original claim to include a claim for bad faith against Intact.  At the same time, Intact applied for summary dismissal of the entire claim on the basis that it lacked merit.

In her decision, Judge Corbett reviewed the facts underlying the claim.  Mr. Rahall had been in a motor vehicle accident in October 2017 and, as a result, sustained personal injuries.  He was covered by his SPF 1 policy with Intact at the time and was accordingly entitled to Section B benefits.  In February 2018, Mr. Rahall contacted Intact to ask about coverage for the Mattress, which he intended to buy, and was told that coverage was limited to medical supplies that were essential to his rehabilitation, which the mattress was not.  Mr. Rahall indicated that he had a letter from his physician, Dr. Salem, to the contrary.  Intact persisted in its denial of coverage for the Mattress under Section B, and Mr. Rahall sued.  Intact then scheduled an appointment for Mr. Rahall with Dr. Greidanus, a certified independent medical examiner.  After assessing Mr. Rahall, Dr. Greidanus was of the opinion that Mr. Rahall would not need the mattress because his injuries from the accident had resolved, and the exam did not show any further impairments.

Arguably, on these facts, the writing was on the wall for Mr. Rahall, and his claim was bound to fail.  First, the policy wording is clear and unambiguous: Section B would only cover the mattress if both the insured's physician and the insurer's advisor were of the opinion that it was essential for the rehabilitation of the insured.  Although Dr. Salem opined that it was, Dr. Greidanus disagreed.  As the policy wording is conjunctive, requiring both opinions to be favourable, Mr. Rahall had failed to meet the plain requirements for coverage for the mattress.  Further, Mr. Rahall was up against a number of persuasive precedents that interpreted provisions that were substantially similar to provision 1(b). 

Judge Corbett reviewed the law as set out in Ledcor and Progressive Homes and, applying it to provision 1(b), found no ambiguity in its language.  After also considering the precedential case law on similar provisions, she concluded:

These authorities confirm my view that the Policy would only cover the mattress as 'essential for rehabilitation' by Dr. Salem if Dr. Greidanus agreed with that recommendation.  Dr. Greidanus did not agree with Dr. Salem that the mattress was 'essential' for Mr. Rahall's 'rehabilitation.'  In my view, there is no issue of merit requiring a trial. ... The policy clearly requires both Dr. Greidanus and Dr. Salem to agree on this point for the mattress to be covered.8

Granting Intact's application for summary dismissal, Judge Corbett then considered Mr. Rahall's application to amend his original claim to include a claim for bad faith.  Unfortunately for Mr. Rahall, his application to amend was denied.  Although there was no significant procedural impediment to the amendment, there was a substantial substantive one.  Judge Corbett found that, even though the breach of the duty of good faith is an independent cause of action, it could not exist without an underlying breach of the policy.  Therefore, because she had found that Intact did not breach the policy, she also held that there was no claim for bad faith.

The Challenge for Insureds

The decision in Rahall provides a good example of how the principles of contractual interpretation apply to standard form contracts of insurance.  It also illustrates the unique challenges that insureds face when arguing over coverage.  When compared to the interpretation of contracts generally, insureds in coverage disputes have fewer tools at their disposal with which to argue against the words written in their policy.  For instance, there is no real 'factual matrix' or 'surrounding circumstances' to consider while assessing the language of a contract and the intention of the parties—the policy wording dominates.  Further, the weight of precedent is high.  Courts have more persuasive (and potentially binding) judicial commentary at their disposal than may exist in other contexts.  Unfortunately for Mr, Rahall, the plain wording of provision 1(b) and the direction of decisions in similar cases positioned him for an uphill battle that he was not ultimately able to win.

Seem Unfair?

If this seems unfair, it is important to remember a few things.  For instance, the policy wording is legislated and comes from the Automobile Accident Insurance Benefits Regulation.  Through this legislation, insurers have been given the right to obtain their own advice on the matter and the right to play that legitimate advice as a trump card (though this is no carte blanche for issuing denials, as insurance contracts are contracts of utmost good faith).  In cases like these, insurers are entitled to the benefit of a right granted through clear policy language because, on the flip side, when policies contain unresolvable ambiguities, insurers will have to bear the burden of contra proferentem.

Footnotes

1 2014 SCC 53, 2014 CarswellBC 2267.

2 2016 SCC 37, 2016 CarswellAlta 1699.

3 2010 SCC 33, 2010 CarswellBC 2501.

4 Ibid at paras 22-24.

5 RSA 2000, c I-3.

6 Alta Reg 352/1972 as amended.

7 2019 ABPC 11, 2019 CarswellAlta 101.

8 Ibid at paras 73-74.

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