Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

In this decision the Supreme Court of Canada upheld a finding that a portion of settlement funds was taxable as income. At issue were funds received in settlement of a dispute over long-term disability benefits. The Minister of National Revenue initially assessed the entire settlement as income, the Tax Court of Canada set aside the Minister’s decision, and the Federal Court of Appeal held that because a portion of the settlement was attributable to benefits arrears, it replaced monies paid pursuant to a disability insurance plan, and was therefore taxable under section 6(1)(f) of the Income Tax Act.

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The Supreme Court of Canada considered the interpretation of "change material to the risk" in a New Brunswick policy for fire insurance. In a 5-2 decision, McLachlin C.J., writing for the majority, allowed the appeal and reinstated the decision of the trial judge, holding that if the insurance contract was void by reason of a statutory condition, the court should relieve against the result because a vacancy had been rectified. Bastarache and Charron JJ. dissented, holding that the statutory condition is clear and unambiguous, and the duty of disclosure was breached.

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The Superior Court dismissed the plaintiff’s action for damages for failure to pay long term disability benefits because the essential character of the dispute arose from the interpretation, application and administration of a collective agreement which provided that such disputes were to be determined through binding arbitration.

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This was an application by the Defendant Insurer for bifurcation of a trial for breach of contract following the denial of long-term disability benefits, and a claim of breach of good faith and fair dealing. The Plaintiff Insured claimed a breach of good faith both in considering the claim for long-term disability benefits, and the Insurer’s conduct in continuing to deny the claim after litigation was commenced. The court ordered bifurcation, and held that the post-litigation allegations necessarily raised issues about the advice taken by counsel. The Insurer would have to retain new counsel and may require the breach of privileged communications. Prejudice to the Insurer outweighed that which would be suffered by the Insured by the delay and expense of two trials.

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