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

This was an application by the Applicant for a declaration that the Respondent had a duty to defend him under a commercial liability policy in an action commenced against the Applicant by the Plaintiff. The Applicant and Plaintiff were employees of a grocery store. The Plaintiff alleged that the Applicant placed him in a headlock and caused him to slip and fall, causing permanent injuries and damages.

The Applicant asserted that he was an insured under the grocery store’s commercial liability policy. The Respondent argued that the Applicant’s acts were captured by an exclusion under the policy which purported to exclude bodily injury or property damage caused intentionally by or at the direction of the insured.

The Respondent further argued that it was not necessary for the court to find intent to cause injury in order to engage the exclusion clause. Rather, it was enough if the insured’s acts were intentional.

The Applicant countered by citing a related case - ING Insurance Co. of Canada v. Mitsios, [2007] O.J. No. 338, - with the same fact pattern where the court found that the exclusion clause has been interpreted by the courts to require that the injuries be intentionally caused.

In that case the exclusion clause was under a homeowner’s policy and excluded “bodily injury or property damage by an intentional or criminal act or failure to act by any person insured by this policy.” The Court held that although the exclusion clause under the homeowner’s policy was different than the exclusion clause in the commercial liability policy in the case at bar, the reasoning was equally applicable. The Court found that a finding that the insured intended to cause the injuries was necessary to trigger the exclusion clause.

This was an appeal involving two issues. The first related to the scope of an exclusion clause and the motion judge's determination that it did not absolve the insurer from its duty to defend the insured against the insured's claim for bodily injury arising from his exposure to mold and/or bacteria. The second related to the motion judge's determination that the insured could require the insurer to retain counsel of the insured's choice.

On the first issue the insurer relied on the clause in the policy under the heading "Common Exclusions". That provision provided as follows:

"This insurance does not apply to:

7. FUNGI AND FUNGAL DERIVATIVES

(a) "bodily injury", "property damage", "personal injury", or Medical Payments or any other costs, loss or expense incurred by others, arising directly or indirectly, from the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, presence of, spread of, reproduction, discharge or other growth of any "fungi" or "spores" however caused, including any costs or expenses incurred to prevent, respond to, test for, monitor, abate, mitigate, remove, cleanup, contain, remediate, treat, detoxify, neutralize, assess or otherwise deal with or dispose of "fungi" or "spores"…

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs."

The motion judge found that this exclusion, including the "concurrent exclusion" clause, did not absolve the insurer of its duty to defend because the plaintiff had pleaded that his injuries arose from mould and bacteria and if it were found that the injuries were due solely to bacteria (a non-excluded peril), the exclusion clause would not apply.

On appeal, the insurer argued that the motion judge failed to consider the effect of the word "alleged" within s. 7(a) of the exclusion. According to the insurer, the effect of that language was to absolve the insurer of a duty to defend in any case where bodily injury from mould is alleged, even if combined with other causes of bodily injury, such as bacteria. The insurer submitted that the effect of the clause was that the duty to defend was narrower than the duty to indemnify.

The court disagreed with the insurer's position finding that the language in clause 7(a) is both unclear and ambiguous in its effect. The court found that a plain reading of the provision did not support the insurer's position. The court further found that the insurer's position "stands on its head" the general proposition that the duty to defend is broader than the duty to indemnify. The court found that if the clause was meant to convey that the insurer's duty to defend is narrower than its duty to indemnify then clear and unambiguous language would be required. 

Because of the issues with respect to coverage both the insured and insurer sought to appoint the counsel of their choice. The motion judge had referred to the principle that an insurer's right to control the defence is not absolute citing Brockton (Municipality) v. Frank Cowan Co. (2002), 57 O.R. (3d) 447 (C.A.). The motion judge found that the insured's counsel was competent and experienced and should be retained by the insured to defend the action at the insurer's expense. On appeal the insurer suggested that in order to meet the mutual concerns expressed by both sides, a third approach would be to agree on independent counsel. The Court of Appeal was not prepared to interfere with the trial judge's exercise of his discretion.

Appeal by two minor children of the deceased Insured from a decision of the Divisional Court finding that they were not entitled to a portion of the proceeds from a life insurance policy owned jointly by the Insured and his wife. 

The Insured and his wife jointly owned a life insurance policy which provided that on the death of one, the other was entitled to a lump sum payment of $109,000. The Insured was the sole owner of another life insurance policy which named his wife as the beneficiary. The Insured had made inadequate provision for his dependents, three of whom were minors at the time of his death. The three minors and the Insured's wife fell within the definitiion of "dependents" under the Ontario Succession Law Reform Act ("SLRA").

Two of the minor children brought applications against the Insured's estate claiming entitlement to a share of the proceeds under the policies. The Insured's wife brought a cross-application seeking an order directing the insurance company to pay her the proceeds of both policies. The applications judge held that both policies were caught by the wording of the provisions in the SLRA, namely s. 72(1)(f), and were therefore deemed to be part of the Insured's estate for the purpose of funding the dependents' support order. The net proceeds were ordered divided into three equal shares for the support of the three minor children. The wife's appeal to the Divisional Court was allowed in part and the jointly owned policy was excluded from the Insured's estate. An appeal and cross appeal were brought from this decision.

The Ontario Court of Appeal held that, on a proper interpretation of s. 72(1)(f) of the SLRA, the jointly owned policy was not caught because it was not "owned" by the Insured. At the instant of his death, the wife's joint ownership interest became an absolute entitlement to the proceeds of the policy. The Court of Appeal stated that an interpretation of s. 72(1)(f) which would encompass the jointly-owned policy was not consistent with the overall scheme of s. 72 of the SLRA, which was to capture property owned by the deceased. The Court of Appeal did not interfere with the exercise of discretion by the applications judge in ordering support for the three dependent children given that the policy soley owned by the deceased fell squarely within s. 72(1)(f) and was, therefore, available for the purpose of an order for dependent support.

The former agent had been employed under a contract with the Insurer from 1999 to March 2006. The contract prohibited disclosure of any confidential information obtained in the course of the employment relationship and stated that, upon termination of the contract, the agent would return the original and all copies of any "confidential information" received during the course of his employment. The contract further provided that the agent would not make use of or disclose the confidential information or cause or permit it to be used by any person. Clause 12 of the contract restricted the agent's ability for two years following his termination to either directly or indirectly induce any existing policyholder to switch insurers.

The Insurer claimed that, after the agent's termination on March 15, 2006, he had started soliciting the Insurer's policyholders, pursuading a number of them to switch carriers. The evidence showed that as of March 15, 2006, the agent had been responsible for 330 of Insurer's policies of insurance. As of November 30, 2007, 93 of those policies had been cancelled, lapsed, terminated or replaced. The Court found that while there was no direct evidence that the agent had solicited or induced policyholders to switch insurers, it was a reasonable inference from the evidence filed that he had engaged in solicitation or inducement of at least some of the policyholders who had switched insurers or cancelled their policies.

The Insurer sought an injunction to restrain the agent from inducing existing policyholders to cancel or switch policies and to require the agent to deliver up any confidential information and to restrain him from using or disclosing such information. The agent argued that his contracts with the Insurer were invalid, but assuming that the contracts were valid, there was insufficient information to show that he violated the terms of the contract.

Justice D.K. Gray reviewed the criteria for granting interlocutory injunctions as set out in the Supreme Court of Canada's decision in R.J.R. MacDonald Inc. v. Canada, [1994] 1 S.C.R. 311, noting also that an injunction is an extraordinary remedy and is not to be granted lightly. He took into account the fact that there had been an element of delay on the part of the Insurer in requesting the return of all confidential information and that the Insurer had made no effort to pursue this issue until bringing its claim in December 2007 and applying for an injunction shortly thereafter. The Court also found that the Insurer could, by due diligence, have discovered the agent's activities in soliciting policyholders and inducing them to switch insurance carriers well before August 2007.

Despite these facts, the Court found that the Insurer had made out its case for an injunction and ordered that the agent be restrained from soliciting and inducing the Insurer's policyholders, but only for the balance of the two-year period prescribed by the terms in the contract. The Court limited the injunctive relief concerning return of confidential information to the return of the physical manifestations of the confidential information in the agent's possession. The injunction did not prohibit the agent from utilizing his own knowledge of who the policyholders were and when their policies might expire.

The Insurer brought an application for a declaration that it had no duty to defend or indemnify the Respondents. The Respondents were insured pursuant to a home owner's policy of insurance. That policy excluded claims arising from the ownership, use, or operation of any motorized vehicle. A 12-year old girl, the sibling of the Insureds, was injured while operating an ATV owned by one of the Respondents. The Court found that the Insurer had waived any right to deny a duty to defend and could not now repudiate that position. The waiver occurred in a letter which was sent to the Respondents one month after the Statement of Claim was issued. The letter advised that the Insurer would defend the action. The Court found that a subsequent letter delivered approximately five months later in which the Insurer advised that they would not defend the action did not have the effect of removing the waiver.

In December 1997, the home of an insured ("Sagl") was destroyed by fire. The Insurer refused to pay the losses, claiming the fire was deliberately set by someone acting on Sagl's behalf. The Insurer further claimed the policy was void because Sagl intentionally concealed or misrepresented the material facts before and after the loss. The Insurer submitted that the fire was staged, as Sagl's son was staying elsewhere for the night, Sagl was out for dinner, Sagl's dog was outside and the maid had the night off. The Insurer claimed that Sagl was in bad financial straits and would benefit from having insurance proceeds from the fire. Sagl had claimed that she had significant assets, including jewellery and art, and that her financial position was not dire. It was clear that significant personal assets were lost in the fire.

The Fire Marshall investigated the fire and concluded arson was the likely cause because of the absence of residents, windows were left open and there were no signs of forced entry. The Inspector did not consider statements by firefighters on the scene, who confirmed that the fire started in the basement, in concluding that fires were set in three places in the home. The Investigator did not discuss with Sagl what items in the basement could have started the fire and Sagl's evidence was that there were lamps in the basement which were known to have started fires in other circumstances.

Sagl had purchased insurance by inadequately completing an application form, but neither the brokers nor the Insurer had requested that she complete the form prior to issuing the insurance policy or collecting premiums. Sagl claimed that she lost personal property valued at over $2,200,000 in the fire, including jewellery valued at approximately $925,000. The Insurer offered no evidence to rebut this claim. Sagl provided an appraisal of her art collection, which valued it of over $9,000,000. The Insurer did not prepare a rebuttal report, but challenged many items as fraudulent where no purchase receipts were retained and no pictures of the work provided.

The Court awarded Sagl damages for full replacement cost of the home and the policy limits for contents, jewellery and art. The Court further awarded punitive damages of $500,000 against the Insurer.

The Court found that the Insurer had not established that there was a staging of arson, as all absences from the house on the night of the fire were reasonable. The Insurer did not establish that Sagl had a motive or opportunity to have someone set the fire to her house. The Court found that the Fire Marshall's investigation of the fire was flawed as the investigation proceeded on the assumption that the fire was incendiary. The Investigator did not keep an open mind until the investigation was complete. The Insurer had failed to prove on a balance of probabilities that Sagl was involved in the fire in any way.

The Court found that the Insurer was wrong to suggest that Sagl's claim for personal property losses was fraudulent where evidence showed value of the contents of the home greatly exceeded the policy coverage. The Insurer was faulted for poor business practices in failing to examine the art collection prior to providing coverage. The Insurer failed to show Sagl intentionally concealed or misrepresented material facts relating to the policy after the fire. The Court concluded that the Insurer breached its duty of good faith in failing to determine appropriate coverage for Sagl, then asserting her claims were fraudulent. The Insurer also breached its duty of good faith by failing to properly scrutinise the Fire Marshall's evidence. The Insurer's allegation that Sagl committed the criminal offence of arson without evidence to support the allegation was reprehensible. In denying coverage for ten years after the fire, the Insurer's conduct was malicious, oppressive and high-handed, meriting condemnation of the Court.

The Insurer appealed a decision dismissing its counter-claim against the Respondents, Leanne Giilck and Discount Auto Appraisals, in which it was found that it had no right to compel the Respondent, Rehman Baig (the "Insured"), to attend for an examination under oath pursuant to Statutory Condition 6(4) of the Insurance Act.

The Ontario Court of Appeal allowed the appeal based on the finding that the Statutory Condition does not cease to operate once litigation is commenced and that the scope of examination extends to all matters material to the Insurer's liability, and extent thereof, which the Insurer has an objective and reasonable basis to explore.

The Insurer insured the Insured's 1999 BMW M3 convertible beginning in 2002. The insurance included an endorsement that insured the vehicle for a specified value. To obtain that coverage, the Insured submitted an appraisal report signed by Giilck of Discount Auto Appraisals. Upon receiving the appraisal, the Insurer provided the Insured with an endorsement on the vehicle in the amount of $71,300.

The vehicle was damaged in a collision on December 10, 2004 and the Insured submitted a Proof of Loss to the Insurer claiming the full amount specified in the endorsement. The Proof of Loss indicated that the vehicle had been purchased on February 23, 2002 for $12,500 U.S. "as per salvage price". The Insurer had also learned that Giilck was the common law partner of the Insured and that together they operated Discount Auto Appraisals.

The Insurer required the Insured to attend an examination under oath pursuant to Statutory Condition 6(4). The Insured attended with counsel who refused to allow the Insurer to ask any questions about how the amount of the appraisal had been determined. He took the position that the examination was restricted to the particulars of the claim and did not extend to the appraisal report, which he regarded as a prior underwriting event.

The Insured later commenced an action against the Insurer claiming damages for loss of the automobile, together with punitive, exemplary and aggravated damages of $100,000 each. The Insurer then filed a Statement of Defence alleging that the appraisal prepared by Discount Auto Appraisals had been greatly overstated due to the poor condition of the BMW at the time and that the Insured, Giilck and Discount Auto Appraisals had misrepresented the value of the BMW. The Insurer counter-claimed against the Insured, Giilck and Discount Auto Appraisals for misrepresentation and detrimental reliance.

The Insurer brought a motion for an order compelling the Insured to attend to be examined under oath pursuant to Statutory Condition 6(4) and to answer questions relating to the initial valuation of his vehicle. In response, the Insured, Giilck, and Discount Auto Appraisals sought summary judgment dismissing the counter-claim.

The Motions Judge found that the statutory examination under oath was redundant because the Insurer had a right to examine the Insured for discovery in the lawsuit. The Motions Judge took the view that once the relationship between an insurer and insured becomes adversarial, or at least once a lawsuit is commenced, the examination under Statutory Condition 6(4) is no longer available to the insurer.

The Court of Appeal disagreed finding that there are no words in the provision to indicate that an insurer's right to examine an insured is limited to the situation in which the relationship is not adversarial. The Court of Appeal held that the statutory condition must be applied according to its plain terms. An insured cannot evade the plain requirement to submit to an examination by simply commencing an action. The Court of Appeal found that the potential for redundancy can be eliminated because the Court, in controlling its own procedures, is able to consider questions that have already been asked and answered on a statutory examination improper on a subsequent examination for discovery.

The parties agreed that the scope of the examination is defined by the term "the matters in question", though those words are used in Statutory Condition 6(4) to refer to the Insured's obligation to produce relevant documents in the examination. The Motions Judge took the view that the scope of the statutory examination was limited to the Insured's claim for insurance benefits. In the Motions Judge's view, the Insurer had agreed to the value of the vehicle when the policy was issued; accordingly, its value was not a "matter in question" in respect of the Insured's claim for benefits when the vehicle was damaged two years later.

The Court of Appeal found that the purpose of the statutory examination is to provide insurers with the opportunity to obtain the knowledge of facts necessary to enable them to determine their obligations and to protect them against false claims. Questions that are material to the Insurer's liability and the extent thereof are within the scope of the statutory examination. Whether the initial appraisal of the vehicle was fraudulent is a matter that is relevant to the Insurer's defence to the Insured's action. Therefore, as the Insurer had an objective and reasonable basis for suspecting that the initial appraisal was fraudulent, the Insured was obligated to submit to examination about it.

The Insurer issued a "Prime Hard Hat" liability insurance policy to the Insured, which provided for commercial general liability insurance and commercial umbrella coverage insurance (the "Policy"). The Policy insured "property damage" up to a limit of $2,000,000, with a deductible of $5,000 for each "occurrence". The umbrella policy insured "property damage" up to a limit of $8,000,000, with a self-insured retention of $10,000 for each "occurrence".

In the underlying action, the Plaintiff claimed damages for the cost of correcting deficiencies in the structure of a building, lost productivity and the cost incurred in investigating the building deficiencies. The Plaintiff entered into a contract with the Insured, the General Contractor on the project, for the construction on the Plaintiff's property of a steel processing facility, which involved the erection of five overhead cranes. The Insured subcontracted with Spencer Steel Ltd. to supply the structural steel and to build several runways to support the overhead cranes. Larco Industrial Services Ltd. was retained to supply, install, relocate, retrofit and commission the five overhead cranes. The Plaintiff began to notice vibrations when the cranes were in use. As the operation of the facility proceeded, improperly aligned crane runways, shifting crane runways, cracked concrete block walls and broken or loose runway bolts were discovered. The Plaintiff commenced an action against the Insured and other defendants involved in various capacities in the construction of the building for general damages for breach of contract and negligence.

For damage to be "property damage" under the Policy, the damage had to be to work other than that of the General Contractor. Damage to work of the General Contractor was excluded under the Policy. For the incident that resulted in the damage to be an "occurrence" under the Policy, the damage had to be to work other than what the General Contractor had contracted to perform.

The Insured argued that in this case it was appropriate to look outside the Statement of Claim to determine the true nature and substance of the pleadings. The Insured took the view that the Court could look to extrinsic evidence, other pleadings and a response to a Demand for Particulars to determine the substance of the pleadings. The Insured sought, with the assistance of external sources, to support its argument that Larco performed its work under an independent contract and that the damage to the Plaintiff's property resulted from Larco's work, which was outside the work the Insured performed in constructing the building.

The Insurer took the position that no claim for damage to work outside the work the Insured contracted with the Plaintiff to do could be inferred from the Plaintiff's pleadings. In the Insurer's view, it was not necessary, nor would it be appropriate to look outside the Statement of Claim to determine whether coverage was triggered.

The Court accepted the Insurer's position that the substance of the Plaintiff's allegations against the Insured was directed at the work of the Insured and contractors and not against work outside the Insured's contract with the Plaintiff. The Court found that the question whether Larco was a subcontractor of the Insured or had an independent contract with the Plaintiff was contentious and it would not be appropriate to answer that question on a preliminary determination of coverage. Therefore, the Court declined to consider any pleadings other than those directed against the Insured.

Denis Potvin was injured while driving a go-kart on a track owned and operated by Pineland Amusements Ltd. ("Pineland") He lost control of his go-kart, he alleged, after colliding with a go-kart driven by his father, Roland Potvin (the "Insured"). Denis's mother and Litigation Guardian, Adams, commenced an action against Pineland and the Insured for damages for injuries suffered by Denis. Pineland filed a cross-claim alleging that the Insured caused or contributed to the injuries of his son. The Insured had an automobile insurance policy with the Insurer (the "Policy"). The Insured issued a Third Party Claim against the Insurer, stating that it had a duty to defend and indemnify him in the main action and in the cross-claim by Pineland. The Insurer issued a Statement of Defence to the Third Party Claim alleging that the Insured's policy did not cover the go-kart. The Insurer brought a motion seeking a determination as to whether the Policy covered damages for injuries from the go-kart accident and whether the Insurer had a duty to defend. The Motion Judge answered both questions in the affirmative. The determination of both questions turned on whether a go-kart was an "automobile".

The Ontario Court of Appeal found that the Policy did not cover the claim made by Adams and that it did not cover damages for injuries resulting from a go-kart accident in the circumstances of the case. The Insurer did not have a duty to defend the Insured in the main action or in the cross-claim by Pineland. The Third Party Claim was dismissed with costs.

The question of whether a go-kart is an automobile was decided pursuant to the three-part test set out in Grummet v. Federation Insurance Co. of Canada (1999), 46 O.R. (3d) 340 (S.C.J.):

"1. Is the vehicle an 'automobile' in ordinary parlance?

If not, then,

2. Is the vehicle defined as an 'automobile' in the wording of the insurance policy?

If not, then,

3. Does the vehicle fall within any enlarged definition of 'automobile' in any relevant statute?"

An affirmative answer to any of these questions leads to the conclusion that the vehicle is insured by the standard Ontario automobile insurance contract.

The Motions Judge decided that a go-kart is not an automobile in ordinary parlance and that the definition of "automobile" in the Policy did not include go-karts. These findings were not challenged on appeal and the only issue was whether the go-kart fell within any enlarged definition of "automobile" in any relevant statute.

The governing definition is set out in section 224(1) in Part VI of the Insurance Act, R.S.O. 1990, c. I.8. Part VI deals with automobile insurance and section 224(1) defines "automobile" as follows:

"(a) a motor vehicle required under any Act to be insured under a motor vehicle liability policy, and

(b) a vehicle prescribed by regulation to be an automobile."

Section 224(1)(b) did not apply and therefore, under section 224(1)(a), a vehicle that is neither an automobile in ordinary parlance nor specifically defined to be one under a policy will be an "automobile" if it is required to be insured under a motor vehicle liability policy.

The Motions Judge concluded that because it was possible for a go-kart to be driven on a highway and, notwithstanding the fact that it would be illegal to do so, section 2 of the Compulsory Automobile Insurance Act prohibits the operation of a motor vehicle "on a highway unless the motor vehicle is insured under a contract of automobile insurance". On that basis, the Motions Judge found that a go-kart is an automobile.

The Court of Appeal disagreed with the Motion Judge's reasoning. The Court of Appeal found that this particular go-kart was not operated on a highway, but on a private go-kart track. Therefore, the question whether the go-kart would require motor vehicle insurance if it were illegally driven on a highway did not arise. The proper question was whether it required motor vehicle insurance at the time and in the circumstances of the accident. It did not and therefore was not "automobile" within the scope of the Policy.

The Insureds were entitled to disability benefits under their respective policies with the Insurer as a result of injuries which they had suffered. Disability benefits were paid to each of the Insureds, but the Insurer deducted from the amount of entitlement CPP benefits paid to the Insureds and the secondary or dependent child's CPP benefit that each of the Insureds received by virtue of having dependent children.  The Insureds claimed that the deduction of the dependent child CPP benefit was unlawful and that, as a matter of contract interpretation, the LTD policies did not authorize the offset of CPP benefits payable to their children. Alternatively, the Insureds argued that the offsets were contrary to public policy. They claimed damages for breach of contract and punitive damages.

The primary issue before the Court was to determine the nature of the relationship between private LTD insurance and disability benefits provided to contributors under the Canada Pension Plan (the "Plan").

Under the Plan contributors are entitled to certain benefits, and, in some circumstances, a disability pension. A disabled contributor's child is also entitled to receive a child benefit paid directly to him or her, or, in the case of a dependent child, paid to the disabled contributor. The disabled contributor's child benefit is established by s. 59 of the Plan. The Court observed that while the disabled contributor's child benefit belongs to the children, this is not determinative of the issue of whether the Insurer can offset the dependent child benefit from the amount payable to the Insured.  This issue, the Court said, is a matter of interpretating the insurance contract and a matter of private, not public, law.

The Court noted that the exception in s. 65 to the prohibition against assignment of a contributor's pension benefit was designed to recognize the integration of public and private insurance and that it implicitly endorses or accepts that insurers providing LTD benefits will offset CPP benefits. The exception encourages the insurer to make an overpayment pending a subsequent CPP disability pension that may be used to reimburse the insurer for the overpayment. 

The Court noted that an important factor in determining the cost of private LTD insurance is the amount of benefits, which are expected to be paid by the Insurer. The amount of expected claims is reduced by reducing the amount paid by the Insurer or deducting or offsetting other sources of income replacement received by the employee, including benefits paid under the Plan. The expert who testified on behalf of the Insureds indicated that "private insurance premiums in the aggregate are much lower than they would otherwise be because [the CPP disability benefit] is treated by private insurance as the first payor".

The Court reviewed the wording of the contracts of insurance in issue and found that the provisions allowing for an offset of CPP benefits were unambiguous such that there was no need to apply the contra proferentem rule to interpret their meaning. The Court held that the clear language of the policies authorized the offset of the disabled contributor's child benefit from the amount paid for LTD benefits. In doing so, the Court considered the factual background at the time when the insurance contracts were signed and specifically, the fact that the Insurers and those purchasing private LTD insurance understood that offsets of CPP benefits were an option that would reduce the price of the premium.

The Court rejected the argument that the CPP child benefit could not be an offset because it was not paid or payable to a disabled contributor, noting that for an offset, Clause 2(a) of Section 5 of the Policy required only that the disability benefit be payable under the Plan and did not specify to whom it was payable. The Court also rejected the Plaintiffs' argument that it was unfair to both the Claimant and his children to offset the children's CPP benefit against the private LTD insurance. In this regard, the Court noted that the offset is applied only when the child is an infant under the custody and control of the disabled contributor and the indirect beneficiary of the benefit is therefore the disabled contributor. When the child becomes adult, custody and control by a disabled contributor is at an end, as is the contributor's indirect benefit. When the indirect benefit ends, the offset also ends.

With regard to the argument that the offset provision is contrary to public policy and therefore illegal, the Court noted that the Plan does no regulate private insurance, and, rather, anticipates integration with and offsets in those private insurance policies. Further, the Court noted that the Federal Government had not acted on the Subcommittee's recommendation to make the offset of a child CPP benefit illegal.  The Court stated that declaring offsets illegal is a social policy decision yet to be made by Parliament.

In conclusion, the Court found that the Insureds had not established that it was contrary to public policy or contrary to the provisions in the Plan to limit the amount of LTD benefits by allowing an offset for the disabled contributor's child benefit.