This appeal deals with the interpretation of a contract for additional underinsured motorist coverage and the application of the “collateral benefits rule”. The appeal court allowed the appellant insurer to set off against its own liability present and future long-term disability benefits received by the insured, pursuant to a private contract with another insurer. The appeal court held that the insurer enjoyed both a right of subrogation and an entitlement to an assignment with respect to its insured’s LTD benefits awarded because of a disability caused by the insured accident.

Campbell-MacIsaac v. Deveaux, [2004] N.S.J. No. 250, Nova Scotia Court of Appeal

This was the appeal of a trial decision arising out of a motor vehicle accident in 1995. Liability for the accident was admitted by the Defendant driver’s insurer, and the insurer paid the Plaintiff up to the limits of the policy. However the Plaintiff, Dr. Campbell-MacIsaac, was a dentist, and because of injury sustained in the accident she was forced to give up her career and sell her dental practice. The Defendant’s paid-in limits were not enough to compensate for her extensive losses, and she claimed indemnity under her own motor vehicle liability insurance policy issued by the Appellant, Lombard Insurance, which included additional underinsured motorist coverage up to a limit of $6,000,000.

Dr. Campbell-MacIsaac also had her own disability insurance with another insurer which entitled her to long-term disability benefits for as long as she remained unable to practice dentistry. At trial, Lombard argued that pursuant to the terms of the underinsured motorist coverage, it was entitled to deduct from the amount of damages awarded by the trial judge any amount she recovered for LTD benefits up to the date of trial, and the present value of future LTD benefits. Those arguments were rejected at trial, and the trial judge applied the collateral benefits rule.

The Appeal court analyzed the application of the collateral benefits rule, that is, the rule that a tortfeasor is not entitled to claim to its credit the value of private insurance benefits obtained by the insured Plaintiff through its own insurer. The court held that the rule has no application in a case involving a first party dispute in contract between an insured and an insurer. The tortfeasor is not a party to the dispute.

The Lombard policy included a right of subrogation, and specifically allowed that the amount payable under the policy was in excess to any amount recovered pursuant to any policy of insurance providing disability benefits. It also included a clause allowing Lombard an assignment of any right of action.

The Appeal court considered recent judgments, particularly Somersall v. Friedman, [2002] 3 S.C.R. 109, where the Supreme Court of Canada held that underinsured motorist coverage was a policy of indemnity such that an insured was to receive no more than full indemnity, and thus limiting the insurer’s liability to the actual loss proven. The court denied an insured the right to “profit” or be overcompensated under such a policy.

The Appeal court also considered Myers v. Zurich Insurance Co., [1992] 118 N.S.R. (2d) 379, where the court held that the underinsured motorist protection pays only “excess” amounts to any amounts actually recovered, and thus a claimant is not entitled to receive amounts for expenses which have been paid in full by others.

The Appeal court applied these principles strictly, and held that Dr. Campbell-MacIsaac was entitled to indemnity under the underinsured motorist policy only up to the extent of her loss, and thus cannot profit from the insurance.

The court went on to hold that interpretation of excess coverage protection intended by the underinsured motorist protection would not reflect the true intent of the parties, which was to provide excess coverage protection only, not to allow a windfall at the insurer’s expense.

The court also held that there was no basis upon which to distinguish between benefits paid up to the date of trial and benefits to be paid in future. Future benefits could be calculated based on weekly future contingencies.

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