CPP disability benefits and CPP dependent child benefits may be deductible from benefits received under a disability insurance policy

Two Insureds failed in an action against their private disability insurer claiming that it was wrong for the Insurer to have offset their children’s Canada Pension Plan (“CPP”) benefits against the Long Term Disability (“LTD”) benefits received by the Plaintiffs under the Policies.

Ruffolo v. Sun Life Assurance Company of Canada, [2007] O.J. No. 4541, Ontario Superior Court of Justice, P.M. Perrell J., November 21, 2007

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 interpreting 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 not 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.

This case was originally summarized by Shanti Davies and edited by David W. Pilley.

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