The Federal Court released their decision in the veteran class action of Manuge v. Canada today, finding that the offset of disability benefits was a breach of Article 24(a)(iv) of the Service Income Security Insurance Plan (SISIP) Policy.
An overview of the case can be found in the December 2011 issue of The Lawyers Weekly, and McInnes Cooper, counsel for the plaintiffs have a list of key documents here. You can also see the class action website, which include a YouTube video.
The plaintiffs argued for an interpretation in favour of the insured under the contra proferentem principle. The defendant had argued privity of contract because the veterans were not parties. The court rejected this argument, noting that context takes precedence over strict literalism when interpreting insurance contracts, and noted,
 I do not accept that members of the Class are strangers to the SISIP Policy and legally incapable of advancing their own interpretation of the contractual language. Eli Lilly is distinguishable. It involved a licensing agreement in which the non-contracting party had no interest. By their very nature, policies of insurance are different; a beneficiary may be an insured party to the policy but even a non-contracting beneficiary has a legal interest sufficient to have the policy enforced and to argue for any interpretation that would be open to either of the contracting parties. The fact that the SISIP Policy is a group policy and that the CDS and Manulife are named parties does not support an argument that the covered CF members are not entitled to rely upon any of the interpretive rules that apply to insurance contracts generally…
 Indeed, in the context of the extant contractual relationship between the CDS and Manulife where the entire risk is underwritten by the CDS and managed by Manulife, the de facto insurer is the CDS and the de facto insureds are CF members. This is consistent with the history of the SISIP Policy which was drafted by the CDS and imposed by the CDS on CF members. CF members have always paid or contributed to the cost of the program and the SISIP Policy expressly recognizes their status as insureds: see for example SISIP Policy, Part I, art 27; SISIP Policy, Part III(A), arts 52-53. In particular, Article 52 describes how “an eligible member becomes insured” under the LTD plan. This express recognition of CF members as insureds under the SISIP Policy and their premium contributions are inconsistent with the Defendant’s argument that the only insured party is the CDS. In this context, it is the insured CF members and Canada, through the CDS, that have competing interests. Manulife is, in effect, a largely, if not entirely, disinterested third party that would have no apparent interest in contesting the views of its commercial partner on whose behalf it administers the plan.
The court also rejected the defendant’s use of the 1976 amendment to the policy and the parol evidence rule to demonstrate an underwriting purpose for the disputed terms to avoid the stacking of income benefits, because the benefits were for impairments to the activities in daily living and not income replacement alone,
 …There is nothing untoward or objectionable about a disabled CF member receiving a Pension Act disability award in addition to an LTD benefit to compensate for lost income.
The court dealt with the issue of double-recovery by citing Bannon v. McNeely and Jang v. Jang, which indicated that deductions should only be made when the benefit corresponds with a particular claim for damages, and only deducting from the particular head of damages involved,
 The Defendant’s interpretation of Article 24(a)(iv) of the SISIP Policy …results in the substantial under-compensation of disabled CF members following their release [and] …creates particular hardship for those who are the most in need of their Pension Act benefits because of disabling injuries.
 Viewed contextually and with the reasonable expectations of the parties in mind, what was the common intent behind the use of the word “income” to qualify the word “benefit”? Would anyone examining the SISIP Policy reasonably expect that a Pension Act disability benefit that bears no relationship to lost future income would, in the event of a disabling injury, be deducted from a CF member’s SISIP income replacement benefit? Of perhaps greater significance is whether a CF member who suffers a catastrophic combat injury at a level approaching 100% disability would expect to effectively receive nothing more than 75% of his CF income and to be treated the same as a CF member with a disability of lesser functional significance arising outside of his military service.