Supreme Court Judgments

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Supreme Court of Canada

Insurance—Disability insurance—Group policy offered by employer—“Presence at work” as condition of eligibility—Pre-existing illness—Condition stipulated in master policy not mentioned in individual certificate—Debt partly due—Amendment of pleadings—Time for filing proof of loss—Prescription—Insurance Act. R.S.Q. 1964, c. 295, s. 214 and 217—Code of civil procedure, art. 76 and 202.

The respondent, C.I.P. announced to its employees a long-term disability insurance plan which provided benefits equal to 50 per cent of the annual salary starting on the 181st day of such disability and continuing to age 65. The group policy issued by the respondent. Continental Casualty Co. stipulated that after an application is signed by an eligible employee, the insurance only becomes effective provided that he is then actively at work or, if he is not then actively at work because of disability, on the first day of the payroll period following or coincident with the date on which he returns to full-time work. The appellant was absent from work because of illness when C.I.P. distributed the booklet to its employees. But he filled and signed an application and he returned to work with the employer’s permission after having undergone a medical examination. His state of health forced him to stop work two weeks later.

A judgment holding that the appellant was contractually entitled to half his annual salary and condemning Continental Casualty Co. to pay the benefits to which he was entitled from the moment he stopped working, was reversed by the Court of Appeal. Hence the appeal to this Court.

Held: The appeal should be allowed as to Continental Casualty Co. but dismissed as to C.I.P.

C.I.P. really only acts as an intermediary for the disability insurance plan. It makes no contribution to

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the plan and receives no pecuniary benefit therefrom. This is not, therefore, a stipulation for the benefit of a third person. Each applicant is individually insured, and the certificate issued to him is evidence that this insurance exists. This is then a document to which s. 214 of the Insurance Act of the Province of Quebec applies and the condition of the group policy that is not set out in the certificate is not valid towards the insured.

As long as the declaration states facts supporting the conclusions the action must be allowed if those facts are established. Even if the plaintiff claims the whole of the debt when part only is due, the existence of his right to the whole will be recognized but judgment will be only given for what is due.

With regard to the amendment to the pleadings, the purpose of the right to amend is precisely to allow for the pleadings to be corrected, in order that the Court may rule on the true rights of the parties.

When the appellant received a premium refund from his employer, he did not intend to give up the disability benefits which he was still claiming.

Finally, it is clear that the condition relating to the time specified by the contract, within which to furnish a proof of loss was fulfilled and that the event insured against happened only after the end of the so-called “elimination period” so that the action was not brought beyond the time fixed.

APPEAL from a judgment of the Court of Queen’s Bench, Appeal Side, Province of Quebec[1], reversing a judgment of Mr. Justice Trépanier. Appeal allowed as to the insurance company and dismissed as to the respondent C.I.P.

P. Langlois, for the plaintiff, appellant.

Alfred Tourigny, Q.C., and R. St-Germain, for the defendant, respondent, Continental Casualty Co.

J. Smith, Q.C., for the defendant, respondent, Canadian International Paper Co.

The judgment of the Court was delivered by

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PIGEON J.—This appeal is against a decision of the Court of Appeal of Quebec reversing a judgment of the Superior Court, which had allowed the action of Charles Patrick O’Neill against the Continental Casualty Company (Continental) holding that plaintiff was entitled from February 23, 1966, to one half his $13,805.74 annual salary up to age 65, if he met the other conditions of Policy D-1, and ordering the said defendant to pay $19,568.16 with interest from each due date for 34 payments due up to December 23, 1968, and costs.

O’Neill was a longtime employee of the International Paper Company of Canada (International). He was born on February 7, 1913, and joined the company on January 9, 1931. He had worked at La Tuque since 1955, and had the responsible and well-paid position of “Boss machine Tender”, or “Tour Foreman”.

On January 13, 1966, the President of International, in a circular distributed to eligible salaried employees, announced three new insurance plans; the third of these, which concerns us here, was described as follows:

3. Salary Continuance Long-Term Disability Insurance. This plan provides a tax-free benefit equal to 50% of your salary up to a maximum benefit of $1,250 per month if you become totally disabled. This benefit would start with the 181st day of such disability and continue during the disability up to age 65. This insurance also provides, under certain circumstances, for an annuity to be paid to you commencing at age 65. Cost of this coverage is .648% of your gross insurable salary.

This document then goes on:

The Company will contribute to the cost of the additional life insurance plan.

The employees pay the full premium cost of the other two plans, but will enjoy group rates which are more than 50% lower than the current rates for the same insurance if bought on an individual basis.

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It is hoped to have the enrollment completed in time to put the plans into force by February 4th. Therefore, it is to your advantage to complete the applications as quickly as possible. Please note that the Salary Continuance Long-Term Disability Insurance Plan will go into force only if at least 75% of the eligible employees have enrolled.

O’Neill had been absent from work because of illness since November 2, 1965. It is admitted that his position made him eligible for the insurance in question. He was on the payroll and was receiving his full salary. But the group policy stipulated, as stated in the booklet distributed by International to its employees, that after an application is signed by an eligible employee, the insurance only becomes effective provided that “he is then actively at work. When an employee is not actively at work because of disability on the date his insurance otherwise would become effective, such insurance will become effective on the first day of the payroll period following or coincident with the date on which he returns to full-time work”.

At the beginning of February O’Neill, who had received the President’s circular in the mail, applied to return to work on the advice of his physician, Dr. Crête. The plant management required him to undergo a medical examination by the company doctor, Dr. Potvin; the latter testified that in his opinion O’Neill could not do his usual work, but could do certain work which he [TRANSLATION] “left up to management to decide”. The claimant’s uncontradicted testimony is that, following this examination, he was permitted to resume work on February 8, without any steps being taken other than to have a trainee junior boss assist him for three days, from February 20 to 23. However, his state of health forced him to stop work on February 23. The employer nevertheless continued to pay him his full salary until April, when he was declared permanently disabled.

On these facts the learned trial judge held that the condition stipulated for the contract to take

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effect had been fulfilled, and the insurer was bound. However burdensome might be for Continental the disability insurance benefit in favour of an employee who was admitted back to work for only two weeks after the insurance plan came into effect, it cannot on that account avoid its obligation. A clause in its contract expressly provided for the consequence of a sick employee returning to work. It is of little moment that the employer’s doctor advised against a return to work without limitation. What matters under the contract is the fact, established by uncontradicted evidence, that O’Neill resumed his duties and performed them for two weeks after signing the insurance application. Neither his classification or his salary were altered, and he was only given an assistant for the last three days.

Further, the question arises whether Continental is not precluded by s. 214 of the Insurance Act of the Province of Quebec, R.S.Q. 1964, c. 295, from availing itself of this condition stipulated in the group policy. The condition is not in fact reproduced in the certificate which is issued to O’Neill, but is only contained in the group policy issued to the employer. As we have seen, the latter really only acts as an intermediary for this disability insurance plan. He makes no contribution to the plan and receives no pecuniary benefit therefrom. This is not, therefore, a stipulation for the benefit of a third person. Each applicant is individually insured, and the certificate issued to him is evidence that this insurance exists. Is this not then a document to which s. 214 must be applied?

The majority in the Court of Appeal did not deny that the judgment at first instance holding that the existence of the contract of insurance had been established, and that O’Neill was contractually entitled to half his monthly salary up to age 65, was well-founded on the facts. However, the decision was reversed on the grounds that the claimant [TRANSLATION] “had not sued to assert his contractual right”. With respect, I cannot understand how this conclusion could

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have been reached in view of the Declaration in which plaintiff alleges, inter alia, that:

12. The Defendant-Employer and the Defendant-Insurer do jointly and severally owe, and are bound in law and in fact to pay the said sum of $75,900 to Plaintiff, more particularly for the following reasons:

(a) after filling out and signing of the application card on February 8th 1966, the Defendant-Employer did deduct amounts as premiums from the pay source of the Plaintiff and these sums were transferred or transmitted to Defendant-Insurer and the latter did receive and acknowledge these payments for the purpose of assuring Plaintiff for the benefits described and undertaken in writing, and verbally, including what appears in exhibit P-1;

(d) Plaintiff having received the explanations on the alleged new group insurance plan and the undertakings was in a position to transact in accordance with the solicitation made and more particularly on February 8th 1966, he was an employee of the Defendant-Employer;

(e) Plaintiff answered truthfully all questions put to him for the purpose of obtaining the benefits in the alleged group insurance plan and Defendants both knew all material facts for the purpose of granting these benefits including any question as to the health status of the Plaintiff; and in any event, the verbal and written undertakings expressly provided and provide that “every eligible employee who applies at the prescribed time will be insured regardless of current physical condition or medical history. No physical examination is required.”

(f) both, Defendant-Employer and Defendant-Insurer informed Plaintiff verbally and in writing that “all you need to do is complete the enrollment card and return it to the person designated to handle group insurance at your location” and Plaintiff did precisely that in accordance with directions given to him;

(g) Plaintiff’s claim to the amount of $75,900 is fully sustained and in conformity with the

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expressed provisions of the undertakings, as more fully shown in exhibit P-1;

In support of the decision of the Court of Appeal, counsel for Continental stressed that O’Neill’s action prays for the making of an order to pay jointly and severally the total amount of the benefits for the whole period of disability, and that such a conclusion is only justified if the case is approached from a delictual standpoint. To conclude that this requires the action to be wholly dismissed would be to return to the rules of procedure of Roman law, under which the result of the plus petitio was that the suitor lost his case. It has long ago been decided that claiming more than is justified by the allegations or the evidence does not have this effect. If, as here, a claimant seeks to have an order made against two defendants jointly and severally, whereas he is only entitled to recover against one of them, his unfounded claim against one will be dismissed, with costs. However, this will not deprive him of the right to recover from the other, though there can be no question of joint and several liability when there is only one debtor. Similarly, if the plaintiff erroneously claims the whole of the debt, whereas part only is due, as is the case here, the conclusion must be that of the trial judge: to recognize the existence of the right to the whole, but to make the order to pay only for what is due.

And if the facts alleged establish the existence of a contractual obligation, but not of a delictual obligation, the duty of the court is to grant the appropriate remedy under the law. Under art. 76 of the present Code of Civil Procedure, as under art. 105 of the former Code, a plaintiff need only state the facts and the conclusions. In this respect the rules of procedure in Quebec do not differ from the modern rules of procedure in English law: “… the pleadings need only state facts and not contentions of law” (United Africa Co. Ltd. v. SakaOwoade[2].

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With regard to the amendment to the Answer permitted by the trial judge, in order to tender back the premium of $75.68 which was deducted from claimant’s salary during the time he was employed after signing the insurance application, and which his employer later returned to him when Continental denied that the insurance existed, it should first be noted that this amount was returned in January of 1967, after a claim had been received by Continental for quite some time. Clearly O’Neill in no way intended, when he received this amount from his employer, to give up his disability benefits, which he was still claiming. The contention that an allegation of a new cause of action is to be found in the amendment is clearly wrong. It is merely a new reply to a ground of defence. The plaintiff simply realized he had been in error in initially replying to the allegation that this amount had been repaid: [TRANSLATION] “he is not claiming it in damages as an item of his claim”. The trial judge was correct in saying that this amendment was not the formulation of an “entirely new demand having no connection with the original demand”; the action clearly alleged a contractual undertaking, even though its conclusions were not wholly justified by that undertaking. The purpose of the right to amend is precisely to allow for the pleadings to be corrected, in order that the court can rule on the true rights of the parties.

Another ground of defence by Continental was that O’Neill did not furnish a proof of loss within the time specified by the contract. In the certificate of insurance, under the heading Part 13General Provisions, the following provision can be found:

In the case of claim for loss for which the policy provides any periodic payment contingent upon continuing loss, written proof of such loss must be furnished to the Insurer within ninety days after the

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commencement of the period for which the Insurer is liable.

In the present instance, the period for which the insurer is liable commences after expiry of the “elimination period”, which is 180 days from the beginning of total disability. The latter date was set at February 25, that is the first working day following the last day worked. The 180 days thus ended on August 22, 1966, and the period for which the insurer was responsible began on August 23. Now, O’Neill completed and signed on September 30 the claim form supplied by Continental; on October 14 this form was sent to the latter, which received it on the 17th. There is thus no doubt that the condition was fulfilled, and there is no need to consider whether the insurer who denies the existence of the contract is entitled to plead that formalities required therein were not performed.

It was also alleged that the claim was prescribed, in accordance with the opinion expressed in the Court of Appeal by Mr. Justice Turgeon. The latter did not explain how he came to this conclusion. He was undoubtedly misled by the fact that the trial judge, forgetting the “elimination period”, recognized the right to the disability benefit as dating from February 23, 1966. However, as we have seen, the disability period for which plaintiff was entitled to make his claim only began on August 23, 1966, and the action, instituted on July 25, 1967, was served on Continental on August 4. Under s. 217 of the Insurance Act of the Province of Quebec:

Any stipulation or agreement to the contrary notwithstanding, any action or proceeding against the insurer for the recovery of any claim under or by virtue of a contract of insurance of the person may be commenced at any time within one year next after the happening of the event insured against…

Since under the contract O’Neill was only entitled to disability benefits after the so-called “elimination period” of 180 days, it is clear that the event insured against did not happen until August 23, 1966. February 25 was only the

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beginning of the period during which the total disability continued. For such disability to give rise to a benefit, it had to continue longer than 180 days. The event cannot therefore be said to have happened before the end of this period; so long as it had not expired the right did not arise. Prescription does not begin to run before the right is born.

For these reasons, the judgment at first instance should be restored. However, certain modifications must be made thereto. Taking into account the “elimination period”, plaintiff was entitled to $575.24 not from February 23, 1966, but from August 23. The fact that International paid O’Neill his full salary until May 12, 1966, does not shift the beginning of the elimination period to that date, because such period is based on the disability, not on the non-payment of salary. Here, it is well established that the claimant was incapable of working after February 23, 1966. For some time he was merely ill and not permanently disabled, but one of the reasons for the elimination period is precisely to determine, for purposes of the insurance, whether the disability is temporary or permanent. The certificate states:

“Total disability” wherever used herein means the continuous inability of the Insured Employee to engage in each and every gainful occupation or employment for which he is reasonably qualified by reason of education, training or experience; provided, however, that during the applicable Elimination Period and the next twenty-four months of any such period of disability the Insured Employee shall be deemed totally disabled while he is both (1) unable to perform each and all the material duties pertaining to his occupation, and (2) not engaged in any occupation or employment for wage or profit.

With regard to the payments which were made by the employer for part of the period during which Continental was liable, there is no basis for its being given a credit in this respect as there is no evidence these payments were made on its behalf, and these were clearly not

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payments for services performed. Here again the aforementioned provision disposes of the objection.

There is no indication why the learned trial judge calculated the payments due up to December 23, 1968. Under the 1965 Code of Civil Procedure, an incidental demand is no longer necessary, as it formerly was, to assert a right accrued since the service of the action and connected with the right claimed by the original suit. Article 202 provides for an amendment for such purpose. The record shows that on the day of the trial, May 27, 1968, an amendment was allowed to increase the amount claimed to $81,764. In my view the date on which this amendment was made is the date for terminating the calculation of such payments due as could be made the object of an order by the Superior Court. It must be held, therefore, that on May 27, 1968, there were twenty payments due, or $11,504.80.

As to the appeal against International it need only be said, as the Court indicated at the hearing, that it is without foundation.

For the foregoing reasons, I would dismiss the appeal with costs as against the International Paper Company of Canada and allow it with costs as against Continental Casualty Company, reverse the decision given on the latter’s appeal so as to allow such appeal without costs to vary the judgment of the Superior Court against it by replacing the operative portion thereof with the following: Doth declare that Charles Patrick O’Neill is entitled to receive from Continental Casualty Company $575.24 per month, from August 23, 1966, until the age of 65, if he meets the other terms and conditions of the policy, and order the said Defendant to pay him, for twenty monthly payments due up to May 27, 1968, the sum of $11,504.80 with interest computed from each payment date since the first, and costs.

Appeal dismissed with costs as to Canadian International Paper Co.; appeal allowed with costs as to Continental Casualty Co.

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Solicitors for the appellant: Cutter, Langlois & Castiglio, Montreal.

Solicitors for the respondent, International Paper Co.: O’Brien, Home, Hall, Saunders, O’Brien & Smyth, Montreal.

Solicitor for the respondent, Continental Casualty Co.: Alfred Tourigny, Montreal.


[1] 1 [1971] Que. A.C. 703.

[2] [1955] A.C. 130 at p. 142.

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