QUEEN’S BENCH FOR SASKATCHEWAN  
Citation: 2019 SKQB 77  
Date:  
2019 03 15  
Docket:  
Judicial Centre:  
QBG 1775 of 2017 / QBG 1823 of 2017  
Saskatoon  
___________________________________________________________________________  
BETWEEN:  
ATWATER INVESTMENT LP  
Appellant  
- and -  
BMO LIFE ASSURANCE COMPANY  
Respondent  
Counsel:  
Gordon J. Kuski, Q.C., Pierre Barsalou,  
Philip Hambelin and Amanda M. Quayle  
Munaf Mohamed and Christine A. Viney  
Eliot N. Kolers and Sinziana R. Hennig  
for Atwater Investment LP  
for BMO Life Assurance Company  
for the intervenor, Canadian Life and Health  
Insurance Association  
Table of Contents  
Introduction ........................................................................................................................................ 1  
Regulatory Intervention and Its Impact ........................................................................................... 4  
Core Issues to Decide ....................................................................................................................... 12  
Facts in Brief ..................................................................................................................................... 14  
The Atwater 1 and Atwater 2 Applications .................................................................................... 32  
The Law Respecting Contractual Interpretation .......................................................................... 41  
- Atwater 2 -  
1.  
2.  
3,  
The Fundamental precepts of contract interpretation ........................................................... 41  
Principles of interpretation specific to insurance contracts ................................................. 46  
The law respecting interpretation of Standard Form Contracts ........................................... 47  
(a)  
(b)  
(c)  
Sattva ........................................................................................................................ 49  
Ledcor ....................................................................................................................... 53  
Sabean ...................................................................................................................... 63  
The Contract Language to be Interpreted ..................................................................................... 66  
The Parties’ Positions on the Proper Interpretation ..................................................................... 67  
1.  
2.  
3.  
Atwater’s position on the interpretative principles to apply ................................................. 69  
BMO’s position on the interpretive principles to apply ........................................................ 74  
The parties’ disagreement on the applicable interpretive principles .................................... 77  
The Context to be Considered at Stage 1 Interpretation of the Contracts .................................. 83  
Stage 1 Interpretation of the Contracts .......................................................................................... 98  
1.  
2.  
Atwater’s Stage 1 interpretation ........................................................................................... 98  
BMO’s Stage 1 interpretation ............................................................................................... 99  
My Stage 1 Interpretation .............................................................................................................. 100  
Stage 1 Conclusion .......................................................................................................................... 121  
My Reasons for This Interpretation and Conclusions ................................................................ 128  
1.  
2.  
The insurance context meaning of “premiums” .................................................................. 128  
Harmonization of this interpretation of “premiums” with the balance of the contract ...... 141  
Stage 2 of the Interpretation .......................................................................................................... 143  
What are the Applicable Principles of General Contract Construction? ................................. 146  
1.  
2.  
Subsequent conduct considerations ..................................................................................... 150  
Parties are presumed to intend the legal consequences of their words and the use of  
dictionaries ........................................................................................................................... 153  
3.  
4.  
5.  
Precedent and prior case law .............................................................................................. 156  
Commercial certainty .......................................................................................................... 161  
Illegality and the use of interpretation to avoid it ................................................................ 162  
The Special Principles for Interpretation of Insurance Policies ................................................ 168  
My Stage 2 Interpretation Conclusion ......................................................................................... 185  
Atwater 2 ......................................................................................................................................... 189  
My Analysis of the Atwater 2 Application and Decision Thereon ............................................. 193  
1.  
I decline jurisdiction to grant the declaratory relief sought in Atwater 2 ........................... 193  
The Discretionary Nature of Declaratory Relief ......................................................................... 194  
- Atwater 3 -  
Declaratory Relief and Discretion Generally ............................................................................... 213  
Is Atwater 2 Outside the Two-Year Limitation Period? ............................................................. 219  
If I am Wrong to Decline Jurisdiction, My Alternative Decisions ............................................. 229  
1.  
Evidentiary Objections and My Rulings Thereon ....................................................................... 250  
1. The applicable law and analysis of the objection ............................................................... 260  
On the proper interpretation of the Income Tax Act and Regulations ................................ 229  
(a)  
(b)  
Affidavit evidence in other proceedings ................................................................. 264  
The affidavits filed in this proceeding .................................................................... 265  
The Regulatory Issues and Analysis ............................................................................................. 290  
1.  
2.  
The interpretation of regulations an overview of the law and applicable principles ....... 290  
The Regulation .................................................................................................................... 310  
My Analysis and Conclusions ........................................................................................................ 312  
1.  
On the variable insurance contract issue ............................................................................ 312  
Whether the Regulation has other than prospective effect .................................................. 321  
Is the Regulation declaratory of the law? ..................................................................... 321  
The vires issue ............................................................................................................... 328  
2.  
(a)  
(b)  
(c)  
Purposive analysis and interpretation of the Regulation assuming the Lieutenant  
Governor had the authority to pass retroactive regulations ......................................... 336  
Conclusion on the Regulatory Issues ............................................................................................ 355  
Conclusion ....................................................................................................................................... 356  
___________________________________________________________________________  
JUDGMENT  
SCHERMAN J.  
March 15, 2019  
___________________________________________________________________________  
Introduction  
[1]  
By originating applications (a form of summary procedure), Atwater  
Investment LP [Atwater] asks the Court to make declarations in respect of two  
contracts between it and BMO Life Assurance Company [BMO]. Reduced to their  
essence, the declarations Atwater seeks would interpret the contracts as having  
distinct life insurance and investment entitlements or purposes and declare that  
- Atwater 4 -  
Atwater is entitled to pay premiums, in such amounts as it chooses, into investment  
options provided for in the contracts. Among the investment options provided for in  
the contract are 10-year GIC-type investments that could pay interest at a rate that  
would be very attractive to investors in the current interest rate environment.  
[2]  
BMO opposes the declarations sought. Their position is that the purpose  
of the contracts in question, so-called Universal Life Insurance policies, is to provide  
life insurance and investments that are accrual tax exempt within such exempt limits  
as the Income Tax Act, RSC 1985, c 1 (5th Supp), permits for life insurance policies.  
Put another way, BMO says the investment opportunities provided by the contracts  
are inextricably linked to the core life insurance purpose and the investment  
opportunities provided are limited to investments within the exempt policy criteria  
under the Income Tax Act and its regulations (Income Tax Regulations, CRC, c 945)  
and/or to fund future life insurance premiums payable under the policy terms. They  
say the contracts or policies were never intended to permit insured parties to access  
distinct or stand-alone investment rights unconnected to the core life insurance  
purpose of the contracts.  
[3]  
This action was heard at the same time as two other proceedings  
brought by related entities Mosten Investment LP [Mosten] and Ituna Investment LP  
[Ituna] against The Manufacturers Life Insurance Company and Industrial Alliance  
Insurance and Financial Services Inc. respectively in which similar declarations or  
relief are sought by the applicants. Each of these insurers issued Universal Life  
Insurance policies which have similar provisions to the BMO policies. Among other  
positions, the insurance companies say that should the relief sought be granted, they  
face potential liquidity or solvency concerns since they anticipate, on the basis of  
information conveyed to them by the principals of the insureds, that the applicants  
will be utilizing the policies to deposit or invest unlimited amounts of monies to  
- Atwater 5 -  
access the returns provided. The Canadian Life and Health Insurance Association has  
intervened in each of the proceedings and advances the position that Universal Life  
Insurance policies were never intended to provide, nor should they be interpreted so  
as to permit the insureds, the investment opportunities the insureds seek in these  
proceedings.  
A Regulatory Intervention and Its Impact  
[4]  
The decision in each of the Ituna, Mosten and Atwater actions had been  
on reserve less than 30 days when the Lieutenant Governor’s Order in Council  
517/2018 was filed on October 26, 2018, as The Saskatchewan Insurance (Licence  
Condition) Amendment Regulations, 2018, Sask Reg 75/2018 [Regulation], under  
s. 467 of The Saskatchewan Insurance Act, RSS 1978, c S-26. The insurers take the  
position this Regulation makes the various applications of Ituna, Mosten and Atwater  
for declaratory relief moot. Therefore, they say I should, as an exercise of my  
discretion, dismiss the various applications.  
[5]  
The insurers say the Regulation makes the applications moot because  
the Regulation, with both retroactive and prospective operation:  
(a)  
(b)  
prohibits licensed insurers from receiving or accepting for  
deposit funds or payments in excess of the amount required to  
pay the “life insurance premium” for the “eligible period” of the  
contract;  
“life insurance premium” and “eligible period” are so defined as  
to apply to the subject policies and, in effect, prohibit the  
payment, into a life insurance policy or an associated side  
account, of any monies which are not for the purpose of paying  
- Atwater 6 -  
current or future premiums for the life insurance and current  
payment of amounts permitted to be held in a life insurance  
policy that is exempt from accrual taxation under the Income Tax  
Act; and  
(c)  
“deems” each contract for life insurance issued by a licenced  
insurer to contain the restrictions created by the Regulation.  
[6]  
Industrial Alliance, Manulife and BMO, with the support of the  
Canadian Life and Health Insurance Association [CLHIA] say the Regulation:  
(a)  
(b)  
is declaratory of what the law has always been as regards what  
constitutes a premium or premiums in the context of life  
insurance policies; or  
in the alternative, is valid retroactive or retrospective legislation  
which the Lieutenant Governor in Council passed pursuant to the  
authority he had under s. 467 of The Saskatchewan Insurance Act  
to address the mischief created by Ituna, Mosten and Atwater in  
these proceedings and for the protection of the life insured  
public.  
[7]  
Ituna, Mosten and Atwater take the position that:  
(a)  
(b)  
to interpret the Regulation as the insurers argue would make the  
Regulation ultra vires of the Lieutenant Governor in Council;  
on a proper interpretation of the Regulation, it is prospective in  
operation only and does not affect their vested rights; and  
- Atwater 7 -  
(c)  
in any event, if the Regulation has any retroactive or  
retrospective operation, there remain issues to be decided within  
their various applications.  
Ituna, Mosten and Atwater say that, in any event, I should decline to exercise any  
discretion I have to dismiss their application on the grounds of mootness and render  
my decisions on the applications heard before me in September 2018.  
[8]  
The parties’ positions with respect to the proper interpretation of the  
Regulation and their “mootness” positions were argued before me the week of  
February 11, 2019. There are, in effect, competing mootness issues that arise. As will  
be apparent, the issues the insurers take in respect of the effect of the Regulation are  
themselves effectively moot if I interpret the contracts as they argue I should.  
[9]  
Much concern was recently expressed of the need for “efficient use of  
judicial resources” and how and where that should factor into my decision on whether  
to render decisions on the grounds of mootness. I cannot help but observe the parties  
seem to be late converts to the dogmas concerning the efficient use of judicial  
resources.  
[10]  
Having regard to the following considerations:  
(a)  
(b)  
the time and investment made by the litigants and the court in the  
proceedings to date are, to use an accounting concept, “sunk  
costs”;  
appeals will likely be pursued given the very significant financial  
implications for all parties;  
- Atwater 8 -  
(c)  
given my interpretation conclusions, I could have taken an early  
exit and stopped my analysis at the end of my Stage 1  
interpretation of the contract. However, I concluded it to not be  
in the interests of the final resolution of the disputes nor an  
efficient use of judicial resources for me to not address the full  
range of the issues placed before me.  
(d)  
the potential combination and permutations of differing opinions  
or conclusions a court of appeal may have on the various issues  
could well result in an appeal court returning issues back to this  
Court to address or hear if a decision was not made in the first  
instance.  
(e)  
courts of appeal have frequently stated that they find helpful,  
perhaps even necessary, trial judgesassessments of all issues.  
Given the sequence of the decisions or opinions I have expressed, I concluded that it  
would not be an efficient use of judicial resources nor fulfillment of the  
responsibilities I have for me to not provide a trial judge’s analysis and conclusions  
on the bulk of the issues addressed before me.  
[11]  
I appreciate that, given what could be described as threshold  
conclusions, some of my following conclusions or opinions could be viewed as  
essentially obiter dicta. I do not view my conclusions following threshold conclusions  
as obiter. Rather, I view my judgment as a whole as addressing and deciding positions  
and arguments presented in the alternative that needed to be decided. In any event, I  
have chosen to engage on all issues and provided decisions on each with the objection  
of providing the Court of Appeal with the ability to make a final determination on  
each issue that might be raised in an appeal.  
- Atwater 9 -  
Core Issues to Decide  
[12]  
The central and overarching issue is the proper interpretation to be given  
to the standard form contracts in issue. More specifically, the core issue is whether:  
(a)  
(b)  
the contracts are life insurance policies that permit limited  
investment within the exempt from accrual taxationcriteria  
established under the Income Tax Act; or  
contracts that provide both policies of life insurance and  
unlimited investment, both within and outside the exempt from  
accrual taxationcriteria established under the Income Tax Act.  
[13]  
Among the more prominent subsumed issues that need to be addressed  
during the interpretation exercises are the following:  
(a)  
(b)  
What is or are the purpose(s) of the subject contracts?  
How is purpose to be determined? What, if any, “surrounding  
circumstance” evidence can be considered in determining the  
purpose(s) of the contracts?  
(c)  
(d)  
What is the meaning to be given to the undefined terms  
“premiums” and “premium payments” as used in the contracts?  
Does the contract language as a whole, and specifically language  
under the headings Side Account and Payment of Premiums,  
provide the insured a right to pay unlimited sums of monies as  
premiums and have amounts in excess of:  
(i)  
present and anticipated future cost of insurance, premium  
- Atwater 10 -  
tax and management fees; and  
(ii) qualifying exempt from accrual taxation investments in  
Investment Accounts;  
invested in selected interest-bearing accounts within the Side  
Accounts?  
Facts in Brief  
[14]  
While there are significant issues regarding what evidence is properly  
admissible, I do not need to address those issues at this stage of the decision. The  
parties are in fundamental agreement that under Sattva Capital Corp. v Creston Moly  
Corp., 2014 SCC 53, [2014] 2 SCR 633 [Sattva], which will be discussed in detail  
later, the permissible factual matrix does not include evidence of a contracting party’s  
subjective intention and the permissible factual matrix evidence consists only of  
objective facts known to the parties at or before the date of contracting. There is also  
agreement that a contract is to be interpreted as of the date it was made.  
[15]  
As indicated by the heading above, the objective of this section is to  
summarize the essential facts in brief and thereby provide a context for the following  
discussion of Stage 1 interpretation of the contracts. The concept of Stage 1  
interpretation is discussed below.  
[16]  
The contracts were both issued on February 18, 2002, by AIG Life  
Insurance Company of Canada [AIG] as the insurer. Extracts from the policy  
language are attached to this decision as Appendix A.  
[17]  
The applicant, insured and beneficiary was 605945 Saskatchewan  
Ltd. [605945]. The sole shareholder and officer thereof was one Conrad Walkom of  
- Atwater 11 -  
Estevan, Saskatchewan, stated occupation “Farmer”. The lives insured under Policy  
16551 were Conrad Walkom and his daughter Brittany, then a minor, and under  
Policy 13468 were Conrad Walkom and his daughter Shayla, then also a minor.  
[18]  
The Applications for Insurance were each dated January 23, 2002.  
Under the heading Plan Selection, Life Dimension Series 1 JLTD (i.e., joint last to  
die) was specified and an insurance amount of $3,455,650 was stated. Under Premium  
Information, it selected an annual premium, with a planned premium of $50,000.  
[19]  
A Universal Life Supplementary Questionnaire (to be Completed by  
Policyowner) was also completed and signed under the same date January 23, 2002.  
Under the headings:  
(a)  
(b)  
1. Coverage the option Joint Life (last to die) was selected;  
3. Tax Exempt Option opposite Face Amount Adjustment, the  
option Increase and Reversals was selected;  
(c)  
(d)  
4. Death Benefit Options the option Sum Insured was selected;  
5. Universal Life Riders none of the available options were  
selected;  
(e)  
(f)  
7. Investment Allocations five different Market Indexed  
Accounts in various percentages totalling 100% were selected;  
and  
8. Investment AllocationSide Account the same Market  
Indexed Accounts selections were made.  
- Atwater 12 -  
The questionnaire included the statement, I agree that the foregoing Options and  
Investment Allocations shall form part of the application for insurance made by me to  
AIG Life Insurance Company of Canada (AIG Life of Canada).”  
[20]  
The policies issued with issue and effective dates of February 18, 2002.  
Policy Information, page 5, designated the policies as Life Dimensions Investor  
Maximizerwith:  
(a)  
(b)  
(c)  
(d)  
(e)  
(f)  
the plan being Universal Life;  
the total annual minimum premium as $5,895.94;  
the total monthly minimum premium as $491.33;  
the planned premium as $5,417.00;  
the death benefit option as Sum Insured;  
the minimum sum insured as $0.00; and  
(g)  
a monthly administration fee of $10.00 and a provincial premium  
tax of 3% was indicated.  
Under Basic Coverages, page 6, the plan type was stated as Joint Last to Die and the  
cost of insurance option as Investor Maximizer Yearly Renewable Term. Pages 7  
to 9 stated the “Yearly Renewable Term Cost of Insuranceand “Additional Sum  
Insured Cost of Insurancefor the years 2002 to 2100 and a table of surrender charges  
showing the surrender charge on each Coverage Anniversary Date of February 18,  
2002, through February 18, 2011.  
- Atwater 13 -  
[21]  
An initial premium of $50,000 was paid by 605945 into each policy. No  
additional premium payments were made by 605945 into either policy while it was  
the insured under the policy.  
[22]  
On February 27, 2002, Conrad Walkom received an illustration of  
potential insurance coverage, fund values and total death benefits that might be  
achieved under the policies making various assumptions about investment returns  
achieved on monies in the Investment Account. These illustrations were, as per  
indications on the documents, prepared by AIG on February 19, 2002, and received  
by Conrad Walkom on February 27, 2002. Both dates are subsequent to the policy  
application dates of January 23, 2002, and the policy effective dates of February 18,  
2002. Given these illustrations were not produced and shared until after the contracts  
came into existence, I do not regard these illustrations as objective facts known to the  
parties at or before the date of contracting. In any event, given the specific assumption  
made in the illustrations, they do not provide me with relevant and objective factual  
matrix evidence that assists or informs me as to what the parties mutually understood  
about the contract’s purpose and intention.  
[23]  
To interpret these contracts, as of the date the contracts came into  
existence, I have to consider the language of the contracts themselves, the applications  
and questionnaires completed in connection with the applications and permissible  
context or factual matrix evidence that will be discussed below in this decision.  
[24]  
Subsequent to AIG entering into the contracts, the shares of AIG were  
acquired by an entity controlled by BMO Financial Group. On April 1, 2009, the  
name of AIG was changed to BMO Life Assurance Company.  
[25]  
Beyond the initial $50,000 premiums paid, no additional premium  
payments were made on either policy. This resulted in subsequent decreases in the  
- Atwater 14 -  
level of insurance coverage. By December 31, 2008, the amounts insured under both  
policies had been reduced significantly as permitted by the policies.  
[26]  
On December 31, 2008, Atwater acquired all rights and interests in  
respect of Policies 13468 and 16551 and subsequently provided to BMO notice of  
their assignments and changes of beneficiary to Atwater. The notices of assignment  
and changes of beneficiary were recorded by BMO on January 22, 2009.  
[27]  
After acquisition of the policies by Atwater, the contracts were amended  
so as to include Michael Hawkins as an insured life on both. Since July 18, 2011,  
Michael Hawkins has been an insured life on contract 16551, with a sum insured of  
$25,000 pursuant to a term rider to the policy. Atwater’s position is that on the death  
of Michael Hawkins, it is entitled to receive the $25,000 sum insured and the fund  
value on the last to die of Conrad Walkom and Brittany Walkom, which was  
$1,627.04 on February 17, 2016. In respect of Policy 13468, Atwater claims to be  
entitled to receive the sum insured, totalling $13,413.00, on the last to die of Conrad  
Walkom and Shayla Walkom.  
[28]  
Payments of $1,029,500 were made by Atwater to BMO into Policy  
13468 between January 20, 2009, and September 22, 2016, most of which were  
credited to the Side Account. In addition, transfers among accounts were made and  
various withdrawals totalling approximately $139,850 were made by Atwater.  
Atwater made or tendered payments of $1,730,500 to BMO for Policy 16551 between  
January 22, 2009, and October 5, 2016, most of which, to the extent accepted, were  
credited to the Side Account. In addition, various withdrawals totalling approximately  
$16,500 were made by Atwater.  
[29]  
By letter dated October 6, 2016, BMO advised Atwater that it would not  
accept disproportionately large deposits into the Side Account of Contract 13468 and  
- Atwater 15 -  
returned Atwater’s payments received since January 2016 totalling $907,000, together  
with interest of $749 for what it described as “a goodwill gesture for inconvenience”.  
The letter stated BMO would be willing to accept deposits totalling $11,731 to the  
13468 contract “based on [BMO’s] estimate of the present value of future Maximum  
Premiums allowed by CRA [Canada Revenue Agency] to maintain the tax-free status  
of the policy” and that it would “return any deposits” above that amount “as such  
deposits fall well outside the terms, spirit and intent of the policy”.  
[30]  
By another letter, also dated October 6, 2016, in respect of  
Contract 16551, BMO enclosed a cheque in the amount of $100,000 described as the  
“return” of Atwater’s deposits in September 2016 plus $10.00 interest as a “good will  
gesture for the inconvenience”. It also returned, uncashed, a cheque in the amount of  
$430,000 Atwater had forwarded to BMO as an additional premium payment on or  
about September 29, 2016. The letter continued that BMO would be willing to accept  
deposits to the contract totalling $16,509 based on its “estimate of the present value of  
the future Maximum Premiums allowable by CRA to maintain the tax-free status of  
the policy”. By a further letter of October 7, 2016, BMO returned an uncashed  
Atwater cheque of $1,200,000 that Atwater had tendered on or about October 5, 2016,  
to BMO as additional premiums for the policy, stating it was being returned for the  
reasons outlined in its October 6, 2016 letter.  
[31]  
There followed extensive correspondence between Atwater and BMO in  
which Atwater took the position that it was entitled, under the terms of the contracts,  
to make the additional premium payments it had tendered in the past and proposed to  
make in the future. BMO maintained its position that it was under no contractual  
obligation to accept premium payments beyond its estimate of the present value of the  
future maximum premiums allowed by the Canada Revenue Agency to maintain the  
tax-free status of the policies.  
- Atwater 16 -  
The Atwater 1 and Atwater 2 Applications  
[32] In an Originating Application originally filed on February 1, 2017, as  
QBG 20 of 2017, Judicial Centre of Estevan, and later transferred to the Judicial  
Centre of Saskatoon as QBG 1775 of 2017 [Atwater 1], Atwater seeks declarations  
that it is entitled to invest amounts, with no limits, into guaranteed-interest options  
within the Side Accounts of Policies No. 13468 and 16551.  
[33]  
By a second Originating Application filed October 24, 2017, as  
QBG 145 of 2017, Judicial Centre of Estevan, and later transferred to the Judicial  
Centre of Saskatoon as QBG 1823 of 2017 [Atwater 2], Atwater says the Policies  
never had or lost their status as tax-exempt life insurance policies. As later amended,  
Atwater essentially took the position that since the subject policies lost their  
tax-exempt status there is no limit on the premiums or amounts Atwater can pay into  
the Investment Accounts of the subject Policies and thereby access the guaranteed  
interest options available within the Investment Accounts, rather than within the Side  
Accounts. In Atwater 2, it asks for declaratory relief that gives effect to this position.  
[34]  
Atwater 1 and Atwater 2 were subsequently consolidated by Order of  
this Court, and continued in the Judicial Centre of Saskatoon. Subsequent to this  
consolidation, Atwater filed an application seeking to leave to amend its Originating  
Notice in Atwater 2. On August 2, 2018, on the filing of a Consent by the parties,  
Atwater was given leave to amend the Originating Application in Atwater 2. Then,  
during the hearing, Atwater was given leave to again amend its Originating  
Application in Atwater 2. Atwater and BMO have proceeded on the basis that,  
notwithstanding the consolidation, the Originating Applications in both Atwater 1 and  
Atwater 2 are before the Court for determination.  
[35]  
Atwater and BMO each presented detailed, comprehensive and distinct  
- Atwater 17 -  
submissions in respect of the relief sought in each of Atwater 1 and Atwater 2.  
[36]  
The relief sought in Atwater 1 is declarations that:  
(a) Atwater may make additional premium payments to the Contracts  
in such amounts and at such times as Atwater determines;  
(b) there is no limit on the amount that can be held by or for Atwater  
in the Side Accounts that form part of the Contracts; and  
(c) BMO is not entitled to refund premiums or funds held in the  
Contracts, either from the Investment Accounts or the Side  
Account in the absence of a request by Atwater.  
[37]  
The relief sought in Atwater 2, as detailed in a Fresh Second Amended  
Originating Application, filed October 18, 2018, is:  
(a) An order determining and declaring that Atwater has the  
following rights and privileges under two Life Dimensions –  
Investor Maximizer universal life insurance contracts, Policy  
Numbers 000013468 (the “13468 Contract”) and 0000016551  
(the “16551 Contract”, and, together with the 13468 Contract,  
collectively referred to herein as the “Contracts”) under which  
Atwater is insured by the respondent, BMO Life Assurance  
Company (“BMO”):  
(i)  
That any Investment Bonus payable under the  
Contracts to Atwater shall be credited on February 18  
of each calendar year;  
(ii)  
That any Cumulative Fund Bonus payable under the  
Contracts to Atwater shall be credited on February 17  
of each calendar year;  
(b) Following a decision that the Contracts are not exempt policies  
under the provisions of the Income Tax Act of Canada, a  
further order determining and declaring that Atwater has the  
following rights and privileges under the Contracts:  
(iii)  
That all funds paid to BMO under the Contracts are  
- Atwater 18 -  
and shall be held in the Investment Accounts that  
comprise the Fund Value under each contract and that  
BMO is not entitled to transfer any funds, whether  
currently held or subsequently paid under either  
contract, to the Side Account of the Contracts;  
(iv)  
With no balance in the Side Account of the Contracts,  
that any Investment Bonus payable under the  
Contracts to Atwater shall be calculated on each of the  
Investment Accounts that comprises the Fund Value  
which shall, with respect to each contract, represent all  
funds held under each contract;  
(v)  
With no balance in the Side Account of the Contracts,  
that any Cumulative Fund Bonus payable under the  
Contracts to Atwater shall be calculated on the Fund  
Value which shall, with respect to each contract,  
represent all funds held under each contract;  
(vi)  
That BMO shall not be entitled to effect the provision  
with respect to Additional Sum Insured under the  
Contracts and, as such, shall not be entitled to increase  
the amount of the life insurance coverage under either  
contract by up to the maximum amount permitted  
under the Income Tax Act of Canada (or by any  
amount including the lesser of $3,000,000.00 or four  
times the original Sum Insured) unless expressly  
instructed to do so by Atwater; and  
(vii)  
That the Exempt Status, Side Account and Investor  
Maximizer provisions of the Contracts cease to have  
any application to the Contracts and that the Contracts  
otherwise continue unaffected.  
(c) An Order granting the applicant costs of the within application,  
on a full indemnity basis.  
[38]  
The submissions of Atwater and BMO at the hearing first addressed the  
relief sought in Atwater 1 and, within those submissions, focused on the interpretation  
to be given to the contracts, with significant focus on Atwater’s position that anything  
paid by Atwater was a premium within the meaning of the policies and, thus, Atwater  
was entitled to access unlimited investments within the Side Accounts. Then, as a  
distinct topic, the parties addressed the Atwater 2 claim that the Policies never had or  
lost its tax-exempt status, with the consequence that Atwater could pay unlimited  
premiums for investment within the Investment Account of the Policies.  
- Atwater 19 -  
[39]  
These latter submissions involved complex arguments with relation to  
interpretation of the Income Tax Act, the Income Tax Regulations and the contract  
language, all as it related to tax-exempt status and requirements therefore. These  
submissions raised related issues as to whether or not Atwater 2 was brought within  
the applicable limitation period, whether the Court had the jurisdiction to provide the  
declaratory relief sought and issues related to the discretionary nature of declaratory  
relief.  
[40]  
Consistent with the approach taken by counsel in their submissions to  
the Court, this decision will deal first on the relief sought in Atwater 1 and then  
address, in a distinct section, the issues and arguments arising from the relief sought  
in Atwater 2.  
The Law Respecting Contractual Interpretation  
1.  
The fundamental precepts of contract interpretation  
[41]  
The contracts in question are standard form contracts and contracts in  
relation to insurance. Specific principles apply to the interpretation of contracts in  
each of these categories. Those principles need to be understood and applied against  
the background of the fundamental precepts of contract interpretation that apply to  
contracts generally. These precepts are not in dispute. A review of these fundamental  
precepts is necessary instruction to myself before I engage in the specific  
interpretation exercise at hand.  
[42]  
With regard to efficient use of judicial resources and the folly of  
attempting to improve on a proven product, I utilize the leading textbook, Geoff R.  
Hall, Canadian Contractual Interpretation Law, 3d ed (Toronto: LexisNexis, 2016)  
[Hall], to summarize in this decision those fundamental precepts of contract  
- Atwater 20 -  
interpretation. I quote or summarize the learned author’s discussion of those  
fundamental precepts I find apt for my own instruction in this case. I will, using the  
author’s numbering format, reference the section or paragraph from which I extract  
my summary of the text. However, with a view to efficiency of expression, I will not  
be more precisely identifying what is a quote, summary or a combination thereof.  
I take this liberty with a view to being concise and readable.  
[43]  
This section of my decision is background, albeit important background,  
to the more detailed discussion of the law respecting interpretation of standard form  
contracts and contracts of insurance that follows.  
[44]  
As the learned author states at 2.1.1, “Words and their context,  
therefore, are the primary theme of the law of interpretation of contracts, and set the  
parameters for the interpretive exercise.” He quotes Montréal (City) v 2952-1366  
Québec Inc., 2005 SCC 62 at para 15, [2005] 3 SCR 141, where the Court, in a clear  
encapsulation of principle, said: “Any act of communication presupposes two distinct  
but inseparable components: text and context.”  
[45]  
The fundamental precepts of contractual interpretation are set out and  
expanded upon by Hall in Chapter 2, with extensive foundation in the authorities he  
cites. Those fundamental precepts which I find significant to my analysis in this case  
include the following:  
2.2 A contract is to be construed as a whole with meaning given to  
all of its provisions, not just consideration of the specific words  
in dispute. The words of one provision must not be read in  
isolation but should be considered in harmony with the rest of the  
contract and in light of its purposes and commercial context.  
- Atwater 21 -  
2.3.1 Contractual interpretation is all about giving meaning to words in  
their proper context, including the surrounding circumstances in  
which a contract has arisen – usually referred to as the “factual  
matrix.  
2.3.2 The factual matrix constitutes an essential element of contractual  
interpretation in all cases, even when there is no linguistic  
ambiguity in the text of the document.  
2.3.4 and 2.3.5 The factual matrix does not include evidence of a  
contracting party’s intentions. It consists only of objective facts  
known to the parties at or before the date of contracting.  
2.3.6 The factual matrix evidence must not overwhelm the words of a  
contract and can only be used to clarify the parties’ intentions as  
expressed in the written agreement. It can not be used to  
contradict that intention, to create an ambiguity or have the effect  
of making a new agreement. In cases of conflict, the words will  
prevail over the context.  
2.5 Interpretation of the words of a contract is an objective exercise  
that seeks to discover the parties’ intention at the time the  
contract was made, and the objective approach applies to both the  
words of the contract and their context. Thus, meaning must be  
assessed from the perspective of what a reasonable person would  
have objectively understood from the words of the document  
read as a whole and from the factual matrix.  
2.6 Commercial contracts must be interpreted in accordance with  
- Atwater 22 -  
sound commercial principles and good business sense. This  
commercial efficacy principle is grounded in the intentions of the  
parties and assessed objectively referencing the language of the  
contract as a whole and the factual matrix. The purpose of the  
commercial efficacy principle is not to protect business people  
from absurd results but, rather, is used to inform what the parties  
likely intended. Commercial absurdities are to be avoided.  
2.8 A contract is to be interpreted as of the date it was made.  
3.2 In the event the court is unable to resolve a contradiction or  
ambiguity in the terms of a contract, the language of the contract  
will be construed against its author in accordance with the contra  
proferentem rule. This rule is only applied as a last resort.  
2.  
Principles of interpretation specific to insurance contracts  
[46]  
Once again I turn to Hall’s text for statements of the principles of  
interpretation specific to insurance contracts. Commencing at page 241, he lists nine  
special principles in the following words:  
The interpretation of insurance policies involves a somewhat unique  
blend of the general principles of interpretation applicable to all  
contracts and special principles applicable in the insurance context.  
As a result, the Supreme Court of Canada has described insurance  
policies as forming “a special category of contracts”:  
As with all contracts, the terms of the policy must be examined, in light  
of the surrounding circumstances, in order to determine the intent of the  
parties and the scope of their understanding. Nevertheless, through its  
long history, insurance law has given rise to a number of principles  
specific to the interpretation of insurance policies.  
Thus the principles of interpretation which apply to insurance  
contracts are the same as those generally applicable to commercial  
contracts, but at the same time nine special principles also govern the  
- Atwater 23 -  
interpretative process:  
1. The court should look at the words of the contract to determine if  
there is ambiguity.  
2. The court should ascertain the intention of the parties concerning  
specific provisions by reference to the language of the entire  
contract.  
3. The court should construe ambiguities found in the insurance  
contract in favour of the insured (the contra proferentem rule).  
4. The court should limit the construction in favour of the insured  
by reasonableness.  
5. Coverage provisions should be construed broadly and exclusion  
clauses should be construed narrowly.  
6. It is desirable, at least where a policy is ambiguous, to give effect  
to the reasonable expectations of the parties.  
7. Policies of insurance should be interpreted in a manner  
consistent with the general economic purpose of insurance.  
8. In general, an insurance policy is interpreted such that only  
fortuitous or contingent losses are covered (the fortuity  
principle).  
9. There is an increased willingness to rely on precedent, including  
in some cases American authorities, for insurance contracts than  
there is for other types of contracts.  
3.  
The law respecting interpretation of Standard Form Contracts  
[47]  
Within this topic lies fundamental disagreement between Atwater and  
BMO, as well as between Mosten and Ituna and their respective insurers in the  
proceedings among them.  
[48]  
At page 222 of his text, Hall has a four-paragraph discussion of the law  
relating to the interpretation of “contracts of adhesion” or what are described herein as  
standard form contracts. Hall’s text was published in 2016 following the Sattva  
decision, which was in large part responsible for Hall issuing the third edition of his  
- Atwater 24 -  
text. However, the text was published before two important decisions of the Supreme  
Court that are significant here. These two significant decisions of the Supreme Court  
dealing with the interpretation of standard form contracts are:  
Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co.,  
2016 SCC 37, [2016] 2 SCR 23 [Ledcor]; and  
Sabean v Portage La Prairie Mutual Insurance Co., 2017 SCC 7,  
[2017] 1 SCR 121 [Sabean].  
(a)  
Sattva  
[49]  
Sattva had its origins in a judicial review of an arbitration award, made  
under the Arbitration Act, RSBC 1996, c 55 [AA], interpreting a negotiated  
commercial agreement. The Supreme Court stated at paragraph 1 of its decision that  
the first issue in the appeal was:  
[1]  
When is contractual interpretation to be treated as a question  
of mixed fact and law and when should it be treated as a question of  
law? …  
If treated as a question of mixed fact and law, the applicable standard of review would  
be reasonableness; if treated as a question of law, the standard of review would be  
correctness. The Court found the appropriate standard of review to be applied to  
commercial arbitration decisions under the AA to be reasonableness.  
[50]  
It is important to note that the contract in question in Sattva was a form  
of negotiated agreement and not a standard form agreement. In that context,  
Rothstein J., writing for the Court, said the following at paragraphs 47, 48 and 55:  
[47]  
Regarding the first development, the interpretation of  
contracts has evolved towards a practical, common-sense approach  
not dominated by technical rules of construction. The overriding  
- Atwater 25 -  
concern is to determine “the intent of the parties and the scope of  
their understanding” (Jesuit Fathers of Upper Canada v. Guardian  
Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at  
para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British  
Columbia (Transportation and Highways), 2010 SCC 4, [2010]  
1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a  
decision-maker must read the contract as a whole, giving the words  
used their ordinary and grammatical meaning, consistent with the  
surrounding circumstances known to the parties at the time of  
formation of the contract. Consideration of the surrounding  
circumstances recognizes that ascertaining contractual intention can  
be difficult when looking at words on their own, because words  
alone do not have an immutable or absolute meaning:  
No contracts are made in a vacuum: there is always a setting in which  
they have to be placed. ... In a commercial contract it is certainly right  
that the court should know the commercial purpose of the contract and  
this in turn presupposes knowledge of the genesis of the transaction, the  
background, the context, the market in which the parties are operating.  
(Reardon Smith Line [[1976] 3 All ER 570], at p. 574, per Lord  
Wilberforce)  
[48]  
The meaning of words is often derived from a number of  
contextual factors, including the purpose of the agreement and the  
nature of the relationship created by the agreement (see Moore  
Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R.  
(2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and  
McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors  
Compensation Scheme Ltd. v. West Bromwich Building Society,  
[1998] 1 All E.R. 98 (H.L.):  
The meaning which a document (or any other utterance) would convey  
to a reasonable man is not the same thing as the meaning of its words.  
The meaning of words is a matter of dictionaries and grammars; the  
meaning of the document is what the parties using those words against  
the relevant background would reasonably have been understood to  
mean. [p. 115]  
[55]  
Although that caution was expressed in the context of a  
negligence case, it applies, in my opinion, to contractual  
interpretation as well. As mentioned above, the goal of contractual  
interpretation, to ascertain the objective intentions of the parties, is  
inherently fact specific. The close relationship between the selection  
and application of principles of contractual interpretation and the  
construction ultimately given to the instrument means that the  
circumstances in which a question of law can be extricated from the  
interpretation process will be rare. In the absence of a legal error of  
the type described above, no appeal lies under the AA from an  
arbitrator’s interpretation of a contract.  
- Atwater 26 -  
[51]  
Following the above, Rothstein J. undertook a discussion of “The Role  
and Nature of the ‘Surrounding Circumstances’” wherein he said the following:  
[57]  
While the surrounding circumstances will be considered in  
interpreting the terms of a contract, they must never be allowed to  
overwhelm the words of that agreement (Hayes Forest Services  
[2008 BCCA 31, 289 DLR (4th) 230], at para. 14; and Hall, at p. 30).  
The goal of examining such evidence is to deepen a  
decision-maker’s understanding of the mutual and objective  
intentions of the parties as expressed in the words of the contract.  
The interpretation of a written contractual provision must always be  
grounded in the text and read in light of the entire contract (Hall, at  
pp. 15 and 30-32). While the surrounding circumstances are relied  
upon in the interpretive process, courts cannot use them to deviate  
from the text such that the court effectively creates a new agreement  
(Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc.  
(1997), 101 B.C.A.C. 62).  
[58]  
The nature of the evidence that can be relied upon under the  
rubric of “surrounding circumstances” will necessarily vary from  
case to case. It does, however, have its limits. It should consist only  
of objective evidence of the background facts at the time of the  
execution of the contract (King [2011 MBCA 80, 270 Man R (2d)  
63], at paras. 66 and 70), that is, knowledge that was or reasonably  
ought to have been within the knowledge of both parties at or before  
the date of contracting. Subject to these requirements and the parol  
evidence rule discussed below, this includes, in the words of Lord  
Hoffmann, “absolutely anything which would have affected the way  
in which the language of the document would have been understood  
by a reasonable man” (Investors Compensation Scheme, at p. 114).  
Whether something was or reasonably ought to have been within the  
common knowledge of the parties at the time of execution of the  
contract is a question of fact.  
[59]  
It is necessary to say a word about consideration of the  
surrounding circumstances and the parol evidence rule. The parol  
evidence rule precludes admission of evidence outside the words of  
the written contract that would add to, subtract from, vary, or  
contradict a contract that has been wholly reduced to writing (King,  
at para. 35; and Hall, at p. 53). To this end, the rule precludes, among  
other things, evidence of the subjective intentions of the parties  
(Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., [1998] 2  
S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the  
parol evidence rule is primarily to achieve finality and certainty in  
contractual obligations, and secondarily to hamper a party’s ability to  
use fabricated or unreliable evidence to attack a written contract  
(United Brotherhood of Carpenters and Joiners of America, Local  
- Atwater 27 -  
579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, at pp. 341-42,  
per Sopinka J.).  
[60]  
The parol evidence rule does not apply to preclude evidence  
of the surrounding circumstances. Such evidence is consistent with  
the objectives of finality and certainty because it is used as an  
interpretive aid for determining the meaning of the written words  
chosen by the parties, not to change or overrule the meaning of those  
words. The surrounding circumstances are facts known or facts that  
reasonably ought to have been known to both parties at or before the  
date of contracting; therefore, the concern of unreliability does not  
arise.  
[52]  
This statement of the law by Rothstein J. falls within the scope of what  
Hall discusses in Chapter 2 of his text under the descriptor “Fundamental Precepts of  
Contractual Interpretation. Rothstein J. was specifically addressing the role of  
surrounding circumstances in contractual interpretation generally and the nature of the  
evidence that can be considered when interpreting a negotiated contract.  
Considerations specific to insurance contracts and standard form contracts were not  
addressed.  
(b)  
Ledcor  
[53]  
In September 2016, the Supreme Court handed down its decision in  
Ledcor. Writing for the Court, other than Cromwell J. who wrote a concurring  
decision, Wagner J. (as he then was) said at paragraph 20:  
[20]  
These appeals present an opportunity to clarify how  
Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2  
S.C.R. 633, applies to the interpretation of standard form contracts,  
sometimes called contracts of adhesion.  
[54]  
The standard form contract in question was a builders’ risk insurance  
policy which had been issued to the owner and general contractor of a building under  
construction and provided coverage to them and to all contractors and subcontractors  
working on the project for all builders’ risks, except specified excluded risks.  
- Atwater 28 -  
Builders’ risk policies were widely used in the construction industry, and there was an  
understanding by industry participants of the purpose of such policies. The contract  
had an exclusion clause that denied coverage for the “cost of making good faulty  
workmanship” but, as an exception to that exclusion, covered “physical damage” that  
“results” from the faulty workmanship. The interpretation of this exclusion clause was  
the specific issue before the Court.  
[55]  
In summarizing the Courts decision, Wagner J. said at paragraphs 4  
and 5 the following:  
[4]  
In my opinion, the appropriate standard of review in  
this case is correctness. Where, like here, the appeal involves the  
interpretation of a standard form contract, the interpretation at issue  
is of precedential value, and there is no meaningful factual matrix  
that is specific to the particular parties to assist the interpretation  
process, this interpretation is better characterized as a question of law  
subject to correctness review.  
[5]  
Regarding the appropriate interpretation of the faulty  
workmanship exclusion in all builders’ risk policies, I am of the view  
that the exclusion clause serves to exclude from coverage only the  
cost of redoing the faulty work. This interpretation is dictated by the  
general rules of contractual interpretation. It best represents the  
parties’ reasonable expectations, as informed by the purpose of  
builders’ risk policies, aligns with commercial reality, and is  
consistent with the jurisprudence on the matter. In this case, the cost  
of redoing the faulty work is that of recleaning the windows.  
Therefore, I would allow the appeals and hold that the windows’  
replacement cost is covered under the insurance policy.  
[56]  
In respect of his conclusion that the correctness standard of review  
should apply, Wagner J. said the following:  
[24]  
I would recognize an exception to this Court’s holding in  
Sattva that contractual interpretation is a question of mixed fact and  
law subject to deferential review on appeal. In my view, where an  
appeal involves the interpretation of a standard form contract, the  
interpretation at issue is of precedential value, and there is no  
meaningful factual matrix that is specific to the parties to assist the  
- Atwater 29 -  
interpretation process, this interpretation is better characterized as a  
question of law subject to correctness review.  
[57]  
Wagner J. explained why the reasons the Court gave in Sattva, for  
concluding the contractual interpretation there under consideration was a question of  
mixed fact and law subject to deferential review on appeal, were less compelling in  
the context of standard form contracts. Wagner J. said the following under the  
heading “Factual Matrix”:  
[28]  
While a proper understanding of the factual matrix is crucial to  
the interpretation of many contracts, it is often less relevant for standard  
form contracts, because “the parties do not negotiate terms and the  
contract is put to the receiving party as a take-it-or-leave-it  
proposition”: MacDonald [2015 ONCA 842, 127 OR (3d) 663], at  
para. 33. Standard form contracts are particularly common in the  
insurance industry, as Professor Barbara Billingsley observed in  
General Principles of Canadian Insurance Law (2nd ed. 2014), at p.  
56:  
As part of its business considerations and in advance of meeting with  
any particular client, an insurance company decides the terms and  
conditions under which it is willing to provide insurance coverage for  
certain common types of risk. This means that, in most situations, an  
insurance company does not negotiate the detailed terms of insurance  
coverage with individual customers. Instead, before entering into any  
insurance agreements, an insurer typically drafts a series of  
pre-fabricated contracts outlining the terms upon which particular kinds  
of coverage will be provided. These contracts are known as “standard  
form policies”. The insurer then provides the appropriate standard form  
policy to clients purchasing insurance coverage.  
[29]  
Parties to an insurance contract may negotiate over  
matters like the cost of premiums, but the actual conditions of the  
insurance coverage are generally determined by the standard form  
contract: Billingsley, at p. 58.  
[30]  
My colleague Justice Cromwell accepts that, for  
standard form contracts, there are usually no relevant surrounding  
circumstances relating to negotiation (para. 106). However, he  
observes that other elements of the surrounding circumstances such  
as the purpose of the contract, the nature of the relationship it  
creates, and the market or industry in which it operates have a role  
in the interpretation process.  
[31]  
I agree that factors such as the purpose of the  
contract, the nature of the relationship it creates, and the market or  
- Atwater 30 -  
industry in which it operates should be considered when interpreting  
a standard form contract. However, those considerations are  
generally not “inherently fact specificˮ: Sattva, at para. 55. Rather,  
they will usually be the same for everyone who may be a party to a  
particular standard form contract. This underscores the need for  
standard form contracts to be interpreted consistently, a point to  
which I will return below.  
[32]  
In sum, for standard form contracts, the surrounding  
circumstances generally play less of a role in the interpretation  
process, and where they are relevant, they tend not to be specific to  
the particular parties. Accordingly, the first reason given in Sattva  
for concluding that contractual interpretation is a question of mixed  
fact and law the importance of the factual matrix carries less  
weight in cases involving standard form contracts.  
[48]  
Depending on the circumstances, however, the interpretation  
of a standard form contract may be a question of mixed fact and law,  
subject to deferential review on appeal. For instance, deference will  
be warranted if the factual matrix of a standard form contract that is  
specific to the particular parties assists in the interpretation.  
Deference will also be warranted if the parties negotiated and  
modified what was initially a standard form contract, because the  
interpretation will likely be of little or no precedential value. There  
may be other cases where deferential review remains appropriate. As  
Iacobucci J. recognized in Southam [[1997] 1 SCR 748], the line  
between questions of law and those of mixed fact and law is not  
always easily drawn. Appellate courts should consider whether “the  
dispute is over a general proposition” or “a very particular set of  
circumstances that is not apt to be of much interest to judges and  
lawyers in the future” (para. 37).  
[58]  
Having said the above, Wagner J. turned to interpretation of the subject  
exclusion clause and, under the heading Rules Governing the Interpretation of the  
Policy”, said the following:  
[49]  
The parties agree that the governing principles of  
interpretation applicable to insurance policies are those summarized  
by Rothstein J. in Progressive Homes [2010 SCC 33, [2010] 2 SCR  
245]. The primary interpretive principle is that where the language of  
the insurance policy is unambiguous, effect should be given to that  
clear language, reading the contract as a whole: para. 22, citing  
Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC  
24, [2000] 1 S.C.R. 551, at para. 71.  
- Atwater 31 -  
[50]  
Where, however, the policy’s language is  
ambiguous, general rules of contract construction must be employed  
to resolve that ambiguity. These rules include that the interpretation  
should be consistent with the reasonable expectations of the parties,  
as long as that interpretation is supported by the language of the  
policy; it should not give rise to results that are unrealistic or that the  
parties would not have contemplated in the commercial atmosphere  
in which the insurance policy was contracted, and it should be  
consistent with the interpretations of similar insurance policies. See  
Progressive Homes, at para. 23, citing Scalera, at para. 71; Gibbens  
[2009 SCC 59, [2009] 3 SCR 605], at paras. 26-27; and  
Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery  
Insurance Co., [1980] 1 S.C.R. 888, at pp. 900-902.  
[59]  
Discussing the reasonable expectation of the parties, Wagner J. said:  
[65]  
Parties’ reasonable expectations with respect to the  
meaning of a contractual provision can often be gleaned from the  
circumstances surrounding the contract’s formation: Sattva, at paras.  
46-47. However, as discussed above, there is no factual matrix here  
that would assist in ascertaining the parties’ understanding of and  
intent regarding the Exclusion Clause. The Policy is a standard form  
contract. And, as the Court of Appeal noted at para. 15 of its reasons,  
there is no evidence that the parties gave any thought to the cleaning  
of the windows, the relationship of faulty workmanship to resulting  
damage, or anything else that would help in determining their  
reasonable expectations.  
[66]  
Therefore, in my view, the purpose behind builders’  
risk policies is crucial in determining the parties’ reasonable  
expectations as to the meaning of the Exclusion Clause. In a nutshell,  
the purpose of these polices is to provide broad coverage for  
construction projects, which are singularly susceptible to accidents  
and errors. This broad coverage in exchange for relatively high  
premiums provides certainty, stability, and peace of mind. It  
ensures construction projects do not grind to a halt because of  
disputes and potential litigation about liability for replacement or  
repair amongst the various contractors involved. In my view, the  
purpose of broad coverage in the construction context is furthered by  
an interpretation of the Exclusion Clause that excludes from  
coverage only the cost of redoing the faulty work itself in this case,  
the cost of recleaning the windows.  
[60]  
Then, under the heading “No Unrealistic Results”, Wagner J. spoke to  
the commercial efficacy precept in paragraphs 78 and 79 as follows:  
- Atwater 32 -  
[78]  
In discussing the interpretation of insurance policies in  
Consolidated-Bathurst [[1980] 1 SCR 888], at pp. 901-2, Estey J.  
stressed the need to avoid interpretations that would bring about  
unrealistic results or results that the parties would not have  
contemplated in the commercial atmosphere in which they sold or  
purchased the policy. The interpretation should respect the intentions  
of the parties and “their objective in entering into the commercial  
transaction in the first place”, as well as “promot[e] a sensible  
commercial result” (p. 901). See also Guarantee Co. of North  
America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 62,  
where this Court restated the importance of commercial reality,  
albeit in a different context. Interpreting the Exclusion Clause to  
preclude from coverage only the cost of redoing the faulty work  
aligns with commercial reality and leads to realistic and sensible  
results, given both the purpose underlying builders’ risk policies and  
their spreading of risk on construction projects.  
[79]  
As already discussed above, the interpretation  
advanced by the Insureds in these appeals best fulfills the broad  
coverage objective underlying builders’ risk policies. These policies  
are commonplace on construction projects, where multiple  
contractors work side by side and where damage to their work or the  
project as a whole commonly arises from faults or defects in  
workmanship, materials or design. In this commercial reality, a  
broad scope of coverage creates certainty and economies for both  
insureds and insurers. In my opinion, it is commercially sensible in  
this context for only the cost of redoing a contractor’s faulty work to  
be excluded under the faulty workmanship exclusion. Such an  
interpretation strikes the right balance between the two undesirable  
extremes described by Estey J. in Consolidated-Bathurst, at pp.  
901-2: “... the courts should be loath to support a construction which  
would either enable the insurer to pocket the premium without risk or  
the insured to achieve a recovery which could neither be sensibly  
sought nor anticipated at the time of the contract”. Under the Policy,  
the Insurers did not undertake to cover the “cost of making good  
faulty workmanship”, but they did promise to cover “physical  
damage [that] results” from that “faulty workmanship”. It can hardly  
be said that recovery for the damages to the Tower’s windows in the  
circumstances of this case could not have been sensibly sought or  
anticipated when the Policy was purchased.  
[61]  
In his concurring reasons, Cromwell J. disagreed with the view of  
Wagner J. that the first rationale underlying the Sattva decision did not apply to cases  
interpreting standard form contracts. He outlined this first rationale in paragraph 103  
of the decision as follows:  
- Atwater 33 -  
[103] Sattva explained that this was an appropriate  
development for two related reasons. First, contractual interpretation  
is not simply a question of ascribing an abstract legal meaning to the  
words, but rather of understanding those words in their full context.  
Second, this process of interpretation should generally be considered  
to be the application of a legal standard to the facts; in other words,  
contractual interpretation is generally a mixed question of law and  
fact which, under the Court’s standard of review jurisprudence, is  
generally reviewed for palpable and overriding error. Both of these  
related reasons, as we shall see, apply to interpreting all types of  
contracts.  
[62]  
With this background, Cromwell J. said the following:  
[106] I accept, of course, that standard form contracts generally do  
not have relevant surrounding circumstances relating to their  
negotiation because there was in no real sense any negotiation of  
their terms. However, standard form contracts, like all contracts,  
have many other surrounding circumstances: they have a purpose,  
they create a relationship of a particular nature and they frequently  
operate within a particular market or industry. These factors are all  
part of the context of the surrounding circumstances that must be  
taken into account in interpreting the text of the contract. As Lord  
Wilberforce put it in a passage cited with approval in Sattva, “In a  
commercial contract it is certainly right that the court should know  
the commercial purpose of the contract and this in turn presupposes  
knowledge of the genesis of the transaction, the background, the  
context, the market in which the parties are operating”: Reardon  
Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.), at  
p. 574, quoted in Sattva, at para. 47. This point is further developed  
in a short passage from Investors Compensation Scheme Ltd. v. West  
Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), also quoted  
by the Court in Sattva, at para. 48:  
The meaning which a document ... would convey to a reasonable man  
is not the same thing as the meaning of its words. The meaning of  
words is a matter of dictionaries and grammars; the meaning of the  
document is what the parties using those words against the relevant  
background would reasonably have been understood to mean. [p. 115]  
[107] All contracts, whether standard form or not, have important  
contextual elements elements of their surrounding circumstances –  
that are generally considered in applying the contractual language to  
a specific set of occurrences.  
[108] Unlike my colleague, I do not read this aspect of Sattva as  
holding that contractual interpretation is not generally a pure  
question of law simply because it involves assessing a “factual  
matrix” relating to negotiation. Rather, as I have discussed, Sattva  
- Atwater 34 -  
sees contractual interpretation as not being a pure question of law  
because it involves understanding the words used in light of a  
number of contextual factors beyond negotiation, including the  
purpose of the agreement, the nature of the relationship, the market  
in which the parties are operating, and so forth. While the words  
have a consistent meaning, how they apply to the myriad of  
situations that may arise will most often turn on these sorts of  
contextual factors. My colleague’s interpretative analysis of the  
standard form contract before us in this case shows that this is so.  
That analysis relies on the nature of the particular work alleged to be  
faulty; the nature and cause of the particular damage in issue; the  
purpose of the contract; the market in which it operates (i.e. the  
construction industry); the parties’ reasonable expectations; and  
commercial reality.  
[109] The importance of taking these contextual matters into  
account is the first reason the Court relied on in Sattva to explain  
why contractual interpretation is generally not a pure question of law  
and applies to standard form contracts as it does to others. While  
negotiating history will generally not be relevant to such contracts,  
many other contextual matters are.  
[110] Turning to the second related reason given in Sattva, it too  
applies to the interpretation of standard form contracts. That second  
reason was that “the historical approach to contractual interpretation  
does not fit well with the definition of a pure question of law  
identified in Housen and [Canada (Director of Investigation and  
Research) v. Southam Inc., [1997] 1 S.C.R. 748]”: para. 49. Rather,  
contractual interpretation should be understood as generally giving  
rise to mixed questions of law and fact. As Rothstein J. wrote for the  
Court, “Contractual interpretation involves issues of mixed fact and  
law as it is an exercise in which the principles of contractual  
interpretation are applied to the words of the written contract,  
considered in light of the factual matrix”: para. 50. In short, Sattva  
brought appellate review of contractual interpretation into the  
general framework for appellate review in civil cases set out in the  
Court’s standard of review jurisprudence.  
[111] I see no reason to think that the interpretation of certain  
types of contracts should be excluded from these general principles  
that apply to appellate review in all civil cases. A number of  
appellate courts have reached the same conclusion: Industrial  
Alliance Insurance and Financial Services Inc. v. Brine, 2015 NSCA  
104, 392 D.L.R. (4th) 575, at paras. 40-41; Ontario Society for the  
Prevention of Cruelty to Animals v. Sovereign General Insurance  
Co., 2015 ONCA 702, 127 O.R. (3d) 581, at paras. 34-36; Acciona  
Infrastructure Canada Inc. v. Allianz Global Risks US Insurance  
Co., 2015 BCCA 347, 77 B.C.L.R. (5th) 223, at paras. 34-35; GCAN  
Insurance Co. v. Univar Canada Ltd., 2016 QCCA 500, at paras.  
37-42 (CanLII).  
- Atwater 35 -  
(c)  
Sabean  
[63]  
In January 2017, some four months after delivering its decision in  
Ledcor, the Supreme Court delivered its decision in Sabean. The case involved the  
interpretation of a standard form excess insurance policy endorsement which  
indemnified insureds against any shortfall in the payment of a judgment for damages  
by an underinsured tortfeasor. Part of the interpretive exercise involved interpreting  
the phrase “any policy of insurance providing disability benefits” and whether the  
Canada Pension Plan [CPP] was such a policy of insurance.  
[64]  
In a short 44-paragraph decision, the Supreme Court held that the CPP  
was not a policy of insurance. In paragraphs 12 and 13, the Court says the following  
in relation to its decision in Ledcor:  
[12]  
In Ledcor Construction Ltd. v. Northbridge Indemnity  
Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, this Court  
confirmed the principles of contract interpretation applicable to  
standard form insurance contracts. The overriding principle is that  
where the language of the disputed clause is unambiguous, reading  
the contract as a whole, effect should be given to that clear language:  
Ledcor, at para. 49; Progressive Homes Ltd. v. Lombard General  
Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at  
para. 22; Non-Marine Underwriters, Lloyd’s of London v. Scalera,  
2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71. Only where the  
disputed language in the policy is found to be ambiguous, should  
general rules of contract construction be employed to resolve that  
ambiguity: Ledcor, at para. 50. Finally, if these general rules of  
construction fail to resolve the ambiguity, courts will construe the  
contract contra proferentem, and interpret coverage provisions  
broadly and exclusion clauses narrowly: Ledcor, at para. 51.  
[13]  
At the first step of the analysis for standard form contracts of  
insurance, the words used must be given their ordinary meaning, “as  
they would be understood by the average person applying for  
insurance, and not as they might be perceived by persons versed in  
the niceties of insurance law”: Co-operators Life Insurance Co. v.  
Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also  
Ledcor, at para. 27.  
- Atwater 36 -  
[65]  
At paragraphs 28, 29 and 35, the Court also said the following:  
[28]  
In my view, the ordinary meaning of a “policy of insurance”  
is limited to private contracts of insurance between an insured and a  
private insurance agency. An average person would not consider  
benefits provided under a mandatory statutory scheme to be a private  
insurance contract.  
[29]  
The insurer submits and the Court of Appeal accepted that  
the meaning of “policy of insurance” under the Endorsement must be  
understood in the context of this Court’s decision in Gill [[1973] 3  
SCR 654]. Implicit in the approach urged by the insurer is the  
suggestion that this Court’s decision in Gill itself supports an  
alternative reasonable interpretation of the disputed words at the first  
stage of the Ledcor analysis. As I shall explain, I cannot accept this  
as a reasonable interpretation of this insurance policy. Gill does not  
interpret or inform the ordinary words of the Endorsement. Nor  
would the average person applying for this insurance contemplate the  
distinct tort and statutory context in Gill in understanding the words  
of the Endorsement. The insurer relies on its specialized knowledge  
of the jurisprudence to advance an interpretation that goes beyond  
the clear words of the policy.  
[35]  
First, it is wrong to rely on Gill to illustrate that insurance  
companies amended their policies in light of that judgment and thus  
intended to include CPP benefits. It cannot be assumed that the  
average person who applies to purchase this excess insurance policy  
would imbue the words in the Endorsement with knowledge of how  
they were interpreted by the courts for the purposes of provincial  
insurance legislation and the collateral benefits rule in tort. In this  
context, the purchaser is not someone with the specialized  
knowledge of related jurisprudence or of the objectives of the  
insurance industry. Thus, the history and intention of the insurance  
industry in drafting the Endorsement following Gill do not assist in  
the interpretation of this contract.  
The Contract Language to be Interpreted  
[66]  
There are two contracts which are the subject of this proceeding, but the  
language of the contracts is identical. While the contracts as a whole are to be  
interpreted, the focus of the submissions and the interpretational issues arises from  
certain portions of the contracts. Attached as Appendix “A” to this decision are  
- Atwater 37 -  
extracts from the contract. Included in Appendix Aare the significant portions of  
the contracts referenced by counsel in their submissions. However, the provisions that  
will figure most prominently in my interpretation of the contracts are quoted below:  
Net Premium  
The Net Premium is the premium received by Us less any applicable  
Federal and Provincial taxes, levies or similar charges on premiums  
paid by You.  
Premium Allocation  
Premium Allocation is the portion of the Net Premium directed  
toward a particular Investment Account. You can change the  
Premium Allocation by notifying Us in writing. The $30 fee charged  
for each change in Premium Allocation will be waived for the first  
three Premium Allocation changes in each Policy Year. The effective  
date of any Premium Allocation change will be the business day  
Your written request is received at Our head office, or later if so  
indicated.  
Investment Accounts  
Investment Accounts are savings pools to which Your premiums are  
directed and from which charges are deducted. They provide  
different levels of risk, liquidity and rates of return. We will offer a  
number of Investment Accounts from time to time. We guarantee  
that at least four Market Indexed Accounts, the Daily Interest  
Account and Guaranteed Interest Accounts will always be available  
to You. When an Investment Account is no longer being offered, We  
reserve the right to transfer the Account Value to another Investment  
Account then being offered by Us. There will be no charge when We  
make such a transfer. Any such transfer from a Guaranteed Interest  
Account will take effect only at the end of the selected term. Any  
such transfer will only take effect after We have advised You that a  
transfer is occurring.  
Exempt Status  
Exempt Status means this policy is exempt from accrual taxation  
under the provisions of the Income Tax Act of Canada in effect on  
the Policy Effective Date. An exempt test is done each Policy  
Anniversary. We will take action to maintain the Exempt Status.  
Should the definition of an exempt policy be amended, We will  
administer the next exempt test under the terms of the amendment.  
When an adjustment is required to maintain the Exempt Status of this  
policy, We will take action in the following order:  
1. We will increase the amount of life insurance coverage by up to  
- Atwater 38 -  
the maximum each year, as permitted under the current Income  
Tax Act and subject to an overall maximum increase of the  
lesser of four times the original Sum Insured or $3,000,000. Any  
such increase is referred to in this contract as Additional Sum  
Insured. This will only apply if the Life Insureds are living when  
the exempt test is done.  
2. We will transfer the excess funds to the Side Account, as  
described below.  
Side Account  
The Side Account is a special account that holds funds in excess of  
the maximum allowable tax exempt value calculated by the annual  
exempt test. During the first Policy Year, We will also credit to the  
Side Account any premiums that exceed the maximum premium  
determined by Us on the Policy Effective Date. You may elect to  
have funds in the Side Account accumulate under either the Daily  
Interest Account, Guaranteed Interest Account or Market Indexed  
Account as determined by You.  
However, the Side Account will not be entitled to any Investment  
Bonus, Cumulative Fund Bonus or Investor Advantage. Account  
Deductions will not be made from the Side Account. The Side  
Account is not included in the calculation of the Fund Value. The  
Side Account will be paid to You or Your estate in addition to the  
Death Benefit when the contract terminates. The investment income  
of the Side Account is subject to annual accrual taxation.  
Cash Withdrawals may be made from the Side Account and no  
administrative charges shall apply.  
If it appears to Us that this policy may lapse, We will transfer funds  
from the Side Account into the policy’s tax exempt Investment  
Accounts.  
Each year, the exempt test is redone as described in the Exempt  
Status provision. Transfers are made from or to the Side Account as  
required to keep the maximum amount in the tax exempt Investment  
Accounts, or if it appears to Us that this policy may lapse. Transfer  
fees will not apply to transfers to and from the Side Account. A  
Market Value Adjustment will apply to transfers from a Guaranteed  
Interest Account to an Investment Account other than a Guaranteed  
Interest Account of the same remaining term. Any transfer from the  
Side Account into the Investment Accounts will be treated as  
premiums and will therefore attract premium taxes as described in  
the Net Premiums provision.  
Payment of Premiums  
The initial planned premium, as shown in the Policy Information  
Pages, is due on the Policy Effective Date and must be paid before  
any coverage becomes effective. You may then pay premiums  
- Atwater 39 -  
annually, or by a monthly automatic payment system. You may  
make additional premium payments at any time while this policy is  
in force. We will not refuse any premium payment required to  
prevent the policy from terminating as described in the Lapse  
provision.  
[These provisions are not quoted in the order they appear in the  
contract.]  
The Parties’ Positions on the Proper Interpretation  
[67] The position of each of the parties is that the contracts are unambiguous  
and should be interpreted as they propose. Each says that if the contracts are found to  
be ambiguous, the relevant and properly admissible evidence of the surrounding  
circumstance or factual matrix leads to the interpretation they propose. Both Atwater  
and BMO rely on Sattva, Ledcor and Sabean and, for their respective reasons, say  
these decisions support the interpretation they propose.  
[68]  
Atwater says the bulk of the affidavit evidence filed by BMO is  
inadmissible and irrelevant evidence, and has applied to strike that evidence. BMO  
says its affidavit evidence is both admissible and relevant; but if struck by the Court,  
then on the same rationale advanced by Atwater, the reply and some original affidavit  
evidence of Atwater should be similarly struck. BMO has brought its own application  
to strike affidavit evidence of Atwater. Before considering these issues, I will deal  
with what has been designated the Stage 1 interpretive exercise.  
1.  
Atwater’s position on the interpretive principles to apply  
[69]  
Atwater says the proper interpretive approach is set out in Ledcor, and  
in particular in paragraphs 49 and 50 quoted at paragraph 58 above. Atwater points  
out this approach was again confirmed at paragraph 12 of Sabean in 2017.  
[70]  
Atwater says that at Stage 1 of the interpretive process of standard form  
- Atwater 40 -  
contracts of insurance, the focus is on the language of the contract and the ordinary  
meaning of the words as understood by the average person buying insurance. Sabean  
directs that:  
[13]  
At the first step of the analysis for standard form contracts of  
insurance, the words used must be given their ordinary meaning, “as  
they would be understood by the average person applying for  
insurance, and not as they might be perceived by persons versed in  
the niceties of insurance law”: Co-operators Life Insurance Co. v.  
Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also  
Ledcor, at para. 27.  
[71]  
Applying these principles, Atwater says there is no ambiguity and the  
proper interpretation is the one they advance, which is that since the contracts:  
(a)  
(b)  
(c)  
(d)  
create the Side Accounts as special accounts to hold any  
premiums paid that exceed the maximum allowable tax exempt  
value in the Investment Accounts;  
provides that any premiums paid that cause the maximum  
allowable tax-exempt value in the Investment Accounts to be  
exceeded will be credited to the Side Account;  
the insured has elected to have funds in the Side Account  
accumulate under a 10-year term guaranteed investment account  
option; and  
the contracts specifically state that the investment income in the  
Side Account is subject to annual accrual taxation;  
the ordinary insured would understand the contracts to provide life insurance,  
investment that is exempt from an annual accrual taxation within the Investment  
- Atwater 41 -  
Account and additional investment opportunities subject to annual accrual taxation in  
the Side Account, i.e., the contracts provide both insurance and independent  
investment rights.  
[72]  
Atwater says you do not need to consider anything but the clear  
language of the contracts. They place particular reliance on the statement, “You may  
make additional premium payments at any time while this policy is in force”, found in  
the section headed Payment of Premiums. They argue that everything the insured pays  
is premiums and, thus, the unambiguous meaning of this language is that the insured  
can pay additional premium payments at any time and that premiums in excess of the  
exempt policy rules are invested in the Side Accounts.  
[73]  
The alternative Atwater position is that if ambiguity is found to exist,  
then the applicable principles of general contract interpretation to apply are:  
(a)  
(b)  
(c)  
the interpretation should be consistent with the reasonable  
expectations of the parties that are supported by the language of  
the contract;  
the interpretation should not give results the parties would not  
have contemplated in the commercial atmosphere in which the  
contract was made; and  
the interpretation should be consistent with interpretations of  
similar contracts.  
Application of these principles, it says, resolves the interpretation in their favour. If  
these general rules of construction fail to resolve a genuine ambiguity, then the courts  
will construe the contract contra proferentem against the insurer.  
- Atwater 42 -  
2.  
BMO’s position on the interpretive principles to apply  
[74]  
BMO agrees that the starting point is the language of the contract but  
says, citing Sattva at para 47, that the interpretation of contracts has evolved towards a  
practical, common sense approach not dominated by technical rules of construction.  
BMO says the overriding concern is to determine “the intent of the parties and the  
scope of their understanding” and this approach applies to interpretation of standard  
form contracts at Stage 1. They point to Sattva’s directions in paragraphs 47 and 48,  
quoted above at paragraph 50 and take the position that the text cannot be interpreted  
without regard to the context.  
[75]  
BMO says this concept is at the core of modern contractual  
interpretation and Ledcor and Sabean need to be read in light of this fundamental  
principle of contractual interpretation. While acknowledging that the surrounding  
circumstances to be considered should consist only of objective evidence of the  
background facts at the time of the execution of the contract, it says failure to look to  
the surrounding circumstances known to the parties at the time of formation of the  
contract would result in interpreting the words of the contract out of context. Citing  
Sattva, at para 57, it says the goal of examining the surrounding circumstances is to  
deepen the decision-maker’s understanding of the mutual and objective intentions of  
the parties as expressed in the words of the contract.  
[76]  
BMO says that when the words of the policies are read in the context of  
their surrounding circumstances, it is clear that the ordinary person would not have  
understood the policies to provide the unlimited investment rights Atwater now  
claims. It says the meaning of “premiums” in a life insurance contract is well known  
and understood and does not include payments made for investments not connected  
with the life insurance purpose. Should the contracts be found to be ambiguous, they  
say the factual evidence they have presented is admissible to resolve that ambiguity  
- Atwater 43 -  
and clearly demonstrates what the intent of the parties was.  
3.  
The partiesdisagreement on the applicable interpretive principles  
[77]  
The parties agree with the proposition that the interpretive process starts  
by reference to the language of the contract. They diverge with respect to whether  
surrounding circumstance can and should be considered at Stage 1 of the  
interpretation process and, if considered, what is the proper scope of those  
surrounding circumstances. They disagree on what is the proper scope of such  
surrounding circumstances to consider within a Stage 2 interpretation should  
ambiguity be found.  
[78]  
Atwater views the decisions in Progressive Homes Ltd. v Lombard  
General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 SCR 245 [Progressive  
Homes], Ledcor and Sabean as establishing a distinct interpretive regime for standard  
form insurance contracts, while BMO’s position is that these decisions must be read  
in light of the underlying and applicable logic of Sattva. Both rely on the words of  
Wagner J., writing for the majority in Ledcor, where he said:  
[31]  
I agree that factors such as the purpose of the contract, the  
nature of the relationship it creates, and the market or industry in  
which it operates should be considered when interpreting a standard  
form contract. However, those considerations are generally not  
“inherently fact specificˮ: Sattva, at para. 55. Rather, they will  
usually be the same for everyone who may be a party to a particular  
standard form contract. This underscores the need for standard form  
contracts to be interpreted consistently, a point to which I will return  
below.  
[32]  
In sum, for standard form contracts, the surrounding  
circumstances generally play less of a role in the interpretation  
process, and where they are relevant, they tend not to be specific to  
the particular parties. Accordingly, the first reason given  
in Sattva for concluding that contractual interpretation is a question  
of mixed fact and law the importance of the factual matrix carries  
less weight in cases involving standard form contracts.  
- Atwater 44 -  
[79]  
BMO says that when Ledcor and Sabean are read properly, the  
fundamental precepts of contract interpretation reiterated in Sattva apply to Stage 1  
interpretation of standard form contracts. BMO views the words quoted above as  
supporting their position that at least the specifically noted aspects of the surrounding  
circumstances are to be considered at Stage 1, and they have a more expansive view  
of the scope of the purpose of the contract, the nature of the relationship created and  
the market in which it operates than does Atwater.  
[80]  
The Supreme Court was not absolute in its statement in Ledcor. It said,  
at paragraph 32, that “the surrounding circumstances generally play less of a role in  
the interpretation process” (emphasis added). Implicit in this conditional language is  
that there may be circumstances where the surrounding circumstances play a greater  
role. BMO says that the Court can look to the evidence they have proffered to  
determine the purpose of the contract, the nature of the relationship it creates, and the  
market or industry in which it operates.  
[81]  
Atwater says that to the extent to which the purpose of the contract, the  
nature of the relationship and the market in which it operates can be considered, these  
factors are, in this case, “the most benign of factors” and that the assistance to be  
gained from them in the interpretive process is “wafer thin”. There is, they say, no  
objective evidence of relevant surrounding circumstances at the time the contracts  
were formed which assists in the interpretation. The purpose of the contract, it says,  
must be determined from the words of the contract itself and not from the subjective  
aspirations or expectations of the insurer. Whatever the insurer may have subjectively  
thought, the purpose of the contracts is irrelevant. Atwater says the purpose of the  
contracts is clearly expressed within the contracts as providing life insurance and  
investment options.  
[82]  
Atwater says that it is only necessary to look to the contracts themselves  
- Atwater 45 -  
to ascertain the nature of the relationship created and the market within which they  
operate. The nature of the relationship is one of an insurer agreeing to provide  
insurance and investment options. The market within which this takes place is the life  
insurance industry, which did in fact offer to its insureds both life insurance and  
investment options.  
The Context to be Considered at Stage 1 Interpretation of the Contracts  
[83]  
The Supreme Court’s decision in Sattva was one of two decisions which  
caused the author Hall to issue the third edition of his text. In his rewrite, Hall deals  
extensively with how Sattva marks a significant shift in the Canadian law of contract  
interpretation. He outlines that the reaction of a number of courts of appeal to Sattva  
was that its logic did not apply to standard form contracts. He notes that the Supreme  
Court had granted leave to appeal the Alberta Court of Appeals decision in Ledcor  
and the British Columbia Court of Appeals decision in British Columbia (Ministry of  
Forests) v Teal Cedar Products Ltd., 2015 BCCA 263, 386 DLR (4th) 40, and  
expressed the hope that the Supreme Court would be able to clarify this issue. The  
Supreme Court has since delivered its decision in Ledcor, expressly stating that the  
appeal presented an opportunity to clarify how Sattva applies to the interpretation of  
standard form contracts.  
[84]  
Since standard form insurance contracts are contracts, the general rules  
of contract construction apply to their interpretation to some greater or lesser degree  
at some stage in the interpretive process. Those general rules must include what Hall  
describes as fundamental precepts of contractual interpretation in Chapter 2, as well  
as other elements or principles of contractual interpretation found elsewhere in the  
text where applicable. This is clear from paragraph 50 of Ledcor where Wagner J., in  
very concise form, summarizes what Hall calls the fundamental precepts of  
contractual interpretation. However, these general rules or fundamental precepts are  
- Atwater 46 -  
modified in their application to standard form contracts by the limited scope of the  
context permitted by the decisions in Ledcor and Sabean.  
[85]  
As early as the decision in Consolidated-Bathurst Export Ltd. v Mutual  
Boiler and Machinery Insurance Co., [1980] 1 SCR 888 [Consolidated-Bathurst], the  
Supreme Court directed that the general rules of contract construction only apply to  
insurance contracts in the event of ambiguity and, short of ambiguity, the courts are to  
give effect to the clear language of insurance policy. In the intervening years, the  
Supreme Court has reinforced this principle many times. There is, in my opinion, no  
question but that the Supreme Court had established in Progressive Homes, Ledcor  
and Sabean a distinct interpretation regime for insurance policies. The general rules of  
contract interpretation do not apply within what has come to be known as Stage 1  
interpretation of insurance contracts, where the focus is on the text of the contract.  
[86]  
The interpretation of standard form contracts proceeds in two distinct  
phases. In Stage 1, the focus is on the words of the contract, but those words must be  
read and understood within that limited context identified in paragraph 31 of Ledcor.  
The context to be considered, in either phase, is much more limited than the  
absolutely anything which would have affected the way in which the language of the  
document would have been understood by a reasonable man’” approach of Sattva.  
Resort to the general rules of construction in Stage 2 is only if ambiguity remains at  
the conclusion of Stage 1.  
[87]  
Progressive Homes was decided in 2010 and concisely summarized the  
primary interpretive principle applicable to insurance policies, being that if reading  
the contract as a whole the language of the policy is clear, the court is to give effect to  
it. The Supreme Court continued that when insurance contracts are ambiguous, the  
court then relies on general rules of contract construction and prefers interpretations  
which are consistent with the reasonable expectations of the parties.  
- Atwater 47 -  
[88]  
In 2014, Sattva held that the law with respect to contract interpretation  
has evolved towards a practical, common sense approach not dominated by technical  
rules of construction where the overriding concern is to determine “the intent of the  
parties and the scope of their understanding” within which the importance of the  
surrounding circumstances known to the parties at the time of the contract was viewed  
as necessary context to understanding the words used in the contract.  
[89]  
This decision dealt not with an insurance contract or other form of  
standard contract but with a situation specific contract negotiated between  
sophisticated business people engaged in the businesses of mining and exploration. A  
significant aspect of the decision and its reasons related to the standard of review that  
should apply to an arbitrator’s decision made under the AA of British Columbia.  
Fundamental to the decision was the Courts conclusion that the interpretive process  
there in question involved findings of fact that were entitled to deference on judicial  
review.  
[90]  
It may be assumed that when Sattva was decided in 2014, the Court was  
well aware of the distinct rules for the interpretation of insurance policies then in  
existence. Indeed, the Supreme Court in Sattva referenced Jesuit Fathers of Upper  
Canada v Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 SCR 744  
[Jesuit Fathers], in their decision. In Jesuit Fathers, the Court had held that because  
there was no ambiguity in the insurance policy in question, it was unnecessary to  
resort to the principles specific to the interpretation of insurance policies. There is  
nothing in the reasons for judgment of the Supreme Court in Sattva that suggests the  
decision was intended to alter what it had said in 2010 in Progressive Homes.  
[91]  
In March 2016, the Supreme Court expressly stated at paragraph 20 of  
its decision in Ledcor:  
- Atwater 48 -  
[20]  
These appeals present an opportunity to clarify how Sattva  
Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R.  
633, applies to the interpretation of standard form contracts,  
sometimes called contracts of adhesion.  
The majority reasons of Wagner J. then proceeded to provide an analysis of why the  
reasoning and conclusion in Sattva did not apply to the interpretation of standard form  
contracts.  
[92]  
Ledcor was followed in January 2017 with the Supreme Court’s  
decision in Sabean. It is significant to note that the appeal in Sabean was heard  
October 5, 2016, just after the September 15, 2016, delivery of the Court’s decision in  
Ledcor. All seven of the justices hearing and concurring on the decision in Sabean  
had also heard and concurred in the majority decision in Ledcor. Further, four of those  
same justices had heard the appeal and concurred in the reasons given in Sattva.  
[93]  
The conclusion I draw from the foregoing decisions is that the  
interpretation of standard form insurance contracts is subject to the distinct  
interpretive process outlined in Ledcor. The approach to interpretation set out in  
Sattva applies to negotiated contracts and is not generally to be applied to standard  
form insurance contracts, except that, as stated in paragraph 31 of Ledcor, “factors  
such as the purpose of the contract, the nature of the relationship it creates, and the  
market or industry in which it operates should be considered when interpreting a  
standard form contract.”  
[94]  
What Ledcor and Sabean did not address is what, in the first instance or  
Stage 1 of the interpretation process of standard form contracts, a court should or may  
look to when determining the purpose of the contract, the nature of the relationship it  
creates and the market or industry in which it operates. This is problematic when, as  
here, a core issue is what is the purpose of the contract. The decision of the Supreme  
- Atwater 49 -  
Court provides no specific guidance on an important metric, i.e., what can or should  
be considered when assessing the purpose of the contract.  
[95]  
I have concluded that in the circumstances of this case, the focus of my  
Stage 1 analysis should be:  
(a)  
(b)  
the language of the contract within the permitted context;  
any extant decisions relating to the standard form of contract in  
question;  
(c)  
reliable legal/academic analysis of the form of standard contract  
in question, i.e., universal life policies;  
(d)  
(e)  
relevant legislative provisions; and  
what the ordinary person entering into such contracts would  
know or should be taken to know about life insurance contracts.  
[96]  
These sources can provide guidance as to the purpose of the contracts,  
the nature of the relationship and the market in which the parties were operating. My  
analysis of these limited contextual elements does not include consideration of much  
of the evidence presented by either side because, for the most part, this evidence does  
not satisfy the criteria of being objective evidence confined to facts known, or  
reasonably capable of being known, by both parties before or at the date of  
contracting. Further, it does not fall within the permissible scope of context to be  
considered per Ledcor and Sabean. My detailed decision on the evidentiary issues is  
set forth in a subsequent section of this decision.  
[97]  
I conclude that the context informing my interpretation at Stage 1  
- Atwater 50 -  
should be so limited by reason of the following:  
(a)  
when interpreting a standard form contract, the court can not  
assess how widely that contract has been used and the impact that  
the interpretation will have on parties not before the court;  
(b)  
for policy reasons such as those discussed in Ledcor, the  
interpretation must be based solely on the words of the contract  
and the circumscribed contexts or surrounding facts as outlined  
in Ledcor, objectively identified and assessed;  
(c)  
(d)  
if surrounding circumstances specific to the subject contracts  
were considered, the objective of consistent interpretations would  
be compromised and precedential value lost; and  
the standard of review applicable to interpretation of standard  
form contracts has been clearly stated by the Supreme Court to  
be correctness. Correctness review cannot be effectively  
implemented if the original decision has been informed by a  
unique factual matrix specific to the contract in question.  
Stage 1 Interpretation of the Contracts  
1.  
Atwater’s Stage 1 interpretation  
[98]  
Atwater’s interpretive position, in brief, is:  
(a)  
universal life [UL] insurance contracts were designed, as stated  
in the contracts, to provide flexibility;  
- Atwater 51 -  
(b)  
the purpose of these UL contracts, as stated in the contracts, was  
to make available to the insured both life insurance protection  
and investment options;  
(c)  
(d)  
the contracts meet the definition of life insurance as defined by  
The Saskatchewan Insurance Act;  
“premiumsis an undefined term, and as used in the contract, the  
word “premiums” necessarily encompasses all sums paid by the  
insured to BMO in respect of the contract;  
(e)  
this meaning must be given to premiums because other  
provisions of the contracts provide that premiums can be  
invested, withdrawn and invested in the Side Account. Further,  
the contracts specify minimum premiums and planned premiums,  
but do not specify there is a maximum premium limit;  
(f)  
the Payment of Premiums provisions of the contracts expressly  
state the insured “may make additional premium payments at any  
time while this policy is in force”. This language expressly  
entitles Atwater to make additional premium payments at any  
time, in such amounts as it chooses, for investment in Side  
Account accounts; and  
(g)  
the restrictions BMO has attempted to impose on the payment of  
premiums amounts to a rewriting of the contract and to permit  
such would undermine the commercial efficacy of standard form  
contracts.  
- Atwater 52 -  
BMO’s Stage 1 interpretation  
2.  
[99]  
BMO’s interpretive position, in brief, is:  
(a)  
(b)  
The purpose of life insurance is to provide protection against the  
mortality risk with death benefits paid on the death of the insured  
life.  
The tax laws of Canada, now and at the time these policies were  
entered into, permit insurers to provide within permanent life  
insurance policies, as part of the death benefit to be paid, a  
permitted level of accrual income tax exempt investments.  
(c)  
UL insurance is a distinct product within the life insurance  
industry that allows policy owners flexibility as regards the type  
of the life insurance accessed, available death benefits, premium  
payment plans and accrual tax exempt investment options within  
specified limits.  
(d)  
(e)  
While a distinct product, UL insurance remains, at its core, life  
insurance. The investment opportunities provided are  
inextricably linked and flow from the life insurance coverage  
accessed.  
While not defined in the policies, “premiums” has a clear  
meaning in the context of any insurance policy. It is the  
consideration paid for the insurance coverage and is not, as  
Atwater maintains, so broad as to cover all payments made to the  
insurer, including those payments Atwater intends to be used for  
- Atwater 53 -  
investment which would not be tax sheltered.  
(f)  
The sentence, “You may make additional premium payments at  
any time while this policy is in force”, found under the heading  
Payment of Premiums, should not be interpreted as permitting  
Atwater to pay any amount of monies it wishes with a view to  
accessing unlimited investment options. Rather, it must be  
interpreted consistent with the ordinary meaning of premiums in  
the insurance context, i.e., permitting additional premiums to be  
paid for present and future life insurance coverage costs and the  
tax-sheltered investment opportunities permitted for the level of  
life insurance coverage insured. Payments beyond this level are  
not premiums, and BMO is under no obligation to accept such  
excess payments as premiums.  
(g)  
(h)  
The interpretation advanced by BMO is what the average person  
applying for a universal life insurance policy would expect.  
The literal interpretation Atwater advances would bring about a  
commercially unrealistic result that would not have been  
contemplated in the commercial atmosphere in which the  
contract was formed.  
My Stage 1 Interpretation  
[100]  
As per the directions in Ledcor, I interpret the contracts by careful  
attention to the language of the policies as a whole, having regard to the purpose of  
the contracts, the nature of the relationships created by the contracts and the market or  
industry in which the contracts were obtained. When determining such context  
- Atwater 54 -  
matters, I will proceed in the manner I outlined in paragraphs 95 to 97 above.  
[101]  
Adopting the descriptor used by counsel for Atwater, I find the context  
to be considered at Stage 1 to be “wafer thin”. Stated briefly, I find the relevant  
context to be as follows:  
(a)  
The purpose of the contracts, which I determine from the  
language of the contracts and the legislation applicable to life  
insurance, was to provide life insurance and investment  
opportunities on the terms therein set forth. There are no judicial  
decisions or reliable legal/academic analysis of universal life  
insurance policies which provide further guidance as to the  
purpose of such contracts or policies.  
(b)  
(c)  
The nature of the relationship was a contract between AIG and  
the corporation 605945, wherein AIG insured the lives of Conrad  
Walkom (principal shareholder and officer of 605945) and his  
minor daughters and provided for various investment options.  
The market or industry involved was the life insurance industry  
in Canada.  
[102]  
The core issues at this stage then are:  
(a)  
Is the investment purpose of the contracts limited to the tax  
sheltered investment permitted by the Income Tax Act, RSC  
1985, c 1 (5th Supp), as a function of the amount of life  
insurance provided under the policy or is it, as argued by  
Atwater, broader and independent investment options?  
- Atwater 55 -  
(b)  
What is the meaning of premiumsas the word is used in the  
contracts?  
[103]  
The insureds are told at page 1.5, in an Explanation of Contract, that  
they have purchased a universal life insurance policy and that because the policy is  
designed to be flexible, it can also seem very complex.” The insured is told frequently  
to read the policy carefully. There is no explanation within the document what a  
universal life insurance policy is or how it is different from whole life, permanent life  
or term life.  
[104]  
The text Jason A. Swales & Erdem Erinc, Canadian Insurance  
Taxation, 4th ed (Toronto: LexisNexis, 2015) at 143, states:  
Permanent insurance policies accumulate a cash reserve that is  
invested and used to subsidize mortality expenses in the later years  
of the contract. This cash reserve becomes available to the  
policyholder as a cash surrender value (CSV). …  
The text then continues at page 144 to say the following:  
The accrual rules were introduced in the 1981 federal budget,  
proposing that the investment income element of all insurance  
policies be taxed on a full accrual basis. At that time, triennial  
accrual by individuals was required for other investment vehicles, so  
it was proposed that the inside build-up of life insurance policies be  
taxed at least every three years. After intense lobbying by the  
insurance industry, a distinction was made between those policies  
that are primarily purchased as investment contracts and those that  
are primarily intended to be insurance contracts. The former type  
became subject to accrual taxation, while the latter type continued to  
build tax-deferred cash values.  
Thus, the exempt policy rules were introduced in 1982 to  
establish a standard, or benchmark, to distinguish between the  
primarily investment-type policies and the primarily insurance-type  
policies. …  
- Atwater 56 -  
[105]  
The submissions at the hearing did not explore this referenced  
distinction between “the primarily investment-type policies and the primarily  
insurance-type policies”. Canadian Insurance Taxation (which I am treating as  
reliable legal analysis) does inform me as to the historical fact that there was intense  
lobbying by the Canadian life insurance industry for accrual taxation to not apply to  
what the authors describe as those policies which are primarily intended to be  
insurance contracts as opposed to investment contracts and, thus, the exempt policy  
rules were introduced in 1982. Given that the subject contracts are clearly intended to  
access the accrual tax exemptions permitted by the Income Tax Act, it logically  
follows that the policies fall within the category of being primarily life insurance-type  
policies.  
[106]  
I was not provided with any judicial decisions, texts or academic  
discussions which explained what it is that makes the designation “universal”  
meaningful. The ordinary insured’s understanding of what a universal life form of  
policy provided would be what he or she could infer from reading the policy, which  
includes the statement that it is “flexible” and what he or she was told by the insurer’s  
sales agents. What such sales agents may have said in this case is unknown and, in  
any event, would be impermissible evidence of subjective intention.  
[107]  
Under the Exempt Status heading, page 3.3, the reader is told exempt  
status means the policy is exempt from accrual taxation under the provisions of the  
Income Tax Act. The average insured would or should understand that this exempt  
status was limited to those savings pools described under the heading Investment  
Accounts found at page 5.1  
[108]  
The first sentence of the Investment Accounts section tells the insured  
that Investment Accounts are savings pools to which his or her premiums are directed.  
The reader would understand that his or her premium payments under these contracts  
- Atwater 57 -  
provided not only life insurance but also limited income tax-exempt investment  
options. The reader is told that the insurer is guaranteeing to maintain the tax-exempt  
status of the policy and, thus, the tax sheltered growth of those qualifying savings or  
investments. There is nothing in the contracts that expressly states the only  
permissible investments are those specified under the heading Investment Accounts.  
However, by contrast, the language of Side Account provisions does not describe this  
Account as a savings pool.  
[109]  
Immediately following the Exempt Status heading at page 3.3 is the  
heading Side Account. The first sentence thereunder states, “The Side Account is a  
special account that holds funds in excess of the maximum allowable tax exempt  
value calculated by the annual exempt test.” The provision goes on to state premiums  
that exceed the maximum premium on the Policy Effective Date will be credited to it.  
Atwater argues that the statement that this Side Account holds funds in excess of the  
maximum allowable tax exempt value, in conjunction with other language, would  
lead the reader to conclude it was available for stand-alone investment options not  
tied to the life insurance policy portion of the contracts.  
[110]  
The third sentence states, “You may elect to have funds in the Side  
Account accumulate under either the Daily Interest Account, the Guaranteed Interest  
Account or Market Indexed Account as determined by you.” The last sentence of the  
next paragraph states, “The investment income of the Side Account is subject to  
annual accrual taxation.” An average insured reading this language would understand  
that funds held in this Side Account would generate income, but that such income is  
taxable.  
[111]  
At this stage in the interpretive process, I am satisfied the contracts are  
unambiguous in the following respects:  
- Atwater 58 -  
(a)  
(b)  
the policy provides for life insurance protection;  
the policy provides a mechanism for investment that can earn  
tax-sheltered income within the exempt status criteria of the  
policy; and  
(c)  
the policy provides that funds in excess of the cost of insurance  
and the investment in the tax-sheltered Investment Accounts will  
be held in and can be invested in the Side Account and that  
income accruing there will be taxed.  
[112]  
Atwater says its contractual right to pay “additional premiums” and,  
thus, to have them invested in the Side Account arises from the plain language of the  
Payment of Premiums provisions found at page 6.1. This paragraph includes the  
statement, “You may make additional premium payments at any time while this  
policy is in force.” A question that may be asked is additional to what?”  
[113]  
Reading the entire paragraph under the heading Payment of Premiums,  
the additional premiums are necessarily additional to the initial planned premium due  
on the Policy Effective Date and any subsequent annual or monthly premiums. There  
can be little doubt that the initial planned premium and the subsequent annual or  
monthly paid premiums would relate to the premiums needed to both maintain the life  
insurance and fund the permitted tax-sheltered investment connected to that life  
insurance contemplated.  
[114]  
The policies expressly contemplate that the amount of life insurance  
coverage provided can change, i.e., decrease or increase as outlined in the section  
headed Death Benefit Changes (page 3.2). Thus, if the insured wished to increase the  
sum insured, additional premiums would need to be paid beyond the initial planned  
- Atwater 59 -  
premium. In addition, there are provisions for the amount of life insurance coverage  
to be increased to maintain the exempt status of the policies. Payment of additional  
premiums, beyond the initial planned premiums, would trigger such increases.  
Additional premium payments would also include prepayment of future premiums.  
[115]  
Atwater says additional premium payments may also include monies  
paid to access taxable investments because:  
(a)  
(b)  
anything paid to BMO is a premium. There is no other descriptor  
used in the contracts for payments to the insurer; and  
There is no language which limits additional premium payments  
to funding investments within the Investment Account and which  
limits the amount of premiums that can be paid. The general  
permissive language must be given effect to. The words of the  
Payment of Premiums section make it clear that additional  
premium payments, i.e., premium payments beyond what is  
necessary to maintain the life insurance, can be made.  
[116]  
BMO says that in the context of an insurance policy, premiums has a  
well understood meaning that restricts premiums to monies paid for insurance. It cites  
the following dictionary definitions in its written submissions:  
81. Both the Canadian Oxford Dictionary and Webster’s Third  
New International Dictionary link “premium” directly to  
“insurance”, through the following definitions:  
an amount to be paid for a contract of insurance  
The Canadian Oxford Dictionary, (Don Mills: Oxford  
University Press, 2001) at page 1142 (“Canadian Oxford  
Dictionary”) [Authorities, Tab 11]  
the consideration paid in money or otherwise for a contract of  
- Atwater 60 -  
insurance in the form of an initiation fee, an admission fee, an  
assessment, or a stipulated single or periodic payment  
according to the nature of the insurance  
Webster’s Third New International Dictionary, (Springfield:  
Merriam-Webster Inc., 1992) at page 1789 [Authorities,  
Tab 12]  
82. Black’s Law Dictionary contains a similar definition of  
“premium” as:  
The amount paid at designated intervals for insurance; esp., the  
periodic payment required to keep an insurance policy in  
effect.  
Black’s Law Dictionary, 10th ed. (St. Paul: Thomson Reuters,  
2014) at page 1371 (“Black’s Law Dictionary”) [Authorities,  
Tab 13]  
[117]  
[118]  
The Saskatchewan Insurance Act defines “premium” as:  
the single or periodical payment under a contract for the  
insurance, and includes dues, assessments and other considerations;  
BMO says that by reason of the commonly understood meaning of  
premiums in the insurance context, the entitlement to make additional premium  
payments is limited to what is commonly understood by premiums, i.e., payments to  
purchase insurance and does not extend to make unlimited payments for investments  
not connected to the life insurance purpose of the contracts. It argues that to be a  
premium, the payment must be limited to the life insurance purpose of the contract.  
Investments or savings within the permitted tax-exempt limits and investment of  
monies to fund the payment of future life insurance premiums and future permitted  
tax-exempt investments or savings would be understood by insured parties to be  
within the meaning of “premiums.  
[119]  
BMO’s position or argument on the limited meaning of premiums  
engages two questions: