On September 5, 2018, the Ontario Court of Appeal released its decision in Fehr v. Sun Life Assurance Company of Canada,1 overturning certain parts of the motion judge’s decision and certifying a class action against Sun Life brought by life insurance policyholders. The Court of Appeal applied a “consumer-focused approach” that places emphasis on the viewpoint of insurance policy consumers.
The action involved “universal life” insurance policies that, in addition to providing life insurance, also serve as an investment vehicle. The Court noted that many of these policies were sold when interest rates were high; therefore, premiums were relatively low and returns were favourable. When interest rates fell in the mid-1990s and thereafter, premiums increased and returns decreased.
The plaintiffs brought a proposed class action against the insurer. Justice Perell, the motion judge, declined to certify the action and granted the defendant’s summary judgment motion dismissing the action on the basis that the claims were limitations-barred.2 When the case reached the Court of Appeal, there were a number of appeals and cross-appeals. However, the following three claims were central to the appeal:
The plaintiffs alleged that sales agents made numerous misrepresentations regarding the policies, including that they would provide guaranteed interest and become self-sustaining.
The plaintiffs alleged that the insurer breached the insurance policies by increasing the cost of insurance based on criteria not identified in the insurance policies.
The plaintiffs sought a declaration interpreting the “maximum premium” provision in the policies.
In addition, as the defendant had argued that the claims were limitations-barred, there were issues relating to whether there was concealment of the claims (in other words, when the claims were discoverable).
The Court’s focus at this stage of the proposed class proceeding is whether the claims should be certified to proceed as a class action. The actual merits of the claims will be determined at a future date, should certification be granted and the action proceed.
The Court of Appeal’s Decision
The Court of Appeal upheld the motion judge’s decision that the misrepresentation claim was not suitable for certification on the basis that various misrepresentations were alleged that were personal to each policyholder; the experiences of the representative plaintiffs were idiosyncratic rather than common. As noted by the motion judge, “[t]he alleged misrepresentations were made over the breadth of the class period, 13 years, by thousands of different sales agents who were not uniformly trained about four different policies some of which had revised standard forms over the course of their offering to the public.”3
Breach of the Insurance Policies
In considering class certification of the breach of contract claim, the Court of Appeal began its analysis by describing the policies as “complex contracts” in which “the language is technical and legalistic”, “important terms are undefined” and “key provisions…are opaque”.
The Court also critiqued various aspects of the motion judge’s decision on this issue. For example, the insurer had delivered evidence of industry practice which was considered by the motion judge. The Court of Appeal held that the motion judge should not have considered this evidence at the preliminary certification stage because it was not clear that a “policyholder can be said to contract with reference to a custom of an industry in which he or she is simply a consumer.”
The motion judge had found that there was no basis in fact for the allegation that the insurer breached the contracts. The Court of Appeal found that the motion judge erred by assessing whether the insurer actually breached the contract, rather than by simply determining whether there was some basis in fact for the common issue, which is the relevant consideration for certification. The Court stated that the underlying issue of whether the contract was breached should be decided at the common issues trial – not the certification motion.
Therefore, the Court of Appeal found that this issue should be certified and proceed as a class action. The Court also certified related common issues, including a question regarding corporate predecessor liability.
One proposed common issue asked whether the “maximum premium” identified in the policies was the highest premium the policyholder would be required to pay. The term was not defined in the policies. The motion judge declined to certify this common issue because no class member had yet been charged a premium greater than the “maximum premium”. As such, this issue was seen as premature.
The Court of Appeal reversed the motion judge’s decision, finding that this was a “case in which a declaration would be appropriate, to define the rights of the contracting parties so they can govern themselves accordingly and avoid future disputes.”
The motion judge found that the misrepresentation and breach of contract claims were limitations-barred. The Court of Appeal reversed that finding. The key question for the limitations issue is when a plaintiff knew, or ought to have known, that her or she had a claim. The Court held that in determining when a consumer ought to have discovered a claim, an individualized analysis was required in light of, among other things, the “relationship of vulnerability between insurer and insured”. Therefore, the claims were allowed to proceed, but the insurer was permitted to raise limitations defences on a complete record when the merits of the claims are adjudicated in the future.
From the Court of Appeal’s decision, the following can be noted:
This may be another example of a court applying a “consumer-focused approach” to conflicts between sophisticated companies and consumers.4
In drafting insurance policies, it may be important to use defined terms to avoid ambiguity, and also avoid terms that rely on industry practice or custom.
It is not yet known whether leave will be sought to the Supreme Court of Canada. In addition, it is important to note that this decision is not a determination on the merits. However, this case still provides some guidance on how a court may approach issues relating to the interpretation of insurance policies.
1 2018 ONCA 718.
22015 ONSC 6931; 2016 ONSC 455; 2016 ONSC 7659; 2017 ONSC 2218.
32015 ONSC 6931 at para 292.