COURT OF APPEAL FOR ONTARIO

CITATION: Kang v. Sun Life Assurance Company of Canada, 2013 ONCA 118

DATE: 20130225

DOCKET: C54700

Laskin, Rosenberg and Goudge JJ.A.

BETWEEN

Joseph (Jung Yub) Kang

Plaintiff (Appellant)

and

Sun Life Assurance Company of Canada

Defendant (Respondent)

Won J. Kim, Victoria A. Paris and Norman Mizobuchi, for the appellant

F. Paul Morrison, Glynnis P. Burt and Heather L. Meredith, for the respondent

Heard: April 12, 2012

On appeal from the order of Justice Paul M. Perell of the Superior Court of Justice, dated October 27, 2011, with reasons reported at 2011 ONSC 6335.

Laskin J.A.:

A. introduction

[1] The five plaintiffs, representatives in a proposed class proceeding, appeal the decision of Perell J. on a pleadings motion. He struck out numerous paragraphs of the plaintiffs’ fresh as amended statement of claim. The paragraphs that he struck out fall into two categories. In the first category are paragraphs that improperly pleaded evidence or argument, or were irrelevant. In the second category are paragraphs that were struck because they did not disclose a reasonable cause of action under r. 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] The plaintiffs have not appealed the striking out of the paragraphs in the first category. They have appealed the striking out of the paragraphs in the second category. They submit that the motion judge erred in striking out four of their claims: the claim for breach of duty of good faith and fair dealing, the claim for breach of contract, the claim for deceit and fraud, and the claim of those class members who signed releases.

B. background

[3] In his thorough reasons, the motion judge set out in detail the background to this dispute and the allegations in the pleadings that Sun Life challenged. Only a brief summary is necessary to decide this appeal.

(1) The parties and the policies

[4] The proposed class proceeding concerns the sale and administration of universal life insurance policies. It has not yet been certified.

[5] The policies in question were sold to class members by Metropolitan Life Insurance Co. (“MetLife”) during the period between 1983 and 1998. Universal life insurance policies were introduced in the 1980s as an alternative to whole life policies. They have a cash accumulation component in addition to life insurance. They are attractive to consumers because of their tax-exempt status – funds accumulate in the investment fund tax-free.

[6] MetLife sold four types of universal life insurance policies. Each of the five plaintiffs purchased one of these four types of policies. The four types were as follows:

• The Universal Flexiplus policy (purchased by the plaintiffs Eldon Fehr and Leslie Lucas)

• The Interest Plus policy (purchased by the plaintiff Angela Watters)

• The Universal Plus policy (purchased by the plaintiff Gaetan Laurier)

• The Universal OptiMet policy (purchased by the plaintiff Joseph Kang)

[7] In 1998, MetLife sold substantially all of its Canadian life insurance business to Mutual Life Assurance Company of Canada. In 2002, Mutual was taken over by the respondent, Sun Life Assurance Company of Canada. As a result of these transactions, Sun Life became responsible for administering the universal life insurance policies sold by MetLife.

[8] The plaintiffs claim that there are approximately 150,000 class members who bought these universal life insurance policies. They seek $2 billion in general damages, $500 million in punitive damages, as well as various other forms of relief.

(2) The claims

[9] In their fresh as amended statement of claim, the plaintiffs advance five causes of action against Sun Life, both directly and in its capacity as a successor corporation of MetLife. The causes of action, the decision of the motion judge on each claim, and those parts of his decision being appealed are as follows.

(a) Misrepresentation

[10] The plaintiffs allege that MetLife agents made misrepresentations when they sold the policies. These misrepresentations, the plaintiffs say, were made negligently, recklessly, and in breach of s. 439 of the Insurance Act, R.S.O. 1990, c. I-8.[^1] Sun Life did not challenge this claim apart from a narrow objection on damages. The motion judge struck the offending paragraph but with leave to amend. His order on this claim is not in issue on the appeal.

(b) Breach of duty of good faith and fair dealing

[11] The plaintiffs allege that MetLife breached its duty of good faith and fair dealing in the sale of the policies, and that Sun Life[^2] breached its duty of good faith and fair dealing in the administration of the policies.

[12] The motion judge struck out these claims. He struck out the claim against MetLife for breach of duty in the sale of the policies because he found it did no more than repeat the plaintiffs’ claims for negligent and fraudulent misrepresentation. He struck out the claim against Sun Life for breach of duty in the administration of the policies on the ground that “it cannot be a breach of good faith and fair dealing to administer insurance policies in accordance with their terms.”

[13] The plaintiffs appeal this order. They argue that the duty of good faith and fair dealing arises apart from and in addition to the insurance contract; therefore, an insurer may still breach its duty of good faith and fair dealing though it complied with the strict terms of the contract. At the very least, the plaintiffs maintain that the claim should not have been struck on a Rule 21 motion simply because it was novel or unusual.

(c) Breach of contract

[14] The plaintiffs allege that the Universal Plus policies contained an express or implied contractual term that they would not be required to pay more than a guaranteed “Maximum Premium”. They say that Sun Life breached this term of the contract by charging some policyholders premiums in excess of the maximum.

[15] The motion judge struck out this claim on the ground that the plaintiffs’ allegation was not tenable under the wording of the Universal Plus contract. The plaintiffs appeal this order.

(d) Breach of fiduciary duty

[16] The plaintiffs allege that Sun Life breached its fiduciary duty in the administration of the policies. The motion judge struck out this claim. The plaintiffs have not appealed this order.

(e) Deceit and fraud

[17] The plaintiffs allege that MetLife committed deceit and fraud in the sale of the policies and that Sun Life committed deceit and fraud in the administration of the policies.

[18] The motion judge struck out these claims. He held that the allegation of deceit and fraud in the sale of the policies was “an imperfect repetition of the already pleaded claims of negligent or fraudulent misrepresentation”. And he held that the allegation of deceit and fraud in the administration of the policies was nothing more than an allegation that Sun Life committed deceit and fraud by denying that MetLife had done so.

[19] The plaintiffs appear to accept that the claim for deceit and fraud in the sale of the policies is redundant in the light of the claim for negligent and fraudulent misrepresentation; however, they say their intent in pleading as they did was “to advance a separate claim for deceit and fraud regarding the administration of the policies” (emphasis added). They appeal the motion judge’s order striking out that claim.

(3) The Releases

[20] In addition to these claims, the plaintiffs also allege that Sun Life obtained releases from some class members without disclosing to them that their policies had been sold on the basis of misrepresentations.

[21] The motion judge struck out these allegations pertaining to the releases on the ground that they improperly pleaded evidence. He said that none of the representative plaintiffs claimed to have signed a release, or claimed rescission, or alleged that the releases were void. He declined to grant leave to amend. However, he did provide the plaintiffs with an option to advance their claim on the releases with an appropriate representative plaintiff.

[22] The plaintiffs appeal the order striking out the paragraphs of their pleading relating to the releases. They say it is not plain and obvious that the claim as pleaded will not succeed.

(4) Result of the motion judge’s decision

[23] From this brief summary, it is evident that the motion judge viewed the plaintiffs’ claim as a claim based on negligent or fraudulent misrepresentation in the sale of the policies, for which Sun Life is responsible. The other claims advanced by the plaintiffs either replicate the misrepresentation claim or are not tenable in law. Sun Life supports the motion judge’s view of the pleading.

[24] The plaintiffs accept that their principal claim is for misrepresentation. However, they contend that the motion judge took too narrow a view of their pleading by rejecting on a Rule 21 motion their additional or alternative claims. They say that these additional claims are not doomed to fail and that the motion judge should have let them go forward.

C. discussion

(1) General principles

[25] Under s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6, to have a class action certified, a plaintiff must satisfy five criteria. The first criterion – in s. 5(1)(a) – is that the pleading must disclose a cause of action. The motion judge’s decision in this case sought to resolve the s. 5(1)(a) criterion before the certification motion itself. In Pennyfeather v. Timminco Ltd., 2011 ONSC 4257, 107 O.R. (3d) 201, at paras. 85-90, he discussed the advantages of doing so. I take no issue with his approach.

[26] As the motion judge recognized, the test under s. 5(1)(a) of the Class Proceedings Act is the same as the test under r. 21.01(1)(b) of the Rules of Civil Procedure: Cloud v. Canada (Attorney General) (2005), 2004 CanLII 45444 (ON CA), 73 O.R. (3d) 401, at para. 41. In Attis v. Canada (Minister of Health), 2008 ONCA 660, 93 O.R. (3d) 35, at para. 23, leave to appeal to S.C.C. refused, [2008] S.C.C.A. No. 491, my colleague Lang J.A. succinctly set out the test that governs a r. 21.01(1)(b) motion:

[T]he respondent was required to demonstrate that it was plain and obvious that the action “cannot possibly succeed”. Under this test, the motion judge was required to accept the factual pleadings as proven and to read the claim generously. In addition, the test requires that a claim not be dismissed simply because it asserts a novel cause of action. [Citation omitted.]

[27] Thus the moving party, here Sun Life, had to show that it was plain and obvious the plaintiffs’ claims could not possibly succeed. And, as Lang J.A. noted, on an appeal of a motion judge’s order striking out a claim under r. 21.01(1)(b), the standard of review is correctness: Attis v. Canada (Minister of Health), at para. 23.

(2) The issues

(a) Breach of duty of good faith and fair dealing

[28] In para. 101 of their pleading, the plaintiffs allege that Sun Life (and its predecessors) breached its duty of good faith and fair dealing in the administration of the policies. According to the plaintiffs, Sun Life breached its duty by:

• Failing to fully investigate and disclose to class members the misrepresentations made by MetLife during the sale of the policies;

• Denying misrepresentations had occurred and failing to provide remedies to the class members for the misrepresentations;

• Settling the claims of certain policyholders and obtaining releases without acknowledging the misrepresentations;

• Systematically denying legitimate class member claims; and

• Failing to administer the policies in accordance with the representations made during the sale of the policies.

[29] The motion judge read the plaintiffs’ pleading to say “that it is a breach of good faith and fair dealing to enforce or administer the insurance policies as they were written rather than as they were represented to be.” He concluded, at paras. 146-147, that this was not a tenable allegation:

In my opinion, while it may be a negligent or fraudulent misrepresentation to enforce and administer policies differently than from how they were represented to be, it is plain and obvious that it cannot be a breach of good faith and fair dealing to administer insurance policies in accordance with their terms.

There is no reasonable cause of action against an insurer for administering a contract of insurance in accordance with its terms. Accordingly, I strike out paragraphs 98 to 101. These paragraphs are redundant or they are untenable.

[30] In my view, the motion judge erred in striking out this claim. Sun Life acknowledges that an insurer owes a duty of good faith and fair dealing to its insured, and that this duty applies to “any matter arising under or in relation to it”. Sun Life also acknowledges that this duty exists independently of and in addition to the terms of a contract between an insurer and an insured, and thus, may give rise to an independent cause of action: see Ferme Gérald Laplante & Fils Ltée v. Grenville Patron Mutual Fire Insurance Co. (2002), 2002 CanLII 45070 (ON CA), 61 O.R. (3d) 481 (C.A.), at para. 78, leave to appeal to S.C.C. refused, [2002] S.C.C.A. No. 488; Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 79.

[31] However, Sun Life maintains that the motion judge correctly struck this claim because it amounts to an allegation that the insurer breached its duty of good faith simply because it acted in accordance with the terms of the policy. It argues that the duty of good faith must not require the insurer to contravene the terms of the insurance contract. Citing some foreign authority, Sun Life contends that an insurer who acts in accordance with the express terms of a contract cannot be found to have violated its duty of good faith and fair dealing.

[32] I would not characterize the plaintiffs’ claim in quite the same way as Sun Life and the motion judge have characterized it. In my view, their reading of the plaintiffs’ pleading is too narrow. The plaintiffs do allege that Sun Life breached its duty of good faith by failing to administer the policies in accordance with the representations made during the sales process. However, that allegation is one branch of a broader claim that includes two other branches:

• Sun Life was not candid with its insureds – it did not disclose the misrepresentations made by MetLife agents when the policies were sold, or provide remedies for those misrepresentations; and

• Sun Life obtained releases and entered into settlements without making full disclosure, or it knowingly and systematically refused to honour legitimate claims made by its insureds.

[33] A pleading should only be struck on a Rule 21 motion when the applicable law is settled in the jurisprudence. The law governing the application of the duty of good faith and fair dealing to the relationship between an insurer and its insured is not, in my view, settled. Moreover, it does not seem to me plain and obvious that any of these three branches doom this claim to failure.

[34] As for the first branch – that Sun Life failed to administer the policies in accordance with MetLife’s misrepresentations – neither the motion judge nor the respondents produced a Canadian authority for the proposition that an insurer who has complied with the express terms of the contract cannot have breached its duty of good faith and fair dealing. The plaintiffs, however, point to Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533, a case involving a franchisor-franchisee relationship, in which this court held, at para. 71, that “the fact that contractual terms are ultimately complied with, does not mean that there has been no breach of the duty of good faith.” As this proposition may apply in the insurance context, and as its scope has yet to be determined, this first branch of the plaintiffs’ duty of good faith claim could possibly succeed.

[35] Even if the plaintiffs face an uphill battle on the first branch of their duty of good faith and fair dealing claim, I am not satisfied that the balance of the claim is doomed to fail. The second branch – that Sun Life failed to disclose or remedy MetLife’s misrepresentations – has some support in the reasons of O’Connor A.C.J.O. in Transamerica Life Canada Inc. v. ING Canada Inc. (2003), 2003 CanLII 9923 (ON CA), 68 O.R. (3d) 457, at para. 5, where he held that a motion judge erred by striking out a similar allegation on a Rule 21 motion:

First, the motion judge struck pleas alleging that Transamerica had implied duties of good faith requiring it to notify ING before closing if it became aware of the problems that it alleges in its claim and to consult with ING about the remedial actions it took after closing. I have concluded that the motion judge erred in striking those pleas.

[36] Although that case dealt with a commercial contract between two insurers, a similar obligation could apply to the relationship between an insurer and an insured – a relationship that has long been recognized as one of particular vulnerability. Indeed, I would have thought it is at least arguable that an insurer’s duty of good faith precludes it from concealing from its insureds facts it knows to be inaccurate: see Ferme Gérald Laplante & Fils Ltée, at para. 73.

[37] The respondents acknowledge the viability of at least part of the third branch of the plaintiffs’ claim – that Sun Life systematically denied the legitimate claims of its insureds. They put it this way in their factum (citing this court’s decision in 702535 Ontario Inc. v. Lloyd’s London, Non-Marine Underwriters (2000), 2000 CanLII 5684 (ON CA), 184 D.L.R. (4th) 687):

Courts have also recognized a duty of utmost good faith in relation to the insurer’s duty to act fairly at every step of the claims process. The Court of Appeal has summarized the duty of good faith as follows:

[27] The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith…The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds. [Citations omitted.]

[38] This case supports the plaintiffs’ argument that an insurer has a duty of good faith and fair dealing throughout its adjudication of claims.

[39] Finally, it is clear from the arguments raised by both parties and the foregoing discussion that the jurisprudence on the duty of good faith and fair dealing, generally and as it applies to the insurance relationship, is not settled in this country. As O’Connor A.C.J.O. observed at para. 52 of his reasons in Transamerica, again in the context of commercial contracts, the contours of the duty of good faith and fair dealing in Canadian law have yet to be determined:

Unlike the situation in the United States where the duty of good faith in the performance of enforcement of commercial contracts has been broadly recognized, Canadian courts have not developed a comprehensive and principled approach to the implication of duties of good faith in commercial contracts. As Professor McCamus points out, many questions about the nature and scope of such duties have yet to be resolved. Indeed, it remains an open question whether implied duties of good faith add anything to the other available common law doctrines that apply to contracts.

Where the scope of a legal duty has not been fully settled in the jurisprudence, an allegation that the duty has been breached should not be dismissed on a Rule 21 motion: see Folland v. Ontario (2003), 2003 CanLII 52139 (ON CA), 64 O.R. (3d) 89 (C.A.), at para. 11, leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 249. For these reasons I think it is premature to strike the claim for breach of the duty of good faith and fair dealing. With the exception of the allegations based on the settlements and releases, which I have dealt with below, I would let it go forward.

(b) Breach of contract

[40] At paras. 94-95 of their pleading, the plaintiffs allege that it was an express or implied term of the Universal Plus policy that the premiums would never exceed the stipulated “Maximum Premium”. Yet the plaintiffs allege that Sun Life breached the term of this policy by repeatedly charging premiums in excess of the Maximum Premium.

[41] After examining parts of the Universal Plus policy, the motion judge held, at para. 125 of his reasons, that “[t]here [are] no express terms of the contract as alleged by the Plaintiffs, and the expressed terms stand against any implied term.” He therefore concluded, at para. 127, “it is plain and obvious that there is no tenable breach of contract claim”.

[42] I do not think that the express terms of the Universal Plus policy are as clear as the motion judge considered them to be. The term “Maximum Premium” is not defined anywhere in the policy. The words “Maximum Premium” appear at the top of a chart on pages 3 and 3T of the policy, with corresponding rates for various forms of coverage. There is no express provision that Sun Life can charge a policyholder more than the “Maximum Premium”. One available and reasonable inference is that the very term “Maximum Premium” means that the corresponding rates are the most a policyholder will have to pay. At the very least, the meaning of the term is ambiguous. Thus, in my view, the claim ought to stand.

(c) Deceit and fraud

[43] At paras. 106-111 of their pleading, the plaintiffs allege that MetLife committed deceit and fraud by knowingly selling the policies on the basis of misrepresentations. They also allege that Sun Life committed deceit and fraud by denying misrepresentations had occurred, telling class members their policies were not defective, systematically denying claims, and obtaining settlements and releases without full disclosure.

[44] The motion judge, at para. 150, struck the claim for deceit and fraud on either of two bases: it was “an imperfect repetition of the already pleaded claims of negligent or fraudulent misrepresentation”, or it amounted to “an allegation that Sun Life committed deceit and fraud by not admitting (i.e. by denying) that Met Life had committed deceit and fraud.” In short, he felt that it did not add a cause of action.

[45] The plaintiffs argue that the motion judge erred in conflating the misrepresentation claims and the deceit and fraud claims. They say the negligent and fraudulent misrepresentation claim related solely to MetLife’s sale of the policies, while the deceit and fraud claim extended to Sun Life’s administration of the policies.

[46] In my view, this claim should not have been struck. The claim of deceit and fraud based on the administration of the policies is premised on a different set of allegations from the allegations underlying the claim of negligent and fraudulent misrepresentation. It concerns Sun Life’s ongoing conduct in administering the policies, long after the sales process during which Metlife made the alleged initial misrepresentations. It does not simply repeat or replicate the plaintiffs’ claim of negligent or fraudulent misrepresentation.

[47] Moreover, it is not plain and obvious to me that the claim regarding Sun Life’s alleged deceit and fraud – again, with the exception of the impugned releases and settlements – is doomed to fail. The plaintiffs are therefore entitled to maintain their claim for deceit and fraud.

(d) The releases

[48] At paras. 82-84 of their pleading, the plaintiffs allege that Sun Life entered into settlements with and obtained releases from class members without disclosing to them that their policies were sold on the basis of misrepresentations. They say that, in so doing, Sun Life breached its duty of good faith and fair dealing and engaged in deceitful conduct.

[49] The motion judge struck out these paragraphs without leave to amend. He agreed with Sun Life’s submission that these paragraphs pleaded evidence and were irrelevant to the causes of action pleaded. He observed that the “pleading does not include a cause of action or a representative plaintiff claiming rescission or alleging that the releases and any settlement with individual policyholders are null and void.” He added, however, at para. 100, that if a proposed representative plaintiff could show some basis for a claim in rescission, that person could apply for leave to be added as a plaintiff in the action.

[50] The plaintiffs contend that the motion judge should not have struck their allegations concerning the policyholders who signed releases. They say that he erred in viewing those allegations as a contract complaint, in attempting to frame the issue as one of rescission, and in finding that they as representative plaintiffs could not advance claims on behalf of those policyholders. Even though none of the five plaintiffs signed a release, they submit that class members need not be “identically situated vis-à-vis the opposing party”: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534, at para. 39.

[51] Sun Life acknowledges that a representative plaintiff can assert a cause of action that is not the plaintiff’s personal cause of action but belongs to some members of the class, provided that the claims are “fundamentally the same” or “very similar”: Boulanger v. Johnson & Johnson Corp. (2003), 2003 CanLII 45096 (ON SCDC), 64 O.R. (3d) 208 (Div. Ct.), at paras. 41 and 48, rev’d in part on other grounds (2003), 2003 CanLII 52154 (ON CA), 174 O.A.C. 44 (C.A.); Healey v. Lakeridge Health Corp. (2006), 38 C.P.C. (6th) 145 (S.C.J.), at para. 21. The plaintiffs maintain that their claims concerning the releases and their other claims are very similar, because they share a common factual foundation.

[52] Even accepting that to be so, the motion judge was correct to strike the plaintiffs’ allegation concerning the releases because they do not assert a cause of action. Although the plaintiffs incorporated the releases and settlements into both their duty of good faith claims and their deceit and fraud claims, they have failed to request any specific relief for the policyholders who entered into those agreements. They do not seek rescission, nor do they seek a declaration that the releases were null and void.

[53] The motion judge therefore did not err in striking these paragraphs and, as I noted earlier, he fairly left open the availability of a motion to add a claim for rescission or declaratory relief on the releases.

D. conclusion

[54] I would allow the appeal. I would set aside that part of the order of the motion judge in which he struck out the allegations concerning breach of the duty of good faith and fair dealing, breach of contract, and deceit and fraud, and the material facts relevant to those pleas. I would dismiss Sun Life’s motion in respect of those allegations.

[55] As the plaintiffs have been substantially successful, they are entitled to their costs of the appeal, which I would fix in the amount of $20,000, inclusive of disbursements and applicable taxes. I would also award the plaintiffs the $5,000 in costs ordered by Doherty J.A. on the motion before him.

Released: FEB. 25, 2013 “John Laskin J.A.”

“JL” “I agree M. Rosenberg J.A.”

“I agree S.T. Goudge J.A.”

[^1]: Section 439 of the Insurance Act states: “No person shall engage in any unfair or deceptive act or practice”.

[^2]: “Sun Life” refers to both Sun Life and its predecessors.