Court of Appeal for Ontario

Date: March 1, 2018

Docket: C62706

Judges: Feldman, Cronk and Hourigan JJ.A.

Between

William Alguire Plaintiff (Appellant)

and

The Manufacturers Life Insurance Company c.o.b. as Manulife Financial Defendant (Respondent)

Counsel

For the Appellant: Peter Griffin, Warren Rapoport and Aryan Ziaie

For the Respondent: Robert Harrison and Chad Pilkington

Heard: January 9, 2018

On Appeal

On appeal from the judgment of Justice James F. Diamond of the Superior Court of Justice dated August 22, 2016, with reasons reported at 2016 ONSC 5295 and from the costs order dated September 27, 2016.

Reasons for Decision

Hourigan J.A.:

[1] Introduction

[1] The appellant, William Alguire, appeals the decision of the trial judge dismissing his claim for declaratory and other relief related to a policy of insurance issued by the respondent, The Manufacturers Life Insurance Company ("Manulife"). Mr. Alguire also seeks leave to appeal the costs award ordered by the trial judge.

[2] For the reasons that follow, I would dismiss both the appeal and the application for leave to appeal the costs award.

Background Facts

[3] On June 3, 1982, Mr. Alguire met with an insurance broker and Manulife agent, Alan Elias, about obtaining a $5,000,000 key man insurance policy with large up front premiums in the early years of the policy and greatly reduced premiums thereafter. A short time later Mr. Alguire left on an extended holiday. In his absence, Mr. Elias contacted Manulife who prepared a special actuarial quote (the "Quote") on June 14, 1982.

[4] The Quote provided for the requested $5,000,000 in face amount coverage, with large premiums paid up front. It also contained a guaranteed paid-up value table that provided for insurance coverage in the event of default. For example, if Mr. Alguire defaulted on the policy at age 65, the paid-up value at that point would have totalled $2,680,000 and he would have been entitled to coverage in that amount. The trial judge found that Mr. Elias accepted the Quote on behalf of Mr. Alguire, and a policy was issued on July 21, 1982 (the "Policy").

[5] Mr. Alguire and Mr. Elias met again in mid-August 1982. Mr. Alguire denied that he saw the Quote during that meeting. There was no evidence from Mr. Elias, who had passed away. His file did not contain notes of what occurred at the meeting. Mr. Alguire testified that he was advised of and directed to a table of non-forfeiture values on page 3 of the Policy, which set out the paid-up values on various anniversary dates. Starting on its fifteenth anniversary, the Policy's paid-up value exceeds the $5,000,000 in face amount coverage. When these proceedings started, the Policy's paid-up value was $13,400,000.

[6] The figures in the table of non-forfeiture values on page 3 of the Policy are the same as the table of guaranteed paid-up values in the Quote, save for the fact that the values on page 3 are per $1,000 of the face amount coverage and the values from the Quote are per $5,000 of the face amount coverage.

[7] Mr. Alguire's position at trial was that he had asked that the Policy be specifically designed to ensure that the value of the death benefit grew over the course of his life. He submitted that the Policy provided him with immediate $5,000,000 coverage together with inflation protection over the long term. According to him, the paid-up values on page 3 of the Policy reflect his request for inflation protection.

[8] Mr. Alguire commenced an action seeking, among other things, an order requiring Manulife to honour the terms of the Policy as written – particularly on page 3. Manulife took the position that Mr. Alguire never made a request for inflation protection. It submitted that the values on page 3 of the Policy were clearly created in error. Manulife brought a cross-application seeking rectification of the Policy.

[9] The trial judge dismissed the action after an 18-day trial. He found that the values on page 3 were set out in error, and reflected a common mistake, as the Policy did not accurately reflect the agreement of the parties. He specifically found that Mr. Alguire never requested inflation protection. He ordered that the Policy be rectified to reflect the agreement of the parties that the paid-up values on page 3 were per $5,000 of the face amount coverage. He also rejected Mr. Alguire's submission that Manulife's request for rectification was barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

[10] The trial judge ordered substantial indemnity costs against Mr. Alguire in the amount of $1,250,000. He found that this was one of those rare instances where a party's conduct ought to be chastised by the court through an award of costs on a higher scale. The impugned conduct was Mr. Alguire's inflation protection submission, which the trial judge found lacked any air of reality. He rejected Mr. Alguire's version of events, and equated the proceedings with "gotcha" litigation.

Issues

[11] On appeal, Mr. Alguire does not challenge the trial judge's credibility findings. He focuses on two issues: (i) the trial judge erred in finding that rectification was an available remedy; and (ii) even if rectification was available on the facts of this case, it was statute-barred by operation of the Limitations Act. In addition, he seeks leave to appeal the costs award on the basis that it is unreasonable and contrary to access to justice considerations. Each of these issues is considered below.

Analysis

(a) Rectification

[12] Rectification is an equitable doctrine that is available when it is clear that the parties' written agreement does not accord with their actual agreement. In such circumstances, a court may rectify the agreement so that it gives effect to the parties' true intentions: Canada (Attorney General) v. Fairmont Hotels, 2016 SCC 56, [2016] 2 S.C.R. 720, at para. 12.

[13] In the present case, Manulife argued that rectification was necessary to correct a common mistake. Such a mistake arises where the parties, "subscribe to an instrument under a common mistake that it accurately records the terms of their antecedent agreement": Fairmont, at para. 14. To obtain an order for rectification in these circumstances, Manulife was required to show, "that the parties had reached a prior agreement whose terms are definite and ascertainable; that the agreement was still effective when the instrument was executed; that the instrument fails to record accurately that prior agreement; and that, if rectified as proposed, the instrument would carry out the agreement": Fairmont, at para. 14.

[14] On appeal, Mr. Alguire's primary submission on this issue is that there was an insufficient evidentiary basis at trial for concluding that the parties had entered into an antecedent agreement. In other words, it was not open to the trial judge on the evidentiary record to find that the agreement was definite and ascertainable. Accordingly, he argues that the remedy of rectification was not available. As part of this argument, Mr. Alguire submits that the trial judge erred in finding that Mr. Elias acted as his agent in securing the Policy.

[15] I am unable to give effect to this submission. In my view, there was ample evidence to ground the trial judge's conclusion that there was an antecedent agreement based on the Quote, which was for the issuance of a $5,000,000 key man insurance policy with no special provision for inflation protection. I reach this conclusion for the following reasons.

[16] First, this conclusion is consistent with Manulife's internal files, including various documents and notations made by its underwriting department that were based on a $5,000,000 policy and Mr. Alguire's insurance application, which sought coverage in that amount. Manulife produced its entire "application file", containing various documents and forms submitted by Mr. Alguire (through Mr. Elias) and reviewed by members of Manulife's underwriting and other processing departments. No document produced referenced inflation protection.

[17] Second, the trial judge's conclusion is supported by his finding that Mr. Elias accepted the Quote on behalf of Mr. Alguire. I see no error in the trial judge's holding that Mr. Elias was acting as Mr. Alguire's agent in securing and agreeing to the Quote. The jurisprudence is clear that an insurance agent may be a dual agent, acting for both the insured and the insurer: Gilmore Farm Supply Inc. v. Waterloo Mutual Insurance Co., [1984] O.J. No. 222 (H.C.), at paras. 31-32, varied on other grounds, [1984] O.J. No. 2431 (H.C.); Farrant (Litigation Guardian of) v. Low (1998), 77 A.C.W.S. (3d) 419 (Gen. Div.), at para. 49.

[18] With regard to the agency issue, Mr. Alguire's appeal counsel, Mr. Griffin, advanced a new argument not made to the trial judge that s. 199 of the Insurance Act, R.S.O. 1980, c. 218, which was in effect at the time the Policy was issued, operates as a legal bar to a finding that Mr. Elias acted as Mr. Alguire's agent. That section provides:

No officer, agent or employee of an insurer and no person soliciting insurance, whether or not he is an agent of the insurer, shall, to the prejudice of the insured, be deemed to be the agent of the insured in respect of any question arising out of a contract.

[19] I am not persuaded that s. 199 or its equivalent in the current Insurance Act, R.S.O. 1990, c. I.8, being s. 222, assist the appellant in the circumstances of this case. It cannot be said that in securing the Quote, Mr. Elias was acting to the prejudice of Mr. Alguire. To the contrary, he was acting in accordance with his instructions. Mr. Elias' actions could only be considered prejudicial to Mr. Alguire if Mr. Alguire's evidence about wanting to secure inflation protection was accepted by the trial judge. It was not.

[20] Third, the finding of an antecedent agreement is also consistent with the trial judge's interpretation of Mr. Alguire's affidavit evidence to the effect that Mr. Elias presented the Quote before he executed the Policy. Although Mr. Alguire submits that the trial judge misinterpreted that evidence, I am of the view that the trial judge's interpretation was open to him. By agreeing to the Policy, which was supposed to be consistent with the Quote, Mr. Alguire ratified Mr. Elias' acceptance of the Quote.

[21] Fourth, in considering whether there was sufficient evidence of an antecedent agreement, it is important to consider the trial judge's rejection of Mr. Alguire's testimony. There were two competing narratives at trial. Either the parties agreed to the terms of the Quote or they agreed to a policy that provided inflation protection. It was not Mr. Alguire's position that he just accepted the Policy as presented without considering the paid-up values or their effect. The trial judge, who found that Mr. Alguire never requested inflation protection, rejected the inflation protection narrative. That finding is not challenged on appeal. It follows that the true agreement between the parties was in accordance with the terms of the Quote.

[22] In summary, because the trial judge found that the Quote was an antecedent agreement that contained the definite and ascertainable terms of the parties' bargain, it was open to him to rectify the Policy to reflect the parties' true intention.

(b) Limitations Act

[23] Mr. Alguire argues that rectification is a cause of action, not a defence, and is therefore subject to the two-year limitation period in s. 4 of the Limitations Act. According to Mr. Alguire, the limitation period commenced in 2007 when an actuary at Manulife discovered the error, and thus rectification should not have been granted, as Manulife did not claim that relief until it issued its cross-application in 2013. He submits that policy considerations, including discouraging insurers from sleeping on their rights and avoiding leaving beneficiaries to litigate cases after the insured dies, further support dismissing the rectification claim.

[24] I would not give effect to this ground of appeal. I conclude that the rectification relief sought by Manulife was not barred by the Limitations Act. To properly analyze this ground of appeal, it is necessary to consider a number of issues.

[25] The first issue is the nature of the right being asserted by Manulife. It takes the position on appeal that it is simply asserting a defence and that accordingly rectification is not subject to the Limitations Act. I do not agree.

[26] In my view, Manulife's request for rectification is a claim. It is more than just a denial of Mr. Alguire's claim; it is an independent claim. Even if Mr. Alguire had not brought this proceeding, Manulife would have been entitled to bring an application seeking rectification of the Policy. Consequently, Manulife's request goes beyond a mere defence and qualifies as a claim for rectification, which is equitable relief: Fairmont, at para. 12. The Limitations Act applies to equitable claims: McConnell v. Huxtable, 2014 ONCA 86, 118 O.R. (3d) 561, at paras. 48-49.

[27] The next issue is whether Manulife can rely on s. 16(1)(a) of the Limitations Act, which provides that there is no limitation period in respect of "a proceeding for a declaration if no consequential relief is sought."

[28] In the context of a limitation period analysis, declaratory relief should be narrowly construed so as to ensure that s. 16(1)(a) is not used as a means to circumvent applicable limitation periods: Joarcam, LLC v. Plains Midstream Canada ULC, 2013 ABCA 118, 90 Alta. L.R. (5th) 208, at para. 7.

[29] I conclude that this subsection is unavailable to Manulife in the circumstances of this case, as it is seeking consequential relief. The remedy of rectification sought in this case has significant consequences for the parties and goes beyond clarifying the nature of a particular obligation. Mr. Alguire stands to receive significantly less money as a result of the rectification compared to what he argued he was entitled to on the Policy's face.

[30] The foregoing leads to the critical issue of when the limitation period for the rectification claim began to run. A claim is not discovered until a party knows, or reasonably ought to have known, that injury, loss, or damage caused or contributed to by an act or omission by the person against whom the claim is made has occurred: Limitations Act, ss. 5(1)(a)(i)-(iii) and 5(2). In this case, Manulife's internal discovery of the error in the Policy occurred in 2007. Manulife, however, did not seek to rectify the Policy until after Mr. Alguire filed his application in 2012. The question thus arises as to when the injury, loss, or damage for the rectification claim occurred.

[31] To answer this question regard must be had to the grounds asserted for rectification. In the present case, the trial judge determined that rectification was appropriate to remedy a common mistake. On the evidence accepted by the trial judge that the mistake was common, when Manulife discovered the error in 2007, it did not know that Mr. Alguire would seek to resile from the parties' common understanding that the paid-up values were per $5,000 of the face amount coverage, not per $1,000 as mistakenly indicated in the Policy. In other words, until Mr. Alguire instituted his claim and sought to change what the parties had actually agreed to, he had not committed an act or omission causing or contributing to Manulife's injury, loss, or damage for purposes of the rectification claim.

[32] As Manulife only knew that injury, loss, or damage occurred when Mr. Alguire sought a declaration that the erroneous paid-up values were correct, the claim for rectification was not made after the expiry of the limitation period and is not statute-barred.

[33] Finally, Mr. Alguire raises policy considerations in support of his submission that the claim for rectification is statute-barred. Those considerations cannot, in the circumstances of this case, drive the result. The Limitations Act was designed to promote certainty in the analysis of when claims are statute-barred. The task of a reviewing court is to determine the applicable limitation period having regard to the legislation. A limitation period analysis is not a laches analysis where the court's investigation is driven by the equities of the situation.

[34] In any event, the Limitations Act already requires parties to act diligently and not sleep on their rights. As noted above, a claim is discovered when a party knows, or reasonably ought to have known, that injury, loss, or damage caused or contributed to by an act or omission by the person against whom the claim is made has occurred: Limitations Act, ss. 5(1)(a)(i)-(iii) and 5(2). The fact that a claim is discovered when either a party knows or reasonably ought to have known of the claim means that parties cannot sit idly by and must instead act with due diligence in determining if they have a claim. A claim, however, requires an act or omission of the person against whom it is made: Limitations Act, s. 5(1)(a)(iii). In this case, it is Mr. Alguire's resiling from the parties' intended agreement that grounds the rectification claim. Even though Manulife discovered the error in the paid-up values in the Policy in 2007, it did not know, and could not reasonably ought to have known, that Mr. Alguire would seek to resile from the parties' intended agreement at some point in the future. Manulife therefore cannot be faulted for failing to act with due diligence.

[35] For these reasons, I would reject this ground of appeal.

(c) Costs Award

[36] The test for leave to appeal a costs award is stringent. Leave to appeal will not be granted, save in obvious cases where the party seeking leave convinces the court that there are strong grounds upon which the appellate court could find that the judge erred in exercising his discretion: Lauzon v. AXA Insurance (Canada), 2013 ONCA 664, 235 A.C.W.S. (3d) 510, at para. 15; Brad-Jay Investments Ltd. v. Szijjarto (2006), 218 O.A.C. 315 (C.A.), at para. 21.

[37] At trial, Manulife submitted that Mr. Alguire's conduct was worthy of sanction and that it should be awarded its costs of the entire proceeding on a substantial indemnity basis. It argued that Mr. Alguire's theory of the case was a "scam" to take advantage of a clerical error in the Policy. Further, Manulife submitted that Mr. Alguire's allegations of a breach of the duty of good faith were akin to failed allegations of fraud or other serious misconduct.

[38] The trial judge agreed with Manulife that this case was one of those rare instances where a party's conduct ought to be chastised by the court through a costs award on a higher scale. He found that Mr. Alguire's story lacked any air of reality and that his version of events never took place. According to the trial judge, his "decision went beyond the standard 'battle of credibility' between parties."

[39] In determining quantum, the trial judge acknowledged that he must take into account what is fair and reasonable, with a view to balancing compensation for the successful party with the goal of fostering access to justice: Boucher v. Public Accountants Council (Ontario) (2004), 71 O.R. (3d) 291 (C.A.), at paras. 37-38. He noted that he should be wary of the negative impacts on access to justice that could result from substantial costs awards against individuals involved in proceedings against well-funded corporations. The trial judge excluded from the costs award the costs of a mid-trial motion brought by Manulife that Mr. Alguire successfully resisted. He also found that some of the hourly rates sought by Manulife's counsel were unreasonable. The $1,250,000 awarded marked a significant reduction from the amount sought in Manulife's bill of costs, being $2,270,160.

[40] In my view, there is no basis to interfere with the costs award and accordingly I would deny leave to appeal.

[41] The trial judge was entitled to consider Mr. Alguire's conduct and determine whether it was worthy of sanction: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at para. 28. I see no error in his conclusion that this was an exceptional case where elevated costs were appropriate. As the trial judge rejected Mr. Alguire's version of events, it follows that he concluded Mr. Alguire fabricated his testimony to fit his claim for the increased paid-up values found on page 3 of the Policy. The awarding of costs on a higher scale was therefore not, to use Mr. Griffin's phrase, a case of "piling on", but rather a response to conduct worthy of judicial sanction.

[42] I also do not accept the submission that the costs award will have an adverse impact on access to justice. This is not a case of an earnest policyholder asserting a claim under an insurance policy in good faith. This is a case where Mr. Alguire has been found to have fabricated evidence. Obviously, cases brought in bad faith should be discouraged, if for no other reason than they waste court resources and delay legitimate cases from being heard. In awarding elevated costs, the trial judge sought to send a message that there are consequences to such behaviour. In so doing, he was protecting access to justice, not eroding it.

[43] Finally, I see no error in the quantum of the costs awarded. The trial judge did not rubber stamp Manulife's bill of costs. He reviewed it carefully and made a substantial reduction. There is nothing to suggest that the quantum of costs awarded was tainted by an error in principle or plainly wrong. There is, therefore, no basis for appellate intervention with it.

Disposition

[44] I would dismiss the appeal. The parties may make written submissions regarding the costs of the appeal. Manulife shall serve its costs submissions within 10 days of the release of these reasons. Mr. Alguire shall have 10 days from the receipt of Manulife's costs submissions to respond. Manulife shall then have 5 days to file reply submissions. All submissions shall be filed within 30 days of the date of the release of these reasons.

Released: March 1, 2018

"C.W. Hourigan J.A."

"I agree. K. Feldman J.A."

"I agree. E.A. Cronk J.A."