COURT FILE NO.: 7433/13

DATE: 2014/06/03

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Grzegorz Zaprzala Plaintiff (Responding Party)

• and -

The Manufacturers Life Insurance Company cob Manulife Financial Defendant (Moving Party)

Counsel: Roelf A. M. Swart, for the Plaintiff/Responding Party Gordon Jermane, for the Defendant/Moving Party

HEARD at Welland, Ontario: February 21, 2014

The Honourable Justice T. Maddalena

DECISION ON MOTION

Introduction

[1] This is a motion pursuant to Rule 21.01(1)(b). The moving party, The Manufacturers Life Insurance Company cob Manulife Financial (hereinafter referred to as "Manulife"), requests an order striking the plaintiff's statement of claim and dismissing the plaintiff's action.

[2] Manulife states that it is "plain and obvious" that the statement of claim discloses no reasonable cause of action.

[3] Rule 21.01(1)(b) states as follows:

"A party may move before a judge, …

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence, …"

[4] The test for a Rule 21 motion has been set out clearly by the Supreme Court of Canada in the case of Hunt v. Carey Canada Inc., [1990] S.C.J. No. 93. The Court stated as follows at paras. 25-27:

25 At an early date, then, the Ontario Court of Appeal had modelled its approach to Rule 124 on the approach that had been consistently favoured in England. And over time the Ontario Court of Appeal has gone on to show the same concern that statements of claim not be struck out in anything other than the clearest of cases. As Laidlaw J.A. put it in Rex ex Rel. Tolfree v. Clark, [1943] O.R. 501 (C.A.), at p. 515:

The power to strike out proceedings should be exercised with great care and reluctance. Proceedings should not be arrested and a claim for relief determined without trial, except in cases where the Court is well satisfied that a continuation of them would be an abuse of procedure: Evans v. Barclay’s Bank et al., [1924] W.N. 97. But if it be made clear to the Court that an action is frivolous or vexatious, or that no reasonable cause of action is disclosed, it would be improper to permit the proceedings to be maintained.

26 More recently, in Gilbert Surgical Supply Co. v. F. W. Horner Ltd., [1960] O.W.N. 289 (C.A.), at pp. 289-90, Aylesworth J.A. observed that the fact that an action might be novel was no justification for striking out a statement of claim. The court would still have to conclude that "the plaintiff’s action could not possibly succeed or that clearly and beyond all doubt, no reasonable cause of action had been shown".

27 Thus, the Ontario Court of Appeal has firmly embraced the "plain and obvious" test and has made clear that it too is of the view that the test is rooted in the need for courts to ensure that their process is not abused. The fact that the case the plaintiff wishes to present may involve complex issues of fact and law or may raise a novel legal proposition should not prevent a plaintiff from proceeding with his action.

[5] On a Rule 21 motion no evidence is admissible. The motion is to be determined on the adequacy of the contents of the impugned statement of claim. Any documents are incorporated into the statement of claim by reference. The facts alleged in the pleadings are deemed to be true.

[6] The motion can only succeed if it is plain and obvious that the claim discloses no cause of action. If the claim has some chance, it must be permitted to proceed. Further, the court must accept the facts alleged by the plaintiff as proven.

[7] The court should read the statement of claim generously and recognize allowances for drafting deficiencies. The length, complexity of issues or legal novelty of the claim should not prevent the claim from proceeding.

[8] The Court stated in Hunt. v. Carey at para. 33 as follows:

"… Only if the action is certain to fail because it contains a radical defect ranking with the others listed in Rule 19(24) of the British Columbia Rules of Court should the relevant portions of a plaintiff’s statement of claim be struck out under Rule 19(24)(a)."

The Issues

[9] The issue for adjudication by the court in this motion is whether it is "plain and obvious" that the plaintiff's claim discloses no reasonable cause of action.

Background

[10] The plaintiff is an employee of Hooper Welding Enterprises Ltd. He sustained a personal injury on or about the 15th of July 2009 and applied for benefits from Manulife.

[11] The plaintiff is an insured person under a contract of insurance for benefits, including long term disability benefits ("LTD") with Manulife.

[12] The plaintiff applied for LTD benefits and was approved with payments of LTD disability benefits to commence November 12, 2009 in the amount of $3,000 per month. Manulife policy states in para. 61 regarding the amount of disability benefits as follows:

"The Amount of Disability Benefit payable is the Benefit Amount shown in the Benefit Schedule, less any amount the Employee receives, or is entitled to receive, from the following sources for the same or related Disability:

a) Workers’ Compensation or similar coverage;

b) Canada or Quebec Pension Plans; and

c) any government motor vehicle automobile insurance plan or policy, unless prohibited by law."

[13] Paragraph 62 of the policy sets out the benefit calculation rules as follows:

"Manulife Financial will apply the following rules in determining the Employee’s Disability Benefit:

e) for benefits payable other than on a monthly basis, a monthly equivalent of such benefit will be estimated by Manulife Financial; and

f) if an Employee does not apply for a benefit for which he is eligible, the amount of such benefit will be estimated by Manulife Financial and assumed to be paid."

[14] The policy also provides in section 78:

"The Entire Contract

The Policy, the Policyholder’s application, the individual Employee’s applications, and any document which supports or alters the information or effect of any such applications constitute the entire contract. A copy of the Policyholder’s application is included with this Policy.

… No alteration of the Policy is permitted by any person, except by an authorized representative of Manulife Financial."

[15] While receiving LTD benefits from Manulife, the plaintiff was required to make application for Canada Pension Plan disability benefits ("CPP disability benefits"). If he did not apply, Manulife could have reduced his LTD benefits by an estimated amount of his CPP disability benefit.

[16] The plaintiff applied for CPP disability benefits and was denied at the initial stage. He requested a reconsideration of the benefit and was denied a second time.

[17] The plaintiff pleads in para. 6 of the statement of claim that he was advised by Manulife that he had an obligation to continue to apply for CPP disability benefits and to dispute the denial. Therefore, he appealed to the CPP Review Tribunal.

[18] Prior to appealing to the CPP appeals Tribunal, the plaintiff executed an agreement regarding CPP/QPP disability and LTD benefits at the request of Manulife. This document is dated August 3, 2010 and states more particularly at clauses (3) and (4) as follows:

In consideration of Manulife Financial’s agreement to continue the payment of LTD benefits without reduction estimated CPP/QPP benefits, I hereby agree:

(3) to reimburse Manulife Financial, if I am awarded CPP or QPP disability benefits, the amount of any resultant overpayment, immediately upon request and in a lump sum. I understand that, should I receive a CPP/QPP award, I hold those funds in trust for Manulife Financial.

(4) that, should I fail to reimburse Manulife Financial upon demand, Manulife Financial may exercise any legal right to collect the overpayment, including, but not limited to the deducting of the amount of any overpayment, from the whole or part of any LTD benefits which would otherwise be payable to me, until the total amount of the overpayment has been reimbursed.

[19] The plaintiff retained the services of Elkin Injury Law to assist with the appeal. The plaintiff was successful in his appeal to the Tribunal.

[20] The plaintiff advised Manulife that he received on account of retroactive CPP disability benefits the amount of $34,318.08 covering the period from November 1, 2009 to and including January 20, 2013. Manulife requested $34,004.32 as the full overpayment.

[21] The plaintiff advised Manulife that his legal fees for the successful appeal amounted to $17,079.74 and that he would remit the required payment to Elkin Injury Law and the balance to Manulife.

[22] Manulife demanded the plaintiff submit the entirety of the overpayment and ceased payments of his LTD disability benefit until he did.

The Position of the Parties

Position of Manulife – Moving Party

[23] Manulife submits this motion is governed solely by contract law, the doctrine of privity, and the duty to mitigate. Manulife submits the contract entitles it to recover any overpayment of LTD benefits paid to the plaintiff.

[24] The contract/policy does not permit the plaintiff to retain counsel and request Manulife to pay that counsel's legal fees. It was the plaintiff who hired the law firm. There is no privity between the plaintiff's law firm and Manulife, and therefore no basis in contract to require Manulife to pay the legal fees of the plaintiff's law firm.

[25] The contract/policy allows CPP benefits to be deducted from the LTD benefits. With the CPP agreement the parties agreed by contract that Manulife can deduct CPP benefits.

[26] Further, Manulife states that if it paid the plaintiff's legal account, the plaintiff would be overcompensated, as his law firm would be paid by Manulife, and Manulife would pay more than is required by the contract. Manulife states the contract precludes the plaintiff's claim. The plaintiff's right stems solely from the contract with Manulife and there can be no claim in unjust enrichment.

[27] Further, the plaintiff's admissions in this statement of claim clearly support a contractual basis for Manulife's deduction of the overpayment. This negates any claim for unjust enrichment.

[28] Manulife further states that it has the contractual right to set off and, if not, then the equitable right to set off, meaning Manulife pays the LTD benefits to the plaintiff and if the plaintiff recovers CPP disability, he has recovered more than he is entitled to and must repay it back to Manulife. This is both by contract and at common law.

The Position of the Plaintiff – Responding Party

[29] In the statement of claim, the plaintiff has pleaded the contract as well as unjust enrichment and bad faith on the part of the defendant Manulife. Further, the plaintiff has advanced a claim for punitive damages.

[30] The plaintiff states that the agreement of August 3, 2010 is not countersigned by a Manulife representative. Secondly, the plaintiff states that at the time of the execution of the agreement, the plaintiff was stressed emotionally and financially.

[31] Further, the plaintiff has pleaded bad faith and punitive damages and the court should not preclude the plaintiff from establishing this on a full record.

[32] The plaintiff states that the contract does not provide or describe what should occur once the plaintiff had made a claim for CPP disability benefits and has been denied.

[33] The plaintiff also has pleaded in the statement of claim unjust enrichment since Manulife has derived a benefit from the plaintiff retaining counsel. Therefore, Manulife should pay the solicitor's fees.

Law and Analysis

Interpretation of Contract

[34] The legal test to determine whether a pleading should be struck pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure is whether it is "plain and obvious" that no reasonable action is disclosed. Jurisprudence supports that courts are reluctant to strike claims unless there is no reasonable prospect of success. Therefore, the test for striking a claim at the pleadings stage is "stringent".

[35] In Alliance H. Inc. v. Henry Schein Ash Arcona Inc., 2012 ONSC 5535, the court repeated the well-settled principles that provide the basis for a Rule 21.01(1)(b) motion and then stated in para. 13 as follows:

"… The combined application of these principles creates a ‘stringent’ legal test for defendants moving to strike out a statement of claim, while creating a threshold for plaintiffs which is ‘not high.’ …"

[36] More recently, in the case of R. v. Imperial Tobacco Canada, 2011 SCC 42, [2011] 3 S.C.R. 45, the Court stated at para. 21 as follows:

Valuable as it is, the motion to strike is a tool that must be used with care. The law is not static and unchanging. Actions that yesterday were deemed hopeless may tomorrow succeed … Therefore, on a motion to strike, it is not determinative that the law has not yet recognized the particular claim. The court must rather ask whether, assuming the facts pleaded are true, there is a reasonable prospect that the claim will succeed. The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial.

[37] The Court, in the case of Complete Innovations Inc. v. Pinpoint GPS Solutions Inc., 2012 ONSC 4384, noted at para. 21 that, "even where there is no ambiguity in the language of the contract, it may still be necessary for a court to examine the surrounding circumstances or factual matrix."

[38] In the case of Ajax v. St. Paul Fire & Marine Insurance Co., [2008] O.J. No. 3660 (Ont. S.C.) on a motion to strike pleadings the Court noted at para. 22:

[22] While counsel for St. Paul argued that because the language of the policy was clear on its face there was no need to look beyond it, in my opinion that is not a correct statement of the law. In the recent text by Geoff Hall, "Canadian Contractual Interpretation Law", 2008 Lexis Nexis the author notes that individual words and phrases must be read in the context of the entire contract. Mr. Hall writes,

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". Because language always draws meaning from context, the factual matrix constitutes an essential element of contractual interpretation in all cases, even when there is no ambiguity in the language.

[39] Manulife states that the policy allows for CPP arrears to be deducted. By stating that Manulife pays an amount that deducts what the plaintiff "receives or is entitled to receive" the policy contemplates that some CPP benefits may be paid contemporaneously with the LTD benefits, while others may be as yet unpaid but receivable, such that they would logically be paid in arrears. The policy states that, "for benefits payable other than on a monthly basis, a monthly equivalent of such benefit will be estimated by Manulife." Manulife states that this permits it to take CPP arrears payments which are not paid on a monthly basis, and render it in monthly terms.

[40] The plaintiff states in the statement of claim that Manulife does not have the right in the contract to recover the arrears payment, and the policy did not require him to submit the arrears. Furthermore, the plaintiff states that there is nothing in the contract or policy that allows Manulife to reduce benefits if the plaintiff applies for the benefits and is denied. If the plaintiff is denied benefits then he is no longer eligible. Further, the policy does not impose a positive obligation on the plaintiff to appeal CPP benefits after having been twice denied.

[41] Thus, the parties dispute clauses of the policy dealing with the obligations of the insured, how the benefits are calculated and the circumstances under which benefits are permitted to be deducted.

[42] Furthermore, the agreement of August 3, 2010 purports to continue unreduced LTD benefits to the plaintiff if the plaintiff agreed to appeal the CPP denial.

[43] The plaintiff states the contract does not permit a denial of LTD benefits once CPP is applied for and is denied. The policy on its own does not obligate the plaintiff to appeal a third time.

[44] The plaintiff pleads that bad faith and thus punitive damages arise from the "imposed agreement" completed when the plaintiff was distressed and dependent on Manulife. Thus, there are varying and differing reasonable interpretations of the contract. It is not "plain and obvious" that no reasonable cause of action is disclosed with respect to the issue of the contract interpretation.

Unjust Enrichment

[45] The law on unjust enrichment is well established in the case of Pettkus v. Becker, [1980] 2 S.C.R. 834, and reiterated by the Supreme Court of Canada in Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] S.C.J. No. 21.

[46] The test for unjust enrichment is as follows:

1. The defendant was enriched;

2. There was a corresponding deprivation to the plaintiff;

3. There was no juristic reason for the enrichment.

[47] The plaintiff has pleaded in para. 24 of the statement of claim that Manulife acted in bad faith and therefore was unjustly enriched in the amount of $34,004.52.

[48] The plaintiff states that if the defendant is allowed to retain the full $34,004.52 it would reap the benefit of the plaintiff's successful appeal without bearing the burden of costs for same.

[49] Manulife states that the plaintiff is the one who received the benefit of the lawyer's work, that the CPP disability benefit is paid to the plaintiff who is the contributor to the plan and not Manulife.

[50] Further, Manulife states that the plaintiff has a duty to mitigate and this includes the plaintiff's application for CPP disability benefits to reduce the amount of the LTD benefit paid by Manulife.

[51] Manulife states that the contract is a juristic reason which precludes the plaintiff's claim in unjust enrichment. Manulife states the plaintiff has not met the three-part test for unjust enrichment.

[52] The plaintiff pleads that his deprivation is that he owes legal fees to his law firm and Manulife has received the benefit of his lawyer's work.

[53] The plaintiff states the policy itself does not require the plaintiff to appeal the CPP disability benefits denial and further there is no provision in the policy to deny CPP once the plaintiff applies and is denied. In that instance the plaintiff would be no longer eligible for CPP disability benefits.

[54] In the case of Giffen, Lee & Wagner v. Zellers Ltd. et al, [15 O.R.(3d) 387], the court held that the doctrine of unjust enrichment applied:

The doctrine of unjust enrichment applied. The insured elected to avail itself of a "benefit" (the tentative settlement) achieved as a result of the solicitors’ labour, and the insured was enriched as a result. Since the insured did not pay for the solicitors’ account for the work they did, the enrichment was unjust. There was no juristic reason for the enrichment. Once the insured made the decision to adopt the benefit of the tentative settlement achieved by the solicitor, it became liable to pay for the work done to achieve that benefit.

[55] While the case of Giffen, Lee & Wagner v. Zellers Ltd. et al is not the same on its facts, the same principles apply, thus negating the plain and obvious test required.

[56] The Court of Appeal case, 702535 Ontario Inc. v. Non-Marine Underwriters Members of Lloyd’s London, [2000], para. 29 states:

[29] The duty of good faith also requires an insurer to deal with its insured’s claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured’s economic vulnerability or to gain bargaining leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith: Palmer v. Royal Insurance Co. of Canada (1995), [27 C.C.L.I. (2d) 249 (O.C.G.D.)].

[57] Thus, if bad faith allegations are established, despite the contract, there could be a finding that the test for unjust enrichment has been met.

[58] On the issue of the legal fees, the court could make a finding that the defendant was enriched as a result of the plaintiff's law firm, and the plaintiff suffered the corresponding deprivation of the cost.

[59] The third part of the unjust enrichment test is the absence of a juristic reason for the enrichment. In Peter v. Beblow, [1993] 1 S.C.R. 980, the Supreme Court held, "considerations of morality and public policy are properly considered in determining whether there is a juristic reason to deny recovery in restitution."

[60] Thus, if bad faith allegations of the plaintiff are established it may be, despite the provisions of the contract, that a case for unjust enrichment could be established. Therefore, it is not "plain and obvious" that the plaintiff would not succeed on the unjust enrichment claim.

Punitive Damages Claim

[61] The plaintiff's pleading has a punitive damages claim. The plaintiff states in para. 27 of the statement of claim that Manulife has treated the plaintiff unfairly with bad faith in the processing of the LTD claim. Particulars are pleaded in para. 27 of the claim.

[62] In the case of Foxcroft v. Pilot Insurance Co., [1992] O.J. No. 4061, the court considered a claim for punitive damages and the court held in para. 7-9 as follows:

7 We do not believe that a pleading should be struck at this stage to preclude any opportunity for the plaintiff to establish the factual backdrop to enable it to recover under the heads of damage under attack. Rather, we believe that the case should proceed to trial, and the issues should be determined on the evidence under these heads of damage as occurred in Vorvis, supra.

8 In support of this view we rely upon Chatelaine Homes Ltd. v. Miller (1982), [39 O.R. (2d) 611] and Richards v. LaBuick Media Ltd., Ont. H.C.J., a decision of Steele J., March 23, 1990 [now reported 29 C.C.E.L. 153].

9 While the court in Vorvis did not eliminate the possibility of an award for punitive damages, it simply said that it would have to be an extremely rare case in contract to grant such damages. We believe it to be inappropriate at this early stage to deprive the plaintiff of that possible rare opportunity. We also rely upon the reasoning in Brown v. Waterloo (Region) Commissioners of Police (1983), [43 O.R. (2d) 113], Ribeiro v. Canadian Imperial Bank of Commerce (1989), [67 O.R. (2d) 385], and Maschke Estate v. Gleeson (1986), [54 O.R. (2d) 753].

[63] The plaintiff ought not to be precluded at a very early stage from establishing this claim. Further on the issue of punitive damages the Supreme Court of Canada held in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, at para. 57:

Mental distress is an effect which parties to a disability insurance contract may reasonably contemplate may flow from a failure to pay the required benefits. The intangible benefit provided by such a contract is the prospect of continued financial security when a person’s disability makes working, and therefore receiving an income, no longer possible. If benefits are unfairly denied, it may not be possible to meet ordinary living expenses. This financial pressure, on top of the loss of work and the existence of a disability, is likely to heighten an insured’s anxiety and stress. Moreover, once disabled, an insured faces the difficulty of finding an economic substitute for the loss of income caused by the denial of benefits. See D. Tartaglio, "The Expectation of Peace of Mind: A Basis for Recovery of Damages for Mental Suffering Resulting from the Breach of First Party Insurance Contracts" (1983), 56 S. Cal. L. Rev. 1345, at pp. 1365-66.

[64] While the courts have noted that it is clear that punitive damages are resorted to in the exceptional case or in bad faith cases, it is not plain and obvious at the early stage that it does not disclose a reasonable cause of action, without allowing the possibility of the plaintiff pursuing this claim.

Order Made

[65] I conclude that it is not "plain and obvious" that no reasonable action is disclosed. Therefore, the motion of the moving party is dismissed.

Costs

[66] Unless otherwise agreed, the parties may make written submissions as to costs limited to two pages (normal font), plus the bill of costs and any offers to settle. The responding party shall serve and file by June 17, 2014 and the moving party by July 2, 2014.

Maddalena J.

Released: June 3, 2014