Alguire v. The Manufacturers Life Insurance Company c.o.b. as Manulife Financial

[Indexed as: Alguire v. Manufacturers Life Insurance Co.]

Ontario Reports

Ontario Superior Court of Justice,

Diamond J.

March 1, 2016

130 O.R. (3d) 310 | 2016 ONSC 1455

Case Summary

Insurance — Duty of good faith — Plaintiff alleging that life insurance policy issued to him by defendant in 1982 was designed to provide him with "inflation protection" — Defendant taking position that policy was created in error — Plaintiff moving for leave to amend statement of claim to make allegations of bad faith based on defendant's alleged knowledge of and attempt to cover up policy error as early as 2005 — Leave denied — Claim based on breach of duty of good faith not tenable as duty of good faith does not require insurer to relinquish its own self-interest and to act in sole interest of insured — Amendments relating to defendant's failure to disclose documents before plaintiff's [page311] original application was converted into action also legally untenable — Defendant's decision to present full defence on merits not giving rise to separate cause of action.

The plaintiff sued the defendant for various mandatory and declaratory orders arising from a life insurance policy issued to him by the defendant in 1982. The plaintiff alleged that the policy was designed to provide him with "inflation protection". The defendant took the position that the policy was created in error. The plaintiff brought a motion for leave to amend his statement of claim to add allegations that the defendant breached its duty of good faith by failing to inform the plaintiff of the policy error when it was discovered in 2005 in an attempt to bury the error. The proceeding was originally commenced by way of application, and was converted into an action. One of the proposed amendments to the statement of claim alleged that the defendant breached its duty of good faith by failing to disclose or produce documents relating to the policy error prior to the application, and that disclosure would have resulted in the application being successful. Additional allegations of bad faith in the draft amended statement of claim were based on the fact that the defendant had maintained an adversarial approach without any reasonable justification. Finally, the plaintiff sought to increase the amount sought for punitive damages from $1,000,000 to $5,000,000. The defendant opposed the above amendments, but did not oppose certain other amendments.

Held, the motion should be granted in part.

Apart from the draft amendments which were not opposed by the defendant, leave to amend the balance of the statement of claim was denied. The draft amendments based on a breach of the duty of good faith were not legally tenable. Mutual obligations of good faith between an insurer and an insured do not import any fiduciary obligations. As a result, the duty of good faith does not require the insurer to relinquish its own self-interest and agree to act in the sole interest of the insured. The duty of good faith relates to the insured's obligation to perform the contract in good faith. The insurer is required to reasonably investigate and evaluate an insured's claim in a timely manner, but the duty is not invoked until an insured submits a claim. The defendant's failure to disclose documents at the application stage could not support a tenable cause of action, as the obligation to produce documents by way of an affidavit of documents or on discovery is not engaged in an application. The defendant's decision to present a full defence on the merits could not support a finding of bad faith and did not create a separate cause of action, and was thus also not tenable at law. Finally, the plaintiff's allegations, if proven, could not justify a punitive damage award in excess of the upper reasonable limit of $1,000,000.

Cases referred to

Insurance Corp. of British Columbia v. Hosseini, [2006] B.C.J. No. 6, 2006 BCCA 4, 262 D.L.R. (4th) 233, 221 B.C.A.C. 94, 49 B.C.L.R. (4th) 250, 31 C.C.L.I. (4th) 157, 146 A.C.W.S. (3d) 354, distd

Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, 209 D.L.R. (4th) 257, 283 N.R. 1, J.E. 2002-405, 156 O.A.C. 201, 20 B.L.R. (3d) 165, 35 C.C.L.I. (3d) 1, [2002] I.L.R. I-4048, REJB 2002-28036, 111 A.C.W.S. (3d) 935, consd

Other cases referred to

Addison Chevrolet Buick GMC Ltd. v. General Motors of Canada Ltd., [2015] O.J. No. 2743, 2015 ONSC 3404, 45 B.L.R. (5th) 135, 254 A.C.W.S. (3d) 334 (S.C.J.); Bhasin v. Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, 2014 SCC 71, [2014] 11 W.W.R. 641, 27 B.L.R. (5th) 1, 379 D.L.R. (4th) 385, 4 Alta. L.R. (6th) 219, 464 N.R. 254, 20 C.C.E.L. (4th) 1, 2014EXP-3530, J.E. 2014-1992, EYB 2014-244256, 245 A.C.W.S. (3d) 832; [page312] Gowanbrae Realty Developments Ltd. v. McLean-Peister Ltd., [2005] O.J. No. 5378, 144 A.C.W.S. (3d) 261, 2005 CanLII 46627 (C.A.); Pereira v. Hamilton Township Farmers' Mutual Fire Insurance Co., 2006 CanLII 12284 (ON CA), [2006] O.J. No. 1508, 267 D.L.R. (4th) 690, 209 O.A.C. 127, 36 C.C.L.I. (4th) 11, [2006] I.L.R. I-4499, 147 A.C.W.S. (3d) 678 (C.A.); Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 1994 CanLII 653 (ON CA), 18 O.R. (3d) 663, [1994] O.J. No. 1023, 115 D.L.R. (4th) 37, 72 O.A.C. 66, 22 C.C.L.I. (2d) 161, 56 C.P.R. (3d) 46, 4 E.T.R. (2d) 69, [1994] I.L.R. Â1-3067 at 2871, 47 A.C.W.S. (3d) 1064 (C.A.)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 26.01, 26.02(b), 30.02

MOTION for leave to amend a statement of claim.

Glenn Smith, for plaintiff.

Robert Harrison and Fida Hindi, for defendant.

DIAMOND J.: —

Overview

[1] In this proceeding, the plaintiff seeks various mandatory and declaratory orders arising from a life insurance policy issued to him by the defendant on July 21, 1982 (the "policy"). The plaintiff alleges that the policy was specifically designed by the defendant to respond to his request to provide him with "inflation protection" to ensure that the value of the death benefit grew over the years of his life. The plaintiff alleges that the defendant prepared a special actuarial quote which provided him with immediate $5 million coverage together with inflation protection over the long term by way of non-forfeiture paid up values which increased on an annual basis, and surpassed the value of $5 million in the 15th year of the policy.

[2] The defendant disputes that the plaintiff ever made any such requests for a specifically designed policy, and takes the position that the policy issued to the plaintiff was created in error (the "policy error"). The defendant alleges that the non-forfeiture paid up values listed on p. 3 of the policy should have been calculated on a ratio of $5,000 of the face amount of the policy as opposed to $1,000 of the face amount. The defendant seeks a dismissal of the plaintiff's claim, and, if necessary, an order rectifying the terms of the policy to fix the policy error and reflect what the defendant claims to be the actual agreement between the parties.

[3] The trial of this proceeding commenced before me on February 1, 2016. After the first week of trial during which the plaintiff called his first three witnesses, the plaintiff served the [page313] defendant with a draft amended amended statement of claim and sought the defendant's consent to the amendments pursuant to rule 26.02(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[4] The defendant refused to provide its consent. As a result, the trial was put on hold while the plaintiff proceeded with a formal motion to seek leave to amend his amended statement of claim. The plaintiff relied upon the affidavit evidence of its trial counsel, Warren Rapoport, who was then cross-examined before me upon that affidavit. Argument of the plaintiff's motion proceeded before me on February 22, 2016, and I took my decision under reserve.

Leave to Amend

[5] Rule 26.01 provides as follows:

On motion on any stage of an action the court shall grant leave to amend the pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[6] A motion to amend after the commencement of trial is still one brought "at any stage of an action". As stated by the Court of Appeal for Ontario in Gowanbrae Realty Developments Ltd. v. McLean-Peister Ltd., [2005] O.J. No. 5378, 2005 CanLII 46627 (C.A.) [at para. 5]:

Although the Rules of Civil Procedure permit pleadings amendments at any stage of an action, an amendment to introduce a new cause of action, especially after trial, may only be permitted where an absence of non-compensable prejudice to the responding parties is clearly made out.

[7] Subject to several isolated paragraphs in the draft amended amended statement of claim, the defendant opposes the plaintiff's motion on two essential grounds:

(a) the amendments will cause non-compensable prejudice after the plaintiff's three key witnesses have already testified and been cross-examined; and

(b) the amendments plead causes of action which are legally untenable.

The Draft Pleading

[8] As stated above, the defendant does not oppose the proposed amendments to the following paragraphs in the amended amended statement of claim: 3(h)(vii), 3(h)(viii), 3(h)(ix)(d) and 3(h)(ix)(e), 28, 29, 30, 38, 40, 43(d) as it relates to the decision not to inform the plaintiff in 2007; 43(e) as it relates to the defendant's attempt to suppress information in September 2007; [page314] 43(f), 44(e) as a stand-alone allegation; 44(f) as a stand-alone allegation; 46 and 47.

[9] Accordingly, the plaintiff shall have leave to amend his amended statement of claim to include the allegations contained in those said paragraphs.

[10] The balance of the draft amendments can be grouped into the following categories:

(a) The defendant's 2005 actions

In the current amended statement of claim, the plaintiff alleges that the defendant became aware of the policy error in September 2007, and failed to take any steps to rectify the policy until the commencement of this proceeding. The draft amendments now seek to include allegations that the defendant in fact learned of the policy error as early as May 2005 based upon a series of documents which had already been produced by the defendant in this litigation. Mr. Rapoport gave evidence that, until he was knee deep in trial preparation, he did not become aware of the "disconnect" between the positions taken by Manulife to date. The context in which the said 2005 documents were created seemed, to him, to be irreconcilable with those positions.

The draft amendments allege that the defendant breached its duty of good faith owed to the plaintiff, by failing to inform the plaintiff of the policy error when it was discovered in or around May 2005 in an attempt to bury the policy error and avoid "having to confront the issue". The draft amendments further maintain that the defendant's decision not to disclose the policy error to the plaintiff was carried out by the defendant with the hope of "letting sleeping dogs lie" and ultimately avoid paying the plaintiff's estate the true paid up values after the plaintiff's death. In other words, the defendant wanted to ensure that the plaintiff's ability to challenge the policy error died with him.

(b) Failure to disclose documentation

This proceeding was originally commenced by way of application, and was converted into an action pursuant to the order dated March 10, 2014 of Justice Greer. In the original amendment statement of claim, the plaintiff alleges that the defendant failed to disclose its September 2007 discovery of the policy error (and the documents supporting that discovery) prior to or at the return of the application, and as such, disclosure would have, in part, resulted in the [page315] application being successful. Simply put, the plaintiff alleges that the defendant misled Justice Greer to find that the defendant only became aware of the policy error in 2010 in response to a phone call made by the plaintiff.

The draft amendments seek to expand the plaintiff's position and allege that the defendant failed to properly search for, disclose and/or produce documents with respect to the plaintiff's policy and other similar policies prior to the application. The plaintiff further alleges that these failings on the part of the defendant amount to both a breach of its duty of good faith and a breach of the discovery obligations under rule 30.02 of the Rules of Civil Procedure.

(c) Additional allegations of bad faith

The plaintiff seeks to expand upon the basis for a finding that the defendant breach its duty of good faith owed to the plaintiff. The draft amendments now include additional allegations such as

the defendant has maintained an adversarial approach against the plaintiff both before and during this litigation without any reasonable justification, and has unlawfully sought to fraudulently take advantage of its own alleged policy error by challenging the plaintiff's version of events leading up to issuance of the policy; and

the defendant is a "highly respected Canadian institution which has been in existence for over 100 years, with market value, revenues and assets under its administration calculated in billions of dollars". As such, the public (including the plaintiff) has a right to expect integrity, transparency and fair dealing on the part of the defendant with its insureds.

(d) Punitive damages

The original amended statement of claim sought punitive damages in the amount of $1 million. The plaintiff now seeks to increase that amount to $5 million by alleging that since May 2005 the defendant has "wholly abused" the plaintiff's trust through an attempt to cover up, disguise and/or otherwise not disclose its position as to policy error (as described above). [page316]

Non-compensable prejudice

[11] To begin, I do not agree with the defendant's position that leave to amend the balance of the amended amended statement of claim ought to be refused due to the presence of prejudice which cannot be addressed by way of a costs award, adjournment or other relief. While I can appreciate that the defendant may consider itself to be the subject of a "moving target" in the face of these latest allegations advanced in the middle of trial, I accept Mr. Rapoport's evidence that there was nothing inappropriate or otherwise improper motivating the request for leave to amend at this late stage.

[12] While mid-trial amendments are obviously not a preferred course of action, on occasion trial counsel may view the contents of his/her file as pieces in a jigsaw puzzle box, and sometimes the pieces do not seem to fit until several attempts are made. Without leaning too heavily on the use of metaphors, many crossword puzzles are not completed until the reader puts them away and starts anew. I accept that this is what happened in this case.

[13] More importantly, Mr. Rapoport confirmed in his testimony that he had no intention of re-calling any of the three witnesses who had already testified, and would have no objection to the defendant conducting further examination for discovery of the plaintiff upon the draft amendments, and being granted leave to re-call the three witnesses, if required, before further cross-examination at trial. As such, the draft amendments would not cause non-compensable prejudice in these circumstances.

Breach of the duty of good faith

[14] The defendant contends that the draft amendments supporting the plaintiff's new causes of action for breach of the duty of good faith are not legally tenable. In order to address this argument, it is important to review the law of the duty of good faith between an insurer and an insured.

[15] In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, the Supreme Court of Canada held that the duty of good faith requires that an insurer deal with its insured's claim fairly, both with respect to the manner in which it investigates and assesses the claim, and the decision whether or not to pay it. The court further held that the duty of good faith was reciprocal, and explained this reciprocity as follows (my emphasis in bold) [at para. 55]:

[T]he insurer must not act in bad faith when dealing with a claim, which is typically made by someone in a vulnerable situation, and the insured must act in good faith by disclosing fact material to insurance policy. [page317]

[16] The Court of Appeal for Ontario has made it clear that mutual obligations of good faith between an insured and an insurer do not import any fiduciary obligations. The duty to act in good faith is distinct from the nature of the relationship itself between an insured and an insurer. In Plaza Fiberglass Manufacturing Ltd. v. Cardinal Insurance Co. (1994), 1994 CanLII 653 (ON CA), 18 O.R. (3d) 663, [1994] O.J. No. 1023 (C.A.), the court stated as follows [at para. 15]:

The fact that a contract is one of utmost good faith does not however mean that it gives rise to a general fiduciary relationship. The relationship between insured and insurer is not akin to the relationship between, say, guardian and ward, principal and agent, or trustee and beneficiary. In these latter instances, the inherent character of the relationship is such that the law has traditionally imported general fiduciary obligations. The insurer-insured relationship is contractual, the parties are parties to an arm's length agreement. The principle of uberrima fides does not affect the arm's length nature of the agreement and, in my opinion, cannot be used to find a general fiduciary relationship.

[17] As there is no fiduciary component, the duty of good faith does not create any obligation upon the defendant to relinquish its own self-interest and agree to act in the sole interest of the plaintiff.

[18] As held by the Supreme Court of Canada in Bhasin, the duty of good faith should not be confused with the duty of loyalty or disclosure. As my colleague Justice Dunphy held in Addison Chevrolet Buick GMC Ltd. v. General Motors of Canada Ltd., [2015] O.J. No. 2743, 2015 ONSC 3404 (S.C.J.) [at para. 116]:

Bhasin is no authority for unbridled creativity in the creation from whole cloth of obligations in a contractual context which the parties have not provided for or have addressed in a fashion which one party regrets in hindsight.

[19] While the categories of breach of a duty of good faith are not necessarily foreclosed, in an insurance context the jurisprudence is clear that a breach of the duty on the part of the insured relates to the obligation to perform the contract in good faith. The insurer is required to reasonably investigate and evaluate an insured's claim in a timely manner, but the duty is not invoked until an insured submits a claim. As held in Bhasin, the duty of good faith does not require a party to forego advantages flowing from the contract, but may require the party not to lie or mislead the other party in terms of contractual performance.

[20] The 2005 documentation produced by the defendant does not, on its face, suggest that the defendant chose not to advise the plaintiff of the policy error with a view to suppressing information from him so that the defendant could ultimately benefit [page318] after the plaintiff's passing. On cross-examination, Mr. Rapoport testified that, in his view, the 2005 documentation "just didn't make sense" and the theories behind the draft amendments "must have been the real reasons". In my view, at this stage of the action, the admittedly speculative theories set out in the amended amended statement of claim, especially in the face of the jurisprudence cited above, do not amount to legally tenable causes of action.

[21] The plaintiff relies upon the decision of the British Columbia Court of Appeal in Insurance Corp. of British Columbia v. Hosseini, 2006 BCCA 4, [2006] B.C.J. No. 6, 262 D.L.R. (4th) 233 (C.A.) in support of his motion. In that case, a passenger was injured while riding on a stolen motorcycle operated by Hosseini. The insurer had made payments to the passenger and sued Hosseini to recover those amounts. In addition, the passenger sued Hosseini and the insurer was added as a third party. The passenger's claim was settled but Hosseini did not receive notice that the insurer was proceeding against him as an uninsured motorist until six years after the accident.

[22] The British Columbia Court of Appeal found that the insurer owed a duty of care to Hosseini as an insured motorist, and that the insurer breached that duty by reason of a six-year delay to notify Hosseini of the position. The court further held that the insurer's failure to notify Hosseini of the settlement with the passenger was evidence of a lack of good faith.

[23] This case is clearly distinguishable on its facts, especially given the fact that claims under the insurance policies and subsequent legal proceedings had already been initiated and commenced before the six-year delay began. In the case before me, the plaintiff is alleging that the defendant breached its duty of good faith during the term of the policy by failing to inform the plaintiff that the defendant took a different position than the plaintiff had taken as to what the policy in fact meant.

[24] Even accepting all of the relevant allegations in support of this argument as true, this purported cause of action stands no chance of success and is not tenable in law. As such, leave to amend the amended statement of claim in this regard is denied.

Failure to disclose documents

[25] Tied together with the draft amendments relating to the breach of duty in good faith are allegations that the defendant failed to disclose documentation at the application stage of this proceeding. If these allegations are true (and especially if the defendant's decision to withhold documentation was [page319] intentional, an allegation that has yet to be tested or proven at the trial), then there is redress for such misconduct in the form of costs.

[26] I do not believe that a failure to disclose documentation at the application stage can support a tenable cause of action. This is due to the wording of rule 30.02 itself, as both the scope and obligations of documentary discovery relate to "any matter in issue in an action", (emphasis added) and not an application. This is understandable as applications are summary proceedings, decided on a paper record, where no material facts are in dispute. The obligation to produce documentation by way of an affidavit of documents or on discovery is not engaged in an application.

[27] As such, the draft amendments relating to the defendant's failure to disclose documents at the application stage are also not tenable at law, and leave to amend the amended statement of claim in this regard is denied.

General allegations of bad faith

[28] These allegations, mostly contained in paras. 45 and 53 of the amended amended statement of claim, are inflammatory attacks on the defendant's integrity. These paragraphs appear to have been inserted only for colour. While the plaintiff may be disappointed and frustrated with the defendant's handling of his policy, and the subsequent position(s) taken by the defendant in this proceeding, the litigation process is adversarial by its very nature, and it should come as no surprise to a plaintiff that a defendant has the right to defend allegations made against it in a proceeding. Again, there is redress under the Rules such as a motion for summary judgment. If I were to ultimately find that the positions taken by the defendant were without merit or foundation, and unnecessarily prolonged this proceeding, the plaintiff could be compensated by both the scale and amount of costs.

[29] The defendant's decision to present a full defence on the merits cannot support a finding of bad faith as alleged by the plaintiff. It does not create a separate cause of action and is thus also not tenable at law. Leave to amend the amended statement of claim in this regard is denied.

Punitive Damages

[30] In Pereira v. Hamilton Township Farmer's Mutual Fire Insurance Co., 2006 CanLII 12284 (ON CA), [2006] O.J. No. 1508, 267 D.L.R. (4th) 690 (C.A.), the Court of Appeal for Ontario reviewed a jury award and ordered a new trial. The jury had awarded punitive damages [page320] against the insurer in the total amount of $2,500,000. The court confirmed that a $1 million punitive damages award was the upper end of the permissible range as described by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 209 D.L.R. (4th) 257.

[31] Of note, in Whiten the $1 million punitive damages award was premised upon a finding that the subject fire was incendiary. In this proceeding, the plaintiff seeks a punitive damages award more than five times what the Court of Appeal for Ontario has described as the upper, reasonable limit.

[32] When asked how the allegations in the case before me (accepting them as proven and true) could justify a punitive damages award five times the upper reasonable limit set by the Court of Appeal for Ontario, counsel for the plaintiff essentially conceded that the $5 million was extremely high, but suggested that the value of $1 million when Whiten was decided was far less than today's correspondence value, and, as such, perhaps a revised amendment for punitive damages in the amount of $2 million would be more appropriate.

[33] The allegations in the original amended statement of claim, together with the draft amendments which the defendant has not opposed, are very serious in nature and effectively amount to an allegation of some form of conspiracy carried out to injure the plaintiff. If proven, there is certainly an argument to support an award of punitive damages against the defendant. However, I do not believe that those allegations, if proven, could justify any punitive damage award in excess of the upper reasonable limit of $1 million and for this reason leave to amend the amended statement of claim in this regard is denied.

Summary

[34] Apart from the draft amendments which were not opposed by the defendant, leave to amend the balance of the amended amended statement of claim is denied for the reasons stated herein.

[35] If the defendant wishes to conduct further, limited examination for discovery of the plaintiff in light of the unopposed draft amendments, it may do so upon a date mutually convenient to counsel.

[36] Costs of this motion shall be reserved to me as the trial judge. As discussed with counsel for the parties at the conclusion of the motion, the trial of this proceeding shall resume and conclude before me during the weeks of April 18 and June 6, 2016.

Motion granted in part.

End of Document