Court File and Parties
COURT FILE NO.: CV-12-00461724 DATE: 20160822 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
WILLIAM ALGUIRE Plaintiff – and – THE MANUFACTURERS LIFE INSURANCE COMPANY c.o.b. as MANULIFE FINANCIAL Defendant
Counsel: Warren S. Rapoport, for the Plaintiff Robert Harrison and Fida Hindi, for the Defendant
HEARD: February 1, 2, 3, 4, 5, 8, 22, April 14, 18, 19, 20, 21, 22, June 13, 14, 15, 16 and 17, 2016
Reasons for Decision
DIAMOND J.:
Overview
[1] The plaintiff is the owner of a life insurance policy issued to him on July 21, 1982 (‘the policy”) by the defendant The Manufacturers Life Insurance Company (“Manulife”). The policy is a Guaranteed Renewable Insurance Protection policy (“GRIP”). Manulife marketed and sold the GRIP product for a short number of years in the 1980s.
[2] At the time of purchasing the policy, the plaintiff was 31 years of age. The face amount of the policy is $5,000,000.00. The genesis of the dispute giving rise to this proceeding is found on page 3 of the policy, where Manulife included a Table of Non Forfeiture Values (the “Table”) which set out the policy’s paid up values on various policy anniversary dates.
[3] On its face, the policy’s paid up value exceeds the $5,000,000.00 face value commencing in the 15th anniversary year. By the commencement of this trial, according to the table, the policy’s listed paid-up value was $13,400,000.00, nearly three times the amount of the stated face value.
[4] The plaintiff’s position is that the policy was specifically designed by Manulife 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. In summary, the plaintiff submits that the policy provided him with immediate $5,000,000.00 coverage together with inflation protection over the long term by way of paid up values which increased on an annual basis.
[5] Manulife takes the position that the plaintiff never made any such requests for a policy specifically designed to guard against any risk of continued or rising inflation, and submits that page 3 of the policy was clearly created in error. Manulife submits that the paid up values listed on page 3 of the policy were mistakenly calculated based on a per $1,000.00 amount of face value, instead of a per $5,000.00 amount of face value.
[6] This proceeding was originally commenced by way of Notice of Application dated August 20, 2012. By Order dated March 10, 2014, Justice Greer converted the application into an action. In his Amended Amended Statement of Claim, the plaintiff seeks, inter alia, mandatory and declaratory relief including an order requiring Manulife to honour the terms of the policy and specifically the paid up values listed on page 3 therein.
[7] Manulife seeks a dismissal of the plaintiff’s claim, and, if necessary, an order rectifying the policy to correct what it says is a clear error, in order to reflect the true agreement between the parties.
[8] The trial proceeded before me over a period of 18 days during which time I heard evidence from 13 witnesses. I also heard two mid-trial motions. At the end of the trial I took my decision under reserve.
[9] For the reasons which follow, the plaintiff’s action is dismissed.
Assessment of Credibility - Generally
[10] As the trier of fact, I am charged with determining the truth. On occasion, that task can be rendered unenviably difficult when parties are motivated to offer evidence designed to “fit” within a specific theory of the case. In Prodigy Graphics Group Inc. v. Fitz-Andrews 2000 CarswellOnt 1178 (S.C.J.) Justice Cameron offered a non-exhaustive list of traditional criteria by which the evidence of each witness, and, where appropriate, the exhibits tendered at trial, ought to be assessed:
- Lack of testimonial qualification
- Demeanour of Witness: apparent honesty, forthrightness, openness, spontaneity, firm memory, accuracy, evasiveness
- Bias/Interest in the Outcome (if a party, motive)
- Relationship/Hostility to a party
- Inherent probability in the circumstances i.e. in the context of the other evidence does it have an "air of reality"
- Internal consistency i.e. with other parts of this witness' evidence at trial and on prior occasions
- External consistency i.e. with other credible witnesses and documents
- Factors applicable to written evidence: (a) Presence or absence of details supporting conclusory assertions (b) Artful drafting which shields equivocation (c) Use of language in an affidavit which is inappropriate to the particular witness (d) Indications that the deponent has not read the affidavit (e) Affidavits which lack the best evidence available (f) Lack of precision and factual errors (g) Omission of significant facts which should be addressed, and (h) Disguised hearsay
[11] The assessment of the credibility of witnesses is especially important when bearing in mind the onus of proof. As the trial judge, I must decide whether a specific proposition of fact has or has not been established on a balance of probabilities by the party having the onus of proof. For a party to seek to discharge its legal onus of proof, I must first be satisfied with the credibility and reliability of the evidence in order to be in a position to make the relevant findings of fact.
[12] Put another way, a moving party has the onus of factual proof of the evidence necessary to satisfy its legal burden. As stated by Justice Stinson in Zesta Engineering Ltd. v. Cloutier, 2010 ONSC 5810 (S.C.J.):
“In certain instances it is simply not possible to reconcile some aspects of the evidence that was presented by the witnesses at this trial. In part, I liken the situation to attempting to assemble several old jig-saw puzzles whose various parts have sat, co-mingled, in the bottom of an actively-used desk drawer for a decade: some pieces are missing, some are undecipherable, some have changed over time and no longer fit together, and some are not what they seem to be, all due to the passage of time and intervening events. In this case my task is to use the pieces of evidence to re-create as clear a picture of past events as I can give the foregoing limitations, applying the "real test of…truth" as described above, drawing inferences where appropriate, and applying the rules of burden and standard of proof, as required.”
[13] In evaluating the credibility or reliability of evidence, I look to a number of interrelated factors such as its probability, logical connection with other findings and support from independent facts or documents. As held by Justice Brown (as he then was) in Atlantic Financial Corp. v. Henderson et al, [2007] 15230 (S.C.J.):
“In deciding between these two diametrically opposed positions, I am guided by the observations made about assessing the credibility of witnesses by O’Halloran, J.A. in Faryna v. Chorny, [1952] 2 D.L.R. 354 (B.C.C.A.) where he stated, at page 357:
“The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.”
[14] I have carefully listened to and observed the testimony of all witnesses called by both parties, and reviewed the exhibits relied upon throughout the trial. I do not intend to summarize the evidence of each witness, nor do I see the need to present an exhaustive, chronological narrative summary. In my view, there are three issues to be determined in this proceeding:
Issue #1 Was page 3 of the policy issued in error? Issue #2 If page 3 of the policy was issued in error, how is the policy to be interpreted? Issue #3 Did Manulife breach a duty of good faith by not disclosing the error to the plaintiff in 2007?
[15] I shall now address each issue in turn.
Issue #1 Was page 3 of the policy issued in error?
[16] To begin, the concept of any paid up value being greater than the face amount of a life insurance policy is quite far-fetched, and arguably nonsensical. By definition, the paid up value of a life insurance policy is the value an owner receives from the insurer upon default or surrender or early termination of the policy before its maturity or the insured’s death. When an insured defaults on his/her obligation to remit payment of a premium, and the policy lapses as a result, the policy may acquire a paid up value such that the face amount of coverage under the policy is reduced in proportion with the number and amount of premiums paid until the date of default. In other words, the paid up value is always a percentage of the face amount of coverage.
[17] While I will review other terms and conditions under the policy hereinafter, I note the following clause listed under the “Nonforfeiture” section:
“At the end of the grace period of a premium in default, if the premium remains unpaid, the policy will be continued as paid up whole life insurance, if it has been in force long enough to have a paid up insurance value.”
[18] As such, the theory of the plaintiff’s case seems to lack an inherent, objective air of reality. For me to accept his theory (ie. the parties agreed upon a policy which provided inflation protection to the plaintiff by way of a purported increased death benefit through increasing paid up values), I would need to be satisfied on a balance of probabilities through credible and reliable evidence that the parties did in fact agree to proceed as the plaintiff contends. For the reasons which follow, I do not find that the plaintiff has met his onus.
The Plaintiff’s Story (Generally)
[19] The following is a summary of the plaintiff’s version of events which culminated in the issuance of the policy on July 21, 1982. After the summary is complete, I will detail the many pieces of evidence (and common sense conclusions) which cast the plaintiff’s version of events into significant doubt, and ultimately support my decision that the plaintiff has failed to convince me of his theory of the case.
[20] The plaintiff was born on January 24, 1951. Before the age of 30, he had obtained bachelor’s degrees in commerce, law and civil law. After obtaining those degrees, the plaintiff participated in various real estate development projects which included dealing with partners, lenders and advisors. He was, and remains, a sophisticated businessman.
[21] By late 1981, the plaintiff owned a company known as 82135 Canada Ltd. (“821”) which acted, inter alia, as his personal holding company for real estate investments. In his examination in chief, the plaintiff testified that he was looking to increase 821’s line of credit with the Royal Bank of Canada (“RBC”) in order to purchase a new property. On cross-examination, the plaintiff stated that to assist RBC with its decision, he would apply for $5,000,000.00 life insurance policy as “key man insurance”. Indeed, on page 2 of the plaintiff’s Confidential Financial Questionnaire (which he completed as part of Manulife’s application process to be described in greater detail hereinafter), the plaintiff confirmed that the insurance he sought was “requested by the creditor RBC”, and its purpose was for “general business loans”. I note that the plaintiff also checked off and “other” box but did not provide particulars of any other stated purpose for the insurance sought.
[22] The plaintiff had previously purchased life insurance policies but was looking for a new insurance agent for the $5,000,000.00 key man insurance. The plaintiff’s accountant recommended Alan Elias (“Elias”) as an experienced agent with a good reputation. The plaintiff met with Elias on June 3, 1982 at the office of the plaintiff’s account. Elias has since passed away, and as such the only viva voce evidence related to that meeting came from the plaintiff.
[23] The plaintiff testified that he explicitly asked Elias to come up with an insurance policy which provided “inflation protection to the long future” and that he had $100,000.00 available in premiums then and there in order to “power the death benefit”. He further testified that he told Elias that there was no need for him to suggest whole life policies with participation (ie. policies which permit the insured to re-invest dividend income back into the policy if he/she so chooses), or surrender values.
[24] According to the plaintiff’s evidence, Elias did not say much, did not make any product suggestions to him, did not ask questions about the “inflation protection” concept, but heard the plaintiff’s instructions “loud and clear”.
[25] The plaintiff was very clear in his trial testimony that he told Elias that he was not looking for a policy containing “gibberish” or “standard retail nonsense” because the plaintiff wanted certainty. Though I am foreshadowing my dissatisfaction with the plaintiff’s story, a review of the policy and page 3 therein clearly, and ironically, discloses complete uncertainty of terms as evidenced by the chasm between the positions of the plaintiff and Manulife in this proceeding.
[26] The plaintiff then completed and submitted a series of forms and questionnaires which were part of Manulife’s application procedure. I will have more to say about the contents of the plaintiff’s application forms later in these reasons.
[27] At the conclusion of the meeting with Elias, the plaintiff gave Elias a cheque for $4,000.00 as a premium deposit, told him “show me the results” and departed for a summer cruise in the Mediterranean Sea with his fiancée Linda Maybarduk (“Linda”), a former ballerina and actress. They were engaged to be married in September 1982.
[28] The plaintiff returned to Toronto on July 30, 1982. He received a telephone call from Elias within a week or two, and was told by Elias that an insurance policy had been arranged, and to bring his chequebook. The plaintiff was somewhat surprised that a policy was in fact ready to be reviewed as it was his expectation that Elias would have obtained proposals for his review.
[29] The plaintiff met with Elias in mid-August 1982. Elias advised the plaintiff, inter alia, as follows:
a) he had obtained a GRIP policy from Manulife; b) the premiums would be front-end loaded during the first three years ($40,000.00, $40,000.00 and $20,000.00) with annual premiums reduced to $2,400.00 thereafter; c) the inflation protection sought by the plaintiff was contained on page 3 of the policy in the Table of Non Forfeiture Values and started in the 15th year of the policy (when the purported non forfeiture value exceeded the $5,000,000.00 face value of the policy); d) after using a calculator, Elias told the plaintiff that he would have coverage of $7,500,000.00 at year 20, and $13,400,000.00 at year 34; and, e) the premiums in the GRIP policy were adjustable by Manulife every 5 years.
[30] The plaintiff admitted on cross-examination that before ever meeting with Elias, the plaintiff knew that a paid up value was the highest value of coverage achieved in the event an insured stopped paying premiums. During the mid-August 1982 meeting, Elias explained this exact concept to him. Objectively, how can an insured obtain a greater death benefit by failing to pay premiums than by maintaining the premiums in good standing? When asked this very question, the plaintiff testified that the face amount of the policy “merged” with the values in the Table after the 15th year (the “merger argument”). While such an interpretation seems to lack any reasonable basis, it is certainly not consistent with the goal of “certainty and no gibberish”.
[31] Elias went over page 3 of the policy in detail, but “did not really review” the balance of the documents with the plaintiff. The plaintiff testified that he was quite impressed with the numbers achieved by Elias and was proud of the job Elias had done for him. The policy was initially issued in the name of 821. The plaintiff apparently reviewed the policy in greater detail when he went home.
[32] Apart from a few missed payments which were ultimately replaced and cured, the plaintiff has continued to pay the premiums until the present day.
[33] For the reasons which follow, I do not find the plaintiff’s story to be credible.
The Plaintiff’s Applications
[34] Manulife has produced its entire “application file”, containing various documents and forms submitted by the plaintiff (through Elias) and reviewed by members of Manulife’s underwriting and other processing departments.
[35] During his examination-in-chief, the plaintiff testified that he did not read most, if not all, of the application forms and likely signed them “in blank”. Not only is this evidence not credible (as the plaintiff was an experienced businessman), I find that it was tendered by the plaintiff with a view to shielding himself from the obvious inconsistencies between the contents of the application forms and the plaintiff’s version of events.
[36] On cross-examination, he admitted reading contracts in his business life, and not being shy if he found something in a contract to be “unclear”. The plaintiff was then challenged with previous evidence he gave in this proceeding, namely that he “must have reviewed and signed” the applications. In response to those questions, the plaintiff massaged his evidence to state that he likely “looked briefly at the applications, but did not read them”.
[37] In any event, it goes without saying that as Elias had just met the plaintiff that very day, all of the personal information contained in the application forms came from the plaintiff himself.
[38] The nature of the plaintiff’s request for inflation protection in 1982 would have been, at a minimum, out of the ordinary, and at a maximum, unprecedented. One would expect such a request (either inflation protection, or at least a reference to his request that the face value grow during the life of the policy) to be noted down wherever possible in the application forms. Tellingly, there is not one single reference to the term, or even the concept of, inflation protection in any of the numerous application forms produced by Manulife.
[39] In the initial application form, the plaintiff lists the policy’s owner as 821 (described as the plaintiff’s “employer”). The total “new amount of insurance” to be placed under the application is $5,000,000.00. The face amount is noted as $5,000,000.00, and the type of policy requested is a non-participating GRIP policy.
[40] None of the boxes offering potential dividend options or supplementary benefits are checked off. In the boxed space entitled “other special requests” - the one “catch-all” spot for the plaintiff or Elias to set out the nature of their special request - there is absolutely nothing written therein.
[41] The premium being quoted is $40,000.00, with the plaintiff having given the $4,000.00 deposit to Elias. The purpose of the insurance is clearly listed as “key person” (ie. key man insurance). On cross-examination, the plaintiff testified that obtaining $5,000,000.00 under the auspices of key man insurance was simpler than a straight forward application for life insurance.
[42] In the Confidential Financial Questionnaire, the amount of insurance being applied for is $5,000,000.00. The Questionnaire then asks how the need for that $5,000,000.00 was determined. The plaintiff’s response is that RBC needed the insurance for the increased credit line. RBC is then listed as the creditor requesting the insurance for the purpose of “general business loans”. Most tellingly, when given the opportunity to provide “any additional information” at the end of the Questionnaire, that entire section is left blank.
Other Documents
[43] Contained within Manulife’s files are copies of various documents and notations made by its underwriting department. An Application Summary lists a non-participating GRIP policy for $5,000,000.00 with a total premium of $40,000.00. A Control and Rating Sheet is a similar document with some handwritten notes contained therein documenting the result of the plaintiff’s medical examination. At the bottom of the Control and Rating Sheet is a section entitled “Policy Issued Section - Instructions”. In that section, a “special quote” is noted with the following phrase written thereunder: “watch special commission reduction!”.
[44] Both documents list $5,000,000.00 as the total amount at risk, i.e. the total amount Manulife would be underwriting for the plaintiff’s policy. As Manulife argued in its closing submissions, there is no suggestion in the underwriting file that the risk being underwritten was any higher than $5,000,000.00.
The Special Quote
[45] A special actuarial quote was then prepared by Manulife’s Actuarial Department in the form of a memo to Elias. The memo is dated June 14, 1982, and is entitled “Special Term to 100 Quotation”. The face amount being underwritten is, once again, $5,000,000.00.
[46] The annual premiums are listed as $40,000.00 in the 1st year, $20,000.00 in the 2nd year, $20,000 in the 3rd year, and $2,400.00 for each year thereafter during the life of the policy.
[47] The commissions are listed as 30% in the first year, and 5% in the next four straight years.
[48] The special quote then sets out a list of guaranteed paid-up values and projected paid-up values for various years during the life of the policy. I am recreating that specific table below:
| End of Year | Guaranteed Paid-Up Value | Projected Paid-Up Value |
|---|---|---|
| 1 | 0 | 0 |
| 2 | 0 | 0 |
| 3 | 125,000 | 185,000 |
| 4 | 185,000 | 265,000 |
| 5 | 240,000 | 340,000 |
| 6 | 290,000 | 420,000 |
| 7 | 335,000 | 500,000 |
| 8 | 380,000 | 570,000 |
| 9 | 420,000 | 625,000 |
| 10 | 450,000 | 660,000 |
| 15 | 1,010,000 | 1,470,000 |
| 20 | 1,500,000 | 1,915,000 |
| Age 65 | 2,680,000 | 3,650,000 |
[49] According to this special quote, if the plaintiff lived to age 65, the guaranteed paid up value under the policy would have totaled $2,680,000.00, or slightly more than 50% of the face amount of the policy.
[50] At the bottom of the special quote is a handwritten notation stating “Forwarded to Alfred June 28”. There is no dispute between the parties that Alfred refers to Alfred Molenaar who was the underwriter assigned by Manulife to the plaintiff’s application for life insurance.
[51] In Manulife’s Supplementary Rating Sheet, there is a note dated June 28, 1982 indicating “Elias called – Special Actuarial Quote is in the mail”. This is consistent with the handwritten note on the special quote itself.
[52] In a different ledger, there is a further handwritten note dated June 29, 1982 which states “Special Actuarial Quote to be sent by Elias”.
[53] Finally, on June 30, 1982 there is a handwritten note in the Supplementary Rating Sheet indicating “special quote att’d → issue!”.
[54] The events of mid to late June of 1982 all took place while the plaintiff was out of the country. With a view to buttressing his version of events, the plaintiff submitted that the June 29, 1982 handwritten entry “Special Actuarial Quote to be sent by Elias” must have meant that there was a second, special quote prepared during the underwriting process, and that second special quote formed the basis of the plaintiff’s policy.
[55] I reject such a submission for the following reasons:
a) Elias was an insurance broker. How would he have any ability to devise his own, basic underwriting quote, let alone a special actuarial quote? b) There is no second special actuarial quote in Manulife’s files. c) It took Manulife’s underwriting department over 10 days to prepare the special quote for Elias’ review. According to the plaintiff, a second special quote was prepared in response to the original special quote in 24 hours or less, and then reviewed and approved by Manulife the next day. This has no air of reality; and d) A special quote is not subject to “underwriting negotiations” between an insurer and an insurance broker. It was Manulife who was waiting for Elias to approve the special quote which Manulife prepared, and not the other way around.
[56] I agree with Manulife. Elias received the special quote from Manulife on or about June 28, 1982, accepted it on behalf of the plaintiff and mailed the quote back to Manulife’s underwriting department.
[57] I find that there was only one special actuarial quote prepared by Manulife for Elias’ review. More importantly, I find that what was “special” about that quote was the fact that the plaintiff had requested to “front-end load” the premiums during the first three years of the policy, which would have naturally impacted (a) the balance of the premiums, (b) the risk(s) being underwritten, (c) the commission structure, (d) the tax impact upon 821, and (e) the calculation of paid up values.
The Plaintiff’s Second Meeting With Elias
[58] After being contacted by Elias to attend the second meeting, the plaintiff testified that he was surprised that Elias had been able to secure a policy because he had understood that Elias was going to do what he could “on the plaintiff’s behalf”.
[59] In his examination-in-chief, the plaintiff testified that he never saw the June 14, 1982 special quote, but was directed to page 3 of the policy which Elias described as a Table containing the inflation protection sought by the plaintiff. Once again, I am now recreating a copy of the Table of NonForfeiture Values (I will refer to this in greater detail hereinafter):
TABLE OF NONFORFEITURE VALUES PAID-UP VALUES ARE PER $1,000 OF FACE AMOUNT
| END OF YEAR | PAID-UP |
|---|---|
| 1 | 0 |
| 2 | 0 |
| 3 | 125 |
| 4 | 185 |
| 5 | 240 |
| 6 | 290 |
| 7 | 335 |
| 8 | 380 |
| 9 | 420 |
| 10 | 450 |
| 15 | 1010 |
| 20 | 1500 |
| 34 | 2680 |
[60] In his examination-in-chief, the plaintiff testified that he took out a calculator and calculated the paid up values for the 15th, 20th and 34th years of the policy. Starting in the 15th year and increasing in the years that followed, the total paid up values exceeded the $5,000,000.00 face amount of the policy. The plaintiff was impressed and quite satisfied with the work Elias had done.
[61] On cross-examination, the plaintiff’s story took significant hits. To begin, the plaintiff was shown copies of two affidavits which he originally swore in support of his application (i.e. before the order of Justice Greer was made). In paragraph 9 of his affidavit sworn July 31, 2012, the plaintiff stated that during this second meeting, Elias told him that the policy Elias had in hand was “devised as a special actuarial quote”. In paragraph 2(d) of his Supplementary Affidavit sworn December 12, 2012, the plaintiff stated that “the nonforfeiture and paid up values were part of the quote presented by Mr. Elias for Manulife to me”.
[62] When confronted with his prior evidence, the plaintiff testified on cross-examination that the “quote” referenced in his affidavits referred to the Table of Nonforfeiture Values on page 3 of the policy. This was a very convenient escape hatch, but not a credible one. If the plaintiff was only being presented with a policy for his consideration, why would he ever have referred to it as a quote at all?
[63] On cross-examination, the plaintiff then testified that he recalled Elias had advised him that he had obtained an actuarial quote when they met. However, the plaintiff refused to adopt his previous affidavit evidence that the nonforfeiture and paid up values were part of the quote presented by Elias to him during that meeting.
[64] Even though the policy required a $40,000.00 premium in year one, in cross-examination the plaintiff was shown that he only paid $20,000.00 to Elias at that meeting and paid the remainder some time later. Why would the plaintiff have asked Elias to reduce the initial $40,000.00 premium payment (given that the plaintiff testified he had up to $100,000.00 available) if the plaintiff was supposedly looking for inflation protection to commence in accordance with the Table of Nonforfeiture Values, if not even sooner?
The Policy’s Terms
[65] I will now review some of the policy’s terms with a view to assessing the general reliability of the plaintiff’s version of events. I note that apart from the contents of page 3, the balance of the terms in the policy are pre-printed, boilerplate clauses for a GRIP policy.
[66] The plaintiff relies heavily upon a clause on the front page of the policy which states as follows:
“Subject to this policy’s provisions, the death benefit proceeds under the policy will be paid to the beneficiary immediately upon receipt by the Company of due proof of the life insurance death. Such proceeds will include the policy’s face amount together with any other benefit payable under the policy’s terms because of such death”.
[67] The plaintiff argues that the words “any other benefit” refer to the face amount of the policy increasing to somehow become the paid up value amount after the 15th year of the policy. This is part of the groundwork for the plaintiff’s merger argument.
[68] On page 5 of the policy, the premiums are described as adjustable on the 5th policy anniversary and every 5th policy anniversary after that. The policy further states that any potential new premium change will not affect the table of nonforfeiture values on page 3 of the policy.
[69] In the event the plaintiff failed to pay a premium, and did not cure that default within a 30 day grace period, insurance would be enforced only to the extent provided in the “Nonforfeiture” provision, and the paid up insurance values would never be lower than those shown in the Table of Nonforfeiture Values on page 3 of the policy.
[70] On its face, the policy provided paid up values which were larger than the face amount. In other words, the plaintiff would receive more money after the 15th year if he stopped paying premiums than if he maintained the policy in good standing. Even the plaintiff himself testified that prior to meeting with Elias in mid-August 982, he knew that a paid up value was the highest value achieved if an insurer defaulted upon payment of premiums. How is this certainty?
Table of Nonforfeiture Values
[71] In comparing the Table of Nonforfeiture Values on page 3 with the table of guaranteed paid up values in the special actuarial quote, it is patently obvious that the numbers (and corresponding years) are exactly the same in both tables, save for the fact that the paid up values on page 3 of the policy are “per $1,000.00 of face amount”. Manulife’s position is that those words amount to a clerical error, and the paid up values are in fact “per $5,000.00 of face amount” as per the special quote and the agreement between the parties.
[72] The plaintiff was looking for inflation protection into the future. What was so magical about the purported inflation protection kicking in during the 15th year of the policy? Why wouldn’t the plaintiff have requested inflation protection sooner than 15 years into the future?
[73] The plaintiff’s merger argument makes no sense. As I understood it, after the 15th year of the policy, the death benefit became the paid up value, leaving the stated $5,000,000.00 face value “in the dust”. The clause on the first page of the policy states that the proceeds due on death include the policy’s face amount together with any other benefit payable under the policy’s terms. A strict reading of that paragraph would mean that the total proceeds include the policy’s face amount ($5,000,000.00) plus any other benefit payable under the policy (the paid up value in any given year). In other words, the death benefit would become the sum of those two amounts. Even the plaintiff admitted in his cross-examination that such an interpretation made no sense.
[74] Further, how can one equate paid up values (premised on the basis of a default in payment of premiums) to be a “benefit” under the policy?
[75] More importantly, how can the same quoted premiums ($40,000.00 in the first year and $20,000.00 for the second and third year respectively) form the basis for both the paid up values in the special actuarial quote, and then the paid up values (i.e five times greater than the quote) on page 3 of the policy? Even in the absence of any specified actuarial or underwriting skills, a reasonable person would conclude that such a position defies common sense and logic. To believe the plaintiff’s version of events, Manulife prepared a special actuarial quote with the paid up values therein, and then agreed to increase those paid up values five-fold in exchange for identical premiums. This has zero air of reality.
Linda’s Evidence
[76] Linda testified that for most of her adult life, she worked as a ballerina and performed in many different countries. She also acted in television commercials. Both Linda and the plaintiff essentially confirmed that he looked after all their business affairs.
[77] Their initial courtship was somewhat of a whirlwind. Their engagement occurred mere months after they met in early 1982. They left for their honeymoon on a private yacht cruise through the Mediterranean Sea in September 1982.
[78] Linda then testified that while on their honeymoon, the plaintiff told her about his recently purchased policy which he described as “big”. According to Linda, while they were on the private yacht, the plaintiff shared the following information with her:
“He was explaining to me and then showed me later on paper more how it worked that what was wonderful about this policy is that you would have the face amount but it would protect us long into the future over time because, of course we all understood that times what inflation was doing to people's life savings and their investments and everything, and he said and that is why this policy is really important.”
[79] To borrow a phrase from Justice Cameron in Prodigy Graphics, Linda’s evidence amounts to nothing more than selective hindsight through rose coloured glasses. The plaintiff gave no evidence to corroborate this alleged honeymoon conversation. I do not find Linda’s evidence on these points to be credible.
Additional Insurance Policies
[80] Subsequent to purchasing the Manulife policy, Alguire purchased additional life insurance policies from Laurier Life Insurance Company, Maritime Life Insurance Company and Financial Life Insurance Company. None of those policies contained any inflation protection.
[81] In 1989, the plaintiff purchased a U.S. policy through Manulife. It had been recommended to him by Elias.
[82] In the application completed by the plaintiff for the U.S. policy, the plaintiff listed the amount of insurance he currently had in place, including the Laurier policy, the Financial Life policy and the subject Manulife policy. In that application (completed once again with Elias who purportedly knew that the policy had built-in inflation protection), the policy is listed as an existing asset having a face amount of $5,000,000.00, and for the purpose of both business and personal reasons. There is no mention of the value of the policy increasing in the 15th year and beyond.
[83] Of note, the policy was subsequently transferred from 821 to the plaintiff’s wife Linda sometime in the late 1980s. Presumably 821 enjoyed the benefit of deducting the front-end loaded premiums during the policy’s early years as a business expense given the fact that the policy was procured as key man insurance for the purpose of the increased credit line with RBC.
The Annual Policy Statements
[84] The 15th year of the policy would have commenced in or around July 1997. Manulife has produced annual policy statement issued and delivered to the plaintiff every Spring for the purpose of securing the annual premium and setting out the basic terms of the policy.
[85] A review of these annual policy statements discloses that under the heading “Policy Benefits”, the only item listed is $5,000,000.00 in basic coverage. There is no indication of any additional face amount value over and above $5,000,000.00 for the years 1997 and beyond. There is no mention of any paid up values, whether on their own or part of an alleged “merged” death benefit.
[86] When presented with these annual policy statements in cross-examination, the plaintiff testified that he wasn’t sure what “basic coverage” meant. This response is circular, as the $5,000,000.00 basic coverage is the only item listed under “Policy Benefits”, a term with which the plaintiff was no doubt well aware.
Expert Evidence
[87] The plaintiff called two expert witnesses: James Bullock (“Bullock”) and Steven Prince (“Prince”).
[88] Bullock was tendered as an expert in the life insurance industry, and in particular the sales and negotiations practices for special individual life insurance policies.
[89] Prince was qualified as an actuarial expert to opine upon, inter alia, the commercial viability of life insurance policies from the view of an insurer’s profitability.
[90] Both their opinions were premised upon two key assumptions:
a) The plaintiff requested and obtained inflation protection as part of the policy; and b) Manulife must have produced a second, special actuarial quote because the Table of Nonforfeiture Values on page 3 of the policy is different than the original special actuarial quote.
[91] Bullock testified that the June 28-29, 1982 notations in the Manulife file could certainly mean that Elias signed off on the one (and only) special quote and sent it back to Manulife by mail. As he candidly admitted during his cross-examination, if there was no second, special actuarial quote then it was obvious that the Table of Nonforfeiture Values on page 3 of the policy was a mistake.
[92] Bullock also admitted on cross-examination that in all his years in the life insurance industry, he had never seen a whole life policy with a table of nonforfeiture values that exceeded the face amount of the policy.
[93] Prince also conceded that in a “normal” whole life insurance policy, a policy’s nonforfeiture values are always less than the face amount. Prince also testified on cross-examination that he had never seen a life insurance policy provide inflation protection through a table of nonforfeiture values, as an insured could typically re-invest dividends accumulated through a participating policy back into the policy in order to grow the death benefit.
[94] Prince conceded that there was no existing algorithm (both in 1982 and now) which could respond to an open ended request for inflation protection as suggested by the plaintiff.
[95] In cross-examination, Prince was asked questions about the adequacy of the alleged inflation protection in the Table of Nonforfeiture Values on page 3 of the policy, and gave the following evidence (my emphasis in bold):
“Q. And then for 20 to 34 it's something over 4 per cent, I apologize. If it were the case that whoever allegedly created the – deliberately created this table of nonforfeiture values, if it were the case that the person creating that table was intending to provide inflation protection, those three calculations would suggest, wouldn't they, that that person didn't know what they were doing? There is no rationality to those three numbers; is there? A. They do not fit any pattern of inflation I would likely imagine, no. Q. No. And if the assignment had been to create a pattern of inflation protection in that table, it would have expected to see one? A. I would expect the see more of a pattern, yes. Q. And isn't the obvious conclusion from that, that this table of nonforfeiture values has absolutely nothing to do with inflation protection; isn't that the obvious conclusion? A. It does a poor job of inflation protection. It does provide increasing benefits. Q. Do you agree with me that based on what you and I have just discussed, it's self-evident that whoever created that table of nonforfeiture values was not trying to create inflation protection? A. It is not a pattern of inflation protection I would likely have built, I don't know what somebody else might have been thinking. Q. Do you agree with me that there is no indication from what you and I have just discussed based on your own actuarial expertise that whoever designed that table of nonforfeiture values was trying to provide inflation protection? A. It does not appear they were trying to provide inflation protection.”
[96] If the parties were intent upon the policy providing inflation protection, the complete lack of pattern in the Table of Nonforfeiture Values, together with the Table’s complete arbitrariness, soundly belies any such alleged purpose.
[97] In any event, as I have rejected the plaintiff’s version of events, none of the key assumptions made by Bullock and Prince have been found to be true, and as such their opinions are built upon foundations of sand and are of no real use to the Court.
Conclusion re: Issue #1
[98] For the foregoing reasons, I find that the plaintiff never requested any inflation protection, and approached Elias with a view to purchasing a $5,000,000.00 life insurance policy in accordance with RBC’s request that he secure key man insurance for the increased line of credit.
[99] The table of Nonforfeiture Values on page 3 of the policy was issued by Manulife in error. It never accurately reflected the true agreement between the parties, which was a $5,000,000.00 GRIP policy with increased, up front premiums.
[100] Having heard all of the evidence presented by the parties, I find the nature of the mistake in the Table of Nonforfeiture Values to be both clerical and obvious.
Issue #2 If page 3 of the policy was issued in error, how is the policy to be interpreted?
[101] The plaintiff submits that even if page 3 of the policy was issued in error, Manulife must seek the remedy of rectification to correct that error, and it is precluded from doing so due to, inter alia, (a) rectification being a cause of action in law, and (b) Manulife not commencing its cross-application within two years of discovering the error in contravention of the provisions of the Limitations Act, 2002, S.O. 2002, c. 24.
[102] To begin, the thrust of the plaintiff’s argument is that the error on page 3 of the policy is a unilateral one, and as such Manulife must seek the remedy of rectification. I disagree. I have found the error to be bilateral and mutual in nature. Inflation protection was never sought by the plaintiff, nor was it ever agreed to by Manulife.
[103] As held by Justice Lederman in Kraft Canada Inc. v. Pitsadiotis, “rectification is a flexible equitable remedy, the prerequisites of which are not cast in stone and must be adapted to meet the particular circumstances of the case”. As Justice Laskin found in Royal Bank v. El-Bris Limited (2009) 92 O.R. (3d) 179 (C.A.):
“Rectification is an equitable remedy designed to ensure that one party is not unjustly enriched at the expense of another. A court will rectify an inaccurately drawn written agreement so that it conforms to the agreement the parties intended to make. In Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 28 O.R. (3d) 327 at 336 (C.A.), Robins J.A. explained the remedy’s underlying rationale, while acknowledging that rectification cannot be used to correct every mistake.
“The remedy of rectification is available only in certain defined circumstances and cannot be invoked to correct every mistake. In principle, rectification is permitted, not for the purpose of altering the terms of an agreement, but to correct a contract which has been mistakenly drawn so as to carry out the common intention of the parties and have the contract reflect their true agreement. The remedy is normally granted only where the mistake is mutual or common to the contracting parties.”
[104] Given my findings, this Court has no appetite for “gotcha” litigation in which parties attempt to take unilateral advantage of innocent errors for their own benefit. As stated by Justice Binnie in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, “rectification is an equitable remedy whose purpose is to prevent a written document from being used as an engine of fraud or misconduct equivalent to fraud”. While such misconduct need not amount to deceit, the Court will seek to prevent a wide range of unfair dealing and unconscionable conduct.
[105] As I have stated previously, the error at page 3 of the policy is a clerical, mathematical one. The paid up values were supposed to be “per $5,000” (as it was a $5,000,000.00 policy) and not “per $1,000”. Manulife relies upon jurisprudence where Canadian courts have exercised their inherent jurisdiction to correct, through interpretation, an obvious mistake in a contract.
[106] In Wells v. Blain 1926 CarswellSask 115 (C.A.), the Saskatchewan Court of Appeal stated that when interpreting a contract, the Court ought to try and give effect to every provision “except in the case of an obvious mistake”.
[107] In Co-operative Trust Company of Canada v. Receveur, Hansen, Paslowski and Mahon [1983] S.J. No. 209 (Q.B.), the trial judge held that “when interpreting an agreement, a court should allow for clerical errors and errors in draftsmanship as long as in so doing the court does not give the agreement a new meaning not intended by the parties at the time the agreement was signed”. That decision was upheld by the Saskatchewan Court of Appeal which stated:
“In order to uphold the ambiguous document the trial judge corrected what he assumed were typographical errors. In so doing, he used, as he was entitled to, one of the expedients available to him to “save” the document. A reasonable construction of the intention of the parties was arrived at by making those corrections. By doing that, the trial judge did not give the document a meaning which was not intended by the parties. He followed accepted principles of construction and the document is enforceable.”
[108] With reference to the plaintiff’s Limitations Act argument, there was much evidence led and argument made at trial by both parties surrounding Manulife’s alleged internal discovery of the error in 2007. The plaintiff submitted that as Manulife’s in-force pricing actuary Caterina Lindman (“Lindman”) learned of the error in the plaintiff’s policy by September 2007, Manulife was thus under a legal obligation to commence its own proceeding seeking rectification, and this was not done within the two year period under the Limitations Act.
[109] The Court of Appeal for Ontario has stated in Placzek v. Green, 2009 ONCA 83 that the Limitations Act was indeed intended to cover equitable claims. However, the relief claimed by the plaintiff in his Amended Amended Statement of Claim includes:
a) a declaration that the paid up values on page 3 of the policy are the correct values as agreed upon between the plaintiff and Manulife, b) a declaration that the policy was not issued in error by Manulife to the plaintiff, and, c) if the paid up values on page 3 of the policy were issued in error, a declaration that Manulife made that error unilaterally and is not entitled to rectification.
[110] It therefore was, and remained, open to Manulife to defend this proceeding on the basis that the paid up values on page 3 of the policy were not the correct values as agreed upon between the parties, and the policy ought to be rectified to reflect the actual agreement. For the reasons already stated, I have dismissed the relief sought by the plaintiff. Manulife’s response to the plaintiff’s claims is a reason to dismiss the proceeding, and as such those positions are defences, and not stand alone claims subject to the Limitations Act.
[111] As the plaintiff’s claims are dismissed, and the paid up values sought by the plaintiff have been rejected, the Court must then determine what the correct paid up values are. To ignore the obvious error on page 3 of the policy would (a) not honour the intentions of the parties, and (b) result in a commercial absurdity whereby the plaintiff could nearly triple the value of his death benefit by failing to remit payment of premiums today. Correcting the obvious error is the just and proper result in the circumstances, and I therefore order the words “per $1,000” to be changed to “per $5,000”.
Issue #3 Did Manulife breach a duty of good faith by not disclosing the error to the plaintiff in 2007?
[112] The plaintiff alleges that once Lindman learned of the error in the policy, and attempted to inform her superiors of same, Manulife did absolutely nothing in a surreptitious effort to “deep six” the error with the hope that the plaintiff’s evidence surrounding his request for inflation protection (which I have rejected) would “die with him”. In other words, Manulife allegedly chose to stay silent so that the plaintiff’s beneficiaries under the policy would be forced to receive and accept the “lower” paid up values without any real recourse after the plaintiff’s death.
[113] In my mid-trial decision released as Alguire v The Manufacturers Life Insurance Company, 2016 ONSC 1455, I refused to grant the plaintiff leave to amend his Amended Statement of Claim to allege that Manulife in fact knew of the error as early as 2005. I pointed out that the duty of good faith should not be confused with the duty of loyalty or disclosure, and as there is no fiduciary component, the duty of good faith does not create any obligation upon Manulife to relinquish its own self-interest and agree to act in the sole interest of the plaintiff.
[114] The findings of fact set out in these Reasons render the disposition of Issue #3 effectively moot. As I have found that the error on page 3 of the policy is to be corrected to reflect the true agreement between the parties, the plaintiff has suffered no loss and there is no longer any basis in fact or in law for the plaintiff’s claims for breach of the duty of good faith.
[115] The Courts may be called upon at some future date to determine whether the duty of good faith extends to include an obligation to keep an insured apprised of non-obvious or potentially unrectifiable errors discovered in a policy. However, such an analysis is not engaged upon the facts as found in this proceeding.
[116] For the reasons given, the plaintiff’s claim is dismissed.
Costs
[117] I would urge the parties to try and resolve the costs of this proceeding. If such efforts prove unsuccessful, Manulife may serve and file written costs submissions (totaling no more than five pages excluding a Costs Outline) within 14 business days of the release of these Reasons.
[118] The plaintiff shall thereafter serve and file his responding costs submissions (also totaling no more than five pages excluding a Costs Outline) within 14 business days of the receipt of Manulife’s costs submissions.
Diamond J. Released: August 22, 2016
