CITATION: Fehr v. Sun Life Assurance Company of Canada, 2016 ONSC 7659
COURT FILE NO.: 10-CV-411183CP
DATE: 20161207
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ELDON FEHR, ANGELA WATTERS, GAETAN LAURIER, LESLIE MICHAEL LUCAS, JAMES PATRICK O’HARA, REBECCA JEAN CLARK, and LLOYD SHAUN CLARK
Plaintiffs
– and –
SUN LIFE ASSURANCE COMPANY OF CANADA
Defendant
Michael C. Spencer, Won J. Kim, Megan B. McPhee and Aris Gyamfi for the Plaintiffs
F. Paul Morrison, Glynnis P. Burt, Hovsep Afarian and Jacqueline Cole for the Defendant
Proceeding under the Class Proceedings Act, 1992
HEARD: December 1, 2016
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] The Plaintiffs, Rebecca Jean Clark, Lloyd Shaun Clark, Eldon Fehr, Gaetan Laurier, Leslie Michael Lucas, James Patrick O’Hara, and Angela Watters brought a motion to have their action against Sun Life Assurance Company of Canada (“Sun Life”) certified as a class action under the Class Proceedings Act, 1992, S.O. 1992, c. 6. Sun Life resisted certification, and it brought a cross-motion to have each of the Plaintiffs’ individual actions, which asserted negligent misrepresentation and breach of contract claims, dismissed as statute-barred under provincial limitations statutes.
[2] My Reasons for Decision are reported as Fehr v. Sun Life Assurance Company of Canada, 2015 ONSC 6931. I released a supplementary decision, on a motion to correct the Reasons; see Fehr v. Sun Life Assurance Company of Canada, 2016 ONSC 455.
[3] In my Reasons for Decision, I held that the Plaintiffs’ breach of contract claims regarding the cost of insurance (“COI”) and administrative fee increases for its Flexiplus and Optimet insurance policies were statute-barred from 2001 to 2008 and from 2007 to 2008 respectively, but not for subsequent years. In my Reasons for Decision, I concluded that the COI and Administrative Fee breach of contract claims for the years after 2008 might be certifiable, and I adjourned the certification motion for more evidence about these causes of action. I dismissed the balance of the Plaintiffs’ motion for certification.
[4] The certification motion with respect to the COI and the Administrative Fee issues now returns for determination.
B. PROCEDURAL BACKGROUND
[5] In their Statement of Claim, at paras. 58-64, the Plaintiffs pleaded various alleged breaches of the various insurance contracts. For present purposes, the relevant paragraphs are those dealing with the COI and Administrative Fee alleged breaches of contract. In this regard, the relevant paragraphs of the pleading are set out below:
Breaches of Contract
Sun Life is liable for breach of contract with respect to the Policies.
As described above, all four Policies contain provisions setting forth the factors the insurer may use in adjusting the cost of insurance rates. The insurers in fact used factors different from the permissible factors in calculating and imposing cost of insurance rate increases on the Policies, which was a breach of contract.
As described above, the Flexiplus and Universal Plus policies specify the basis upon which the insurer is permitted to make increases to the administrative fees. The insurers in fact used factors different from changes in administrative costs in imposing such increases. Such increases were a breach of contract.
The Plaintiffs plead and rely on the doctrine of contra preferentum and claim that any ambiguity or defect in the terms of the Policies should be construed in favour of the policyholders.
The Class Members suffered quantifiable damages as a result of the breaches of contract described above. The particulars of the damages are within the knowledge of Sun Life. Such damages include but are not limited to excess amounts policyholders have paid for cost of insurance, administrative fees, and premium amounts. It was reasonably foreseeable to the insurers that the breaches would also cause consequential impairment and damage to the policyholders, including with respect to their accumulation funds, their coverage amounts, tax benefits, and their ability to prevent possible lapses of their policies.
[6] In their motion for certification, the Plaintiffs sought to have 15 common issues certified. For present purposes, only common issues 6 and 7 are pertinent. Those questions stated:
Was it an express or implied term of the policies that the COI rate may be adjusted based on specified factors? If so, did Sun Life breach this term by basing increases, in whole or in part, on other factors?
Was it an express or implied term of the policies that Administrative Fees may be adjusted based on factors related to the cost of administering the policies? If so, did Sun Life breach this term by basing increases, in whole or in part, on other factors?
[7] The motions were argued on September 28-30, October 1, 2 and 5-7, 2015. I reserved judgment and released my Reasons for Decision on November 12, 2015.
[8] In paragraph 10 of my Reasons for Decision, I concluded that that the COI and Administrative Fee breach of contract claims may be certifiable and that these claims would not be statute-barred. I adjourned the certification motion for more evidence about these causes of action. In adjourning the motion, I directed Sun Life to deliver an affidavit or affidavits explaining how the COI and the Administrative Fees were calculated. I directed the Plaintiffs to deliver reply materials. After the exchange of materials, there could be cross-examinations, and, I directed the parties to arrange a case conference to set a hearing date for the resumption of the certification motion.
[9] In accordance with my directions and some adjustments made at a case conference or on consent: (a) Sun Life delivered the affidavits of Dean Chambers dated January 25, 2016 and July 29, 2016; and (b) the Plaintiffs delivered the affidavits of Paul M. Winokur dated May 20, 2016 and October 13, 2016. Messrs. Chambers and Winokur were cross-examined.
C. EVIDENTIARY BACKGROUND
[10] This motion is a continuation of the certification motion. Before the court is all the evidence from the original hearing. In addition, there is the evidence of Mr. Chambers and Mr. Winokur.
[11] Mr. Chambers is the Vice President, Individual Insurance, for Sun Life. He is responsible for the pricing and re-pricing of individual life insurance products at Sun Life, including any adjustment in COI rates.
[12] Mr. Winokur is a Consulting Actuary with over 40 years of experience in the life insurance industry including acting as Chief Actuary for Foresters Insurance Company. His experience includes pricing and re-pricing universal life insurance policies.
D. FACTUAL BACKGROUND
1. Introduction
[13] In describing the factual background to this resumed certification motion, I shall describe the facts revealed by the testimony of Messrs. Chambers and Winokur and repeat some of my findings of fact already made and reported in my released Reasons for Decision. I will make adjustments to my findings of fact as necessary in the light of the new evidence proffered for this resumed motion.
2. The COI and Administrative Fee Claims
[14] The Plaintiffs' proposed class action involved four universal life insurance policies. The policies were sold by Metropolitan Life Insurance Company ("MetLife") between 1985 and 1998. The policies were: (1) Interest Plus (1985-1998); (2) Universal Plus (1987-1998); (3) Flexiplus (1992-1998); and (4) Optimet (1998). Over 230,000 policies were involved in the proposed class action, which involved misrepresentation claims about the sale of the policies by the MetLife sales agents and also breach of contract, deceit, and breach of a duty of good faith claims against Sun Life, which purchased MetLife's book of business in 1998 and which now administers the insurance policies. The proposed Representative Plaintiffs' claims included the breach of contract claims about COI and about Administrative Fees.
[15] The number of in-force Flexiplus policies as at November 2013 was 39,985.
[16] The number of in-force Optimet policies as at November 2013 was 2,331.
[17] In the Flexiplus policy, the insurer set the COI from time to time within a maximum limit for years one to seven and within a maximum limit for year nine and the following years. There was no COI in year eight. Thus, there was a two-step structure for the COI in the Flexiplus policy and the COI could increase at any time other than year eight within the maximum rates set out in the table in the policy. In the Flexiplus policy, the maximum rate the insurer could charge the policyholder for the COI in each period was stated in a table, categorized by age, sex, and smoking status, entitled: "Table of Maximum Monthly Cost of Insurance Per Thousand of Insurance."
[18] In the Optimet policy, the insurer fixed the COI for years one to eight and the COI for year nine and following. The Optimet policy was only sold in 1998 and in the ninth year of the policy; i.e. 2007, Sun Life increased the COI by 10% for the balance of the term of the contract.
[19] In the Flexiplus policy, the Administrative Fee could increase up to a $1 each year but was guaranteed not to exceed $12 per month. In the Optimet policy, there was a monthly Administrative Fee of $7 that was guaranteed to never change.
[20] As I noted in my original Reasons for Decision, one of the most hotly contested issues in the certification motion was whether the COI provision of the Flexiplus policies was breached when Sun Life gave notice of an increase of the COI in 2001, 2006, and 2015. Also contested was whether the COI provision of the Optimet policy was breached when the COI was increased by 10% in year nine of the policy.
[21] The relevant provisions from the standard form Flexiplus policy with respect to the COI are as set out below:
Monthly Insurance Charge - The deduction for any policy month is the sum of the following amounts, determined by us as of the beginning of that policy month:
The monthly Cost of Insurance
The cost for additional benefits and riders
An Administrative Fee that will never exceed $12 per month. This monthly fee will never increase by more than $1 in any 12 month period.
Cost of Insurance - The Cost of Insurance for any policy month is determined by multiplying the Death Benefit less the value of the Accumulation Fund by the monthly rate. The monthly rate for the Cost of Insurance will be set by us from time to time based on the primary Insured's sex, issue age, underwriting class, policy year and the Specified Face Amount of Insurance. The monthly rate may change, but for non-rated classification it will never exceed the rates shown on the Table of Maximum Monthly Cost of Insurance included with this policy.
In the 8th year there will be no monthly Cost of Insurance.
[22] With respect to increases in the Administrative Fee, the Flexiplus policy states:
Administrative Fee:
Monthly Insurance Charge-The deduction for any policy month is the sum of the following amounts, determined by us as of the beginning of that policy month:
• An administrative fee that will never exceed $12 per month. This monthly fee will never increase by more than $1 in any 12 month period.
[23] In alleging a breach of the insurance contracts, the Plaintiffs state the COI increases were not based on the insured's sex, issue age, underwriting class, policy year and the specified face amount of insurance, and, this was a breach of the insurance contracts. In their certification motion, in arguing that there is some basis in fact for this alleged breach of contract, the Plaintiffs relied on correspondence from Clarica to Flexiplus policyholders in 2000-2001 and communications from Sun Life in 2006 announcing an increase in the COI. For example, Louise Heaney, Customer Relations Officer, wrote Mr. Lucas on October 2, 2000, and the letter stated:
The monthly insurance charge is the sum of three different charges; two of them will be changing in March, 2001. I am writing now to give you ample time to review the changes with your agent. The monthly insurance charge, described on page 7 of your contract, includes:
a monthly administration fee -- This fee will increase by $1.00 from $5.50 to $6.50 a month, effective March 2001;
Your monthly costs of insurance -- This is the amount we charge to provide your life insurance protection. The costs of insurance (the rate changed per $1,000 of life insurance benefit) is increasing due to interest rates that have declined steadily since the Universal Flexiplus product was first introduced. Your policy states: "the monthly rate for the Cost of Insurance will be set by us from time to time." It is necessary to increase the costs of insurance to better reflect current interest rates.
We guarantee your new monthly Cost of Insurance rate does not exceed the maximums shown in the Table of Maximum Monthly Cost of Insurance in your contract. ...
[24] In her testimony for Sun Life, Ms. Sauvé, the Director of Customer Relations for the Individual Business Unit, said that the factors listed in the letter explaining the increase in the COI were consistent with the policy terms. In her affidavit, she explained that COI rates were affected by: (a) current mortality experience relative to what was assumed when the rates were initially set; (b) incurred expenses relative to what was assumed when the rates were initially set; (c) actual investment earnings compared to the interest rates assumed when the rates were initially set; and (d) policy lapse rates compared to the lapse rate assumed when the rates were set. She deposed that a periodic assessment is done of the actual experience using the risk factors in the policy, such as sex, issue age, underwriting class, etc., compared to the assumed experience that formed the foundation for the pricing when the policy was issued. She said that when there is a significant deviation from the actual experience as compared to the assumed experience, a price increase or decrease is made.
[25] The Plaintiffs, however, alleged in their factum that the increase in the Administrative Fees was a disguised way to increase the COI and as such was a breach of the Flexiplus and Optimet policies. In making that allegation, the Plaintiffs relied on information provided to sales agents in a 2000 guide book, An Agent's Guide to Universal Flexiplus Plans, which stated:
Why is the administration fee increasing?
To achieve the appropriate funding of the Flexiplus block we had two choices: increase COI rates and increase administration fees. Our number one priority was to ensure Flexiplus customers would continue to be charged competitive rates and fees and therefore maintain their coverage. Because we increased the administration fee we did not need to increase COI rates as significantly. The result is Flexiplus remains a competitive product when compared on a COI or administration fee basis.
[26] In my original Reasons for Decision, I stated that Sun Life had provided an explanation why the COI was being raised but it had not shown how the increase was calculated. I stated that it might or might not be the case that the increase of the COI was based on the primary insured's sex, issue age, underwriting class, policy year, and the specified face amount of insurance and I discussed the commonality of the proposed questions with respect to the COI issue and the Administrative Fee issue at paras. 308-313 as follows:
The Commonality of the Breach of Contract Claims -- Questions 6 and 7
Turning now to the breach of contract claims, the proposed Representative Plaintiffs propose three common issues, questions 6, 7, and 8. The heart of question 6 is whether Sun Life improperly increased the COI for the Universal Life insurance policies. In my opinion, answering the heart of question six is a matter of interpreting the express terms of two standard form insurance contracts (the Flexiplus and the Optimet policies) and then determining whether the terms of those contracts about the COI have been breached.
The heart of question 6 is standard fare for a common issue in a class action, and, thus, I dis-agree with Sun Life's argument that the Supreme Court of Court's decision in Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53, which was not a class action case, changes the law about the certification of questions about the breach of the express terms of a standard form contract.
The question on the certification motion then becomes whether the Plaintiffs have shown some basis in fact for question 6. At present, the answer to that question is no. At present, it is known that Sun Life adjusted the COI and adjusted the Administrative Fee but it is not known how the COI was adjusted. On the record, it is established that Sun Life adjusted the COI upward in some cases but there is some evidence that it was adjusted downward in other cases. The problem, however, is that how these adjustments were made is unknown at present.
The situation for question 7 is the same. The heart of question 7 is whether Sun Life breached the provisions of the contract about adjusting Administrative Fees by basing increases, in whole or in part, on unauthorized factors.
Perhaps because Sun Life was not asked to explain the precise details of how the adjustments were made, Sun Life simply asserted that under the insurance contracts it was entitled to adjust the COI and the Administrative Fees, and it denied doing anything wrong. Ms. Sauvé said the adjustments were consistent with the policy terms. This leaves the question of whether there is some-basis-in-fact for the breach of contract claim based on the COI and Administrative Fees a mystery.
Subsection 5(4) of the Class Proceedings Act, 1992 provides that the court may adjourn the motion for certification to permit the parties to amend their materials or pleadings or to permit further evidence. I have decided to exercise my jurisdiction under this subsection to adjourn the certification motion.
3. The Industry Practice in Pricing Insurance
[27] In his affidavits, Mr. Chambers explained how Sun Life priced the COI and the Administrative Fee.
[28] Messrs. Chambers and Winokur more or less agreed about the insurance industry’s practices in pricing insurance and about adjusting COI. Insurance companies take on risk at a price and adjust their rates based on their analysis of that risk over time. That analysis will compare the original risk assumptions with actual risk experience in order to make informed decisions about future risk experience for any given product. From this analysis actuaries determine whether COI rates need to be adjusted.
[29] Mr. Chambers testified about how insurance policies are priced and he identified two types of factors; i.e. (1) policy factors; and (2) experience variables. Policy factors include the insured's sex, age, underwriting class, policy year, and face amount of insurance. The policy factors are used by the insurer to organize policyholders into "cohorts” that present relatively homogeneous risks. The COI rates charged a policyholder will ultimately depend on his or her cohort classification. The different cohorts are determined at the time a product is launched and the cohorts are used when COI rates are adjusted. Classifying policyholders into cohorts pools risk and avoids subsidizing across cohorts so that members of each cohort are treated in a similar way. Experience variables are factors expressing types of risk the insurer takes into account in setting COI rates. Experience variables include anticipated future mortality rates, anticipated policy lapse rates, expenses, and investment earning.
[30] Mr. Chambers’ evidence was that establishing and adjusting life insurance products' COI rates based on experience variables is at the heart of the life insurance industry. He said that experience variables are the variables used by an insurance company in considering whether the COI should be adjusted either up or down.
[31] Messrs. Chambers and Winokur agreed that, generally speaking, COI rates are determined as follows:
a. COI rates are set based on the policy factors of the insured’s sex, issue age, underwriting class, policy year and Specified Face Amount of Insurance;
b. these groupings or “cohorts” are generally the parameters set out in the COI section of the policy (i.e. the policy factors) and determine the initial COI rates to be charged;
c. COI rates are subsequently adjusted based on an analysis of experience of risk variables over time; i.e., the original risk assumptions are adjusted at points of time based on actual risk experience;
d. experience variables include mortality rates, policy lapse rates, expenses, and investment earnings;
e. the insurer uses the policy factors – especially sex, age and underwriting class – to organize individuals into cohorts or risk groups (relatively homogenous collections of policyholders) for analysis with respect to a given risk or experience variable, such as mortality risk;
f. the cohorts or risk groups for a given experience variable may vary from the cohorts or risk groups used to analyze a different experience variable;
g. the actuarial analysis of the insurance company’s or industry’s experience within each cohort contributes to the calculation of the risk of providing life insurance to each cohort and assists in putting a cost on insuring that risk;
h. cohorts are determined at the time a product is launched and the same cohorts are used when COI rates are adjusted;
i. an adjustment to COI rates may occur where there have been changes in the company’s outlook for future experience from that which was originally assumed;
j. whether a COI rate is increased or decreased depends upon the overall impact of the changes in all experience variables for a given collection of policy factors (i.e. cohorts), bearing in mind that all of the factors under consideration have an interrelated impact on one another);
k. the calculated cost of the anticipated future experience is passed on to policyholders in the form of different COI rates based on the policy factors; and
l. the cohorts (or the policy factors) are the structure or framework onto which the overall reassessment of the experience variables is applied.
4. The Adjustment of the Flexiplus COI
[32] Sun Life initially priced the COI for the Flexiplus and Optimet policies using the methodology described above, which is to say that using cohorts based on the primary insured's sex, issue age, underwriting class, policy year and the specified face amount of insurance and actuarial calculations, it set the monthly rate for the COI.
[33] As provided in the insurance contracts, Sun Life was entitled to set the COI from time to time, and Sun Life performed a re-pricing analysis for the Flexiplus policies in each of 2001, 2006 and 2015. The re-pricing continued to use cohorts based the primary insured's sex, issue age, underwriting class, policy year and the specified face amount of insurance consideration and it applied experience variables. Some, but not all, policyholders received COI rate adjustments. Depending on the cohort, some adjustments increased the COI and some adjustments decreased the COI.
[34] In 2001, the following cohorts of policyholders did not receive COI adjustments in either or both of the policy years (years 1-7) and policy periods (years 9 and following):
a. female smokers for both the initial and ultimate COI rates;
b. male smokers issue age 0-5, 20 and 55-70 for the initial COI rates;
c. female non-smokers issue age 0-25 and 60;
d. female non-smokers issue age 60 for the ultimate COI rates;
e. male non-smokers issue age 60 for the ultimate COI rates; and
f. male smokers issue age 0-5, 15, and 45-70 for ultimate COI rates.
[35] In 2006, the following cohorts of policyholders did not receive COI adjustments in either or both of the policy years (years 1-7) and policy periods (years 9 and following):
a. policyholders issue age 0-19;43
b. male non-smokers issue age 62 and up;
c. female non-smokers issue age 19-22;
d. female non-smokers issue age 67 and up;
e. male smokers issue age 72 and up; and
f. female smokers issue age 72 and up.
[36] In 2015, approximately 40% of policyholders had an increase in COI rates and approximately 40% had a decrease in COI rates and approximately 20% had no change.
[37] In 2015, the following cohorts of policyholders did not receive COI adjustments in either or both of the policy years (years 1-7) and policy periods (years 9 and following):
a. male non-smokers issue age 44-47;
b. male smokers issue age 52-54;
c. female non-smokers issue age 15-29; and
d. female smokers issue age 14-22.
[38] In 2015, the following cohorts of policyholders received a rate increase:
a. male non-smokers issue age 48 and up;
b. male smokers issue age 55 and up;
c. female non-smokers issue age 30 and up; and
d. female smokers issue age 23 and up.
[39] In 2015, the following cohorts of policyholders received a rate decrease in 2015:
a. male non-smokers below issue age 44;
b. male smokers below issue age 52;
c. female non-smokers below issue age 15; and
d. female smokers below issue age.
[40] The extent of the COI rate adjustments varied based on a given cohort or risk group. For example:
a. in 2001, female non-smokers age 41 in the initial Band 1 (the band refers to the face amount of the insurance) received a 0.352% increase, while male smokers issue age 75 in initial Band 1 received a 6.7016% increase, and male non-smokers of the same issue age and Band received a 5.0689% increase;
b. in 2006, male non-smokers issue age 42 received a 12.50% rate increase, while female smokers issue age 62 received a 2.50% rate increase; and,
c. in 2015, male smokers issue age 30-34 received a -19.75% COI rate adjustment (i.e. their COI rate decreased by 19.75%), while female smokers of the same issue age received a 19.99% COI rate increase.
[41] The Flexiplus policy Administrative Fee was increased once in 2001 by $1.00 per month (from $5.50 to $6.50) and once in 2006 by $1.00 per month (from $6.50 to $7.50).
[42] There has never been an increase in the Flexiplus policy Administrative Fee of more than $1.00 in any given 12-month period and the Administrative Fee has never exceeded the maximum stated in the policy of $12.00 per month. There was no evidence that the Administrative Fee was based on unauthorized charges.
5. Mr. Winokur’s Evidence
[43] Mr. Winokur reviewed the affidavits of Mr. Chambers, and he agreed with Mr. Chambers' explanation of how COI rates are determined in the insurance industry. Mr. Winokur agreed that the initial COI was set based on the primary insured's sex, issue age, underwriting class, policy year and the specified face amount of insurance in accordance with how insurance companies price COI. However, Mr. Winokur noted that the COI adjustments were not explained other than through the excerpts of repricing reports that showed the end result of the process used without revealing precisely what experience variables were considered or applied and that the reports did not disclose any profit objectives. Mr. Winokur found it unusual that the policies did not state the initial COI rate or set of rates but only appended the maximum COI.
[44] Mr. Winokur testified that normally when an insurer writes a policy with a right to adjust the COI, the contract will refer to adjustments or "assumption changes" based on a review of its "actual experience" for variables such as expenses, mortality, lapse, investment return, etc., but the Flexiplus policy did not contain such language. He said that actuaries use the principle of “Policyholder Reasonable Expectations” (“PRE”) in assessing an insurer’s contract liabilities and reserves, financial disclosure obligations, and possible litigation exposure, but in this case, it was extremely difficult to form an opinion about the adjustment of the COI.
[45] Mr. Winokur said that he would have expected to see a direct reference in the contract to changes being based on experience changes, or actuarial assumption changes. Mr. Winokur opined that using the dictionary definition of "based on," which was used in Mr. Chambers’ affidavit, and relying on his own experience, the foundation or principal factor for a COI change is not cohort or risk group, but rather the insurer's experience and actuarial assumptions. He said, as an actuary, he did not see where the Flexiplus contract language would allow the insurer to increase the COI for reasons due to experience changes on the actuarial assumptions for mortality, lapse, investment return, and expenses. He felt that the contracts were incomplete and poorly drafted.
[46] However, Mr. Winokur stated that the interpretation of the policy language was ultimately a legal matter, and he declined to express any view outside his actuarial expertise.
[47] The other aspects of Mr. Winokur’s evidence are more appropriately discussed in the analysis and discussion portion of these Reasons for Decision, to which I now turn.
E. DISCUSSION AND ANALYSIS
[48] Subject to several matters that are red herrings, it is a relatively straightforward matter to conclude that there is no basis in fact for common issues 6 and 7. At the time of the argument of the certification motion, it was known why Sun Life had adjusted the COI, but how it had made the adjustments and how it set the COI in the first place was unknown. However, after the adjournment of the certification motion, this information is now known.
[49] And it is now known that there is no basis in fact for the Plaintiffs’ allegation that there has been a breach of contract. It turns out that Sun Life initially set the COI based on the primary insured's sex, issue age, underwriting class, policy year and the specified face amount of insurance and it did so in the way that was in accord with the insurance policy and in accord with insurance industry practice. There is no basis in fact for a breach of contract in the setting of the COI. And, Sun Life repriced the COI by replicating the process it used to price the COI in the first place; i.e., the repricing was based on the primary insured's sex, issue age, underwriting class, policy year, and the specified face amount of insurance being adjusted in accord with insurance industry actuarial practice. There is no basis in fact for a breach of contract in adjusting the COI.
[50] Mr. Winokur found nothing wrong in what Sun Life did, although, as an actuary, Mr. Winokur would have liked to see the contract language disclose more transparently what Sun Life did. Mr. Winokur knew, from his experience in the insurance industry, that there was available language that would have permitted Sun Life to do what it did. Mr. Winokur was surprised, perhaps even disappointed, that Sun Life did not better document its practices, which were not exceptional practices and which were what he would have expected an insurance company to do when pricing its product. In other words, Mr. Winokur was not surprised by the substance or essence of Sun Life’s COI pricing, but he was surprised by the substandard standard form contract. Mr. Winokur was frank and professional in pointing out that he could not express an opinion about whether there was anything illegal in Sun Life’s contracting.
[51] In truth, there was nothing illegal about how Sun Life set the COI or how it adjusted or reset the COI, which under the Flexiplus contract, it was entitled to do from time to time.
[52] There is no evidence – no basis in fact – proving the alleged breach of contract. In the context of an alleged breach of contract class action, one does not have to get far into the debate about what the jurisprudence about “some basis of fact” means for the purpose of proving the criteria for certification, because whatever “some basis in fact” means, for the test to have any utility as a screening device, it must mean that there must be some facts showing a possible breach of the contract promises - as the plaintiff would interpret and has pled the promises of the contract language that it alleges were breached.
[53] The Plaintiffs’ response, however, is that there is an issue of interpreting the contract that would show or could show - if the Plaintiffs could have examinations for discovery or otherwise marshal evidence - that the contract has an interpretation that has been breached. The Plaintiffs say that this merits issue; i.e., the merits of their interpretation of the contract cannot be decided on a certification motion and, therefore, the standard form contract provision being in dispute, common issues 6 and 7 must be certified and there must be a common issues trial to resolve the dispute.
[54] There are numerous problems with this argument, but the problems begin with the notion that a plaintiff suing for breach of contract can take a position on the certification motion about a possible interpretation of the contract different from the interpretation that he or she alleges in the statement of claim.
[55] In the case at bar, the truth of the matter is that the Plaintiffs plead what the contract means; i.e., they plead what promises were made by Sun Life, and they allege how those promises were breached; visualize, they plead in paragraph 60 of the Statement of Claim that Sun Life “used factors different from the permissible factors in calculating and imposing cost of insurance rate increases on the Policies, which was a breach of contract.” As it turns out (much like what happened with the Plaintiffs’ maximum premiums breach of contract), there is no basis in fact for this allegation. The evidence is that in both setting and re-setting the COI, Sun Life set the price based on the primary insured's sex, issue age, underwriting class, policy year and the specified face amount of insurance, and it did so in the way that was in accord with insurance industry practice. There is no basis in fact for the breach of contract as pleaded by the Plaintiffs.
[56] Similarly, the Plaintiffs plead that Sun Life used factors different from changes in administrative costs in imposing increases to the Administrative Fee, but the truth of the matter (as evidenced by Mr. Winokur’s absolute silence on the issue) is that there is no basis in fact for this particular allegation.
[57] The truth of the matter is that the Plaintiffs, in their omnibus class action, threw in what now turns out to be a speculative breach of contract claim and they now seek to fish for new facts based on a new interpretation of the contract, which they outlined (supposedly without prejudice) in their factum, to substantiate a breach of contract claim that they did not plead. There, however, is no basis in fact for the breach of contract claim that they actually did plead.
[58] This brings me to the matter of the red herrings.
[59] Mr. Winokur said that the contract forms used by Sun Life offended the PRE and were incomplete and unfair to policyholders because of the contract forms lack of transparency. He used the analogy of a mortgage contract that obscured the interest rate that was being charged, but, as it turns out, apart from the lack of transparency in their standard contract forms, the COI and the Administrative Fee were set in accordance with industry practices and no unfairness was perpetrated on the policyholders. In any event, there is no pleaded breach of contract claim based on the now alleged to be incomplete contract form. It is a red herring that Sun Life could have used a better contract form to do what it did because the pleaded breach was not about the form of the standard form contract but that Sun Life had breached its promise about the COI and Administrative Fee pricing.
[60] Similarly, it is a red herring that - years after the Flexiplus policies were written and issued to policyholders - the Federal Government enacted legislation requiring auditors to provide their insurance company’s board of directors with an opinion about the fairness of COI adjustments in accordance with guidelines as to what would make the adjustments fair or unfair. It is debatable how this legislation applies to policies written before the enactment of the legislation and its application to the Flexiplus policies is, according to Mr. Winokur, problematic, but the point is that the fairness or unfairness of the COI adjustments is not a pleaded issue in the immediate case; it is a red herring. The issue for the immediate case is whether there is some basis in fact for the pleaded breach of contract, and there is no factual basis for the alleged breach of contract.
[61] I agree with what Justice Belobaba had to say about the some basis in fact standard in Dine v. Biomet, 2015 ONSC 7050, aff’d 2016 ONSC 4039 (Div. Ct.) that there is a two-step requirement that: (1) the proposed common issue actually exists; and (2) the proposed issue can be answered in common across the entire class. I also agree with him that this two-step test has been adopted in many cases; for example: Hollick v. Toronto (City), 2001 SCC 68; Fulawka v. Bank of Nova Scotia, 2012 ONCA 443; McCracken v. Canadian National Railway Company, 2012 ONCA 445; Williams v. Canon Canada Inc., 2011 ONSC 6571, [2011] O.J. No. 5049 (S.C.J.), aff’d 2012 ONSC 3992 (Div. Ct.); Martin v. Astrozeneca Pharmaceuticals PLC, 2012 ONSC 2744; Good v. Toronto Police Services Board, 2014 ONSC 4583 (Div. Ct.). And, I also agree with him that if a common issue does not require some factual reality, then almost any proposed class action would have to be certified and the certification motion’s role as a meaningful screening device would be eviscerated.
[62] In the case at bar, the first step of the some basis in fact test is not satisfied.
F. CONCLUSION
[63] I conclude that there is no basis in fact to support the certification of common issues 6 and 7 and, therefore, the COI breach of contract claim and the Administrative Fee breach of contract claims are not certifiable. The result is that the certification motion is dismissed in its entirety.
[64] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Sun Life’s submissions within 20 days of the release of these Reasons for Decision followed by the Plaintiffs’ submissions within a further 20 days.
Perell, J.
Released: December 7, 2016
CITATION: Fehr v. Sun Life Assurance Company of Canada, 2016 ONSC 7659
COURT FILE NO.: 10-CV-411183CP
DATE: 20161207
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ELDON FEHR, ANGELA WATTERS, GAETAN LAURIER, LESLIE MICHAEL LUCAS, JAMES PATRICK O’HARA, REBECCA JEAN CLARK, and LLOYD SHAUN CLARK
Plaintiffs
‑ and ‑
SUN LIFE ASSURANCE COMPANY OF CANADA
Defendant
REASONS FOR DECISION
Perell, J.
Released: December 7, 2016