COURT FILE NO.: CV-20-00636864-00CL

DATE: 20210603

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Edward Brunt and Heather McCrea Brunt, Plaintiffs/Responding Parties

AND:

Economical Mutual Insurance Company and 10551635 Canada Foundation cob as Economical Insurance Heritage Foundation, Defendants/Moving Parties

BEFORE: C. Gilmore, J.

COUNSEL: Christopher Matthews, Counsel, for the Responding Party Plaintiffs Edward Brunt and Heath McCrea Brunt

Mark Gelowitz, Laura Fric and Alexis Beale, Counsel for the Moving Party Defendant Economical Mutual Insurance Company

Ronald Segal and Adam Greco for the Moving Party Defendant 10551635 Canada Foundation.

HEARD: May 19, 2021

ENDORSEMENT

OVERVIEW

[1] This is the Defendants’ motion for summary judgment to dismiss the Plaintiffs’ claim.

[2] The Plaintiffs issued a claim in June 2019 seeking $1,000,000 in damages against the Defendant Economical Mutual Insurance Company (“Economical”) for breach of contract, breach of fiduciary duty and negligence. They also sought a declaration that they were entitled to be paid an amount equal to the demutualization benefits received or to be received by eligible mutual policyholders and $1,000,000 in punitive damages.

[3] The Plaintiffs also sought a declaration that the Defendant 10551635 Canada Foundation (“the Foundation”) holds, or will hold as constructive trustee for the Plaintiffs, the demutualization benefits the Plaintiffs would have received but for Economical’s breach of contract, breach of fiduciary duty and negligence.

[4] The Defendants seek to dismiss the Plaintiffs’ claim on the grounds that they are not entitled to any demutualization benefits as they are not eligible policyholders. Economical had no duty because of any intended demutualization, or for any other reason, to renew the Plaintiffs’ policy. The reason for the non-renewal is straightforward: the Plaintiffs’ claim history put them outside of Economical’s underwriting guidelines. By way of additional ground for summary judgment, the Plaintiffs’ claim is statute-barred as they did not commence their action until three years after they were advised of the non-renewal.

[5] As will be set out below, the Plaintiffs’ claim should be dismissed. They were not eligible policy holders on the date of the Eligibility Resolution on November 3, 2015. The termination of their policy was not done in bad faith and was not intended to deprive the Plaintiffs of any demutualization benefits. Rather, the termination was in accordance with Economical’s underwriting guidelines. The Defendants had no duty to warn or consult with the Plaintiffs concerning the effects of submitting claims. If I am wrong with respect those grounds for dismissal, the claim should be dismissed on the ground that it is statute barred.

[6] The claim against the Foundation will also be dismissed. There is no basis to impose a constructive trust in favour of the Plaintiffs over the funds segregated to be paid to the Foundation.

BACKGROUND FACTS

[7] Economical is a mutual property and casualty insurance company governed by the Insurance Companies Act, S.C. 1991, c. 47 (“the ICA”). Economical sells home, auto and commercial insurance. The within claim arises out of Economical’s decision not to renew the Plaintiffs’ home insurance policy.

[8] Economical policyholders with “mutual” policies have certain rights so long as they continue to hold a mutual policy: vote at annual general meetings, elect its Board of Directors and receive financial information about Economical. Mutual policyholders are different from shareholders in that their policy has no market value and cannot be transferred or sold.

[9] Economical is undergoing a demutualization process to convert to a share capital company. This process is permitted in accordance with regulations under the ICA, which came into effect on July 1, 2015. On November 3, 2015, Economical’s Board of Directors passed a resolution recommending demutualization (“the Eligibility Resolution”). According to the regulations, this resolution fixed the date for eligible policy holders for demutualization.

[10] Pursuant to the conversion plan, 20% of the demutualization benefits have been allocated to be shared by eligible mutual policyholders, regardless of the number of policyholders in the group. $100 million of the proceeds from demutualization will be allocated to the Foundation which is a charitable foundation. 72-75% of the demutualization proceeds will be allocated to non-mutual policy holders who will receive an estimated $1,500 to $2,300 each.

[11] On May 20, 2021, all eligible policyholders voted to approve demutualization. When demutualization is approved by the federal Ministry of Finance and is complete, it is estimated that eligible mutual policyholders will receive between $300,000 to $430,000.

[12] In 2006, the Plaintiffs purchased a policy with Economical which insured their residential property against described losses. The policy expired in 2009 and was renewed until August 2012 and again until August 2015. All of the Plaintiffs’ policies had three-year terms.

[13] Between September 2012 and December 2014, the Plaintiffs made three claims: a claim for water damage in September 2012, in the amount of $11,736; a claim for water damage in February 2014, in the amount of $19,536; and a claim for chimney fire damage in December 2014, in the amount of $121,034.

[14] In June 2015, the Plaintiffs were informed by Economical that their policy would not be renewed due to their claims history being outside Economical’s underwriting guidelines. The Plaintiffs obtained a new policy with Perth Insurance Company (“Perth”), a subsidiary of Economical. The Perth policy had a higher risk tolerance with a correspondingly higher premium. Perth policyholders were not entitled to any demutualization benefits.

[15] In July 2015, the Plaintiffs wrote to Economical’s President and CEO seeking special consideration to reverse the decision not to renew their policy in light of the anticipated demutualization. They requested special terms to allow their policy to remain in place until the demutualization process had been completed. In a letter to the Assistant Vice-President of Economical, Lisa Powell, on August 20, 2015, the Plaintiffs’ representative, Terence Hannan, advised that if Economical did not change its position and keep their policy in force until the Eligibility Resolution was passed, they would take legal action. However, the Plaintiffs did not issue the within claim until June 2019.

[16] In response to the Plaintiffs’ correspondence, Economical provided an extension of the policy to October 1, 2015 free of charge to allow the Plaintiffs time to arrange alternate insurance coverage. However, Economical did not renew the policy beyond October 1, 2015.

LEGAL ISSUES

1. Is Summary Judgment Appropriate?

[17] The Plaintiffs argue that this motion is premature and misplaced for the following reasons:

a. As there was no discovery, there is an insufficient evidentiary record to decide all issues. Economical objected to and refused many of the Plaintiffs’ requests for information.

b. Issues requiring a trial include:

i. What circumstances caused Economical not to renew the Plaintiffs’ policy after announcing its intention to demutualize;

ii. Do the facts establish a fiduciary relationship between Economical and the Plaintiffs that affected the Plaintiffs’ legal interests?

iii. Did Economical have a duty of care or a contractual duty to inform the Plaintiffs of the factors affecting the policy in the context of demutualization? This is an issue which has not yet been examined by the Courts and should not be determined on a motion for summary judgment.

[18] I do not agree that this matter requires a trial. The facts in this case are not in dispute and there is an expansive and adequate record upon which the Court can make findings on the legal issues raised by the Plaintiffs.

[19] The Plaintiffs did not bring a motion to compel answers to the refusals by Economical. Further, the Plaintiffs had the opportunity to cross-examine the three witnesses who provided affidavits on behalf of Economical.

[20] This case cannot be compared to Encansol Capital Corporation v. Octopus Technologies, 2019 ONSC 5750. In that case, Dietrich, J. found that the case was not suitable for summary judgment because she did not have the complete factual matrix and there were numerous credibility issues raised. In this case, the background facts are not in dispute and the issues raised are legal ones and not related to credibility. I find that the questions raised by the Plaintiffs as triable issues can be fully answered on the record before me.

[21] The case fits squarely within the parameters set out in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 SCR 87, in that the facts are undisputed, the law is clear and may be applied to those facts and this motion is a proportionate, expeditious and less expensive process to deal with the outstanding issues than a trial.

2. Did the Plaintiffs have Proprietary Rights in Economical as Mutual Policyholders?

[22] The Plaintiffs’ position is that they had a proprietary right as owners of Economical to share in the demutualization benefits as of the date that the Conversion Regulations came into force on July 1, 2015, when their policy was in full force. The Plaintiffs concede that this proprietary interest was a contingent one. The contingencies included passing the Eligibility Resolution, holding a vote of mutual policyholders on the special resolution to negotiate with non-mutual policyholders, establishing a committee to negotiate the distribution of benefits, holding a special meeting of eligible mutual policyholders and obtaining approval from the Federal Minister of Finance.

[23] The Plaintiffs’ position is that the resolution recommending conversion that was passed in 2010 was only formalized by the Eligibility Resolution on November 3, 2015. Economical could have elected to reinstate the Plaintiffs’ policy by the date of the special resolution to negotiate which was passed on December 14, 2015. The Plaintiffs rely on this as proof that the eligibility date was fluid and not crystallized on November 3, 2015.

[24] Economical relies on Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, 120 OR (3d) 81, with respect to the approach to determining a policyholder’s proprietary interest. Mandeville related to the 1999 demutualization of The Manufacturers Life Insurance Company (“Manulife”) and a $9 billion distribution to its policyholders.

[25] In 1996 Manulife transferred a group of participating Barbados policyholders to another life insurance company. The transfer required and received approval under the ICA from the Canadian government and the required approval by the Barbadian government. Those policyholders did not receive any portion of the demutualization benefits and claimed that Manulife should have protected their interests so that they could have shared in the demutualization benefits. They brought a class action for negligence and breach of fiduciary duty. They sought damages equivalent to what they would have received had they been policyholders at the time of demutualization. The appellant policyholder class submitted that prior to the transfer of their policies in 1996, they had been owners of Manulife with an accompanying proprietary right to share in the demutualization benefits. Manulife failed to protect those proprietary rights.

[26] The trial judge found that Manulife did not owe the policyholders a duty of care and the action was dismissed. The appeal by the policyholder class was also dismissed. In Mandeville, the “eligibility day” was the day that Manulife publicly announced its decision to demutualize on January 20, 1998. At that point, large cap mutual insurance companies were not permitted to demutualize as the federal government had not yet promulgated regulations allowing it. Those regulations passed in 1999, permitting full demutualization.

[27] Manulife’s Board passed a resolution in May 1999 approving a plan of demutualization to be presented to and for the approval by the eligible policyholders. The policyholders approved the plan shortly thereafter. This was the final step in fixing the group of eligible policyholders.

[28] The Court of Appeal in Mandeville made it clear that “a hope or mere expectancy is not a legally enforceable right or interest”: at para. 140. That is, in 1996 the policyholders’ interest in demutualization was not yet crystallized but a mere possibility. It was approved by the policyholders in 1999 and crystallized immediately upon the promulgation of the regulations in 1999. Further, the Court of Appeal rejected the notion of “ownership” for mutual policyholders since their policy did not afford them all of the rights of ownership.

[29] Unlike Mandeville where the policyholders’ rights had crystallized when the conversion regulations were enacted in 1999, in this case, the eligible policyholders’ rights did not crystallize until November 3, 2015, after the regulations were enacted on July 1, 2015 as the eligibility date was defined in the regulations as a date that would occur in the future (in this case on November 3, 2015).

[30] I agree with Economical that, although the process in Mandeville was in some ways the reverse of the one in this case, the important point (as confirmed by the Court of Appeal in Mandeville) is that “all steps to fix the group to receive an interest must occur before any legally-recognized interest can be created.” The policyholders in Economical (mutual and non-mutual) did not gain a contingent interest in demutualization benefits until the Board resolution, following the enactment of the regulations. At the relevant point in time, the Plaintiffs were not eligible mutual policyholders as their policy came to an end on October 1, 2015.

[31] The Plaintiffs argue that there are many other contingencies yet to be fulfilled before mutual policyholders’ interests can be crystallized, including ministerial approval and a resolution to negotiate the distribution of demutualization benefits. The key date as per Mandeville is the legally possible date and not the eligibility date. It is, therefore, a fluid and not a fixed date.

[32] I do not agree. The July 2015 regulations created no contingent interest in demutualization benefits, only the ability to demutualize upon the approval of policyholders. The Board kept policyholders advised about the possibility of demutualization through information circulars over several years but could not take steps until after July 2015. Even after the regulations were passed, Economical was not bound to pursue demutualization. It did so only after the resolution on November 3, 2015, which created and crystallized the class of eligible policyholders. While it is true that contingencies such as approval of the Minister of Finance is still required, that does not change the class of eligible policyholders or their contingent interest in any future benefits.

[33] Of note, the day after this motion was heard, it was widely published that Economical policyholders held a final vote and voted 97% in favour of the demutualization plan. This included 870 mutual policyholders and 630,000 non-mutual policy holders. The next step in demutualization is the formal application to the Federal Minister of Finance for approval to go public.

3. Was There a Breach of Contract or Fiduciary Duty on the Part of Economical?

[34] The main issue on this point is whether Economical had a duty to share information concerning its underwriting policies with the Plaintiffs to ensure that the Plaintiffs did not do anything to jeopardize their membership in the class of eligible policyholders.

[35] Specifically, Economical’s underwriting policy stated that it did not “write” risks having three or more claims in the past five years. The Plaintiffs’ claims history (as set out above) involved three claims in three years totalling $152,306.

[36] The Plaintiffs argue that in enforcing this policy, Economical knew it would be creating harm to the Plaintiffs by removing them as eligible policyholders. Economical could have prevented that harm either by extending the policy to December 14, 2015 or by warning the Plaintiffs of the consequences of making claims with respect to their status as eligible policyholders.

[37] The Plaintiffs referred to Aviva Insurance Company of Canada v. Thomas, 2011 NBCA 96, for the proposition that insurers have some duty to inform policy holders of relevant information.

[38] In that case, the policyholder installed a wood stove on his back porch. The primary source of heating in his home was electrical as he had stated on the original application for insurance. The homeowner did not advise Aviva of the installation of the wood stove and Aviva had not advised the homeowner that such a source of auxiliary heat might cause a material change to the underwritten risk. Six years after the installation of the wood stove, a fire occurred. After an investigation into the cause of the fire revealed the existence of the wood stove, Aviva cancelled the policy retroactive to the date of its last pre-loss renewal.

[39] The issue for the Court was whether Aviva could terminate coverage when the insured did not know that the installation of the wood stove was a change that was material to the covered risk. The Court held that Aviva was not entitled to cancel the policy because it only disclosed post loss what constituted a change material to the risk.

[40] The Plaintiffs argue that Economical was required to advise them as to what might affect a non-renewal of the policy, particularly in light of a looming demutualization.

[41] I do not agree with the Plaintiffs. First, the Aviva decision relates to a denial of coverage after a claim had been made because the insurer claimed that the risk had changed. In this case, Economical was simply enforcing its own internal underwriting policy; it was not a denial of coverage. Economical had paid out all of the claims of the Plaintiffs without any resistance.

[42] The underwriting policy is confirmed by the evidence of Ms. Laurie Hamilton, an underwriter who has worked for Economical for 35 years. She has been the sole underwriter for mutual policies since 2012. Her evidence was that she had no discretion with respect to the non-renewal of the Plaintiffs’ policy. The size of the claims was not relevant to her decision. Ms. Hamilton reviewed her decision with her supervisor Lisa Powell and advised the Plaintiffs’ insurance broker of the decision. This evidence was not challenged.

[43] Economical’s position is that they were not required to provide the Plaintiffs with internal business information concerning their underwriting policies. I agree. In Usanovic v. Penncorp Life Insurance Co., 2017 ONCA 395, 138 OR (3d) 462 (“Usanovic Appeal”), the Plaintiff made a claim under his disability policy following a fall. After the Plaintiff had received benefits for several years, the insurer cancelled the policy on the basis that the Plaintiff “was not disabled from engaging in any occupation for which he had reasonable training and experience” as required by the terms of the policy: Usanovic v. Penncorp Life Insurance Co., 2016 ONSC 4624, at para. 3. The Plaintiff sued for damages and the insurer brought a motion for summary judgment on the grounds that the Plaintiff’s claim was barred either by the terms of the policy or by the Limitations Act.

[44] The Plaintiff took the position that the insurer was obliged to provide him with notice of the limitation period. The Court of Appeal agreed with the motion judge that insurers did not have a positive obligation to disclose information outside of the bounds of the policy. Requiring them to do so would “represent a substantial shift in the boundaries of the obligation of good faith and fair dealing on insurers”: Usanovic Appeal, at para. 38.

[45] Further, I agree with Economical that the decision not to renew was related to their provision of an insurance product and the business decisions that related to that. Any duty of good faith with respect to the insurance product cannot then be further expanded to include good faith duties related to warnings by Economical in relation to the impact of making claims on the Plaintiffs’ standing as eligible policyholders in relation to potential demutualization.

[46] The Plaintiffs argue that Economical had a duty to warn the Plaintiffs of the consequences of making three claims because the harm to them was foreseeable in relation to the potential disentitlement of benefits in any upcoming demutualization. For example, Economical had already warned mutual policy holders via Information Circulars about the possible effects of a change to their policy such as buying a new home.

[47] The Plaintiffs are, respectfully, confusing Economical’s provision of information to policyholders about the potential demutualization with a requirement that such information include internal underwriting policies. Requiring insurers to provide such information would change the common law landscape with respect to how insurers do business.

[48] The Plaintiffs also insist that Economical had a duty to renew or reinstate the policy upon expiry. Any duty of good faith in this regard relates to the performance of an existing contract, not a duty to enter into a contract. This principle is reiterated in Best Lifestyle v. County of Simcoe, 2019 ONSC 6619, at para. 84, where the Court stated:

Despite the longevity of this relationship, the duty of good faith should not extend so far as to force parties to negotiate the renewal of new contracts in perpetuity simply because they have done so in the past, especially where the terms of the contract are specifically fixed and where there is no automatic renewal provision…

[49] It is this Court’s view that the Court in Best Lifestyle succinctly described the exact issue raised in this case. That is, unless otherwise stated in the contract, contracting parties cannot be required to renew based on any duty of good faith. If a party fails to renew, the contractual relationship is at an end as per that party’s option to put it at an end. This proposition is even more important in the highly regulated insurance industry where, taken to its logical conclusion, the result would be to force insurers to renew policies in the face of an impending demutualization whether or not the renewal fell within their internal underwriting guidelines.

[50] Finally, the Plaintiffs argue that Economical had an ad hoc fiduciary duty to protect their interests. I do not believe that much needs to be said on this point. In Mandeville, the Court found that Manulife had no such fiduciary duty to the Barbadian policyholders and specifically that Manulife had no duty to protect their right in a future demutualization: Mandeville v. Manufacturers Life Insurance Co., 2012 ONSC 4316, at para. 280. This finding in Mandeville was not appealed and remains good law.

4. Is the Claim Statute Barred?

[51] If I am wrong with respect to any lack of propriety rights or a duty to warn or renew, I would have found that the Plaintiffs’ claim is out of time.

[52] The Plaintiffs argue that theirs is a contingent claim which does not arise until all of the contingencies for demutualization have occurred. Therefore, the claim for damages does not arise until the contingencies are met and approval from the Minister of Finance obtained. Prior to that, they are seeking a declaration that they are entitled to receive amounts equal to the benefits they would have received had they been an eligible policyholder upon demutualization.

[53] Since they are only seeking a declaration at this time, the limitation period has not started to run as per s. 16 of the Limitations Act, S.O. 2002, c. 24, Sched. B. If this matter went to trial, a trial judge would only be able to make an Order for a declaration as the contingencies have not yet been met.

[54] Economical argues that the claim is barred by s.4 of the Limitations Act which prescribes a two-year limitation period. The limitation period started when the Plaintiffs knew of the material facts underlying their claim. The Plaintiffs were advised of the non-renewal of their policy in June 2015. Confirmation of the non-renewal was communicated to the Plaintiffs in August 2015. In response, Mr. Brunt advised Economical in writing on several occasions in August and September 2015 that he and his wife would be seeking counsel in relation to the non-renewal. Certainly, the Plaintiffs were aware of the non-renewal on the date of the Eligibility Resolution.

[55] Economical relies on Hamilton (City) v. Metcalfe & Mansfield Capital Corporation, 2012 ONCA 156, with respect to the distinction between damage and damages. At para. 54, the Court stated:

Damage is the loss needed to make out the cause of action…Damages, on the other hand, is the monetary measure of the extent of that loss. All that the City had to discover to start the limitation period was damage.

[56] I agree with Economical. The actual extent of the damages need not be known in order to commence a claim. Indeed, most claims lack a degree of particularization of damages because of uncertainties. I find that the damage occurred in this case when the policy was not renewed, and the Plaintiffs became aware on November 3, 2015 that the implication of this was their non-participation in future potential demutualization benefits. They did not need to know the exact amount of their potential entitlement nor did they need to wait to see if the various demutualization contingencies were met.

The Claim Against the Foundation

[57] Given my findings above, the claim against the Foundation may be considered moot; however, if I am wrong, I would have dismissed the claim against the Foundation as set out below.

[58] The Plaintiffs claim that the Foundation holds or will hold, as constructive trustee, the benefits that the Plaintiffs would have received but for Economical’s breach of contract, fiduciary duty and negligence.

[59] The Foundation came about as a result of a recommendation by the Policyholder Committee to allocate $100,000,000 from demutualization benefits to the charitable Foundation in recognition of the contributions of ineligible and former policyholders to the value of Economical. This allocation has nothing to do with the separate allocations for mutual and non-mutual policyholders.

[60] The Foundation argues that there is no specific property to which a constructive trust could attach. That is, there is no proprietary nexus between the property claimed by the Plaintiffs and the allocation to the Foundation. There is, therefore, no genuine issue for trial.

[61] The Plaintiffs argue that the Foundation has misapprehended their claim. The remedy claimed is through tracing and not by way of any duty owed by the Foundation to the Plaintiffs. The Plaintiffs are owed their share of demutualization benefits which are to be paid either directly or indirectly from the proceeds of demutualization.

[62] I agree with the Foundation. Whatever the Plaintiffs’ entitlement might have been to demutualization benefits if Economical had been found to have a duty to renew their policy, their share of benefits would never have been paid from the Foundation’s allocation. The claim against the Foundation must be dismissed and does not require a trial.

ORDERS AND COSTS

[63] Economical’s claim for summary judgment is allowed.

[64] If the parties cannot agree on costs I will receive written submissions of no more than three pages in length, exclusive of any Offers to Settle or Bill of Costs, on a seven-day turnaround starting with Economical and the Foundation within seven days of the release of this Ruling. Costs submissions are to be sent electronically to my assistant at therese.navrotski@ontario.ca. If no costs submissions are received within 35 days of the date of release of this ruling, costs will be deemed to be settled.

C. Gilmore, J.

Date: June 3, 2021