Court File and Parties
COURT FILE NO.: CV-10-411183-00CP DATE: 20230427 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Eldon Fehr, et al. AND: Sun Life Assurance Company of Canada
BEFORE: J.T. Akbarali J.
COUNSEL: Michael C. Spencer and Megan B. McPhee, for the plaintiffs F. Paul Morrison, Glynnis Burt, Madeleine Brown and Jacqueline Cole, for the defendant
HEARD: April 4 and 5, 2023
Proceeding under the Class Proceedings Act, 1992
Endorsement
Overview
[1] This class proceeding, certified on issues narrower than originally pleaded, was supposed to be moving towards a summary judgment motion. It seemed about time; the action was commenced in 2010, and involves events that occurred as early as before the turn of the century. The summary judgment motion has, unfortunately, been delayed by the motions before me.
[2] The plaintiffs move to amend their Fresh as Amended Statement of Claim to add what the defendants state is a new cause of action that is time-barred. The plaintiff argues that the issue raised was, in fact, already pleaded, and in any event, the particulars of the issue could not have been discovered earlier, such that no limitations period defence applies. If the pleading is amended, the plaintiffs seek certification of the proposed new common issue in this motion; the defendants say a new certification motion is required.
[3] Second, the defendant brings a motion seeking to strike certain paragraphs of the plaintiff’s expert report, some of which relate to the proposed pleadings amendments, but all of which the defendant argues is irrelevant evidence. The plaintiffs argues that the expert report is proper.
The Proposed Amendments and New Common Issue
Background
[4] I described the factual underpinning to this action in brief in my reasons regarding production of a further and better affidavit of documents: Fehr v. Sun Life Assurance Company of Canada, 2021 ONSC 8368, at paras. 3-7, as follows [footnote omitted]:
[3] The factual underpinning of the plaintiffs’ claims relates to universal life insurance policies that had been sold by Metropolitan Life Insurance Company (“MetLife”) in the 1980s and 1990s. The original claim related to four particular products: Universal Plus, Universal Flexiplus, Universal OptiMet and Interest Plus. No common issue has been certified that relates to the Interest Plus policies.
[4] Mutual Life Insurance Co. acquired the bulk of MetLife’s Canadian business in 1998, including the policies that are at issue in this litigation. Mutual Life was subsequently renamed Clarica Life Insurance Company. Clarica amalgamated with Sun Life in 2002. Since that time, Sun Life has been responsible for administering the policies to which the common issues relate.
[5] A unique feature of universal life insurance policies is that they involve payment of premiums into an accumulation fund from which monthly charges, including the monthly cost of insurance (“COI”), and administration fees, are deducted. Policyholders have the option to accumulate excess cash in the accumulation fund, from which COI and administration fees can be paid, and which allows them to generate savings on a tax-deferred basis. The plaintiffs argue that, on several occasions, the defendant adjusted the COI rate and the administration fees in the Flexiplus policies, through a process referred to repricing, but based on factors that were not permitted under the policy terms. The plaintiffs also argue that it was a term of the policies that a “Maximum Premium” amount referred to in the policies represents the highest amount of premium that a policyholder would ever be required to pay for the policy in any year in order to prevent its lapse. Finally, the plaintiffs argue that the defendant administered the policies in such a way as to conceal its (alleged) breach of contract.
[6] Not surprisingly, the defendant denies that it acted in breach of contract, denies that it concealed any breach of contract, and does not accept the plaintiffs’ interpretation of “Maximum Premium,” arguing that it is a term that relates to the tax-deferred status of the savings in the accumulation fund.
[7] The five common issues that have been certified are:
a. Was it a term of the Flexiplus policy that the COI rate may be adjusted based on specified factors? If so, is Sun Life liable for breach of contract if increases were based in whole or in part on other factors?
b. Was it a term of the Flexiplus policy that Administrative Fees may be adjusted on factors related to the cost of administering the policies? If so, is Sun Life liable for breach of contract if increases were based, in whole or in part, on other factors?
c. Was it a term of the OptiMet policies that the COI rate may be adjusted based on specified factors? If so, is Sun Life liable for breach of contract if increases were based, in whole or in part, on other factors?
d. Was it a term of the Universal Plus, Flexiplus and OptiMet policies that the “Maximum Premium” amount set out in the policies was the highest amount of premium that the policyholder would ever be required to pay for the policy in any year, in order to prevent lapse of the policy? If so, are the plaintiffs entitled to a declaration to that effect?
e. If the answer to any of questions [a, b, or c] is that Sun Life breached the contract of insurance, did Sun Life administer the policies in a manner, including violating section 439 of the Insurance Act, S.O. 1990, c. I.8 (prohibiting unfair and deceptive practices) such that the breach of contract was concealed?
[5] The plaintiffs have now confirmed that they are no longer pursuing common issue (c) above.
[6] However, they seek to certify a new common issue, and amend the pleading accordingly to address it. The proposed new common issue is:
Under the terms of the Flexiplus policy and the insurer’s duties of good faith and fair dealing, were there limits to increases in the Interest Spread rate the insurer could charge annually against policyholders’ accumulation fund balances? If so, is Sun Life liable for any increases in excess of those limits?
[7] In addition, the plaintiffs seek to adjust the last common issue ((e) above) to refer to the proposed new common issue: that is, if the answer to the proposed new common issue above is that Sun Life breached the contract of insurance, did it administer the policies in a manner, including violating section 439 of the Insurance Act (prohibiting unfair and deceptive practices), such that the breach of contract was concealed?
[8] The plaintiffs argue that productions delivered following my order dated December 20, 2021, revealed that, effective in March 2001, the insurer increased the “investment spread” annual rate that it charged against Flexiplus policyholders’ accumulation fund balances from 1.25% to 1.75%. In other words, they allege that, in addition to increasing the COI and administrative fees, the insurer took a greater share of the investment profits by increasing the investment spread, all to shore up the profitability of the policies. They argue that the increase in the investment spread was not detectable by the policyholders as it was subsumed in the broader market interest rate fluctuations affecting investments in the accumulation funds, and the policyholders were never advised of the investment spread increase by the insurer.
[9] The defendants describe the investment spread as the difference between the insurer’s rate of earnings on its investments and the interest rates credited to a policy. The investment spread arises from a formula that considers the insurer’s expected rate of return in the market, its profit, and its expenses.
[10] With respect to interest rates, the terms of the policy provide:
Interest rates to be credited to new Investment Units will be established by [the insurer] from time to time. Once established the interest rate for any new Investment Unit will continue unchanged until the maturity of that Investment Unit. The interest rate for the Daily Interest Fund expressed on an annual basis will not be less than two percentage points less than 85% of the annualized yield on 90 day Treasury Bills. The interest rate at establishment of an Investment Unit will not be less than one percentage point less than 85% of the bond yields which are representative of current yields on Government of Canada bonds of the same term to maturity as the Investment Unit. If 90 day Treasury Bills and Government of Canada bonds with the same term of maturity are not available then [the insurer] will use [its] best estimate of what such rate would be if they were available.
[11] There is no allegation that the minimum prescribed rates of interest were not paid.
[12] Rather, the plaintiffs allege that, in setting interest rates to be credited from time to time, the insurer was bound to exercise its contractual discretion in good faith, and it failed to do so. The plaintiffs rely on Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, where, at para. 62, the Supreme Court of Canada held:
One may well ask — as courts and scholars have on occasion — how the exercise of an apparently unfettered contractual discretion could ever constitute a breach of contract since one could argue that a party, in exercising such a discretionary power, even opportunistically, is merely doing what the other party agreed it could do in the contract (D. Stack, “The Two Standards of Good Faith in Canadian Contract Law” (1999), 62 Sask. L. Rev. 201, at p. 208). The answer can best be traced to the “standard” that underpins and is manifested in the specific legal doctrine requiring that where one party exercises a discretionary power, it must be done in good faith. Expressed as an organizing principle, this standard is that parties must perform their contractual duties, and exercise their contractual rights, honestly and reasonably and not capriciously or arbitrarily (Bhasin v. Hrynew, 2014 SCC 71, at paras. 63‑64). Accordingly, a discretionary power, even if unfettered, is constrained by good faith. To exercise it, for example, capriciously or arbitrarily, is wrongful and constitutes a breach of contract. Even unfettered, the discretionary power will have purposes that reflects the parties’ shared interests and expectations, which purposes help identify when an exercise is capricious or arbitrary, to stay with this same example. Like the duty of honest performance considered in Bhasin and Callow, the duty to exercise discretionary power in good faith places limits on how one can exercise facially unfettered contractual rights. When the good faith duty is violated, the contract has been breached. The question is what constraints this particular duty puts on the exercise of contractual discretion.
Issues
[13] The issues raised on this motion are:
a. Should the amendments be allowed? In particular,
i. is the claim out of time,
ii. should the amendments be refused because they are an abuse of process,
iii. should the amendments be refused because the elements of the test for amending pleadings after a proposed class proceeding has been certified cannot be met in this case?
b. If the amendments are allowed, should the proposed new common issue be certified in this motion, or is a certification motion required?
The Limitation Period
[14] The defendant argues that the proposed investment spread claim is out of time, and as such, the proposed amendments would result in non-compensable prejudice and should be refused as a result: r. 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194; Polla v. Croatian (Toronto) Credit Union Limited, 2020 ONCA 818, at para. 32.
[15] The plaintiffs argue that the limitation period for the proposed claim has not expired because (i) it was already sufficiently pleaded; and (ii) the claim was not discoverable until after productions were delivered in response to my order of December 20, 2021.
[16] I disagree that the most recent operative version of the claim pleads the investment spread issue. The plaintiffs rely on para. 66(f) of the claim, which states:
Sun Life and its predecessors breached their duties of good faith and fair dealing in administering the Policies by:
(f) exercising any discretion the insurer is deemed to have under the policies to set cost of insurance rates, premium rates, administrative fees and policy charges, and rates for daily interest, term investment units, and equity-adjusted investment units, at levels that impaired policyholders’ ability to obtain vanishing premium benefits and avoid policy depletion or lapse.
[17] In my view, “rates for daily interest, term investment units, and equity-adjusted investment units” is not fairly descriptive of the interest spread issue the plaintiffs now raise, and cannot be said to merely particularize the claim in para. 66(f). First, the plaintiffs have not demonstrated that interest rate spread has anything to do with rates for daily interest; in contrast, the defendant’s affiant, Dean Chalmers, gives lengthy evidence that supports the defendant’s argument that investment spread does not have anything to do with the discretionary setting of daily interest rates. Second, the plaintiffs have not attempted to argue that the investment spread was set at levels that impaired policyholders’ ability to obtain vanishing premium benefits and avoid policy depletion or lapse.
[18] The question is thus whether the issue was only newly discoverable, as the plaintiffs have argued.
[19] The test for discoverability was summarized by the Court of Appeal in Levac v. James, 2023 ONCA 72, at para. 105: “A plaintiff need not know the exact act or omission by the defendant that caused the loss, but rather must have knowledge of the material facts upon which a ‘plausible inference of liability’ can be drawn”.
[20] The plaintiffs’ discoverability argument turns on a document they received in 2022. They argue that only on receiving this document did they understand that the insurer had adjusted the interest spread to keep more of the investment profits for itself.
[21] However, in 2016, the plaintiffs received a document that was attached to an affidavit filed by the defendant. That document included information that I find was sufficient to have alerted the plaintiffs to the investment spread issue. The 2016 production included the following:
a. Early in the document, it reports a recommendation to “increase and maximize the investment spread on investment units”.
b. Later in the document, under the heading “Recommended increases”, there is a sub-heading entitled “Profit spread on investment funds” which recommended that the insurer “increase and maximize the spread in light of the competitive environment. Profits from this increased spread will not be reflected in actuarial reserves but will flow through income every year”.
c. At the end of the document, there is a concluding paragraph that provides: “Increases in risk charges for a total of 25% over 4 years were considered in the due diligence process. Recommended increases in investment spread, administration fee and risk charges will achieve more than a 25% increase in risk charges. If Flexiplus experience (e.g., mortality, investment, lapse) doesn’t change significantly in future years, there will be no need to further increase risk charges.”
[22] I note that the closing paragraph in the document references three recommended increases. Of those, administration fees and risk charges (also known as cost of insurance) are the subject of the class action. The third, the increase in investment spread, was discoverable on receipt of this document. It contained sufficient information to allow a plausible inference of liability to be drawn.
[23] The plaintiffs argue that they needed more information to understand that there was a claim related to investment spread. Even if true, they had enough information to begin to ask questions when they received the 2016 document, but no questions were asked of the affiant in cross-examination about the investment spread. There is no evidence that the plaintiffs exercised reasonable diligence on receiving the document in 2016; no lawyer’s affidavit has been filed to explain what the plaintiffs did to be reasonably diligent about the investment spread issue: Nygard v. Hudson’s Bay Company, 2018 ONSC 5143, at para. 78; Klein v. G4S Secure Solutions (Canada) Ltd., 2016 ONSC 1930 at para. 24.
[24] I conclude that the claim was discoverable in 2016.
[25] Accordingly, I conclude that the proposed new claim is not tolled, and is out of time. In view of this conclusion, I need not go further to consider whether the claim is abusive.
[26] However, I make brief comments on the question of whether, if the claim were not out of time, the proposed pleadings amendment should be made at this stage.
The Test to Amend Pleadings after an Action has been Certified as a Class Proceeding
[27] The plaintiffs focus on r. 26.01 of the Rules of Civil Procedure to argue that their pleading must be amended absent non-compensable prejudice. (As I have noted above, the expiry of the limitation period is an example of non-compensable prejudice: Polla, at para. 32.)
[28] Under s. 12 of the Class Proceedings Act, 1992, the court has broad discretion to make any order it considers appropriate respecting the conduct of a class proceeding. The discretion must be exercised to meet the objectives of the act: access to justice, efficient use of judicial resources, and behaviour modification. Courts have interpreted s. 12 to provide the jurisdiction to add common issues after certification if new facts or law have been introduced, provided it would make efficient use of judicial resources and the same issue has not already been decided: Ducharme v. Solarium de Paris Inc., 2013 ONSC 2540, at paras. 18-19, leave to appeal dismissed 2013 ONSC 5093.
[29] While r. 26.01 has application to a proposed pleadings amendment in a certified class proceeding, other considerations are also relevant, including (i) whether the amendments would result in a fundamental change to the nature of the action that has been certified; and (ii) the criteria for certification where the amendment would amount to the certification of a new cause of action: Douez v. Facebook Inc., 2019 BCSC 715 at paras. 14-19; 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016 ONCA 24, at paras. 37, 43; Fanshawe College v. LG Philips LCD Co., Ltd., 2016 ONSC 3958, at paras. 53, leave to appeal refused, 2017 ONSC 2763.
[30] In this case, there are no new facts in the sense that the investment spread issue was discoverable from the document produced in 2016.
[31] Permitting the amendments, assuming the investment spread issue were certified, would result in a fundamental change to the nature of the action that has already been certified, expanding it to include duties of good faith and fair dealing, when other alleged breaches of the duties of good faith and fair dealing have been rejected for certification in this case already, by this court and by the Court of Appeal.
[32] Amending the pleadings as proposed would also fundamentally change the action by expanding the factual matrix, which would require further production, that, according to the evidence, would take months, if not longer, to complete. It would require further discoveries. If the history of this action is any indication, it would require further production or undertakings motions. The summary judgment motions would be delayed indefinitely.
[33] The pleadings amendments and addition of a new common issue would work against at least two of the objectives of the Class Proceedings Act, 1992, in that permitting the amendments would not make efficient use of judicial resources, given the strong likelihood of further motions, and, most importantly, it would not promote access to justice, because it would significantly delay the resolution of this class action on the merits. Access to justice does not encompass only the assertion of class members’ claims, but also their resolution in a reasonable time frame. In my view, the delay in access to justice by permitting the amendments outweighs whatever benefit the assertion of the proposed new claim would add.
[34] Moreover, given the lengthy delay between the commencement of the proceeding and the proposed amendment —12 years — I find that prejudice to the defendant must be presumed. The plaintiffs have offered no real explanation for the delay: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Co., 2017 ONCA 42, at paras. 38-42.
[35] Accordingly, even if the investment rate spread were not out of time, I would decline to exercise my discretion to add a new common issue, even assuming I could do so without requiring a full certification motion.
[36] The plaintiffs’ motion is dismissed.
Should portions of the expert affidavit be struck?
[37] The defendant relies on r. 25.11 of the Rules of Civil Procedure to argue that portions of the report of the proposed expert, Michael Kavanagh, be struck, and in particular:
a. Mr. Kavanagh’s opinion on the investment spread issue; and
b. Mr. Kavanagh’s opinion about “profitability” matters.
[38] Evidence may be struck on the basis that it may prejudice or delay the fair trial of the action, is scandalous, frivolous or vexatious, or is an abuse of process: r. 25.11 of the Rules of Civil Procedure.
[39] The defendant focuses its argument principally on the question of relevance. It is trite law that to be admissible, evidence has to be relevant.
[40] It follows from my determination that the pleadings amendment regarding the investment spread ought not to be permitted that the portions of Mr. Kavanagh’s report that deal with investment spread are not relevant to the common issues, and as such are inadmissible and ought to be struck.
[41] The real question on this motion, therefore, is whether the portions of Mr. Kavanagh’s report that deal with profitability ought to be struck.
[42] In my view, they ought to be, for the following reasons:
a. Mr. Kavanagh’s evidence about profitability goes beyond the common issues. He opines on, for example, non-disclosure, which is another, and improper, way of raising the misrepresentation issues for which certification was denied.
b. By focusing on the defendant’s alleged motive for the increases that are claimed to have been made in breach of contract, the report deals with why the alleged breaches of contract occurred, when motive has nothing to do with the common issues. Rather, the common issues focus on whether the manner in which increases were made were in breach of the contract terms, not why the defendant may have acted in breach of contract (if it did).
c. There is no evidence to suggest that the defendant’s profit was or is relevant to the actuarial principles underlying the increases in cost of insurance or administration fees (again, as distinct from motive).
d. Responding to the irrelevant portions of Mr. Kavanagh’s report will require the defendants to incur costs related to issues that are extraneous to the real issues between the parties, and will require the court to expend its resources on extraneous issues, to no practical end.
e. The evidence suggests that responding to the profitability issues raised in Mr. Kavanagh’s report will require significant additional documentary discovery, resulting in significant further delay and costs.
[43] Striking the impugned portions of Mr. Kavanagh’s report will ensure that the evidence before the court is relevant, and that judicial and the parties’ resources are not wasted, and will advance access to justice by moving the action forward with as little delay as possible.
[44] I have reviewed the impugned portions of Mr. Kavanagh’s report, identified on the report attached to the defendant’s notice of motion. I note that the plaintiffs did not argue that, were I to find that the evidence related to profitability and/or investment spread in Mr. Kavanagh’s report was irrelevant, any of the impugned portions of the report ought to survive. The impugned portions appear to be properly described as relating to either profitability or to the investment spread.
[45] Accordingly, I grant the defendant’s motion to strike the portions of Mr. Kavanagh’s report identified in Schedule A to the defendant’s notice of motion.
Costs
[46] The parties were unable to agree on costs. At the hearing, I set a schedule for the exchange of additional costs submissions, if they were required. I have reviewed the submissions the parties provided me on costs.
[47] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: see Fong v. Chan (1999), 46 O.R. (3d) 330, at para. 22.
[48] Subject to the provisions of an act or the rules of this court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion considering the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: see Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (Ont. C.A.), at para. 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: see Zesta Engineering Ltd. v. Cloutier (2002), 21 C.C.E.L. (3d) 161 (Ont. C.A.), at para. 4.
[49] The defendant has been wholly successful on these motions, and as such is presumptively entitled to its costs. There is no claim for costs other than on a partial indemnity scale.
[50] The defendant’s costs outline seeks all-inclusive partial indemnity costs of $471,896.65, of which less than $350.00 are disbursements. In contrast, the plaintiffs’ costs outline supports partial indemnity costs of $50,705.79, all-inclusive. In their submissions, they state that their actual partial indemnity costs are $103,449.99. There is obviously a significant disparity in the parties’ costs.
[51] With respect to the quantum of the award, I note the following:
a. The action is very important to the parties. The plaintiffs claim $2 billion in general damages and $500 million in punitive damages.
b. The action is complex, and has been heavily litigated. The complex procedural history was relevant to this motion and had to be carefully reviewed and briefed by the parties.
c. The motion to amend pleadings was very important to the parties. For the plaintiffs, it represented their effort to expand their case. For the defendants, it represented a claim with the potential to delay the advancement of the case to a determination on its merits, and to cause significant costs in the form of further discoveries and production.
d. The motion to strike portions of the Kavanagh report was also important, because it affected the scope of what evidence would be relevant on the summary judgment motion.
e. The time spent by the defendant is excessive, and appears to unduly involve senior lawyers rather than allocating work more appropriately between senior and junior timekeepers, and duplication. It is up to the defendant how to staff its file, but it is not entitled to ask the plaintiffs to pay for its decisions when they lead to costs that are outside of the reasonable expectations of the unsuccessful party, as these costs are.
[52] I fix the reasonable partial indemnity costs of this motion at $75,000, all-inclusive. The plaintiffs shall pay this amount to the defendants within 30 days.
J.T. Akbarali J. Date: April 27, 2023