



COURT OF APPEAL FOR ONTARIO

CITATION:
Kang v. Sun
    Life Assurance Company of Canada, 2013 ONCA 118


DATE: 20130225

DOCKET: C54700

Laskin, Rosenberg and Goudge JJ.A.

BETWEEN

Joseph (Jung Yub) Kang

Plaintiff (Appellant)

and

Sun Life Assurance Company of Canada

Defendant (Respondent)

Won J. Kim, Victoria A. Paris and Norman Mizobuchi, for
    the appellant

F. Paul Morrison, Glynnis P. Burt and Heather L.
    Meredith, for the respondent

Heard: April 12, 2012

On appeal from the order of Justice Paul M. Perell of the
    Superior Court of Justice, dated October 27, 2011, with reasons reported at
    2011 ONSC 6335.

Laskin
    J.A.:

A.

introduction

[1]

The five plaintiffs, representatives in a proposed class proceeding,
    appeal the decision of Perell J. on a pleadings motion.  He struck out numerous
    paragraphs of the plaintiffs fresh as amended statement of claim.  The
    paragraphs that he struck out fall into two categories.  In the first category
    are paragraphs that improperly pleaded evidence or argument, or were
    irrelevant.  In the second category are paragraphs that were struck because
    they did not disclose a reasonable cause of action under r. 21.01(1)(b) of the
Rules of Civil Procedure
, R.R.O. 1990,
    Reg. 194.

[2]

The plaintiffs have not appealed the
    striking out of the paragraphs in the first category.  They have appealed the
    striking out of the paragraphs in the second category.  They submit that the
    motion judge erred in striking out four of their claims: the claim for breach
    of duty of good faith and fair dealing, the claim for breach of contract, the
    claim for deceit and fraud, and the claim of those class members who signed
    releases.

B.

background

[3]

In his thorough reasons, the motion judge set out in detail the
    background to this dispute and the allegations in the pleadings that Sun Life
    challenged.  Only a brief summary is necessary to decide this appeal.

(1)

The parties and the policies

[4]

The proposed class proceeding concerns the sale and administration of
    universal life insurance policies.  It has not yet been certified.

[5]

The policies in question were sold to class members by Metropolitan Life
    Insurance Co. (MetLife) during the period between 1983 and 1998.  Universal
    life insurance policies were introduced in the 1980s as an alternative to whole
    life policies.  They have a cash accumulation component in addition to life
    insurance.  They are attractive to consumers because of their tax-exempt status
     funds accumulate in the investment fund tax-free.

[6]

MetLife sold four types of universal life insurance policies.  Each of
    the five plaintiffs purchased one of these four types of policies.  The four
    types were as follows:

·

The Universal Flexiplus policy (purchased by the plaintiffs Eldon
    Fehr and Leslie Lucas)

·

The Interest Plus policy (purchased by the plaintiff Angela Watters)

·

The Universal Plus policy (purchased by the plaintiff Gaetan Laurier)

·

The Universal OptiMet policy (purchased by the plaintiff Joseph Kang)

[7]

In 1998, MetLife sold substantially all of its Canadian life insurance
    business to Mutual Life Assurance Company of Canada.  In 2002, Mutual was taken
    over by the respondent, Sun Life Assurance Company of Canada.  As a result of
    these transactions, Sun Life became responsible for administering the universal
    life insurance policies sold by MetLife.

[8]

The plaintiffs claim that there are approximately 150,000 class members
    who bought these universal life insurance policies.  They seek $2 billion in
    general damages, $500 million in punitive damages, as well as various other
    forms of relief.

(2)

The claims

[9]

In their fresh as amended statement of claim, the plaintiffs advance
    five causes of action against Sun Life, both directly and in its capacity as a
    successor corporation of MetLife.  The causes of action, the decision of the
    motion judge on each claim, and those parts of his decision being appealed are
    as follows.

(a)

Misrepresentation


[10]

The
    plaintiffs allege that MetLife agents made misrepresentations when they sold
    the policies.  These misrepresentations, the plaintiffs say, were made
    negligently, recklessly, and in breach of s. 439 of the
Insurance Act
, R.S.O. 1990, c. I-8.
[1]
Sun Life did not challenge this claim apart from a narrow objection on
    damages.  The motion judge struck the offending paragraph but with leave to
    amend.  His order on this claim is not in issue on the appeal.

(b)

Breach of duty
    of good faith and fair dealing


[11]

The
    plaintiffs allege that MetLife breached its duty of good faith and fair dealing
    in the sale of the policies, and that Sun Life
[2]
breached its duty of good faith and fair dealing in the administration of the
    policies.

[12]

The
    motion judge struck out these claims.  He struck out the claim against MetLife
    for breach of duty in the sale of the policies because he found it did no more
    than repeat the plaintiffs claims for negligent and fraudulent
    misrepresentation.  He struck out the claim against Sun Life for breach of duty
    in the administration of the policies on the ground that it cannot be a breach
    of good faith and fair dealing to administer insurance policies in accordance
    with their terms.

[13]

The
    plaintiffs appeal this order.  They argue that the duty of good faith and fair
    dealing arises apart from and in addition to the insurance contract; therefore,
    an insurer may still breach its duty of good faith and fair dealing though it
    complied with the strict terms of the contract.  At the very least, the
    plaintiffs maintain that the claim should not have been struck on a Rule 21
    motion simply because it was novel or unusual.

(c)

Breach of
    contract


[14]

The
    plaintiffs allege that the Universal Plus policies contained an express or
    implied contractual term that they would not be required to pay more than a guaranteed
    Maximum Premium.  They say that Sun Life breached this term of the contract
    by charging some policyholders premiums in excess of the maximum.

[15]

The
    motion judge struck out this claim on the ground that the plaintiffs
    allegation was not tenable under the wording of the Universal Plus contract.  The
    plaintiffs appeal this order.

(d)

Breach of
    fiduciary duty


[16]

The
    plaintiffs allege that Sun Life breached its fiduciary duty in the
    administration of the policies.  The motion judge struck out this claim.  The
    plaintiffs have not appealed this order.

(e)

Deceit and fraud


[17]

The
    plaintiffs allege that MetLife committed deceit and fraud in the sale of the
    policies and that Sun Life committed deceit and fraud in the administration of
    the policies.

[18]

The
    motion judge struck out these claims.  He held that the allegation of deceit
    and fraud in the sale of the policies was an imperfect repetition of the
    already pleaded claims of negligent or fraudulent misrepresentation.  And he
    held that the allegation of deceit and fraud in the administration of the
    policies was nothing more than an allegation that Sun Life committed deceit and
    fraud by denying that MetLife had done so.

[19]

The
    plaintiffs appear to accept that the claim for deceit and fraud in the sale of
    the policies is redundant in the light of the claim for negligent and
    fraudulent misrepresentation; however, they say their intent in pleading as
    they did was to advance a separate claim for deceit and fraud regarding
the
    administration
of the policies (emphasis added).  They appeal the motion
    judges order striking out that claim.

(3)

The Releases

[20]

In
    addition to these claims, the plaintiffs also allege that Sun Life obtained
    releases from some class members without disclosing to them that their policies
    had been sold on the basis of misrepresentations.

[21]

The
    motion judge struck out these allegations pertaining to the releases on the
    ground that they improperly pleaded evidence.  He said that none of the representative
    plaintiffs claimed to have signed a release, or claimed rescission, or alleged
    that the releases were void.  He declined to grant leave to amend.  However, he
    did provide the plaintiffs with an option to advance their claim on the
    releases with an appropriate representative plaintiff.

[22]

The
    plaintiffs appeal the order striking out the paragraphs of their pleading
    relating to the releases.  They say it is not plain and obvious that the claim
    as pleaded will not succeed.

(4)

Result of the motion judges decision

[23]

From
    this brief summary, it is evident that the motion judge viewed the plaintiffs
    claim as a claim based on negligent or fraudulent misrepresentation in the sale
    of the policies, for which Sun Life is responsible.  The other claims advanced
    by the plaintiffs either replicate the misrepresentation claim or are not
    tenable in law.  Sun Life supports the motion judges view of the pleading.

[24]

The
    plaintiffs accept that their principal claim is for misrepresentation. 
    However, they contend that the motion judge took too narrow a view of their
    pleading by rejecting on a Rule 21 motion their additional or alternative
    claims.  They say that these additional claims are not doomed to fail and that
    the motion judge should have let them go forward.

C.

discussion

(1)

General principles

[25]

Under
    s. 5(1) of the
Class Proceedings Act, 1992
, S.O. 1992, c. 6, to have a
    class action certified, a plaintiff must satisfy five criteria.  The first
    criterion  in s. 5(1)(a)  is that the pleading must disclose a cause of
    action.  The motion judges decision in this case sought to resolve the s.
    5(1)(a) criterion before the certification motion itself.  In
Pennyfeather
    v. Timminco Ltd.
, 2011 ONSC 4257, 107 O.R. (3d) 201, at paras. 85-90, he
    discussed the advantages of doing so.  I take no issue with his approach.

[26]

As
    the motion judge recognized, the test under s. 5(1)(a) of the
Class
    Proceedings Act
is the same as the test under r. 21.01(1)(b) of the
Rules
    of Civil Procedure
:
Cloud v. Canada (Attorney General)
(2005), 73
    O.R. (3d) 401, at para. 41.  In
Attis v. Canada (Minister of Health)
,
    2008 ONCA 660, 93 O.R. (3d) 35, at para. 23, leave to appeal to S.C.C. refused,
    [2008] S.C.C.A. No. 491, my colleague Lang J.A. succinctly set out the test
    that governs a r. 21.01(1)(b) motion:

[T]he respondent was required to demonstrate that it was plain
    and obvious that the action cannot possibly succeed.  Under this test,
    the motion judge was required to accept the factual pleadings as proven and to
    read the claim generously.  In addition, the test requires that a claim
    not be dismissed simply because it asserts a novel cause of action. [Citation
    omitted.]

[27]

Thus
    the moving party, here Sun Life, had to show that it was plain and obvious the
    plaintiffs claims could not possibly succeed.  And, as Lang J.A. noted, on an
    appeal of a motion judges order striking out a claim under r. 21.01(1)(b), the
    standard of review is correctness:
Attis v. Canada

(Minister of
    Health)
, at para. 23.

(2)

The issues

(a)

Breach of duty of good faith and fair dealing

[28]

In
    para. 101 of their pleading, the plaintiffs allege that Sun Life (and its
    predecessors) breached its duty of good faith and fair dealing in the
    administration of the policies.  According to the plaintiffs, Sun Life breached
    its duty by:

·

Failing to fully investigate and disclose to class members the
    misrepresentations made by MetLife during the sale of the policies;

·

Denying misrepresentations had occurred and failing to provide
    remedies to the class members for the misrepresentations;

·

Settling the claims of certain policyholders and obtaining
    releases without acknowledging the misrepresentations;

·

Systematically denying legitimate class member claims; and

·

Failing to administer the policies in accordance with the
    representations made during the sale of the policies.

[29]

The
    motion judge read the plaintiffs pleading to say that it is a breach of good
    faith and fair dealing to enforce or administer the insurance policies as they
    were written rather than as they were represented to be.  He concluded, at
    paras. 146-147, that this was not a tenable allegation:

In my opinion, while it may be a negligent or fraudulent
    misrepresentation to enforce and administer policies differently than from how
    they were represented to be, it is plain and obvious that it cannot be a breach
    of good faith and fair dealing to administer insurance policies in accordance
    with their terms.

There is no reasonable cause of action against an insurer for
    administering a contract of insurance in accordance with its terms.
    Accordingly, I strike out paragraphs 98 to 101. These paragraphs are redundant
    or they are untenable.

[30]

In
    my view, the motion judge erred in striking out this claim.  Sun Life
    acknowledges that an insurer owes a duty of good faith and fair dealing to its
    insured, and that this duty applies to any matter arising under or in relation
    to it.  Sun Life also acknowledges that this duty exists independently of and
    in addition to the terms of a contract between an insurer and an insured, and
    thus, may give rise to an independent cause of action:  see
Ferme Gérald
    Laplante & Fils Ltée v. Grenville Patron Mutual Fire Insurance Co.
(2002),
    61 O.R. (3d) 481 (C.A.), at para. 78, leave to appeal to S.C.C. refused, [2002]
    S.C.C.A. No. 488;
Whiten v. Pilot Insurance Co.
, 2002 SCC 18, [2002] 1
    S.C.R. 595, at para. 79.

[31]

However,
    Sun Life maintains that the motion judge correctly struck this claim because it
    amounts to an allegation that the insurer breached its duty of good faith
    simply because it acted in accordance with the terms of the policy.  It argues
    that the duty of good faith must not require the insurer to contravene the
    terms of the insurance contract.  Citing some foreign authority, Sun Life
    contends that an insurer who acts in accordance with the express terms of a
    contract cannot be found to have violated its duty of good faith and fair
    dealing.

[32]

I
    would not characterize the plaintiffs claim in quite the same way as Sun Life
    and the motion judge have characterized it.  In my view, their reading of the
    plaintiffs pleading is too narrow.  The plaintiffs do allege that Sun Life
    breached its duty of good faith by failing to administer the policies in
    accordance with the representations made during the sales process.  However,
    that allegation is one branch of a broader claim that includes two other branches:

·

Sun Life was not candid with its insureds  it did not disclose
    the misrepresentations made by MetLife agents when the policies were sold, or
    provide remedies for those misrepresentations; and

·

Sun Life obtained releases and entered into settlements without
    making full disclosure, or it knowingly and systematically refused to honour legitimate
    claims made by its insureds.

[33]

A
    pleading should only be struck on a Rule 21 motion when the applicable law is
    settled in the jurisprudence.  The law governing the application of the duty of
    good faith and fair dealing to the relationship between an insurer and its
    insured is not, in my view, settled.  Moreover, it does not seem to me plain
    and obvious that any of these three branches doom this claim to failure.

[34]

As
    for the first branch  that Sun Life failed to administer the policies in
    accordance with MetLifes misrepresentations  neither the motion judge nor the
    respondents produced a Canadian authority for the proposition that an insurer
    who has complied with the express terms of the contract cannot have breached
    its duty of good faith and fair dealing.  The plaintiffs, however, point to
Shelanu
    Inc. v. Print Three Franchising Corp.
(2003), 64 O.R. (3d) 533, a case
    involving a franchisor-franchisee relationship, in which this court held, at
    para. 71, that the fact that contractual terms are ultimately complied with,
    does not mean that there has been no breach of the duty of good faith. As this
    proposition may apply in the insurance context, and as its scope has yet to be
    determined, this first branch of the plaintiffs duty of good faith claim could
    possibly succeed.

[35]

Even
    if the plaintiffs face an uphill battle on the first branch of their duty of good
    faith and fair dealing claim, I am not satisfied that the balance of the claim is
    doomed to fail.  The second branch  that Sun Life failed to disclose or remedy
    MetLifes misrepresentations  has some support in the reasons of OConnor
    A.C.J.O. in
Transamerica Life Canada Inc. v. ING Canada Inc.
(2003),
    68 O.R. (3d) 457, at para. 5, where he held that a motion judge erred by
    striking out a similar allegation on a Rule 21 motion:

First, the motion judge struck pleas alleging that Transamerica
    had implied duties of good faith requiring it to notify ING before closing if
    it became aware of the problems that it alleges in its claim and to consult
    with ING about the remedial actions it took after closing.  I have
    concluded that the motion judge erred in striking those pleas.

[36]

Although
    that case dealt with a commercial contract between two insurers, a similar
    obligation could apply to the relationship between an insurer and an insured 
    a relationship that has long been recognized as one of particular
    vulnerability.  Indeed, I would have thought it is at least arguable that an
    insurers duty of good faith precludes it from concealing from its insureds
    facts it knows to be inaccurate:  see
Ferme Gérald Laplante & Fils Ltée
,
    at para. 73.

[37]

The
    respondents acknowledge the viability of at least part of the third branch of
    the plaintiffs claim  that Sun Life systematically denied the legitimate
    claims of its insureds.  They put it this way in their factum (citing this
    courts decision in
702535 Ontario Inc. v. Lloyds London, Non-Marine
    Underwriters
(2000), 184 D.L.R. (4th) 687):

Courts have also recognized a duty of utmost good faith in
    relation to the insurers duty to act fairly at every step of the claims
    process.  The Court of Appeal has summarized the duty of good faith as follows:

[27] The relationship between an insurer and an insured is
    contractual in nature.  The contract is one of utmost good faith.  In addition
    to the express provisions in the policy and the statutorily mandated
    conditions, there is an implied obligation in every insurance contract that the
    insurer will deal with claims from its insured in good faithThe duty of good
    faith requires an insurer to act both promptly and fairly when investigating,
    assessing and attempting to resolve claims made by its insureds.  [Citations
    omitted.]

[38]

This
    case supports the plaintiffs argument that an insurer has a duty of good faith
    and fair dealing throughout its adjudication of claims.

[39]

Finally,
    it is clear from the arguments raised by both parties and the foregoing
    discussion that the jurisprudence on the duty of good faith and fair dealing,
    generally and as it applies to the insurance relationship, is not settled in
    this country.   As OConnor A.C.J.O. observed at para. 52 of his reasons in
Transamerica
,
    again in the context of commercial contracts, the contours of the duty of good
    faith and fair dealing in Canadian law have yet to be determined:

Unlike the situation in the United States where the duty of
    good faith in the performance of enforcement of commercial contracts has been
    broadly recognized, Canadian courts have not developed a comprehensive and
    principled approach to the implication of duties of good faith in commercial
    contracts.  As Professor McCamus points out, many questions about the
    nature and scope of such duties have yet to be resolved.  Indeed, it
    remains an open question whether implied duties of good faith add anything to
    the other available common law doctrines that apply to contracts.

Where the scope of a legal duty has not been fully
    settled in the jurisprudence, an allegation that the duty has been breached
    should not be dismissed on a Rule 21 motion:  see
Folland v. Ontario
(2003)
,
64 O.R. (3d) 89 (C.A.), at para. 11, leave to appeal to S.C.C. refused,
    [2003] S.C.C.A. No. 249.  For these reasons I
think it is
    premature to strike the claim for breach of the duty of good faith and fair
    dealing.  With the exception of the allegations based on the settlements and
    releases, which I have dealt with below, I would let it go forward.

(b)

Breach of contract

[40]

At
    paras. 94-95 of their pleading, the plaintiffs allege that it was an express or
    implied term of the Universal Plus policy that the premiums would never exceed
    the stipulated Maximum Premium.  Yet the plaintiffs allege that Sun Life
    breached the term of this policy by repeatedly charging premiums in excess of
    the Maximum Premium.

[41]

After
    examining parts of the Universal Plus policy, the motion judge held, at para.
    125 of his reasons, that [t]here [are] no express terms of the contract as
    alleged by the Plaintiffs, and the expressed terms stand against any implied
    term.  He therefore concluded, at para. 127, it is plain and obvious that
    there is no tenable breach of contract claim.

[42]

I
    do not think that the express terms of the Universal Plus policy are as clear
    as the motion judge considered them to be.  The term Maximum Premium is not
    defined anywhere in the policy.  The words Maximum Premium appear at the top
    of a chart on pages 3 and 3T of the policy, with corresponding rates for
    various forms of coverage.  There is no express provision that Sun Life can
    charge a policyholder more than the Maximum Premium.  One available and
    reasonable inference is that the very term Maximum Premium means that the
    corresponding rates are the most a policyholder will have to pay.  At the very
    least, the meaning of the term is ambiguous.  Thus, in my view, the claim ought
    to stand.

(c)

Deceit and fraud

[43]

At
    paras. 106-111 of their pleading, the plaintiffs allege that MetLife committed
    deceit and fraud by knowingly selling the policies on the basis of
    misrepresentations.  They also allege that Sun Life committed deceit and fraud by
    denying misrepresentations had occurred, telling class members their policies
    were not defective, systematically denying claims, and obtaining settlements
    and releases without full disclosure.

[44]

The
    motion judge, at para. 150, struck the claim for deceit and fraud on either of
    two bases:  it was an imperfect repetition of the already pleaded claims of
    negligent or fraudulent misrepresentation, or it amounted to an allegation
    that Sun Life committed deceit and fraud by not admitting (i.e. by denying)
    that Met Life had committed deceit and fraud.  In short, he felt that it did
    not add a cause of action.

[45]

The
    plaintiffs argue that the motion judge erred in conflating the
    misrepresentation claims and the deceit and fraud claims.  They say the negligent
    and fraudulent misrepresentation claim related solely to MetLifes sale of the
    policies, while the deceit and fraud claim extended to Sun Lifes
    administration of the policies.

[46]

In
    my view, this claim should not have been struck.  The claim of deceit and fraud
    based on the administration of the policies is premised on a different set of
    allegations from the allegations underlying the claim of negligent and
    fraudulent misrepresentation.  It concerns Sun Lifes ongoing conduct in
    administering the policies, long after the sales process during which Metlife
    made the alleged initial misrepresentations.  It does not simply repeat or
    replicate the plaintiffs claim of negligent or fraudulent misrepresentation.

[47]

Moreover,
    it is not plain and obvious to me that the claim regarding Sun Lifes alleged
    deceit and fraud  again, with the exception of the impugned releases and
    settlements  is doomed to fail.  The plaintiffs are therefore entitled to
    maintain their claim for deceit and fraud.

(d)

The releases

[48]

At
    paras. 82-84 of their pleading, the plaintiffs allege that Sun Life entered
    into settlements with and obtained releases from class members without
    disclosing to them that their policies were sold on the basis of misrepresentations. 
    They say that, in so doing, Sun Life breached its duty of good faith and fair
    dealing and engaged in deceitful conduct.

[49]

The
    motion judge struck out these paragraphs without leave to amend.  He agreed
    with Sun Lifes submission that these paragraphs pleaded evidence and were
    irrelevant to the causes of action pleaded.  He observed that the pleading
    does not include a cause of action or a representative plaintiff claiming
    rescission or alleging that the releases and any settlement with individual policyholders
    are null and void.  He added, however, at para. 100, that if a proposed
    representative plaintiff could show some basis for a claim in rescission, that person
    could apply for leave to be added as a plaintiff in the action.

[50]

The
    plaintiffs contend that the motion judge should not have struck their
    allegations concerning the policyholders who signed releases.  They say that he
    erred in viewing those allegations as a contract complaint, in attempting to
    frame the issue as one of rescission, and in finding that they as
    representative plaintiffs could not advance claims on behalf of those
    policyholders.  Even though none of the five plaintiffs signed a release, they
    submit that class members need not be identically situated
vis-à-vis
the opposing party:
Western Canadian Shopping Centres Inc. v. Dutton
,
    2001 SCC 46, [2001] 2 S.C.R. 534, at para. 39.

[51]

Sun
    Life acknowledges that a representative plaintiff can assert a cause of action
    that is not the plaintiffs personal cause of action but belongs to some
    members of the class, provided that the claims are fundamentally the same or
    very similar:
Boulanger v. Johnson & Johnson Corp.
(2003), 64
    O.R. (3d) 208 (Div. Ct.), at paras. 41 and 48, revd in part on other grounds
    (2003), 174 O.A.C. 44 (C.A.);
Healey v. Lakeridge Health Corp.
(2006),
    38 C.P.C. (6th) 145 (S.C.J.), at para. 21.  The plaintiffs maintain that their
    claims concerning the releases and their other claims are very similar, because
    they share a common factual foundation.

[52]

Even
    accepting that to be so, the motion judge was correct to strike the plaintiffs
    allegation concerning the releases because they do not assert a cause of
    action.  Although the plaintiffs incorporated the releases and settlements into
    both their duty of good faith claims and their deceit and fraud claims, they have
    failed to request any specific relief for the policyholders who entered into
    those agreements.  They do not seek rescission, nor do they seek a declaration
    that the releases were null and void.

[53]

The
    motion judge therefore did not err in striking these paragraphs and, as I noted
    earlier, he fairly left open the availability of a motion to add a claim for
    rescission or declaratory relief on the releases.

D.

conclusion

[54]

I
    would allow the appeal.  I would set aside that part of the order of the motion
    judge in which he struck out the allegations concerning breach of the duty of
    good faith and fair dealing, breach of contract, and deceit and fraud, and the material
    facts relevant to those pleas.  I would dismiss Sun Lifes motion in respect of
    those allegations.

[55]

As
    the plaintiffs have been substantially successful, they are entitled to their
    costs of the appeal, which I would fix in the amount of $20,000, inclusive of
    disbursements and applicable taxes.  I would also award the plaintiffs the
    $5,000 in costs ordered by Doherty J.A. on the motion before him.

Released: FEB. 25, 2013                                        John
    Laskin J.A.

JL                                                                     I
    agree M. Rosenberg J.A.

I
    agree S.T. Goudge J.A.





[1]
Section 439 of the
Insurance Act
states:
    No person shall engage in any unfair or deceptive act or practice.



[2]
Sun Life refers to both Sun Life and its predecessors.


