The Court of Appeal's decision in Kang v. Sun Life Assurance Company of Canada, 2013 ONCA 118 upheld a plaintiff's right to advance any and all valid causes of action available to a class, including novel claims. In this commentary we focus on the claims for breach of good faith and fair dealing where the motion judge held that there was no claim as the defendant had complied with the terms of the contract.
The claims made for breach of good faith and fair dealing were with respect to the sale and administration of universal life insurance policies. The policies were purchased from the Metropolitan Life Insurance Co. (“MetLife”) between 1983 and1998. MetLife sold substantially all of its Canadian life insurance business to Mutual Life Assurance Company who was then taken over by the Sun Life Assurance Company of Canada (“Sun Life”). As a result, Sun Life became responsible for administering the universal life insurance policies sold by MetLife.
On a pleadings motion, the motion judge found the statement of claim alleged a breach of good faith and fair dealing on the part of Sun Life (and its predecessors) to enforce or administer the insurance policies as they were written rather than as they were represented to be. The paragraphs related to this claim were struck as the motion judge held that they did not disclose a reasonable cause of action holding: “it cannot be a breach of good faith and fair dealing to administer insurance policies in accordance with their terms”
On appeal, the plaintiffs argued that the duty of good faith and fair dealing arose apart from and in addition to the insurance contract. While Sun Life acknowledged that a duty of good faith existed independently of and in addition to the terms of a contract between an insurer and an insured, it argued that this duty must not require the insurer to contravene the terms of the insurance contract. Sun Life relied on some foreign authority and no Canadian authority for the proposition 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.
The Court of Appeal found that the motion judge and the defendants were construing the plaintiffs' claim too narrowly as one based on negligent or fraudulent misrepresentation in the sale of policies. In addition, the plaintiffs were alleging that Sun Life was not candid with its insureds and that it failed to disclose or remedy MetLife's representations or knowingly and systematically refused to honour legitimate claims made by its insureds. The Court of Appeal held that the law governing the application of the duty of good faith and fair dealing to the relationship between an insurer and an insured was not settled and that it was not plain and obvious that these claims would fail.
The relationship between insured and insurer is one of vulnerability. The Court discussed law from analogous franchisee/franchisor and litigation between two insurers as support for their conclusion that the following propositions are not well settled in the insurance law context:
- the fact that contractual terms are complied with, does not mean that there has been no breach of the duty of good faith; and
- an insurer must disclose or remedy misrepresentations made by its predecessor to its insureds.
Where the law is not fully settled, an allegation that the duty has been breached should not be dismissed on a Rule 21 motion. As a result, these claims were allowed to proceed.
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