Court of Appeal for Ontario refines the requirements for a finding of "common issues" in a class proceeding

June 6, 2003


The test for the determination of “common issues” in class proceedings has been reformulated by the Court of Appeal for Ontario in the recent decision in Williams v. Mutual Life Assurance Company of Canada.1

The case concerned “vanishing premiums” under whole life insurance policies, a type of policy popular in the insurance market until the mid 1990s. Two proposed representative plaintiffs had purchased life insurance policies with a premium offset feature from agents of Mutual Life Assurance Company of Canada 2. Premium offset policies entitle the policyholder to dividends in any year they are declared by the insurance company. The dividends are then stored and “offset” against future premiums, the premise being that after a certain amount of time that offset will become large enough to fund all future premium payments. During the terms of the plaintiffs’ policies, however, interest rates declined. Therefore no dividends were declared and no premium offsets were available. When the plaintiffs realized that they would have to continue paying premiums indefinitely, they cancelled their policies and commenced a class proceeding for damages for negligent misrepresentation, breach of contract, failure to warn, and breach of fiduciary duty, among other things.

Only one of the two representative plaintiffs (Kumar) appealed, the other (Williams) having settled. Kumar claimed that the insurance agent had told him that he would no longer have to pay premiums after nine years. He further alleged that he was not told that his premium holiday was contingent on interest rates and on the discretion of the insurance company actually declaring a dividend in any given year. There were, however, disclaimers in several documents that the company had given him.

Certification denied by the motions court judge

At the certification motion, the plaintiffs had proposed the following class definition:

All owners of Class Policies purchased from [Mutual Life]. Class Policies being defined as any participating whole life policy issued by [Mutual Life] between January 1, 1980 and December 31, 1995 which is in force as of August 31, 1998 or which had become a Lapsed Policy between January 1, 1990 and August 13, 1998 except those policies in respect of which the owners have released [Mutual Life] from claims related to premium offset or to the sale of the policies.

The proposed common issue at the certification motion was:

Did the use of illustrations and/or representations in writing or verbal create an obligation on the part of [Mutual Life] with respect to a specified offset date despite the terms of the policy and the terms of any illustration?3

Justice Cumming refused to certify the class. He noted there was a lack of evidence that the plaintiffs’ agents had any uniformity of practice in sales techniques or materials over the class period (1980-1995). He noted that each case would require an individual analysis of the particular circumstances, the oral statements made, and explanations of each agent, and the overall experience of each policyholder. He attempted to apply the elements of misrepresentation as set out in Queen v. Cognos4, and held that the untruth of the agents’ statements and the policyholders’ detrimental reliance on such statements would be impossible to establish on a class-wide basis.

In rejecting the plaintiff ’s first appeal, the Divisional Court held, first, that the claims of the class members did not raise common issues, and second, that even if there were a common issue, a class proceeding would not be the preferable procedure, given the inquiry into individual issues required. 

The Court of Appeal revises the “common issues” test5

The Court of Appeal provided the following synthesis of the recent Supreme Court of Canada trilogy in class proceedings6 as they related to the common issues test for certification: 

  •  It is not necessary that the common issues predominate over individual issues or that the resolution of the common issues be determinative of each class member’s claim;
  • The underlying question is a practical one based on issues of fairness and efficacy in the sense that allowing the action to proceed as a class proceeding “will avoid duplication of fact-finding or legal analysis”;
  • The common issues need only be issues of fact or law that move the litigation forward; and
  • The court is required to make a realistic appraisal of the significance of the proposed common issue to the litigation.

In addition, the Court of Appeal noted that common issues must now “meet the requirements that the issue be necessary to the resolution of each class member’s claim and a substantial ingredient of each of the class member’s claims”. Otherwise, the issue is not a common issue.

Ultimately the Court of Appeal agreed with Justice Cumming that while theories of liability could be phrased commonly, the actual determination of liability for each class member required examination of the circumstances under which the member had purchased his or her policy.

In addition, the Court of Appeal agreed that the class action was not the preferable means of resolving the common issues, even if such common issues could be found. Applying the principles from the Supreme Court of Canada decision in Hollick, the Court of Appeal noted that preferable procedure must be “viewed through the lens of the three principal advantages of class actions – judicial economy, access to justice and behaviour modification”. The court concluded that the plaintiffs had failed to establish that a class action would be preferable to individual trials, particularly in respect of judicial economy, since the class proceeding would quickly break down to individual trials in any event.

1 [2003] O.J. No. 1160 (Ont. C.A.). This case, also called Kumar v. Mutual Life Assurance Co. of Canada, was dealt with together with another appeal (Zicherman v. The Equitable Life Assurance Company of Canada). Both were appeals from decisions of Justice Cumming denying certification. These are two of the first “vanishing premiums” cases to be contested at the certification motion stage. Other “vanishing premiums” decisions preceding these were settled (see, for example Dabbs v. Sun Life Assurance Co. of Canada (1998), 40 O.R. (3d) 429 (Ont. S.C.J.) and McKrow v. The Manufacturers Life Assurance Co. (1998) 28 C.P.C. (4th) 104 (Ont. S.C.J.)).

2 And from Prudential Assurance Company Limited, which acquired Mutual Life and then changed its name to Clarica.

3 This common issue was modelled on the Dabbs common issue. In light of subsequent Supreme Court of Canada dicta in Rumley, infra, the proposed common issue was refined and framed as follows on appeal: Was there an organized and systematic marketing of premium offset policies by [Mutual Life] which was misleading?

4 [1993], 1 S.C.R. 87 at 110. Those elements are:(1) there must be a duty of care based on a “special relationship” between the representor and the representee; (2) the representation in question mustbe untrue, inaccurate or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted.

5 In addition to the appeal in respect of the merits, before the Court of Appeal was also the question of whether the Divisional Court had erred in concluding that it is not the function of a motion court judge to reformulate the questions put to him or her, or to restate common issues for certification. The Court of Appeal allowed this aspect of the appeal to the extent that it noted a motion court judge can and should reformulate the issues if appropriate but found that this conclusion was of no real consequence in the appeal. Second, the plaintiffs also appealed the issue of whether the lower courts had misused the evidentiary record. The plaintiffs argued that, based on the recent Supreme Court of Canada decision in Hollick v. Toronto (City), the certification motion ought not be a determination on the merits. The Court of Appeal rejected this argument on the facts of this case.

6 Hollick v. Toronto (City), [2001] 3 S.C.R. 158; Rumley v. British Columbia, [2001] 3 S.C.R. 184; and Western Canadian Shopping Centres v. Dutton (2001), 201 D.L.R. (4th) 385 (S.C.C.).

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